BACKING
OUR
CUSTOMERS
ANNUAL FINANCIAL REPORT
for the financial year ended
31 December 2020
AIB Group plc
AIB Group plc
ENSURING A GREENER
TOMORROW BY
BACKING THOSE
BUILDING IT TODAY.
During 2020, AIB Group supported our
customers through an unprecedented
global health pandemic.
With our relentless customer focus,
our leading digital technology and our
commitment to sustainability, we remain
well placed to continue to support our
customers, adapting to their changing
needs, while delivering long-term
sustainable success for our business.
ON OUR COVER
Owen Power and John Carty, Directors of Enerpower,
at their solar farm in Kinsale, Co Cork.
Merchant
Services
Annual Financial Report
for the financial year ended 31 December 2020
02
BUSINESS
REVIEW
03
RISK
MANAGEMENT
Operating and Financial Review
60
75 Capital
80 Framework
87
Individual Risk Types
05
FINANCIAL
STATEMENTS
214 Statement of Directors’ Responsibilities
Independent Auditor’s Report
215
227 Consolidated Financial Statements
Notes to the Consolidated
233
Financial Statements
AIB Group plc Company
Financial Statements
352
355 Notes to AIB Group plc
Company Financial Statements
06
GENERAL
INFORMATION
361 Shareholder Information
362 Forward Looking Statements
363 Glossary of Terms
369 Principal Addresses
370 Index
01
ANNUAL
REVIEW
2 Financial Highlights
4 AIB at a Glance
8 Deputy Chair’s Statement
10 Chief Executive’s Review
18 Customer Focus
20 Overview of the Irish Economy
22 Our Strategy
36 Sustainability in AIB
38 AIB in Our Communities
40 Our Non-Financial Statement
44
48 Risk Summary
54 Board of Directors
56 Executive Committee
58 The Value we Create
Governance in AIB
04
GOVERNANCE
AND OVERSIGHT
172 Group Directors’ Report
175 Schedule to the Group
Directors’ Report
178 Corporate Governance Report
188 Report of the Board Audit Committee
Report of the Board Risk Committee
193
Report of the Nomination &
196
Corporate Governance Committee
199 Report of the Remuneration Committee
201
Corporate Governance
Remuneration Statement
208 Viability Statement
209 Internal Controls
211 Other Governance Information
212 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 362.
22
Business Performance
Annual Review
AIB Group plc Annual Financial Report 2020
BUSINESS PERFORMANCE
2020 RESULTS
FINANCIAL PERFORMANCE
NET INTEREST INCOME
€1,872m
NET CREDIT
IMPAIRMENT CHARGE
€1,460m
(LOSS)/PROFIT
BEFORE TAX
(€931m)
2020
2019
€1,872m
2020
€1,460m
2020
(€931m)
€2,076m
2019
€16m
2019 €499m
Low interest rate environment
and lower lending volumes
impacting income
Down 10% due to the low interest
rate environment, lower investment
securities income and reduced loan
volumes partially offset by a decrease
in funding costs
Conservative, forward looking and
comprehensive provisioning approach
Impairment charge reflects
deterioration in economic outlook,
credit downgrades particularly in
sectors impacted by COVID-19 and
post model adjustments (for expected
COVID-19 impacts and legacy non-
performing mortgage exposures)
Impacted by impairment charge
Operating profit1 of €729m, with total
operating income down 12% due to
interest rates and decline in economic
activity, offset by impairment charge
of €1,460m and exceptional items of
€215m
NEW LENDING
NET LOANS
€9.2bn
€57.0bn
NON-PERFORMING
EXPOSURES2
€4.3bn
2020
2019
€9.2bn
€12.3bn
2020
2019
€57.0bn
2020
€4.3bn
€60.9bn
2019
€3.3bn
Impacted by COVID-19 restrictions
and lower international lending
Total new lending down 25% reflects
lower syndicated, UK, property and
mortgage lending, which was
down 21%
Gross loans down 4% to €59.5bn
due to lower economic activity
Net loans down €3.1bn (excluding
FX impact) with redemptions
exceeding new lending and increase
in provision stock
7.3% of gross loans
Non-performing exposures (NPEs)
increased by €1.0bn to €4.3bn
driven by higher property and
business NPEs
MEDIUM-TERM FINANCIAL TARGETS3 (END 2023)
ABSOLUTE
COST BASE4
Cost of running the business,
excluding exceptional costs
TARGET
<€1.35bn
RETURN ON
TANGIBLE EQUITY
A measure of how well capital is
deployed to generate earnings growth
CET1 RATIO
(FULLY LOADED)
A measure of our ability to withstand
financial stress and remain solvent
TARGET
>8%
TARGET
>14%
Focussed cost discipline; controlling
costs annually at €1.35bn by 2023
Deliver sustainable returns;
ROTE >8% by 2023
Appropriate capital target of CET1 >14%
needed to run the business
OUTCOME
2020
2019
OUTCOME
OUTCOME
€1,527m
2020
(11.2)%
2020
15.6%
€1,504m
2019 4.5%
2019
17.3%
Costs increased 1.5% to €1,527m
Negative ROTE due to loss in the year
Strong capital position with CET1 15.6%
1. Operating profit before impairment losses and exceptional items.
2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €163m of off-balance sheet commitments. For further information see pages 114 and 140.
3. Excludes potential inorganic opportunities.
4. Before bank levies, regulatory fees and exceptional items. For exceptional items see pages 64 and 73.
AIB Group plc Annual Financial Report 2020
Annual Review Business Performance
3
NON-FINANCIAL PERFORMANCE
1
2
3
4
5
6
GREEN
FINANCE
Amount of new
lending per year for
sustainability purposes
€1.5 bn
REDUCTION
IN EMISSIONS5
% reduction in
Scope 1 & 2 emissions
year-on-year
24%
DIGITALLY
ACTIVE
CUSTOMERS
Number of
active users on
digital channels
CUSTOMER
SATISFACTION
Transaction Net
Promoter Score
Measured after
customer transactions
for key touch points6
1.72 million
49
DIVERSITY
Women as %
of management
41%
OUTCOMES
2020
2019
OUTCOMES
2020
2019
6%
OUTCOMES
2020
2019
OUTCOMES
2020
2019
OUTCOMES
2020
2019
€1.5bn
€1.2bn
24%
1.72 million
€1.63 million
49
48
41%
41.5%
5. Our CO2e emissions are reported one year in arrears: emissions reported in 2020 were generated in 2019. We are reporting on Scope 1 & 2 emissions. These emissions are
independently verified by EcoAct.
6. Transactional Net Promoter Score (NPS) is an aggregation of 20 Homes, Personal, SME, Digital, Retail, Direct and Day-to-Day Banking journeys.
4
AIB at a Glance
Annual Review
AIB Group plc Annual Financial Report 2020
AIB AT A GLANCE
A FINANCIAL
SERVICES GROUP
AIB Group is a financial services group. Our main business activities are retail, business and
corporate banking, mobile payments and card acquiring. These services are provided through
well-recognised brands, including AIB, EBS, Haven and Payzone as well as AIB Merchant Services,
which is a joint venture with Fiserv. The Group operates predominantly in Ireland and the United
Kingdom with the exception of AIB Merchant Services, which serves a global customer base. We
are committed to supporting the transition to a low-carbon economy and backing sustainable
communities. Our shares are quoted on the Irish and London stock exchanges and we are a
member of the FTSE4Good index. Our core segments are: Retail Banking; Corporate, Institutional
and Business Banking (CIB), and; AIB UK. We also operate wholesale treasury activities along with
control and support functions.
AIB is our principal brand across all geographies. AIB provides
a range of services to retail, business and corporate customers,
with market-leading positions across key segments.
EBS is a challenger brand
within the AIB Group. It offers
mortgage, personal banking,
savings and investment products
and services, helping families
buy their own homes and save
for many of life’s milestones.
Payzone is a subsidiary of AIB
Group. It is the largest provider
of specialised payment services
in Ireland, providing cashless
solutions with significant reach,
expertise and ambition.
Haven is a trading name.
It is our mortgage broker channel
that was established by EBS
in December 2007 to focus on
mortgage distribution through
the intermediary market.
AIB Merchant Services is an
associate company within the AIB
Group and a joint venture with
Fiserv. With global card processing
capabilities, it is one of Europe’s
largest e-commerce card payment
acquiring firms.
AIB Group plc Annual Financial Report 2020
Annual Review AIB at a Glance
5
RETAIL BANKING
Retail Banking’s core business lines include:
mortgages, consumer lending, SME lending, asset-
backed lending, wealth management, daily banking,
deposits and savings; and general insurance, as well
as our Financial Solutions Group (FSG).
60%
OF NET LOANS
1
2
3
4
5
6
2.5m
CUSTOMERS
296
LOCATIONS
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 with a further
c. 949 locations through the
An Post network, 114 of which are
AIB-designated An Post offices.
1.56m
DIGITAL CUSTOMERS
No. 1 digital bank in Ireland,
with over 1.56 million active digital
customers and 1.39 million active
mobile customers.
€4.4bn
LENDING
€34.0bn
NET LOANS
€539m
OPERATING CONTRIBUTION1
CORPORATE,
INSTITUTIONAL
& BUSINESS
BANKING (CIB)
26%OF NET LOANS
CIB serves AIB’s large and medium-sized business customers. A holistic product offering
combined with deep sector expertise allows us to develop long-term relationships and
facilitates strategic engagement with our customers. To provide geographic and sector
diversification, CIB selectively participates in European and US syndicated loans and bonds.
RELATIONSHIP
DRIVEN MODEL
CUSTOMER-FOCUSED
SOLUTIONS
SECTOR
SPECIALIST TEAMS
Trusted strategic long-term partner
for Irish businesses, with a 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.
€3.1bn
LENDING
€14.5bn
NET LOANS
€428m
OPERATING CONTRIBUTION1
1. Operating contribution before impairments and exceptional items.
6
AIB at a Glance
Annual Review
AIB Group plc Annual Financial Report 2020
AIB UK
AIB UK operates in two distinct markets, providing
corporate and commercial banking services in
Great Britain and retail and business banking
services in Northern Ireland.
14%OF NET LOANS
285k
CUSTOMERS
285k retail, corporate and
business customers across the
United Kingdom.
28
LOCATIONS
13 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.
129k
DIGITAL CUSTOMERS
129k customers actively engaging
across our digital channels.
£1.5bn
LENDING
£7.4bn
NET LOANS
£87m
OPERATING CONTRIBUTION1
GROUP COMPRISES
WHOLESALE TREASURY
ACTIVITIES, CUSTOMER
OPERATIONS AND ALL
GROUP FUNCTIONS
TREASURY
Part of our Finance function, Treasury manages the
Group’s liquidity and funding position while providing
customer treasury services and economic research.
CONTROL
AND SUPPORT
Group control and support functions are:
Business & Customer Services; Corporate
Affairs, Strategy & Sustainability; Finance;
Human Resources; Legal, Corporate
Governance & Customer Care; Risk; and
Group Internal Audit.
OPERATING
CONTRIBUTION1
BY SEGMENT
9%
AIB UK
40%
Corporate,
Institutional
& Business
Banking
€1.1bn2
FY 2020 TOTAL
51%
Retail
Banking
For a detailed report on our performance, read
the ‘Operating and financial review’ section on
pages 60 to 74.
1. Operating contribution before impairments and exceptional items.
2. Excludes Group segment operating loss €0.3bn.
AIB Group plc Annual Financial Report 2020
Annual Review
AIB at a Glance
7
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2
3
4
5
6
8
Deputy Chair’s Statement
Annual Review
AIB Group plc Annual Financial Report 2020
DEPUTY CHAIR’S STATEMENT
STRONG CAPITAL
POSITION DESPITE
PANDEMIC
Undoubtedly everything that can be said about the Group’s
performance in 2020 must be set against the COVID-19 pandemic
and the resulting health and economic crisis.
An early impact of COVID-19 manifested itself on
30 March 2020 when the Group announced that
it was no longer intending to seek shareholder
approval for the payment of the final dividend for
2019 declared on 6 March 2020 and that the relevant
resolution was to be withdrawn from the Annual
General Meeting (AGM). This was in response to
a European Central Bank (ECB) recommendation
issued on 27 March 2020 which provided, inter alia,
that “no dividends are paid out and no irrevocable
commitment to pay out dividends is undertaken by
the credit institutions for the financial year[s] 2019
and 2020.” In accordance with the Board’s dividend
policy, the Group will not recommend any dividend
for 2020 for approval at the 2021 AGM on account
of the Group’s financial performance during 2020.
The Board held weekly update meetings with
Management from March to the end of June todeal
with the specific challenges brought about by the
pandemic including, in particular, approval of the
policy and product changes necessary to implement
the supports identified for the Group’s personal
and business customers. The Board, together with
Management, remains committed to assisting
our customers through these unprecedented
conditions. In addition, despite the remote working
arrangements necessitated by the pandemic, the
Board completed its full scheduled programme of
work and ensured a robust governance framework
was in place throughout the year.
Whilst the Group’s financial performance in the
early months of the year was strong, the COVID-19
pandemic impacted the demand for, and our ability
to write, new business. We booked a substantial
€1.2bn provision for expected credit losses (ECLs) at
the half-year, having taken a conservative, forward-
COLIN HUNT
looking and comprehensive approach to the
AIB’s Chief Executive Officer
economic situation. For the full year, the net credit
impairment charge was €1,460m. This resulted in
a loss before tax for the year of €931m. Despite this,
the Group maintained a strong capital position at
the end of the year with a CET1 ratio of 15.6%.
A significant proportion of the Board’s time between
March and November of 2020 was applied to the
consideration of the implications of the COVID-19
pandemic for the Group’s strategy, which had
been announced at the beginning of last year.
This culminated in the refreshing of that strategy
and, at the beginning of December, the Group’s
2021-23 strategy was shared with investors and
analysts along with our medium-term targets.
Colin Hunt, our Chief Executive Officer, deals with
the 2021-23 strategy in greater detail in his Review
which follows this Statement.
2020 saw a number of changes to the composition
of the Board with the retirements of former Chair,
Richard Pym, and Senior Independent Director,
Tom Foley, in March and April respectively, and the
resignation of Executive Director Tomás O’Midheach
in November. On behalf of the Board, I want to
record our sincerest appreciation to all three Directors
for their outstanding service to the Group during
their time on the Board, and in Tomás’s case, in his
extensive career over 14 years in the Group. Tom’s
last act as a Director was to chair the Group’s AGM
on 29 April 2020 in the midst of the COVID-19 crisis
and the extraordinary circumstances under which
the meeting was held. We are very grateful to him for
taking this role on and for his effective management
of this meeting.
The Nomination & Corporate Governance
Committee had a very active year and a number
of additions to the Board were well advanced at
the end of the year, subject to the satisfactory
AIB Group plc Annual Financial Report 2020
Annual Review Deputy Chair’s Statement
9
1
2
3
4
5
6
Brendan McDonagh,
Independent Non-Executive
Director and Deputy Chair.
“THE GROUP IS WELL
POSITIONED FOR
DELIVERY OF REAL
VALUE IN THE
YEARS AHEAD”
completion of the required regulatory approval
processes. On 22 January 2021 we reported the first
of these, when we announced that Fergal O’Dwyer,
former CFO of DCC plc, was joining the Board and
the Audit Committee with immediate effect. I believe
that the additional Directors will enhance the overall
experience of the current Board whilst maintaining
our commitment to appropriate levels of diversity
and I look forward to sharing further details with
you in due course.
We continue in our search to identify a candidate to
serve as your Chair and we have made very good
progress during 2020 under an externally managed
process being overseen by Carolan Lennon, Senior
Independent Director. We will update shareholders
and the market as soon as circumstances permit.
In the meantime, it has been my honour to fulfil the
role of the Chair on an interim basis since Richard
Pym’s retirement in March 2020 and I will continue
to perform this role until a successful selection
and appointment process has concluded.
In the absence of an appointed Chair, I remain
available to shareholders for any issues you may
have as does Carolan Lennon, in her role as
Senior Independent Director.
We took early and decisive action in recognising
the ECLs that might emerge from the COVID-19
pandemic whilst retaining a strong capital position.
We refreshed our three-year strategy to address,
with greater urgency, the trends that COVID-19
is accelerating – digitalisation, sustainability and
alternative ways of working. We have realistic plans
to diversify our income streams and to improve the
breadth of our offerings to customers. Your Board
is confident that, under the leadership of Colin and
his Executive Committee colleagues, the Group is
well positioned for delivery of real value in the years
ahead to all of our shareholders. I would like to take
this opportunity, on behalf of the Board, to thank all
of our over 9,000 colleagues for their commitment to
the Group and our customers in these difficult times.
Thank you sincerely for your ongoing support.
BRENDAN MCDONAGH
Deputy Chair
4 March 2021
10
Chief Executive’s Review
Annual Review
AIB Group plc Annual Financial Report 2020
CHIEF EXECUTIVE’S REVIEW
BACKING OUR
CUSTOMERS
In 2020, we demonstrated AIB’s resilience and our determination to deliver
for our customers, making a real difference when it mattered most.
Colin Hunt, AIB’s Chief Executive Officer,
opening the virtual AIB Sustainability
Conference in November 2020.
1
2
3
4
5
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AIB Group plc Annual Financial Report 2020
Annual Review Chief Executive’s Review
11
2020 was an extraordinary year in all our lifetimes.
Our customers and the communities in which we
operate faced an unprecedented social, health and
economic crisis as a result of COVID-19 coupled with
additional economic uncertainty arising from Brexit.
While there have been challenges, I am pleased to
report that the fundamentals of our business remain
robust, sustainable and strong. We continue to have
the leading position in personal loan, current account
and credit card markets, a modern technology
infrastructure with a resilient and flexible digital
offering, while also leading the sustainability
agenda in financial services in Ireland.
As a result of hard work over recent years,
AIB entered this crisis in a position of capital
strength with a good quality balance sheet,
enabling us to deliver unprecedented levels of
support to our customers, communities and the
economy. We moved fast to give help where
it mattered most. We worked closely with our
customers as they faced into the evolving challenges
and granted over 66,000 payment breaks on
mortgages, small business and personal loans in
2020. We reassigned staff to contact centres and kept
over 99% of our branch network open for business
across our communities, with priority hours to
support the most vulnerable; and we moved over
80% of our workforce to remote working overnight.
We didn’t get it right all the time, but we responded
quickly in areas where we fell short. We navigated
the pandemic while fundamentally altering
our operating model, proving ourselves to be
extraordinarily agile and resilient at a time
of great change.
As a financial institution at the heart of the Irish
economy, this emergency has demanded that
we tackle the short and long-term economic
consequences and play a central role in the recovery.
AIB partnered with the Strategic Banking Corporation
of Ireland (SBCI) on two COVID-19 lending schemes
aimed at helping businesses that had been affected
by the pandemic. In March 2020, we launched the
SBCI COVID-19 Working Capital Loan Scheme and
in September we were the first Irish bank to offer the
Government-backed COVID-19 Credit Guarantee
Scheme providing low-cost loans to SMEs, the
backbone of our national economy.
The growing trends towards digitalisation,
sustainability and changing the way we work
have been fast-tracked by COVID-19. Against this
backdrop, it was our view that this once-in-a-
generation event was the moment to accelerate
positive transformation, driven by our ambition
to be at the heart of our customers’ financial lives,
at every stage. At the onset of the pandemic in
March, while our immediate and primary focus
was on supporting our customers and our people,
we also began work on refreshing our strategic
plan. In December, we announced details of the
acceleration of our existing strategy, which will see
our organisation transformed and delivering on a
revised set of targets to 2023. More details on our
2023 strategy can be found on pages 22-25.
We have already made significant progress
in 2021 namely, the agreement of a Memorandum
of Understanding with Natwest Holdings for
the proposed acquisition of Ulster Bank’s c.€4bn
corporate and commercial loan book and the
acquisition of Goodbody. We are also in advanced
discussions with Great-West LifeCo Inc. to establish
a joint venture to greatly enhance our life, pensions
and savings propositions that we offer to
our customers.
Financial Performance
Our 2020 financial performance reflects our
changed economic environment. We entered this
crisis in a position of capital strength, which we have
maintained. Our capital ratios are materially in excess
of minimum regulatory requirements ensuring that
we continue to deliver on our priorities.
“ AS A RESULT OF HARD
WORK OVER RECENT
YEARS, AIB ENTERED
THIS CRISIS IN A
POSITION OF CAPITAL
STRENGTH”
12
Chief Executive’s Review
Annual Review
AIB Group plc Annual Financial Report 2020
Gary Lavin, CEO of VitHit. In 2020,
we shared stories of the businesses
we support through both trying
times and thriving times.
“ COST MANAGEMENT
REMAINS A PRIORITY FOR
THE GROUP, REAFFIRMED
BY THE REDUCTION IN OUR
ABSOLUTE COST BASE
TARGET FOR 2023”
We are reporting a loss before tax of €931m for
the full-year. This loss has been driven by the net
credit impairment charge of €1,460m, an increase
of €244m from the half-year. Further information
on the charge is detailed on page 112.
We have seen a reduction in our net interest income
to €1,872m which represents a decrease of €204m
compared to the full-year 2019 result. This adverse
outcome was principally due to the low interest rate
environment, lower investment securities income,
reduced loan volumes and cost of excess liquidity
partially offset by a decrease in interest expense.
Our total operating expenses for 2020 were €1,527m.
Cost management remains a priority for the Group,
reaffirmed by the reduction in our absolute cost base
target for 2023 to less than €1,350m. Exceptional
items of €215m include restitution related costs,
restructuring costs attributed to the strategic decision
to exit the SME market in Great Britain, impairment
of intangible assets as well as the incremental costs
of implementing a large volume of payment breaks
on home mortgages, personal and SME
loans to customers impacted by COVID-19.
Gross loans and gross performing loans at €59.5bn
and €55.2bn respectively have both decreased since
the prior year. As at December 2020, 16% of AIB’s
loan book has had a significant increase in credit risk
and is in stage 2 (up from 6% at 2019 year-end), due
to the impact of COVID-19 on those sectors most
affected by pandemic restrictions. Maintaining the
quality of new lending is critical, with >97% of our
new lending being of strong or satisfactory credit
quality in 2020.
The sharp reduction in economic activity negatively
impacted the demand for new credit across most
business areas in 2020, with new lending of €9.2bn,
25% lower than 2019. SME and corporate lending
was 28% lower at €4.5bn, primarily due to lower
international lending, with property and construction
lending 30% lower at €1.4bn. Mortgage lending
was 21% lower at €2.4bn and personal lending was
down 10% to €0.9bn. Our Energy, Climate Action
and Infrastructure portfolio continues to perform well
with nearly 100% of the portfolio fully performing
and no COVID-19 modifications made in 2020.
Non-performing loans as a percentage of gross
loans to customers was 7.3% at 31 December 2020
compared to 5.4% at 31 December 2019. This increase
primarily reflects increased flow to Non-Performing
Exposures (NPEs) predominantly from those loans
most affected by the impact of COVID-19 along with
changes to the definition of default.
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AIB Group plc Annual Financial Report 2020
Annual Review Chief Executive’s Review
13
“ WE HAVE BEEN ABLE
TO SUPPORT
OUR CUSTOMERS’
ACCELERATED
TRANSITION TO
DIGITAL OVER THE
COURSE OF 2020”
A key priority for the Group is addressing NPEs in
a sustainable way. Our preference is to restructure
loans for customers in difficulty on a case-by-case
basis and for customers to engage with us in order to
provide sustainable solutions. In Q1 2021, we agreed
the sales of two NPE portfolios in deep arrears which
collectively reduce the NPE ratio by c.1% as well as
reducing risk-weighted assets and alleviating some
of the impact of calendar provisioning. We remain
committed to reducing NPEs further given the
impact on cost, capital requirements and balance
sheet resilience.
In terms of legacy issues, last year we completed
payments to c.5,900 customers in relation to the
AIB prevailing tracker rate issue and to c.1,000 EBS
customers who were deemed impacted under the
Tracker Mortgage Examination (TME) during 2020.
In relation to the AIB prevailing tracker rate issue,
c.5,600 of these customers received the application
of a Financial Services and Pensions Ombudsman
decision, as well as, following the intervention of
the Central Bank of Ireland (CBI), providing TME
payments to c.300 customers who rolled off tracker
rates very shortly after trackers were withdrawn and
were deemed impacted under the TME.
We will, on an ongoing basis, work closely with
the CBI in relation to any tracker-related issues and
associated enforcement investigations.
AIB’s funding ratios remain robust. As deposits
continue to accumulate, our Loan to Deposit
Ratio was 69% at the end of December 2020
and we continue to have strong liquidity metrics
(Liquidity Coverage Ratio 193% and Net Stable
Funding Ratio 148%).
In September 2020, we successfully issued
our inaugural Tier 2 Green Bond of €1bn. This
transaction, the largest Green Tier 2 issue in Europe,
was the first Green Bond issued by an Irish bank and
represented a further endorsement of the progress
AIB is making on the climate action agenda. This
issue, along with the AT1 issue in June 2020, further
strengthened our capital position. Highlighting the
firm support for AIB within credit markets, both
deals had oversubscribed order books with quality
institutions across multiple geographies. AIB Group’s
own funds and eligible liabilities are in excess of the
estimated MREL requirement. We continue to focus
on improving the efficiency of our capital.
We have a strong capital base with a robust
pro forma fully-loaded CET1 ratio of 15.6% at
31 December 2020, well in excess of regulatory
requirements and our medium-term target of
greater than 14%.
Expected Credit Losses
Our expected credit loss approach deployed in
response to the impact of COVID-19 has been
comprehensive, conservative and forward-looking.
With volatility and uncertainty continuing to feature
in the macro environment, we remain satisfied that
our prudent approach to provisioning is appropriate,
with the full year net credit impairment charge of
€1,460m. Key drivers of this charge are changes
in macro-economic forecast, credit deterioration
and stage transfers and post-model adjustments
for expected COVID-19 impacts and legacy non-
performing mortgage exposures.
Although the environment remains uncertain,
there is a significant difference to asset quality
now compared with the global financial crisis of
2007/2008. Government supports have been
unprecedented in quantum and tenor, ensuring that
businesses and individuals have had the capacity
to endure lockdowns. Our provisioning outcomes
reflect these measures, which have resulted in an
increase of stage 2 exposures, especially in highly
impacted sectors, namely hospitality and commercial
real estate. Whilst we have seen an increase in NPEs
compared to prior years, we have not as yet seen
significant levels of default. Acknowledging the
need for caution, we remain vigilant to the ongoing
challenges presented by COVID-19.
Digital
Having invested significantly to become Ireland’s
leading digital bank, we have been able to support
our customers’ accelerated transition to digital over
the course of 2020 with 1.72 million digitally active
users. The pandemic has fundamentally changed
the way that our customers interact with us and we
have seen a shift across demographics, most notably
a 21% increase in online daily usage by banking
customers aged 65+.
Our customers have also embraced new payment
methods – the volume of digital wallet payments has
increased by 71% on the previous year with a 39%
reduction in the volume of ATM withdrawals for the
same period. In 2020, we also saw an increase in
the digital share of sales across all our key, digitally-
enabled product lines.
14
Chief Executive’s Review
Annual Review
AIB Group plc Annual Financial Report 2020
A socially distant meeting
in Ballygarry House Hotel,
AIB Customer.
“ WE LAUNCHED
OUR WELLBEING
PROGRAMME IN
EARLY 2020 AND
IT IS DOMINATED
BY EMPLOYEE-
GENERATED IDEAS”
This is why digitalisation is at the core of our
accelerated strategy to 2023. Investment in our
digital capability will remain a priority, streamlining
services to ensure we continue to deliver meaningful
enhancements to our customer journeys, replicating
our excellent personal customer experience for our
business customers too, characterised by faster
response and turnaround times and our ability to
safely get financial products into the hands of our
customers in a timely way.
Digital optimisation is equally important for our
people. As hybrid working becomes the norm, the
requirement for effective remote collaboration has
been fast-tracked. This will be an ongoing area of
focus and a key enabler in the delivery of our strategy.
Culture and our People
As I reflect on 2020, there is no doubt that we
have really seen the best of our culture in action,
with our people coming together to deliver solutions
for customers, colleagues adapting to new ways
of working and, in parallel, people and teams
supporting their local communities.
As part of our ongoing culture evolution
programme, we launched a refreshed set of values
and associated behaviours to further evolve how
our culture enables fair customer outcomes. Our
strategic ambition can only be achieved when
all of our customers see AIB as their trusted partner
to help manage their financial wellbeing at every
stage of life.
Listening to our people is crucial to our strategic
progress and never has this been more relevant than
in the last year. Staying connected while physically
apart has been vital for making sure we have the
right support mechanisms in place, so we ran regular
check-in surveys with our people throughout the
year. The most recent results, from November, show
that 9 out of 10 employees felt supported in the new
ways of working and 85% of participants agreed that
AIB is concerned about their wellbeing.
AIB Group plc Annual Financial Report 2020
Annual Review Chief Executive’s Review
15
1
2
3
4
5
6
In December, we communicated AIB’s
refreshed strategy in live virtual events
for the markets and our own people.
We launched our wellbeing programme in early
2020 and it is dominated by employee-generated
ideas as we seek to leverage the tremendous range
of wellbeing skillsets within our workforce. Wellbeing
is recognised as a key enabler of performance and
we are proud to have been the first organisation
in Ireland to implement a Right to Disconnect
policy to support our people in achieving an
optimal work-life balance.
Our people strategy to 2023 and beyond is
underpinned by four pillars – Talent, Accountability
& Performance, Wellbeing & Inclusion, and
Organisational Shape – and has our values and
behaviours at its core, ensuring the continued
development of our culture and enabling us to
deliver on our Group’s strategic priorities while
re-imagining the future of work.
As detailed in our Half-Year Financial Report, the
Executive Committee (ExCo) changed in 2020 with
the appointments of Geraldine Casey as Chief
People Officer, Robert Mulhall as AIB UK Managing
Director and the departures of Brendan O’Connor as
AIB UK Managing Director and Tomás O’Midheach
as Chief Operating Officer (COO). I would like to
thank Brendan and Tomás for their significant
contribution to the Group and wish them both
well in their future endeavours.
In light of the revision of our strategic plan, we took
this opportunity to review the ExCo structure to
ensure that we were best organised to deliver our
strategic priorities and objectives. The outcome of
this review led to the redefinition of the role of COO
into two distinct ExCo positions – a COO to lead
transformation while driving the ongoing efficiency
of our operations, and a Chief Technology Officer
(CTO) to lead our technology agenda and ongoing
enhancement of our customer and employee digital
proposition. A process is currently underway to fill
these positions.
I would like to acknowledge the retirement, on
31 December 2020, of Joe O’Connor as Trustee
Chairman and Anne Maher as Trustee Director of the
AIB Group Irish Pension Scheme. Over their many
years of service, both Joe and Anne successfully
managed the Scheme through some difficult periods
and they now leave the Scheme in a much-improved
financial position. Joe will be replaced by Gary Byrne
as the Trustee Chairman.
16
Chief Executive’s Review
Annual Review
AIB Group plc Annual Financial Report 2020
Sustainable Communities
As a financial institution operating within a local
and global context, recent events have only served
to reinforce how important it is that we build
sustainable business that works for all. We recognise
that the pandemic provides an opportunity to rebuild
economies and communities in a more inclusive
manner but doing so requires bold commitment
and action.
We are fundamentally committed to supporting the
transition to a low-carbon economy, reducing our
own carbon footprint and helping our customers
to do the same. We announced our commitment to
becoming the first Irish bank to operate as carbon
neutral across our operations by 2030 and we
pledge to use our local reach and influence to help
society make that transition, ensuring a greener
tomorrow by backing those building it today.
In 2020 we continued to grow our green lending,
exceeding our €1bn yearly target by almost €0.5bn,
accounting for 16% of all new lending. In the second
half of the year, we raised €1bn from our first green
bond issuance, the first Irish bank to do so, and we
launched a €300m Social Housing Fund to deliver
2,000 sustainable A-rated homes. We also hosted
our fourth annual Sustainability Conference as part
of Ireland’s Climate Finance Week 2020.
“ THIS IS THE DECADE
FOR CHANGE AND
AIB IS COMMITTED
TO BEING A CHANGE-MAKER
TO ENABLE ACTION AND
MEANINGFUL PROGRESS”
We are pleased that our progress has also
been recognised more widely. AIB was awarded
Outstanding Achievement in Sustainability by
Chambers Ireland/Business in the Community as
well as the Excellence in the Environment award at
the Annual Sustainable Impact Awards 2020. We
were also re-accredited with inclusion on the CDP1
Global ‘A list’ which recognises companies leading
on environmental transparency and action and we
continue to score strongly with the relevant ESG
rating agencies, achieving Leadership ratings for
both Sustainalytics and MSCI.
We are proud of the role we play in our communities,
in which we are embedded by design not by
accident. As an employer we’re connected through
our people; our physical network on high-streets
enables face-to-face advice, support and friendships;
We continue to have the
leading position in personal
loan and current account markets.
and our continuing support for grassroots activities
from sport to the arts to education.
Our AIB Together community programme really
came to the fore at a time when it was most needed.
We launched our €1m COVID Fund in April, and to
date over €700,000 has gone to those most in need
during the pandemic, and we pledged €2.4m in the
battle against COVID-19 for a dedicated Research
Hub at Trinity College Dublin. Further details of our
progress in relation to making AIB a sustainable
business as well as the impact of our community
investment programme are contained in later
sections of this report.
Sustainability is at the heart of our overall business
strategy. It must be. This is the decade for change
and AIB is committed to being a change-maker to
enable action and meaningful progress.
Outlook
Prior to the onset of COVID-19, the Irish economy
was performing strongly. The global recession
triggered by the pandemic has been like no
other and we have been dealing with an array of
uncertainties that have made the near-term outlook
more clouded than that of the medium-term.
1. CDP is a global disclosures charity; Environment, Social and Governance ratings are referred to as ESG ratings and MSCI is a global data provider.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2020
Annual Review Chief Executive’s Review
17
“ I AM PROUD
OF HOW WE
HAVE RISEN TO
THE CHALLENGES
PRESENTED BY
THIS PANDEMIC
HEAD ON”
refocused set of strategic priorities and initiatives.
In December, we reiterated our commitment to
deliver a return on tangible equity, exceeding 8%.
We retained our objective of having a CET1 ratio of
greater than 14%, and we announced a new cost
target 10% below the previous ceiling, delivering a
cost base for the group of less than €1.35bn in 2023.
While maintaining a strong and resilient balance
sheet, this strategy will reshape our business so
that we generate sustainable profits, provide an
excellent and efficient customer experience and
make a meaningful contribution to the communities
and societies that we serve. Full recovery of the
investment made by the State in AIB is a continuing
priority and our new strategy aims to ensure that
we are well positioned to do so, at a time of the
Government’s choosing. Our targets are set, our
plans are in place and we are prepared at every level
to deliver on these commitments in the interests of
all of our stakeholders.
I would like to thank my fellow Board and Executive
Committee members, and all my colleagues across
the Group for their relentless effort and steadfast
support in a year that has truly been like no other.
As Chief Executive Officer, I am proud of how
we have risen to the challenges presented by
this pandemic head on. We have demonstrated
our resilience and determination to deliver and
collectively make a real difference when it mattered
most. After the extraordinary year that was 2020,
our purpose to back our customers to achieve
their dreams and ambitions has never been more
relevant as we seek to rebuild a better country. We
are committed to emerging stronger from the crisis,
playing our part in creating a more sustainable
society and environment. 2021 has not had the
start that we hoped for but with the vaccine
roll-out underway the future is brighter. I look
forward with confidence as we implement our
strategy to 2023 at pace.
COLIN HUNT
Chief Executive Officer
4 March 2021
Despite the economy going back into lockdown
at the turn of the year, there were two major
developments at the end of 2020 that greatly
improved the economic outlook. Firstly, the EU and
UK managed to conclude a Free Trade Agreement,
thereby avoiding a hard Brexit, which would have
been very damaging to both the Irish and UK
economies. Secondly, the approval and roll-out of
COVID-19 vaccines commenced. While it will be
the second half of 2021 before the vaccines become
widely available, it does provide the foundations
for a strong and sustained recovery to take root as
the year progresses, after what has proved to be
a difficult start to 2021 on many fronts. I believe an
unwinding of the large build-up of private sector
savings during 2020, together with the continuing
supportive stance of macro policies, points to
the scope for a strong rebound in activity in
the next couple of years as the COVID-19
pandemic is overcome.
Although our economic and operating environment
has changed dramatically, the five pillars of our
strategy remain as relevant today as when we
announced them last March. In fact, they have
been further validated and underpinned by the
crisis. Strategy 2023 will now see us delivering
on a revised set of financial targets enabled by a
18
Customer Focus
Annual Review
AIB Group plc Annual Financial Report 2020
CUSTOMER FOCUS
SUPPORTING
OUR CUSTOMERS
THROUGH COVID-19
In 2020, we moved fast to put supports in place for our customers across Ireland and
the United Kingdom as a once-in-a-generation pandemic unfolded across the globe.
On 6 March 2020, we shared AIB’s three-year
strategy with the market, outlining our commitment
to simplify, streamline and strengthen our business
and set medium-term financial targets. One week
later COVID-19 officially landed on Irish shores
and we were faced with an unprecedented
global health pandemic.
Immediately when the crisis hit, we got to work. From
the payment breaks we arranged, to the deferral of
fee charges and waiving contactless fees, we moved
fast to give help where it mattered most. We kept
over 99% of our branch network open for business,
with priority hours to support the most vulnerable,
and reassigned staff to our contact centres in order
to support customers over the phone. Overnight we
moved the vast majority of our people to a remote
working model, and we did it without impacting on
our ability to deliver for our customers.
AIB was first to market with our Government-backed
COVID-19 Credit Guarantee Scheme term loan,
allocating €746m to support businesses as disease-
mitigating lockdowns affected day-to-day operations
and supply chains.
Alongside providing assistance to customers to get
through the immediate issue, as a global corporate
citizen we were obliged to support those trying to
solve the problem as well. We worked with Trinity
College Dublin to set up the AIB COVID-19 Research
Hub on their campus, donated 450 laptops to
Deis Schools enabling students to continue with
their studies, and launched our AIB Together
fundraising campaign among our staff – and
committed to matching these funds – to support
charities at the frontline.
66,000+
PAYMENT
BREAKS
Of the more than 66,000
Mortgage, Personal and
SME Loan payment breaks
we facilitated in 2020 to
support our customers, by
the end of the year 88%
of these had rolled off
their second and final
payment break.
231,487
REFUNDED
CHARGES
If a Direct Debit payment is
missed due to insufficient
funds, we usually apply a
€10 ‘Unpaid item’ charge.
In order to support our
Personal customers, we
removed this charge in
March and April, and
refunded 231,487 accounts.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2020
Annual Review Customer Focus
19
€746M
CREDIT
GUARANTEE
SCHEME
In September, AIB was the first Irish
bank to offer the Government-backed
COVID-19 Credit Guarantee Scheme
term loan, having received €270m
from the scheme administrator. In
October, we were allocated a further
€476m. The loans cover facilities from
€10,000 to €1m, with no security
required for loans of up to €250,000.
The scheme is aimed at helping
businesses affected by COVID-19.
2,947 CALLS FROM
VULNERABLE
CUSTOMERS
We kept over 99% of our branches open during the pandemic in
2020, and our Vulnerable Customer Programme introduced priority
banking hours for those who need extra care as well as a dedicated
helpline, facilitating 2,947 queries.
£320M IN SUPPORT
FOR OUR UK
CUSTOMERS
AIB UK helped thousands of personal
customers in Great Britain and Northern
Ireland with support for mortgage,
loan and overdraft payments.
And, as an accredited lender for all UK
Government Loan Schemes, we provided
over £320m to business customers
experiencing cashflow disruptions.
SUPPORTING
THE FRONTLINE
In March, we announced that we
would provide leave with full pay
to members of our team who have
dependents with partners working
on the frontline in a healthcare role.
This decision was first proposed by our
colleagues as a way to support frontline
workers in our communities.
AIB
COVID-19
RESEARCH
HUB
In April, we committed €2.4m
to Trinity College Dublin to
set up the AIB COVID-19
Research Hub, which would
accelerate the university’s
immunology project in
tackling COVID-19.
‘s 20
Overview of the Irish Economy
Annual Review
AIB Group plc Annual Financial Report 2020
OVERVIEW OF THE IRISH ECONOMY
TOWARDS
ECONOMIC
RECOVERY
After a very tough 2020, with Brexit complete and
the roll-out of vaccines underway, a robust economic
rebound is expected in Ireland.
Deep Global Recession in 2020
The global recession triggered in 2020
by the COVID-19 pandemic saw the
largest contraction in world economic
activity since the Great Depression
of the early 1930s. Output fell very
sharply in the first half of the year, most
notably in the second quarter as a result
of lockdowns, with many European
economies registering declines of
between 10% and 18% in GDP.
Global activity bounced back strongly
in the third quarter as lockdowns ended
and restrictions were lifted. However,
the recovery lost momentum in the final
quarter of 2020 as a second wave to the
coronavirus took hold. This necessitated
the re-imposition of restrictions on
economic activity, including new
lockdowns in some countries.
The pandemic has had a severe impact
on the United Kingdom, with the
economy contracting by 9.9% in 2020.
The decline in Eurozone GDP for the
year was 6.8%.
Contraction in Domestic Irish Economy
In Ireland’s case, the hit to the economy
was mitigated to some extent by the
continuing strength of exports, most
notably from the multi-national sector,
in particular pharma. The volume of Irish
exports rose by 4.4% in the first three
quarters of the year according to the
latest Central Statistics Office (CSO) data.
As a result, the declines of 7-10% in Irish
GDP that were forecast earlier in the
year did not materialise. Instead, Irish
GDP rose in 2020 – the latest CSO data
show it increased by 3.6% year-on-year
in the Q1-Q3 period, though GNP
was broadly flat.
There was a marked contraction in the
domestic economy, though. The latest
CSO data show that real modified final
domestic demand fell by 6.4% year-on-
year in the first three quarters of year.
Consumer spending took a considerable
hit, declining by 10% in the period.
However, full-year figures show that
core retail sales (i.e. excluding the motor
trade) rose by 0.7% in 2020, while new
car registrations were down by 25%.
Domestic fixed investment was severely
impacted by the recession as well,
declining by 10% year-on-year also
in the first three quarters of 2020
per CSO data.
The recession in 2020 saw employment
contract and unemployment rise.
Some sectors were hit very hard by
the restrictions on activity, in particular,
hospitality, tourism, travel, live
entertainment, non-essential retail and
some personal services. At one stage
earlier in the year, the unemployment
rates including those on pandemic
unemployment payments rose to 30%,
although the official unemployment rate
remained much lower, ending the year
at 5.8%.
Housing Market Holds up
Meanwhile, the recession appears to
have had just a modest impact on house
prices, which were quite stable during
2020, rising by 0.3% overall. Indeed, the
latest CSO monthly data, which are for
December, show prices rose by 2.2%
compared to December 2019.
+0.3%
HOUSE PRICES
-1.9%
HOUSING
COMPLETIONS
+0.7%
CORE RETAIL SALES
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2020
Annual Review Overview of the Irish Economy
21
“ IN IRELAND’S
CASE, THE HIT
TO THE ECONOMY
WAS MITIGATED
TO SOME EXTENT
BY THE CONTINUING
STRENGTH OF
EXPORTS”
Rents in the residential sector came
under downward pressure during 2020,
with CSO data showing them falling by
2.9% in December from earlier levels.
Central Bank data show new lending to
the SME sector amounted to just under
€2bn to end-September, down 23.5%
from the same period in 2019.
House building activity held up better
than expected in 2020, with CSO data
putting house completions at 20,676
for the year, down only 1.9% on the
2019 number of 21,087. Meanwhile, CSO
data show that construction output fell
by 16.5% in the first three quarters of
the year.
Savings Rise, Lending Falls
A notable feature of the recession
has been a very sharp increase in
private sector savings. This has been
evident in other economies as well
and is manifesting itself in rising levels
of banking deposits. In regard to AIB,
balances in customer accounts have
grown significantly in 2020 to €82.0bn
by December from €75.7bn in June
and €71.8bn at the start of the year.
At the same time, bank lending
weakened in 2020. Mortgage lending
fell to €8.4bn, down by 12% on the 2019
total of €9.5bn. New lending to the SME
sector also declined as the domestic
economy entered a deep recession.
Economic Outlook
An EU-UK trade deal was successfully
concluded at the end of 2020, which
removed one element of uncertainty in
terms of the economic outlook for 2021.
It has been a difficult start to the year,
though, with both Ireland and the UK
going back into lockdown in the opening
quarter as new COVID-19 cases surged.
However, the roll-out of vaccines that is
currently underway should see the virus
recede as the year progresses, allowing a
strong and sustained economic recovery
to take root.
It is clear that monetary policy will remain
supportive of activity over the next
number of years. In Ireland, the 2021
Budget has ensured that fiscal policy will
continue to provide considerable support
to the economy in the coming year. The
large build-up of private sector savings
together with the supportive stance of
macro policy, points to the scope for
a strong rebound in activity once the
COVID-19 pandemic is overcome.
Core Retail Sales (Qtr,YoY, %)
Modified Final Domestic Demand (3 Qtr Mov Avg, YoY, %)
7.5
5.0
2.5
0.0
-2.5
-5.0
-7.5
-10.0
-12.5
7.5
5.0
2.5
0.0
-2.5
-5.0
-7.5
Q1
2013
Q3
2013
Q1
2014
Q3
2014
Q1
2015
Q3
2015
Q1
2016
Q3
2016
Q1
2017
Q3
2017
Q1
2018
Q3
2018
Q1
2019
Q3
2019
Q1
2020
Q3
2020
Q1
2013
Q3
2013
Q1
2014
Q3
2014
Q1
2015
Q3
2015
Q1
2016
Q3
2016
Q1
2017
Q3
2017
Q1
2018
Q3
2018
Q1
2019
Q3
2019
Q1
2020
Q3
2020
Source: CSO via Refinitiv
Source: CSO via Refinitiv
Private Sector Deposits (Total, €m)
New Dwelling Completions (Total, 4 Qtr Mov Avg)
260,000
240,000
220,000
200,000
180,000
Jan - 18
Jul - 18
Jan - 19
Jul - 19
Jan - 20
Jul - 20
24000
20000
16000
12000
8000
4000
0
Q1
2013
Q3
2013
Q1
2014
Q3
2014
Q1
2015
Q3
2015
Q1
2016
Q3
2016
Q1
2017
Q3
2017
Q1
2018
Q3
2018
Q1
2019
Q3
2019
Q1
2020
Q3
2020
Source: CBI via Refinitiv
Source: CSO via Refinitiv
22
Our Strategy
Annual Review
AIB Group plc Annual Financial Report 2020
OUR STRATEGY
AN UPDATED
THREE-YEAR STRATEGY
In December, we announced a refreshed strategy to
2023, with a continued focus on simplifying, streamlining
and strengthening our business. Our updated three-year
strategy was shaped by the challenges and emerging
trends driven by global developments.
AIB has made significant progress in delivering a
more simplified, streamlined and strengthened
business aligned to our five strategic pillars –
Customer First, Simple & Efficient, Risk & Capital,
Talent & Culture and Sustainable Communities.
As a result, the fundamentals of our business are
strong. We are well capitalised, we have strong
market shares in Ireland and we are a digital leader
with a market-leading approach to sustainability.
In 2020, COVID-19 sent a lasting shock across the
globe. This, coupled with Brexit uncertainty and the
lower-for-longer interest rate environment in Ireland,
significantly changed our operating environment.
Financial institutions were – and still are – integral
in tackling the economic impact of the COVID-19
crisis. It also required us to revisit the three-year
strategy that we had announced in March 2020.
And so we took a twin-track approach throughout
the year; navigating the COVID-19 pandemic while
also updating our strategic plan. This resulted in the
acceleration of our business transformation to better
meet our customers’ needs with a renewed focus on
cost in a changed environment.
This acceleration, the details of which were
announced in December 2020, will continue to
focus on simplifying, streamlining and strengthening
our business, acting with pace and rigour as we
adapt to the challenges and trends driven by
global developments.
We intend to undertake several strategic initiatives
that will transform how we operate and address
product gaps, broadening our service offering for
customers, aligned to our strategic pillars, to ensure
that we deliver our medium-term targets by 2023.
In December, we re-committed to these medium-
term targets: an appropriate Common Equity Tier 1
(CET1) fully loaded capital ratio of more than 14%,
and; a sustainable Return on Tangible Equity (ROTE)
of greater than 8%. We adjusted our absolute cost
base commitment down, to €1.35bn per annum,
representing our ambition to achieve a 10%
reduction in costs over the next three years.
“THROUGHOUT THE
YEAR, WE NAVIGATED
THE COVID-19 PANDEMIC
WHILE ALSO UPDATING
OUR STRATEGIC PLAN”
Over the next three years, our priority will be
to continue developing our digital capability,
streamlining services, improving journeys for
customers and creating an inclusive and optimised
employee experience. We will use our deep
insight into customer preferences to personalise
our service offering. This includes refocusing our
branches where appropriate while maintaining
our commitment to our local communities. We will
broaden our products and services, aligning our
operating model and ways of working to ensure
we can serve customers however, wherever and
whenever they need us, as a complete provider
of financial services.
And we will prioritise our commitment to
sustainability, expanding green lending,
supporting the transition to a low-carbon
economy in the communities in which we operate,
and delivering on our own commitment to achieve
carbon neutrality across our operations by 2030,
using a net zero approach.
AIB Group plc Annual Financial Report 2020
Annual Review Our Strategy
23
1
2
3
4
5
6
CUSTOMER
FIRST
SIMPLE
& EFFICIENT
RISK
& CAPITAL
TALENT
& CULTURE
SUSTAINABLE
COMMUNITIES
24
Our Strategy
Annual Review
AIB Group plc Annual Financial Report 2020
OUR STRATEGY
STRATEGY 2023
We revisited our strategy against the backdrop of three accelerated
trends in 2020: digitalisation, ways of working and sustainability.
As we looked to the three years ahead and
considered how our strategy can place AIB at
the heart of our customers’ financial lives, we were
driven by three global trends: digitalisation, ways
of working and sustainability. Today, our customers
expect us to be in the right place, at the right time,
with the right support. Whether that’s in a branch,
over the phone, on our website or through our
award-winning app.
AIB is already a sector leader in Ireland in
digitalisation. We have a modern, resilient and
flexible IT infrastructure that, in 2020, allowed us to
deliver for our people and our customers when it
mattered most. Digitalisation enables our customers
to bank with us simply and efficiently, and also
enables us to collaborate in a new way of working,
as a lot of our employees spend more time away
from the office. During the height of the crisis in
2020, over 80% of our people worked remotely,
continuing to back our customers.
Recent events have only reinforced how important
it is to build a sustainable future for everyone. AIB
is fundamentally committed to supporting the
transition to a low-carbon economy, reducing our
own carbon footprint and helping our customers
to do the same.
PURPOSE
Our purpose is to back our customers to achieve their dreams
and ambitions.
STRATEGIC
AMBITION
We will be at the heart of our customers’ financial lives by meeting
their evolving needs at every life-stage.
STRATEGIC
PILLARS
CUSTOMER
FIRST
SIMPLE
& EFFICIENT
RISK
& CAPITAL
TALENT
& CULTURE
SUSTAINABLE
COMMUNITIES
FINANCIAL
AMBITION
FINANCIAL
TARGETS
20231
We will be a sustainable, capital-generative and efficient business.
Cost2: <€1.35bn
CET13: >14%
RoTE4: >8%
For more information on the governance
of our strategy work in 2020, see page 47.
1. Excludes potential inorganic opportunities.
2. Costs before bank levies, regulatory fees and exceptional items.
3. Fully loaded.
4. RoTE = (PAT – AT1) / (CET1 @ 14% of RWAs). See the ‘Capital’ section on pages 75 – 78 for further information.
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AIB Group plc Annual Financial Report 2020
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STRATEGIC PRIORITIES AND INITIATIVES
Over the next three years, our strategy will
enable AIB to reshape our business to deliver
sustainable returns; an excellent, efficient
customer experience; an agile business,
capable of dealing with evolving market
dynamics; diversified income streams and
improved service offerings; a network that is
embedded in our communities, and; an ever-
greater contribution to resolving the challenge
of climate change. As well as delivering our
medium-term targets, we will undertake several
initiatives in order to meet strategic goals in
the areas of sustainability, technology, our
branch network, our workforce, our business
in Great Britain and cost management
throughout the organisation.
DIGITALISATION
END-TO-END
CREDIT
With a transformed technological capability, we will remove
complexity across the bank and provide end-to-end digital credit
processes for an enhanced, data-driven customer experience.
REFOCUSED
BRANCH NETWORK
With more customers choosing to interact via our digital channels,
we will evolve our branch services beyond transactional support
and towards sales and advice.
FUTURE WAYS OF WORKING
FUTURE
OF WORK
We will embrace hybrid working, ensuring innovation, flexibility, agility and
a culture of collaboration. We will create an environment where personal
performance is optimised, attracting and retaining the best talent available.
While we will exit some city centre head office locations we will enhance
how we use other locations to get the best out of a hybrid work model.
BUSINESS MODEL
PRODUCT GAPS
We will address the current gaps in life, savings, investment and wealth
products, to become a complete provider of financial services in Ireland.
AIB GB
BUSINESS MODEL
We will withdraw from SME lending and refocus on our
corporate business, particularly in renewables, infrastructure,
health and manufacturing.
SIMPLIFICATION
Reflecting business needs, the shape of our workforce will change. We expect
to employ c.1,500 fewer people and reduce our reliance on external third party
providers by bringing in-house 400 digital, data and change specialist roles.
We will use a zero based budgeting cost management approach.
SUSTAINABILITY
SUSTAINABLE
COMMUNITIES
We are committed to achieving carbon neutrality across our operations
by 2030 using a net zero approach, and to aligning our customer
lending portfolio to net zero carbon emissions by 20401.
1. With the exception of agriculture, which we are aligning to the Irish government’s Climate Action Plan.
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AIB Group plc Annual Financial Report 2020
OUR STRATEGY
CUSTOMER
FIRST
We put our customers at the heart of our organisation, providing for the
full range of their financial needs conveniently and responsibly. We use
technology to personalise our product and service offerings.
Our purpose is to back our customers to achieve their dreams
and ambitions – and this purpose drives everything we do in AIB.
With the onset of COVID-19 in 2020, our digital capability allowed
customers to bank securely – and new customers could open
an account remotely. We also launched a fully digital mortgage
process for those keen to continue their search for a home during
the pandemic. We reduced mortgage rates across AIB and
EBS, backed vital social housing development and supported
our business customers through the uncertainty of both Brexit
and COVID-19. AIB branches and EBS offices operated safely,
and we put measures in place for our vulnerable customers.
In a challenging year, over 80,000 customers shared their
experiences with us and gave seven customer journeys a net
promoter score (NPS) of 65, which is considered world-class.
MEASURE
OUTCOME 2020
MEDIUM-TERM TARGET (END 2023)
CUSTOMER
SATISFACTION
TRANSACTION NET
PROMOTER SCORE
(NPS)
Measured after customer
transactions for key touch points
49
53+
CONSISTENTLY
SUPPORTING
OUR VULNERABLE
CUSTOMERS
Our Vulnerable Customer Programme is
focused on the following key areas: financial
abuse, addiction, dementia, mental health,
accessibility and economic resilience. In 2020,
we introduced a system to record when
someone needs additional support;
a customer just needs to tell us once and
we can provide consistent support.
BREXIT SUPPORT
AT EVERY STAGE
We have been preparing for Brexit for the
past four years. We provide the SBCI Working
Capital and Future Growth Loan schemes
alongside our wider working capital, long-
term funding and foreign exchange supports
to meet our customers’ needs. On top of that,
we have a dedicated Brexit helpline, an online
Brexit Hub and 32 Brexit Advisors across
Ireland supporting our customers to manage
their business through Brexit.
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AIB Group plc Annual Financial Report 2020
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1
2
3
4
5
6
TWO MORTGAGE
RATE REDUCTIONS
In September, we introduced a range of Loan-to-Value
(LTV) fixed rate mortgages, from as low as 2.25%.
This followed our fixed rate reduction in February.
€300m
SOCIAL
HOUSING
FUND
In October, we launched a new €300m social housing fund for
Approved Housing Bodies (AHBs) and experienced developers
in order to deliver over 2,000 new social housing units across
Ireland. This followed the full allocation of our previous €100m
Social Housing Fund, which helped deliver over 800 social
housing units over the past two years.
IRELAND’S
FIRST DIGITAL
MORTGAGE
We launched Ireland’s first end-to-end
online digital mortgage in February.
First-time house buyers and movers can
conduct their entire mortgage application
process online; completing an application
in minutes, uploading documents, securing
approval-in-principle and drawing down
their mortgage.
IGNITING DREAMS
& AMBITIONS
In 2020, we quickly changed the format of our Future Sparks Festival as
a result of COVID-19 restrictions. The one-day festival which was due
to host over 10,000 students was quickly transformed into an exciting
eight-part series of online events in April – the AIB Future Sparks
Festival Series. The series aimed to inspire and educate students to
plan their future careers with positivity, confidence and purpose.
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OUR STRATEGY
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.
Having completed the upgrade of our digital banking platforms
to meet the requirements of open banking, we are strongly
positioned to leverage our extensive digital distribution network
to provide an extended range of products and services. With
1.72 million active digital banking customers engaging with us
every day, AIB has by far the largest digital banking network
in Ireland and one of the most-used banking apps in Europe.
Our priority is to continue developing our digital capability,
streamlining services and aligning our operating model and
ways of working to ensure we can serve our customers however,
wherever and whenever they need us.
MEASURE
OUTCOMES 2020
MEDIUM-TERM TARGETS (END 2023)
ABSOLUTE
COST BASE1
Cost of running the business,
excluding exceptional costs
€1,527m
<€1.35bn
DIGITALLY ACTIVE
CUSTOMERS
Number of active customers
on digital channels
1.72 million
>2.25 million
1. Before bank levies, regulatory fees and exceptional items. For exceptional items see pages 64 and 73. The Medium-Term target excludes potential inorganic opportunities.
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2
3
4
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AIB Group plc Annual Financial Report 2020
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1.39m
ACTIVE MOBILE
CUSTOMERS
2.65m
TRANSACTIONS
IN ONE DAY - A NEW
MILESTONE
OVER 80%
COLLABORATING
REMOTELY
When the pandemic hit, we enabled our
employees to continue to support our
customers remotely. At the height of the
pandemic, over 80% of our people were
working away from their usual AIB location.
Throughout 2020, our availability of service remained over
99.9% despite the rapid move of our workforce to a remote
setting. Indeed, we even reached new milestones: in Ireland,
we experienced our busiest day ever for point of service (POS)
on 23 December, with 2.65 million transactions, and our busiest
day ever for mobile transactions on 1 December, with 2.3 million
API Quick Balance and Login connections.
66%
INCREASE IN
DIGITAL WALLET
PAYMENTS
END-TO-END
DIGITAL SFS
Our online Standard Financial
Statement (SFS) project digitised
what was a paper-based credit
restructure by using Docusign.
This has, importantly, saved our
customers time, while also saving
15,000kg of wood, 160,000l of
water, 34,000l of carbon and
1,000kg of waste.
MAKING
PAYMENTS EASY
WITH PAYZONE
Payzone launched Easy Payments Plus (EPP)
in September to provide a simple and secure
online platform for clubs, charities, schools
and SMEs to communicate, collect payments
and manage data in a GDPR-compliant way.
Given COVID-19 restrictions, EPP enabled
not-for-profit organisations to continue to
collect donations and helped businesses
manage their online payments.
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OUR STRATEGY
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.
We moved quickly to carry out stress testing analysis of the
potential impacts of COVID-19. This informed an early review
of our Risk Appetite Statement (RAS) as well as an earlier-than-
planned issuance of €625m AT1 and €1bn Tier 2 capital.
We have significantly increased the level of credit review
throughout the year to ensure early engagement with our
customers and early recognition of credit losses in our
accounts. In addition, we have maintained our CET1
capital target at >14%. The Group ended the year with a
higher total capital position than 2019 despite recording a
comprehensive 240 basis points of credit provision charge
during the year.
MEASURE
OUTCOMES 2020
MEDIUM-TERM TARGETS (END 2023)
RETURN ON
TANGIBLE EQUITY1
A measure of how well capital
is deployed to generate
earnings growth
(11.2)%
>8%
CET1 RATIO2
(FULLY LOADED)
A measure of our ability to withstand
financial stress and remain solvent
15.6%
>14%
1. For further information see the ‘Capital’ section on page 78. The Medium-Term target excludes potential inorganic opportunities.
2. The Medium-Term target excludes potential inorganic opportunities.
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2
3
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AIB Group plc Annual Financial Report 2020
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€625m
AT1 ISSUANCE
A REFRESHED
STRATEGY TO
2023
On 2 December, our CEO and CFO
communicated a refreshed strategy with a
renewed focus on costs at a live, virtual event
from our Headquarters in Molesworth St,
Dublin. Recommitting to two of the medium-
term financial targets that were set in March
– CET1 of >14% and ROTE of >8% – we
extended our outlook to 2023 and reset our
annual absolute cost base target to €1.35bn.
RAISING RISK
AWARENESS
In December, everyone in AIB
Group was invited to take part
in Risk Awareness Week – Risk
in Conversation. As most of us
were working remotely, the
activities took place virtually, which
included senior leader roundtables,
training, discussions, blogs, videos
and live panel discussions with
Executive Committee members
and external speakers.
€1bn
GREEN BOND
ISSUANCE
Having published our Green Bond Framework in 2019, AIB
became the first Irish bank to enter the growing green bonds
market in September 2020. We were also only the second bank
in Europe to issue subordinated Tier 2 green bonds, raising €1bn
of capital to support lending towards sustainable projects and
further strengthening our capital.
STRONG CAPITAL
POSITION
We maintained a very strong CET1 ratio
of 15.6%, well in excess of regulatory
requirements and our medium-term target
of > 14%. A geographically diverse and quality
investor demand enabled us to optimise our
capital structure in 2020 through the issuance
of additional AT1 and Tier 2.
SRI BOND
FRAMEWORK
As an established, buy-to-hold bond investor, AIB is in a position to
help facilitate the transition to a more sustainable global economy.
So, in June, we launched our Socially Responsible Investment (SRI)
Bond Framework, to fund domestic and international projects
aimed at global sustainability, carbon emission reduction, and
social improvement.
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OUR STRATEGY
TALENT
& CULTURE
We ensure that we have the right talent, skills and capabilities within the
organisation to fulfil our purpose and execute our strategy. We enable
talent effectiveness through a diverse and inclusive culture that is built
on accountability, collaboration and trust.
In March 2020, we launched new values and associated
behaviours for our people – Be One Team, Own the Outcome,
Show Respect, Eliminate Complexity and Drive Progress. Just
days later, COVID-19 restrictions were in place across our
locations and employee wellbeing came to the fore. We
‘checked in’ with our people with short, regular surveys
throughout the year, ensuring we received ongoing feedback.
We recognise that, in building a strong culture, we require the
right risk culture, practicing risk management every day. We also
continued to progress our diversity and inclusion agenda, and
were again recognised in the third Balance for Better report in
November as the joint-most gender-balanced Board in Ireland.
MEASURE
OUTCOME 2020
LONG-TERM TARGET
DIVERSITY
Women as % of management
41%
GENDER
BALANCED
EMPLOYEE CHECK-IN SURVEY*, NOVEMBER 2020
RESPONDENTS AGREED
STATEMENT
85%
80%
86%
* Based on 54% participation rate.
AIB is concerned about employee health and wellbeing.
I have confidence in the leadership of the AIB to successfully manage emerging challenges.
AIB is supporting employees to adapt to new ways of working.
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2
3
4
5
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BE ONE TEAM
OWN THE OUTCOME
DRIVE PROGRESS
SHOW RESPECT
ELIMINATE COMPLEXITY
AN AUGMENTED
WELLBEING
PROGRAMME
To ensure the wellbeing of our employees, we launched digital
apps Gympass and PepTalk, enabling our staff to complete
thousands of wellbeing courses virtually. We also organised
live virtual events, such as family quizzes and concerts, to
entertain while raising money for charity. And in September, our
#TimetoTalk campaign encouraged colleagues to reach out and
support each other.
THE RIGHT TO
DISCONNECT
In July, AIB was the first
organisation in Ireland
to implement a Right
to Disconnect policy,
having engaged with the
Financial Services Union.
This ensures our people
can ‘switch off’ outside of
working hours.
OUR NEW
VALUES AND
BEHAVIOURS
Following much consultation across the
business, we launched our new values and
associated behaviours in March 2020 – just
as COVID-19 hit our shores. These new values
helped us face this challenge as one team.
WINNERS
IRISH HR
CHAMPION:
USE OF
TECHNOLOGY
IN HR
‘CHECKING IN’
WITH EMPLOYEES
We launched three ‘Check-in’ surveys with
employees – in April, July and November –
to find out just how we could support each
other during the pandemic. Our survey in
November showed: increased confidence in
the leadership of AIB into the future; 9 out of
10 employees feel supported in new ways of
working; and 85% of participants agreed that
AIB is concerned for their wellbeing.
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OUR STRATEGY
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 in which we operate.
We have a duty and responsibility to enable an accelerated
transition to a low-carbon economy. In 2019, we first pledged
to do more, and so we did in 2020. Financially, we exceeded
our target of €1bn in green lending and raised €1bn in our first
green bond issuance. Socially, we launched the AIB COVID-19
Research Hub, matched funds raised by employees as part of
our AIB Together community programme, backed vital social
housing development and supported various education
initiatives. We supported Climate Finance Week in Ireland,
hosting our annual Sustainability Conference to a virtual
audience of 5,100. And we made a steadfast commitment:
by 2030 we will operate on a net zero carbon emissions basis.
MEDIUM-TERM (END 2023)
LONG-TERM
MEASURE
OUTCOMES 2020
TARGETS
REDUCTION
IN EMISSIONS1
% reduction in Scope 1 & 2
emissions from operations
year-on-year
24%
NET ZERO BY 2030
GREEN FINANCE
Amount of lending for
sustainability purposes
€1.5bn
€1bn per year
1. Our CO2 emissions are reported one year in arrears – Scope 1 and 2 emissions reported in 2020 were generated in 2019. In 2020, we committed to a target of Net Zero by 2030.
TARGET FOR
NET
ZERO
BY 2030
We want to reduce our carbon footprint and
help our customers to make the transition
to a low-carbon economy. That’s why, in
November, we committed to achieving
carbon neutrality across our operations by
2030, using a net zero approach. This means
we will reduce our own emissions while also
actively removing greenhouse gases from the
atmosphere. We have also set an ambition for
our green and transition lending to account
for 70% of lending to new customers by
this time. And by 2040, we hope to align
our customer lending portfolio across all
sectors to net zero carbon emissions (with the
exception of agriculture, which is aligned to
the Government’s Climate Action Plan).
AIB Group plc Annual Financial Report 2020
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35
1
2
3
4
5
6
€1.5bn
FINANCING SUSTAINABILITY
In 2020, our green finance totalled €1.5bn, supporting
sustainable projects and initiatives across Ireland and the UK.
Meanwhile, renewable energy lending continues to be one of the
fastest growing parts of our balance sheet. Our Energy, Climate
Action and Infrastructure portfolio performed well against the
backdrop of COVID-19 uncertainty.
30 YEARS
OF GAA
This is AIB’s 30th year of
partnership with the GAA.
We are extremely proud
to sponsor the All-Ireland
GAA Football and Hurling
Club Championships, the
All-Ireland Camogie Club
Championships and the
GAA All-Ireland Senior
Football Championships.
PARTNERING WITH
RESPONSIBLE
SUPPLIERS
Third party suppliers are important to AIB
and each plays a different part. And so,
in October, we launched our Responsible
Supplier Code, which reflects our values. It
sets out the minimum standards to which
we hold ourselves, and which we expect
our suppliers to also adopt.
ENVIRONMENTAL
IMPACT THROUGH
FINANCE
In July 2020, we published a list of excluded business activities;
activities with negative environmental impacts that AIB Group
will not finance, such as deforestation and nuclear power
generation. Initially, this was implemented in parts of our
CIB segment, and since 29 January 2021, this rule applies to
all business customers with a Gross Connected Exposure of
>£/€300k and who are relationship-managed.
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Sustainability in AIB
Annual Review
AIB Group plc Annual Financial Report 2020
SUSTAINABILITY IN AIB
OUR CLIMATE
RISK DISCLOSURES
AIB became a supporter of the Financial Stability
Board’s Taskforce on Climate-related Financial
Disclosures (TCFD) in 2019, and we are making our
first disclosures with reference to the TCFD in 2020.
HELPING OUR CUSTOMERS
BECOME MORE SUSTAINABLE
We have published our Sustainability Report
2020 to GRI standards and it is available to view
on aib.ie/sustainability. We recommend doing
so in conjunction with this Annual Financial Report
as it provides further detail and examples of the
progress we made in our sustainability strategy last
year. For the first time, we have made disclosures
with reference to the Taskforce on Climate-related
Financial Disclosures (TCFD) within the Sustainability
Report, having become a supporter of the TCFD
in September 2019. Below is a summary of
these disclosures.
Governance
The Board maintains oversight of climate change
as it relates to AIB and reviews material items. The
Board, along with the Executive Committee, also
maintains oversight of climate-related metrics on
the AIB Group Scorecard. Sustainability is integral
to AIB’s operations, and we provided training
(including environmental, social and governance
(ESG) regulatory training) at Board, Executive
Committee and all-employee levels. Sustainability
is also integrated into our strategic planning and
investment process. We have reviewed existing
and emerging regulatory requirements and have
implemented a multi-year programme to deliver on
these evolving requirements.
“ THIS IS THE DECADE FOR
CHANGE AND AIB IS
COMMITTED TO BEING A
CHANGE-MAKER TO ENABLE
ACTION AND MEANINGFUL
PROGRESS”
GREEN MORTGAGE
GREEN CAR FINANCE
GREEN PERSONAL LOAN
SUSTAINABILITY LINKED LOAN
GREEN BOND FRAMEWORK
SRI BOND FRAMEWORK
opportunities for key sectors using the TCFD’s
physical and transition risk categorisations and
qualitative scenarios aligned to the Network of
Central Banks and Supervisors for Greening the
Financial System (NGFS) recommendations. We have
quantified opportunities to finance the transition to a
low-carbon economy in certain business areas and
launched a number of new propositions including
our green mortgage, electric vehicle proposition and
green consumer loan. We issued our first green bond
in 2020 for €1bn as well as a number of sustainability
linked loans (SLLs). And we have identified the
lending portfolios where we need to update lending
policies to achieve the lower-carbon-intensive
metrics across our loan book.
Strategy
Sustainable Communities was integrated as a
fifth pillar of our strategy in 2020, with a specific
focus on climate action. We identified risks and
Risk Management
We have developed a defined exclusions list of
lending activities for customers with an exposure
greater than €300,000, which is integrated
into our Group Credit Risk policy and published
AIB Group plc Annual Financial Report 2020
Annual Review Sustainability in AIB
37
WASTE
WATER
BUSINESS TRAVEL
& FLEET
EMPLOYEE
COMMUTING
1
2
3
4
5
6
81
74
TONNES OF CO2
186
184
TONNES OF CO2
4,250
4,421
TONNES OF CO2
4,764
4,287
TONNES OF CO2
DOWN 10%
DOWN 1%
UP 4%
DOWN 10%
Bryan Daniels, winner of Overall and
Sustainable Farming Grassland Farmer
of the Year at Teagasc Grass10 in 2020,
with his wife Gail and three children.
EMPLOYEE
COMMUTING
IT & PAPER
FUEL (OIL & GAS)
& REFRIGERANTS
ELECTRICITY
4,764
TONNES OF CO2
DOWN 10%
TONNES OF CO2
557
DOWN 17%
externally, and ESG considerations are integrated in
4,287
671
Corporate and Institutional Business Banking (CIB)
credit applications. Qualitative statements relating to
climate risk have been integrated into our Material
Risk Assessment (MRA) and Risk Appetite Statement
(RAS). We launched a Responsible Supplier Code in
2020, setting out our expectations for suppliers in
relation to carbon reporting and sustainability practice.
And we stood up a multi-year programme to deliver
on emerging regulatory requirements and our own
climate risk ambition, including integration into our
Risk Management Framework.
4,478
DOWN 6%
TONNES OF CO2
4,209
14,321
Metrics and Targets
10,025
We have a number of net zero long-term targets,
TONNES OF CO2
which were approved by our Board. We have annual
green lending targets in place, we disclose our green
financing and operational footprint metrics, and we
are quantifying the emissions intensity of our loan
book. We are committed to setting science-based
return flights from
targets in collaboration with the Science Based
Dublin to London!
Targets initiative (SBTi).
17,883
DOWN 30%
This saving is equivalent to
the emissions avoided from
THIS YEAR WE REDUCED
OUR CARBON FOOTPRINT BY 16%
OUR ENVIRONMENTAL IMPACT
OUR CARBON REDUCTION PATHWAY1
LOOKING AHEAD – WHERE OUR ENERGY IS FOCUSED
24,559
TONNES OF CO2e
25K
20K
15K
10K
19,528
TONNES OF CO2e
POWER PURCHASE AGREEMENT
PROPERTY FOOTPRINT
14,809
TONNES OF CO2e
REMOVAL OF OIL AND GAS HEATING
WAYS OF WORKING
2014
2018
2019
SCIENCE BASED TARGETS
AIB’s Scope 1 & 2 emissions have reduced by 40% from 2014
All fuel energy related activities (electricity, gas, business travel, employee commuting) exclude well-to-tank emissions. These are the upstream emissions associated with extracting,
refining and transporting fuel/energy to the end-user. Total well-to-tank emissions are 5,512 tonnes of CO2e.
For more details, see our Sustainability Report 2020, which is
available on our website: aib.ie/sustainability
1. Our CO2 emissions are reported one year in arrears. Emissions reported in 2020 were generated in 2019.
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Annual Review
AIB Group plc Annual Financial Report 2020
AIB IN OUR COMMUNITIES
OUR AIB TOGETHER
COMMUNITY
PROGRAMME
AIB and our people have a long history of fundraising, both locally and nationally. In
2020, this came to the fore, with funds being raised and going to vital causes during
the COVID-19 pandemic. AIB Together is our bankwide community programme,
partnering with charities FoodCloud, Soar, ALONE, Pieta, Age NI and Age UK and
creating volunteering opportunities for employees. Here are just some examples
of the fundraising initiatives that took place across AIB in 2020.
THE AIB
COVID FUND
In April, we launched the AIB COVID
Fund, matching money raised by staff
to support our charity partners during
the pandemic. In 2020, over €700,000
was donated from this fund in total.
ENABLING PIETA,
ALONE, AGE NI
& AGE UK
In 2020, our fundraising enabled: Pieta to
provide 7,700 hours of critical counselling
services to those in distress; ALONE to
support 15,000 older people facing a
variety of challenges across Ireland; and
Age NI and Age UK to provide over 14,000
Dementia Care Sessions and over 7,000 Day
Care Sessions and answer 23,330 calls from
older people who needed support.
OUR PARTNERSHIP
WITH FOODCLOUD
FoodCloud is a multi-award-winning social enterprise that
enables the redistribution of surplus food from industry to
the charity sector. 2018-2020 marked our first three-year
partnership with FoodCloud, helping to triple its impact in
that time. We share FoodCloud’s vision of building more
sustainable communities where no good food goes to waste,
and we’re so happy to embark on another three-year journey
with this incredible organisation.
BRANCH
NETWORK
CHARITY
RESPONSE
At the onset of the pandemic,
every branch was provided
€1,000 or £1,000 to help support
local community efforts. As a
result, AIB supported over 600
local charities in 2020.
AIB Group plc Annual Financial Report 2020
Annual Review AIB In Our Communities
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1
2
3
4
5
6
AIB ALL
TOGETHER
In June, our people came
together on one day for an AIB
‘All Together’ 5km virtual walk
and raised over €55,000 for our
partner charities.
VIRTUALLY
FUNDRAISING
Some of our annual charity initiatives went online
and together we raised: €40,000 for Movember;
€23,000 for Focus Ireland’s ‘Shine a Light’ appeal,
and; €25,000 for Temple Street.
HELPING TEENS SOAR
Soar delivers early-intervention, preventative
wellness workshops for teenagers. In 2020, AIB’s
partnership helped shift these workshops online
and develop longer-term programmes.
THE TOUGHEST
SEASON
In December, we commissioned The
Toughest Season photobook – a collection
of images from an extraordinary season
in GAA – all proceeds of which go to our
charity partners.
TECH2STUDENTS
In April, we partnered with Trinity College
Dublin’s Tech2Students Programme
to provide 450 disadvantaged students
with laptops.
24 YEARS
OF JUNIOR
ACHIEVEMENT
We have partnered with Junior
Achievement Ireland since its inception
in 1996, and over 1,000 of our colleagues
have helped kids understand the
importance of education. In 2020, 47,000
students in 549 schools benefited from
Junior Achievement Ireland programmes.
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Non-Financial Statement
Annual Review
Annual Review
AIB Group plc Annual Financial Report 2020
AIB Group plc Annual Financial Report 2020
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.
We have set out information on our business
model on pages 4-6 of this report and below
offers some high-level information to provide an
understanding of the development, performance,
position and impact of our activity in the four non-
financial matters. We have provided references to
supplemental information in this report and in our
Sustainability Report 2020, which is published to
the Global Reporting Initiative (GRI) Standards.
In AIB, policies and codes are in place to enable
us to operate our business in a responsible and
sustainable way. Below we have set out some
of the key policies related to Non-Financial
Reporting Directive (NFRD) requirements, and
provided links to the associated principal risks
and key performance indicators (KPIs) for each
matter. Our Sustainability Report 2020 contains
more information.
ENVIRONMENTAL MATTERS
POLICIES
DESCRIPTION
Environmental Policy
Our Environmental policy, sponsored by the Chief Operating Officer designate, is focused on the direct impact of our
own operations on the environment, including minimising harmful emissions and the consumption of materials and
natural resources. It is publicly available on aib.ie/sustainability and reviewed annually. AIB is certified to ISO 14001 for
environmental management.
Energy Policy
We are committed to conducting our business and operations as energy efficiently as possible. Our Energy policy,
sponsored by the Chief Operating Officer, sets out the key principles that underpin decisions we make to deliver
continuous improvement in energy consumption. It is publicly available on aib.ie/sustainability and reviewed annually.
AIB is certified to ISO 50001 for energy management.
Group Credit Risk
Policy
In July 2020, we published a list of excluded business activities; those activities with negative environmental impacts
such as deforestation and nuclear power generation. Initially, this was implemented in parts of our CIB segment. It
has been incorporated into our Group Credit Risk policy, which supports the management of Credit Risk across the
Group. The policy rules now prohibit providing new money for any term lending facilities to businesses, or any of their
subsidiaries, involved in the excluded business activities. This policy was approved by our Board in October 2020. Since
29 January 2021, this rule applies to all business customers with a Gross Connected Exposure of >£/€300k and who are
relationship-managed. The list is publicly available on aib.ie/corporate/sector-expertise/excluded-activities.
Project Finance
Policy
Our Project Finance policy, approved by our Group Credit Committee, guides our climate-related lending assessments
and decisions for long-term infrastructure, industrial projects and public services. Within credit assessment due diligence,
assets that are likely to have significant effects on the environment by virtue of their size, nature or location must undergo
an environmental impact assessment (EIA) which will have to be submitted to competent authorities when applying for
project development. AIB may rely on analysis provided by external parties to support our assessment.
KPIs
Our main KPIs for environmental matters are Reduction in Emissions and Green Finance metrics, set out in our
Non-Financial Performance on page 3.
Principal Risks
Operational Risk (see page 164) and Credit Risk (see page 87).
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AIB Group plc Annual Financial Report 2020
AIB Group plc Annual Financial Report 2020
Annual Review Non-Financial Statement
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41
SOCIAL & EMPLOYEE MATTERS
POLICIES
DESCRIPTION
Code of Conduct
Diversity
& Inclusion Code
Our Code sets out how we are expected to behave in a manner consistent with our values and asks us, individually and
collectively, to Do the Right Thing. It applies to anyone working in AIB. All employees are required to adhere to our Code
of Conduct and complete a declaration of compliance with our Code as part of their annual performance management
process. Annual e-learning on the Code is mandatory for all employees. We report annually to the Board Audit
Committee on the Code; on training completed on it and any breaches. The Code is available on aib.ie/sustainability.
The ethos of our Diversity & Inclusion Code is that respecting, developing and harnessing the talents of all our employees
creates an inclusive and supportive organisation that delivers a superior experience for all our customers, provides an
extraordinary place to work for our employees, and brings an appropriate financial return for our shareholders and
the economies within which we operate. It operates as part of a suite of policies and standards that support our
Code of Conduct. It is available on aib.ie/sustainability.
Health
& Safety Policy
The safety of our customers and employees is paramount. Our Health & Safety policy forms part of our Safety Statement.
It sets out the practical steps each of us must take to ensure the safety of our employees, customers, contractors, visitors
and our workplaces, and defines and communicates the roles and responsibilities for health and safety throughout AIB.
It is supported by training (online and classroom options) and regular accident awareness communications.
We report annually to the Board on health and safety activities. While over 80% of our employees were able to work from
home during the pandemic, to ensure that employees who needed to be onsite knew how to be safe in the workplace,
we developed an e-learning course: Working Safely in AIB During the COVID-19 Pandemic. We implemented robust
structures and new practices to support a sustained service while protecting customers and employees.
Social Housing Policy
Our Social Housing policy, which is part of our Credit Risk policy suite, supports lending to our customers for social
housing and helps us to manage and mitigate the associated risks. Credit Risk develop and maintain policies to ensure
responsible lending practices, aligned with our Risk Appetite Statement (RAS). It was approved by our Group Credit
Committee.
KPIs
• Code of Conduct training – In 2020, 93.2% of employees completed this training. We target a completion rate of 90%
annually, to allow for staff who are on leave during the training period. On returning from leave, employees are
expected to complete the training.
• Diversity – Women as a % of management is one of our non-financial performance metrics – see page 3. At year end
we had 56% female representation on both our Board and Executive Committee.
• Social housing finance – In 2020, we launched a new €300m social housing fund to help approved housing bodies and
developers deliver more than 2,000 social housing units.
Principal Risks
People and Culture Risk (see page 167) and Credit Risk (see page 87).
RESPECT FOR HUMAN RIGHTS
POLICIES
DESCRIPTION
Human Rights
Commitment
Code of Conduct
Responsible
Supplier Code
Modern Slavery
Statement 2020
Our Human Rights Commitment sets out how AIB is complying with all of the applicable laws and respecting the
internationally recognised human rights. This commitment applies to all of the relationships that AIB establishes with
our customers, suppliers, employees and the communities in which we operate. As it was recently launched, we will
undertake a due diligence process in 2021 to identify any remedies required and continue to embed the reporting
across the Group.
Our Code sets out how we are expected to behave in a manner consistent with our Values and asks us, individually and
collectively, to Do the Right Thing. It applies to anyone working in AIB. We don’t partner with or buy from organisations
that we know to breach human rights or fair practices. Annual e-learning on the Code is mandatory for all employees.
We report annually to the Board Audit Committee on the Code, on training completed on it and any breaches. It is
available on aib.ie/sustainability.
Launched in October, our Responsible Supplier Code sets out our expectation that our suppliers conduct their business in
a fair, lawful and honest manner with all their stakeholders, employees, subcontractors and other third parties. It includes
expectations on human rights, health, safety and welfare, supply chain, diversity and inclusion. Suppliers are expected to
comply with it, along with all applicable laws, regulations and standards in the countries in which business is conducted.
Our suppliers may be asked to provide a written attestation that they have read and understood the Code and will abide
by it. It is available on our Suppliers Portal on aib.ie/suppliers.
AIB recognises our responsibility to comply with all relevant legislation, including the UK Modern Slavery Act 2015, and
we release an annual AIB Group Statement on Modern Slavery. Our 2020 statement, published in July, sets out the steps
we took during 2019 to prevent modern slavery and human trafficking (“Modern Slavery”) in our business and supply
chains. An update will be published later in 2021. The current statement is available on aib.ie/content/dam/aib/group/
Docs/modern-slavery-statement-2020.pdf
42
Non-Financial Statement
Annual Review
Annual Review
AIB Group plc Annual Financial Report 2020
AIB Group plc Annual Financial Report 2020
RESPECT FOR HUMAN RIGHTS CONTINUED
POLICIES
DESCRIPTION
Data Protection
Policy
This policy is part of the Regulatory Compliance Risk Management Framework. It aims to ensure that processes and
controls are in place to minimise the risk of unfair or unlawful data processing and all employees understand the
responsibilities and obligations that must be adhered to under Data Protection regulation. It applies to our entire
operation, including our suppliers. Material changes to the policy must be approved by our Group Risk Committee. While
this policy is not publicly available, our Data Protection Notice and other information, including information on customers’
data rights, is available on aib.ie/dataprotection.
Data Ethics
Principles
In 2020 we published our Data Ethics Principles. These principles will ensure we continue to take an ethical approach on
topics like data privacy, fairness, transparency and equity, by applying them to all our data activities in areas like AI and
algorithmic design and data-driven technology development.
KPIs
We report on these metrics annually in our Sustainability Report:
• Breaches of data privacy – In 2020, we received 24 complaints from the Data Protection supervisory authorities in
Ireland and the UK regarding breaches of data privacy. The majority of these complaints related to alleged failures to
comply with data subject access requests. Nineteen of these complaints were closed by the supervisory authorities
following engagement with AIB.
• Personal data breaches – In 2020, we reported 133 breaches under GDPR to the Data Protection supervisory authorities
in Ireland and the UK. While these may include losses of customer data or inaccuracy, the majority of the breaches we
reported related to unauthorised disclosure of personal data.
Principal Risks
People and Culture Risk (see page 167), Operational Risk (see page 164) and Regulatory Compliance Risk (see page 165).
BRIBERY & CORRUPTION
POLICIES
DESCRIPTION
Anti-Bribery &
Corruption Policy
AIB believes in open and fair competition. We do not engage in or accept any form of bribery, collusive anti-competitive
discussions or agreements. We do not abuse our position in any of the markets that we operate in to gain unfair
or unethical advantage. This policy complies with applicable anti-bribery and anti-corruption legislation
in all the jurisdictions in which we operate. It forms part of our Code of Conduct and it is publicly available on
aib.ie/sustainability.
Conflicts
of Interests Policy
Financial Crime
Policy
Conflict of interest situations may arise between the interests of two or more parties, (whether directly or indirectly
involved) in any situation. It is the result of any activities, interests or relationships that interfere with (or appears to
interfere with) the ability of employees, agency workers or contractors, or of AIB to act in the best interests of our
customers, employees, or AIB as an organisation. This policy provides a clear statement of the standards for recognising
and preventing potential conflicts of interests and for managing conflicts of interests where they cannot be avoided. All
employees are required to complete annual Conflict of Interests training which includes anti-bribery and anti-corruption
matters. The policy forms part of our Code of Conduct and it is publicly available on aib.ie/sustainability.
In AIB we have a robust Financial Crime Framework, which includes our Financial Crime policy and standards on Anti-
Money Laundering (AML)/Countering the Financing of Terrorism (CFT), Fraud and Group Sanctions. The policy and
standards are embedded within our operating procedures. They set out the general principles that will assist AIB in
detecting and preventing money laundering, terrorist financing and fraud, and protect the bank and its employees from
being misused for criminal purposes. All employees are required to complete annual mandatory training in financial
crime. Customer-facing employees, employees involved in the investigation of suspicious activity and compliance
employees are required to complete additional bespoke training for their roles at least annually. Our Board receives
regular bespoke training on financial crime issues from our Money Laundering Reporting Officer.
KPIs
Conflicts of Interests training – 91.5% completion in 2020. We target a completion rate of 90% annually, to allow for staff
who are on leave during the training period. On returning from leave, employees are expected to complete the training.
Principal Risks
Regulatory Compliance Risk (see page 165) and Conduct Risk (see page 166).
For more details, see our Sustainability Report 2020, which is
available on our website: aib.ie/sustainability
AIB Group plc Annual Financial Report 2020
AIB Group plc Annual Financial Report 2020
Annual Review Non-Financial Statement
Annual Review
43
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44
Governance in AIB
Annual Review
AIB Group plc Annual Financial Report 2020
GOVERNANCE IN AIB
OUR CORPORATE
GOVERNANCE
IN ACTION
Strong corporate governance underpinned the Board’s decision-making
throughout 2020 as it managed the impacts of the COVID-19 pandemic.
In considering the far-reaching impacts of 2020’s
global events on each of AIB’s five stakeholder
groups, the Board devoted substantial time to
ensure stakeholder impacts were thoroughly
assessed and all decisions were taken in a
considered, timely manner. From March to
the end of June, the Board met on a weekly
basis to deal with the challenges arising from
the COVID-19 pandemic, which impacted all of
our stakeholders. We continue to implement our
corporate governance standards by way of a
comprehensive and coherent suite of frameworks,
policies and procedures.
Such procedures were robustly tested in 2020 as
the Board, and AIB Group as a whole, transitioned
to operating from multiple locations and through
various means of technology. Since March,
we have held all our Board and Committee
meetings virtually, with minimal disruption
to the Board fulfilling its mandate.
Although the major focus of the year was on the
pandemic, the scale and impact of which was
unforeseen, the Board continued to strengthen
the Group’s corporate governance standards.
In order to enhance collective skills and experience,
we added a new Board Advisory Committee –
the Technology & Data Advisory Committee –
and proceeded with a number of director search
processes. An overview of the Board’s focus
throughout 2020 is available on page 180.
See an overview of the Board’s governance
structure below:
AIB GROUP BOARD
BOARD AUDIT
COMMITTEE
BOARD RISK
COMMITTEE
REMUNERATION
COMMITTEE
NOMINATION
& CORPORATE
GOVERNANCE
COMMITTEE
SUSTAINABLE
BUSINESS
ADVISORY
COMMITTEE
Independently
oversees the quality
and integrity of the
Group’s accounting
policies, financial
reporting and
disclosure, internal
control framework
and audit, as well
as the mechanisms
through which
employees may
raise concerns.
See page 188 for
further information.
Fosters sound risk
governance across
the Group’s
operations,
overseeing risk
management
and compliance
frameworks to
include the risk
appetite profile
and the overall risk
awareness across
the Group.
See page 193 for
further information.
Oversees the design
and implementation
of the Group’s
Remuneration Policy
and the operation of
remuneration policies
and practices with
particular reference
to certain senior
management.
See page 199 for
further information.
Oversees Board and
Executive Committee
succession planning
and keeps the
Board’s governance
arrangements
and corporate
governance
compliance
under review.
See page 196 for
further information.
Supports the
Group’s sustainable
business strategy,
which includes the
development and
safeguarding of the
Group’s social license
to operate.
See page 181 for
further information.
TECHNOLOGY
& DATA ADVISORY
COMMITTEE
Reviews and
challenges the
strategy, governance
and execution of
matters relating to
technology and data.
See page 182 for
further information.
BOARD
COMMITTEE
BOARD
COMMITTEE
BOARD
COMMITTEE
BOARD
COMMITTEE
ADVISORY
COMMITTEE
ADVISORY
COMMITTEE
AIB Group plc Annual Financial Report 2020
Annual Review Governance in AIB
45
AIB NON-EXECUTIVE DIRECTORS
AS AT 31 DECEMBER 2020
GENDER DIVERSITY
AGE
BOARD TENURE
NATIONALITIES
1
2
3
4
5
6
Female: 5 Male: 3
46-55: 3 56-65: 5
0-3 years: 5 3-6 years: 3
Irish: 6 British: 1 American: 1
In 2020, the Board continued
to meet from multiple locations
through various means of technology.
46
Governance in AIB
Annual Review
AIB Group plc Annual Financial Report 2020
GOVERNANCE IN AIB
STAKEHOLDER
ENGAGEMENT
While the manner of engaging with many of our stakeholders may have changed during
the year, our consideration of all stakeholders in decision-making remained steadfast.
Our Board’s approach 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. While not directly applicable to the Group due to it
being a provision of UK Company Law, the Board recognises
section 172 of the UK Companies Act 2006 and acknowledges
the benefits of considering the spirit intended by such
provisions as part of its decision-making process. Below are
a number of examples that, at a high level, demonstrate
our strong governance standards and consideration of AIB’s
five stakeholder groups when making decisions. Additional
information on considerations of our stakeholders is available
in this Annual Financial Report on pages 24 to 35 where
the strategy is presented through the lens of each of the
Strategic Pillars including Customer First, Talent & Culture,
and Sustainable Communities, as well as within the Corporate
Governance Report on page 180.
OUR
STAKEHOLDER
GROUPS
OUR
CUSTOMERS
OUR
EMPLOYEES
OUR
INVESTORS
SOCIETY
REGULATORS
COVID-19 RESPONSE - SOLUTIONS & EMPLOYEE ENGAGEMENT
Following the onset of the COVID-19 pandemic, the Board met weekly to ensure urgent delivery of COVID-19 payment break solutions to our customers
while meeting evolving regulatory requirements. The Board reviewed, challenged and approved a number of necessary changes to credit policies to
enable AIB Group to provide this vital support to our customers. These changes, coupled with the hard work and dedication of our employees, ensured
that payment breaks, new loans and supports and simplified customer journeys were available throughout 2020. The Board also considered the policy
changes required in the provision of low-cost loans to SMEs, through the Strategic Banking Corporation Ireland’s (SBCI) Credit Guarantee and Future
Growth Loan Schemes.
Though the COVID-19 pandemic hugely impacted society as a whole, the Board sought to minimise the negative impacts on AIB employees as far as
practicable and to support them in a variety of ways. The Board supported a structured communications plan to keep employees informed of the supports
available to them and rolled out three regular Check-in Surveys to gauge how employees were dealing with the impacts on their work and personal lives.
We put supports in place to ensure employees could manage their family needs while continuing to support our customers in a timely and compassionate
way. These supports included paid leave for childcare or on compassionate grounds – particularly for those who were partners of frontline workers –
provision of office equipment at home and a range of online wellbeing supports. Furthermore, we introduced a number of work/life balance guiding
principles, including a Right to Disconnect, alongside an emphasis on the importance of mental health. The Board routinely discussed with management
the effectiveness of these initiatives to fully understand how employees were coping throughout the pandemic, from both a physical and mental
perspective, and to ensure appropriate supports at all times.
The onset of the pandemic also accelerated a change in how, and where, our employees work. Through the strategic review process, the Board
considered AIB’s future property strategy. Following employee engagement, and in response to that engagement as well as a number of additional
strategic considerations, the Board approved the revised Group Property Strategy. This strategy will facilitate greater flexibility in future working
arrangements for employees, as well as giving due consideration to potential cost savings, reduction in carbon emissions and the related impacts
on our medium-term targets for the benefit of our investors.
IMPACTED STAKEHOLDERS:
BREXIT
Preparation for Brexit continued at pace throughout 2020 through three dedicated workstreams: Operational Contingency; Products & Customer
Solutions, and; Business Response. Throughout the year, the Board received updates from, and supported the efforts of, the internal Brexit Steering
Group, which was leading the workstreams. Importantly, the Products & Customer Solutions workstream was tasked with ensuring product readiness
for all potential post-Brexit scenarios, as well as standing up robust external and internal communication plans, appropriate employee training
and a dedicated Brexit phoneline to support customers. This preparation has allowed AIB to make a smooth transition to the post-Brexit operating
environment and support our customers.
IMPACTED STAKEHOLDERS:
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3
4
5
6
AIB Group plc Annual Financial Report 2020
Annual Review Governance in AIB
47
STRATEGY DEVELOPMENT
In light of the changing world events, the Group’s agreed strategy for 2020-22 underwent significant review and challenge during 2020 to ensure
it was appropriately refocussed and its delivery would enable AIB to meet our medium-term financial targets by 2023. The strategy review was
informed by the global themes of sustainability, digitalisation and future ways of working. Stakeholder impacts and considerations were a key focus
in the Board’s review, challenge and approval of the revised Strategy during 2020 when the Directors came together virtually from multiple locations in
November over a two-day meeting.
IMPACTED STAKEHOLDERS:
SUCCESSION PLANNING
Succession planning for the Board and Executive Committee continued to be a key area of focus of the Nomination and Corporate Governance
Committee and the Board as a whole. In each process, the Board considered the importance of diversity in line with the Board Diversity Policy and we
continue to exceed our stated targets in this area.
2020 saw the retirement of Mr Richard Pym, Chair, Mr Tom Foley, Senior Independent Director, and the resignation of Mr Tomás O’Midheach,
Chief Operating Officer and Executive Director. To ensure the continued strength of the Group’s leadership, the Board prioritised succession planning.
In light of these efforts, at the time of writing, a number of appointments were made conditional on the satisfactory completion of the regulatory
fitness and probity approval processes underway. Following conclusion of his regulatory fitness and probity process, we are pleased to introduce
Fergal O’Dwyer who joined the Board as a Non-Executive Director and member of the Board Audit Committee on 22 January 2021. Further
announcements will be made as soon as practicable. The succession plan for both the Board and Executive Committee is well positioned to
ensure the strength of leadership going forward.
IMPACTED STAKEHOLDERS:
CULTURE PROGRAMME
Throughout 2020 the evolution of culture remained a strong area of focus for the Board, and in early 2020, the Board was actively involved in
defining a new set of values for the organisation. There are five values – Drive Progress, Own the Outcome, Show Respect, Eliminate Complexity
and Be One Team – which centre on our purpose to back our customers to achieve their dreams and ambitions. Each of the values is underpinned
by specific behaviours.
The Board remains committed to taking a leadership role in ensuring that the culture at AIB continues to evolve, and incorporates an appropriate risk
culture. As we look to our five stakeholder groups, success for us is only achieved when all of our respective stakeholders see the culture in AIB, and
indeed the industry, as having changed for the better. In addition, the Board is committed to supporting the work programme of the Irish Banking
Culture Board (IBCB). The Chair and CEO of IBCB joined the October Board meeting to share their views and work programme for the coming years.
Finally, the Board welcomed the survey that was issued in February 2021 by the IBCB to all employees of the five member banks in order to examine
culture and behaviours. We will work on the outputs of that review with the same rigour that we have applied to AIB’s own culture evolution, and
augment our programme in line with such outputs as necessary.
IMPACTED STAKEHOLDERS:
48
Risk Summary
Annual Review
AIB Group plc Annual Financial Report 2020
RISK SUMMARY
HOW WE MANAGE RISK
In AIB, we use a dynamic risk management process to guide and protect
our purpose to back our customers to achieve their dreams and ambitions.
In AIB, Risk & Capital is one of our five strategic pillars
and the management of risk is recognised as a critical
component in the attainment of the Group’s strategy. We
implement a strong risk management approach to protect
our customers and mitigate risks. We achieve this through
identifying the Principal Risks and Uncertainties, including
the key Emerging Risk Drivers, that could adversely impact
our customers, our other stakeholders, our business and the
delivery of our strategic objectives. Principal Risks are those
risks that could have a material adverse effect on the Group.
The Emerging Risk Drivers, should they occur, will materially
impact on one or more of the Principal Risks.
The description of the Risk Management Framework is set
out on pages 80 to 86. This provides more detail on the
key elements of how we manage risk within the Group,
including the three lines of defence, our risk committee
structure and the setting of our risk appetite.
Risk Developments in 2020
COVID-19 has had a pervasive impact on our operations as
well as our customers’ livelihoods and businesses. During
2020, our priorities have been to support our customers,
protect our people, maintain the Group’s strong capital
position and improve operational resilience. Risk provided
significant input and oversight to ensure appropriate
responses were put in place.
To that end, over 66,000 customer solutions were
implemented in Retail Banking during 2020. We have
engaged actively with customers during this period, with
the vast majority of impacted customers 88% having
now returned to normal payment schedules. To facilitate
this support most effectively, we ensured that our digital
channels were enhanced.
To mitigate the operational risks arising from these
changes, Risk provided assurance on the customer
solutions to ensure that they were fit for purpose for
customers and implemented appropriately. The risk of
financial crime continues to be a key focus for the Group,
with Risk providing oversight over the Group’s controls
and specifically delivering bespoke, virtual, training to all
staff and Directors of the Group over the course of 2020,
covering such themes as money muling, human trafficking
and emerging trends.
During 2020, we completed the capital issuance of AT1 and
Tier 2 instruments. We assessed our medium- and long-
term capital positions across a range of possible scenarios
with significant and long-lasting COVID-19 effects. Even
under severe scenarios, our capital and liquidity position
remains robust.
Brexit
The Group prepared extensively for the UK’s exit from the
European Union since the Brexit vote in 2016. The Group
has not suffered any material negative impact to date but
we continue to closely monitor the impact the EU-UK Trade
and Cooperation Agreement is having on our customers
and the wider economy.
Sustainability and Climate Change
AIB is committed to being a leader in the necessary
transition to a low-carbon economy and we continue to
integrate climate risk into our overall risk management
approach and broader sustainability strategy. In 2020,
under the Green Bond Framework, the Group successfully
raised €1bn to support lending to environmental
and climate-related initiatives. Additionally, we have
implemented specific sector exclusions into our Credit Risk
Policy, which sets out the sectors to which the Group does
not have an appetite to lend. Further detail is provided
on page 85.
Cyber Risk and Information Security
The threat from information security and cyber risk
continues to grow as a result of increased digitalisation and
sophisticated techniques. These threats increased in 2020,
particularly in social engineering and Distributed Denial
of Service (DDOS) techniques. Our controls are based on
the principles of prediction, prevention, detection and
response. The AIB cyber control environment withstood
a number of attempted attacks during 2020, preventing
customer impact and maintaining system and service
availability. Further detail is provided on page 85.
Business Model and Operating Environment
Throughout 2020, in response to the evolving macro-
economic backdrop of the global pandemic, the Group
closely monitored the potential risks to our business model
and capital, including expected credit loses (ECLs) and
the cost of surplus liquidity. This was achieved through
regular re-forecasting and ad hoc scenario stress testing
to determine the full range of potential outcomes. During
the year, we reviewed the risk appetite of the Group more
frequently, to ensure it was appropriate for the evolving
external environment.
HOW WE MANAGE RISK
Linking Risk Management to Strategy
Our strategic objectives are established and approved
by the Board. Our approach to risk management directly
supports the achievement of Board-approved strategic
objectives by responding to changes in risk and prompting
action to address those risks. For example, in response to
the COVID-19 pandemic, we performed more frequent
assessments of the Emerging Risk Drivers.
The Emerging Risk Drivers are set out in the table below
and the following pages include the linkage of these Risk
Drivers for each of the Principal Risks.
AIB Group plc Annual Financial Report 2020
Annual Review Risk Summary
49
1
2
3
4
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EMERGING RISK DRIVER
TREND IN
2020
MITIGANTS
FURTHER RESTRICTIONS
DUE TO COVID-19
COVID-19 has increased risk across
different dimensions, including a
significant impact on our customers.
The long-term economic outlook
continues to be uncertain in relation
to timing and length of public health
restrictions and the efficacy of vaccines.
Increasing
Risk
• We have provided over 66,000 customers with reduced payment requirements
in 2020 and continue to work closely with our customers in difficulty
• We reviewed our risk appetite and have enhanced our Credit Risk monitoring
processes to ensure current information on asset quality information is
available through this volatility
• We have applied a prudent forward-looking approach to ECLs and in our
assessment of capital adequacy, taking account of the potential impact
of COVID-19 in 2021 and beyond
• We continue to perform stress tests, across a range of scenarios, reflecting
elevated volatility to identify potential sectors that may come under stress to
identify management strategies
GEOPOLITICAL RISKS
The trends in recent years for growing
geopolitical tensions continued
in 2020. This risk can originate from a
variety of sources, such as trade wars,
global taxation rules and increased
political instability.
• We continue to incorporate geopolitical risks in scenarios assessing
adequacy of provisions and capital in these scenarios
Stable
• We maintained an Executive-led Brexit steering group through 2020 to
ensure all aspects of the UK withdrawal and the end of the extension
period were closely managed and will continue until further clarity emerges
• We continue to monitor and adjust our risk appetite where the uncertainty
requires a more conservative outlook
INFORMATION SECURITY
AND CYBER THREATS
Cyber attacks continue to increase
globally each year, potentially
impacting customers through fraud
and the Group through accessing
payments systems or customer data.
• We continue to invest in the resilience of our IT systems, including our
cybercrime controls
Increasing
Risk
• We continue to enhance staff education in relation to identifying potential
cyber attacks and continue to regularly complete phishing tests
• We continue to communicate with, and educate our customers on, fraud
threats, both directly and through the BPFI FraudSMART initiative
COMPETITION
Competition continues to increase,
particularly in the mortgage market
with new entrants announced in
2020 and continued competition
from fintechs.
• We continue to see our significant in-depth knowledge of our core markets as
a competitive advantage and have enhanced our digital and physical offerings
to reflect changing customer expectations
Stable
• Our product offering has expanded and we continue to examine robust
approaches to improve our offering to our customers
CHANGING REGULATORY
EXPECTATIONS
A variety of regulations were changed
throughout 2020 and regulatory
expectations continue to evolve.
Increasing
Risk
• We continue to work closely with our regulators to ensure that new regulatory
requirements are implemented in an appropriate and effective way
• We continue to review decisions (e.g. approach to applying payment breaks to
customers) in a risk-focussed manner to minimise the risk of future regulatory
issues being identified
CLIMATE CHANGE
This incorporates both physical risks
(climate and weather-related events)
and transition risks resulting from the
process of adjustment towards a low-
carbon economy.
• We continue to enhance our measurement and management of the impact
of climate change on our credit portfolio and our business model
• We have developed a Board-approved three-year plan to significantly increase
Increasing
Risk
AIB’s ability to fully embed sustainability and climate change into all key
processes in the Group
• The incorporation of Sustainable Communities as a fifth pillar supporting our
strategic ambition drives the importance of this from the Board throughout
the Group
A
B
C
D
E
F
50
Risk Summary
Annual Review
AIB Group plc Annual Financial Report 2020
OUR PRINCIPAL
RISKS
BUSINESS
MODEL 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
The impact of significant external events,
e.g. the COVID-19 pandemic, on ability to
meet financial objectives.
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
• Material external events (e.g. COVID-19)
trigger comprehensive re-forecasting
and re-assessment of financial
objectives by the Board
Key Risk Indicators
• Operating profit
• Net Interest Margin (NIM)
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
• We create long-term shared value
in a sustainable way for our customers,
stakeholders and the communities
in which we live and work
• We conduct our business by putting
the customer first and doing the
right thing
CUSTOMER
FIRST
SIMPLE
& EFFICIENT
RISK
& CAPITAL
TALENT
& CULTURE
SUSTAINABLE
COMMUNITIES
CAPITAL
ADEQUACY RISK
CONDUCT
RISK
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.
Key mitigating considerations
and controls
• Board approved and monitored risk
appetite limits covering key regulatory
and internal capital requirements
• Regular forward-looking assessment
of capital adequacy via annual Internal
Capital Adequacy Assessment Process
(ICAAP) and quarterly internal stress
testing, which considers a number of
scenarios including a base case,
moderate downside and severe
but plausible stress
• In response to material external
events, such as COVID-19, additional
scenarios considered through stress
testing to assess the full range of
potential outcomes
• Monthly reporting of the Group’s
capital metrics to the Group’s Asset
& Liability Management Committee
(ALCo)
• Capital contingency and recovery
planning activities
Key Risk Indicators
• CET1 ratio
• Fully loaded total capital ratio
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
The risk that inappropriate actions or
inactions by the Group cause poor
and unfair customer outcomes or
market instability.
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 Conduct Risk
• A suite of policy standards that clearly
define expected standards of
behaviour, including how we lend
responsibly and how we facilitate
vulnerable customers
• Mandatory conduct-related training
required to be completed by all staff
• The customer impacts of external
events (e.g. COVID-19) are considered
as part of our management of
Conduct Risk
Key Risk Indicators
• Number of complaints open beyond
33 days
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
• 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
Emerging Risk Drivers
A & F
+ Read more: pages 166 to 167
Emerging Risk Drivers
A, B, C, D & F
+ Read more: pages 168 to 169
Emerging Risk Drivers
A, B & F
+ Read more: page 156
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2020
Annual Review Risk Summary
51
CREDIT
RISK
FINANCIAL
RISK
FUNDING AND
LIQUIDITY RISK
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 and COVID-19
uncertainty) could impact profitability due
to higher-than-expected credit losses.
Key mitigating considerations
and controls
In response to the COVID-19 pandemic
and Brexit, we have additional measures
to mitigate Credit Risk i.e. additional
Credit Risk guidance documents,
enhanced portfolio asset quality
monitoring, case-specific reviews and
top-down COVID-19 vulnerable
portfolio/sector reviews.
Existing controls include:
• Board approved and monitored risk
appetite limits covering the key
dimensions of Credit Risk
• The Group implements and operates
policies to govern the identification,
assessment, approval, monitoring and
reporting of Credit Risk
• A specialised recovery function focuses
on managing the majority of criticised
loans and deals with customers in
default, collection or insolvency
Key Risk Indicators
• NPE outstanding as % of customer loans
• Migration to stage 2
Alignment to strategic priorities
and pillars
• We build long-term lending
relationships with customers that are
resilient through the cycle
• Our core market is in Ireland and
the UK.
Emerging Risk Drivers
A, B, D & F
+ Read more: pages 87 to 146
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 policies and risk
appetite limits
• Group market risk strategy, systems,
controls and monitoring
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 the macroeconomic
environment or to the Group’s credit
rating could deplete funding resources
and/or increase funding requirements
leading to a deterioration in the asset
quality of the liquidity buffer.
Key mitigating considerations
and controls
• Board approved and monitored risk
• The Group substantially reduces
appetite limits
our market risk through hedging in
external markets
• Regular oversight and monitoring
by ALCo of market risk positions and
exposures, including review of
hedging strategy
• In response to material external events,
such as COVID-19, additional controls
and regular monitoring of market risk
positions and exposures
Key Risk Indicators
• Earnings Sensitivity
• Interest Rate Capital at Risk (CaR)
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
Emerging Risk Drivers
A, B & F
+ Read more: pages 157 to 164
• Group funding and liquidity
strategy, policies, systems, controls
and monitoring
• Annual forward-looking Internal
Liquidity Adequacy Assessment
Process (ILAAP)
• The suite of liquidity stress tests
performed captures material external
events, such as Brexit and COVID-19,
with additional liquidity stress scenarios
considered to assess the full range of
potential outcomes
• Liquidity contingency and recovery
planning prescribed activities are
activated by material events, such as
COVID-19 and Brexit
Key Risk Indicators
• Liquidity Coverage Ratio (LCR)
• Survival Period
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
Emerging Risk Drivers
A, B, E & F
+ Read more: pages 147 to 155
52
Risk Summary
Annual Review
AIB Group plc Annual Financial Report 2020
MODEL
RISK
OPERATIONAL
RISK
PEOPLE AND
CULTURE 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
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 and the availability
of systems.
Key mitigating considerations
and controls
• Board-approved and monitored 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, and result of poor engagement of
staff working from home as a result of
COVID-19, could impact the achievement
of business objectives.
Key mitigating considerations
and controls
• Board-approved and monitored risk
appetite limits covering key dimensions
of model risk
appetite limits covering key dimensions
of Operational Risk
appetite limits covering key dimensions
of People and Culture Risk
• A Group Model Risk Framework
• The Group continues to invest
and supporting policies, including
model validation
• Senior executive committees monitor
and maintain oversight of the
performance of the Group’s models
Key Risk Indicators
• Quarterly risk assessment of
live models
Alignment to strategic priorities
and pillars
• We build models that are logical and
efficient with clearly understood aims
• We only use appropriately designed,
deployed and maintained models for
decision-making
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
Key Risk Indicators
• Cumulative operational risk losses
• Cyber security metric
Alignment to strategic priorities
and pillars
• We design and manage controls,
processes and systems according to
our risk frameworks and policies
• We develop and maintain highly
competent and skilled teams,
supported by appropriate data
governance structures and frameworks
• We ensure the management of critical
IT delivers exemplary levels of customer
access to our services as and when
they need it
Emerging Risk Drivers
A, B, E & F
+ Read more: pages 169 to 170
• We ensure that we have the right
talent, skills and capabilities within the
organisation to support accountable,
collaborative and trusted ways
of working
• 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
Key Risk Indicators
• Senior role attrition
• Staff engagement survey
Alignment to strategic priorities
and pillars
• We retain and recruit talented staff to
support our future strategic plans
• 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 inaction and actions taken
Emerging Risk Drivers
A, D & F
+ Read more: pages 167 to 168
• We ensure that all products are
appropriately designed
Emerging Risk Drivers
A, C & F
+ Read more: pages 164 to 165
AIB Group plc Annual Financial Report 2020
Annual Review Risk Summary
53
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2
3
4
5
6
REGULATORY
COMPLIANCE RISK
The risk of legal or regulatory sanctions
or failure to protect market integrity
could result in material financial loss,
reputational damage or negative
customer outcomes.
Example
Failure to comply with laws, regulations,
or rules, for example Data Protection,
Anti-Money Laundering, Countering
Terrorist Financing, Financial Sanctions
and Modern Slavery, as well as internal
standards and codes of conduct, could
result in regulatory sanction or
detrimental customer impact.
Key mitigating considerations
and controls
• Board-approved and monitored risk
appetite limits
• Training is provided to staff on the
Group’s frameworks and policies for
regulatory compliance and reporting
• Identification, assessment and
monitoring of new or changing laws
and regulations, including collaboration
with industry bodies
• The regulatory implications of external
events (e.g. COVID-19 and Brexit) are
analysed and communicated across
the Group
Key risk indicators
• Regulatory correspondence failures
• Number of data protection incidents
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
• We do not have relationships with,
or knowingly process transactions
involving, companies or individuals
operating from/residing in an Extreme
High Risk Country
Emerging Risk Drivers
A, B & F
+ Read more: pages 165 to 166
54
Board of Directors
Annual Review
AIB Group plc Annual Financial Report 2020
OUR BOARD
OF DIRECTORS
BRENDAN
MCDONAGH
Independent Non-
Executive Director and
Deputy Chair
Date of appointment
27 October 2016
24 October 2019:
Deputy Chair
Nationality: Irish
CAROLAN
LENNON
BASIL
GEOGHEGAN
ELAINE
MACLEAN
HELEN
NORMOYLE
Senior Independent
Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Date of appointment
27 October 2016
Date of appointment
4 September 2019
Date of appointment
4 September 2019
Date of appointment
17 December 2015
Nationality: Irish
Nationality: Irish
Nationality: British
Nationality: Irish
COMMITTEE MEMBERSHIP AND TENURE (as at 31 December 2020, in years or months)
Ri
Ri
A
R
N
Ri
S
4 y
1 y
2.5 y
2 y
1 y
3.5 y 3.5 y
Ri
1 y
A
1 y
R
1 y
N
N
1 y
NN
2 m
S
N
T
4.5 y
7 m 1 m
SKILLS, EXPERTISE AND EXPERIENCE
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. Brendan
was appointed Deputy
Chair with effect from 24
October 2019.
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.
Carolan was appointed
Senior Independent
Director with effect from
29 April 2020.
KEY EXTERNAL APPOINTMENTS
Basil is a partner in the
Strategic Advisory Group
at PJT Partners, in 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.
Elaine is a highly
experienced human
resources director
specialising in financial
services and retail.
Following her early retail
career with Harrods,
Windsmoor and later as
Retail Operations Director
and Human Resources
Director with Arcadia,
Elaine moved to financial
services 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 started her career
working for Infratest+GfK,
based in Germany. She moved
to Motorola, as Director of
Marketing and 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. She most recently
held the office of Marketing
Director of Boots UK and
Ireland and also Chair and
Director of the Boots Charitable
Trust until November 2020.
Helen is the co-founder of
My Menopause Centre.
Chief Executive Officer of eir
Chairman of daa plc
None
None
Sits on the Council of
Patrons for Special
Olympics Ireland
Partner at PJT Partners
Patron of IFGB (Ireland Fund
of Great Britain)
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
COMMITTEES
R
N
Remuneration
Nomination & Corporate Governance
A
Ri
Board Audit
Board Risk
S
T
Sustainable Business Advisory
Committee Chair
Technology & Data Advisory
AIB Group plc Annual Financial Report 2020
Annual Review Board of Directors
55
1
2
3
4
5
6
ANN
O’BRIEN
FERGAL
O’DWYER
SANDY KINNEY
PRITCHARD
RAJ
SINGH
COLIN
HUNT
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Chief Executive Officer
Date of appointment
25 April 2019
Date of appointment
22 January 2021
Date of appointment
22 March 2019
Date of appointment
25 April 2019
Date of appointment
8 March 2019
Nationality: Irish
Nationality: Irish
Nationality: Irish
Nationality: American
Nationality: Irish
COMMITTEE MEMBERSHIP AND TENURE (as at 31 December 2020, in years or months)
A
R
S
T
A
7 m
1.5 y 1.5 y
2 m
AA
Ri
1.5 y
1.5 y
Ri
S
1.5 y
1.5 y
SKILLS, EXPERTISE AND EXPERIENCE
Ann has over 30 years’
experience in the financial
services industry. A
graduate of both University
College Dublin and
later Trinity College Dublin,
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. Ann
was appointed under the
Relationship Framework
between the Minister for
Finance and AIB Group.
Fergal is a Chartered
Accountant with significant
experience in financial
management, treasury,
strategy, capital deployment
and development. Fergal
retired in 2020 from DCC
plc, the Irish-headquartered
international sales, marketing
and business support
services group, which is
a FTSE100 constituent
company, where he began
as an Associate Director, later
progressing to Chief Financial
Officer in 1992, and Executive
Director in 2000. Prior to
working in DCC, he worked
in PwC and KPMG.
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.
Raj has 34 years’ business,
risk and governance
experience gained in large
complex financial services
organisations. He served
as a non-executive director
of a national credit bureau
and two publicly traded
financial institutions as well
as serving on the Boards of
many of the major banking,
insurance, reinsurance
and asset management
subsidiaries of those firms.
Raj held the role of Chief
Risk Officer and Executive
Committee member of
EFG International, a Swiss
private banking group. Raj
was appointed under the
Relationship Framework
between the Minister for
Finance and AIB Group.
KEY EXTERNAL APPOINTMENTS
Non-Executive Director
of Royal London Asset
Management Limited
Non-Executive Director
and Chair of Audit
Committee of ABP
Food Group
Board Member of
Focus Ireland and Focus
Housing Association
– two independent
charitable companies
None
Non-Executive Director
and Chair of both the
Audit Committee and the
Remuneration Committee of
Credit Suisse (UK) LTD
Non-Executive Chair of the
Board of London & Country
Mortgages Ltd
In March 2019, Colin
was appointed Chief
Executive Officer. He
joined AIB in August 2016
as Managing Director of
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.
Serves on the Board
of The Ireland Funds,
Ireland Chapter
Non-Executive
Director and President
2021/2022 of the
Institute of Bankers
in Ireland
Committee Chair
56
Executive Committee
Annual Review
AIB Group plc Annual Financial Report 2020
OUR EXECUTIVE
COMMITTEE
CJ
BERRY
Chief Operating
Officer Designate
CATHY
BRYCE
Managing
Director of Corporate,
Institutional & Business
Banking (CIB)
GERALDINE
CASEY
Chief People Officer
FERGAL
COBURN
Chief Technology
Officer Designate
HELEN
DOOLEY
Group General Counsel
SKILLS, EXPERTISE AND EXPERIENCE
CJ joined AIB in 2002,
bringing with him a
wealth of experience
across Irish, UK, US and
European markets. During
his 18 years in AIB, he
has driven significant
business development in
our corporate and retail
business, taking up the
position of Interim Head of
Group Strategy in July 2020.
As Chief Operating Officer
Designate, CJ will oversee
the bank’s transformation
agenda, identifying and
leading initiatives that
contribute to the overall
strategy of the bank. He is
an Economics & Philosophy
graduate of Trinity
College Dublin.
Cathy started her career
in investment banking
with Morgan Stanley
and subsequently ABN
AMRO. She joined AIB
in 1996, holding a range
of leadership roles in
debt capital markets,
most recently leading the
international leveraged
finance business. In 2018
she joined the National
Treasury Management
Agency where she was
part of the executive
management team as
Director of NewERA and
National Development
Finance Agency. In 2019
she returned to AIB as
Managing Director of
Corporate, Institutional and
Business Banking (CIB). She
is a business graduate of
Trinity College Dublin and
holds an MBA from INSEAD.
Geraldine joined AIB in
January 2020 from her most
recent role as Director of
People, Communications
and IT at Tesco Ireland. She
was also a member of the
Executive Board of Tesco
for five years prior to joining
AIB and has a wealth of
experience working closely
with internal and external
stakeholders. Geraldine has
led large teams through
culture, process and
organisational change. She
is an accomplished business
leader, having run Tesco’s
retail operations at national
level before taking up her
current role. Geraldine is
a business graduate of
University College Cork.
Prior to his appointment to
Chief Technology Officer
Designate, Fergal was Chief
Digital & Innovation Officer,
responsible for the strategy
and development of AIB’s
digital businesses. Over the
previous 18 years, he held
leadership positions across
all aspects of AIB’s digital
and technology businesses.
He currently serves as a
Director on the Boards of
First Merchant Processing
(Ireland) DAC and
Payzone Ireland Limited.
An electronics engineer,
immediately prior to joining
AIB Fergal worked with
Eircom in Network Support
Systems development.
He holds Bachelors and
Masters degrees from
Trinity College Dublin.
Helen joined AIB as Group
General Counsel in 2012.
She had previously worked
in private practice in the City
of London, Hong Kong and
Dublin, before taking up
an in-house role as Head
of Legal in EBS Building
Society in 2005, which
became part of the AIB
Group in 2011. Over the last
16 years, in addition to her
legal role, Helen has also
held the Company Secretary
position and managed
the regulatory compliance
and HR functions. Helen
is currently responsible
for the Legal, Corporate
Governance and Customer
Care function.
AIB Group plc Annual Financial Report 2020
Annual Review Executive Committee
57
1
2
3
4
5
6
DONAL
GALVIN
DEIRDRE
HANNIGAN
ROBERT
MULHALL
JIM
O’KEEFFE
Chief Financial Officer
Chief Risk Officer
Managing Director of
AIB Group (UK) plc
Managing Director
of Retail Banking
MARY
WHITELAW
Director of Corporate
Affairs, Strategy &
Sustainability
SKILLS, EXPERTISE AND EXPERIENCE
Donal joined AIB as Group
Treasurer in September 2013
and was appointed Chief
Financial Officer in March
2019. Donal has worked in
domestic and international
financial markets over
the last 25 years. He was
Managing Director in
Mizuho Securities Asia, the
investment banking arm
of Japanese bank Mizuho,
where he was responsible
for Asian Global Markets.
Before that, he was
Managing Director in
Dutch Rabobank, managing
its London and Asian
Global Financial Markets
business, and Treasurer of
Rabobank International.
Deirdre joined AIB in April
2017 from the National
Treasury Management
Agency where she was
Chief Risk Officer and
chaired the Executive Risk
Committee. She has held
a number of senior
international risk
management roles with
GE Capital and progressively
senior roles in Bank of
Ireland, primarily in strategy
and risk management.
Previous to that, she worked
in Retail and Corporate
Banking with AIB and
Rabobank. In 2010, she was
admitted as a Chartered
Director to the Institute of
Directors in London.
Jim has worked across
many aspects of Retail
Banking, including
leadership roles in IT, direct
channels, mortgages and
BZWBK (now Santander) in
Poland. He was appointed
Head of Financial Solutions
Group in 2015 with
responsibility for developing
a strategy to support
customers in financial
difficulty, which resulted
in a significant reduction
in NPEs. He was Chief
Customer & Strategic Affairs
Officer from November
2018 to November 2019,
when he was appointed
Managing Director of
Retail Banking.
Mary joined AIB in 2007 and
her experience has spanned
the retail, corporate and
treasury businesses. She
has held a number of senior
leadership roles across the
bank including Group Chief
of Staff, Head of Strategy &
Business Performance for
Corporate and Institutional
Banking and Head of
Corporate Treasury Sales.
Prior to joining AIB, Mary
trained as a Chartered
Accountant and Chartered
Tax Adviser with PwC. She
is a graduate of University
College Dublin.
Robert’s career in AIB has
spanned almost 25 years,
covering a variety of roles
across multiple business
areas and geographies.
Before taking up his current
role within AIB, Robert was
Managing Director of Retail
& Commercial Banking.
Outside of AIB, Robert held
the position of Managing
Director of Distribution &
Marketing Consulting as
well as Financial Services
with Accenture in North
America from 2013 to
2015, during which time
he brought his industry
experience to build a rapidly
growing consulting practice
in the fast moving and
innovative areas of financial
services. Robert is chair
of the Board of Payzone
Ireland Limited and is a
director of the Irish Banking
Culture Board (IBCB).
Colin Hunt (CEO) is also on the Executive
Committee. His biography can be found on
page 55.
58
The Value we Create
Annual Review
AIB Group plc Annual Financial Report 2020
THE VALUE WE CREATE
OUR
PURPOSE
To back our
customers to
achieve their
dreams and
ambitions.
#1IN IRELAND
OUR SCALE
2.8m
CUSTOMERS
4,000
SUPPLIERS
324
LOCATIONS ACROSS
IRELAND AND THE UK
9,356
EMPLOYEES
PERSONAL
LOANS1
PERSONAL
CREDIT CARDS
PERSONAL MAIN
CURRENT ACCOUNT
BACKING
DREAMS
€2.4bn
MORTGAGE
DRAWDOWNS
€9.2bn
NEW
LENDING
€1.6bn
NEW SME
LENDING2
€1.5bn
NEW GREEN
LENDING
DIGITALLY
ADVANCED
2.57m
DAILY
INTERACTIONS
1.72m
DIGITALLY ACTIVE
CUSTOMERS
1.39m
ACTIVE MOBILE
CUSTOMERS
VALUE
CREATION
€801
m
EMPLOYEE
SALARIES
AND BENEFITS
€1
bn
SPEND ON
SUPPLIERS
€14.1
m
COMMUNITY
INVESTMENT
m
€476
TAX PAID
& COLLECTED
Information as at December 2020.
Sources: Company information and independent market research.
1. No. 1 among banks, personal lending excl. car finance.
2. SME lending in ROI.
Business review
1. Operating and financial review
2. Capital
59
Page
60
75
AIB Group plc Annual Financial Report 2020Business Review123456 60
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 73. These measures should be considered in conjunction with IFRS measures as set out in the consolidated financial
statements from page 227. A reconciliation between the IFRS and management performance summary income statements is set out on
page 74.
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.
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.
The Group’s business has been adversely affected by the COVID-19 pandemic which triggered a global recession in 2020. In Ireland,
whilst the hit to the economy was mitigated to some extent by the continuing strength of exports, most notably from the multi-national
sector, there was a marked contraction in the domestic economy. The pandemic has also had a particularly severe impact on the UK
economy. The impact of the pandemic on the Group’s financial performance in 2020 is reflected in a significant increase in the net credit
impairment charge due to the deterioration in the economic outlook and negative impact on credit quality, particularly in sectors impacted
by COVID-19 restrictions. It was also evident in lower new lending, a substantial increase in customer accounts and a reduction in income.
For further information see the Chief Executive’s Review on page 10 to 17, the Overview of the Irish Economy on page 20 and 21, and the
Risk management section on pages 79 to 170.
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)
Depreciation, impairment and amortisation(1)
Total operating expenses(1)
Bank levies and regulatory fees(1)
Operating profit before impairment losses and exceptional items(1)
Net credit impairment charge
Operating (loss)/profit before exceptional items(1)
Associated undertakings
(Loss)/profit before exceptional items(1)
Restitution costs
Restructuring costs
Impairment of intangibles
Covid product costs
Termination benefits
Loss on disposal of loan portfolios
Provision for regulatory fines
Other
Total exceptional items(1)
(Loss)/profit before taxation
Income tax credit/(charge)
(Loss)/profit for the year
2020
€ m
1,872
398
101
499
2,371
(734)
(514)
(279)
2019
€ m
2,076
491
128
619
2,695
(774)
(501)
(229)
(1,527)
(1,504)
(115)
729
(1,460)
(731)
15
(716)
(117)
(36)
(30)
(22)
(9)
(1)
–
–
(215)
(931)
190
(741)
(104)
1,087
(16)
1,071
20
1,091
(416)
–
(18)
–
(48)
(40)
(78)
8
(592)
499
(135)
364
%
change
-10
-19
-21
-19
-12
-5
3
22
2
11
-33
–
-168
-24
–
–
–
–
–
–
–
–
–
–
–
–
–
(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 2020Business Review 61
2020
€ m
2019
%
€ m change
• Higher volumes of excess liquidity held with the central bank at
negative rates.
2,049
2,334
(177)
(258)
1,872
2,076
-12
-31
-10
10
Interest expense
Interest expense of € 177 million in 2020 decreased by € 81 million
compared to 2019. The lower cost of customer accounts, other debt
issued and deposits by banks was partially offset by an increase
in MREL-related costs due to the Subordinated Tier 2 issuance in
%
1.94
% Change
November 2019.
2.37
-0.43
Net interest margin
Net interest income
Net interest income
€1,872m
Net interest income
Interest income(1)
Interest expense(1)
Net interest income
Net interest margin (NIM)
Net interest income
Average interest earning assets
96,037
87,479
€1,872m
€ 204 million or 10% compared to 2019.
Net interest income of
€ 1,872 million decreased by
Interest income
Interest income of € 2,049 million in 2020 decreased by
€ 285 million compared to 2019 primarily due to:
• Reduced asset yields driven by the lower interest rate
•
•
environment including decreases in sterling and dollar interest
rates in 2020.
Lower income on investment securities due to maturities and
disposals of higher yielding securities and reinvestment at
lower yields.
Lower volumes of loans and advances to customers as
redemptions exceeded new lending in 2020 and due to
deleveraging of non-performing loans in 2019.
NIM decreased 43 bps to 1.94%
in 2020 compared to 2.37% in
1.94%
2019 due to:
• Reduced interest income primarily due to the impact of the
lower interest rate environment, decrease in investment
security yields and lower customer loan volumes c. -34 bps.
• Higher excess liquidity impacting average interest earning
assets c. -18 bps partly offset by:
•
Lower interest expense c. +9 bps.
Average interest earning assets of € 96.0 billion in 2020 increased
by € 8.6 billion from 2019 primarily due to funds placed with banks.
This was driven by excess liquidity mainly due to higher customer
account balances, TLTRO III funding drawdown and proceeds from
MREL-related issuances.
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 liabilities
Average interest earning liabilities
Non-interest earning liabilities
Equity
Year ended
31 December 2020
Interest(1)
€ m
1,965
112
(28)
2,049
Average
rate
%
3.29
0.61
(0.15)
2.13
Average
balance
€ m
59,586
18,389
18,062
96,037
7,227
103,264
2,049
(3)
54
68
45
13
177
(0.15)
0.13
1.11
3.05
3.18
0.35
1,870
40,766
6,089
1,481
408
50,614
38,682
13,968
Total average liabilities & equity
103,264
177
Year ended
31 December 2019
Average
rate
%
3.45
1.17
0.24
2.67
1.15
0.28
1.41
3.82
3.06
0.54
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
Interest(1)
€ m
2,117
195
22
2,334
2,334
11
109
91
33
14
258
258
Net interest income
1,872
1.94
2,076
2.37
(1) Negative interest income on assets amounting to € 44 million in 2020 (2019: € 16 million) is offset against interest income. Negative interest expense on
liabilities amounting to € 34 million in 2020 (2019: € 20 million) is offset against interest expense.
AIB Group plc Annual Financial Report 2020Business Review123456 62
Other income
Other income(1)
€499m
Other income(1)
Net fee and commission income
Dividend income
Net trading loss
Net gain on equity investments (FVTPL)
Net gain on loans and advances to customers (FVTPL)
Other operating income
Other income
2019 % change
Business
income
€ m
Other
items
€ m
395
26
(23)
–
–
–
–
–
(9)
45
42
23
2020
Total
€ m
395
26
(32)
45
42
23
Business
income
€ m
Other
items
€ m
472
26
(8)
–
–
1
–
–
(49)
74
62
41
Total
€ m
472
26
(57)
74
62
42
398
101
499
491
128
619
Total
-16
–
-43
-39
-33
-45
-19
Other income(1)
€499m
19% compared to 2019 with decreased business income of
decreased by € 120 million or
Other income of € 499 million
€ 93 million and other items of € 27 million.
Other items
€101m
in 2019.
Other items were € 101 million in
2020 compared to € 128 million
Net income from equity investments of € 36 million in 2020
(2019: € 25 million) reflected the disposal and revaluation of equity
Business income was
investments. This comprises a net gain on equity investments
€ 398 million in 2020 compared
(FVTPL) of € 45 million in 2020 (2019: € 74 million), offset by
Business income
€398m
to € 491 million in 2019.
a net trading loss of € 9 million on a partial hedge of the equity
investments (2019: € 49 million).
Net gain on loans and advances to customers (FVTPL) of
€ 42 million in 2020 (2019: € 62 million) represents income
recognised on previously restructured loans carried at fair value
through profit and loss.
Other operating income of € 23 million in 2020 primarily
reflects a gain on disposal of individual loans in the syndicated
and international business for credit management purposes.
The € 41 million in 2019 was primarily due to a gain on disposal of
investment securities.
IFRS basis
On an IFRS basis other income, including a net gain of € 2 million
on exceptional items(1), was € 501 million in 2020 compared to
€ 579 million in 2019.
Net fee and commission income
Customer accounts
Card income
Lending related fees
Customer related foreign exchange
Payzone
Other fees and commissions
2020
€ m
179
69
40
54
15
38
2019
%
€ m change
214
84
50
71
2
51
-16
-18
-20
-24
–
-26
-16
Net fee and commission income
395
472
Net fee and commission income of € 395 million in 2020 decreased
by € 77 million compared to 2019 reflecting lower transaction
volumes due to a reduction in economic activity. Payzone income
was € 15 million in 2020 following acquisition in late 2019.
Dividend income was € 26 million in 2020 including € 23 million
received on NAMA subordinated bonds, which were redeemed in
March 2020.
Net trading loss of € 23 million 2020 increased by € 15 million
compared to 2019 mainly due to negative movements on derivative
valuation adjustments (XVA).
(1) Other income before exceptional items. A net gain of € 2 million on exceptional items in 2020 (2019: € 40 million loss) comprises: Net loss on loans and
advances to customers (FVTPL) € 1 million (2019: € 4 million gain) and Other operating income gain on settlement € 3 million (2019: loss on disposal of loan
portfolios € 44 million).
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2020Business Review 63
Cost income ratio(1)(2)
64%
(down 12%) resulted in a cost income ratio of 64% in 2020
and income of € 2,371 million
Costs of € 1,527 million (up 2%)
compared to 56% in 2019.
Bank levies and regulatory fees
€115m
Bank levies and regulatory fees
Irish bank levy
Deposit Guarantee Scheme
Single Resolution Fund
Other regulatory levies and charges
2020
€ m
2019
%
€ m change
35
39
17
24
35
33
16
20
–
16
7
19
11
Bank levies and regulatory fees
115
104
Bank levies and regulatory fees of € 115 million increased
€ 11 million compared to 2019 due to an increase in Deposit
Guarantee Scheme fees and higher regulatory levies.
IFRS basis
On an IFRS basis total costs, including bank levies and
regulatory fees of € 115 million and the cost of exceptional
items(2) of € 217 million, were € 1,859 million in 2020 compared to
€ 2,181 million in 2019. This results in a cost income ratio (IFRS
basis) of 78% in 2020, compared to 82% in 2019.
Total operating expenses(1)(2)
€1,527m
Operating expenses(1)(2)
Personnel expenses
General and administrative expenses
Depreciation, impairment and
amortisation
Total operating expenses
Staff numbers at period end(3)
Average staff numbers(3)
Total operating expenses(1)(2)
2020
€ m
734
514
2019
%
€ m change
774
501
279
229
1,527
1,504
9,193
9,520
9,356
9,855
-5
3
22
2
-3
-5
€1,527m
€ 23 million or 2% compared to 2019, with increased depreciation,
€ 1,527 million increased
Total operating expenses of
impairment and amortisation of € 50 million and general and
administrative expenses of € 13 million partly offset by lower
personnel expenses of € 40 million.
Personnel expenses
Personnel expenses decreased by € 40 million compared to 2019
primarily due to the decrease in average staff numbers and lower
retirement benefit costs, partly offset by salary inflation.
General and administrative expenses
General and administrative expenses increased € 13 million
compared to 2019 primarily relating to the roll out of the Group’s
new ways of working strategy. Higher operational costs associated
with the COVID-19 pandemic were partially offset by savings
achieved as a result of reduced travel and business expenses.
Depreciation, impairment and amortisation
Depreciation, impairment and amortisation increased by
€ 50 million compared to 2019 due to the commissioning of
assets into operational use from the investment programmes in
prior years.
(1)Before bank levies and regulatory fees and exceptional items.
(2) The cost of exceptional items of € 217 million in 2020 (2019: € 573 million) comprised: Personnel expenses € 42 million (2019: € 56 million), General and
administrative expenses € 139 million (2019: € 500 million) and Depreciation, impairment and amortisation € 36 million (2019: € 17 million).
(3) Staff numbers are on a full time equivalent (“FTE”) basis. Average staff numbers for 2020 include 95 FTEs following the acquisition of Payzone in late 2019.
AIB Group plc Annual Financial Report 2020Business Review123456 64
Net credit impairment charge
Total exceptional items
€1,460m
There was a net credit impairment charge of € 1,460 million in
2020 primarily due to the deterioration in the economic outlook,
credit downgrades, particularly in sectors impacted by COVID-19
restrictions, as well as post model adjustments for expected
COVID-19 impacts and legacy non-performing mortgage
exposures.
€215m
Total exceptional items
Restitution costs
Restructuring costs
Impairment of intangibles
Covid product costs
The net credit impairment charge reflected a € 1,421 million charge
Termination benefits
on loans and advances to customers (net re-measurement of
Loss on disposal of loan portfolios
expected credit loss (“ECL”) allowance charge of € 1,493 million,
Provision for regulatory fines
2020
€ m
2019
€ m
(117)
(416)
(36)
(30)
(22)
(9)
(1)
–
–
–
(18)
–
(48)
(40)
(78)
8
offset by recoveries of amounts previously written-off of
€ 72 million) and a € 39 million charge for off-balance sheet
exposures.
There was a net credit impairment charge of € 16 million in 2019
comprising of a € 27 million charge on loans and advances to
customers and a € 11 million writeback for off-balance sheet
exposures.
Further information is available in the Risk management section on
pages 87 to 170.
Income tax credit/(charge)
€190m
The effective tax rate was 20.4% in 2020 compared to 27.1%
in 2019.
The income tax credit recognised in 2020 reflects the:
• Deferred tax asset recognised in respect of losses in the period
as well as a credit due to the set back of 2020 losses against
tax for earlier years.
• Release of previously recognised liabilities following resolution
of a tax matter where uncertainty had existed in prior years.
• Deferred tax assets write-down.
For further information see note 16 ‘Taxation’ of the consolidated
financial statements.
Other
Total exceptional items
(215)
(592)
These gains/costs were viewed as exceptional by management.
Restitution costs include provision for customer redress and
compensation in relation to the tracker mortgage examination
of € 11 million and other customer redress of € 35 million along
with € 71 million of associated costs. 2019 included a provision of
€ 265 million for additional redress to customers who had an option
of a prevailing rate tracker.
Restructuring costs reflect changes to the AIB UK business model
and the cost associated with the strategic decision to exit the SME
market in Great Britain including termination benefits of £ 19 million.
Impairment of intangible assets relates to the write-down of assets
following consideration of internal and external indicators of
impairment.
Covid product costs reflect the incremental cost of implementing a
large volume of payment breaks on home mortgages, personal and
SME loans to customers impacted by COVID-19.
Termination benefits relate to the cost of the voluntary severance
programme.
Loss on disposal of loan portfolios is a net loss of € 1 million in
2020 relating to portfolio disposals in prior years.
Other comprises:
• Costs relating to the implementation of the Group’s property
strategy of € 3 million. In 2019 this also included a gain of
€ 21 million on the disposal of land at Bankcentre.
• A net gain of € 3 million on the settlement of a legacy claim
in 2020.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2020Business Review 65
Non-performing loans
Non-performing loans ratio
€4.3bn
Non-performing loans increased by € 1.0 billion to € 4.3 billion
7.3%
at 31 December 2020 primarily due to higher property and
business non-performing exposures. Net flow to non-performing of
€ 1.8 billion, which included changes to the definition of default of
€ 0.2 billion, were partially offset by redemptions of € 0.7 billion.
Non-performing loans ratio
Non-performing loans as a percentage of gross loans to
customers was 7.3% at 31 December 2020 compared to 5.4% at
31 December 2019.
ECL allowance
Non-performing loans cover
€2.5bn
The ECL allowance of € 2.5 billion at 31 December 2020 increased
32%
from € 1.2 billion at 31 December 2019 reflecting the net credit
impairment charge recognised in 2020 on loans and advances to
customers, particularly in respect of stage 2 and non-performing
exposures, partially offset by reductions due to write-offs and
disposals.
Non-performing loans cover
The ECL allowance cover rate on non-performing loans of 32% at
31 December 2020 compared to 27% at 31 December 2019.
Assets
Net loans to customers
New lending
€57.0bn
€9.2bn
31 Dec
2020
€ bn
31 Dec
2019
%
€ bn change
59.5
(2.5)
57.0
19.5
27.3
6.6
110.4
62.1
(1.2)
60.9
17.3
13.5
6.9
98.6
-4
103
-6
12
103
-4
12
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
€57.0bn
€ 0.8 billion, decreased by € 3.1 billion compared to 31 December
currency movements of
Net loans, excluding the impact of
2019 reflecting redemptions of € 11.1 billion exceeding new lending
of € 9.2 billion and an increase in ECL allowance of € 1.3 billion
from 31 December 2019.
New lending
€9.2bn
25% lower than in 2019 driven by the reduction in economic activity
2020 was € 3.1 billion or
New lending of € 9.2 billion in
during 2020. Non-property lending was 28% lower at € 4.5 billion
primarily due to lower syndicated and UK lending. Property related
lending was 30% lower at € 1.4 billion, mortgage lending was
21% lower at € 2.4 billion and personal lending down 10% to
€ 0.9 billion.
New lending comprises € 7.7 billion term lending in 2020
(€ 10.8 billion in 2019) and € 1.5 billion transaction lending
(€ 1.5 billion in 2019).
Summary of movement in loans to customers
The table below sets out the movement in loans to customers from 1 January 2020 to 31 December 2020.
Loans to customers
Gross loans (opening balance 1 January 2020)
New lending
Redemptions of existing loans
Net movement to non-performing
Write-offs and restructures
Foreign exchange movements
Other movements
Gross loans (closing balance 31 December 2020)
ECL allowance
Net loans (closing balance 31 December 2020)
There were no portfolio disposals in the year ended 31 December 2020.
Performing
loans
€ bn
Non-performing
loans
€ bn
Loans to
customers
€ bn
58.8
9.2
(10.4)
(1.8)
–
(0.8)
0.2
55.2
(1.1)
54.1
3.3
–
(0.7)
1.8
(0.1)
–
–
4.3
(1.4)
2.9
62.1
9.2
(11.1)
–
(0.1)
(0.8)
0.2
59.5
(2.5)
57.0
AIB Group plc Annual Financial Report 2020Business Review123456 66
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 87 to 170.
Loan portfolio profile
31 December 2020
Gross loans to customers
Of which: Stage 2
Of which: Non-performing loans
Total ECL allowance
Total ECL allowance cover (%)
ECL allowance cover Stage 2 (%)
ECL allowance cover non-performing (%)
31 December 2019
Gross loans to customers
Of which: Stage 2
Of which: Non-performing loans
Total ECL allowance
Total ECL allowance cover (%)
ECL allowance cover Stage 2 (%)
ECL allowance cover non-performing (%)
Residential
mortgages
€ bn
Other
personal
€ bn
Property and
construction
€ bn
Non-property
business
€ bn
30.6
2.0
2.1
0.9
2.8%
3.7%
33.9%
€ bn
31.5
2.2
2.3
0.6
1.8%
2.4%
21.8%
2.8
0.3
0.2
0.2
8.5%
15.4%
61.1%
€ bn
3.0
0.3
0.2
0.1
5.9%
13.9%
59.6%
7.4
2.1
1.0
0.4
5.4%
6.4%
22.0%
€ bn
7.3
0.4
0.4
0.2
2.6%
5.9%
35.1%
18.7
5.0
1.0
1.0
5.5%
11.6%
32.3%
€ bn
20.3
1.1
0.4
0.3
1.5%
7.5%
32.1%
Non-performing loans
31 December 2020
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
1.8
0.2
2.1
0.0
0.2
0.0
0.2
0.1
0.4
0.5
1.0
0.0
0.8
0.2
1.0
Total
€ bn
59.5
9.4
4.3
2.5
4.2%
9.0%
32.4%
€ bn
62.1
4.0
3.3
1.2
2.0%
5.1%
26.8%
Total
€ bn
0.2
3.2
0.9
4.3
Total non-performing loans/Total loans (%)
7.0%
8.5%
13.0%
5.4%
7.3%
31 December 2019
Collateral disposals
Unlikely to pay (including > 90 days past due)
Non-performing loans probation
Total non-performing loans
Total non-performing loans/Total loans (%)
€ bn
0.1
1.9
0.3
2.3
7.4%
€ bn
0.0
0.2
0.0
0.2
6.4%
€ bn
0.1
0.3
0.0
0.4
5.1%
€ bn
0.0
0.3
0.1
0.4
2.2%
€ bn
0.2
2.7
0.4
3.3
5.4%
Investment securities
Investment securities of € 19.5 billion, primarily held for liquidity
purposes, have increased by € 2.2 billion from 31 December 2019.
Other assets
Other assets of € 6.6 billion comprised:
• Deferred tax assets of € 2.7 billion(1) in line with
31 December 2019.
Loans and advances to banks
Loans and advances to banks of € 27.3 billion, including
€ 25.6 billion of cash and balances at central banks, were
€ 13.8 billion higher than 31 December 2019. The increased
• Derivative financial instruments of € 1.4 billion, € 0.1 billion
increase from 31 December 2019.
• Remaining assets of € 2.5 billion, decreased € 0.4 billion from
31 December 2019 due to the receipt of proceeds from a loan
placement with banks was due to excess liquidity driven by
portfolio disposal.
increased customer account balances and TLTRO III funding
drawdown.
(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 2020Business Review 67
Liabilities & equity
Customer accounts
Equity
€82.0bn
€13.4bn
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
31 Dec 31 Dec
2019
%
€ bn change
2020
€ bn
Debt securities in issue
Debt securities of € 5.5 billion decreased by € 1.3 billion from
31 December 2019 due to maturity of covered bonds and medium
82.0
71.8
4.7
5.5
1.6
3.2
0.8
6.8
1.3
3.7
97.0
84.4
13.4
110.4
14.2
98.6
14
470
-20
23
-12
15
-6
12
%
69
% Change
85
-16
term notes of € 1.25 billion.
Subordinated liabilities
Subordinated liabilities of € 1.6 billion were € 0.3 billion higher
compared to 31 December 2019 due to issuance of € 1.0 billion
Tier 2 Notes in September 2020 which was partly offset by the
redemption of € 0.75 billion Tier 2 Notes in November 2020.
Other liabilities
Other liabilities of € 3.2 billion comprised:
• Derivative financial instruments of € 1.2 billion, in line with
31 December 2019.
• Remaining liabilities of € 2.0 billion, € 0.5 billion decrease from
31 December 2019 due to reduction in provisions, current
taxation and deferred tax liabilities.
€82.0bn
of € 0.8 billion, increased by € 11.0 billion compared to
impact of currency movements
Customer accounts, excluding the
Equity
31 December 2019 primarily reflecting substantially higher current
account balances across all segments.
Loan to deposit ratio
The loan to deposit ratio decreased to 69% at 31 December 2020
compared to 85% at 31 December 2019 reflecting increased
customer accounts and a reduction in net loans.
€13.4bn
€ 14.2 billion at 31 December 2019.
Equity decreased by € 0.8 billion
to € 13.4 billion compared to
The table below sets out the movements to 31 December 2020.
Equity
Opening balance (1 January 2020)
Loss for the year
Deposits by banks
Deposits by banks of € 4.7 billion increased € 3.9 billion compared
Issue of Additional Tier 1 securities
Redemption of Additional Tier 1 securities
to 31 December 2019 driven by TLTRO III funding drawdown of
Distributions paid
€ 4.0 billion.
Other comprehensive income:
Cash flow hedging reserves
Investment securities reserves/other
Closing balance (31 December 2020)
€ bn
14.2
(0.7)
0.6
(0.5)
(0.1)
0.1
(0.2)
13.4
The Group issued € 0.6 billion of Additional Tier 1 securities in
June 2020 at a coupon rate of 6.25%.
AIB Group plc Annual Financial Report 2020Business Review123456 68
Segment reporting
Segment overview
The Group’s performance is managed and reported across the Retail Banking, Corporate, Institutional & Business Banking (“CIB”), AIB UK
and Group segments. 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 & credit cards, deposits, insurance and wealth to maintain
and grow our market leading position.
• SME provides 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 dedicated workout unit to which the Group has migrated the management of the majority of its non-performing exposures
(NPEs), with the objective of delivering the Group’s strategy to reduce NPEs.
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 & 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)”).
The Group’s revised strategy (Strategy 2023) entails changes to the AIB UK business model including the withdrawal from SME lending in
Great Britain and a refocus on our corporate business, particularly in renewables, infrastructure, health and manufacturing.
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, Finance, Risk, Legal, Corporate Governance & Customer Care, Human Resources, Corporate Affairs, Strategy &
Sustainability and Group Internal Audit.
Segment allocations
The segments’ performance statements include all income and directly related costs, excluding overheads which are managed centrally,
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 2020Business Review Retail Banking
Retail Banking
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)/
writeback
Operating contribution before
exceptional items
Associated undertakings
Contribution before exceptional items
2020
€ m
2019
€ m
%
change
Retail Banking
balance sheet metrics
1,115
1,234
334
398
1,449
1,632
(908)
(923)
(2)
(2)
-10
-16
-11
-2
–
Mortgages
Personal
Property
Non-property business
New lending
539
707
-24
(485)
17
–
Mortgages
Personal
Property
54
12
66
724
17
741
-93
-24
-91
Non-property business
Gross loans
ECL allowance
Net loans
Current accounts
Deposits
Customer accounts
69
31 Dec 31 Dec
2019
%
€ bn change
2020
€ bn
2.3
0.9
0.1
1.1
4.4
2.9
1.0
0.1
0.9
4.9
29.0
29.6
2.6
0.7
3.2
35.5
(1.5)
34.0
31.7
25.2
56.9
2.8
0.9
3.3
36.6
(1.1)
35.5
25.5
23.1
48.6
-11
-3
28
-4
24
9
17
New lending
€4.4bn
reflecting lower economic activity. Mortgage market share was
28.4% for 2020.
New lending was 11% lower at € 4.4 billion
Net loans
€34.0bn Net loans reduced by € 1.5 billion mainly reflecting
redemptions exceeding new lending and an increase in expected
credit loss allowance.
The ECL allowance of € 1.5 billion in 2020
ECL allowance
€1.5bn
increased by € 0.4 billion from € 1.1 billion at 31 December 2019
reflecting the net credit impairment charge recognised in 2020 on
loans and advances to customers partially offset by reductions due
to write-offs.
Customer accounts
€56.9bn Customer accounts increased by € 8.3 billion
compared to 31 December 2019 reflecting reduced consumer
spending and higher savings which elevated balances across all
sectors.
Net interest income
€1,115m Net interest income has decreased by € 119 million
compared to 2019. This was primarily due to lower average
loans, as redemptions exceeded new lending and following the
deleveraging of non-performing loans in 2019, as well as the
increase in customer account volumes coupled with the impact
of the negative interest rate environment and lower allocation of
liquidity income.
Other income decreased by € 64 million compared
Other income
€334m
to 2019, mainly due to lower transaction volumes due to a reduction
in economic activity as well as customer preference for non-cash
services and lower income recognised on previously restructured
loans. Net fee and commission income includes € 15 million
(2019: € 2 million) following the acquisition of Payzone in late 2019.
Total operating expenses decreased by € 15 million
Total operating expenses
€908m
compared to 2019 driven by reductions in personnel costs due to
lower average staff numbers. This is partly offset by an increase
in depreciation and amortisation as assets created under the
investment programme were commissioned to operational use as
well as the amortisation of intangible assets created following the
acquisition of Payzone.
Net credit impairment (charge)/writeback
€485m
There was a net credit impairment charge of
€ 485 million in 2020 primarily due to the deterioration in the
economic outlook as well as post model adjustments for expected
COVID-19 impacts and legacy non-performing mortgage
exposures. There was a net credit impairment writeback of
€ 17 million in 2019.
AIB Group plc Annual Financial Report 2020Business Review123456 70
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
2020
€ m
439
121
560
(132)
428
(767)
(339)
2019
%
€ m change
CIB balance sheet metrics
31 Dec 31 Dec
2019
%
€ bn change
2020
€ bn
471
87
558
(115)
443
(18)
425
-7
40
–
15
-3
–
–
Mortgages
Personal
Property
Non-property business
New lending
Mortgages
Personal
Property
Non-property business
Gross loans
ECL allowance
Net loans
0.0
0.0
0.9
2.2
3.1
0.6
0.1
4.7
9.9
15.3
(0.8)
14.5
0.1
0.1
1.3
3.5
5.0
0.6
0.1
4.3
11.2
16.2
0.0
16.2
Investment securities
1.1
0.7
Current accounts
Deposits
Customer accounts
9.0
3.7
7.4
3.9
12.7
11.3
-38
-6
-11
49
21
-5
12
Net interest income
€439m
compared to 2019 primarily due to the impact of the lower interest
Net interest income decreased by € 32 million
New lending
€3.1bn
than 2019. New lending was lower across all business areas with
New lending of € 3.1 billion was € 1.9 billion lower
rate environment and lower allocation of liquidity income.
syndicated and international lending most impacted as a result of
the Group’s reduced risk appetite.
Other income
€121m
to 2019 reflecting an increase in income from equity investments
Other income increased by € 34 million compared
and loan disposals which was partially offset by lower net fee
Net loans
€14.5bn Net loans of € 14.5 billion at 31 December 2020
decreased by € 1.7 billion driven by increase in expected credit
and commission income from a decrease in transaction volumes
loss allowance and the impact of lower syndicated and international
reflecting the reduction in economic activity.
lending. This was partially offset by an increase in the energy,
Total operating expenses
€132m
compared to 2019 mainly due to increased personnel costs.
Total operating expenses increased by € 17 million
Net credit impairment charge
€767m
€ 767 million in 2020 primarily due to the deterioration in economic
There was a net credit impairment charge of
outlook, credit downgrades, particularly in sectors impacted by
COVID-19 restrictions, as well as post model adjustments for
expected COVID-19 impacts. There was a net credit impairment
charge of € 18 million in 2019.
climate action and infrastructure portfolio.
ECL allowance
€0.8bn
at 31 December 2020 increased by € 0.8 billion from
The ECL allowance of € 0.8 billion
31 December 2019 reflecting the net credit impairment charge
recognised in 2020 on loans and advances to customers partially
offset by reductions due to loan disposals.
Investment securities
€1.1bn
€ 0.4 billion higher than 31 December 2019.
Investment securities of € 1.1 billion were
Customer accounts
€12.7bn Current accounts of € 12.7 billion were € 1.4 billion
higher than 31 December 2019. Deposits of € 3.7 billion decreased
by € 0.2 billion compared to 31 December 2019.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2020Business Review 71
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
Contribution before exceptional items
Contribution before exceptional items € m
2020
£ m
2019
%
£ m change
AIB UK balance sheet metrics
31 Dec 31 Dec
2019
%
£ bn change
2020
£ bn
191
43
234
235
59
294
(146)
(154)
(1)
–
87
(184)
140
(13)
(97)
127
2
(95)
(108)
3
130
148
-19
-28
-21
-5
–
-38
–
–
-33
–
–
AIB GB
AIB NI
New lending
AIB GB
AIB NI
Gross loans
ECL allowance
Net loans
Current accounts
Deposits
Customer accounts
1.1
0.4
1.5
5.6
2.1
7.7
(0.3)
7.4
6.8
3.0
9.8
1.8
0.3
2.1
5.6
2.2
7.8
(0.1)
7.7
5.8
3.0
8.8
-36
29
-26
-1
-4
-2
115
-3
18
–
12
Net interest income
£191m
compared to 2019 primarily due to the Bank of England base rate
Net interest income decreased by £ 44 million
New lending
£1.5bn
£ 0.6 billion compared to 2019 driven by a general slowdown of
New lending of £ 1.5 billion in 2020 decreased by
cuts in March 2020.
new business activity due to the lower economic activity and Brexit
related uncertainty.
Other income
£43m
to 2019 mainly due to a decrease of £ 14 million in net fee and
Other income decreased by £ 16 million compared
commission income from lower transaction volumes reflecting the
Net loans
£7.4bn
compared to 31 December 2019, largely driven by an increase in
Net loans of £ 7.4 billion decreased £ 0.3 billion
reduction in economic activity.
expected credit loss allowance.
Total operating expenses
£146m
compared to 2019 driven by lower general and administration
Total operating expenses decreased by £ 8 million
ECL allowance
£0.3bn
at 31 December 2020 increased by £ 0.2 billion from
The ECL allowance of £ 0.3 billion
costs.
31 December 2019 primarily reflecting the net credit impairment
charge recognised in 2020 on loans and advances to customers.
Net credit impairment charge
£184m
£ 184 million in 2020 primarily due to the deterioration in the
There was a net credit impairment charge of
economic outlook, credit downgrades, particularly in sectors
impacted by COVID-19 restrictions, as well as post model
adjustments for expected COVID-19 impacts. There was a net
credit impairment charge of £ 13 million in 2019.
Customer accounts
£9.8bn
31 December 2020 were £ 1.0 billion higher compared to
Customer accounts of £ 9.8 billion at
31 December 2019.
AIB Group plc Annual Financial Report 2020Business Review123456 72
Group
Group contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
Bank levies and regulatory fees
Contribution before exceptional items
2020
€ m
2019
%
€ m change
Group balance sheet metrics
104
(4)
100
(323)
(112)
(335)
103
66
169
(290)
(102)
(223)
1
–
Gross loans
Investment securities
-41
Customer accounts
11
10
50
31 Dec 31 Dec
2019
%
€ bn change
2020
€ bn
0.1
18.4
1.4
0.1
16.6
1.5
-3
11
-4
Investment securities
€18.4bn
held for liquidity purposes increased by € 1.8 billion from
Investment securities of € 18.4 billion primarily
31 December 2019.
Customer accounts
€1.4bn
31 December 2020 compared to € 1.5 billion at 31 December 2019.
Customer accounts were € 1.4 billion at
Net interest income
€104m
Net interest income was in broadly line with 2019.
Other income
(€4m)
to 2019 due to a decrease in other operating income, negative
Other income decreased by € 70 million compared
movements on derivative valuation adjustments (XVA) and
a lower net gain on equity investments measured at FVTPL.
Other operating income for 2019 included a gain on disposal of
investment securities.
Total operating expenses
€323m
by € 33 million compared to 2019 primarily due to an increase
Total operating expenses of € 323 million increased
in general and administration expenses and in depreciation and
amortisation as assets created under the investment programme
were commissioned to operational use.
Bank levies and regulatory fees
€112m
in 2020 include the Deposit Guarantee Scheme of € 39 million,
Bank levies and regulatory fees of € 112 million
the Irish bank levy of € 35 million, the Single Resolution Fund
€ 17 million, and other regulatory levies and charges of € 21 million.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2020Business Review 73
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.
Absolute cost base
Cost income ratio
Total operating expenses excluding exceptional items, bank levies and regulatory fees.
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 74. Exceptional items
include:
– Restitution costs include provision for potential customer redress and compensation in relation
to the tracker mortgage examination, and other customer redress, along with associated costs.
– Restructuring costs reflect changes to the AIB UK business model and the cost associated with
the strategic decision to exit the SME market in Great Britain including termination benefits.
–
Impairment of intangible assets relates to the write-down of assets following consideration of
internal and external indicators of impairment.
– Covid product costs reflect the incremental cost of implementing a large volume of payment
breaks on home mortgages, personal and SME loans to customers impacted by COVID-19.
– Termination benefits reflect costs associated with the reduction in employees arising from the
voluntary severance programme.
–
Loss on disposal of loan portfolios includes gain/(loss) on disposals measured at amortised cost
and gain/(loss) on loans and advances to customers measured at FVTPL.
– Provision for regulatory fines in 2019 included a provision for the potential impact of monetary
penalties arising from the Central Bank of Ireland investigation in respect of tracker mortgages.
– Other reflects (1) the implementation of the Group property strategy including the exit from
Bankcentre and the acquisition and development of various office locations across Dublin and
(2) the settlement of a legacy claim.
Loan to deposit ratio
Net interest margin
Net loans and advances to customers divided by customer accounts.
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)
Profit after tax less AT1 coupons paid, divided by targeted (14 per cent) CET1 capital on a fully
loaded basis. Details of the Group’s RoTE is set out in the Capital Section on page 78.
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
• Operating profit before impairment losses
and exceptional items
• Operating (loss)/profit before
exceptional items
• Depreciation, impairment and amortisation
• Profit on disposal of property
• Total operating expenses
•
(Loss)/profit before exceptional items
• Bank levies and regulatory fees
• Total exceptional items
AIB Group plc Annual Financial Report 2020Business Review123456 74
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 period on period. 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
Operating (loss)/profit
Associated undertakings
Profit on disposal of property
(Loss)/profit before taxation
Income tax credit/(charge)
(Loss)/profit for the year
Adjustments – between IFRS and management performance
Other income
of which: exceptional items
Loss on disposal of loan portfolios
Other
Total operating expenses
of which: bank levies and regulatory fees
of which: exceptional items
Restitution costs
Restructuring costs
Impairment of intangibles
Covid product costs
Termination benefits
Provision for regulatory fines
Other
(Profit) on disposal of property
of which: exceptional items
Other
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
Operating (loss)/profit before exceptional items(1)
Associated undertakings
Profit on disposal of property(1)
(Loss)/profit before exceptional items(1)
Total exceptional items(1)
(Loss)/profit before taxation
Income tax credit/(charge)
(Loss)/profit for the year
1
(3)
117
36
30
22
9
–
3
–
2020
€ m
1,872
501
2,373
(1,859)
514
(1,460)
(946)
15
–
(931)
190
(741)
(2)
115
217
2019
€ m
2,076
579
2,655
(2,181)
474
(16)
458
20
21
499
(135)
364
40
104
573
40
–
416
–
18
–
48
78
13
–
(21)
(21)
1,872
499
2,371
(1,527)
(115)
729
(1,460)
(731)
15
–
(716)
(215)
(931)
190
(741)
2,076
619
2,695
(1,504)
(104)
1,087
(16)
1,071
20
–
1,091
(592)
499
(135)
364
(1) Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of
performance period on period. The adjusted performance measure is considered an APM.
Business review – 1. Operating and financial reviewAIB Group plc Annual Financial Report 2020Business Review
Business review – 2. Capital
75
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 156.
Regulatory capital and capital ratios(1)
Equity
Less: Additional Tier 1 Securities
Proposed ordinary dividend(2)
Regulatory adjustments:
Intangible assets
Cash flow hedging reserves
IFRS 9 CET 1 transitional add-back
Pension
Deferred tax
Expected loss deduction
Calendar provisioning(3)
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
IRB Excess of provisions over expected losses eligible
IFRS 9 tier 2 transitional adjustment
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
CRD lV
transitional basis
CRD lV
fully loaded basis
31 December
2020
€ m
31 December
2019
€ m
31 December
2020
€ m
31 December
2019
€ m
13,422
(1,115)
–
(485)
(540)
796
(22)
14,230
(990)
(217)
(798)
(469)
251
(31)
13,422
(1,115)
–
(485)
(540)
–
(22)
14,230
(990)
(217)
(798)
(469)
–
(31)
(1,654)
(1,334)
(2,721)
(2,667)
–
(317)
(38)
(2,260)
10,047
1,115
–
1,115
11,162
1,500
19
131
(131)
1,519
12,681
47,807
429
4,686
114
53,036
%
18.9
21.0
23.9
(8)
–
(45)
(2,434)
10,589
496
129
625
11,214
500
426
–
–
926
12,140
46,811
473
4,700
137
52,121
%
20.3
21.5
23.3
–
(317)
(38)
(4,123)
8,184
1,115
–
1,115
9,299
1,500
24
131
–
1,655
10,954
47,350
429
4,686
114
52,579
%
15.6
17.7
20.8
(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
(1)Prepared under the regulatory scope of consolidation.
(2) On 30 March 2020, the Group announced, following the recommendation of the European Central Bank, that the Company did not intend to seek shareholder
approval for the payment of a final dividend for 2019. Accordingly, the relevant Annual General Meeting (‘’AGM’’) resolution was withdrawn and the proposed
dividend cancelled.
(3) Calendar provisioning is a Supervisory Review and Evaluation Process (“SREP”) recommendation to ensure minimum coverage levels on long term NPE
exposures. The difference between the SREP recommended coverage levels and the IFRS 9 ECL coverage is taken as a CET1 deduction.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Business Review123456 76
Capital requirements
The table below sets out the capital requirements at
1 January 2020, 31 December 2020 and the pro forma
requirements for 31 December 2021. The table does not include
Pillar 2 Guidance (“P2G”) which is not publicly disclosed.
A suite of measures have been introduced to support the financial
sector through the current COVID-19 pandemic. These include
the reduction in the Countercyclical capital buffer (“CCyB”) to
zero by both the Central Bank of Ireland (“CBI”) and the Bank of
England (“BOE”). Other measures include amendments to the
transitional rules for IFRS 9 in respect of COVID-19 related losses
and the accelerated introduction of rules to allow the inclusion of
prudentially valued software assets in capital.
On 1 January 2020 the Group’s Pillar 2 Requirement (“P2R”)
reduced to 3% from 3.15% in 2019. Previously the P2R had to
be met with CET1 only, post 8 April 2020 at least 56.25% of P2R
(1.69% of RWA) must be CET1 and at least 75% (2.25% of RWA)
must be Tier 1.
Regulatory Capital Requirements
CET1 Requirements
Pillar 1
Actual
1 Jan
2020
31 Dec
2020
Pro
Forma
31 Dec
2021
4.50%
4.50% 4.50%
Regulatory developments
Targeted Review of Internal Models (TRIM)
The Group has received and implemented decisions in relation to
the TRIM process. The TRIM decision on the Group’s Mortgage
model resulted in a € 1.5 billion increase in RWA (-0.5% CET1).
The TRIM decision on AIB’s Corporate model resulted in a
€ 2.3 billion increase in RWA (-0.8% CET1) of which € 1.8 billion
related to the leverage portfolio (-0.6% CET1).
Other IRB Models
The Group has submitted a redeveloped SME model for
regulatory approval prior to deployment. In the interim a scalar
has been applied to the existing SME model to bring RWAs in
line with the redeveloped model resulting in increased RWA of
€ 0.6 billion (-0.2% CET1).
Articles 501 and 501a
The Group has started to avail of the capital reduction factors in
Capital Requirements Regulation (“CRR”) Articles 501 and 501a
(+0.3% CET1) in 2020.
Calendar provisioning
Calendar provisioning is a SREP recommendation to ensure
minimum coverage levels on long term NPE exposures.
The difference between the SREP recommended coverage levels
and the IFRS 9 ECL coverage is taken as a CET1 deduction
Pillar 2 requirement (P2R)
3.00%
1.69% 1.69%
(-0.6%).
Combined buffer requirement
3.90%
3.50% 4.00%
Capital Conservation Buffer (CCB)
2.50%
2.50% 2.50%
O-SII buffer
0.50%
1.00% 1.50%
Software
In accordance with Commission Delegated Regulation (EU)
Countercyclical buffer (CCYB) Impact
2020/2176 the deduction for intangible assets has been reduced.
0.70%
0.00% 0.00%
The impact on CET1 net of associated RWA increase is +0.6%.
Irish exposures
UK exposures
CET1 Requirement
Pillar 1 AT1 / Tier 2
P2R AT1 / Tier 2
0.20%
0.00% 0.00%
11.40%
9.69% 10.19%
3.50%
3.50% 3.50%
0.0%
1.31% 1.31%
Total Capital Requirement
14.90% 14.50% 15.00%
The Group’s minimum CET1 requirement is 9.69% at 31
December 2020 under CRD V Article 104a. Any shortfall in AT1
and Tier 2 must be held in CET1. Currently there is no shortfall.
The Other Systemically Important Institution (“O-SII”) buffer
of 1.0% will rise to 1.5% on 1 July 2021 and accordingly will
increase the minimum CET1 requirements.
The minimum requirement for the total capital ratio is 14.5% at
31 December 2020 and will increase to 15.0% by the end of 2021.
The combined impact of regulatory developments resulted in a
CET1 reduction of 1.2%.
Capital ratios at 31 December 2020
Fully Loaded Ratio
The fully loaded CET1 ratio decreased to 15.6% at
31 December 2020 from 17.3% at 31 December 2019.
In addition to the above regulatory change impacts, the remaining
0.5% decrease is due to a loss after tax of € 0.7 billion (-1.4%)
reflecting an ECL charge of € 1.5 billion, partially offset by the
cancellation of the 2019 dividend (+0.4%) and RWA reductions
due to reduced loans and advances to customers (+0.8% CET1).
Finally other equity and RWA movements reduced CET1 by 0.3%.
The fully loaded total capital ratio increased to 20.8% from 20.5%
at 31 December 2019. The increase in the ratio was driven by
two new capital issuances comprising a € 0.6 billion AT1 and a
€ 1 billion Tier 2 securities, and IRB excess of provisions over
expected losses. These were significantly offset by the CET1
movements outlined above and the redemption of the AT1 and
Tier 2 capital issued in 2015 from Allied Irish Banks, p.l.c.
Business review – 2. CapitalAIB Group plc Annual Financial Report 2020Business Review
77
Transitional Ratio
The transitional CET1 ratio decreased to 18.9% at
31 December 2020 from 20.3% at 31 December 2019.
This decrease is mainly driven by the fully loaded CET1
movements detailed above and an additional year’s phasing of
the deferred tax asset deduction, partially offset by the increase in
the IFRS 9 transitional addback as part of the suite of measures
to support the financial sector through the current COVID-19
pandemic.
At 31 December 2020, the transitional total capital ratio increased
to 23.9% from 23.3% at 31 December 2019.
Minimum Requirement for Own Funds and Eligible
Liabilities (“MREL”)
At 31 December 2020, the Group had a MREL ratio of 30% of
RWAs.
The Group continued to work towards its MREL target in 2020 to
ensure that there is sufficient loss absorption and re-capitalisation
capability. The Group has now completed issuance of € 6 billion
MREL eligible liabilities of which € 1.6 billion was issued in 2020.
The Single Resolution Board (“SRB”) has provided the Group with
its default formula for the MREL target calibration under the new
BRRD II legislative framework to be complied with by 1 January
Leverage Ratio
Based on the full implementation of CRD IV, the fully loaded
2022. The Group has estimated its January 2022 intermediate
binding target is 27.1% of RWA including the combined buffer
leverage ratio, under the Delegated Act implemented in
requirement.
January 2015, was 8.3% at 31 December 2020 (9.7% at
31 December 2019).
The Group continues to monitor changes in MREL requirements
together with developments in the SRB’s MREL policy which has
Total leverage exposures (transitional basis) increased by
the potential to impact on the Group’s MREL target.
Dividends
The final dividend in respect of 2019 was cancelled in line with
regulatory guidance. No dividend is proposed for 2020.
€ 12.2 billion in the year mainly driven by increases in cash and
balances at central banks.
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)
2020
€ m
2019
€ m
113,344
101,126
111,378
11,162
9,299
9.8%
8.3%
99,548
11,214
9,660
11.1%
9.7%
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. Initial assessments signal upward pressure on RWA mostly in
relation to operational risk.
In relation to RWA floors the Group’s high RWA density makes it
less likely to be severely impacted by their introduction.
AIB Group plc Annual Financial Report 2020Business Review123456 78
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).
Return on Tangible Equity (“RoTE”)*
The losses incurred in 2020 result in a negative RoTE of 11.2%.
Return on Tangible Equity (RoTE)
2020
2019
AIB Group plc
All three rating agencies reaffirmed their ratings in 2020 and
changed the outlook to stable from positive (Moody’s) and to
negative from stable (Fitch and S&P). The changed outlook
reflects the expectation that the Irish and UK economies will
contract as a result of the COVID-19 pandemic.
(Loss)/profit after tax
AT1 coupons paid
Attributable earnings
Average RWA
RWA * 14% target
(741)
(76)
(817)
364
(37)
327
52,289 51,631
7,320
7,228
Long term Ratings
Long term
Outlook
Investment grade
Long term Ratings
Long term
Outlook
Investment grade
Allied Irish Banks, p.l.c.
Long term Ratings
Long term
Outlook
Investment grade
Long term Ratings
Long term
Outlook
Investment grade
Moody’s
31 December 2020
Fitch
S&P
Baa2
BBB-
BBB
Return on Tangible Equity
(11.2)% 4.5%
* RoTE is considered an Alternative Performance Measure.
As part of its strategy, the Group has set a medium term target for
RoTE of greater than 8%.
Return on Assets
The Return on Assets (RoA) at 31 December 2020 is (0.7%)
(2019: 0.4%).
Stable Negative Negative
Moody’s
Baa2
Positive
31 December 2019
Fitch
S&P
BBB-
Stable
BBB
Stable
Moody’s
31 December 2020
Fitch
S&P
A2
BBB+
BBB+
Stable Negative Negative
Moody’s
A2
Stable
31 December 2019
Fitch
S&P
BBB+
Stable
BBB+
Stable
Business review – 2. CapitalAIB Group plc Annual Financial Report 2020Business Review Risk management
1
Framework
1.1
Risk management principles
1.2
Risk governance and oversight
1.3
Three lines of defence model
1.4
Risk strategy
1.5
Risk culture
1.6
Risk management lifecycle
1.7
Risk management in action
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
79
Page
80
80
81
81
82
82
84
87
147
156
157
163
164
165
166
167
168
169
AIB Group plc Annual Financial Report 2020Risk Management 123456 80
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 2020.
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 the management of 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.
The Group’s Risk Management Framework has proven to be resilient throughout 2020 despite the impact of COVID-19 requiring major
operational and business changes being implemented to support customers.
1.1 Risk management principles
The twelve principles below govern the design and operation of
effective risk management within the Group.
Strategy and appetite
1. The Board has ultimate responsibility for the governance of
all risk taking activity in the Group
2. 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. The Group identifies, assesses and reports all its material
risks
5. Risk Management is embedded in the strategic planning,
performance management and strategic decision making
processes of the Group
6. 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
7. The Group understands, manages, measures, monitors
and reports all risk it takes or originates
8. 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
1.2 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.
1.2.1 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 Board has delegated a
number of risk governance responsibilities to various committees.
The roles of the Board, the Board Audit Committee, the
Board Risk Committee, the Remuneration Committee and the
Nominations and Corporate Governance Committee are set out in
the Governance and Oversight – Corporate Governance report on
pages 178 to 187.
1.2.2 Executive Committee
The Executive Committee has primary authority and responsibility
for the day-to-day operations of, and the development of strategy
for the Group. While the Executive Committee has delegated its
powers and authorities to other 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;
AIB Group plc Annual Financial Report 2020Risk Management • Providing oversight and challenge of credit risk management
related matters and periodically reviewing 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 are 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 material credit transactions in line with authority levels
outlined in the Group Credit Risk policies, to review, approve
or recommend to a higher authority Credit Risk Policies and
to monitor and review credit management, performance and
other credit matters that arise within the Group. The Group
Credit Committee also reviews and challenges ECL levels for
onward recommendation to the Board Audit Committee;
• The Regulatory and Conduct Risk Committee is responsible
for the governance and oversight of regulatory and conduct
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; and
• The Operational Risk Committee is responsible for the
governance and oversight of operational risks.
Group Asset and Liability Management Committee (“ALCo”)
ALCo has been established as a sub-committee of the Executive
Committee. ALCo is the Group’s strategic and business decision
making forum for balance sheet management matters. ALCo is
tasked with decision-making in respect of the Group’s balance
sheet structure, including capital, funding, liquidity and market
risks to ensure it enables the delivery of the Group’s Strategic
Plan. The Committee provides oversight of funding and liquidity,
capital, market and equity/investments risk and balance sheet
pricing in line with the relevant frameworks and policies across the
Group and in accordance with Risk Appetite.
1.3 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 first
line of defence lies with the business line managers who are
required to have effective governance and controls in place for
their business. The first line of defence comprises the revenue
generating and client facing areas, along with all associated
support functions. The second line of defence comprises the Risk
function, headed by the Chief Risk Officer and oversees the first
81
line, providing independent constructive challenge, setting the
frameworks, policies and limits, consistent with the risk appetite
of the Group. The third line of defence comprises Group Internal
Audit who provide 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.
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 Committee (“ExCo”) and its
sub-committees. The Terms of References for the BRC and BAC
are available on the Group’s website.
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
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
Second line of defence – Risk
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
Third line of defence – Group Internal Audit
Provides independent and objective assurance on the
adequacy of the design and operational effectiveness of risk
management and control environment
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 its
customers’ financial lives by meeting their evolving needs at every
life-stage, always providing an exceptional customer experience,
while maintaining a strong and resilient balance sheet and
generating sustainable returns in a considered, transparent and
controlled manner. The Group’s strategy is underpinned by five
strategic pillars which are the foundation for everything that the
Group does. 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 the Group is willing to accept, or to avoid, in pursuit of
its strategic goals.
AIB Group plc Annual Financial Report 2020Risk Management 123456 82
Risk management – 1. Framework
Risk strategy setting
The risk strategy, articulated through the annual risk plan and the
risk objectives, is a key element of the Board’s understanding of
how risk is to be managed in the short, medium and long term.
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.
1.5 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.
Risk Management skills and knowledge of staff and external
contractors are developed through training and awareness of
risk policies and specific risk communication with respect to the
Group’s activities, strategy and risk profile.
1.6 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
Monitoring,
escalating
and reporting
1.6.1 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;
• Annual Financial Plan;
• Stress testing;
•
•
• Recovery and resolution planning.
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 the Group’s 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
The 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.
The Group’s risk appetite statement is built on the following
overarching qualitative statements:
• 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;
• Have a low appetite for income volatility and target steady,
sustainable earnings to enable appropriate regular dividend
payments;
• Do not have an appetite for large proprietary market risk
positions in our trading book;
AIB Group plc Annual Financial Report 2020Risk Management 83
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 stress
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. A set of
triggers are included in the Group’s recovery plan, which presents
the actions available to the Group to restore viability.
Resolution planning
Resolution is the restructuring of a bank by a resolution authority,
that has failed or is likely to fail, 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 (“SRB”) is the Group’s resolution
authority. The SRB and the National Resolution Authorities
(Central Bank of Ireland for Ireland and Bank of England for the
UK) draft the resolution plan for the Group. The resolution plan
describes the Preferred Resolution Strategy (“PRS”), in addition
to ensuring the continuity of the Group’s critical functions and the
identification and addressing of any impediments to the Group’s
resolvability.
• 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;
• 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;
• Offer our customers transparent, consistent and fair products
and services and seek always to deliver fair customer
outcomes;
• Seek to maintain the highest level of availability of key
services for our customers;
• Seek to comply with all relevant laws and regulations, our
business is underpinned by a strong control framework;
• Seek to maintain a strong capital base that generates
returns in line with stakeholder and market expectations.
Consideration will be given to 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 maintain alignment with our qualitative risk
appetite statements; and
• Seek resilient, diversified funding relying significantly on retail
deposits.
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 a base
scenario and assessed under a range of alternative scenarios.
This assessment forms the basis for consideration 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. Scenario 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.
AIB Group plc Annual Financial Report 2020Risk Management 123456 84
Risk management – 1. Framework
The PRS for the Group is a single point of entry bail-in via AIB
Group plc. The resolution authorities set the loss absorbing
capacity requirements for Minimum Requirements for own funds
and Eligible Liabilities, in addition to any work programmes
required to mitigate any perceived impediments to resolvability.
Senior management are responsible for implementing the
measures that are needed to ensure the Group’s resolvability and
there are a number of governance fora such as subject matter
working groups, Resolution Programme Board and Resolution
Steering Committee that provides governance and oversight
around resolution planning. Key deliverables to the SRB are
approved by ALCo, ExCo (Group and UK) and Board (Group
and UK).
1.6.2 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.
1.6.3 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 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 to the Board Risk Committee.
1.6.4 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 lines 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.
1.7 Risk management in action
This section describes the risk management approach adopted
by the Group on key risk developments during 2020 including
COVID-19, Sustainability and Climate Change, Cyber Risk and
Information Security and Conduct.
1.7.1 COVID-19
Following the emergence of the global COVID-19 pandemic,
a graduated response was mobilised by Risk from January 2020.
Risk was involved in a range of COVID-19 related activities
including the Group wide incident management process with Risk
representatives on all work streams.
A separate risk working group was established in which a key
output was a Risk specific critical activities assessment, which
considered risk mitigation plans, business critical activities, as
well as resourcing and remote working capability. In recognition
of the significant volume of activities to be delivered in a
compressed timeframe, and to ensure delivery of a co-ordinated
response, a formal Risk COVID-19 Programme was established.
This Programme was implemented within Risk to operate in
an agile and forward looking manner. The Risk COVID-19
Programme focused on four key priorities.
Guiding and Protecting the Group and its customers in the
design and deployment of product offerings and solutions;
Monitoring and Assessing the Group’s risk profile with particular
focus on credit risk appetite/early warning indicator monitoring,
ECL analysis, sectoral categorisation and guidance;
Communicating and Engaging in a structured and controlled
manner, both internally and with external stakeholders; and
Adapting current business processes and policies, as required
to address the current operating environment, to ensure the
operational resilience of the Group’s key processes.
The Risk profile was managed through a number of activities
including the development of a COVID-19 risk control
assessment, management of the risk appetite, development of
enhanced early warning indicators and key risk indicators and the
development of new scenarios. The risks generated by COVID-19
will continue to be closely managed into 2021.
AIB Group plc Annual Financial Report 2020Risk Management 85
1.7.2 Sustainability and climate change
Sustainability is at the heart of the Group’s agenda and is the fifth
pillar of the Group’s strategy. This section describes the related
risk management activities during 2020.
financing of sustainable long term projects. In addition, the
Group continues to transition away from such financing that is
not in keeping with its sustainability strategy.
• Green Bonds: In 2020, under the Group’s Green Bond
The Group announced its commitment to net zero greenhouse gas
emissions in its own operations by 2030, in customer portfolios by
2040 and in the agriculture sector by 2050. This is an ambitious
commitment which places the Group at the forefront of Irish
banks leading the way in supporting the transition to a low carbon
economy in Ireland. However, it does not come without risk.
As part of its independent oversight, Risk reviewed the proposed
ambition and associated targets. Risk identified the key inherent
risks to achieving net zero and reported these to the Executive
Committee to ensure full disclosure of the risks and challenges to
the proposal.
The key risks identified with the net zero ambition included:
•
Loss of income risk due to potential customer alienation as
the Group changes the nature of how it lends, for example,
if the Group limits new lending to A/B rated houses;
• Regulatory and Conduct Risk as a result of changing how
the Group lends in the future which may be in contravention
to current regulations or through non-voluntary loan portfolio
sales;
• Credit risk as a result of customers taking on additional debt
to retrofit homes or improve property/farms in the mortgage
lending and agriculture sectors;
• Financial risk associated with entering into a long term
renewable power supply contract (price uncertainty over an
extended period);
• Operational risks as a result of not being able to measure,
monitor and report on the progress of achieving net zero on
an ongoing basis due to data constraints within the Group;
and
• External risks as a result of construction of A/B rated houses
not happening fast enough to meet our income targets.
The Group recognises that climate change is an important concern
for the financial industry and society as a whole, and the Group
continues to take steps to incorporate climate risk into the Group’s
risk management policies and processes. The Group have
implemented specific sector exclusions into the Group Credit Risk
Policy. The policy sets out the sectors to which the Group does not
have an appetite to lend from a sustainable finance lens. These
sectors can be viewed on the Group’s website.
In line with the Group’s sustainability strategy, the following
initiatives continue to be embedded across the Group:
• Portfolios: The Group will incorporate climate risk
considerations into customer credit assessments and will
continue to monitor lending to exclude sectors. This will
be further enhanced with the introduction of the European
Banking Authority (EBA) Guidelines on Loan Origination and
Monitoring which will be effective from 30 June 2021 for all
new lending.
• Project Finance: To facilitate sustainable projects, the Group
launched a € 5 billion Climate Action Fund in 2019 which
supports renewable energy projects, low carbon offices
and the construction of energy efficient homes. The Group
continues to embed the framework for the identification and
Framework the Group successfully raised € 1 billion which
contributes to the financing of projects with clear environmental
and climate change benefits. The Group continues to ensure
alignment between this Framework and the forthcoming EU
Taxonomy Regulation and EU Green Bond Standard.
1.7.3 Cyber risk and information security
This section outlines how the Group managed Cyber Risk in
2020 which is a sub-risk within Operational Risk and continues
to be classified as a high risk as informed by the material risk
assessment.
Globally, 2020 has seen a continued increase in cyber attacks
across most sectors, using a combination of malware, hacking
and denial of service techniques. Notably, fraudulent emails, text
messages and websites with a COVID-19 theme have been used
since the start of the pandemic to exploit people’s fears of the virus
and desire to learn more about it, in an attempt to dupe individuals
into divulging confidential information to criminals.
Within the Group, cyber risk is captured as a key component of
the overall Operational IT Framework. Information security is one
of the five separately defined risk components and is concerned
with managing the possibility of harm being caused to the Group or
its customers as a result of a loss of the confidentiality, integrity or
availability of information in all its forms.
Exposure to cyber risk is monitored by the Board through regular
risk reporting which includes the cyber security key risk indicators
(KRIs). Breaches of material (Level 1) KRIs are reported to
the Central Bank of Ireland. Breaches of non-material (level 2)
KRIs are reported to the Group Risk Committee and Board Risk
Committee.
The monthly reporting of relevant KRIs includes, but is not limited
to the below key threats:
• Distributed Denial of Service (DDoS) – Attempt to make an
online service unavailable by overwhelming it with traffic from
multiple sources;
• Malware – Targeted malicious emails purportedly from
legitimate companies with the goal of installing malicious
software on the user’s machine;
• Social engineering – Employing deception, manipulation and
intimidation to exploit users to gain information, e.g. phishing;
and
• Hacking – Unauthorised individuals attempting to intentionally
access information and cause harm.
The Group successfully adopted the EBA Guidelines on
Information and Communication Technology (ICT) and Security
Risk Management which became effective 30 June 2020.
The guidelines establish requirements for credit institutions,
investment firms and payment service providers (PSPs) on
the mitigation and management of their ICT and security
risks. This guidance also provide the institutions with a better
understanding of supervisory expectations for the management
of these risks, covering sound internal governance, information
security requirements, ICT operations, project and change
management and business continuity management.
AIB Group plc Annual Financial Report 2020Risk Management 123456 86
Risk management – 1. Framework
Regulatory Compliance additionally played a significant role in
the review and challenge of how the Group achieves compliance
with the European Banking Authority (EBA) and Central Bank
of Ireland (CBI) guidance, and proactively engaged with
stakeholders across the Group in relation to action completion,
solution implementation and the continued emphasis on
prioritising good customer outcomes. This included participation
at governance fora, detailed assessments of impacting regulatory
requirements and clear communication of how to demonstrate
compliance with these requirements and a conduct aware culture.
Regulatory Compliance also actively participated in both internal
working groups, providing challenge to business segments on
customer solutions, and external engagements such as Banking
and Payments Federation Ireland (BPFI) working groups in
relation to the COVID-19 pandemic.
The regulatory scrutiny with regards of the Group’s ability to
respond to future prudential and customer impacts will continue
throughout 2021, with a focus on the ongoing supports the Group
have in place for customers in financial difficulty, as a result of
the effects of COVID-19 and the regulatory enhancement of the
Consumer Protection Framework.
The Group continues to monitor and contribute, where
appropriate, to the development of the forthcoming regulations
and guidelines including:
• The Network and Information Systems (NIS) Directive which
sets out measures for a high common level of security of
network and information systems across the EU;
• Guidelines on outsourcing to cloud service providers;
• Effective practices for Cyber Incident Response and
Recovery;
• Principles for the Sound Management of Operational Risk and
Operational Resilience; and
• Digital Operational Resilience Act (DORA) which aims to
establish a comprehensive framework on digital operational
resilience for EU financial institutions.
In addition, the Group regularly engages with both the Banking &
Payments Federation of Ireland (BPFI) and the European Banking
Federation (EBF) to contribute to regulatory consultations and
requests for feedback to ensure alignment with the expectations
of the Group’s regulators.
1.7.4 Conduct
This section highlights Risk’s response to the Group’s solutions
implemented in supporting its customers during 2020.
In March, the Group introduced solutions including payment
breaks of three months for customers who were experiencing
difficulties repaying their loans and mortgages due to the wider
impacts of COVID-19 on their ability to meet their repayments.
At the end of April, a further three month extension to the payment
breaks was announced. The speed with which the customer
solutions were designed and implemented ensured that the
Group’s customers were supported at the most critical time during
COVID-19. Conduct Risk represented a priority for the Group as
an increased number of customers required additional support,
emphasising the importance of clear and effective customer
engagement and proactive stakeholder engagement. The Group
continued to respond to regulatory developments regarding
payment breaks and customer solutions throughout the remainder
of 2020 and in to 2021.
Regulatory Compliance prioritised risk assessments of COVID-19
solutions and measures designed to support the Group’s
customers and the economy through the unprecedented crisis.
This included significant review and challenge of these measures
to ensure key risks, mitigants and controls were sufficiently
identified and communicated to all relevant governance fora up
to and including Board as appropriate. The COVID-19 pandemic
and the consequential requirement to provide appropriate
timely solutions for customers resulted in an increased level
of product governance activity and the solutions implemented
were subject to robust scrutiny from Regulatory Compliance to
ensure customers were being supported. Stakeholders across
Risk were engaged in increased governance, product reviews,
senior management reporting, solution assessments in order
to consistently emphasise the customer protection agenda and
ensure that solutions provided were in line with the conduct risk
objectives for the Group.
AIB Group plc Annual Financial Report 2020Risk Management Risk management – 2. Individual risk types
87
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
Page
88
89
91
95
110
114
115
122
124
126
134
141
143
143
144
AIB Group plc Annual Financial Report 2020Risk Management 123456 88
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;
ii. 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;
iii. Concentration risk: The risk of excessive credit concentration including to an individual, counterparty, group of connected counterparties,
industry sector, a geographic region, country, a type of collateral or a type of credit facility; and
iv. 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 80 to 86 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.
Credit risk management response to COVID-19
The Group has adapted its credit risk management operating model, including its underlying credit processes, in response to COVID-19 to
ensure proactive and appropriate management of the heightened credit risk in the portfolio, and particularly for those sectors believed to be
most impacted by COVID-19. In adapting its credit operating model, the Group have also enabled the introduction and implementation of a
number of customer support measures in a streamlined, agile and risk appropriate manner.
The Group’s focus continues to be on supporting its existing customers and ensuring they are provided with the appropriate measures
(e.g. payment breaks) taking account of the current and expected financial impact and recovery outlook. As part of the Group’s credit risk
management response to COVID-19, a range of actions have been taken to ensure the appropriate measurement, classification, and
reporting of its credit risk exposures during this time. These include:
– The development of a suite of additional guidance documents to support credit risk assessment and management activities, such
as credit grading, staging, unlikely-to-pay testing, and taking account of COVID-19 sector risk and expected recovery outlook.
This guidance supplements the Group’s existing credit risk policies and frameworks.
AIB Group plc Annual Financial Report 2020Risk Management 89
2.1 Credit risk
Credit risk management response to COVID-19 (continued)
– Enhanced scope and frequency of portfolio asset quality monitoring, particularly focused on those sectors believed to be most impacted
by COVID-19 (for example, hospitality, non-food retail, travel etc.).
– Proactive bottom-up reviews of individual cases, in addition to top-down portfolio/sector reviews, prioritising higher value exposures and
the more vulnerable segments of the balance sheet.
COVID-19 continues to have a negative impact on the economy and the Group’s loan book and asset quality.
Group Risk Appetite Statement
The Group’s Risk Appetite Statement (“RAS”) defines the amount and types of risks that the Group is willing to take, accept, or tolerate in
pursuit of its business objectives and strategy as set by the Board. 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:
–
– Require a thorough understanding and assessment of the borrower or counterparty, as well as the purpose and structure of credit,
Include a clear indication of the Group’s target market(s), in line with Group and segment risk appetite statements;
and the source of repayment; and
– Enforce compliance with minimum credit assessment and facility structuring standards.
Credit risk approval is undertaken by 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.
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.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 90
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 Forbearance and Definition of Default and Credit Impairment policies.
Masterscale grades are driven by grading model appropriated PDs combined with other asset quality indicators such as default, forbearance
and arrears 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 110 and 111 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, 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 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 95 to 107.
Non-performing/default
The Group’s definition of default is 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. Further enhancements were
implemented in 2020 in compliance with Article 178(2)(d) of regulation (EU) no 575/2013 in relation to the approach to counting of material
days past due. 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.
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 material amount of principal,
interest or fee has not been paid by a credit obligor on the due date; or
– The credit obligor was previously defaulted but remains forborne and is materially 30 days or more past due.
The Group’s definition of financial distress and forbearance are included in the Group’s Forbearance policy. Identification and treatment of
non-performing exposures and unlikeliness to pay are included in the Group’s Definition of Default and Credit Impairment policy.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 91
2.1 Credit risk
Internal credit ratings* (continued)
Non-performing/default (continued)
Non-performing loans are analysed in more granular detail by the following categories on page 114.
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 no longer has a default trigger, his/her credit obligations will remain in a
non-performing probationary period, 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 regular 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 regular 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 non-retail 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. Borrowers with a criticised grade 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 144, 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 2020Risk Management 123456 92
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;
– Charges over moveable assets such as plant and machinery, marine vessels etc;
– Mortgage/legal charge 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 or where the bank purchases covered bonds as part of its liquidity portfolio.
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
Details on the methodologies applied and processes used to assess the value of property assets taken as collateral are described in the
Property Valuation Policy and Property Valuation Guidance. Due to the COVID-19 pandemic the Group has updated property valuation
guidance policies to assist case managers in determining market values given current COVID-19 related market uncertainty. For residential
properties, a cautionary approach is applied to the use of comparable sales information in an area and indexation which may produce
a skewed result as sales have slowed down. For commercial properties, a prudent approach is applied to rental level estimates and
investment yields considering specific factors and variables of the property, as well as the sector within which the property operates.
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 employs a number of methods to assist in reaching
appropriate valuations for property collateral held.
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 2020Risk Management 93
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.
iii. levels of current and likely future demand;
iv.
v. expected market prices of completed units.
the development potential given the location of the asset;
its current or likely near term planning status;
the relevant costs associated with the completion of the project; and
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.
Independent professional internal valuations will be used in limited circumstances from January 2021 (e.g. agricultural land) using a desktop
valuation approach by professional qualified internal valuers who are independent of the credit process. The assets being valued by this
means must have an independent professional external valuation completed within the past 3 years.
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 reduction in value if purchased at the height of a property boom.
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 2020Risk Management 123456 94
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 108.
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 2020 and
2019:
At amortised cost
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
10,679
8,163
3,491
3,294
687
722
610
258
193
89
834
472
198
127
132
2020
Total
€ m
At amortised cost
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2019
Total
€ m
12,265
10,956
9,309
3,977
3,639
925
8,421
3,464
2,933
917
761
674
267
201
137
858
514
220
149
141
29
67
31
25
19
12,604
9,676
3,982
3,308
1,214
POCI
€ m
30
64
30
25
17
26,314
1,872
1,763
166
30,115
26,691
2,040
1,882
171
30,784
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%
50% - 70%
71% - 80%
81% - 90%
91% - 100%
Partially collateralised
Collateral value relating to
loans over 100% loan-to-value
Total collateral value
26,465
1,927
1,918
173
30,483
26,923
2,121
2,083
151
55
155
7
368
232
81
201
10
181
524
31,308
Gross residential mortgages
26,535
1,950
1,980
184
30,649
26,973
2,144
2,143
194
31,454
ECL allowance
(39)
(73)
(662)
(69)
(843)
(10)
(52)
(476)
(31)
(569)
Net residential mortgages
26,496
1,877
1,318
115
29,806
26,963
2,092
1,667
163
30,885
(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 2020 and 2019 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.
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 2020, the Group had accepted collateral with a fair value of € 107 million (2019: € 86 million) in respect of
reverse repurchase agreements.
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 2020 amounted to € 1,424 million (2019: € 1,271 million) and those with a negative fair value are
reported as liabilities which at 31 December 2020 amounted to € 1,201 million (2019: € 1,197 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets and
liabilities by € 804 million at 31 December 2020 (2019: € 575 million). The Group also has Credit Support Annexes (“CSAs”) in place which
provide collateral for derivative contracts. At 31 December 2020, € 450 million (2019: € 643 million) of CSAs are included within financial
assets as collateral for derivative liabilities and € 257 million (2019: € 347 million) of CSAs are included within financial liabilities as collateral
for derivative assets (note 42 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 and
securities borrowings. The collateral received in respect of repurchase agreements at 31 December 2020 had a fair value of € 194 million
(2019: € 151 million). The collateral received in respect of securities borrowings at 31 December 2020 had a fair value of € 510 million
(2019: Nil).
Investment securities
At 31 December 2020, government guaranteed senior bank debt which amounted to € 294 million (2019: € 268 million) was held within the
investment securities portfolio.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 95
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 2020.
The Group, in estimating its ECL allowance does so in line with the expected credit loss impairment model as set out by the International
Financial Reporting Standard 9 Financial Instruments (“the standard”). This model requires a more timely recognition of ECL across the
Group. The standard does not prescribe specific approaches to be used in estimating ECL allowance, 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 and forward looking – 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
– 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 the standard as the weighted average of credit losses across multiple macroeconomic scenarios, with weights assigned
based on the probability of each scenario occurring 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 impact on credit risk parameters.
Bases of Measurement
Under the standard, 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
2. 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.
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 2020Risk Management 123456 96
Risk management – 2. Individual risk types
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.
The Group has 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 or 85bps in the case of
residential mortgages. The appropriateness of this threshold is under regular review by the Group.
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. As a
result of COVID-19 a suite of additional guidance documents to support identification of significant increase in credit risk have been applied
by the Group. This guidance supplements the Group’s existing credit risk policies and frameworks.
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 classed 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.
The 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 (day count starts when any material amount of principal,
interest or fee has not been paid by a credit obligor at the date it was due); or
– The credit obligor was previously defaulted but remains forborne and is materially 30 days or more past due.
The Group’s definition of financial distress and forbearance are included in the Group’s Forbearance policy. Identification of non-performing
exposures and unlikeliness to pay are included in the Group’s Definition of Default and Credit Impairment policy.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 97
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
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 98 and 99).
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 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/similar 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 2020 year end ECL estimates are outlined on pages 105 to 107,
262 and 263.
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 2020Risk Management 123456 98
Risk management – 2. Individual risk types
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 rating (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 allocated to 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 approach 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 90, along with key factors such as 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 general 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 LGD used to estimate 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 2020Risk Management 99
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.
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 133
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 2020Risk Management 123456 100
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings
The macroeconomic scenarios used by the Group for ECL allowance calculation purposes are subject to the Group’s governance
process covering the development and approval of macroeconomic scenarios used for planning and internal stress testing purposes.
The macroeconomic scenarios and attached probabilities are reviewed by the Asset and Liability Committee (ALCo) regularly, and such
reviews took place more frequently during 2020 in response to economic developments. The macroeconomic scenarios are then reviewed
by the Board Risk Committee (BRC) and approved for use by the Board. The scenario probabilities are approved by the Board Audit
Committee (BAC). The parameters used within the Group’s ECL models include macroeconomic factors which have been established
as drivers of the default risk and loss estimates. Therefore, a different credit loss estimate is produced for each scenario based on a
combination of these identified macroeconomic factors. The credit loss estimates for each scenario are then weighted by the assessed
likelihood of occurrence of the respective scenarios to yield the ECL outcome.
Macroeconomic scenarios:
The onset of the COVID-19 pandemic and associated lockdown measures and restrictions on economic activity means that the scenarios in
use for year-end 2020 have changed materially from those applied for the year-end 2019 outcomes. In order to reflect the range of possible
outcomes as well as the significant uncertainty presented by the public health crisis and associated economic downturn, as at the reporting
date, four scenarios have been used in the ECL calculation. These four scenarios consist of a base case scenario, along with three
alternative scenarios (comprising one upside scenario and two downside scenarios). The inclusion of an extra downside scenario (i.e. an
extended high unemployment scenario) was deemed necessary to ensure that the range of possible outcomes in relation to the ultimate
recovery from the pandemic are captured. Non-linear effects are captured in the development of risk parameters as well as through the
inclusion of both the single upside and two downside scenarios.
The Group’s Economic Research Unit (ERU) provide the scenario forecasts over five years. These are then independently reviewed and
challenged, on both a quantitative and qualitative basis, by the Group Risk function. The base case is benchmarked against the outlook
available from official sources (e.g. ECB, Central Bank of Ireland, Bank of England, IMF, Department of Finance, ESRI etc.) to ensure it is
appropriate. Upside and downside scenarios, relative to the base case, are provided to ensure a reasonable range of possible outcomes
is available for the IFRS 9 process. These scenarios are benchmarked to alternative scenarios from official sources, where possible.
The longer term economic projections (beyond five years) are sourced from a reputable external provider with the internal 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 kept under review by the Group ALCo and approved by
the Board.
The scenarios used for the year-end ECL process are described below and reflect the views of the Group as at the reporting date.
A post model adjustment has been applied due to the increased public health restrictions announced in early January 2021. This is not
reflected in the scenarios below – further detail can be found on page 106.
Base case: This scenario assumes that further outbreaks of the virus occur in 2021 with associated public health containment measures but
that the rate of infection declines over time reflecting advancements in treatments and better track and trace systems. It also assumes that a
vaccine does not become widely available in 2021.
GDP growth in most economies is expected to recover strongly in 2021 and 2022 following declines in 2020. Growth returns to longer term
trends from 2023 and beyond. In this scenario, economic activity returns to pre-pandemic levels of activity by end-2021 in Ireland and by
mid-2023 in the UK. The quicker expected recovery in Ireland versus the UK is due to the resilience shown in a number of key sectors of the
Irish economy in 2020 and the much smaller drop in Irish GDP in 2020.
The rise in unemployment has been mitigated in most European economies by government income support schemes. These support
schemes have also resulted in increased uncertainty in relation to the true level of unemployment in economies. For Ireland, the Group’s
approach is to estimate the true underlying rate (i.e. the rate after the temporary government support schemes have ended). This is between
the official unemployment rate and the Covid-adjustment unemployment rate published by the CSO. In this scenario, unemployment
remains relatively high over the coming years, remaining above the 2019 rate out to 2025.
House prices have been more robust than expected throughout 2020. This is due to a combination of effects, predominantly continued
under-supply while reduced income effects haven’t materially reduced demand. In Ireland and the UK, house prices are still expected to fall
in 2021 by c. 3%. This fall is much lower than would generally be associated with similar unemployment rates, demonstrating the unique
impact of the virus on the economy. In this scenario further falls in commercial property prices are expected in Ireland and UK in 2021 before
a rebound from 2022 onwards.
This scenario incorporates the EU/UK trade deal that was implemented on 1 January 2021. This mitigates many of the effects that would
have been felt in the event of a no trade deal outcome. This scenario does reflect the increased non-tariff barriers that are in place as a
result of the UK exiting the transition period on 31 December 2020.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 101
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings (continued)
Downside 1 (‘Lower growth in 2021’): This scenario reflects a situation with limited recovery in terms of GDP growth in 2021 from the
significant downturn in 2020. This is reflected through the virus being more severe than expected in 2021, resulting in extensive containment
measures remaining in place for a longer period of time than assumed in the base case. This holds back economic growth in 2021 and the
additional scarring effects as a result of this results in growth being 3%-4% lower, versus the base case, across the main economies over
the 2021-2025 period. In this scenario, economic activity does not return to pre-pandemic levels of activity until mid-2022 in Ireland and
2025 in the UK.
Unemployment is higher in 2021 by c. 2 percentage points versus the base case and remains higher than in the base case over the period
to 2025 as a result of the additional scarring.
The recovery in house prices is slower than the base case, with growth in Ireland not seen until 2023 and house prices c. 5% lower by
end-2025 compared to the base case.
Downside 2 (‘Extended high unemployment’): This scenario reflects a situation where unemployment recovers very slowly and is still
at 10% in Ireland in 2025. This is caused by very sluggish return to growth in major economies following a more persistent outbreak of the
virus than expected in the base case. This stops growth in 2021 and slows down the recovery significantly, with cumulative growth over
2021-2025 being c. 8% lower than in the base case.
The implications for unemployment are very significant in this scenario, affecting sectors that have not been directly impacted from
COVID-19 due to scarring effects in the wider economy. Unemployment peaks at 13.5% in 2021 but only slowly reducing to 10% in 2025,
4 percentage points higher than the base case.
House prices suffer large falls in 2021 to 2023 with prices only picking up from 2024. Under this scenario, house prices are c. 24% lower in
2025 than under the base case.
Upside (‘Quick economic recovery’): This scenario reflects a much quicker economic recovery than outlined in the base case.
The key trigger for this are advances in therapeutic measures against the virus, including a rapid and successful roll out of a vaccine.
While unemployment remains elevated relative to pre-COVID-19 levels in the short term, by 2023 it has returned to below 6%.
Under this scenario, house prices also return more quickly as demand continues to be robust. By 2025 house prices are c. 9% higher than
in the base case.
The table below sets out the five year average 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 1, (iii) Downside 2 and (iv) Upside scenarios at 31 December 2020
(average over 2021-2025) and at 31 December 2019 (average over 2020-2024).
Base
2020
5 year (2021-2025) average forecast
Downside
(‘Lower
growth in
2021’)
Downside
(‘Extended
high
unemploy-
ment’)
Upside
(‘Quick
economic
recovery’)
3.7
1.7
7.2
1.8
2.3
1.8
2.9
1.3
5.6
2.2
3.0
0.8
8.9
1.1
1.9
1.4
2.3
0.4
6.8
1.2
2.0
(3.6)
11.9
(3.8)
1.0
1.3
1.1
(4.4)
10.1
(3.9)
4.4
3.4
6.6
3.1
2.5
2.5
3.7
2.9
4.6
3.1
2019
5 year average forecast
Base
Downside
(‘disorderly’
Brexit)
Downside
(‘global
slowdown’)
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
5.0
2.4
5.3
3.3
5.9
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
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 102
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings (continued)
Additional information is provided in the table below which details the individual macroeconomic factor forecast for each year across the four
scenarios, as at 31 December 2020. This is because, due to the increased variability as a result of COVID-19, the average for the five years
2021–2025 above does not provide sufficient insight for each factor across the impacted years.
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
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
Estimate
2020
%
2021
%
2022
%
2023
%
2024
%
(3.0)
(1.5)
10.4
(9.0)
(5.0)
7.1
(10.0)
5.0
4.8
(12.0)
5.0
(3.0)
10.0
(4.0)
1.6
(6.3)
6.5
(3.0)
7.0
(3.0)
4.5
3.0
7.5
6.0
4.0
6.9
3.0
1.5
6.0
5.0
3.5
3.0
6.4
3.0
2.5
0.5
2.0
2.5
5.3
3.0
3.0
3.0
6.1
2.0
1.8
5.6
1.7
3.0
5.0
3.0
Base
2025
%
2.7
2.5
5.9
2.0
1.7
2.5
1.5
2.5
4.8
3.0
Downside 1
(‘Lower growth in 2021’)
2021
%
2022
%
2023
%
2024
%
2025
%
1.0
(7.0)
12.0
(9.0)
(1.0)
(7.2)
2.5
(7.0)
9.0
(9.0)
5.0
–
9.6
2.5
3.9
5.8
3.5
(1.0)
7.0
3.0
3.5
5.0
8.3
5.0
2.6
0.7
2.0
3.5
6.5
5.0
3.0
3.0
7.6
4.0
2.2
4.7
1.8
3.5
6.0
4.0
2.7
3.0
7.2
3.0
2.0
2.9
1.6
3.0
5.7
3.0
Downside 2
(‘Extended high unemployment’)
Upside 1
(‘Quick economic recovery’)
2021
%
2022
%
2023
%
2024
%
2025
%
2021
%
2022
%
2023
%
2024
%
2025
%
(1.5)
3.0
(12.0)
(10.5)
2.8
(2.5)
2.8
4.0
3.0
3.0
13.5
13.0
12.0
11.0
10.0
(13.5)
(7.5)
(5.0)
(3.0)
(6.0)
1.7
5.5
2.1
0.2
(0.5)
(15.0)
1.5
(9.0)
1.4
(6.0)
4.0
2.1
4.8
1.6
4.0
10.0
10.3
10.5
10.2
(16.0)
(8.0)
(4.0)
4.0
3.0
2.2
1.8
1.6
4.0
9.7
4.5
7.0
3.0
9.5
3.0
2.1
(4.5)
8.0
2.5
6.0
3.0
5.5
5.0
7.2
4.0
3.9
5.2
4.2
3.5
5.0
4.0
4.0
3.0
5.8
3.0
2.8
4.0
2.8
3.0
4.3
3.0
3.0
3.0
5.4
3.0
2.0
3.8
2.0
3.0
3.9
3.0
2.7
3.0
5.1
2.5
1.8
4.0
1.7
2.5
3.7
2.5
The key changes to the scenario forecasts in the reporting period are driven by the COVID-19 pandemic. The extent of contagion and the
wider economic impact of COVID-19 was not foreseen at the previous reporting period (31 December 2019). The severe and sudden shock
to all economies has resulted in a significant re-assessment of the forecasts.
The four scenarios detailed above are used to reflect a representative sample of possible outcomes. 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 the Group Risk function. These are reviewed regularly at Group ALCo and are subject to approval at Board Audit Committee.
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 where possible.
Given the unprecedented nature and impact of COVID-19, the standard quantitative approaches (such as statistical distribution analysis of
Irish GDP growth over different time horizons informed by historic patterns in the economic data) used to assess scenario likelihoods are
less useful than normal in this environment. As a result, they have not been a key driver of the weightings at the reporting date.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 103
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings (continued)
These weightings are reviewed regularly by Group ALCo and adjusted where required. The key drivers of the weightings are:
– The higher weighting on the downside scenarios (versus the upside scenario) reflects the Group’s view that risks remain skewed to the
downside reflecting the continued inability of many countries to bring the virus under control, the potential for new mutations of the virus
and the unknown medium and longer term economic impacts of the virus. Additionally, other risks remain which also support the Group’s
view that risks remain to the downside. These include the impacts of ongoing de-globalisation efforts, geopolitical risks and the timing of
unwinding of central bank supports.
– The weighting on the downside scenarios have decreased since June 2020 (at June 2020, the downside scenarios had a weighting
of 35% and the upside scenarios had a weighting of 10%). This is predominantly because of the development of multiple successful
vaccines and the beginning of the roll-out in some economies prior to the year-end. This provides concrete evidence that restrictions
may begin to be released more fully in 2021 than originally expected and allow economic activity to bounce back more sharply.
Moreover, the resilience of a number of key sectors in the Irish economy, growth in house prices and the possible productivity gains from
digital transformation provide support to the upside view.
The weightings that have been applied as at the reporting date are:
Scenario
Base
Downside 1 ('Lower growth in 2021’)
Downside 2 ('Extended high unemployment')
Upside ('Quick economic recovery')
Weighting
31 December
2020
50%
25%
5%
20%
Base
Downside (‘disorderly’ Brexit)
Downside (‘global slowdown’)
Upside
Weighting
31 December
2019
50%
25%
15%
10%
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 2020Risk Management 123456 104
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 that include changes in model parameters and quantitative ‘significant
increase in credit risk’ (“SICR”) staging assignments.
Relative to the base scenario, in the 100% downside ‘Lower growth in 2021’ and ‘Extended high unemployment’ scenarios, the ECL
allowance increases by 9% and 25% respectively. In the 100% upside scenario, the ECL allowance declines by 6%, showing that the ECL
impact of the two downside scenarios is greater than that of the upside scenario. For 31 December 2020, a 100% downside ‘Lower growth
in 2021’ and ‘Extended high unemployment’ scenario sees a higher ECL allowance sensitivity of € 230 million and € 634 million respectively
compared to base (€ 171 million and € 575 million respectively compared to reported). Higher relative impacts are observed for the AIB UK
portfolio.
Loans and advances to customers
Residential mortgages
Other personal
Property and construction
Non-property business
Total
Off-balance sheet 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
Off-balance sheet loan commitments
Financial guarantee contracts
Of which:
AIB UK segment
Reported
100% Base
Total
€ m
843
234
396
1,037
2,510
54
29
2,593
Total
€ m
832
229
383
1,011
2,455
51
28
2,534
ECL allowance at 31 December 2020
100% Downside
Scenario
(‘Lower growth
in 2021’)
Total
€ m
100% Downside
Scenario
(‘Extended high
unemployment’)
Total
€ m
100% Upside
Scenario
(‘Quick economic
recovery’)
Total
€ m
869
245
444
1,113
2,671
62
31
2,764
990
271
529
1,257
3,047
82
39
3,168
804
223
337
950
2,314
45
25
2,384
306
294
347
424
252
Reported
100% Base
Total
€ m
569
175
189
305
1,238
19
23
1,280
Total
€ m
521
172
182
292
1,167
18
23
1,208
ECL allowance at 31 December 2019
100% downside
(‘disorderly’
Brexit)
Total
€ m
100% downside
(‘global
slowdown’)
Total
€ m
687
183
200
328
1,398
22
23
1,443
617
180
197
317
1,311
20
23
1,354
100% upside
Total
€ m
442
167
171
284
1,064
17
22
1,103
133
125
148
137
125
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 105
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 2020 includes the following management adjustments:
1. ROI Private dwelling house (“PDH”) mortgage post model adjustments
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 arrears capitalisations, 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 or securitisations,
also need to be considered which were not envisaged at the time of model development. Accordingly, post model adjustments have been
applied to certain cohorts of Stage 3 loans to reflect the potential resolution outcomes not currently considered within the modelled outcome.
The post model adjustments are calculated based on a range of alternative recovery assumptions. An independent external benchmark
exercise has been undertaken to provide information to support the range of alternative recovery outcomes with reference to collateral
values underpinning the loans and the underlying market conditions.
Mortgage post model adjustment – long term days past due
The initial cohort of loans to which the post model adjustment applies continues to be primarily those PDH loans in Stage 3 in deep
arrears i.e. greater than 180 days past due. The cohort has been extended in 2020 to include certain loans less than 180 days past due.
The majority of this cohort is part of loan sales, which are expected to be executed in the first quarter of 2021.
The Mortgage ECL allowance of € 816 million for residential mortgages in ROI at 31 December 2020 includes € 321 million as a result of
this management adjustment. At 31 December 2019, the ECL allowance of € 552 million included a post model adjustment of € 208 million.
The main drivers of movement in the post model adjustment to the 31 December 2020 are the impact of COVID-19 on the market outlook
and the inclusion of certain loans less than 90 days past due. This has resulted in an additional income statement charge of € 119 million
in 2020.
Mortgage post model adjustment – zero or low days past due non-performing exposures
Another cohort of loans to which a post model adjustment applies are also primarily PDH loans in Stage 3, displaying zero or low days past
due and classified non-performing exposures under European Banking Authority definition of default guidelines. The main driver of this post
model adjustment is the requirement for alternative recovery strategies for this cohort.
The ECL allowance for this cohort of residential mortgages in ROI at 31 December 2020 includes € 112 million as a result of this post
model adjustment. Management have considered the potential solutions available in determining the ECL allowance, which has resulted
in a € 91 million income statement charge for 2020. This includes a cohort of forbearance product loans in Stage 3 which were previously
identified in 2019 as requiring an alternative treatment at loan expiry, which are now subsumed in this post model adjustment.
2. Lifetime interest only post model adjustment
A cohort of non-defaulted lifetime interest only mortgages were identified in 2019 for individual assessment to confirm likeliness to
pay (31 December 2019: € 103 million). In the year to 31 December 2020, this cohort of loans has reduced to € 97 million, of which
€ 18 million has migrated to Stage 2 and € 21 million to Stage 3. The remaining loans within this cohort (€ 58 million) 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 as at
31 December 2020 (31 December 2019: € 9 million), which has resulted in an income statement charge of € 1 million in 2020.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 106
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Management judgements (continued)
3. COVID-19 Modification Expiry post model adjustment
Retail – ROI Mortgage, Personal and SME loans
The performing ROI Mortgage, Personal and SME loans which had been granted COVID-19 short term modifications (e.g. payment breaks)
during 2020 have been identified as requiring a temporary ECL post model adjustment due to the continued heightened risk of downward
stage migration following the expiry of payment breaks.
The post model adjustment increases the ECL allowance on € 809 million of residential mortgages (Stage 1: € 643 million, Stage 2:
€ 166 million), € 104 million of personal loans (Stage 1: € 70 million, Stage 2: € 34 million), and € 639 million of business lending (Stage 1:
€ 439 million, Stage 2: € 200 million), which had received a COVID-19 modification during the course of 2020. It reflects the fact that
following expiry of the temporary payment breaks, some of these borrowers will request or have received further support, e.g. forbearance,
as these borrowers would otherwise be unable to maintain their prior contractual loan repayments. The ECL post model adjustment allows
for early recognition of anticipated downward stage migrations and unlikeliness to pay outcomes following expiry of the temporary COVID-19
modifications, which are not currently reflected within the customers’ credit grade or the probability of default assigned within the ECL model.
The post model adjustment amounts to a € 48 million income statement charge for the full year 2020 (Mortgages: € 11 million, Personal:
€ 5 million, Business: € 32 million) as informed by business management judgement on anticipated flows to forbearance and/or default
following the payment break expiry, with due consideration for continued impacts of COVID-19 at year end and onward into 2021. The post
model adjustment is temporary in nature and will be unwound in 2021 in line with the customer engagement and credit assessment process.
CIB SME
A similar situation to that outlined above in the Retail portfolio exist in relation to a cohort of SME loans (€ 355 million, Stage 2) within the
CIB portfolio and an additional € 28 million charge was taken in the year to 31 December 2020 as a post model adjustment.
4. Macroeconomic post model adjustment
The Group has identified that a post model adjustment is required for its base case macroeconomic scenario projections for 2021.
Due to the increased spread of the COVID-19 virus, both the UK and the Irish governments announced further lockdown requirements
which came into effect in early January 2021. The extent of the restrictions have been much greater than those expected in the
macroeconomic estimations, however, the efficacy and early roll out of vaccines as compared with the Group’s base case provides an offset
in terms of medium term outlook.
A quantitative and qualitative assessment has been carried out to review the adequacy of ECL allowance given the delay in economic
recovery caused by these increased restrictions. From a quantitative perspective the Group has assessed that the restrictions could reduce
its 2021 growth projections in Ireland by c. 2% and in the UK by c. 3.5% and increase its projections of Irish unemployment by c. 0.7% for
2021. These short term impacts are assessed to reverse over the medium term due to the improved vaccine outlook.
A quantitative assessment using model data and a qualitative review by credit portfolio management teams have identified the requirement
for a € 30 million post model adjustment to capture the combined impact of these changes in outlook, of which € 19 million related to
AIB UK.
5. Property and Construction portfolio post model adjustment
A review of the ECL model for the Property and Construction portfolio in ROI determined that the historically observed relationships between
default rates and macroeconomic factors in the model are not fully reflective of expectations for a portion of the portfolio. While the modelled
outcome suggested that certain cases had moved to Stage 2, expert credit judgement determined that a significant increase in credit risk
had not occurred and that these cases, amounting to € 519 million, be retained in Stage 1. This resulted in € 9 million of modelled ECL
being reversed.
6. Syndicated lending portfolio post model adjustment
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.
The post model adjustment increased modelled probabilities of default and hence ECL cover for both Stage 1 and Stage 2 assets based
on more recent observed experience. The adjustment was reviewed in 2020 which resulted in an increase in the minimum ECL cover
associated with Stage 1 assets in the portfolio whilst no change was made to the adjustment for Stage 2.
As a result, a post model adjustment of € 63 million has been applied as at 31 December 2020 to increase the ECL allowance to
€ 145 million (Stage 1: € 24 million and Stage 2: € 117 million and Stage 3: € 4 million). At 31 December 2019, a post model adjustment of
€ 16 million was applied to increase the ECL allowance to € 20 million (Stage 1: € 15 million and Stage 2: € 5 million). Further details on the
syndicated lending portfolio are outlined an page 128.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management
107
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Management judgements (continued)
7. AIB UK post model adjustment
The Group has identified that a post model adjustment of £ 95 million is required for the AIB UK Segment at 31 December 2020 (£ 15 million
at 31 December 2019), which includes the £ 17 million (€ 19 million) for the macroeconomic post model adjustment noted earlier. This has
resulted in an increase of £ 81 million during the year.
The Corporate portfolio required adjustments of £ 73 million to Stage 1 (£ 4,119 million) and Stage 2 (£ 1,013 million) loans to align
modelled outcomes to expected credit losses derived from an agreed consensus forecast that includes the impact of COVID-19 restrictions
on the macroeconomic environment.
£ 895 million of personal mortgage loans (Stage 1: £ 849 million and Stage 2: £ 46 million) have required an additional £ 4 million
adjustment due to customers who have received payment deferrals. Consideration was given to how these cases may influence the
probability of default. Further, cases with active payment deferrals are given elevated default rates for a single quarter when they return to
single payments. The loss rates assigned to these cases are also increased.
Stage 3 loans (£ 451 million) took a post model adjustment of £ 18 million. This increase on ECL was due to a number of factors, being
the proposed sale of non-performing PDH loans, the impact of a number of macroeconomic scenarios on Stage 3 ECLs and also due to a
minimum LGD being applied to both Retail (5%) and Personal (1%) mortgage loans.
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 2020 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 as the final approval authority.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 108
Risk management – 2. Individual risk types
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 2020 and 2019:
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
24,932
43
–
1,799
56,870
3,603
87
212
Fair
value(2)
€ m
–
–
1,424
–
75
15,675
–
–
2020
Total
€ m
24,932
43
1,424
1,799
56,945
19,278
87
212
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
87,546
17,174
104,720
75,060
17,229
92,289
12,504
722
13,226
–
–
–
12,504
722
13,226
100,772
17,174
117,946
11,539
711
12,250
87,310
–
–
–
11,539
711
12,250
17,229
104,539
(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 € 25,550 million (2019: € 11,982 million).
(4)Excluding equity shares of € 201 million (2019: € 815 million).
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 109
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 2020 and 2019:
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
€ m
25,550
43
1,799
€ m
–
–
–
€ m
25,550
43
1,799
59,380
(2,510)
56,870
75
59,455
19,279
12,504
722
n/a
(2,510)
(1)
(54)
(29)
75
56,945
19,278
(54)
(29)
2020*
Income
statement
Net credit
impairment
(charge)
€ m
–
–
–
(1,421)
–
(1,421)
–
(35)
(4)
(1,460)
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)
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 € 3 million (2019: € 4 million) included in carrying amount of investment securities at FVOCI.
There was a € 1,460 million net credit impairment charge in the year (2019: € 16 million charge). This comprised of a € 1,421 million
charge on loans and advances to customers (net re-measurement of ECL allowance charge of € 1,493 million, offset by recoveries of
amounts previously written-off of € 72 million) and a € 39 million charge for off-balance sheet exposures (2019: € 27 million charge,
(net re-measurement € 117 million, recoveries € 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 2020 are set out on pages 112 and 273.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 110
Risk management – 2. Individual risk types
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 2020 and 2019:
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
2020
Total
CIB
AIB UK
Group
2019
Total
Retail
Banking
€ m
28,949
2,569
712
3,236
€ m
610
62
4,584
9,954
35,466
15,210
24,589
5,544
7,781
4,898
30,133
12,679
1,654
1,429
628
2,282
3,051
307
1,736
795
€ m
1,090
112
1,964
5,398
8,564
4,233
3,214
7,447
567
47
614
503
€ m
€ m
–
23
–
117
140
30,649
2,766
7,260
18,705
59,380
Retail
Banking
€ m
29,565
2,747
€ m
632
100
868
4,179
3,389
11,253
36,569
16,164
–
36,603
24,693
11,561
140
140
13,796
50,399
6,034
4,220
30,727
15,781
–
–
–
–
3,650
982
4,632
4,349
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
–
9
–
112
121
14
107
121
–
–
–
–
31,454
2,984
7,299
20,312
62,049
42,454
12,798
55,252
2,275
1,175
3,450
3,347
Gross carrying amount
35,466
15,210
8,564
140
59,380
36,569
16,164
9,195
121
62,049
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
Income statement
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment charge/(writeback)
29,500
2,924
2,858
184
9,364
5,132
714
–
6,709
1,352
503
–
140
45,713
30,698
15,680
8,224
121
54,723
–
–
–
9,408
4,075
184
2,836
2,841
194
467
17
–
689
282
–
–
–
–
3,992
3,140
194
35,466
15,210
8,564
140
59,380
36,569
16,164
9,195
121
62,049
136
209
1,044
69
1,458
%
0.5
7.1
36.5
37.5
€ m
545
(67)
478
90
523
144
–
757
%
1.0
10.2
20.2
–
€ m
740
–
740
55
113
127
–
295
%
0.8
8.4
25.1
–
€ m
208
(5)
203
281
845
1,315
69
2,510
%
0.6
9.0
32.3
37.5
€ m
1,493
(72)
1,421
%
65
151
796
31
1,043
%
0.2
5.3
28.0
16.1
€ m
77
(87)
(10)
%
–
–
–
–
–
%
–
–
–
–
€ m
–
–
–
%
–
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
Net credit impairment charge/
(writeback) on average loans
%
%
%
1.33
4.65
2.31
2.34
(0.03)
0.13
0.19
(1)Further analysis of internal credit grade profile by ECL staging is set out on pages 113 and 114.
AIB Group plc Annual Financial Report 2020Risk Management 111
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 2020 and
2019:
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
€ m
€ m
–
–
75
75
–
–
–
–
–
–
–
–
–
–
–
–
75
–
75
–
–
–
–
75
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2020
Total
€ m
75
75
75
–
75
–
–
–
–
75
Retail
Banking
€ m
–
–
–
–
–
–
–
–
–
–
CIB
AIB UK
Group
€ m
77
77
77
–
77
–
–
–
–
77
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
Total
€ m
77
77
77
–
77
–
–
–
–
77
Gross loans and advances to customers
Gross loans and advances to customers reduced by € 2.7 billion in the year to 31 December 2020. Of the total portfolio of € 59.5 billion,
€ 59.4 billion is measured at amortised cost with the remaining € 0.1 billion being measured at fair value through profit or loss. The reduction
in the year was due to redemptions net of interest credited and foreign exchange movements exceeding new lending activity. Overall, from
a segment perspective, the reduction in the total portfolio was experienced by Retail Banking which decreased by € 1.1 billion, CIB which
decreased by € 1.0 billion and AIB UK which decreased by € 0.6 billion. The level of new lending activity in 2020 of € 9.2 billion has been
impacted by the COVID-19 pandemic. As a result, new lending activity is € 3.1 billion or 25% lower than 2019 (2019: € 12.3 billion),
as reduced demand was experienced across all asset classes. The reduction in new lending in Retail Banking and AIB UK reflected lower
economic activity, while new lending in CIB was lower across all business areas with syndicated lending most impacted as a result of the
Group’s reduced risk appetite.
Of the total loans to customers of € 59.5 billion, € 50.5 billion or 85% are rated as either ‘strong’ or ‘satisfactory’ which is a decrease of
€ 4.9 billion (2019: € 55.3 billion or 89%), and was evidenced across all segments. The ‘criticised’ classification includes ‘criticised watch’
of € 3.6 billion and ‘criticised recovery’ of € 1.0 billion, the total of which has increased by € 1.2 billion in the year. The total performing book
has decreased by € 3.7 billion to € 55.1 billion or 93% of gross loans and advances to customers (2019: € 58.8 billion or 95%).
The COVID-19 pandemic has also had a significant negative impact on the credit quality of the total portfolio. Stage 2 loans have increased
by € 5.4 billion to € 9.4 billion. The increase was driven by net transfers to Stage 2 of € 8.3 billion, predominately from Stage 1, which
was slightly offset by redemptions net of interest credited of € 1.9 billion. The transfers to Stage 2 reflect the downward revision of the
macroeconomic forecasts and the contraction of the economy as a result of the COVID-19 pandemic and the subsequent impact of cases
migrating to Stage 2 following case assessments.
Stage 3 loans increased by € 0.9 billion to € 4.1 billion. The increase was primarily as a result of net transfers to Stage 3 of € 1.5 billion
which was offset by redemptions net of interest credited of € 0.5 billion. The transfers to Stage 3 were due to cases migrating from Stage 2
to Stage 3, particularly those identified as directly impacted by COVID-19 in the non-property business and property portfolios.
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 (€ 0.1 billion) or POCI (€ 0.2 billion). Non-performing loans
have increased by € 1.0 billion to € 4.3 billion or 7.3% of gross loans and advances to customers (31 December 2019: € 3.3 billion and
5.4%). The increase reflects € 0.8 billion of net underlying flow to non-performing loans, primarily due to higher property and non-property
business non-performing loans.
The characteristics of each stage including the Group’s approach to identifying significant increase in credit risk are outlined on page 96.
This incorporates additional forward looking information including the Group’s macroeconomic forecasts in addition to the quantitative and
qualitative information utilised in determining the internal credit ratings.
AIB Group plc Annual Financial Report 2020Risk Management 123456 112
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
ECL allowance
The ECL allowance on loans and advances to customers increased by € 1.3 billion to € 2.5 billion in the year as Stage 2 and Stage 3 ECL
allowance increased from € 0.2 billion to € 0.8 billion and € 0.9 billion to € 1.3 billion respectively. The increase in Stage 2 was primarily as
a result of net stage transfers and re-measurements within stage of € 0.4 billion and the downward revision of the macroeconomic forecasts
which accounted for a further € 0.2 billion. The increase in Stage 3 was also primarily as a result of net stage transfers and re-measurements
within Stage of € 0.4 billion and a further € 0.2 billion reflecting the impact of management judgements specifically relating to the Mortgage
portfolio. The total ECL cover rate has increased from 2.0% at 31 December 2019 to 4.2% at 31 December 2020.
Income statement
There was a € 1,460 million net credit impairment charge for the year to 31 December 2020 (2019: € 16 million net credit impairment
charge).
This comprised of a € 1,421 million charge on loans and advances to customers and a € 39 million charge for off-balance sheet exposures
(2019: credit impairment charge of € 27 million and a writeback of € 11 million respectively).
The € 1,421 million charge comprised a € 1,493 million ECL net re-measurement allowance partially offset by € 72 million of recoveries of
amounts previously written-off (2019: € 27 million charge comprising € 117 million charge offset by € 90 million of recoveries).
There were three key drivers which contributed to the € 1,493 million gross charge; stage migration and re-measurement within stage
accounted for € 654 million as a result of credit downgrades in high impacted sectors due to COVID-19, post model adjustments to
appropriately reflect expected COVID-19 impacts as outlined under the management judgements section resulted in a € 438 million charge
and the change in macroeconomic factors and probability weightings across economic scenarios used in ECL reporting resulted in a further
€ 401 million charge. The ECL allowance movements are outlined on pages 134 to 138.
Stage migration from individual case assessment of exposures in high impacted COVID-19 sectors impacted the ECL charge. Throughout
the year, credit reviews were conducted across the case managed portfolio which led to a number of credit downgrades contributing to
a charge due to underlying credit management activity of € 654 million. € 161 million was as a result of net transfers from Stage 1 to 2
and € 103 million net transfers to Stage 3. Borrowers in the non-property business asset class were particularly impacted, accounting for
€ 199 million of the total € 264 million charge due to stage migration. There was a € 406 million charge due to net ECL re-measurements
within stage.
As outlined under the management judgements section on pages 105 to 107, the impact of the changes to the ROI PDH mortgage post
model adjustments resulted in an additional € 210 million charge. Post model adjustments in relation to COVID-19 modified loans to cater
for the higher likelihood of default for those seeking modifications resulted in an impact of € 76 million. The UK post model adjustment also
resulted in an additional £ 55 million charge reflecting managements view of likely sector specific default rates as a result of COVID-19.
The remaining charge of € 91 million due to post model adjustments primarily relates to the Syndicated lending portfolio and an adjustment
which has been applied to the base case macroeconomic scenario projections.
The onset of the COVID-19 pandemic and associated lockdown measures and restrictions on economic activity has resulted in a material
change in the macroeconomic scenarios used in comparison to the 2019 assumptions. Details on the changes to the macroeconomic
scenarios and weightings are outlined on pages 100 to 103. The revision of the macroeconomic factors and probability weightings has
led to significant changes in the ECL across the Group’s loan portfolio. This has resulted in a € 401 million charge. The impact was mainly
observed in Stage 2 (€ 227 million) and Stage 1 (€ 129 million) with a € 37 million impact in Stage 3. The property (€ 121 million), mortgage
(€ 121 million) and non-property (€ 110 million) asset classes were predominately impacted.
Recoveries of amounts previously written-off of € 72 million (2019: € 90 million) included € 56 million recoveries (2019: € 63 million) which
reflects cash recoveries against legacy non-performing exposures in line with the Group’s resolution strategies.
AIB Group plc Annual Financial Report 2020Risk Management 113
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 2020 and
2019:
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
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
POCI
€ m
5
1
6
2
2
4
2020*
Total
€ m
36,603
13,796
50,399
3,650
982
4,632
4,349
35,341
9,411
44,752
834
27
861
100
1,257
4,384
5,641
2,814
953
3,767
–
–
–
–
–
–
–
4,075
4,075
174
184
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
2019*
Total
€ m
42,454
12,798
55,252
2,275
1,175
3,450
3,347
62,049
Gross carrying amount
45,713
9,408
59,380
54,723
3,992
ECL allowance
Carrying amount
Analysis by asset class
Residential mortgages
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
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
(281)
(845)
(1,315)
(69)
(2,510)
(141)
(202)
(864)
(31)
(1,238)
45,432
8,563
2,760
115
56,870
54,582
3,790
2,276
163
60,811
23,478
2,654
26,132
395
6
318
574
892
602
456
401
1,058
2
–
26,535
1,950
–
–
–
–
–
–
1,980
1,980
(39)
(73)
(662)
5
1
6
2
2
4
174
184
(69)
23,801
3,229
27,030
999
464
1,463
2,156
23,766
2,795
26,561
405
4
409
3
162
610
772
668
704
1,372
–
30,649
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
31,454
(843)
(10)
(52)
(476)
(31)
(569)
26,496
1,877
1,318
115
29,806
26,963
2,092
1,667
163
30,885
1,243
885
2,128
70
2
72
1
2,201
(41)
2,160
2,981
1,175
4,156
71
2
73
90
51
154
205
84
43
127
–
332
(51)
281
757
924
1,681
317
78
395
–
4,319
2,076
(75)
(133)
4,244
1,943
–
–
–
–
–
–
233
233
(142)
91
–
–
–
–
–
–
865
865
(188)
677
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,294
1,039
2,333
154
45
199
234
2,766
(234)
2,532
3,738
2,099
5,837
388
80
468
955
7,260
(396)
6,864
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
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 2019*
Total
€ m
12,122
6,734
18,856
752
255
1,007
449
20,312
(305)
20,007
2020
Total
€ m
178
3,228
943
4,349
–
4,349
114
Risk management – 2. Individual risk types
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
Non-property business
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
ECL allowance
Carrying amount
7,639
4,697
12,336
298
17
315
7
131
2,732
2,863
1,811
376
2,187
–
12,658
5,050
(126)
(588)
12,532
4,462
–
–
–
–
–
–
997
997
(323)
674
2020*
Total
€ m
7,770
7,429
15,199
2,109
393
2,502
1,004
18,705
(1,037)
17,668
POCI
€ m
–
–
–
–
–
–
–
–
–
–
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
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
–
–
–
–
–
–
–
–
–
–
Non-performing exposures (“NPE”) to customers
The table below analyses non-performing loans and advances to customers by asset class at 31 December 2020 and 2019:
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
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
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
111
1,813
232
2,156
–
2,156
730
8
207
19
234
–
234
143
43
419
493
955
–
955
210
16
789
199
1,004
–
1,004
324
1,407
7.0%
8.5%
13.2%
5.4%
7.3%
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
128
1,931
270
2,329
–
2,329
507
7.4%
10
168
15
193
–
193
115
67
248
61
376
–
376
132
21
345
83
449
–
449
144
6.4%
5.1%
2.2%
2019
Total
€ m
226
2,692
429
3,347
–
3,347
898
5.4%
Non-performing loans have increased by € 1.0 billion or 30% to € 4.3 billion in the year. The increase reflects € 0.8 billion of net underlying
flow to non-performing loans, primarily due to higher property and non-property business non-performing loans. A further € 0.3 billion
(of which € 0.1 billion exited default in the year) reflects amendments made to the Group’s definition of default exit criteria, and the alignment
of arrears days past due (DPD) count methodology to the European Banking Authority (EBA) convention.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 115
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Residential mortgages
Residential mortgages amounted to € 30.6 billion at 31 December 2020, with the majority (96%) relating to residential mortgages in the
Republic of Ireland and the remainder relating to the United Kingdom. This compares to € 31.5 billion at 31 December 2019, of which 96%
related to residential mortgages in the Republic of Ireland. The split of the residential mortgage portfolio was owner-occupier € 28.5 billion
and buy-to-let € 2.1 billion (2019: owner-occupier € 29.0 billion and buy-to-let € 2.5 billion).
The current impact of COVID-19 across the portfolio is dependent on the borrower’s sector of employment. Further impact of COVID-19 on
employment levels will become clear as government supports are withdrawn and businesses re-open.
At 31 December 2020, the ECL allowance for the Group’s residential mortgages portfolio totalled € 0.8 billion, or 2.8% total cover rate.
During 2020, there was a net credit impairment charge of € 306 million to the income statement. This was primarily impacted by
a € 245 million charge relating to post model adjustments, of which € 210 million related to the ROI PDH mortgage post model
adjustments, which reflects higher charges on legacy non-performing exposures. A further € 121 million charge was a result of the revised
macroeconomic assumptions. These charges were partially offset by a € 25 million writeback as a result of net stage transfers and
re-measurements within stage. In addition, the Group recovered € 33 million on loans previously written-off.
Residential mortgages – page 116
– Residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging
Republic of Ireland residential mortgages – pages 117 to 121
– 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 2020Risk Management 123456 116
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Residential mortgages (continued)
The following table analyses the residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging at
CIB AIB UK
Group
2020*
Total
CIB
AIB UK
Group
2019*
Total
€ m
€ m
€ m
€ m
31 December 2020 and 2019:
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
27,051
1,898
28,949
22,648
2,856
25,504
928
443
1,371
2,074
€ m
452
158
610
545
43
588
7
10
17
5
€ m
1,005
85
1,090
608
330
938
64
11
75
77
Gross carrying amount
28,949
610
1,090
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
25,043
1,824
1,898
184
534
71
5
–
958
55
77
–
28,949
610
1,090
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)
34
66
641
69
810
%
0.1
3.6
33.8
37.5
€ m
322
(31)
291
1
5
–
–
6
%
0.1
6.8
–
–
4
2
21
–
27
%
0.4
4.9
26.6
–
€ m
€ m
€ m
4
–
4
13
(2)
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
Retail
Banking
€ m
28,508
27,368
2,141
2,197
30,649
29,565
23,801
22,684
3,229
2,975
27,030
25,659
999
464
1,463
2,156
986
703
1,689
2,217
€ 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
30,649
29,565
632
1,257
26,535
25,296
1,950
1,980
184
2,044
2,031
194
592
37
3
–
1,085
63
109
–
30,649
29,565
632
1,257
39
73
662
69
843
%
0.1
3.7
33.4
37.5
€ m
339
(33)
306
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
1.00
0.64
0.95
–
0.99
0.31
(0.12)
0.07
*Forms an integral part of the audited financial statements
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
–
–
–
%
–
28,982
2,472
31,454
23,930
3,405
27,335
1,074
716
1,790
2,329
31,454
26,973
2,144
2,143
194
31,454
10
52
476
31
569
%
–
2.4
22.2
16.1
€ m
129
(36)
93
%
0.29
€ m
€ m
€ m
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 117
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 2020
and 2019:
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
27,503
Buy-to-let
€ m
2,056
2020*
Total
€ m
29,559
Owner-
occupier
€ m
27,825
Buy-to-let
€ m
2,372
2019*
Total
€ m
30,197
24,082
1,495
25,577
24,132
1,756
25,888
1,611
1,631
179
284
272
5
1,895
1,903
184
1,748
1,757
188
333
277
6
2,081
2,034
194
27,503
2,056
29,559
27,825
2,372
30,197
29
51
553
66
699
6
20
88
3
117
35
71
641
69
816
8
34
397
28
467
1
17
64
3
85
9
51
461
31
552
26,804
1,939
28,743
27,358
2,287
29,645
%
0.1
3.1
33.9
37.0
€ m
284
(26)
258
%
%
0.4
7.1
32.5
56.0
€ m
42
(5)
37
%
%
0.1
3.7
33.7
37.5
€ m
326
(31)
295
%
%
–
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
%
%
%
Net credit impairment charge/(writeback)
on average loans
0.93
1.67
0.99
0.40
(0.69)
0.30
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 118
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 € 29.6 billion at 31 December 2020 compared to € 30.2 billion at 31 December 2019.
The decrease in the portfolio was primarily due to loan repayments exceeding new lending. Total drawdowns during the year were
€ 2.4 billion (2019: € 3.0 billion), of which 98% were by owner occupiers, whilst the weighted average indexed loan-to-value for new
residential mortgages was 69%. New lending in the period decreased by 21% impacted by COVID-19 restrictions, the prevailing uncertainty
and precautionary consumer behaviour.
The split of the Irish residential mortgage portfolio is 93% owner-occupier and 7% buy-to-let and comprises 25% tracker rate, 45% variable
rate and 30% fixed rate mortgages.
Non-performing loans decreased from € 2.2 billion at 31 December 2019 to € 2.1 billion at 31 December 2020. However, € 3.1 billion of the
mortgage portfolio received COVID-19 support payment moratoria. A post model adjustment allows for the Group’s additional risk within
these cases receiving payment break moratoria and the remaining portfolio continues to perform strongly.
Income statement
There was a net credit impairment charge of € 295 million to the income statement in the year compared to a net credit impairment charge
of € 92 million in 2019. € 210 million of the total € 295 million charge specifically related to the ROI PDH mortgage post model adjustments
for the cohorts identified in long term days past due (€ 119 million) and zero or low days past due (€ 91 million). The remaining charge was
predominately driven by the revised macroeconomic assumptions.
The ECL allowance provision cover level at 31 December 2020 for the Irish residential mortgage portfolio is 2.8% (2019: 1.8%). For the
Stage 3 element of the Irish residential mortgage portfolio, € 0.6 billion of ECLs are held providing Stage 3 cover of 34% (2019: € 0.5 billion
and 23% respectively).
Residential mortgage arrears
Total loans in arrears (including non-performing loans) by value decreased by 32% during the year, a decrease of 34% in the owner-
occupier portfolio and a decrease of 13% in the buy-to-let portfolio. The total reduction in residential mortgage arrears was influenced by the
availability of payment break options introduced specifically to support customers in response to COVID-19. The decrease in arrears was
also impacted by the alignment of the arrears DPD count methodology to the EBA convention.
The number of loans in arrears (based on number of accounts) greater than 90 days was 4.4% at 31 December 2020 and remains below
the industry average of 6.4%(1). For the owner-occupier portfolio, the number of loans in arrears greater than 90 days at 4.1% were below
the industry average of 5.4%(1). For the buy-to-let portfolio, loans in arrears greater than 90 days at 6.7% were below the industry average of
13.6%(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 € 0.4 billion from € 2.5 billion at 31 December 2019 to
€ 2.1 billion at 31 December 2020. Payment break options introduced specifically to support customers in response to COVID-19 and which
met the definition of general payment moratoria as outlined in the relevant EBA Guidelines are not reported as forbearance measures.
Details of forbearance measures are set out on pages 144 to 146.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 119
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Republic of Ireland residential mortgages (continued)
Actual and weighted average indexed loan-to-value ratios of Republic of Ireland residential mortgages.
The following table profiles the Republic of Ireland residential mortgage portfolio by the indexed loan-to-value ratios and the weighted
average loan-to-value ratios at 31 December 2020 and 2019:
At amortised cost
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
2020*
POCI Overall
total
€ m
€ m
At amortised cost
Stage 1
Stage 2
Stage 3
POCI
€ m
€ m
€ m
€ m
2019*
Overall
total
€ m
21,567
1,559
1,461
124
24,711
21,997
1,660
1,533
125
25,315
3,853
275
251
42
4,421
3,678
331
103
50
39
21
99
78
7
2
248
151
149
60
63
25
276
125
90
46
4,331
9
1
346
176
25,573
1,894
1,889
175
29,531
25,884
2,079
2,024
181
30,168
4
1
14
9
28
4
2
10
13
29
25,577
1,895
1,903
184
29,559
25,888
2,081
2,034
194
30,197
20,183
1,325
1,282
123
22,913
20,409
1,409
1,340
124
23,282
3,773
247
195
42
4,257
3,553
282
89
35
28
11
86
61
7
1
210
108
128
40
45
12
232
109
73
45
4,112
9
1
291
126
24,080
1,611
1,624
173
27,488
24,130
1,748
1,754
179
27,811
2
–
7
6
15
2
–
3
9
14
24,082
1,611
1,631
179
27,503
24,132
1,748
1,757
188
27,825
Less than 80%
81-100%
100-120%
Greater than 120%
Total with LTVs
Unsecured
Total
Of which:
Owner occupier
Less than 80%
81-100%
100-120%
Greater than 120%
Total with LTVs
Unsecured
Total
The weighted average indexed loan-to-value of the stock of residential mortgages at 31 December 2020 was 57% (2019: 57%),
new residential mortgages issued during the year was 69% (2019: 68%) and Stage 3 residential mortgages was 61% (2019: 63%).
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 120
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 2020
and 2019:
Not past due
1 - 30 days
31 - 60 days
61 - 90 days
91 - 180 days
181 - 365 days
Over 365 days
Total gross carrying amount
of residential mortgages
ECL allowance
Carrying value
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
2020
Total
€ m
POCI
€ m
At amortised cost
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2019
Total
€ m
25,575
1,852
779
155
28,361
25,808
1,797
2
–
–
–
–
–
21
19
3
–
–
–
22
27
8
39
114
914
1
2
–
1
4
21
46
48
11
40
118
935
80
–
–
–
–
–
215
52
17
–
–
–
683
100
73
59
130
126
863
148
28,436
14
4
4
4
4
16
409
129
80
134
130
879
25,577
1,895
1,903
184
29,559
25,888
2,081
2,034
194
30,197
(35)
(71)
(641)
(69)
(816)
(9)
(51)
(461)
(31)
(552)
25,542
1,824
1,262
115
28,743
25,879
2,030
1,573
163
29,645
24,080
1,574
674
151
26,479
24,057
1,490
575
2
–
–
–
–
–
17
17
3
–
–
–
16
26
6
35
83
1
2
–
1
4
36
45
9
36
87
791
20
811
75
–
–
–
–
–
195
47
16
–
–
–
91
66
56
119
114
736
24,082
1,611
1,631
179
27,503
24,132
1,748
1,757
143
14
4
4
4
4
15
188
26,265
375
117
76
123
118
751
27,825
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 121
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 2020 and 2019 is set out below:
Owner-occupier
Buy-to-let
Total
Stock
432
16
448
2020
Balance
outstanding
€ m
100
3
103
Stock
492
23
515
2019
Balance
outstanding
€ m
112
5
117
(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 67 properties in 2020 (2019: 78 properties). This decrease relates to the
disposal of 93 properties (2019: 231 properties) which were offset by the addition of 39 properties, the majority of which were voluntary
surrenders or abandonments (2019: 180 properties). In addition, a further 13 properties were removed from the stock in 2020 (2019:
27 properties), mainly due to inclusions in 2019 loan sales and disposals put on hold by the Group.
The disposal of 93 residential properties in the Republic of Ireland resulted in a total loss on disposal of € 7 million at 31 December 2020
(before ECL allowance) and compares to 31 December 2019 when 231 residential properties were disposed of resulting in a total loss of
€ 28 million. COVID-19 impacted the closing of sales in 2020. 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 2020 and 2019:
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
90
3
93
21
1
22
Gross sales
proceeds
on disposal
€ m
16
1
17
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
2020
(1)
Loss
on sale
€ m
€ m
2
–
2
Costs
to sell
€ m
1
–
1
7
–
7
2019
(1)
Loss
on sale
€ m
28
–
28
AIB Group plc Annual Financial Report 2020Risk Management 123456 122
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
2020 and 2019:
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
558
2,011
2,569
1,179
973
2,152
149
40
189
228
CIB AIB UK
Group
€ m
6
56
62
35
19
54
2
4
6
2
€ m
22
90
112
80
24
104
3
1
4
4
€ m
–
23
23
–
23
23
–
–
–
–
2020*
Total
€ m
586
2,180
2,766
1,294
1,039
2,333
154
45
199
234
Retail
Banking
€ m
676
2,071
2,747
1,205
1,099
2,304
210
46
256
187
CIB
AIB UK
Group
€ m
7
93
100
42
50
92
5
3
8
–
€ m
31
97
128
94
22
116
5
1
6
6
Gross carrying amount
2,569
62
112
23
2,766
2,747
100
128
99
23
2,201
2,297
9
4
–
–
–
–
332
233
–
264
186
–
90
10
–
–
108
14
6
–
112
23
2,766
2,747
100
128
1
–
2
–
3
%
1.0
–
44.7
–
–
–
–
–
–
%
–
–
–
–
41
51
142
–
234
%
1.8
15.4
60.9
–
–
–
–
92
(12)
80
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)
%
–
–
–
%
%
%
%
–
2.87
0.37
(0.96)
0.30
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
2,032
310
227
–
2,569
40
50
139
–
229
%
1.9
16.0
61.2
–
47
13
2
–
62
–
1
1
–
2
%
–
10.5
53.1
–
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment charge/(writeback)
91
(12)
79
1
–
1
%
%
Net credit impairment charge(writeback)/
on average loans
3.05
1.42
–
–
–
%
–
*Forms an integral part of the audited financial statements
Income statement
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
2019*
Total
€ m
714
2,270
2,984
1,341
1,180
2,521
220
50
270
193
2,984
2,504
288
192
–
2,984
21
40
114
–
175
%
0.9
13.9
59.8
–
€ m
32
(22)
10
%
0.32
€ m
–
9
9
–
9
9
–
–
–
–
9
9
–
–
–
9
–
–
–
–
–
%
–
–
–
–
–
–
–
%
–
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 123
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Other personal (continued)
At 31 December 2020, the other personal lending portfolio of € 2.8 billion comprises of € 2.2 billion in loans and overdrafts and € 0.6 billion
in credit card facilities (2019: total € 3.0 billion and € 2.3 billion and € 0.7 billion respectively). Despite the impact of COVID-19, the credit
quality of the portfolio has remained stable throughout the year, with 16% categorised as less than satisfactory, of which defaulted loans
amounted to € 0.2 billion (2019: 16% and € 0.2 billion).
The demand for personal loans, which accounts for the largest portion of the portfolio, reduced significantly in the second quarter of the
year due to COVID-19 resulting in a decrease in new lending of € 0.2 billion or 10% to € 0.9 billion in 2020 versus the level of lending
experienced in 2019 (€ 1.1 billion). The current impact of COVID-19 across the portfolio is dependent on the borrower’s sector of
employment. Further impact of COVID-19 on employment levels will become clear as government supports are withdrawn and businesses
re-open. New term lending volumes in the final quarter of 2020 indicated a return to pre-COVID-19 application activity.
Stage 3 loans, predominately in Retail Banking increased by € 41 million in 2020, primarily due to COVID-19. At 31 December 2020,
the ECL allowance cover was 8% with Stage 3 cover at 61% (31 December 2019: 6% and 60% respectively).
The net credit impairment charge in the income statement amounted to € 80 million for the year to 31 December 2020 compared to
€ 10 million charge for the year to 31 December 2019. The charge was mainly impacted by the revised macroeconomic assumptions which
accounted for € 49 million and net stage transfers and re-measurements within stage which resulted in a further € 23 million charge.
AIB Group plc Annual Financial Report 2020Risk Management 123456 124
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 2020 and 2019:
Retail
Banking
€ m
CIB AIB UK
Group
2020*
Total
€ m
€ m
€ m
€ m
Retail
Banking
€ m
CIB
AIB UK
Group
2019*
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
353
127
480
93
51
144
88
–
3,109
633
723
673
3,742
1,396
275
447
722
42
78
37
120
157
119
292
712
4,584
1,964
120
185
305
109
29
138
269
712
315
137
260
–
2,617
1,001
1,125
789
3,742
1,790
240
42
282
560
39
9
48
126
4,584
1,964
2,350
1,755
479
–
1,654
184
126
–
712
4,584
1,964
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
13
15
99
–
51
108
54
–
127
213
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)
%
3.9
11.2
38.1
–
€ m
19
(13)
6
%
2.2
6.2
€ m
195
–
195
11
10
35
–
56
%
0.7
5.2
31
(1)
30
%
%
%
Net credit impairment charge/(writeback)
on average loans
0.78
4.48
1.43
*Forms an integral part of the audited financial statements
11.2
27.9
–
–
€ m
€ m
4,185
1,433
5,618
405
618
1,023
249
370
7,260
3,738
2,099
5,837
388
80
468
955
7,260
4,319
2,076
865
–
7,260
75
133
188
–
396
%
1.7
6.4
21.7
–
€ m
245
(14)
231
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
–
–
–
%
–
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
4
15
105
–
124
%
1.1
9.8
35.6
–
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
7,299
5,061
1,479
6,540
229
154
383
376
7,299
6,505
427
367
–
7,299
31
26
132
–
189
%
0.5
5.9
35.9
–
€ m
€ m
€ m
€ m
€ m
(34)
(19)
(53)
%
7
–
7
%
–
–
–
%
–
–
–
%
–
(27)
(19)
(46)
%
(0.62)
3.20
(4.00)
0.17
0.01
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 125
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 to customers 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 to customers. The portfolio comprised of 77%
investment loans (€ 5.6 billion), 14% land and development loans (€ 1.0 billion) and 9% other property and construction loans (€ 0.6 billion).
The CIB and AIB UK segments continue to account for the majority of this portfolio at 63% and 27% respectively.
The total portfolio remained unchanged in the year as new lending of € 1.4 billion was mainly offset by redemptions of € 1.3 billion.
The reduction in new lending was predominately in the CIB segment which reduced by € 0.5 billion in the year. At 31 December 2020,
€ 5.8 billion of the portfolio was in a strong/satisfactory grade, which is a decrease of € 0.7 billion in the year. The level of non-performing
loans have increased by € 0.6 billion in the year as a result of downward grade migration mainly due to the impact of COVID-19.
Property and construction loans measured at FVTPL reduced by € 2 million to € 75 million in the year.
There was a net credit impairment charge of € 231 million to the income statement in the year to 31 December 2020. This comprises a net
re-measurement charge of € 245 million offset by recoveries of previously written-off loans of € 14 million. The net re-measurement charge
of € 245 million was impacted by the revised macroeconomic assumptions which accounted for € 121 million and net stage transfers and
re-measurements within stage of € 100 million.
The ECL allowance for the portfolio totalled € 0.4 billion providing ECL allowance cover of 5%, reflecting the € 1.6 billion increase in Stage 2
loans. For the Stage 3 portfolio, the ECL allowance cover is 22% (2019: € 0.2 billion, 3% and 36% respectively). Commercial Investment in
the retail sector, including shopping centres in particular, have been adversely impacted by COVID-19, with 82% of the Group’s € 1.5 billion
exposure to this sector now designated Stage 2 or Stage 3, with an associated ECL of € 0.1 billion.
Investment
Investment property loans amounted to € 5.6 billion at 31 December 2020 (2019: € 5.6 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 (€ 3.8 billion) and the
United Kingdom (€ 1.4 billion).
At 31 December 2020, there was a net credit impairment charge of € 168 million to the income statement on the investment property
element of the property and construction portfolio (2019: € 47 million writeback).
Land and development
At 31 December 2020, land and development loans amounted to € 1.0 billion (2019: € 1.0 billion) of which € 0.1 billion related to loans
in the Retail Banking segment, € 0.7 billion in the CIB segment and € 0.2 billion in the AIB UK segment. Construction activity stalled on
both residential and commercial sites during the first COVID-19 lockdown in the first half of 2020. However, in the second half of 2020,
all development sites to which the Group provides development finance reopened and activity recommenced.
The income statement net credit impairment charge for the year was € 41 million (2019: € 17 million writeback).
Contractors
At 31 December 2020, loans to contractors decreased in the year to € 0.2 billion (2019: € 0.3 billion). However, there was a net credit
impairment charge of € 22 million in the year (2019: € 18 million charge).
AIB Group plc Annual Financial Report 2020Risk Management 123456 126
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 2020 and 2019:
CIB AIB UK
Group
CIB
AIB UK
Group
Gross carrying amount
Agriculture
Energy
Manufacturing
Distribution:
Hotels
Licensed premises
Retail/wholesale
Other distribution
Transport
Financial
Other services
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Retail
Banking
€ m
1,202
17
200
153
185
496
86
920
224
16
657
3,236
642
1,530
2,172
468
116
584
480
€ m
365
749
2,023
1,148
213
1,031
193
2,585
1,184
360
2,688
9,954
4,584
3,711
8,295
1,180
251
1,431
228
€ m
104
1,049
324
891
103
340
147
1,481
421
137
1,882
5,398
2,544
2,071
4,615
461
26
487
296
2020*
Total
€ m
1,671
1,815
2,547
2,192
501
1,867
426
4,986
1,829
630
Retail
Banking
€ m
1,203
19
211
157
203
552
83
995
213
21
727
€ m
435
604
2,572
1,231
215
1,130
230
2,806
1,287
389
3,160
€ m
–
–
–
–
–
–
–
–
–
117
–
5,227
117
18,705
3,389
11,253
–
117
117
–
–
–
–
7,770
7,429
15,199
2,109
393
2,502
1,004
646
1,748
2,394
510
143
653
342
7,435
3,584
11,019
138
88
226
8
€ m
103
868
360
824
114
342
176
1,456
435
248
2,088
5,558
4,027
1,304
5,331
104
24
128
99
2019*
Total
€ m
1,741
1,491
3,143
2,212
532
2,024
489
5,257
1,935
764
5,981
€ m
–
–
–
–
–
–
–
–
–
106
6
112
20,312
14
98
12,122
6,734
112
18,856
–
–
–
–
752
255
1,007
449
Gross carrying amount
3,236
9,954
5,398
117
18,705
3,389
11,253
5,558
112
20,312
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
Income statement
Net re-measurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment charge/(writeback)
2,110
653
473
–
6,433
3,293
228
–
3,998
1,104
296
–
117
12,658
2,681
10,921
5,027
112
18,741
–
–
–
5,050
997
–
377
331
–
324
8
–
432
99
–
–
–
–
1,133
438
–
3,236
9,954
5,398
117
18,705
3,389
11,253
5,558
112
20,312
49
78
165
–
292
%
2.3
12.0
34.8
–
€ m
113
(11)
102
38
409
89
–
536
%
0.6
12.4
39.1
–
€ m
540
–
540
39
101
69
–
209
%
1.0
9.1
23.3
–
€ m
164
(2)
162
126
588
323
–
1,037
%
1.0
11.6
32.4
–
€ m
817
(13)
804
31
47
119
–
197
%
1.2
12.5
36.0
–
€ m
(51)
(10)
(61)
%
%
–
–
–
–
–
%
–
–
–
–
€ m
–
–
–
%
–
25
17
1
–
43
%
0.2
5.3
14.4
–
23
20
22
–
65
%
0.5
4.6
21.9
–
–
–
–
–
–
%
–
–
–
–
€ m
€ m
€ m
16
–
16
%
18
(3)
15
%
–
–
–
%
–
79
84
142
–
305
%
0.4
7.5
32.4
–
€ m
(17)
(13)
(30)
%
(0.14)
4.10
(1.61)
0.15
0.29
Net credit impairment charge/(writeback)
on average loans
3.12
4.97
3.00
%
%
%
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 127
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 includes small and medium enterprises (“SMEs”) which are reliant on the domestic economies in which
they operate. In addition to SMEs, the portfolio also includes exposures to larger corporate and institutional borrowers which are impacted
by global economic conditions. The majority of the portfolio exposure is to Irish borrowers with the UK and USA being the other main
geographic concentrations. The portfolio decreased by 8% (€ 1.6 billion) to € 18.7 billion in the year to 31 December 2020. The reduction
was primarily due to redemptions exceeding new drawdowns due to reduced demand for credit across all segments resulting in new lending
of € 4.5 billion (2019: € 6.2 billion). The non-property business portfolio amounted to 32% of total Group loans and advances to customers at
31 December 2020 (2019: 33%).
COVID-19 has had a material negative impact on the asset quality of the non-property business portfolio. Timing of recovery is dependent
on sector specific dynamics. Loans graded as strong/satisfactory decreased in the year from 93% to 81%, as repayments exceeded new
drawdowns coupled with downward grade migration mainly due to the impact of COVID-19. The downward grade migration has resulted in
an increase in the level of less than satisfactory grades (including defaulted loans) from € 1.5 billion at 31 December 2019 to € 3.5 billion at
31 December 2020.
Additional disclosures on the non-property business portfolio are outlined on the following page.
The following are the key themes within the main sub-sectors of the non-property business portfolio:
– The agriculture sub-sector represents 9% of the portfolio at € 1.7 billion. The sector proved resilient through COVID-19. Average farm
incomes rose and increased margins were reported across the majority of farm sectors (excluding tillage sector, which was impacted by
weather). Year-on-year exports declined modestly, but increases were noted for the dairy, sheep and pigs sub-sectors. To date, there
has been no notable increase in request for cash flow/working capital support as a consequence of market factors;
– The energy sector comprises 10% of the portfolio at € 1.8 billion. This sector has seen a growth of € 0.3 billion in the year to
31 December 2020 reflecting strong growth in renewable energy lending;
– The hotels sub-sector comprises 12% of the portfolio at € 2.2 billion. This sector has been severely impacted by the Government
measures to contain COVID-19. In Ireland and the UK, hotels were either closed or operating at significantly reduced occupancy from
mid-March for a significant proportion of the year. As such, key operating metrics were weaker for 2020 and are projected to remain
weak in 2021. The outlook remains uncertain at this juncture and is intrinsically linked to the successful execution of the vaccine
programme. Occupancy may be slow to recover to pre-COVID-19 levels, particularly for those most reliant on international tourism;
– The licensed premises sub-sector comprises 3% of the portfolio at € 0.5 billion. Similar to hotels, this sector has been severely
negatively impacted by the Government measures to contain the COVID-19 pandemic. Licensed premises were either closed or
operating at significantly reduced capacity in Ireland from mid-March with some establishments unable to open during the year due to
their lack of a food offering. Similar to hotels, the outlook remains uncertain and is contingent on the successful execution of the vaccine
programme in order for social restrictions to be eased and licenced premises to resume trade;
– The retail/wholesale sub-sector comprises 10% of the portfolio at € 1.9 billion. Many non-grocery retailers have also been severely
negatively impacted by COVID-19. There has been an increase in online purchasing during this period which has accelerated this
competitive challenge to ‘Brick and Mortar Retail’. With unemployment levels elevated, consumer confidence may be slow to recover.
Grocery retail/wholesale continued to operate with some businesses experiencing increases in revenue and profitability despite some
increases in costs;
– The other services sub-sector comprises 28% of the portfolio at € 5.2 billion, which includes businesses such as solicitors, accounting,
audit, tax, computer services, research and development, consultancy, hospitals, nursing homes and plant and machinery.
Performance across this sub-sector has been mixed depending on the COVID-19 impact to specific sub-sectors in 2020; and
– The remaining sectors in the portfolio include; manufacturing (€ 2.5 billion), transport (€ 1.8 billion) and financial (€ 0.6 billion).
Performance across these sectors has been mixed depending on COVID-19 impact to specific sectors in 2020.
There was a net credit impairment charge of € 804 million to the income statement for the year to 31 December 2020. This comprises a net
re-measurement charge of € 817 million offset by recoveries of previously written-off loans of € 13 million. The net re-measurement charge
of € 817 million was impacted by net stage transfers and re-measurements within stage which accounted for € 572 million. Post model
adjustments resulted in a further € 174 million charge primarily relating to the UK (€ 52 million), the syndicated lending portfolio (€ 59 million)
and the COVID-19 modifications (€ 46 million). In addition, the revised macroeconomic assumptions accounted for € 110 million.
The ECL allowance for the portfolio totalled € 1.0 billion providing ECL allowance cover of 6%. For the Stage 3 portfolio, the ECL allowance
cover is 32% (2019: € 0.3 billion, 2% and 32% respectively).
AIB Group plc Annual Financial Report 2020Risk Management 123456 128
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Non-property business (continued)
Additional disclosures
The following table provides further analyses by industry sector of the non-property business portfolio, by gross carrying amount and ECL
allowance on 31 December 2020 and 2019. Given the international profile of the Syndicated International Finance (SIF) business, all
exposures within this business unit are reported separately.
Agriculture
Energy
Manufacturing
Distribution:
Hotels
Licensed premises
Retail/Wholesale
Other distribution
Transport
Financial
Other services
Total
SIF
Total
Agriculture
Energy
Manufacturing
Distribution:
Hotels
Licensed premises
Retail/Wholesale
Other distribution
Transport
Financial
Other services
Total
SIF
Total
Analysed by ECL stage profile
Stage 1
Stage 2
Stage 3
€ m
1,183
1,700
1,050
321
113
1,017
200
1,651
878
373
2,948
9,783
2,875
€ m
365
47
431
1,573
242
442
69
2,326
379
29
767
4,344
706
€ m
94
15
71
223
146
143
19
531
69
9
193
982
15
Gross
carrying
amount
€ m
1,642
1,762
1,552
2,117
501
1,602
288
4,508
1,326
411
3,908
15,109
3,596
12,658
5,050
997
18,705
Analysed by ECL stage profile
Stage 1
Stage 2
Stage 3
€ m
1,452
1,436
1,568
1,865
448
1,351
275
3,939
1,174
552
3,940
14,061
4,680
€ m
177
15
131
203
56
183
37
479
35
9
236
1,082
51
Gross
carrying
amount
€ m
1,707
1,455
1,756
2,089
532
1,648
322
4,591
1,239
564
4,269
€ m
78
4
57
21
28
114
10
173
30
3
93
438
15,581
–
4,731
18,741
1,133
438
20,312
Analysed by ECL stage profile
Stage 1
Stage 2
Stage 3
2020
ECL
allowance
€ m
13
10
6
9
6
20
2
37
5
2
30
103
23
126
€ m
20
3
29
237
39
51
9
336
18
2
63
471
117
588
€ m
32
2
25
40
53
46
12
151
35
4
70
319
4
€ m
65
15
60
286
98
117
23
524
58
8
163
893
144
323
1,037
Analysed by ECL stage profile
Stage 1
Stage 2
Stage 3
2019
ECL
allowance
€ m
7
4
5
8
7
12
2
29
3
2
14
64
15
79
€ m
10
1
8
10
12
19
1
42
3
1
14
79
5
84
€ m
€ m
23
2
24
7
8
28
6
49
6
2
36
142
–
142
40
7
37
25
27
59
9
120
12
5
64
285
20
305
The Syndicated International Finance (“SIF”) business unit, which is a specialised lending unit within CIB, is involved in participating in
the provision of finance to US and European corporations for mergers, acquisitions, buy-outs and general corporate purposes. The SIF
non-property lending loan portfolio totalled € 3.6 billion at 31 December 2020 (31 December 2019: € 4.8 billion of which € 0.1 billion property
and construction). The SIF non-property portfolio has reduced by € 1.1 billion in the year through a combination of individual asset sales for
credit management purposes and net loan repayments.
At 31 December 2020, 96% of the SIF lending portfolio is in a strong/satisfactory grade (31 December 2019: 99%). 89% of the SIF portfolio
is rated by S&P, with 67% rated B+ or above, 19% rated B and 3% rated B- or below. The majority of the loans (57%) are to large borrowers
with EBITDA > € 250 million. Exposures are well diversified by name and sector with the top 20 borrowers accounting for 26% of total
exposure. 63% of the borrowers in this portfolio are domiciled in the USA, 3% in the UK, and 34% in the Rest of the World (31 December
2019: 65% in the USA, 4% in the UK and 31% in the Rest of the World (primarily Europe) respectively).
At 31 December 2020, there was a net credit impairment charge of € 195 million on the SIF portfolio. The charge was driven by downward
grade migration in addition to the SIF post model adjustment as outlined on page 106 which resulted in a € 59 million charge in the year.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 129
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
31 December 2020 and 2019:
Gross exposures to customers
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2020
At FVTPL
Loans and
advances
to customers
€ m
1,671
1,815
2,547
4,986
1,829
630
5,227
7,260
30,649
2,766
59,380
45,917
8,879
2,304
2,280
Loan
commitments
and financial
guarantees
issued
€ m
607
919
1,593
1,271
506
570
2,114
1,940
837
2,869
13,226
10,328
2,502
103
293
59,380
13,226
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
2,278
2,734
4,140
6,257
2,335
1,200
7,341
9,200
31,486
5,635
72,606
56,245
11,381
2,407
2,573
72,606
1,740
2,607
3,346
2,773
1,810
1,095
5,977
5,977
27,354
4,837
439
91
707
2,911
452
96
1,139
2,321
1,956
556
57,516
10,668
99
36
87
573
73
9
225
902
1,992
242
4,238
–
–
–
–
–
–
–
–
184
–
184
44,535
9,087
1,971
1,923
8,102
1,689
419
458
3,424
184
605
17
192
–
–
–
2,278
2,734
4,140
6,257
2,335
1,200
7,341
9,200
31,486
5,635
72,606
56,245
11,381
2,407
2,573
57,516
10,668
4,238
184
72,606
–
–
–
–
–
–
–
75
–
–
75
75
–
–
–
75
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2020
Loans and
advances
to customers
€ m
66
15
84
590
63
22
197
396
843
234
2,510
2,000
322
61
127
2,510
Loan
commitments
and financial
guarantees
issued
€ m
4
2
8
17
2
1
12
30
–
7
83
67
12
2
2
83
Total
Stage 1
Stage 2
Stage 3
POCI
Total
€ m
€ m
€ m
€ m
€ m
€ m
70
17
92
607
65
23
209
426
843
241
15
12
15
42
10
4
43
82
39
42
2,593
304
2,067
334
63
129
2,593
214
61
15
14
304
23
3
50
412
20
15
92
140
73
56
884
609
130
43
102
884
32
2
27
153
35
4
74
204
662
143
1,336
1,175
143
5
13
–
–
–
–
–
–
–
–
69
–
69
70
17
92
607
65
23
209
426
843
241
2,593
69
2,067
–
–
–
334
63
129
1,336
69
2,593
Concentration by
industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
ECL allowance
Concentration by
industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
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 2020Risk Management 123456 130
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
2019
At FVTPL
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Total
€ m
€ m
€ m
€ m
€ m
€ m
213
15
180
532
41
9
295
460
2,151
429
4,325
3,424
777
61
63
€ m
82
4
72
192
33
4
125
431
2,158
200
3,301
2,951
330
2
18
1,993
2,104
4,352
5,840
2,438
1,248
7,514
8,054
27,816
5,119
66,478
49,820
10,735
3,249
2,674
–
–
–
–
–
–
–
–
195
–
195
194
–
–
1
2,288
2,123
4,604
6,564
2,512
1,261
7,934
8,945
32,320
5,748
74,299
56,389
11,842
3,312
2,756
–
–
–
–
–
–
–
77
–
–
77
77
–
–
–
77
66,478
4,325
3,301
195
74,299
Loans and
advances
to customers
€ m
1,741
1,490
3,143
5,257
1,936
764
5,981
7,299
31,454
2,984
62,049
46,893
9,589
3,192
2,375
Loan
commitments
and financial
guarantees
issued
€ m
547
633
1,461
1,307
576
497
1,953
1,646
866
2,764
12,250
9,496
2,253
120
381
62,049
12,250
Loans and
advances
to customers
€ m
40
7
41
125
14
6
72
189
569
175
1,238
1,087
125
15
11
1,238
Loan
commitments
and financial
guarantees
issued
€ m
2
1
3
4
1
–
5
20
–
6
42
34
7
–
1
42
Concentration by
industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
ECL allowance
Concentration by
industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
(1)Based on country of risk.
2,288
2,123
4,604
6,564
2,512
1,261
7,934
8,945
32,320
5,748
74,299
56,389
11,842
3,312
2,756
74,299
€ m
42
8
44
129
15
6
77
209
569
181
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2019
Total
Stage 1
Stage 2
Stage 3
POCI
Total
€ m
€ m
€ m
€ m
8
4
8
34
6
3
24
34
10
23
11
1
12
45
3
1
17
26
52
43
1,280
154
211
1,121
132
15
12
1,280
103
35
9
7
154
173
29
6
3
211
23
3
24
50
6
2
36
149
476
115
884
814
68
–
2
884
–
–
–
–
–
–
–
–
31
–
31
31
–
–
–
31
€ m
42
8
44
129
15
6
77
209
569
181
1,280
1,121
132
15
12
1,280
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 131
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 2020 and 2019. The aged analysis of the contractually past due loans at 31 December 2020 have
been prepared under the EBA DPD counter which reflects changes to materiality threshold and count methodology. The comparable
analysis for 31 December 2019 was prepared under the Basel DPD counter.
At amortised cost
Industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
1–30 days
€ m
31–60 days
€ m
18
–
2
103
4
1
17
26
49
37
6
–
8
73
7
1
22
18
51
12
Total gross carrying amount
257
198
ECL staging
Stage 1
Stage 2
Stage 3
POCI
Segment
Retail Banking
CIB
AIB UK
Group
68
109
79
1
257
165
23
69
–
257
–
88
108
2
198
111
46
41
–
198
61–90 days 91–180 days 181–365 days
€ m
€ m
€ m
1
–
1
23
7
–
10
8
11
9
70
–
28
42
–
70
40
5
25
–
70
3
–
3
43
3
–
11
15
42
19
139
–
–
138
1
139
102
9
28
–
139
7
–
1
37
1
–
13
63
124
42
288
–
–
285
3
288
216
48
24
–
288
> 365 days
€ m
17
2
14
40
6
2
29
172
968
117
1,367
–
–
1,345
22
1,367
2020
Total
€ m
52
2
29
319
28
4
102
302
1,245
236
2,319
68
225
1,997
29
2,319
1,275
1,909
7
85
–
138
272
–
1,367
2,319
As a percentage of total gross loans at
amortised cost
%
0.43
%
0.33
%
0.12
%
0.23
%
0.49
%
2.30
%
3.90
At FVTPL
Industry sector
Property and construction
Total at FVTPL
Segment
Retail Banking
As a percentage of total gross loans at FVTPL
€ m
–
–
€ m
–
–
%
–
€ m
–
–
€ m
–
–
%
–
€ m
–
–
€ m
–
–
%
–
€ m
–
–
€ m
–
–
%
–
€ m
–
–
€ m
–
–
%
–
€ m
–
–
€ m
–
–
%
–
€ m
–
–
€ m
–
–
%
–
The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.
AIB Group plc Annual Financial Report 2020Risk Management 123456 132
2.1 Credit risk – Credit profile of the loan portfolio
Aged analysis of contractually past due loans and advances to customers (continued)
At amortised cost
Industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
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
1–30 days
€ m
31–60 days
€ m
61–90 days
€ m
91–180 days 181–365 days
€ m
€ m
> 365 days
€ m
29
4
7
37
3
1
26
33
416
82
638
196
300
127
15
638
551
41
46
–
638
%
1.03
€ m
–
–
€ m
–
–
%
–
2
–
1
4
1
–
3
15
136
21
183
–
90
89
4
183
164
2
17
–
183
%
0.29
€ m
–
–
€ m
–
–
%
–
2
–
3
2
–
–
4
3
86
16
116
–
33
79
4
116
106
–
10
–
116
%
0.19
€ m
–
–
€ m
–
–
%
–
3
–
3
5
1
–
10
12
141
27
202
–
–
198
4
202
185
–
17
–
202
%
0.33
€ m
–
–
€ m
–
–
%
–
6
–
4
7
1
1
8
12
141
42
222
–
–
217
5
222
200
1
21
–
222
%
0.36
€ m
–
–
€ m
–
–
%
–
2019
Total
€ m
54
8
25
86
10
4
71
216
1,832
259
2,565
196
423
1,897
49
2,565
12
4
7
31
4
2
20
141
912
71
1,204
–
–
1,187
17
1,204
1,114
2,320
–
90
–
44
201
–
1,204
2,565
%
1.94
%
4.14
€ m
–
–
€ m
–
–
%
–
€ m
–
–
€ m
–
–
%
–
In order to fully align to EBA guidelines on default, DPD materiality thresholds and DPD day count conventions, the aged analysis of the
contractually past due loans at 31 December 2020 have been prepared under the EBA DPD counter which was implemented in the second
quarter of 2020. The comparable analysis for 31 December 2019 was prepared under the Basel DPD counter. The new EBA DPD counter
reflects changes to materiality threshold and count methodology.
At 31 December 2020, total loans past due reduced by € 0.3 billion to € 2.3 billion or 3.9% of total loans and advances to customers (2019:
€ 2.6 billion or 4.1%). The reduction was predominately in the 1-30 days past due category which decreased by € 0.4 billion primarily as a
result of the new EBA DPD counter, however, this also resulted in a € 0.2 billion increase in the greater than 365 days category. The overall
reduction in the total loans past due was also influenced by the availability of payment break options introduced specifically to support
customers in response to COVID-19.
Residential mortgage loans which were past due at 31 December 2020 amounted to € 1.2 billion. This represents 54% of total loans which
were past due (2019: € 1.8 billion or 71%). The reduction in the level of residential mortgage loans in early arrears (less than 30 days past
due) reflects continued active management of cases and the aforementioned new EBA DPD counter.
Non-property business loans which were past due represent 23% or € 0.5 billion (2019: 10% or € 0.3 billion), with property and construction
at 13% or € 0.3 billion (2019: 8% or € 0.2 billion), and other personal at 10% or € 0.2 billion (2019: 10% or € 0.3 billion).
All loans past due by 90 days or more on any material obligation are considered non-performing/defaulted.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 133
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 and industry sector for the years
ended 31 December 2020 and 2019:
Concentration by industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
Rest of the World
(1)By country of risk
Loans
written-off
€ m
–
–
14.3
10.7
1.5
–
11.1
19.8
60.4
33.0
150.8
113.3
24.6
12.9
150.8
2020
Recoveries of
amounts
previously
written-off
€ m
2.2
0.2
1.4
4.7
0.7
–
4.2
13.6
33.3
11.6
71.8
65.7
5.4
0.7
71.8
Loans
written-off
€ m
0.1
0.3
1.9
19.4
2.1
–
10.9
100.2
188.3
38.6
361.8
236.6
96.6
28.6
361.8
2019
Recoveries of
amounts
previously
written-off
€ m
4.0
0.1
1.1
3.6
0.8
0.5
2.4
19.4
35.7
22.1
89.7
85.3
4.0
0.4
89.7
The contractual amount outstanding of loans written-off during the year that are subject to enforcement activity amounted to € 23 million
(2019: € 202 million) which includes both full and partial write-offs. Total cumulative non-contracted loans written-off at 31 December 2020
amounted to € 1,730 million (2019: € 1,919 million).*
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 134
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 between 1 January 2020 and 31 December 2020 and the corresponding movements between 1 January 2019 and
31 December 2019.
Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed on
page 96) and that subsequently reverted within the year 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
Stage 1
€ m
54,723
(11,954)
2,534
(459)
105
8,578
(8,911)
1,471
–
(221)
(651)
519
(21)
Stage 2
€ m
3,992
11,954
(2,534)
(1,483)
352
–
(2,224)
285
–
(214)
(120)
(519)
(81)
Stage 3
€ m
3,140
–
–
1,942
(457)
–
(616)
72
(148)
(86)
(23)
–
251
POCI
€ m
2020*
Total
€ m
194
62,049
–
–
–
–
–
–
–
–
–
8,578
(17)
(11,768)
8
(3)
–
–
–
2
1,836
(151)
(521)
(794)
–
151
45,713
9,408
4,075
184
59,380
Stage 3
€ m
5,541
POCI
€ m
236
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)
–
–
909
(567)
–
(790)
83
(357)
(1,673)
17
–
(23)
54,723
3,992
3,140
2019*
Total
€ m
62,760
–
–
–
–
12,112
–
–
–
–
2
(17)
(13,042)
9
(5)
(6)
–
–
(25)
194
1,997
(362)
(2,052)
578
–
58
62,049
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 2020
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
(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
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 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
Write-offs
Derecognised due to disposals
Exchange translation adjustments
Other movements
At 31 December 2020
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
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
141
(110)
78
(42)
10
(61)
82
(9)
74
129
151
–
(5)
(2)
(4)
281
202
305
(112)
(197)
33
362
–
(89)
144
227
673
–
(18)
(8)
(4)
845
864
–
–
382
(83)
105
–
–
187
37
628
(148)
(34)
(7)
12
1,315
POCI
€ m
31
–
–
–
–
–
–
–
33
8
41
(3)
–
–
–
69
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 3
€ m
1,566
POCI
€ m
31
–
–
203
(86)
(17)
–
–
72
32
204
(357)
(557)
5
3
864
–
–
–
–
2
–
(1)
3
3
7
(5)
(2)
–
–
31
135
2020*
Total
€ m
1,238
195
(34)
143
(40)
406
82
(98)
438
401
1,493
(151)
(57)
(17)
4
2,510
2019*
Total
€ m
2,039
202
(152)
100
(55)
(110)
40
(30)
76
46
117
(362)
(565)
9
–
1,238
Total exposures to which an ECL applies decreased during the year by € 2.7 billion from € 62.1 billion as at 1 January 2020 to € 59.4 billion
as at 31 December 2020.
Stage transfers are a key component of ECL allowance movements (i.e. Stage 1 to Stage 2 to Stage 3 and vice versa) in addition to the
net re-measurement of ECL due to change in risk parameters within a stage. An ECL impact of € 0.3 billion due to Stage transfers and
€ 0.4 billion due to net re-measurement within stage occurred due to underlying credit management activity, such as credit grading and
unlikely to pay testing.
The updated macroeconomic forecasts and scenario probability weightings resulted in a charge of € 0.4 billion. This ECL movement is
presented separately within ‘Impact of credit or economic risk parameters’. This impact was most significant within the mortgage, property
and non-property business portfolios accounting for an increase in ECL stock of € 0.1 billion in each portfolio.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 136
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans and ECL movements (continued)
The gross loan transfers from Stage 1 to Stage 2 of € 12.0 billion are due to underlying credit management 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 and
incorporates loans which transferred due to the impact of the updated macroeconomic forecasts. The main driver of the total movements
to Stage 2 was the doubling of PDs, subject to 50 bps (85 bps for the Mortgage portfolio). 44% 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 2% was caused solely by
the backstop of 30 days past due. Of the € 12.0 billion which transferred from Stage 1 to Stage 2 in the year approximately € 8.0 billion is
reported as Stage 2 at 31 December 2020.
Where a movement to Stage 2 is triggered by multiple drivers simultaneously these are reported in the following order: quantitative;
qualitative; backstop.
Similarly, transfers from Stage 2 to Stage 1 of € 2.5 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.
Transfers from Stage 2 to Stage 3 of € 1.5 billion represent those loans that defaulted during the year. 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 € 0.7 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.
The enhancement of the Group’s definition of default, including the alignment of arrears DPD count methodology to EBA convention,
resulted in a net impact of an increase of Stage 3 gross loans of € 0.2 billion and a reduction within Stage 1 and Stage 2 gross loans of
€ 0.1 billion respectively which are reflected within other movements.
Model and overlay changes resulted in an ECL charge of € 0.4 billion and further detail on the changes is outlined within the Management
Judgements section on pages 105 to 107.
In summary, the staging movements of the overall portfolio were as follows:
Stage 1 loans decreased by € 9.0 billion in the year to € 45.7 billion with an ECL of € 0.3 billion and resulting cover of 0.6%
(31 December 2019: 0.3%). The decrease in gross loans was primarily on foot of transfers to Stage 2 while the increase in cover was
primarily due to the impact of the updated macroeconomic forecasts and scenario probability weightings.
Stage 2 loans increased by € 5.4 billion in the year to € 9.4 billion with an ECL of € 0.8 billion and resulting cover of 9.0% (31 December
2019: 5.1%). This was driven by the recognition of loans for which a significant increase in credit risk had occurred either through underlying
credit management activity or due to the updated macroeconomic forecasts and scenario probability weightings.
Stage 3 exposures increased by € 0.9 billion in the year with the ECL cover increasing from 27.5% to 32.3%. The key driver was the
deterioration in repayment capacity due to the impact of COVID-19 leading to loans deemed unlikely to pay without realisation of security
and loans which had reached 90 days past due. The increase in cover reflects the impact of the updated macroeconomic forecasts and
scenario probability weightings and the increase in ECL attributable to the ROI PDH mortgage post model adjustments.
Further details on stage movements by asset class are set out in the following tables:
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management
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AIB Group plc Annual Financial Report 2020Risk Management
139
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 2020 and 2019:
Loan commitments
Financial guarantees
2020*
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
Total
€ m
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
Total
€ m
11,098
(647)
158
(35)
27
658
323
647
(158)
(12)
3
310
118
11,539
–
–
47
(30)
(3)
–
–
–
–
965
657
(112)
3
(1)
3
(6)
11,259
1,113
132
12,504
544
11
112
(3)
–
1
26
147
43
711
–
–
1
(4)
(9)
31
–
–
–
–
11
722
2019*
Loan commitments
Financial guarantees
Stage 1
€ m
10,688
(241)
170
(39)
11
509
–
11,098
Stage 2
€ m
Stage 3
€ m
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
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
Nominal amount 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 movement
At 31 December 2020
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
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 140
2.1 Credit risk – Credit profile of the loan portfolio
Movements in off-balance sheet exposures (continued)
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
Other movements
At 31 December 2020
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
Loan commitments
Financial guarantees
2020*
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
10
(7)
10
–
–
7
10
–
20
8
18
(8)
(1)
–
13
22
–
30
1
–
–
2
–
1
3
–
4
Total
€ m
19
11
2
1
–
21
35
–
54
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
Total
€ m
3
(1)
2
–
–
(1)
–
–
3
2
6
(2)
(1)
1
3
7
(1)
8
18
23
–
–
2
(2)
(3)
(3)
3
18
5
–
1
(1)
(1)
4
2
29
2019*
Loan commitments
Financial guarantees
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ 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
3
–
1
–
–
(2)
(1)
–
1
3
Total
€ m
33
1
–
–
–
(6)
(5)
(5)
–
23
2019*
€ m
8,230
3,642
197
19
162
29
–
–
–
–
(4)
(4)
(5)
(2)
18
1
1
(1)
–
–
–
–
–
1
2
2020*
€ m
8,187
4,445
413
18
163
13,226
12,250
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
Non-performing off-balance sheet commitments
Total non-performing off-balance sheet commitments amounted to € 163 million (2019: € 162 million).
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 141
2.1 Credit risk – Investment securities
The following table categorises the debt securities portfolio by contractual residual maturity and weighted average yield at 31 December
2020 and 2019:
Within 1 year
€ m Yield %
After 1 but
within 5 years
After 5 but
within 10 years
After 10 years
Total
€ m Yield %
€ m Yield %
€ m Yield %
€ m Yield %
2020
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
1,804
(0.4)
1,458
122
13
244
–
–
799
247
–
–
1.8
0.9
1.2
–
–
0.6
0.9
–
–
807
70
205
–
–
3,286
1,271
189
39
Total at FVOCI
3,229
0.2
7,325
At amortised cost
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and
government agencies
Asset backed securities
Euro bank securities
Euro corporate securities
Non Euro corporate securities
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total at amortised cost
–
–
–
–
–
–
–
–
3
15
18
3.0
1.6
0.6
1.4
–
–
0.4
1.3
0.8
2.3
1.3
–
–
–
–
–
–
1.0
3.0
2.7
1,727
348
12
476
5
–
1,088
102
203
54
4,015
1,637
70
55
175
82
87
104
20
2,230
0.9
0.3
0.1
0.1
2.3
–
0.2
1.6
0.9
2.7
0.6
0.2
0.2
0.4
0.2
1.8
0.1
1.8
3.6
0.3
432
0.4
–
–
255
329
85
–
–
5
–
1,106
657
20
–
33
645
–
–
–
–
–
2.6
1.4
0.2
–
–
0.7
–
1.2
0.6
1.1
–
0.3
1.9
–
–
–
5,421
1,277
95
1,180
334
85
5,173
1,620
397
93
15,675
2,294
90
55
208
727
87
107
35
1,355
1.2
3,603
1.0
1.2
0.6
1.1
1.4
0.2
0.4
1.2
0.8
2.5
0.9
0.3
0.4
0.4
0.2
1.9
0.1
1.8
3.4
0.7
2019
Within 1 year
€ m Yield %
After 1 but
within 5 years
After 5 but
within 10 years
After 10 years
Total
€ m Yield %
€ m Yield %
€ m Yield %
€ m Yield %
At FVOCI
Irish Government securities
1,217
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
115
21
111
–
–
988
54
–
6
Total at FVOCI
2,512
At amortised cost
Asset backed securities
Euro corporate securities
Non Euro corporate securities
Total at amortised cost
–
–
–
–
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
1,020
8
–
393
215
106
–
–
18
–
1,760
561
–
–
561
0.9
0.7
–
2.8
2.4
0.1
–
–
1.2
–
1.5
2.2
–
–
2.2
5,296
1,538
212
1,034
222
106
5,343
1,654
375
101
15,881
591
14
30
635
2.3
1.4
2.0
1.8
2.3
0.1
0.6
1.7
0.9
2.6
1.5
1.6
3.4
2.2
2.3
AIB Group plc Annual Financial Report 2020Risk Management 123456 142
2.1 Credit risk – Investment securities (continued)
Debt securities and related ECL analysed by IFRS 9 staging at 31 December 2020 and 2019*
At amortised cost – gross
ECL allowance
At amortised cost – carrying value
At FVOCI – carrying value
ECL allowance (included in carrying value)
Total carrying value
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
3,604
(1)
3,603
15,675
(3)
19,278
–
–
–
–
–
–
–
–
–
–
–
–
2020*
Total
€ m
3,604
(1)
3,603
15,675
(3)
19,278
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
635
–
635
15,881
(4)
16,516
–
–
–
–
–
–
–
–
–
–
–
–
2019*
Total
€ m
635
–
635
15,881
(4)
16,516
Debt securities at FVOCI
Debt securities held at fair value through other comprehensive income (“FVOCI”) decreased to € 15.7 billion (nominal € 14.9 billion) at
31 December 2020 from a fair value of € 15.9 billion (nominal € 15.1 billion) at 31 December 2019. The main drivers were a decrease in
bank securities of € 0.2 billion, a decrease in government securities of € 0.2 billion, an increase in supra and government agency securities
of € 0.1 billion and an increase in asset backed securities of € 0.1 billion.
Debt securities at amortised cost
In addition to the existing business model Hold-to-Collect-and-Sell (“HTCS”) within Treasury, the Group introduced a new business model
Hold-to-Collect (“HTC”). This business model reflects the updated strategy to invest in long term high quality bonds to maturity for yield
enhancement purposes given the increasingly liability led nature of the balance sheet. On 1 January 2020, the Group transferred Irish
Government securities with a fair value of € 614 million out of HTCS to HTC with an amortised cost of € 577 million which had met the
criteria for inclusion under this business model. The HTC portfolio within Treasury at 31 December 2020 amounts to € 2,734 million of the
total debt securities at amortised cost.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 143
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 2020 and 2019.
These include loans and advances to banks, investment debt securities and trading portfolio financial assets. Information on the credit
ratings for loans and advances to customers where an external credit rating is available is disclosed on page 128.
At amortised cost
Bank Corporate Sovereign
€ m
€ m
€ m
Other
€ m
733
1,134
18
1
–
–
–
–
73
69
295
2,314
38
–
–
1,886
142
2,647
510
212
5
–
–
727 (1)
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Total
€ m
1,538
3,660
61
74
69
5,402
6,793
At FVOCI
Bank Corporate Sovereign
€ m
€ m
€ m
5,032
1,380
381
–
–
37
257
165
31
–
490
1,227
5,527
1,219
–
–
7,973 (2)
Other
€ m
419
–
–
–
–
Total
€ m
6,715
7,164
1,765
31
–
2020
Total
€ m
8,253
10,824
1,826
105
69
419
15,675
21,077
Of which: Stage 1
1,886
142
2,647
722
5,397
6,793
490
7,973
419
15,675
21,072
Stage 2
Stage 3
–
–
–
–
–
–
5
–
5
–
–
–
–
–
–
–
–
–
–
–
5
–
At amortised cost
Bank Corporate
€ m
€ m
Other
€ m
At FVOCI
Bank Corporate Sovereign
€ m
€ m
€ m
Total
€ m
1,223
790
55
45
–
2,113
383
198
10
–
–
591(1)
591
2,113
–
–
–
–
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(2)
328
15,881
17,994
8,080
328
15,881
17,994
–
–
–
–
–
–
–
–
5,257
1,396
344
–
–
6,997
6,997
–
–
31
209
208
28
–
476
476
–
–
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which: Stage 1
Stage 2
Stage 3
840
592
45
1
–
1,478
1,478
–
–
–
–
–
44
–
44
44
–
–
(1)Relates to asset backed securities
(2)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 2020, the Group’s top 50 drawn exposures amounted to € 4.7 billion, and accounted for 7.8% (2019: € 4.7 billion and
7.6%) of the Group’s on-balance sheet total gross loans and advances to customers. In addition, these customers have undrawn facilities
amounting to € 862 million (2019: € 485 million). No single customer exposure exceeded regulatory requirements.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 144
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance*
Overview
Forbearance occurs when a customer 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 customer.
This also includes a total or partial refinancing of existing debt due to a customer availing of an embedded forbearance clause(s) in their
contract. A forbearance agreement is entered into where the customer is in financial difficulty to the extent that they are unable to meet their
credit obligations to the Group in compliance with the existing agreed contracted terms and conditions. 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 customer’s willingness to resolve
such difficulties, and all relevant legal and regulatory obligations to ensure appropriate and sustainable measures are put in place.
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 customers 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 (“the Central Bank”), 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 review and monitoring
of forbearance. A forbearance measure is deemed to be effective if the customer 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 customer.
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 appropriate and sustainable solutions that, where possible, help to keep customers in their
family home. In addition to relevant short term measures (such as interest only and capital and interest moratorium), this includes long term
forbearance measures which have been devised to assist existing Republic of Ireland primary residential mortgage customers in financial
difficulty. This process may result in debt write-off, where appropriate. The types of existing long term forbearance solutions currently
include; arrears capitalisation, term extension, low fixed interest rate solution, positive equity sustainable solution, split mortgages, negative
equity trade down, mortgage to rent and voluntary sale for loss.
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
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 145
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
The following tables set out the internal credit ratings and ECL staging of forborne loans and advances to customers at 31 December 2020
and 2019:
Analysed by forbearance type
Temporary forbearance
Permanent forbearance
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
Analysed by forbearance type
Temporary forbearance
Permanent forbearance
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
At amortised cost
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
1,033
1,146
2,179
–
–
–
–
466
466
1,713
2,179
8
457
1,537
177
2,179
631
Residential
mortgages
€ m
989
1,594
2,583
–
–
–
–
716
716
1,867
2,583
7
704
1,681
191
2,583
439
46
94
140
–
–
–
–
45
45
95
140
2
43
95
–
140
63
154
171
325
–
–
–
–
80
80
245
325
92
78
155
–
325
85
414
334
748
–
–
–
–
393
393
355
748
20
376
352
–
748
193
At amortised cost
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
31
100
131
–
–
–
–
51
51
80
131
1
50
80
–
131
49
57
253
310
–
–
–
–
154
154
156
310
95
68
147
–
310
61
126
301
427
–
–
–
–
255
255
172
427
40
226
161
–
427
74
2020
Total
€ m
1,647(1)
1,745(2)
3,392
–
–
–
–
984
984
2,408
3,392
122
954
2,139
177
3,392
972
2019
Total
€ m
1,203(1)
2,248(2)
3,451
–
–
–
–
1,176
1,176
2,275
3,451
143
1,048
2,069
191
3,451
623
(1) Of which: interest only € 1,002 million, reduced payment € 171 million, payment moratorium € 413 million (2019: € 731 million, € 227 million, € 132 million
respectively).
(2) Of which: arrears capitalisation and term extension € 898 million, restructure € 274 million, low fixed interest rate € 149 million (2019: € 1,210 million,
€ 322 million, € 173 million respectively).
AIB Group plc Annual Financial Report 2020Risk Management 123456 146
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 following the
return to full principle and interest.
The stock of loans subject to forbearance measures decreased by € 0.4 billion from € 2.5 billion at 31 December 2019 to € 2.1 billion at
31 December 2020. This decrease was driven by customers exiting the forbearance probation period. Payment break options introduced
specifically to support customers in response to COVID-19 and which met the definition of general payment moratoria as outlined in the
relevant EBA Guidelines are not reported as forbearance measures.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 147
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. Liquidity risk arises from differences in timing between cash inflows and outflows and can increase due to
the unexpected lengthening of maturities or non-repayment of assets, a sudden withdrawal of deposits or the inability to refinance maturing
debt.
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. Funding risk can occur where there is an over-reliance
on a particular type of funding, a funding gap or a concentration of wholesale funding maturities.
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.
Identification and assessment
Funding and liquidity risk is identified and assessed using a range of liquidity stress testing scenarios 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.
Management and measurement*
The Internal Liquidity Adequacy Assessment Process (‘’ILAAP’’) is fully integrated and embedded in the strategic, financial and risk
management processes of the Group. An ILAAP Framework and supporting policies are in place which sets out the key processes,
governance arrangements and roles and responsibilities which support the ILAAP. Embedding of the ILAAP is facilitated through liquidity
and funding planning, the setting of risk appetite and risk adjusted performance monitoring. In addition to the Group’s Funding and Liquidity
Plan, a Contingency Funding 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
liquidity 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 liquidity cost-benefit allocation mechanism in place by which funding costs, benefits and
risks are reflected in the Group’s business lines.
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. On an annual basis, the Board attests to the Group’s liquidity adequacy via the
liquidity adequacy statement as part of ILAAP. The Group’s ILAAP encompasses all aspects of funding and liquidity management, including
planning, analysis, stress testing, control, governance, policy and contingency planning. This document is submitted to the Joint Supervisory
Team and forms the basis of their supervisory review and evaluation process.
2020 developments in response to COVID-19
Precautionary saving, lower consumer expenditure and weak loan demand due to the COVID-19 pandemic, had the impact of increasing the
Group’s surplus liquidity position in 2020. Due to the high level of uncertainty regarding funding and liquidity developments at the outset of
the pandemic, the Group activated it’s Contingency Funding Plan (“CFP”) which has since been deactivated. In addition, the Group engaged
in the following activities:
• Enhanced funding and liquidity monitoring and reporting through daily updates provided to the COVID-19 Liquidity Working Group.
Key outputs were reported to ALCo and wider COVID-19 incident management response teams.
• The suite of liquidity stress tests performed to assess the full range of potential adverse outcomes was broadened to consider the
pandemic.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 148
2.2 Funding and liquidity risk (continued)
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 recommended by the
Risk function and approved by the Board. The liquidity pool assets primarily comprise government guaranteed bonds, balances with central
banks and internal and external covered bonds.
At 31 December 2020, the Group held € 53,816 million (2019: € 32,045 million) in qualifying liquid assets “QLA”(1)/contingent funding of
which € 10,028 million (2019: € 2,617 million) was not available due to repurchase, secured loans and other restrictions. The available
Group liquidity pool is held to cover contractual and stress outflows. At 31 December 2020, the Group liquidity pool was € 43,788 million
(2019: € 29,428 million). During 2020, the liquidity pool ranged from € 29,176 million to € 45,241 million (2019: € 23,420 million to
€ 30,206 million) and the average balance was € 38,118 million (2019: € 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.
The Group’s liquidity pool increased in 2020 by € 14,360 million which was predominantly due to an increase in customer deposits in
Ireland, proceeds from net retained covered bonds and securitisations, proceeds received from the sale of a portfolio of distressed loans
and customer loan redemptions during the period offset by the maturity of senior debt and the Group engaging in securities financing
activities where cash was exchanged for non QLA securities.
Composition of the Group liquidity pool
The following table shows the composition of the Group’s liquidity pool at 31 December 2020 and 2019. The liquidity amounts shown in the
table represent the clean prices after deduction of the ECB haircut.
Liquidity pool
(ECB eligible)
2020
High Quality Liquid
Assets (HQLA)(1) in
the liquidity pool
Liquidity pool
(ECB eligible)
Liquidity pool
€ m
€ m
Level 1
€ m
Level 2
€ m
Liquidity pool
€ m
–
370
1,450
363
1,813
2,183
19,973(2)
–
22,506(2)
5,952
5,345
5,582
2,796
11,523
14,319
19,664
2,206
50
2,256
30,344
3,656
14,207
17,863
43,788
41,274
1,247
1,263
4
7,502(2)
6,506
4,576
10,844
15,420
29,428
26,217
1,549
1,655
7
€ m
–
5,444
3,761
8,007
11,768
17,212
2019
High Quality Liquid
Assets (HQLA)(1) in
the liquidity pool
Level 1
€ m
Level 2
€ m
9,897(2)
6,101
3,079
100
3,179
19,177
–
405
1,409
356
1,765
2,170
Cash and deposits with
central banks
Total government bonds
Other:
Covered bonds
Other(3)
Total other
Total
Of which:
EUR
GBP
USD
Other
(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.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 149
2.2 Funding and liquidity risk (continued)
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. This estimates the potential impact of a range of stress scenarios on the Group’s liquidity position
including its available liquid assets and contingent liquidity. 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.
The Group also monitors a suite of Recovery Plan Triggers and Early Warning Indicators in order to identify the potential emergence of a
liquidity stress. 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.
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.
Liquidity metrics
Liquidity Coverage Ratio
Net Stable Funding Ratio
Loan to Deposit Ratio
31 December
2020
%
31 December
2019
%
193
148
69
157
129
85
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 2020.
The calculated NSFR is based on the current Basel standard. The second Capital Requirements Regulation (CRR2), published
27 June 2019, introduces a binding NSFR requirement of 100% and comes into force in June 2021.
AIB Group plc Annual Financial Report 2020Risk Management 123456 150
2.2 Funding and liquidity risk (continued)
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 2020
31 December 2019
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
%
77
4
–
2
3
14
100
€ m
81,972
67,998
12,207
1,561
206
4,473
217
2,275
3,175
14,971
107,083
3,302
110,385
%
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
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 € 10,169 million
in 2020 predominantly due to COVID-19 related dynamics of precautionary savings and lower consumer consumption. This was mainly
reflected in a € 9,491 million increase in Euro deposits, primarily in current and demand deposit accounts. Whilst there was a decrease
in the value of both GBP and USD deposits of € 836 million due to currency movements this was more than absorbed by an underlying
increase in GBP deposits of € 1,583 million on a constant currency basis.
The Group participated in the ECB three year Targeted Long Term Refinancing Operation III (“TLTRO III”). These ECB operations are
aimed to support the continued access of firms and households to bank credit by applying favourable interest rates to TLTRO III operations
of participating banks subject to achieving prescribed lending targets and have the option of early repayment after the first year. Secured
deposits by central banks and banks increased by € 4,179 million to € 4,473 million predominantly due to the Group’s € 4 billion drawdown
in TLTRO III operations.
During 2020, senior debt decreased € 631 million primarily reflecting a € 500 million maturity and a € 131 million USD foreign currency
translation decrease. Outstanding asset covered securities (“ACS”) at 31 December 2020 decreased € 750 million to € 2,275 million due to
a contractual maturity. For further details on debt securities, see ‘Debt securities in issue’ (note 33) to the consolidated financial statements.
During 2020, capital decreased € 558 million to € 14,971 million primarily driven by losses incurred during the year (31 December 2019:
€ 15,529 million). Within this, the Group issued € 625 million (nominal value) of AT1 Perpetual Contingent Temporary Write-Down
Securities in June 2020 and fully redeemed the € 500 million AT1 Perpetual Contingent Temporary Write-Down Securities issued in 2015.
For further details on these capital items, see ‘Other equity interests’ (note 39) and ‘Non-controlling interests in subsidiaries’ (note 40) in
the consolidated financial statements. In addition, subordinated debt increased € 251 million primarily reflecting a € 1 billion Tier 2 issuance
offset by a € 750 million maturity – for further details see ‘Subordinated liabilities and other capital instruments’ (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 2020Risk Management 151
2.2 Funding and liquidity risk (continued)
Composition of wholesale funding(1)
At 31 December 2020, total wholesale funding outstanding was € 11,690 million (2019: € 8,953 million). € 912 million of wholesale funding
matures in less than one year (2019: € 1,779 million). € 10,778 million of wholesale funding has a residual maturity of over one year
(2019: € 7,174 million).
Outstanding wholesale funding comprised € 6,748 million in secured funding (2019: € 3,319 million) and € 4,942 million in unsecured
funding (2019: € 5,634 million).
Deposits by central banks and banks
Senior debt
ACS
Subordinated liabilities and
other capital instruments
Total 31 December
Of which:
Secured
Unsecured
Deposits by central banks and banks
Senior debt
ACS
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
387
–
–
–
387
170
217
387
25
–
500
–
525
525
–
525
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1–3
years
€ m
4,278
1,111
1,750
412
–
500
–
–
3–5
years
€ m
–
2,064
–
–
> 5
years
€ m
–
–
25
2020
Total
€ m
4,690
3,175
2,275
1,550
1,550
912
7,139
2,064
1,575
11,690
695
217
912
6,028
1,111
7,139
–
2,064
2,064
25
1,550
6,748
4,942
1,575
11,690
< 1
month
€ m
351
–
–
–
1–3
months
€ m
–
500
–
–
3–6
months
€ m
178
–
–
–
351
500
178
–
351
351
–
500
500
–
178
178
6–12
months
€ m
Total
< 1 year
€ m
1–3
years
€ m
294
–
1,250
3–5
years
€ m
–
1,916
1,000
–
–
529
500
750
–
1,779
1,544
2,916
750
1,029
1,779
1,544
–
1,544
1,000
1,916
2,916
–
–
750
–
750
750
–
750
> 5
years
€ m
–
1,390
25
1,299
2,714
25
2,689
2,714
2019
Total
€ m
823
3,806
3,025
1,299
8,953
3,319
5,634
8,953
(1)The maturity analysis has been prepared using the residual contractual maturity of the liabilities.
AIB Group plc Annual Financial Report 2020Risk Management 123456 152
2.2 Funding and liquidity risk (continued)
Currency composition of wholesale debt
At 31 December 2020, 84% (2019: 76%) 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
Subordinated liabilities and
other capital instruments
Total wholesale funding
% of total funding
EUR
€ m
4,342
1,750
2,275
1,511
9,878
%
84
GBP
€ m
283
–
–
39
USD
€ m
65
1,425
–
–
322
1,490
%
3
%
13
Other
€ m
–
–
–
–
–
%
–
2020
Total
€ m
4,690
3,175
2,275
1,550
11,690
%
100
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
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’s encumbrance ratio remained stable at 11% at 31 December 2020 (2019: 11%) with € 12,971 million of the Group’s assets
encumbered (2019: € 11,572 million). The encumbrance level is based on the amount of assets that are required in order to meet regulatory
and contractual commitments.
Central Bank refinancing operations and interbank repurchase agreements
The following table analyses the interbank repurchase agreements and central bank refinancing operations as at 31 December 2020 and
2019:
Highly liquid
Less liquid
Maturity profile
<1 month 1–3 months
€ m
€ m
>3 months
€ m
170
–
170
25
–
25
3,924
354
4,278
2020
Total
€ m
4,119
354
4,473
<1 month
€ m
1–3 months
€ m
>3 months
€ m
–
–
–
–
–
–
–
–
–
2019
Total
€ m
–
–
–
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 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 2020 and 2019:
153
2020
Total
On demand
€ m
–
1,052
2,829
–
–
3 months
to 1 year
1–5 years
Over
5 years
<3 months
but not on
demand
€ m
€ m
€ m
€ m
€ m
103
584
1,598
689
365
56
163
1,867
2,540
–
372
–
16,664
7,343
–
893
–
36,497
8,706
–
1,424
1,799
59,455
19,278
365
3,881
3,339
4,626
24,379
46,096
82,321
212
69,302
–
–
–
970
200
8,392
20
500
–
–
–
2,961
42
–
–
–
4,278
1,291
197
4,925
–
–
–
26
942
25
1,550
–
4,690
81,972
1,201
5,450
1,550
970
70,484
9,112
3,003
10,691
2,543
95,833
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
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
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 2020Risk Management 123456 154
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 2020 and
2019:
<3 months
but not on
demand
€ m
3 months
to 1 year
1–5 years
Over
5 years
2020
Total
€ m
€ m
€ m
€ m
200
8,393
67
533
–
–
(15)
2,966
179
85
28
–
4,237
1,293
562
5,215
153
–
–
26
371
31
1,847
–
4,634
81,980
1,179
5,864
2,028
970
9,193
3,243
11,460
2,275
96,655
<3 months
but not on
demand
€ m
5
9,032
166
563
–
–
3 months
to 1 year
1–5 years
Over
5 years
2019
Total
€ m
€ m
€ m
€ m
181
3,624
252
822
82
–
297
1,164
439
4,556
200
–
–
66
357
1,449
1,466
–
3,338
834
71,840
1,214
7,390
1,748
1,004
84,030
9,766
4,961
6,656
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
212
69,302
–
–
–
970
70,484
On demand
€ m
351
57,954
–
–
–
1,004
59,309
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 155
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 – for further details see ‘Contingent liabilities and commitments’ (note 43) to the consolidated financial statements.
The following table analyses undiscounted cash flows potentially payable under guarantees and similar contracts at 31 December 2020
and 2019:
Contingent liabilities
Commitments
Contingent liabilities
Commitments
On demand
€ m
722
12,504
13,226
On demand
€ m
711
11,539
12,250
<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
–
–
–
–
–
–
–
–
–
2020
Total
€ m
722
12,504
13,226
2019
Total
€ m
711
11,539
12,250
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 2020 and 2019. Overdrafts, which in the aggregate represent approximately 1% of the portfolio at 31 December 2020, are
classified as repayable within one year. Approximately 23% of the 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
€ m
12,506
1,005
–
Variable
rate
Total
€ m
€ m
38,251
50,757
7,568
125
8,573
125
Within
1 year
€ m
5,444
850
–
After 1 year
but within
5 years
€ m
12,212
4,330
122
After
5 years
€ m
33,101
3,393
3
2020
Total
€ m
50,757
8,573
125
13,511
45,944
59,455
6,294
16,664
36,497
59,455
Fixed
rate
Variable
rate
€ m
9,946
902
–
10,848
€ m
42,794
8,325
159
51,278
Total
€ m
52,740
9,227
159
62,126
Within
1 year
€ m
5,515
997
–
6,512
After 1 year
but within
5 years
€ m
12,583
4,626
114
17,323
After
5 years
€ m
34,642
3,604
45
38,291
2019
Total
€ m
52,740
9,227
159
62,126
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 156
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 its customers or
to meet regulatory capital requirements.
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 executives and Board
Committees setting out the evolution of the Group’s capital position. Monthly monitoring of the risk profile including performance against
Risk Appetite is presented to the Board Risk Committee and Board via the CRO Report. 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. The ICAAP 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.
2020 developments in response to COVID-19
A number of actions were taken throughout 2020 in response to the COVID-19 pandemic. These included: (i) more frequent review of the
calibration of key Capital Risk - Risk Appetite Statement metrics to reflect changes in regulatory requirements and the external environment;
(ii) increased stress testing and sensitivity analysis covering a broader range of scenarios reflecting the high level of uncertainty regarding
the potential path of the pandemic and (iii) more frequent reforecasting of base case financial and capital plans to the Board.
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 2020.
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 157
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
•
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.
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 year(1)
time horizon, a 99% confidence level and a longer set of data.
Management and measurement*
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 Group operates a three lines of defence model for risk management. For market risk the first line comprises the Finance and Treasury
functions who report to the CFO. The Group’s Finance function is responsible for the identification, measurement and reporting of the
Group’s aggregate market risk profile.
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 with risk tolerances approved on an annual basis through the Group’s Risk Appetite process.
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.
The Financial Risk function, reporting to the CRO, 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 which provides third line assurance on market risk.
Credit risk issues inherent in the market risk portfolios are also subject to the credit risk framework that is described in Section 2.1.
(1) The Capital at Risk on core trading book positions is assessed using a ten day horizon, with the exception of FX which is assessed using a one year horizon.
2020 developments in response to COVID-19
In response to the COVID-19 pandemic, the Group reacted in the following manner in respect of market risk management activities:
• The Group engaged in enhanced market risk monitoring through daily updates provided to the COVID-19 Working Group. Key outputs
were reported to ALCo and the wider Group-wide COVID-19 management response team.
• Additional temporary metrics appropriate to specific market risks were implemented to assist dynamic management of these risks given
the market volatility.
• The suite of market risk stress tests performed to assess the full range of potential adverse outcomes was broadened to include the
pandemic.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 158
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 2020 and 2019 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
2020
25,550
1,424
1,799
56,945
19,479
4,690
81,972
1,201
5,450
1,550
–
650
–
–
–
–
–
25,550
Interest rate, foreign exchange
774
Interest rate, foreign exchange,
credit spreads, equity,
inflation swap rates
1,799
Interest rate, foreign exchange
56,945
19,479
Interest rate, foreign exchange
Interest rate, foreign exchange,
credit spreads, equity
4,690
Interest rate, foreign exchange
81,972
Interest rate, foreign exchange
646
555
Interest rate, foreign exchange,
credit spreads, equity,
inflation swap rates
–
–
5,450
Interest rate, credit spreads,
foreign exchange
1,550
Interest rate, credit spreads
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
–
–
–
–
–
771
–
–
11,982
Interest rate, foreign exchange
679
1,478
60,888
17,331
Interest rate, foreign exchange, credit
spreads, equity, inflation swap rates
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate, foreign exchange,
credit spreads, equity
823
Interest rate, foreign exchange
71,803
Interest rate, foreign exchange
426
6,831
Interest rate, foreign exchange, credit
spreads, equity, inflation swap rates
Interest rate, credit spreads,
foreign exchange
1,299
Interest rate, credit spreads
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 159
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 movement in interest
rates in terms of the impact on net interest income on a forward looking basis over a twelve month period assuming no change in the
balance sheet:
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
2020
€ m
219
(202)
2019
€ m
234
(274)
The above sensitivity table is computed under the assumption that all market rates (Euribors/Swaps) move upwards or downwards in
parallel, however, for upward rates only, the ECB refinancing rate increases by 50% of the market rates. In the downward scenario market
interest rates are floored at -1%, consistent with EBA IRRBB guidance.
The downward interest rate sensitivity decreased during the year as a result of development of the sensitivity model in 2020 including the
remodelling of market interest rate floors. This is somewhat offset by balance sheet changes over the year resulting in additional reserve
balances held at the Central Bank. Further, structural hedges were executed in 2020 to provide protection to falling interest rates.
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 the Group’s interest rate VaR profile to a 95% confidence level with a one day holding period for the
financial years to 31 December 2020 and 2019. 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)*
2020
€ m
2019
€ m
2020
€ m
2019
€ m
Total VaR*
2020
€ m
2019
€ m
Interest rate risk
1 day holding period:
Average
High
Low
At 31 December
0.6
1.1
0.3
0.3
0.3
0.9
0.2
0.4
9.8
13.2
7.0
7.8
8.3
10.8
5.1
9.8
10.5
14.0
7.7
8.2
8.6
11.2
5.4
9.8
The following table sets out the VaR for foreign exchange rate and equity risk for the financial years to 31 December 2020 and 2019:
1 day holding period:
Average
High
Low
At 31 December
Foreign exchange rate risk*
Equity risk*
VaR (trading book)
VaR (trading book)
2020
€ m
0.09
0.38
0.02
0.03
2019
€ m
0.17
0.80
0.08
0.10
2020
€ m
0.03
0.22
0.01
0.03
2019
€ m
0.02
0.03
–
–
The low level of VaR in the trading book throughout 2020 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 2020 and 2019 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
AIB Group plc Annual Financial Report 2020Risk Management 123456 160
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AIB Group plc Annual Financial Report 2020Risk Management 123456
162
2.4 Financial risks (a) Market risk (continued)
Interest rate benchmark reform
Authorities and regulators are facilitating the market’s transition from interbank offered rates, referred to as “IBOR” benchmark rates
(e.g. LIBOR), to alternative Risk Free Rates (RFRs) by the end of 2021. While it is expected that most reforms affecting the Group will be
completed by the end of 2021, consultations and possible regulatory changes are still in progress.
The transition not only impacts financial market participants, 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 also has
cash flow and fair value hedge accounting relationships that are linked to various IBORs.
In terms of exposures, IBORs are referenced by 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. The Group does not consider there to be risk in respect of the Euro Interbank Offered
Rate (EURIBOR) arising from IBOR because the EURIBOR calculation methodology changed during 2019 and the reform of EURIBOR is
complete.
The Group has established a bank-wide Interest Rate Benchmark Reform Transition Programme (“the Programme”) with sponsorship from
the Chief Financial Officer. The Programme spans all business lines and has cross-functional support. The Programme is 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. It is organised into four main workstreams, namely:
• Business readiness;
• Technology;
• Contract re-papering; and
• Customer communications and conduct.
The Programme aims to drive strategic execution and identify, manage and resolve key risks and issues as they arise. The Programme is
structured to deliver IBOR transition by the regulators’ deadline of 31 December 2021, with actions focused on customer awareness and
business readiness activities. The Group is actively engaging with its counterparties to transition or include appropriate fallback provisions
and transition mechanisms in its floating rate assets and liabilities with maturities after 2021, when most IBORs are expected to cease to be
published.
During 2020, the Group has successfully delivered alternative RFR product capabilities and alternatives to LIBOR across loans and
derivatives. Good progress has been made in relation to client outreach and the Group has been actively engaging with customers and
counterparties to transition or include the appropriate fallback provisions. The Group has in place detailed plans, processes and procedures
to support the transition for the remainder of 2021. Following the progress made during 2020, the Group continues to deliver technology
and business process changes to ensure operational readiness in preparation for LIBOR cessation and transitions to RFRs that will be
necessary during 2021 in line with official sector expectations and milestones.
The table below sets out a profile of the Group’s benchmark reform exposures at 31 December 2020.
GBP LIBOR
USD LIBOR
Included for information
EURIBOR
Total
Loans and advances
Deposits
Debt securities (assets)
Derivatives
Number of
contracts
Nominal
€ m
Number of
contracts
Nominal
€ m
Number of
contracts
Nominal
€ m
Number of
contracts
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€ m
1,490
376
2,119
3,985
6,460
2,377
8,206
17,043
19
3
4
26
26
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156
34
73
125
232
457
596
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2,216
875
133
15,976
3,473
914
29,300
1,922
48,749
The Group early adopted in 2019 the ‘Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform – Phase 1’ issued in
September 2019. For further details see note 1 accounting policy (q). The Group will adopt in 2021 ‘Amendments to IFRS 9, IAS 39, IFRS 7,
IFRS 4 and IFRS 16 Interest Rate benchmark Reform – Phase 2’, issued In August 2020. For further details see note 1 accounting policy (ad).
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 163
2.4 Financial risks (a) Market risk (continued)
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 Group ALCo
monitors structural foreign exchange risk and the foreign exchange sensitivity of consolidated capital ratios. This impact is measured in
terms of basis point 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
2020
(0.17%)
0.16%
2019
(0.20%)
0.19%
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.
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.
Risk 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 Group maintains a number of defined benefit pension schemes for current and former employees. All defined benefit schemes operated
by the Group closed to future accrual no later than the 31 December 2013 and staff transferred to defined contribution schemes for future
pension benefits.
Each scheme has a separate trustee board and the Group has agreed funding plans to deal with deficits where they exist. As part of any
funding agreement, the Group engages with each trustee regarding an appropriate investment strategy to reduce the risk in that 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 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.
3. All schemes have a strategy of de-risking in line with their regulatory requirements and funding plans, taking into account the nature of
their liabilities.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Risk Management 123456 164
2.4 Financial risks (b) Pension risk (continued)
Independent actuarial valuations for the AIB Group Irish Pension Scheme and the AIB Group UK Pension 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 next actuarial valuation of the UK scheme as
at 31 December 2020 is due to be completed by no later than 31 December 2021. The Group and the Trustee of the UK scheme agreed
funding payments under an arrangement agreed in December 2019 which is described below.
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 £ 30.5 million was made in 2020. Under this funding arrangement, the Group also expects to make payments of
£ 18.5 million each year during 2021 to 2023, with a final balancing payment, which is currently expected to be c. £ 50 million, to be made in
2024/early 2025.
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 Liabilities Committee (‘’ALCo’’) and the Group Chief Risk Officer report.
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 measured and reported monthly in the CRO report against a Group Risk Appetite Statement watch
trigger. 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.
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 operational risks, controls, actions and events across 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.
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 including cyber risk, continuity and resilience, and third party management among others) to
ensure an effective and consistent approach to operational risk management across the Group. 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).
*Forms an integral part of the audited financial statements
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 165
2.5 Operational risk (continued)
Monitoring, escalating and reporting
The primary objective of operational risk reporting is to provide the Board with a timely and pertinent update on the Operational Risk profile.
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 and any remediation actions/lessons identified following events. In addition, the Group
Risk Committee receive summary information on the Group’s operational risk profile on a regular basis through the CRO report.
2020 developments in response to COVID-19
The 2020 developments in operational risk management were focused on the Group’s response to the COVID-19 pandemic.
Changes implemented as a result of COVID-19 to support delivery of customer services have presented challenges to operational risk
management and measurement. In the initial stages of the response, the Group invoked its incident management framework to ensure the
safety of its people and customers and to manage the disruption caused by the public health response to the Group’s customers, suppliers
and staff. Areas of focus in the Group’s response to the pandemic included the roll-out of new processes and procedures to support
implementation of COVID-19 payment breaks, enhanced oversight of third party service providers to ensure continuity of service provision
and the implementation of measures to enable social distancing at all the Group’s buildings. The Group’s operational resilience has been
demonstrated throughout this period and will remain a key area of focus in the months ahead.
Additionally, the Group has enabled a sustainable remote working capability for all staff members. Significant effort and resources continue
to be committed to ensure the Group’s operational resilience and continuity in the delivery of its services as well as risk management
approach and systems remain robust in light of challenges presented. As the impact of COVID-19 across wider society continues to evolve,
the Group expects the evolution of risk management and systems to continue and remain confident that the Group can ensure the control
environment remains robust.
2.6 Regulatory compliance risk
Regulatory compliance risk is defined as the risk of legal or regulatory sanctions or failure to protect market integrity which could result in
material financial loss or reputational damage. Failure to comply with laws, regulations, or rules, for example Data Protection, Anti-Money
Laundering, Countering Terrorist Financing, Financial Sanctions and Modern Slavery, as well as internal standards and codes of conduct,
could result in regulatory sanction or detrimental customer impact.
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. 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 Regulatory Compliance Risk Management Framework and
its mandate for the Regulatory Compliance function.
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.
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.
AIB Group plc Annual Financial Report 2020Risk Management 123456 166
2.6 Regulatory compliance risk (continued)
2020 developments in response to COVID-19
Recognising the exceptional circumstances created by the COVID-19 pandemic, and the subsequent profound societal, financial and
economic impacts, the Group understood the need to provide customer centric solutions at speed. The Group’s payment break solutions
supported impacted customers in the form of either postponement or reduction in repayments on their existing lending facilities (mortgage,
personal and business lending drawn down pre 3 March 2020), with no adverse impacts to them as a result. These solutions were initially
available for a three month period, internally referred to as Payment Break One (PB1). This was then extended for an additional three
month period as required by the ECB (announced 18 June 2020), expiring 30 September 2020. Given this extension all customers in receipt
of PB1 were eligible to apply for a second payment break (PB2), with these solutions being available to all customers who deemed their
COVID-19 financial impact to be short term in nature i.e. post the expiry date of their PB1/PB2 solution the customer expects to be able to
resume normal repayments.
Regulatory Compliance provided significant input to the assessment of COVID-19 solutions and measures designed to support the Group’s
customers and the economy through this unprecedented crisis. To that end, Regulatory Compliance reviewed and challenged the solutions
presented by the business areas to ensure key regulatory and conduct risks, mitigants and controls are identified and communicated to all
relevant governance fora up to and including Board as appropriate. Throughout this period, Regulatory Compliance continuously monitored
the impact on Risk Appetite Statement metrics. In addition, Group Risk Assurance provided end-to-end assurance over key elements of the
customer journey across the payment break solutions offered within Mortgages, SME, Personal, FSG and CIB business streams, as well as
the completion of four COVID-19 Targeted Control Assessment reviews.
The Group actively monitored regulatory correspondence and guidance issued to the industry. In addition, bilateral engagement between
the Group and its Regulators took place throughout the COVID-19 pandemic and Regulatory Compliance actively participated in related
Banking & Payments Federation of Ireland (BPFI) Working Groups. Regulatory Compliance continue to closely monitor developments
related to COVID-19 and is committed to protecting and supporting the Group’s customers.
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 or market
instability.
Identification and assessment
All first line business unit management and staff are responsible and accountable for the identification, assessment, management,
monitoring and reporting of the conduct risks that arise within their areas of responsibility. Group Conduct complete horizon scanning and
benchmarking to identify future conduct risk considerations within business/regulatory environments. In addition, Regulatory Compliance
identify upstream conduct risk and communicate to the relevant business areas. Identified conduct risks and driving factors are reviewed on
an annual basis as part of the material risk assessment process.
Conduct risks are identified, monitored and managed in line with the risk and control assessment guidelines which provides documentary
evidence of risk assessments, determines the risk profile of the business, drives risk management and actions plans (including KRI
development and reporting) and maintains a risk register of group material risks. The risk and control assessment guidelines have identified
a number of key conduct risks relating to customer satisfaction, employee behaviour and clients, business and product practice.
The Group has also identified a number of driving factors pertaining to conduct risk and these are reviewed on an annual basis as part of
the material risk assessment process. These include, inter alia:
• The pace and complexity of changing industry best practice and clarifications received in relation to regulatory expectations can drive an
accelerated process for changing products, practices, services and cultures;
• Changing expectations from society on banks can influence the conduct decisions by the appropriate authorities;
•
• Negative macroeconomic environment can result in unexpected bank and/or employee behaviour and potential increased market
Increased competition in terms of resources, skills, industry participants, remuneration practices and customers bases;
instability; and
• Climate change-related risks (both physical and transition) may result in poor customer outcomes (e.g. products not aligned to climate
risk drivers).
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 167
2.7 Conduct risk (continued)
Management and measurement
The below outlines the management and measurement of conduct risk:
• The Group Conduct Committee together with divisional segment committees have responsibility for the Group’s consumer protection
agenda;
• Group Conduct provides independent oversight and governance of conduct risk across the Group and is a mandatory approver of
product/propositions proposals, training and awareness building;
• An approved Group conduct strategy, aligned with the Group’s purpose, strategy and core values, is supported by the annual business
segment action plans, delivering against key strategic objectives, ensuring continued progress on embedding conduct and meeting
evolving regulatory expectations;
• The processes to address complex and less complex complaints are differentiated with business areas managing and addressing the
more straightforward complaints while complex complaints are increasingly addressed centrally via the Group’s Customer Care Centre
of Excellence;
• Trends and themes are monitored (including social media) and root cause analysis conducted of underlying issues, and
• The Group Head of Conduct is a member of a number of key working groups and fora regarding the management and measurement
of conduct risk, and provides challenge on Risk Appetite Statement metrics, customer solutions and the resolution of materialised
conduct risks.
Monitoring, escalating and reporting
The below outlines how conduct risk is monitored, escalated and reported:
• Segment conduct dashboards measure key management information trends under the five key conduct risk areas, as reflected in the
Group conduct strategy; and
• The Group Conduct Committee together with 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.
2020 developments in response to COVID-19
As the Group identified and implemented steps to support and protect its customers, the shortened timeframe for design, implementation
and execution elevated the risk of unintended consequences that could lead to customer outcomes which may have future unknown
impacts. A number of potential conduct risk drivers, including remote working, personal data breaches, increased processing of special
category data (both customer and employee) and managing customer rights were overseen and monitored throughout the COVID-19
pandemic. Regulatory Compliance monitored and reported the impact of COVID-19 on the Risk Appetite Statement metrics, taking into
account key factors including the volume of customer engagements, the increased number of vulnerable customers and the range of
measures taken to assist good customer outcomes and market stability.
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.
Identification and assessment
The Group identifies and reviews employee satisfaction and engagement which are indicators of culture throughout the year. Due to the
disruption of the working environment as a result of COVID-19 there was additional staff engagement activities in place including regular
staff check-in’s and a staff engagement survey was carried out in both the first and second half of 2020 which continues to show high staff
satisfaction levels. A detailed Wellness Programme operated throughout the year and the launch in 2020 to all staff of the PepTalk Wellness
App with specific content for the Group has significantly enhanced the wellness offering.
The Group continues on its Culture Evolution Program and progress has been made throughout the year with a number of initiatives taken
place including Culture Unfreezing Workshops and a roll-out of updated values. The Group continues to be an active member of the Irish
Banking Culture Board.
AIB Group plc Annual Financial Report 2020Risk Management 123456 168
2.8 People and culture risk (continued)
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 capability to attract new employees and retain and motivate existing
employees. Competition from within the financial services industry, including from other financial institutions and FinTechs as well as from
businesses outside the financial services industry for key employees is intensifying. 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 completion. Aspire allows the Group embrace the right behaviours and outcomes with equal weighting, to achieve the Group’s
strategic ambition.
Management and measurement
In 2017 the Group launched its ‘Purpose’, which is supported and embedded by a clear set of 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.
Monitoring, escalating and reporting
The Group has made significant progress 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 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
the Group’s people and culture ambitions through a number of datasets including iConnect, the strategy scorecard and a culture dashboard.
2020 developments in response to COVID-19
COVID-19 presented unique challenges during 2020 including the vast majority of staff members working from home and significant
changes to the working environment to facilitate those that needed to attend branches and offices. The Group rolled out new and enhanced
teleconferencing facilities, provided laptops to staff working remotely and as mentioned before, invested significantly in the wellness of
employees with a number of initiatives including the rollout of the PepTalk app. Additionally the Group entered into a ‘Right to Disconnect’
agreement with the Financial Services Union, believed to be the first of its kind in Ireland. The Group continues the ongoing engagement of
staff through regular engagement via email and videos from the Chief Executive Officer, Chief People Officer and local business leaders.
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.
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”).
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk Management 169
2.9 Business model risk (continued)
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 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. Monthly monitoring of the risk profile via the CRO report, including performance against risk appetite is presented
to the Board Risk Committee and Board.
2020 developments in response to COVID-19
A number of actions were taken throughout 2020 in response to the COVID-19 pandemic. These included: (i) more frequent monitoring of
certain key Risk Appetite Statement metrics and Early Warning Indicators (“EWIs”); (ii) more frequent review and reforecasting of financial
and capital plans reported to the Board and independently reviewed by the second line of defence; (iii) early review of the calibration of key
Risk Appetite Statement metrics to reflect changes in the external environment and a conservative risk posture; and (iv) increased stress
testing and sensitivity analysis covering a broader range of scenarios reflecting the high level of uncertainty. The Group’s reforecasting and
stress testing activity assessed the key business model risks, including increased macroeconomic risks primarily relating to the path of the
pandemic but also to Brexit uncertainty, the impact of surplus liquidity on the Group’s NIM, challenges posed by a continued low interest rate
environment, continued increase in competition and reduced profitability.
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.
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.
AIB Group plc Annual Financial Report 2020Risk Management 123456 170
2.10 Model risk (continued)
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 by suitably qualified analytical personnel,
informed by relevant business, risk and finance functions. They use the best available data, both internal and external, and industry
standard techniques.
All models are validated by an appropriately qualified team, which is independent of the model build process. Where issues are identified,
appropriate mitigants are applied. This can include temporary post model adjustments which are put in place until a model is re-developed.
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 in place for model risk through their
periodic review of the model risk management processes.
Monitoring, escalating and reporting
The Risk Measurement Committee and its sub-committee, the Model Risk Committee, are the primary committees for overseeing model
risk in the Group. Depending on materiality, outcomes of validation and other reviews are brought to relevant committees for oversight to
ensure all models remain fit for their intended use and that any issues are appropriately escalated. An overall assessment of model risk is
performed on a quarterly basis and is reported to the Group Risk Committee and Board Risk Committee. As a material risk, the status of
model risk is reported on a monthly basis in the CRO report.
2020 developments in response to COVID-19
During 2020, two significant areas of challenge for model risk as a result of COVID-19 were the re-prioritisation of activities for business
subject matter experts to support the roll-out of new customer solutions (e.g. payment breaks) and away from providing business support for
model developments, and understanding the impact of COVID-19 on the performance of risk models.
These risks were mitigated by re-planning activities appropriately in order to ensure the Group’s model development priorities were reviewed
and that model developments continued on an appropriate timeline. Additionally, ongoing monitoring of models continued through 2020
to ensure that any changes in model performance as a result of COVID-19 were identified. Specifically in relation to ECL, post model
adjustments have been made to appropriately reflect management’s best estimate of the economic implications arising from COVID-19,
including where model limitations exist. See pages 105 and 106 for more details on the post model adjustments that have been applied.
Risk management – 2. Individual risk typesAIB Group plc Annual Financial Report 2020Risk 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
188
193
196
199
201
208
209
211
212
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 172
Governance and oversight –
Group Directors’ report for the financial year ended 31 December 2020
The Directors of AIB Group plc (‘the Company’) present their
report and the audited financial statements for the financial
Capital
Information on the structure of the Company’s share capital,
year ended 31 December 2020. The Statement of Directors’
including the rights and obligations attaching to each class of
Responsibilities is shown on page 214.
shares, is set out in the Schedule on pages 175 to 177 and is part
of note 38 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 Deputy Chair on pages 8 and 9, the
review by the Chief Executive Officer on pages 10 to 17, and
the operating and financial review on pages 60 to 74 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 2020, the Board of Directors of the Company
was comprised of Mr Brendan McDonagh, Mr Basil Geoghegan,
Dr Colin Hunt, Ms Sandy Kinney Pritchard, Ms Carolan Lennon,
Ms Elaine MacLean, Ms Helen Normoyle, Ms Ann O’Brien, and
Mr Ranjit (Raj) Singh.
The following Board changes occurred with effect from the dates
shown:
– Mr Richard Pym resigned as Independent Non-Executive
Director and Chair on 6 March 2020.
– Mr Thomas (Tom) Foley resigned as Independent
Non-Executive Director on 29 April 2020.
– Mr Tomás O’Midheach resigned as Executive Director on
4 November 2020.
– Mr Fergal O’Dwyer was appointed as Independent
Non-Executive Director on 22 January 2021.
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
54 and 55.
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 in the Schedule on pages 175
to 177.
For the purposes of this report ‘AIB Group’ or ‘the Group’
comprises the Company and its subsidiaries in the financial year
ended 31 December 2020.
Results
The Group’s loss attributable to the ordinary shareholders of the
Company amounted to € 769 million and was arrived at as shown
in the consolidated income statement on page 227.
Dividend
In response to a European Central Bank recommendation issued
on 27 March 2020, the dividend for 2019 was withdrawn from
the 2020 AGM and subsequently cancelled by the Directors.
The Directors do not recommend payment of a dividend for the
year under review.
Going concern
The financial statements for the financial year ended
31 December 2020 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 2021 to 2023,
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 50 to 53.
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) and section 1374). 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.
AIB Group plc Annual Financial Report 2020Governance and Oversight 173
Directors’ and Secretary’s Interests in the
share capital
The interests of the Directors and the Group Company Secretary
Corporate governance
The Directors’ Corporate Governance report is set out on pages
178 to 187 and forms part of this report. Additional information,
in the share capital of the Company are shown in the Corporate
disclosed in accordance with the European Communities
Governance Remuneration statement on page 207.
Directors’ Remuneration
The Group’s policy with respect to Directors’ remuneration is
included in the Corporate Governance Remuneration statement
on pages 201 to 207. Details of the total remuneration of the
Directors in office during 2020 and 2019 are shown in the
Corporate Governance Remuneration statement on pages 201
to 207.
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 as amended by Statutory Instrument
No. 410 of 2018, require that the Group reports 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 40 to 43 of the Annual Financial Report, together with
the information it refers to, is intended to assist shareholders to
understand the Group’s position on key non-financial matters.
A description of the Group’s business model is included on pages
4 to 6 of the Annual Financial Report and the table on pages 50 to
53 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 operational risk, credit risk, people and culture
risk, regulatory compliance risk and conduct risk. Further details
(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 1097 and 1551 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 188 to 192.
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 209 and 210, and the
employment of competent persons. The accounting records
are kept at the Company’s Registered Office at 10 Molesworth
Street, Dublin 2, Ireland and at the principal addresses outlined
on page 369.
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),
of the Group’s risk management governance and organisational
is set out on pages 50 to 53.
framework can be found on pages 80 to 86.
Substantial interests in the share capital
At 31 December 2020, the Company had been notified of the
following substantial interests:
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 in the
–
the Minister for Finance in Ireland holds 1,930,436,543
United Kingdom and the United States of America.
ordinary shares representing 71.12% of the total voting rights
attached to the issued share capital.
– Massachusetts Financial Services Company holds
111,747,946 ordinary shares representing 4.11% of the total
voting rights attached to the issued share capital.
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 2020 to 4 March 2021.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 174
Governance and oversight –
Group Directors’ report for the financial year ended 31 December 2020
Auditor
The auditor, Deloitte Ireland LLP (“Deloitte”), were appointed to
Statement of relevant audit information
Each of the persons who is a Director at the date of approval of
the Group on 20 June 2013 following shareholder approval at
this report confirms that:
the 2013 Annual General Meeting on that date. Furthermore,
(a) so far as the Director is aware, there is no relevant audit
Deloitte were re-appointed as auditor of the Company at the last
information of which the Company’s auditor is unaware; and
Annual General Meeting held on 29 April 2020 and shall hold
(b) the Director has taken all the steps that he/she ought to have
office until the conclusion of the next Annual General Meeting of
taken as a Director in order to make himself/herself aware
the Company pursuant to section 382 of the Companies Act 2014.
of any relevant audit information and to establish that the
Their continued appointment will be proposed to the shareholders
Company’s auditor is aware of that information.
for approval at the next Annual General Meeting. Deloitte have
indicated a willingness to continue in office in accordance with
This confirmation is given and should be interpreted in
section 383(2) of the Companies Act 2014.
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:
2020 Results – Financial Performance
Risk management
Non-adjusting events after the reporting period
Page
2
79 to 170
351
The Group Directors’ report for the financial year ended 31 December 2020 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.
Brendan McDonagh
Deputy Chair
Colin Hunt
Chief Executive Officer
4 March 2021
AIB Group plc Annual Financial Report 2020Governance and Oversight
Governance and oversight –
Schedule to the Group Directors’ report for the financial year ended 31 December 2020
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 2020.
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 2020Governance and Oversight 123456 176
Governance and oversight –
Schedule to the Group Directors’ report for the financial year ended 31 December 2020
Deadlines for exercising voting rights
Voting rights at general meetings of the Company are exercised
when the Chair puts the resolution at issue to a vote of the
meeting. A vote decided by a show of hands is taken forthwith.
A vote taken on a poll for the election of the Chair or on a
– One-third of the Directors for the time being (or, if their
number is not three or a multiple of three, not less than one-
third) are obliged to retire from office at each Annual General
Meeting on the basis of the Directors who have been longest
in office since their last appointment. While not obliged to do
question of adjournment is also taken forthwith, and a poll on any
so, the Directors have, in recent years, adopted the practice
other question is taken either immediately or at such time (not
of all (those wishing to continue in office) offering themselves
being more than 30 days from the date of the meeting at which
for re-election at the Annual General Meeting.
the poll was demanded or directed) as the Chair of the meeting
– A person is disqualified from being a Director, and their
directs. Where a person is appointed to vote for a shareholder
office as a Director ipso facto vacated, in any of the following
as proxy, the instrument of appointment must be received by the
Company not less than 48 hours before the time appointed for
circumstances:
–
if at any time the person has been adjudged bankrupt or
holding the meeting or adjourned meeting at which the appointed
has made any arrangement or composition with his/her
proxy proposes to vote, or, in the case of a poll, not less than
creditors generally;
48 hours before the time appointed for taking the poll.
–
if found to no longer have adequate decision making
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.
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 therefore 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 2020Governance 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.
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 arrangements 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 2020Governance and Oversight 123456 178
Governance and Oversight
AIB Group plc Annual Financial Report 2020
Governance and oversight –
Corporate Governance report
2020 was an unprecedented year for
2020 was an unprecedented year for
the Group. The Board recognises the resilience
and commitment of our colleagues to delivering
for our customers and other stakeholders during
these times.
Brendan McDonagh,
Deputy Chair
Deputy Chair’s introduction
Dear Shareholder,
On behalf of the Board, I am pleased to present our Corporate
Governance Report for 2020. This report should be read in
conjunction with the ‘Governance in Action’ section at the start of
this Annual Financial Report and the Board Committee Reports
which follow.
Further information on governance practices in place in the Group
are available on the Group’s website (www.aib.ie/investorrelations).
This report provides statements of compliance with our key
corporate governance requirements and is presented under the
headings of the UK Corporate Governance Code 2018.
The Board continually seeks to adhere to the various applicable
requirements as well as the underlying principles and ways
of working recommended by those requirements to enhance
accountability and transparency and ensure the Group’s
stakeholders are at the fore of the Board’s decision making.
I am pleased that, in spite of the unprecedented events of 2020,
the Board and the Group has operated within an effective and
robust corporate governance environment.
Brendan McDonagh
Deputy Chair
Corporate Governance Framework
Statements of Compliance
This report, in conjunction with the Statement of Directors’
Responsibilities, Corporate Governance Remuneration Statement,
Risk Governance section of the Risk Management Framework
report and the Statement on Internal Control sets out the Group’s
approach to governance in practice, the work of the Board and its
Committees and explains how the Group applied the principles of
the Central Bank of Ireland’s Corporate Governance Requirements
for Credit Institutions 2015 (the ‘2015 Requirements’), European
Union (Capital Requirements) Regulations 2014 (S.I. 158/2014)
(‘CRD’) and UK Corporate Governance Code 2018 (the ‘Code’)
during 2020 under the headings prescribed under the Code.
Further detail is set out 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
required to comply with the 2015 Requirements (which are publicly
available on www.centralbank.ie). However, 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 the CRD (which is publicly
available on www.irishstatutebook.ie).
As the governance structures of AIB Group plc and Allied Irish
Banks, p.l.c. are mirrored and acknowledging the importance of
adherence to the 2015 Requirements, the compliance status of
Allied Irish Banks, p.l.c. and the applicable corporate governance
aspects of the CRD is noted herein.
Allied Irish Banks, p.l.c. complied with all of the 2015 Requirements
and with the corporate governance aspects of the CRD with
the exception of the 2015 Requirement 8.1 that there “shall be
a Chairman appointed to the Board”. Mr Richard Pym retired
as Chair in March 2020. There is a search process underway
for the identification and appointment of a successor and an
announcement will be made in due course. The Deputy Chair has,
at the Board’s request, carried out the role and responsibilities of a
Chair in the period since and has undertaken to continue to do so
until such time as an individual, approved to hold the role of Chair
of the Board under the Central Bank of Ireland’s Fitness and Probity
Standards, is in role.
179
UK Corporate Governance Code 2018
AIB Group plc, by virtue of its primary listing on the Main Securities Market of the Euronext Dublin Stock Exchange and its premium listing
on the Main Market of the London Stock Exchange, is subject to the provisions of the Code (which is publicly available on www.frc.org.uk).
Throughout the year ended 31 December 2020, the Group applied the principles and complied with all provisions of the Code other than
in instances related to Section 5: Remuneration, in particular Principles R and Provisions 36, 37 and 38. The rationale for this, along with a
material enhancement to existing processes, are set out below:
Provisions to “Explain” under the Code “Comply or Explain”
Rationale
process
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.
Due to certain agreements in place with the Irish State, variable
remuneration structures are not generally permitted and, as
such, Principle R and certain associated provisions (particularly
Provisions 36 and 37) are outside of the Board’s sphere of
influence or control. Further detail on the background to these
restrictions be found in the Corporate Governance Remuneration
Statement on pages 201 to 207.
In relation to Provision 38, the current pension arrangements
are considered to be fair due to the remuneration restrictions in
place at this time. The rates of contribution for Executive Directors
and all employees are fully transparent and are set out in the
Corporate Governance Remuneration Statement on pages 201
to 207.
Provision materially enhanced throughout 2020
Rationale
In addition to the many existing avenues for workforce
engagement in place across the Group and to further strengthen
the Group’s compliance with Provision 5, the Board has
designated Ms Elaine MacLean as the Non-Executive Director
who will engage directly with employees, on behalf of the Board,
in order to enhance the ‘employee voice’ at the Board table when
making decisions. As part of the role, Ms MacLean will provide
updates to the Board on her engagement with the workforce at
regular intervals.
The Board ensures a clear division of responsibilities 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 are clearly defined,
documented and communicated to key stakeholders via the
Group’s website. The Board is supported in executing its duties
by a number of Board and Advisory Committees.
Whilst 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 which are reviewed at least
annually to ensure they remain relevant and are available at
https://aib.ie/investorrelations/about-aib/corporate-governance.
Provision 5: Workforce engagement mechanisms.
Irish Corporate Governance Annex
Additional obligations apply to the Group under the Irish
Corporate Governance Annex (publicly available on www.ise.ie),
which applies to relevant Irish companies with a primary listing
on the Main Securities Market of the Euronext Dublin Stock
Exchange. The Group is fully compliant with the Irish Corporate
Governance Annex.
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, including the Chief Executive Officer, is
supported by the Executive Committee, being the most senior
management committee of the Group. The Executive Committee
has primary responsibility for the day-to-day operations of, and
the development of strategy for the Group.
The Board supports, and strives to operate in accordance with,
the Group’s purpose and values at all times and 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.
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Governance and oversight –
Corporate Governance report
Board Focus
Supporting our customers and our employees through the COVID-19 pandemic dominated the Board agenda through the majority of the
year. Notwithstanding that, the Board continued to execute its business as usual duties, and also focused on a number of additional ad hoc
matters. The following is a high level overview of material matters considered by the Board throughout the year:
Financial
2021-2023 Financial Plan
2019 results and analyst presentations
Dividend considerations
Macroeconomic environment
Expected Credit Losses
ICAAP/ILAAP
Quarterly Trading Updates
2020 Half-Yearly Financial Report
Regulatory
FSPO decision upholding a customer
compliant re tracker mortgages and its
subsequent application to wider cohort of
customers
Regulatory engagement updates
Outcome of Supervisory Review and
Evaluation Process
Related Party Lending
Market Abuse Regulation
Anti-Money Laundering and Criminal
Terrorist Financing Updates
PSD2 Implementation
Strategy
Oversight of the Group’s response to
COVID-19 to include Policy Derogations
Open Banking Programme
Culture and Values
People updates
Culture Evolution Programme Updates
Sustainability Report and Conference
Strategic Review and new Medium Term
Targets including Property strategy
Employee communication and COVID-19
related supports
NPE Strategy
Brexit
Vulnerable Customer Programme
Central Securities Depository Migration
and related Extraordinary General
Meeting
Risk Management
Group Risk Appetite Statement
Material Risk Assessments
Business Credit Accounting Programme
Recovery Planning and Resolution
Sustainability ambition
Governance
External Board Effectiveness Evaluation
Establishment of Technology and
Data Advisory Committee
Corporate Governance Frameworks
Board Succession including Chair Search
Risk Policies and Frameworks
Pillar 3 Reporting
Cyber Security and E-Fraud Reports
Regular Updates
Executive Management Update
Business and Financial Performance
Tracker Mortgage Review Programme
Chair’s Activities
Board Committee Updates
Group Company Secretary Updates
Matters considered by the Board Committees, which in certain cases were also considered by the Board as a whole, are detailed in
individual Board Committee reports which follow over pages 188 to 200.
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, and are seen to 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 principal 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, the
Board strives to ensure effective engagement with these parties.
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 or charitable groups and participation
in expert fora and events. Extensive stakeholder engagement was
previously undertaken in 2019 as part of the Group’s sustainability
materiality exercise and work continues to deliver against the
sustainability strategy, operating framework and plan developed
from the results of this exercise.
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 2021 AGM along with other
shareholder-related information can be found on page 361 and on
the Group’s website at http://aib.ie/investorrelations.
Further details on the Group’s stakeholder engagement can be
found on pages 46 and 47.
Relationship with the Irish State
The Group 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.
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.
AIB Group plc Annual Financial Report 2020Governance and Oversight Division of Responsibilities
Key Roles and Responsibilities
Chair and Deputy Chair
The Chair leads the Board, setting its agenda, ensuring Directors
receive adequate and timely information, facilitating the effective
contribution of Non-Executive Directors and ensuring the ongoing
training and development of all Directors.
The Deputy Chair deputises for the Chair and is available to the
Directors for consultation and advice.
Mr Brendan McDonagh, in his capacity as Deputy Chair, has led
the Board since Mr Richard Pym’s retirement on 6 March 2020
and has delegated authority from the Board to carry out the duties
of the Chair as required. The search process to identify the next
Chair of the Board is ongoing.
Mr McDonagh’s biographical details are available on page 54.
Senior Independent Director
Ms Carolan Lennon succeeded Mr Tom Foley as Senior
Independent Director on his retirement on 29 April 2020.
As Senior Independent Director, Ms Lennon 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. Ms Lennon is leading the process to identify the
next Chair of the Board. Her biographical details are available on
page 54.
Independent Non-Executive Director
Independent Non-Executive Directors represent a key layer
of oversight, scrutinising the performance of Management in
meeting agreed objectives and monitoring against performance.
Biographical details are available for each Independent
Non-Executive Director on pages 54 and 55.
181
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 with effect from 8 March
2019 and his biographical details are available on page 55.
Group Company Secretary
The Directors have access to the advice and services of Mr Conor
Gouldson, the Group Company Secretary, 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. Mr Gouldson was appointed with effect from
1 May 2020, replacing Ms Helen Dooley who resigned from the
role as of that date. Ms Dooley continues in her role as Group
General Counsel and member of the Executive Committee.
Board and Advisory 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. Each Committee
operates under terms of reference approved by the Board and
their terms of reference are available on the Group’s website at
http://aib.ie/investorrelations.
The governance structure is available on page 44 and 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.
In addition to the four main Board Committees, the Board has
a Sustainable Business Advisory Committee and, in 2020,
established a Technology and Data Advisory Committee. Each of
the advisory committees comprise of Non-Executive Directors and
members of senior management from relevant business areas.
The Sustainable Business Advisory Committee supports 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
prosper as an integral component of the Group’s business and operations. The Chair of the Sustainable Business Advisory Committee
provides a brief overview of the Committee’s work throughout 2020 below.
“Creating a more sustainable future for the Group and the communities in which we operate in Ireland
continues to be a key area of focus for AIB and the Board. Work on the current sustainability plan commenced
in 2019 with extensive stakeholder engagement. Feedback from that materiality exercise helped inform the
development of the Group’s sustainability strategy, operating framework and plan and we are now in the
process of delivering against these items. Over the past year we have made considerable progress in reducing
the carbon footprint of our own operations as well as advancing products that enable our customers to make
the same journey. We have also made a significant commitment to being carbon neutral by 2030, using a
net-zero approach, and set out an ambition for 70% of new lending to be green in that timeframe too.
Notwithstanding our progress and industry recognition, we know that we can and must do more to advance
the sustainability agenda. Sustainability forms a central part of AIB’s strategy and as Chair of the Sustainable
Business Advisory Committee my role, and the role of the Committee, has been to ensure that behind the
strategy is a plan of action that is delivering and is continually tested and challenged to drive meaningful change.”
Helen Normoyle, Chair of the Sustainable Business Advisory Committee
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Corporate Governance report
The Technology and Data Advisory Committee was constituted in September 2020 in recognition of the Group’s substantial investment
into areas touching on or impacted by technology and data as agreed under the Annual Investment Plan in the short to medium term.
The Committee is appointed by the Board to assist in fulfilling its oversight responsibilities by reviewing and challenging the strategy,
governance and execution of such matters. The Committee met three times in 2020 and, inter alia, reviewed the proposals to deliver a
new business credit accounting platform across the Group and focused on reviewing the technology and data elements of the Group
Strategy and Investment Planning proposals. The Chair of the Technology and Data Advisory Committee provides a brief overview of
the Committee’s work throughout 2020 below.
“The growing complexity of technology and data requirements continues to place increasing obligations on
the Board. To ensure the Board has sufficient oversight of, and insight into, such matters as well as being
appropriately positioned to make key related decisions, I was delighted to take the lead on the establishment
of the Technology and Data Advisory Committee and be appointed its Chair.
I envisage that through the Committee’s work, supported by the established Management teams, we will
continue to assist the Board by providing appropriate oversight and constructive challenge of the strategy,
operational effectiveness and governance of technology and data matters. I am pleased that, in the relatively
short timeframe since the Committee was established in September 2020, we have gained a deeper
understanding of many of the key technology and data related initiatives underway across the Group and,
as a result, the Committee was well positioned to support the Board in reviewing related proposals through the
2020 Strategy review cycle.”
Ann O’Brien, Chair of the Technology and Data Advisory Committee
Board Meetings
In 2020, 29 Board meetings were held being a substantial increase on previous years. 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 Executive Management report each month. The remainder of its agenda is built from the indicative annual 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 ensures 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 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 or decided at the
preceding Committee meeting.
Attendance at the Board and Board Committee meetings is outlined below. The Non-Executive Directors also met throughout the year, in the
absence of Executive Directors or other members of Management.
Board
Board Audit
Committee
Board Risk
Committee
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
Nomination and Corporate
Governance Committee
Attended
Eligible to
attend
Remuneration
Committee
Eligible to
attend
Attended
Brendan McDonagh
Carolan Lennon
Helen Normoyle
Sandy Kinney Pritchard
Ann O’Brien
Raj Singh
Elaine MacLean
Basil Geoghegan
Colin Hunt
Former Directors
Richard Pym
resigned 6 March
Tom Foley
resigned 29 April
Tomás O’Midheach
resigned 4 November
29
29
29
29
29
29
29
29
29
6
13
26
29
29
29
29
28
29
25
29
29
6
13
26
16
16
16
9
16
9
16
16
6
6
12
12
12
12
12
12
12
12
12
12
15
9
14
9
15
13
2
4
2
4
6
6
6
2
5
6
5
2
AIB Group plc Annual Financial Report 2020Governance and Oversight Professional Development and Continuous
Education Programme
The Board’s professional development and continuous education
programme continued in 2020 albeit in a virtual setting with
a number of training sessions held during the year. Training
topics included BCBS 239 Regulation, Internal Rating Based
Models, Cyber Security Strategy, Resolution Planning, Safety
and Wellbeing, Anti-Money Laundering and Fraud, Regulatory
Accounting requirements, Directors’ Duties and the Market Abuse
Regulations. Directors also have access to an online Corporate
Governance Library and a suite of AIB Group specific online
training courses.
A structured induction programme is ready to be delivered on
the appointment of any incoming Director to include a series of
meetings with senior management, relevant briefings together
with any specific additional training identified during the course of
the appointment of the individual.
Access to Advice
There is a procedure in place to enable the Directors to take
independent professional advice, at the Group’s expense,
on matters concerning their role as Directors. 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.
Composition, Succession and Evaluation
Board Composition
At 31 December 2020, the Board consisted of eight
Non-Executive Directors and one Executive Director, being the
Chief Executive Officer.
A number of Board changes occurred during 2020 and to date in
2021 which are detailed on page 172.
In addition to the appointment of Mr Fergal O’Dwyer in January
2021, there are a number of other search processes underway to
identify new Directors. A number of these searches have resulted
in the selection of new Directors for whom regulatory fitness
and probity assessments are ongoing. Further details will be
announced in due course as appropriate.
183
Board Succession Planning and 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. The Board Succession Plan is reviewed alongside
the Board Skills Matrix by the Nomination and Corporate
Governance Committee at each scheduled meeting to allow for
proactive and continuous succession planning and, in turn, the
timely commencement of Director search processes. The Board
Succession Plan details planned Board composition as well as
Board Committee membership, the likely tenure of Non-Executive
Directors and upcoming actions to be undertaken.
In addressing appointments to the Board, a role profile for the
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 Director
recruitment activity, the Group ensures a formal and rigorous
process.
Prior to a recommendation for appointment of any given
candidate, a comprehensive due diligence process is undertaken,
which includes the candidate’s self-certification of probity
and financial soundness, external checks and enhanced due
diligence. The due diligence process enables the Nomination
and Corporate Governance Committee to satisfy 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 Group 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 is in place for the assessment of the suitability
of members of the Board, which outlines the Board appointment
process, and is in compliance with applicable joint guidelines
issued by the European Securities and Markets Authority and the
European Banking Authority.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 184
Governance and oversight –
Corporate Governance report
Q&A with Fergal O’Dwyer,
Non-Executive Director
Q: What did you think of the appointment, on-boarding and
induction process to date?
A: In summary the appointment, on-boarding and induction
process has been very comprehensive, open and co-operative
with all members of the Board and the Executive Committee
working closely with me.
I formally joined the Board as a Non-Executive Director at the end
of January 2021 on receipt of the necessary regulatory approval.
This was after a comprehensive process which began with initial
interviews in late March 2020. It progressed to more detailed
interviews, all virtual, with 5 of my fellow Board members including
the Deputy Chair and Chair of the Board Audit Committee.
The interviews were two-way discussions around mutual suitability
for the role and were both open and probing. Having been given
due consideration by the Nomination and Corporate Governance
Committee, in June 2020, I was offered the role subject to the
required regulatory process which I found to be necessarily
comprehensive and thorough.
From November 2020, I was pleased to be invited by the Deputy
Chair and Chair of the Board Audit Committee to attend and
observe a number of Board, Audit and Joint Audit and Risk
committee meetings which included the November Group
Strategy review. Attendance at these meetings was invaluable
to me as it gave me great insight into the current challenges and
opportunities for the Group, allowed me to meet my fellow Board
members and the Executive Committee and introduced to me the
culture that exists within the Group.
Separately I have had quite a number of induction sessions
with each member of the Executive Committee and other senior
management members, with summary papers around what is
“front of mind” acting as very useful agendas for these meetings.
As a non-banker, further training around retail and corporate
banking is also in hand.
I am conscious that the above process has required a significant
time commitment from my fellow Board members and Executive
Committee and I thank them for their time, input, co-operation
and openness.
Q: As a new director what were your first impressions of AIB and
its culture?
A: There have been numerous first impressions for me as a new
Director of AIB – here are the stand-out ones:
• How backing customers, colleagues and communities is front
of mind for the Board and Management whilst streamlining
and simplifying processes and maintaining a strong balance
sheet. All papers presented to the Board or its various
committees are linked directly to particular aspects of the
Group’s five Strategic Pillars with a clear governance pathway
detailing accountability and ownership for implementation.
• The passion, ability and commitment that is brought to the
Group by a relatively new Management team with a diverse
range of experience, both from within the financial services
sector and other industries.
• The focus on risk and the clear separation of the three lines
of defence relating to risk. Related to this is the importance
and significance of the Group Risk function or second line
of defence. I am comforted that, where relevant, papers
travelling to the Board or its Committees are supported by
a separate paper from the second line of defence with their
formal conclusions on the topic being discussed.
• The ongoing commitment of investment to maintain
and further develop a modern, resilient and flexible IT
infrastructure in order to deliver the most digitally-enabled
offering within the Irish banking market.
• The willingness of our people to co-operate and participate
openly in ongoing supervisory engagement, including on-site
inspections, thematic reviews and regular engagement with
our regulators and the Board and senior management.
• The collegiality that exists within and between the Board and
the Executive Committee. Yes, there is challenge and yes
there is pushback but the culture is one of openness and
transparency.
I am excited about working with my colleagues on the Board and
the Executive Committee as AIB continues to grow and develop
in the years ahead.
AIB Group plc Annual Financial Report 2020Governance and Oversight Terms of appointment
Non-Executive Directors are generally appointed for a three
year term, with the possibility of renewal for a further three
years on the recommendation of the Nomination and Corporate
Governance Committee. Any additional term beyond six years
will be subject to annual review and approval by the Board.
In accordance with practice in recent years and the provisions of
the Code, all Directors submit themselves for re-election at each
Annual General Meeting. Details on the length of tenure of each
Director is available from their appointment dates included in their
biographies on pages 54 and 55.
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 Annual General Meeting and at the Registered
Office during business hours on request from the Group Company
Secretary.
Time commitment
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
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 Management.
The independence of each Non-Executive Director is considered
by the Nomination and Corporate Governance Committee prior to
appointment and reviewed annually thereafter. It was determined
that the following Non-Executive Directors in office during 2020,
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 Ranjit
(Raj) Singh were independent in character and judgement and
free from any business or other relationship with the Group that
could affect their judgement. Upon his appointment in January
2021, Mr Fergal O’Dwyer was also determined to be independent.
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
185
them for nomination, their performance and nature of their
contribution to the business of and matters discussed at the
Board and the Relationship Framework with the Irish State.
The Board is satisfied that in carrying out their duties as Directors,
Ms O’Brien and Mr Singh are able to exercise independent and
objective judgement without external influence. The former Chair,
Mr Richard Pym was determined as independent on appointment.
Diversity and Inclusion
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 has
implemented a Diversity and Inclusion Code, further details of
which can be found on page 41 of this Annual Financial Report.
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 has also
set medium term Diversity and Inclusion objectives, supported by
short term activities and actions.
A formal Board Diversity Policy is in place which sets out the
approach to diversity on the Board and is available on the Group’s
website at www.aib.ie/investorrelations.
The Nomination and Corporate Governance Committee (the
“Committee”) is responsible for developing measurable objectives
to effect the implementation of this Policy and for monitoring
progress towards achievement of the objectives. The Policy and
performance relative to the target is reviewed annually by the
Nomination and Corporate Governance Committee, in conjunction
with Board succession and skills planning, and any proposed
changes to the Policy are presented to the Board for approval.
The Board recognises that diversity in its widest sense is
important, is inclusive of all individuals and is focused on ensuring
a truly diverse board. The Board embraces the benefits of
diversity among its members and through its succession planning,
is committed to achieving the most appropriate blend and balance
of diversity possible over time.
In terms of implementation of the Board Diversity Policy, the
Committee reviews and assesses the Group Board composition
and has responsibility for leading the process for identifying and
nominating, for approval by the Board, candidates for appointment
as directors. In reviewing the 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 and in
consideration of the Group’s future strategic plans. Where external
search firms are engaged to assist in a candidate search, they are
requested to aim for a fair representation of both genders to be
included in the initial list of potential candidates so the Committee
have a balanced list from which to select candidates for interview.
All director search processes during 2020 have been conducted in
line with the Policy.
At 31 December 2020, the percentage of females on the Board
stood at 56% and thus exceeded the target of 30% set out in
the Policy.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 186
Governance and oversight –
Corporate Governance report
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 internal evaluations in 2018 and
2019, an external evaluation was undertaken in 2020 facilitated
by Praesta Ireland.
Praesta Ireland is an independent external consultancy firm, which
has no other connection to the Group or individual Directors aside
from providing leadership coaching services to the Group from time
to time or where Praesta may have undertaken an evaluation for an
external entity to which a Director was appointed. The evaluation
and coaching services are provided independently by separate
teams within Praesta Ireland.
The various phases of the external performance evaluation
process which commenced in August and concluded in December
2020 are set out below. The evaluation included the Board and
each of its Committees with the exception of the Technology and
Data Advisory Committee due to its recent establishment. Overall,
the final report was positive and demonstrated the strength of the
Board and its Committees.
The process was facilitated by members of the Praesta
Ireland team who:
– Met with the Deputy Chair to discuss the aims of the
evaluation.
– Attended and observed a meeting of the Board of
Directors.
– Reviewed a suite of key Board papers, governance
documents and minutes.
– Held structured one-to-one interviews with all Board
members and all members of the Executive team and the
Group Company Secretary.
– Compiled and issued an extensive questionnaire to Board
and Executive Committee members covering key aspects
of Board effectiveness including the composition of the
Board, the content of meetings, Board culture, dynamics
and strategic focus.
– Prepared an Effectiveness Evaluation Report and
reviewed it with the Deputy Chair.
– Prepared findings and proposed areas of enhancement.
– Presented the final report and agreed actions at the
December Board meeting.
Arising from the evaluation process a number of
recommendations were accepted by the Board and actions
agreed which will be implemented throughout 2021 with regular
check-ins to ensure progress is being made against these
actions.
The main recommendations and actions arising from the
Praesta Ireland evaluation included:
– Enhance reporting to the Board as to progress on the
timely execution of the Group Strategy following the
Board approval of the 2021–2023 Group Strategy in
November 2020.
– Clarify and align as a Board on the desired outcomes for
key stakeholder relationships.
–
Increase the number of meetings attended by
Non-Executive Directors only, with an open agenda,
to help reflect on key issues as well as support greater
alignment and cohesion as a group, particularly while
working remotely. Strengthen Board connection as a
collective group and with the Executive Committee
particularly given the period of virtual attendance at
meetings due to COVID-19 restrictions.
– Focus on how the Board agenda is set so that the
right balance of attention on strategic, regulatory and
commercial issues is maintained.
– Other recommendations reflected actions already
underway, for example, building Board culture, the
continuing enhancement of Board papers and the rollout of
the Board Succession Plan.
The recommendations from the evaluation will be considered with
regard to Board composition on an ongoing basis to ensure the
current Board Succession Plan remains a live document. There
were no significant skills gaps highlighted through the evaluation
feedback beyond those already under consideration as part of the
Board Succession Plan and ongoing search processes.
Alongside this process, the Deputy Chair conducted evaluations
of individual performance of each of the Non-Executive Directors
and also led a discussion in private on the performance of the
Chief Executive Officer with the Non-Executive Directors in
December 2020. The outcome of these evaluations was positive,
noting that each Director continues to contribute effectively.
The outcome also aligned to the findings of the external
evaluation which noted the strength of the Board as a whole.
Each of the Board Committees and the Sustainable Business
Advisory Committee considered the Board Evaluation report
insofar as it related to that particular committee and adopted any
actions considered necessary.
The Board also reviewed the actions arising from the 2019
internal effectiveness evaluation and noted that each action had
been satisfactorily completed. The existing Board priorities were
maintained with some minor amendments to the descriptors to
more accurately reflect the Group’s current focus.
AIB Group plc Annual Financial Report 2020Governance and Oversight 187
Audit, Risk and Internal Control
The Board has delegated responsibility for the consideration
and approval of certain items pertaining to audit, risk and
internal control to the Board Audit Committee and Board Risk
Committee. Where required, topics will be referred onward to the
Board as a whole for further discussion or approval. Information
on the activities of the Board Audit Committee and Board Risk
Committee can be found in their reports commencing on pages
188 and 193 respectively.
Remuneration
The Board has delegated responsibility for the consideration
and approval of the remuneration arrangements of the Chair,
Executive Directors, Executive Committee members, the Group
Company Secretary and certain other senior executives to the
Remuneration Committee. A group of senior management is
responsible for recommending to the Board the fees to be paid
to Non-Executive Directors within the limits set by shareholders
in accordance with the Articles of Association. Information on the
activities of the Remuneration Committee in 2020 can be found in
the Remuneration report on pages 199 and 200.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 188
Governance and Oversight
AIB Group plc Annual Financial Report 2020
Governance and oversight –
Report of the Board Audit Committee
In light of the COVID-19 pandemic, 2020 proved
In light of the COVID-19 pandemic, 2020 proved
to be a challenging year for the Committee, however,
it was one in which the resilience of the organisation
was proven. Oversight of internal controls and
credit risk alongside reviewing the Group’s financial
performance was a key consideration.
Sandy Kinney Pritchard,
Committee Chair
Chair’s Overview
I am pleased to report on how the Board Audit Committee (“the
welcome Ms Ann O’Brien to the Committee in May, and Mr Fergal
O’ Dwyer to the Committee upon his appointment to the Board in
Committee”) has discharged its responsibilities for the year ended
early 2021. To ensure co-ordination of the work of the Committee
31 December 2020. This report outlines the key areas of judgement
with the Board Risk Committee, three members of the Committee
regarding financial reporting including the conclusions reached by
are also members of the Board Risk Committee, thus promoting
the Committee. It also provides a overview of other material matters
effective oversight of risk and finance considerations. Further to
within the Committee’s remit.
In what was an unprecedented year, the Committee spent a
significant amount of time assessing the impact of COVID-19 on
the Group’s credit risk profile. The calculation of credit impairment
allowances proved demanding given the ongoing macroeconomic
this common membership, a number of joint meetings of the
Committee and the Board Risk Committee were held during the
year. The biographies of the Committee members are set out on
pages 54 and 55, with details of each Committee’s membership
outlined on pages 182.
uncertainty and evolving consensus. The modelling of the impact
The Chief Financial Officer, Chief Risk Officer, Group Head of
under IFRS 9 has presented challenges for banks given the
Internal Audit and the Lead External Audit Partner from Deloitte
impact on economies coupled with the substantial government
normally attend all Committee meetings.
supports underpinning recovery. The output of the ECL models
resulted in a significant charge. These modelled outcomes were
adjusted where appropriate to overcome the absence of historic
data reference points and to address idiosyncratic outcomes in
particular industry sectors resulting from COVID-19 impacts.
A primary role for the Committee is to consider, upon assessment
of the significant matters of accounting judgement, whether or
not this annual report, taken as a whole, is considered to be a
fair, balanced and understandable assessment of the Group’s
financial position, and provides the necessary information for
This resulted in a full year charge of € 1.46 billion. The Committee
shareholders and stakeholders to assess the Group’s strategy,
is satisfied with the overall level of ECL allowances and the
performance and risks. The Committee is satisfied that based on
process undertaken by Management in its determination.
in depth discussion and review with Management, that this Annual
Additional assurance was provided by the internal and external
Financial Report meets these requirements.
auditors, giving comfort to the Committee in terms of the
robustness of the quantitative IFRS 9 model assessment as well as
assurance that post model adjustments were appropriately applied.
Looking forward, in 2021, the Committee agreed with
Management that a priority will be further calibration of ECL
models and to address the unique nature of the COVID-19
Oversight of the Group’s Internal Audit function is at the core
economic scenarios and inherent data limitations.
of the Committees responsibility. I am happy to report that the
selected candidate for the Group Head of Internal Audit role,
referred to in the 2019 Annual Financial Report, received the
necessary regulatory approval and was formally appointed in
April 2020. I would also like to express my gratitude to the interim
Group Head of Internal Audit for his professionalism, support and
contribution during his time in that role.
Committee Membership
The Committee is currently comprised of five Non-Executive
Directors, all of whom are considered by the Board to be
independent and whom the Board have deemed have the skills,
competence and recent and relevant financial experience to
enable the Committee to discharge its responsibilities. Upon his
retirement, and following a seven year tenure, Mr Tom Foley left
the Committee in April 2020. I would like to take this opportunity to
thank Tom for his significant contribution. We were also pleased to
The Committee will also continue to apply enhanced oversight
to the effectiveness of the Group’s internal controls and financial
reporting systems with particular regard to the challenges
presented by the COVID-19 pandemic.
I would like to take this opportunity to thank my fellow Committee
colleagues for their continued support and diligence during this
challenging year.
Sandy Kinney Pritchard
Committee Chair
189
Financial Reporting – Activities for the year
A key responsibility for the Committee is the consideration of significant matters relating to the Annual Financial Report and in particular,
key accounting judgements and disclosures which are subject to in-depth discussion with Management and Deloitte. These judgements are
set out below and are disclosed in detail within Note 2 “Critical accounting judgements and estimates” on page 261, Note 36 “Provisions for
liabilities and commitments” on page 301 and Note 43 “Contingent liabilities and commitments” on page 322.
Key Issue
Committee Consideration
Committee Conclusion
IFRS 9 and the
Impairment of
Financial Assets
Expected Credit Losses (“ECL”) are modelled based on a range of forward
looking information, which is reflective of Management’s view of potential
future economic scenarios. The process for undertaking this assessment is
complex in nature, and requires a significant degree of subjective judgement.
The COVID-19 pandemic presented an additional challenge to this
assessment. The key judgements applied by the Group in estimating ECL
are as follows:
The Committee agreed with
Management that in 2021,
a priority will be further
calibration of ECL models and to
address the unique nature of the
COVID-19 economic scenarios
and inherent data limitations.
Following detailed assessment
of the conclusions made by
Management, and the approval
of the underlying scenarios
applied therein, the Committee
is satisfied that the judgements
and assumptions utilised in
determining the total ECL
provision of € 2,510 million at
year end 31 December 2020 are
appropriate.
•
•
•
•
•
•
•
•
determining the criteria for a significant increase in credit risk and for
being classified as credit impaired;
the 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;
assessing the sensitivity of ECL outcomes to different economic
scenarios and specific cohorts to ensure related risks are captured within
the overall outcome;
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.
In assessing these key judgements, the Committee received regular
updates from Management on the quarterly ECL outcome. Following the
onset of COVID-19, the Committee held a number of joint meetings with
the Board Risk Committee in order to review, challenge and subsequently
approve the proposed changes to the macroeconomic scenarios in use in
the ECL models, as well as the weightings applied to those scenarios and
the appropriateness of same. These scenarios matured to reflect a range of
possible outcomes, including the potential future impact of COVID-19 and of
Brexit. The Committee also considered the appropriateness of adjustments
made to the modelled outcome, which were supported by reasonable
information known at the reporting date, which had not been incorporated
into the initial modelled outcome due to limitations in the risk measurement
methodology.
The Committee reviewed regular reports from the Risk function on the
outcome of assurance processes relating to ECL levels and the strength of
the underlying governance in place to support the ECL calculation.
The Committee has also reviewed the credit risk sensitivities and disclosures
in the Risk Management section of this report, and is satisfied that these
disclosures are fair, balanced and understandable.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 190
Governance and oversight –
Report of the Board Audit Committee
Key Issue
Committee Consideration
Committee Conclusion
Going concern and
long term viability
(refer to the
Viability Statement
on pages 208
and 209)
The Committee considered management’s assessment of the
appropriateness of preparing the financial statements of the Group for the
year ended 31 December 2020 on a going concern basis. In making this
assessment, matters considered by the Committee included the strong
capital base of the Group, noting that capital and liquidity ratios remained
above minimum mandatory requirements, as well as the known and
anticipated impact of COVID-19 on profitability levels.
The Committee also considered the evidence presented by Management
in order to enable the Directors to make a Viability Statement for the Group
for a specified period, taking account its current position, the prevailing
economic and trading conditions and principal risks facing the Group.
Retirement Benefit
Obligations
Deferred Taxation
Provisions for
liabilities and
commitments
There is a significant degree of judgement in the calculation of retirement
benefit liabilities. The Committee gave due consideration to the
reasonableness of defined benefit obligations and of the underlying actuarial
assumptions in use, including the discount rate, inflation rates and pensions
in payments increases, and approved these assumptions as inputs in the
calculation of the IAS 19 Pensions position for the Irish Defined Benefit
pension schemes.
The Group has recognised deferred tax assets for unutilised losses of
€ 2,763 million. The recognition of deferred tax assets is reliant on the
assessment of future profitability of the Group, and significant judgements
being made as to the projection of long term future profitability due to the
period over which recovery extends. The Committee noted that the reduced
forecast profitability levels resulted in an increase to the period of utilisation
of the deferred tax asset. It is assessed that it will take in excess of 25 years
for the deferred tax assets to be utilised. In considering the utilisation period
the Committee noted that this is subject to economic growth rates and the
effect of idiosyncratic or market wide effects that may impact the Group’s
long term profitability.
In assessing the recognition of the deferred tax assets, the Committee
considered a range of evidence presented by Management. Whilst it was
noted that COVID-19 resulted in an unprecedented shock to financial
performance in the year, materially impacting profitability in the near term,
a number of positive indicators were also observed.
The Committee also considered the outcome of the annual planning
process, and assessed if the current financial plans, approved by the Board,
support the profitability assumptions that the Group relies upon to validate its
recognition policy.
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 provisions for
liabilities and commitments are shown in note 36 to the financial statements.
Significant management judgement and significant estimation is required 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.
Certain matters are progressing and a range of outcomes are possible,
however, the provisions in place at 31 December 2020 reflect Managements
best estimate.
The Committee recommended
to the Board that the financial
statements be prepared
on a going concern basis,
in the absence of any material
uncertainties or doubts as to the
Group’s ability to continue as a
going concern.
Based on the assessment
undertaken, the Committee
agreed the appropriate
timeframe for the Viability
Statement, and recommended
the Viability Statement to the
Board for approval.
Based on the work performed,
the Committee is satisfied that
the assumptions supporting the
retirement benefit obligations
are reasonable.
In light of the evidence
presented by Management,
the Committee reaffirmed their
support of the recognition
policy in place for the deferred
tax assets, and agreed that
the assumptions used by
Management in assessing the
recognition of the deferred tax
assets are reasonable.
Based on the assessments
undertaken, the Committee is
satisfied that the provision for
liabilities and commitments is
reasonable, and reflective of
the related uncertainties and
the judgemental nature of key
assumptions.
AIB Group plc Annual Financial Report 2020Governance and Oversight 191
Key Issue
Committee Consideration
Committee Conclusion
Impairment of
investments in
subsidiaries
Investments in subsidiaries 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.
The Company tested its investment in Allied Irish Banks, p.l.c. for impairment
at 31 December 2020 as the carrying value was above the fair value, and
assessed an impairment charge of € 3,134 million. Testing for impairment
requires significant estimation and judgement. The Committee considered
the key assumptions utilised by Management in arriving at this impairment
charge, including the discount and growth rates applied.
On consideration of the reports
submitted by Management, the
Committee is satisfied that the
judgements utilised to support
the impairment calculation are
reasonable.
Assessment
of Contingent
Liabilities and
associated
disclosures
Chargeback risk has been identified in 2020 as a contingent liability as the
impact of COVID-19 could result in certain merchants’ inability to deliver
goods/services to cardholders. The Committee considered the nature, scale
and mitigations in place for the Group in relation to the potential chargeback
risk exposure. Details are set out within Note 43, “Contingent Liabilities and
Commitments”.
Based on the work performed,
the Committee is satisfied that
the disclosures provided with
regard to this contingent liability
are appropriate.
Other Key Areas of Focus
Financial
Reporting
Internal Audit
In addition to the key accounting judgements set out above, the Committee also reviewed the Half-
Yearly Financial Report, and recommended that report to the Board on the basis that the information
therein was fair, balanced and understandable. As part of the review of both this Annual Financial Report
and the Half-Yearly Financial Report, the Committee considered decisions and proposals of the Group
Disclosure Committee, in advance of making any recommendations. The Committee also reviewed the
year end 2019 and Half-Yearly 2020 Pillar 3 disclosures, as well as the Pillar 3 Policy, and made positive
recommendations to the Board in that regard.
The Committee is responsible for making recommendations in relation to the Group Head of Internal
Audit, including the appointment, replacement and remuneration, in conjunction with the Remuneration
Committee, and confirming the Group Head of Internal Audit’s independence. Following the selection of an
internal candidate in 2019, regulatory approval was received and an appointment was made to the Group
Head of Internal Audit role in April 2020. The Chair of the Committee met regularly with the Group Head
of Internal Audit between scheduled meetings of the Committee to discuss material audit issues arising.
The Group Head of Internal Audit has unrestricted access to the Chair of the Board Audit Committee.
Over the year, the Committee provided assurance to the Board regarding the independence and
performance of the Group Internal Audit function. In terms of the work schedule of the Group Internal Audit
function, the Committee monitored progress against the agreed 2020 audit plan, as well as actions taken
by Management to address the issues raised through that audit work. Following the onset of COVID-19,
the Group Head of Internal Audit worked closely with the Committee to review the changes in the Group’s
risk profile and revise the internal audit plan accordingly. A further revision of the audit plan was undertaken
for the remainder of 2020 and was subsequently approved by the Committee in July.
The Committee also considered the annual and half-year internal audit opinion in relation to the overall
control environment, as well as enhancements to the methodology utilised to arrive at that assessment.
Other material items for approval included the Group Internal Audit Charter and 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.
In December 2020, the Committee considered and approved the 2021 annual internal audit plan, with
reference to the material risks of the business and the ongoing uncertainty arising due to COVID-19. It also
approved the adequacy of resources allocated to the Group Internal Audit function by the Group.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 192
Governance and oversight –
Report of the Board Audit Committee
External Audit
Deloitte were appointed as the Group’s Auditor in 2013. In line with the relevant EU regulatory
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 and monitoring the independence and objectivity of
the Auditor. The remuneration of the Auditor was also considered by the Committee and recommended
to the Board for approval. To help ensure the objectivity and independence of the Auditor, the Committee
has a policy on the engagement of the Auditor to supply non-audit services, which outlines the types of
non-audit fees for which the use of the Auditor is pre-approved or requires specific approval. In line with
that Policy, the Committee reviewed the level of non-audit fees paid to the Auditor throughout the year.
Further details on the approach can be found at the Group’s website at: https://aib.ie/investorrelations
In addition, the Committee provided oversight in monitoring the effectiveness of the policy for the employment
of individuals previously employed by the Auditor. This policy 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 received an update on the application of that policy, and used this information
to facilitate its considerations as to the Auditor’s independence and objectivity in respect of the audit.
The Committee considered the scope of the detailed plan in respect of the half-yearly review and the annual
audit. The Committee also considered the Auditor’s findings, conclusions and recommendations arising
from their work. The Committee satisfied itself with regard to the Auditor’s effectiveness, independence
and objectivity through a number of mechanisms during the year. These included consideration of the work
undertaken, confidential discussions with the Auditor and feedback received from Management.
On the basis of the above, and the Committee’s determination of the Auditor’s effectiveness, independence
and objectivity, the Committee recommends that Deloitte should be reappointed as Auditor at the Annual
General Meeting on 6 May 2021.
The Committee is responsible for ensuring that appropriate arrangements are in place by which employees
may, in confidence, raise concerns regarding possible improprieties in financial reporting or other matters.
To this end, the Committee Chair, as “Speak Up” Champion, and the wider Committee oversaw the
embedding of enhancements to the governance structures in place to support the Group’s “Speak Up”
arrangements throughout the year. The Committee received regular reports from Management regarding
the operation of the “Speak Up” policy, as well as all other whistleblowing options available in the Group.
The Committee also considered reports on the operation of the Code of Conduct across the Group, and
approved an enhanced Code of Conduct Framework.
The importance of a strong control environment, and the assessment by the Committee of the effectiveness
of these controls, is central to ensuring that the interests of shareholders and other stakeholders are
appropriately protected. In light of the significant changes to work practices in 2020, the operation of these
controls was of utmost importance and required a degree of dynamism and flexibility throughout the year.
To that end, the Committee considered reports and presentations from Management on matters relating
to the effectiveness of the control environment, including the key internal controls in respect of fraud
prevention and detection.
The Committee received reports from the Chief Financial Officer, aligned to the half-yearly and year-end
reporting timelines, regarding the operation and effectiveness of the system of controls over financial
reporting. The Committee also reviewed and approved the Directors’ statements concerning internal
controls to be included in this annual report.
Throughout the year, the Committee also maintained focus on continued enhancements to the three lines
of defence model. The Committee monitored progress against a number of “Key Control Enhancement
Themes”, each of which is owned by an accountable Executive Committee member.
The Committee was satisfied with the assessments of the control environment and specifically the impact
of the COVID-19 pandemic on the efficacy of control effectiveness.
Speak Up
and Code of
Conduct
Internal
Controls
Subsidiary
Oversight
The Committee received an annual report from the audit committees of each of AIB Group (UK) p.l.c.,
EBS d.a.c. and AIB Mortgage Bank u.c., and also regularly reviewed the minutes of the audit committees
to ensure effective oversight and awareness of any issues or emerging challenges. Furthermore,
the Committee Chair worked closely with the audit committee Chairs throughout the year on matters
of relevance, including Expected Credit Losses, Third Party Management oversight and escalation
mechanisms, as well as the work of the Group Internal Audit function.
AIB Group plc Annual Financial Report 2020Governance and Oversight AIB Group plc Annual Financial Report 2020
Governance and Oversight
193
Governance and oversight –
Report of the Board Risk Committee
The COVID-19 pandemic had a significant
The COVID-19 pandemic had a significant
impact on credit quality. The Group’s capital
strength allowed us to react and provide
compliant, timely and customer focused
solutions to those seeking support.
Brendan McDonagh,
Committee Chair
1
2
3
4
5
6
Chair’s Overview
On behalf of the Board Risk Committee (‘the Committee’), I am
Looking forward, the Committee’s focus in 2021 will continue to
be on ensuring appropriate oversight of the Group’s risk appetite,
pleased to report on the Committee’s activities during the financial
risk management structure, frameworks and policies, as well
year ended 31 December 2020. The purpose of this report
as challenging whether the management controls in place are
is to provide an insight into the workings of, and key matters
adequately robust to ensure the Group achieves its overall
considered by, the Committee during the course of 2020.
purpose and strategic goals in an appropriately risk controlled
manner. The Committee will also continue to exercise oversight
The Committee continued to discharge its roles and
of compliance by the Group with its regulatory obligations.
responsibilities throughout the year, with detailed consideration
As COVID-19 persists into 2021, the Committee will continue to
given to a wide range of existing and emerging risks facing the
focus on the associated risks, their management and mitigation
Group, not least of all, the emergence of the COVID-19 pandemic
by the Group, particularly as they relate to Credit Risk, Business
and the continued uncertainty posed by the UK withdrawal from
Model Risk, People and Culture Risk and the operational
the European Union along with the impact of these events on the
challenges arising as a consequence, as well as the Group’s
Group’s risk profile. A summary of the key areas of focus for the
capacity to deliver the strategic change agenda.
Committee throughout 2020 has been set out for your information
below.
Committee Membership
The Committee currently consists of five Non-Executive Directors,
all considered by the Board to be independent. The biographies of
the Committee members are set out on pages 54 and 55.
I would like to take this opportunity to thank my fellow Committee
members and Executive colleagues for their steadfast
commitment in what has been another busy year for the
Committee.
To ensure co-ordination between the work of the Committee and
that of the Board Audit Committee, Ms Sandy Kinney Pritchard,
Mr Basil Geoghegan and I sit on both the Board Audit and
Brendan McDonagh
Board Risk Committees. To ensure the Group’s remuneration
Committee Chair
policies and practices are consistent with and promote sound
and effective risk management, I also sit on the Remuneration
Committee. Details of each Committee’s membership and
records of attendance at meetings are outlined on page 182.
The Committee held a number of joint meetings with the Board
Audit Committee and the Remuneration Committee throughout
the year.
The Chief Risk Officer, Chief Financial Officer, Group Head of
Internal Audit, the lead External Audit partner and the Chair of
AIB Group (UK) p.l.c. are invited to attend all meetings of the
Committee.
194
Governance and oversight –
Report of the Board Risk Committee
Key Areas of Focus
COVID-19 –
Credit Risk
The emergence of the COVID-19 pandemic in 2020 and the related risks and impacts on the Group,
including its customers and employees, was an area of primary concern for the Committee. Consideration
of the impact of COVID-19 on the credit risk profile was a key focus throughout 2020. Detailed portfolio
reviews from first and second line Management enabled the Committee to continue to assess the overall
quality of the credit portfolio, as well as allowing the Committee to focus on those sectors most severely
impacted by COVID-19. The Committee assessed credit risk performance and trends, including the
performance of significant credit transactions on a regular basis. The material impact of the effects of the
pandemic on the asset quality profile were continually evaluated and resulted in a significant increase
to the Group’s Expected Credit Loss (“ECL”) levels, which the Committee worked closely with the Board
Audit Committee on throughout the year. The overlap in membership of both Committees further facilitated
collaboration on this matter.
Coupled with taking a forward looking view on the risks associated with the credit profile, the Committee
recognised the importance of strong customer engagement and active credit risk management, with a view
to delivering the most appropriate customer outcomes in a suitably compliant manner. Acknowledging that
the maintenance of an appropriate policy infrastructure and internal governance framework are of critical
importance for the Group, throughout 2020 the Committee reviewed and recommended to the Board
for approval appropriate amendments to a number of credit risk policies and frameworks to support the
Group’s delivery of payment break solutions for customers impacted by COVID-19. Following this, the
Committee also gave consideration to the output of assurance reviews undertaken on the provision of such
solutions to customers.
COVID-19 –
People and
Culture Risk
and Operational
Risk
Throughout 2020, the Committee continued to focus on the people and culture risk and operational risk
profiles, recognising the challenges presented for employees in delivering the additional business demands
and change in working environments and practices which arose as a result of COVID-19. This included the
delivery of payment break solutions, alongside the strategic change agenda, and the delivery of regulatory
change programmes. To this end, the Committee received regular reports regarding the status of people
risk and the associated drivers across the Group, as well as the heightened operational risk profile and the
mitigants in place to address concerns which Management reported throughout the year. The Committee
reviewed the ongoing operational risk profile, including significant operational risk events and potential risks
through the Chief Risk Officer Report.
Risk Appetite,
Risk Profile and
Risk Strategy
Business
Model Risk
The Committee exercised oversight of the Group Risk Appetite Statement (“RAS”) throughout the year, and
made recommendations to the Board in that regard. This was delivered through the ongoing monitoring of
the risk profile against agreed Group RAS Metrics. In response to COVID-19, the annual review cycle of
the Group RAS was expedited, with a bi-annual review schedule introduced in order to appropriately reflect
the significant deterioration in the macroeconomic environment, whilst ensuring alignment to the Group’s
strategic objectives. The Committee reviewed regular reports from the Chief Risk Officer which provided an
overview of the status of the Group’s key material risks, as well as emerging risk drivers. The Committee
also considered and recommended the assessment of the material risks facing the Group to the Board for
approval. In addition, the Committee gave consideration to the area of climate risk and sustainability in the
context of the RAS and Material Risk Assessment, with climate risk considered an emerging risk driver, in
terms of transition and physical risks which will have multiple impacts across the Group’s material risks.
While the Group’s business model is resilient over the longer term due to its strong capital position, digital
proposition and leading franchise in Ireland, the Committee also focused on business model risk throughout
2020, given the challenges presented by COVID-19. This was mainly driven by the macroeconomic
environment, the impact on ECLs as well as the lower interest rate environment which is likely to persist for
longer. These events impacted the Group’s overall financial position during 2020. The Committee received
regular Management updates on the business model risk profile and Management actions being taken
in this area. The Committee welcomed the improved trajectory by the end of the year with the delivery of
the 2021-2023 Financial Plan and Strategy to ensure the Group meets its medium term financial targets.
Business model risk will be an area of continued focus in 2021.
AIB Group plc Annual Financial Report 2020Governance and Oversight 195
Conduct Risk
The area of conduct risk, including the impact of COVID-19 on the conduct risk environment, has been an
area of attention for the Committee over the year. As part of the design of policy changes required to deliver
COVID-19 product modifications and solutions, due consideration was given to the impact of same on the
Group’s customers. The Committee also considered the status of customer restitutions and continued to
monitor the status of risk appetite limits, as well as customer complaint metrics.
Brexit
Due to the continuing uncertainty surrounding future trading agreements with the United Kingdom and
the implementation of same, the Committee received regular updates on the Group’s preparations for
Capital, Funding
and Liquidity
Regulatory
Compliance
Risk
Management
Brexit focusing on the proposed Product and Customer Solutions, Customer Engagement and Operational
Contingency Planning. Given the uncertainty that existed throughout 2020 on the status of any future
trading relationship, the Group developed a number of potential solutions and prepared for Brexit on a
conservative basis. The Committee will continue to monitor the impact of Brexit on the Group’s risk profile
through business as usual reporting mechanisms.
Throughout 2020, the Committee assessed reports from Management, including quarterly internal stress
tests, in order to ensure that the Group had appropriate buffers in place above the Group’s own minimum
capital and liquidity targets, as well as above regulatory requirements. To this end, the Committee reviewed
and recommended as appropriate capital, funding and liquidity planning documentation, with particular
reference to the contingent capital and the related Group-wide stress test scenarios. Following an in-depth
review in conjunction with the Board Audit Committee, the Committee recommended macroeconomic
scenarios including prolonged impacts of COVID-19 and a Brexit with and without any trade deal for use
within the ICAAP and IFRS 9 models to the Board for approval. The Committee is satisfied that the capital
and liquidity adequacy of the Group has been well demonstrated in a range of possible scenarios.
Legal and regulatory compliance risk management continued to be a focus for the Committee in 2020.
In addition to regular reporting from the Chief Risk Officer in relation to the regulatory compliance risk
profile, the Committee received independent reports from the Money Laundering Reporting Officer
regarding the status of the Anti-Money Laundering/Counter Terrorist Financing control environment, with
significant attention given to the delivery of management actions in order to ensure that the Group keeps
pace with the evolving threat landscape and the varied regulatory requirements within each jurisdiction in
which it operates. Other areas of oversight focus included the status of the Payment Services Directive 2
(“PSD2”) Strong Customer Authentication eCommerce programme and the embedding of the principles of
BCBS 239, the Basel Committee on Banking Supervision’s standard on data aggregation capabilities, risk
management and risk reporting.
Regulatory
Engagement
Throughout the year, the Committee reviewed quarterly reports regarding the status of Risk Mitigation
Programme action plans, as well as the upstream regulatory horizon. The Committee also considered and
recommended, as appropriate, Management action plans put in place to address findings identified as part
of regulatory inspections. Consideration was also given to any relevant regulatory correspondence which
required the Committee’s attention.
Model Risk
During 2020, COVID-19 presented challenges to the performance of the Group’s risk models.
The Committee continued to receive regular reports from the Group Model Risk function and Independent
Validation Team to review the quality of model performance. In addition, the Group continued to progress
the redevelopment of its IRB models and the Committee received regular reports regarding the status of
modelling capabilities across the Group, as well as progress against set deliverables, with focus on the
impact of COVID-19 on model delivery.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 196
Governance and Oversight
AIB Group plc Annual Financial Report 2020
Governance and oversight –
Report of the Nomination and
Corporate Governance Committee
Looking ahead, the Committee’s key priorities
Looking ahead, the Committee’s key priorities
for 2021 will include concluding the Chair search
and onboarding new Directors.
Elaine MacLean,
Committee Chair
Chair’s Overview
Following my appointment during the year as Chair of the
Committee Membership
The Committee currently consists of three Non-Executive
Nomination and Corporate Governance Committee (the
Directors considered by the Board to be independent. Ms Helen
“Committee”), I am pleased to present the report of the
Normoyle joined myself and Mr Brendan McDonagh on the
Committee for the year ended 31 December 2020. This report
Committee on 22 May 2020. The biographies of the Committee
outlines the main areas of focus of the Committee in the past year
members and a record of attendance at meetings are set out on
and areas of priority going forward.
pages 54, 55 and 182 respectively.
2020 was an extremely busy year for the Committee as we
Mr Richard Pym stepped down from the Committee on
continued to progress the Board Succession Plan at pace
6 March 2020 and Mr Tom Foley on 29 April 2020.
through a number of Director searches. The importance of this
work was brought into focus in recent years due to a number of
The Chief Executive Officer and Chief People Officer normally
Non-Executive Directors nearing the end of their respective terms
attend Committee meetings except where the business of the
concurrently. Therefore, the Committee’s approach in 2020 was to
meeting relates to their own successors. The Committee also met
ensure the risk of that situation reoccurring was mitigated through
at regular intervals with no Management present.
the enhancement of our Board Succession Plan to include
staggered Board turnover going forward. We look forward to
Looking ahead, the Committee’s key priorities for the year will
announcing the outcome of the ongoing searches in due course,
include concluding the Chair search and onboarding a number
as appropriate.
of new directors. I would like to thank my fellow Committee
members for their commitment through a busy and unusual year.
Notably for the Committee, the past year saw substantial change
to the Committee with the retirements of Mr Richard Pym and
Mr Tom Foley and I would like to thank them for their great
contribution to the Committee’s work over the years.
A summary of the key areas of focus for the Committee
throughout 2020 is set out below.
Elaine MacLean
Committee Chair
Key Areas of Focus
Board
Succession
197
During 2020, the Committee recommended that a number of additional Non-Executive Directors and an
Executive Director be appointed to the Board subject to the successful conclusion of the ongoing regulatory
fitness and probity processes. In light of the anticipated duration for identifying and appointing preferred
candidates, the Committee took a proactive approach to identifying roles which were scheduled to be
progressed under the Board Succession Plan in the near term. The Committee believes this approach will
ensure strong continuity of leadership and a robust succession plan for the Board in the future.
Each selected candidate was chosen with due regard to the Policy for Assessment of Suitability of
members of the Board, the Board Diversity Policy, their skills and competencies and the collective suitability
of the Board as a whole, as well as the outcome of the due diligence processes in place to support
the assessment of fitness and probity. As a result of this work, Mr Fergal O’Dwyer was appointed as a
Non-Executive Director on 22 January 2021. Further updates on the remaining appointees will be provided
upon the conclusion of the respective regulatory processes as appropriate.
The Committee used the services of a number of external search agents during the year to support Director
searches, namely Korn Ferry, MERC Partners Spencer Stuart and Egon Zehnder. The search firms
have no other connection to the Group other than, from time to time, assisting with executive searches,
providing leadership development and assessment services and leadership advisory services and in the
case of Egon Zehnder, the Chair succession process as outlined below. The search firms have no other
connection to individual directors other than, from time to time, assisting external entities, of which the
individual directors may be a Director, in candidate searches or considering individual Directors as potential
candidates for external roles.
The Committee reviewed and refreshed the Board Skills Matrix, considering the current skill and
experience of the Board and taking a forward look at the future skillset of the Board should all ongoing
regulatory fitness and probity processes be successful. The Committee is satisfied that the planned
composition of the Board will be strongly positioned to support and lead the Group into the future.
Chair Search
Mr Richard Pym retired as Chair on 6 March 2020. While a process to identify his replacement commenced
prior to his resignation, it has taken longer than anticipated and the process is ongoing. The search is
being led by our Senior Independent Director, Ms Carolan Lennon and Egon Zehnder are engaged as the
external search agents for this process. We are confident that a successor will be identified in the near term
and further details will be announced as soon as available.
Executive
Succession
Planning
Executive succession planning continued to be a key focus in 2020 with the Committee considering the
Executive succession plan on an ongoing basis. Such reviews included succession plans for the Executive
Committee and a number of other senior roles across the Group. The Committee was satisfied with the work
undertaken by Management to strengthen the Executive Committee succession plan.
The Committee highlighted the importance of a diverse pipeline to drive success into the future and was
encouraged by the level of diversity on the Executive Committee, and within their succession pipelines.
In line with reporting requirements under the UK Code, at 31 December 2020, the gender balance of senior
management, which for this purpose is considered to be the Executive Committee, was 56% female and 44%
male and their direct reports was 43% female and 57% male.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 198
Governance and oversight – Report of the Nomination and
Corporate Governance Committee
Executive
Appointments
Upon the resignation of Tomás O’Midheach, the Chief Operating Officer and Executive Director in November
2020, the Committee identified the most appropriate candidate for appointment as an Executive Director to
the Board. The preferred candidate has been identified from within the current Executive Committee and will
be announced as soon as the related fitness and probity regulatory process concludes.
Additionally, the Committee considered the proposed job specifications and the preferred candidates for the
roles of the Head of Compliance, Chief Operating Officer and Chief Technology Officer.
Directors Roles
and Committee
Composition
During the year, the Committee considered and made recommendations on a number of additional roles
for Non-Executive Directors including the appointment of the Senior Independent Director, my appointment
as Chair of the Nomination and Corporate Governance Committee and the composition of the Board and
Advisory Committees generally.
With particular reference to the role of Senior Independent Director which became vacant following the
retirement of Mr Tom Foley in April 2020, the Committee considered the most appropriate successor from
the current Board composition and agreed that Ms Carolan Lennon had the suitable skills and experience
for the role.
The current Committee memberships and any additional roles held by Directors are set out on pages 54
and 55.
Corporate
Governance
The Committee undertook its annual schedule of work including a review of the independence and time
commitment of the Board members and oversight of developments in best practice in relation to corporate
governance generally.
The Committee reviewed the Board Diversity Policy and we are pleased to report our continued progress
against our set targets.
The Committee also provided oversight of the 2020 externally facilitated Board effectiveness evaluation.
Further details on these items, along with the Board’s performance against its diversity targets,
are contained in the Corporate Governance Report on pages 178 to 187.
AIB Group plc Annual Financial Report 2020Governance and Oversight AIB Group plc Annual Financial Report 2020
Governance and Oversight
199
Governance and oversight –
Report of the Remuneration Committee
The Committee continues to ensure our
The Committee continues to ensure our
remuneration policy aligns with regulation and
best practice guidance.
Elaine MacLean,
Committee Chair
1
2
3
4
5
6
Chair’s Overview
I am pleased to present the report of the Remuneration
We are supported in our work by our Group Reward colleagues
and PricewaterhouseCoopers as our external remuneration
Committee (the “Committee”) for the year ended 31 December
consultants. Aside from their work supporting the Committee,
2020. This report outlines the Group’s current remuneration
PricewaterhouseCoopers provide a range of consultancy services
structure and the Committee’s areas of priority for the year ahead.
to the Group and may, from time to time, provide services to
An overview of our key areas of focus for 2020 is also provided
individual Directors as part of directorship or executive roles held
below.
outside of the Group.
The remuneration structure of the Group continues to be set
The Chief Executive Officer, the Chief People Officer, Head
against the backdrop of the remuneration restrictions contained
of Reward and other members of management are invited to
in certain agreements with the Irish State following the State’s
attend the meetings where the agenda item is relevant and at the
recapitalisation of the Group in 2010 and 2011 and we await the
request of the Committee. The Chief Risk Officer is a permanent
outcome of the Minister for Finance’s review on this matter. As a
attendee except where the item of business relates to her own
Committee, our desired remuneration policy continues to be the
remuneration or that of her peers.
implementation of a competitive, market-aligned, performance-
related remuneration model which is fully compliant with all
The Committee discharges its responsibilities whilst operating
relevant directives and guidelines and which aligns the interests
under the principle that no individual shall be involved in deciding
of management and employees with those of shareholders.
their own remuneration. Furthermore, no member of management
is permitted to attend where a matter for discussion relates to
Notwithstanding these limitations, the Committee continues
their own remuneration.
to ensure our remuneration policy aligns with regulation and
best practice guidance, and notably in 2020 the remuneration
In 2021, the Committee will continue to oversee and, where
related sections of Statutory Instrument 81 of the Companies
required, challenge proposals to ensure the most appropriate
Act 2014. There is further detail on the Remuneration Policy and
remuneration structures are in place and are in line with the
the Committee’s oversight of it in the Corporate Governance
restrictions under which we operate. In all of our deliberations,
Remuneration Statement which follows this report.
we aim to create a structure which operates in the best interests
of our employees, shareholders and other stakeholders.
Committee Membership
The Committee currently consists of three Independent
Non-Executive directors, namely myself, Mr Brendan McDonagh
and Ms Ann O’Brien. To aid co-ordination between the work of the
Committee and that of the Board Risk Committee, Mr Brendan
McDonagh is a member of both. The biographies of the
Committee members and a record of attendance at meetings are
Elaine MacLean
Committee Chair
outlined on pages 54, 55 and 182 respectively.
Mr Richard Pym stepped down from the Committee on his
retirement on 6 March 2020 and I would like to note my thanks for
his contribution over his years of service.
200
Governance and oversight –
Report of the Remuneration Committee
Key Areas of Focus
Compliance and
Annual Matters
for Review
During the year, the Committee completed each of its required annual reviews to include the Remuneration
Policy, the process for identifying Material Risk Takers and a review of the limited variable commission
schemes in operation across the Group. Each review was accompanied by an overview from the Risk
function to aid the Committee in its oversight, review and challenge of the proposals. Further details on the
Remuneration Policy and identification of Material Risk Takers is available in the Corporate Governance
Remuneration Statement which follows this report.
Equal Pay and
Gender Pay
The Committee received updates on reviews undertaken with regard to Equal Pay and Gender Pay.
Following the reviews, the Committee was satisfied that the career structure in place in AIB provides a clear
framework within which remuneration is managed in line with consistent policies and processes that are not
influenced by gender. These topics will remain under review in line with the Group’s diversity and inclusion
agenda.
Industry
Updates
In light of the COVID-19 pandemic, the Committee requested an update from the external remuneration
consultants on the impact of the pandemic on remuneration structures in peer companies. The Committee
will continue to keep this matter under consideration and recommend any changes or enhancements where
appropriate.
Remuneration
of Individuals
The Committee approved remuneration proposals for a number of existing and incoming Executive
Committee members and Heads of Control Functions. The Committee members also approved the exit
arrangements for outgoing Executive Committee members.
Directors’ Remuneration
Details of the total remuneration of the Directors in office during 2020 and 2019 are shown in the Corporate Governance Remuneration
Statement on pages 205 and 206.
Dr Hunt is a Non-Executive Director of The Ireland Funds, Irish Chapter. Dr Hunt is also a Non-Executive Director and President for
2021/2022 of the Institute of Bankers in Ireland. Both are registered charities and Dr Hunt receives no remuneration from either role.
During his tenure as an Executive Director, Mr O’Midheach did not hold any external Non-Executive Directorships.
Throughout 2020, all Executive Directors were fully compliant with the limitations on external directorships as detailed in CRD IV.
AIB Group plc Annual Financial Report 2020Governance and Oversight 201
Governance and oversight –
Corporate Governance Remuneration statement
Remuneration Constraints
The Group has been required to comply with certain executive
The Committee further ensures that the Remuneration Policy
pay and compensation restrictions following the Group’s
and practices are subject to a review at least annually, taking into
re-capitalisation by the Irish Government in 2010 and 2011.
account the alignment of remuneration to the Group’s culture
The application of market-aligned remuneration policies
for all employees and executive directors. The annual review is
and practices are significantly constrained by the terms of
informed by appropriate input from the Group’s Risk and Internal
Subscription and Placing Agreements entered into between AIB
Audit functions to ensure that remuneration policies and practices
and the Irish Government. In particular, AIB is precluded from
are operating as intended, are consistently applied across the
introducing any new bonus or incentive schemes, allowances
Group and are compliant with regulatory requirements.
or other fringe benefits without prior agreement with the State.
Consequently, the absence of performance-based variable pay,
Taking into account the constraints on variable remuneration in
combined with the requirement to operate within an overall cap
place, the Group has historically and continues to comply with the
on individual salaries and allowances of € 500,000, precludes
UK Corporate Governance Code where such matters are within
AIB from aligning the remuneration of key executives and other
the Group’s control, and uses the Code to inform the Group’s
key employees with the achievement of longer term customer,
decision making and disclosures. The Group acknowledges the
implementation of the Shareholder Rights Directive II (“SRD II”)
in Ireland, and has complied with same to the extent applicable.
The constraints on variable remuneration mean that some of the
requirements of both the Code and of SRD II are not applicable to
the Group at this time. This is something the Group will continue
to keep under review.
The Remuneration Policy and the Committee’s Terms of
Reference have been 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 – Remuneration arrangements are clearly outlined and
the Policy is publicly available;
• Simplicity – The Group is committed to a simple reward
structure as outlined in the Policy;
• Risk – 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 a full risk assessment and
discretionary flexibility to accommodate this requirement;
• Predictability – if variable schemes were introduced in the
future, specific details, including worked examples, of future
Director’s remuneration would be included in any new
proposed remuneration policy;
• Proportionality – The Group’s existing remuneration structure
does not provide for the awarding of material individual
awards; and
• Alignment to culture – The Group does not currently operate
any incentive schemes other than a small number of limited
commission schemes.
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 the 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 its customers.
The Group’s remuneration philosophy aims to ensure that
remuneration is aligned with performance and that employees
are rewarded fairly and competitively 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 includes all financial
benefits available to all employees and directors of the Group
and extends to all areas, including all individual subsidiaries,
entities, branches and to all employees of the Group, including at
consolidated and sub-consolidated levels.
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.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456
202
Governance and oversight –
Corporate Governance Remuneration statement
In relation to provision 41 of the Code:
• Executive director remuneration is governed by the policy and
determined by the Committee;
Material Risk Takers
The Group is required to maintain a list of employees whose
professional activities have a material impact on the Group’s
• Career levels have been introduced with market related
risk profile. The list of Material Risk Takers is prepared using a
pay ranges for each level. All employees are mapped to a
combination of qualitative and quantitative criteria in accordance
career level and associated pay range based on their level of
with the relevant EU regulations and guidelines together with
accountability;
additional criteria specific to the Group’s structure, business
• The Report of the Remuneration Committee describes the
activities and risk profile. The list is prepared at Group, parent
operation of the policy;
and subsidiary levels for the Republic of Ireland and the
• As the same remuneration restrictions remained in place and
United Kingdom.
there were no material changes to remuneration policy during
2020, shareholder engagement was not required in this area;
Group Risk provide an assessment of the risks impacting the
• The Corporate Governance report references engagement
Group and performance against the Group’s Risk Appetite
with the workforce; and
Statement to ensure that the Remuneration Policy is aligned
•
In the absence of variable remuneration, discretion is not a
with the Group’s risk profile. The Chief Risk Officer reviews the
material factor.
list of Material Risk Takers in conjunction with Group Reward
and provides the Committee with an annual assessment of the
It should be noted that some of the provisions of the Code
risks facing the Group to ensure that policies and practices are
(including provisions 36 and 37) are not currently applicable
consistent with and promote sound and effective risk management.
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 2020. There were no employees
whose total remuneration exceeded € 1 million during 2020.
The Group published its gender pay gap report for 2019 in 2020
in relation to its UK based employees. The disclosures are
available on the AIB (GB) website, www.aibgb.co.uk.
Reward Structure and Operation in 2020
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.
During 2020, remuneration across the Group continued to be
principally comprised of fixed pay elements encompassing
base salary, allowances and employer pension contributions.
Base salary is the principal component of fixed remuneration
and is designed to be fair and competitive and set according
to appropriate salary ranges which reflect the size and level of
responsibilities attaching to each role. Allowances mainly consist
of non-pensionable cash allowances which are payable to eligible
senior employees which recognise equivalent benefits and
allowances available in the 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 2020 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.
For 2020 and in light of COVID-19, a decision was taken to
award flat pay increases to our non-manager employees (Levels
1-3) and a smaller flat increase to managers (Level 4). Senior
managers and above received no increase in 2020, irrespective
of their performance. These increases represented a one year
agreement with employee representatives arising from the
recommendations of the Workplace Relations Commission
(WRC). The next annual pay review is due to take place in
April 2021. Recognition awards were awarded to all employees
during 2020 (which they could choose to redeem for Appreciate
programme points, or have a donation made to charity).
There were two awards (€ 250 and € 125) with all employees
receiving at least one award.
AIB Group plc Annual Financial Report 2020Governance and Oversight 203
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.
The Group operates three local business commission schemes.
These schemes are designed to protect the rights and interests
of customers via 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.
Remuneration of Executive Directors and ExCo
The remuneration of Executive Directors and members of the
ExCo is determined on appointment by reference to external
benchmarks to provide an appropriate level of competitive
remuneration commensurate with the size and functional
responsibilities attaching to their roles. Remuneration is approved
by the Board following review and recommendation by the Group
Remuneration Committee. Executive Directors will not participate
in the decision making process around their own remuneration.
In line with current remuneration restrictions on the introduction
of variable pay and a cap on individual salaries and allowances
of € 500,000, which were established in 2010, 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 Chief Executive Officer and the Chief Operating Officer were
Executive Directors of the Group during 2020. In line with the cap
on salaries and allowances imposed by existing remuneration
restrictions, the Chief Executive Officer was paid 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 (also Deputy Chief Executive Officer)
received a base salary of € 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 2020.
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 2020Governance and Oversight 123456 204
Governance and oversight –
Corporate Governance Remuneration statement
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 set according to
appropriate salary ranges which reflect
the size, skills and level of responsibilities
attaching 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 ExCo are reviewed
annually by the Remuneration Committee
on behalf of the Board.
Increases in base salary are typically
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 on page 205.
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).
Pension
To enable employees
plan for an appropriate
standard of living in
retirement.
Employees are entitled to participate in
one of the Group’s defined contribution
schemes with a monthly contribution
based on a percentage of base salary.
Executive Directors and ExCo members
are also entitled to participate in one of
the Group’s defined contribution schemes.
In the UK, employees may elect to receive
cash in lieu of their pension contribution.
Allowances of up to € 30,000 per annum
(£ 14,000 in the UK) are payable to Executive
Directors and ExCo members.
A standard contribution of 10% of base
salary is made plus an additional matching
contribution of up to 8%, which can be
availed of depending on the age of the
employee.
Executive Directors and ExCo members are
entitled to an employer pension contribution
of 20% of base salary.
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.
A functional car policy is in place based
on role requirements. The Group does
not provide company cars outside of the
functional car policy.
Executive Directors and ExCo members may
occasionally avail of a pool car and driver.
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 2020Governance and Oversight 205
2020
Total
Directors’ remuneration*
The following tables detail the total remuneration of the Directors in office during 2020 and 2019:
Remuneration
Executive Directors
Colin Hunt
Non-Executive Directors
Basil Geoghegan
Sandy Kinney Pritchard
Carolan Lennon
Elaine McLean
Brendan McDonagh(1(a))
(Deputy Chair)
Helen Normoyle
Ann O'Brien
Raj Singh
Former Directors
Richard Pym(1(a))
Tom Foley
Tomás O'Midheach
Anne Maher(5)
Total
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)
€ 000
€ 000
€ 000
€ 000
500
500
–
–
100
100
56
485
15
97
85
95
100
81
220
78
84
80
823
68
56
600
600
85
95
100
81
220
78
84
80
823
68
112
597
41
2,241
(1)Fees paid to Non-Executive Directors in 2020 were as follows:
(a) Mr Richard Pym, Chair, was paid a non-pensionable flat fee of € 365,000 per annum in respect of his role as Chair pro rata to the date of his retirement.
The Board resolved to pay additional remuneration of € 100,000 per annum to Mr Brendan McDonagh, Deputy Chair, reflecting the substantial additional
work undertaken by him in the absence of the Chair of the Board until such time as a Chair is appointed and takes up the role;
(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 or, Senior Independent 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 Tom Foley earned fees as quoted during 2020;
(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; and
(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.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 206
Governance and oversight –
Corporate Governance Remuneration statement
Directors’ remuneration* (continued)
Directors’ fees
Parent and
Irish subsidiary
companies
€ 000
Directors’
fees
AIB Group
(UK) p.l.c.
€ 000
Salary
Annual
taxable
benefits
Pension
contribution
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
2,602
Remuneration
Executive Directors
Colin Hunt
Tomás O’Midheach
Non-Executive Directors
Tom Foley
Basil Geoghegan
Sandy Kinney Pritchard
Carolan Lennon
Elaine MacLean
Brendan McDonagh
(Deputy Chair)
Helen Normoyle
Ann O’Brien
Richard Pym
(Chair)
Raj Singh
Former Directors
Simon Ball
Mark Bourke
Bernard Byrne
Peter Hagan
Anne Maher(5)
Jim O’Hara
Catherine Woods
Other
Total
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2020Governance and Oversight 207
Directors’ remuneration* (continued)
Interests in shares
The beneficial interests of the Directors and the Group Company
Secretary in office at 31 December 2020, and of their spouses
and minor children, in the Company’s ordinary shares are as
follows:
Share options
No share options were granted or exercised during 2020,
and there were no options to subscribe for ordinary shares
outstanding in favour of the Executive Directors or Group
Company Secretary at 31 December 2020.
Ordinary shares
Directors:
Basil Geoghegan
Colin Hunt
Sandy Kinney Pritchard
Carolan Lennon
Elaine MacLean
Brendan McDonagh
Helen Normoyle
Ann O'Brien
Raj Singh
31 December
2020
1 January
2020
Performance shares
There were no conditional grants of awards of ordinary shares
outstanding to Executive Directors or the Group Company
Secretary at 31 December 2020.
9,835
22,500
10,000
7,700
–
20,000
2,000
–
–
–
12,500
–
7,700
Apart from the interests set out above, the Directors and Group
Company Secretary in office at 31 December 2020 and their
spouses and minor children, have no other interests in the shares
–
of the Company.
10,000
2,000
–
–
There were no changes in the interests of the Directors
and the Group Company Secretary shown above between
31 December 2020 and 4 March 2021.
Group Company Secretary:
Conor Gouldson**
**On date of appointment or later
15,210
15,210
The year end closing price of the Company’s ordinary shares
on the Main Market of the Euronext Dublin Stock Exchange was
€ 1.681 per share.
There is no requirement for Directors, or the Group Company
Secretary, to hold shares in the Company.
The following table sets out the beneficial interests of the
Directors and Executive Committee members of AIB as a group
(including their spouses and minor children) at 31 December
2020:
Title
of class
Ordinary
shares
Identity of person
or group
Directors and Executive
Committee members of
AIB as a group
Number
owned
Percent
of class
82,097
0.0%***
*** The total ordinary shares in issue at 31 December 2020, was
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 the 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
2,714,381,237.
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 2020Governance and Oversight 123456 208
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 2023.
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 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; and
• 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 and capital position. The Group’s regulatory capital has
increased on a transitional and fully loaded basis by € 541 million
and € 287 million respectively from year end 2019, as issuance of
new AT1 and Tier 2 capital instruments have more than offset the
loss recorded for the year. The Group’s transitional total capital
ratio of 23.9% is comfortably above regulatory requirements
as set out on pages 75 and 77. The Group’s LCR of 193% and
NSFR of 148% demonstrate a very strong liquidity position as
described on pages 147 to 149.
In December 2020, the Group announced a refreshed strategy
with a continued focus on simplifying, streamlining and
strengthening the business, covering the period of assessment
which is described on pages 22 to 35. The updated strategy
was shaped by the challenges and emerging trends driven by
recent global developments. The global pandemic provided the
requirement and opportunity to revisit the three year strategy
and the Group took a twin track approach throughout the year,
navigating the COVID-19 pandemic, while also updating our
strategic plan as the long-lasting impact of the pandemic became
apparent. This resulted in the acceleration of our business
transformation to better meet our customers’ needs with a
renewed focus on cost in a changed environment. The Board
participated fully in the strategic process by means of regular
updates during the year and an extended Board meeting in
November 2020. As part of the development of the Group’s
Strategy, the Directors considered 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.
Assessment of risks
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.
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.
• The provision of independent and objective assurance of the
adequacy of the design and operational effectiveness of the
risk and control environment by Group Internal Audit to the
Board Audit Committee.
A full description of the principal risks facing the Group is provided
in the Risk management section – Individual risk types pages 87
to 170.
As part of the internal capital adequacy assessment process,
material 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 page 156. 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.
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 segment, 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 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.
AIB Group plc Annual Financial Report 2020Governance and Oversight Governance and oversight –
Viability statement / Internal controls
209
The plan uses the Group’s base case forecast which includes the
impacts of Brexit and COVID-19 but also includes consideration
of downside scenarios. In 2020, the Group considered two
downside scenarios; (i) a further wave of the virus hits in 2021
holding back growth in economic activity until 2022 and (ii) a
severe but plausible scenario which is used for internal stress
testing of the Group’s capital position. The Group’s severe
scenario considers not only the impacts of significantly extended
COVID-19 restrictions, but also wider economic and financial
markets distress. In addition, the Group performs regular stress
testing of its liquidity position, and during 2020 conducted specific
liquidity stress tests in response to changing COVID-19 and Brexit
conditions.
After assessing the Group’s prospects, risks, and reviewing the
financial plan as well as the results of stress testing scenarios, the
Group continues to:
• Demonstrate internal capital generation through a return to
profitability in each of the forecast years
• Remain in excess of its regulatory capital requirements; and
• 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.
Internal controls
Directors’ Statement on Risk management and
Internal controls
The Board of Directors is responsible for the Group’s system of
internal control, which is designed to manage the risk of failure
to achieve business objectives, and can provide only reasonable
and not absolute assurance against material misstatement
or loss. The Group has implemented a framework and policy
architecture covering business and financial planning, corporate
governance and risk management. The system of internal
controls is designed to ensure that there is thorough and regular
evaluation of the Group’s risks in order to react accordingly,
rather than to eliminate risk. This is done through a process
of identification, measurement, monitoring and reporting.
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 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, Sustainability
Business Advisory Committee (“SBAC”), Technology and
Data Advisory Committee (”TDAC”), and Nomination and
Corporate Governance Committee.
– The BRC is appointed by the Board to assist the Board in
fulfilling its oversight responsibilities. It is responsible for
fostering sound risk governance across all of the Group’s
entities and operations (including all operations, legal entities
and branches in ROI, the UK and USA) taking a forward
looking perspective and anticipating changes in business
conditions. The Committee discharges 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. It ensures that the
Group’s overall actual and future risk appetite strategy, taking
into account all types of risks, are aligned with the business
strategy, objectives, corporate culture and values of the
institution while promoting a risk awareness culture within the
Group.
– The BAC is appointed by the Board to assist it in fulfilling its
oversight responsibilities in relation to the quality and integrity
of the Group’s accounting policies, financial and narrative
reports, and disclosure practices. The Committee also
ensures the effectiveness of the Group’s internal control, risk
management, and accounting and financial reporting systems
and the adequacy of arrangements by which staff may, in
confidence, raise concerns about possible improprieties in
matters of financial reporting or other matters. It also ensures
the independence and performance of the internal and
external auditors.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 210
Governance and oversight –
Internal controls
– The Chief Financial Officer (“CFO”), the Chief Risk Officer
(“CRO”) and the Group Internal Auditor are invited to attend
all meetings of the BAC and BRC.
– The Remuneration Committee is responsible for 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.
– The SBAC was established by the Board and Senior
Executive Management to act as an Advisory Committee,
supporting the execution of the Group’s sustainable business
strategy in accordance with the approved Group Strategic
and Financial Plan. The Strategy includes the development
and safe guarding of the Group’s ‘social licence to operate’
through the demonstration of the Group’s Purpose, such that
the Group is actively seen as supporting Ireland’s economic
and social progress as an integral part of the Group’s
business and operations. In particular, the SBAC considers
and advises on customers and conduct, communities/local
markets, employees, environment, reputation and trust and
external reporting.
– The TDAC recognises the substantial investment into
Technology and Data as agreed under the Annual Investment
Plan, coupled with major decision points in the near term,
many of which have long term ramifications for the Group.
The Committee was appointed by the Board to assist in
fulfilling its oversight responsibilities by reviewing and
challenging the strategy, governance and execution of
matters relating to technology and data.
– The Nomination and Corporate Governance Committee’s
responsibilities include, amongst others, supporting and
advising 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 the
recommendations in this regard to the Board for its approval.
It also supports and advises 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.
Executive risk management and controls
– The Executive Committee (“ExCo”) is the most senior
executive committee of the Group. Subject to financial and
risk limits set by the Board, and excluding those matters
which are reserved specifically for the Board, the ExCo
has primary authority and responsibility for the day-to-day
operations of, and the development of strategy for the Group.
The ExCo 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.
– The Group Risk Committee (“GRC”) was established by, and
is accountable to, the ExCo to set policy and monitor all risk
types across the Group and to enable delivery of the Group’s
risk strategy. It is the primary second line of defence risk
management committee of the Group.
It provides oversight and monitors strategic business
initiatives that have material implications for the Group to
ensure they align and are consistent with the Group’s risk
appetite and other risk policies as approved by the BRC.
– The Group Asset and Liability Committee (“ALCo”) is a
sub-committee of the ExCo and acts as the Group’s strategic
and business decision making forum for balance sheet
management matters. It sets policy and is responsible for
effective balance sheet management and alignment to Group
strategy for funding and liquidity risk, market risk and capital
adequacy risk.
– There is a centralised risk control function headed by
the CRO, who is responsible for ensuring that risks are
understood, managed, 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
interpretation and assessment of compliance risk, specifically,
laws, regulations, rules and codes of conduct applicable to its
banking activities.
– 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 80 to 86 of this report.
In the event that material failings or weaknesses in the systems of
risk management or internal control are identified, Management
is 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.
AIB Group plc Annual Financial Report 2020Governance and Oversight
211
Governance and oversight –
Other governance information
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:
Website
The Group’s website, contains, for the years since 2000,
the Annual Financial Report, the 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 half-yearly 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 are subsequently published on the
Group’s website. It is usual for all Directors to attend the AGM
and to be available to meet shareholders before and after the
meeting. The Chair’s of the Board Committees are available to
answer questions about the Committee’s activities. A help desk
facility is available to shareholders joining. The Company’s 2021
AGM is scheduled to be held on 6 May 2021. 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
the Financial Reporting Council’s Board Effectiveness guidelines.
Due to ongoing COVID-19 restrictions, the location of the meeting
and attendance options will be communicated with the distribution
of the aforementioned Notice.
AIB Group plc Annual Financial Report 2020Governance and Oversight 123456 212
Governance and oversight –
Supervision and Regulation
Throughout 2020, 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”) to focus on ensuring
compliance with existing regulatory requirements together with
the management of regulatory change.
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 2020 as the
regulatory landscape for the banking sector continued to evolve.
There was an increased focus on regulatory supervision of
consumer protection and prudential obligations due to the impacts
of COVID-19 on consumers and the economy.
The Regulatory focus on Conduct and Culture will continue in
2021 and beyond, with anticipated regulatory developments in the
form of the Senior Executive Accountability Regime, and review of
the Consumer Protection Code.
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 2020 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, to be replaced by the 5th AML Directive in 2021;
the PSD2 Regulatory Technical Standards; the Cross Border
Fees Regulations; the EBA Guidelines on Loan Origination and
Monitoring; Climate change/Sustainability; LIBOR transition; and
the Credit Reporting Act 2013 with regard to the Central Credit
Register.
Although 2021 will see a move to regulators and supervisors
assessing how recent key regulatory requirements have been
implemented, and that the Regulators’ expectations in respect
of COVID-19 have been met, the level of regulatory change is
expected to remain at high levels in 2021 and beyond.
United Kingdom
During 2020, 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 2021.
Regulatory change horizon – UK
On 31 December 2020, the UK left the Brexit transition phase
and is no longer subject to EU regulation. Practically speaking,
most of the EU regulation has been ‘onshored’ onto the UK
statute book, with a few exceptions, and therefore the regulatory
landscape remains much the same. In the future, however, we are
likely to see regulatory divergence and AIB remains well placed to
identify and implement any required changes.
2020 saw the implementation of the high cost of credit regulations
limit the cost of credit, particularly for more vulnerable personal
customers making use of unauthorised overdrafts. Secure
Customer Authentication was introduced for Online banking
channels in order to better protect customers from fraud.
This will continue in 2021 as Secure Customer Authentication
is implemented in relation to e-commerce using debit and credit
cards.
In 2020, we saw a number of regulatory interventions to enable
banks to assist customers through the COVID-19 pandemic.
These interventions included mortgage payment breaks, interest
free overdrafts, payment breaks for credit cards and government
supported loan schemes to support business customers.
AIB delivered all of these support mechanisms to our customers
and this continues into the early part of 2021.
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
AIB New York continues to prioritise compliance with its regulatory
obligations in the USA and will remain focused on this throughout
2021. AIB New York will continue to maintain the Transaction
Monitoring and Filtering Programme (DFS 504) and Cybersecurity
(DFS 500) Programme and annually certify Compliance with
these regulations to the NYSDFS.
The Regulatory focus on BSA/AML/OFAC, Climate Change,
LIBOR Transition, Cybersecurity and conduct continues in 2021
and beyond, with anticipated regulatory developments in AML
reform and Data privacy.
AIB New York will work closely with AIB Group on regulatory
changes, in particular the LIBOR transition and Sustainability and
the implementation of EU requirements taking into consideration
the NYSDFS and FRB guidance/regulations.
AIB Group plc Annual Financial Report 2020Governance and Oversight 213
Financial statements
1
2
Statement of Directors’ Responsibilities
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
Page
214
215
227
233
352
355
AIB Group plc Annual Financial Report 2020Financial Statements123456 214
Statement of Directors’ Responsibilities
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 Article 4 of the IAS Regulation 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 Authority.
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 54 and 55 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 and Article 4 of the IAS Regulation, give a
true and fair view of the state of the Group’s affairs as at 31 December 2020 and of its loss 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 2020;
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
Brendan McDonagh
Deputy Chair
Colin Hunt
Chief Executive Officer
4 March 2021
AIB Group plc Annual Financial Report 2020Financial Statements 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’)
215
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 2020 and of the
loss 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 Changes in Equity;
the Consolidated Statement of Cash Flow; and
the related notes 1 to 56, including a summary of significant accounting policies as set out in note 1.
The Company financial statements:
•
•
•
•
the Statement of Financial Position;
the Statement of Changes in Equity;
the Statement Cash Flow; 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 their preparation 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
Materiality
Scoping
The key audit matters that we identified in the current year were:
• Expected credit losses on loans and advances to customers;
• Recognition of deferred tax asset;
• Defined benefit obligations;
• Provisions for FSPO decision and tracker mortgage examination;
•
•
IT systems and controls; and
Impairment of investment in subsidiary (Company only key audit matter).
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
.
We determined materiality for:
–
–
the Group to be € 55 million which is 0.4% of Total Equity of the Group; and
the Company to be € 54 million which is 0.7% of Total Equity of the Company.
We focused the scope of our Group audit primarily on the audit work in AIB Group plc and four legal
entities, all of which are 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 216
Independent Auditor’s Report
Significant
changes in our
approach
Impact of COVID-19 on our audit approach
The COVID-19 pandemic has had an impact on all elements of local and international economies.
We have considered the impact of COVID-19 on the Group and Company’s business as part of our audit
risk assessment and planning. This assessment resulted in an increased audit scope on key audit areas
including: consideration of changes in internal controls (including IT systems) as a result of the remote
working environment; additional focus on the key judgements and estimates driving expected credit losses
on loans and advances to customers; the impact of the Group and Company’s revised profitability and
growth forecasts covering the period 2021 to 2023 which have been revised downwards compared to
previous years, on the accounting judgements and estimates associated with the recognition of deferred
tax assets and on the potential impairment of investment in subsidiary which was identified as a Company
only key audit matter.
Materiality
Given the significant economic shock caused by the COVID-19 pandemic on the Group and Company’s
financial performance, we have reviewed the benchmark utilised in determining materiality. While Profit
before Tax was considered a suitable benchmark in previous years, following the losses recognised in the
financial year, we determined materiality for the current year utilising a benchmark of Total Equity.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group and Company’s ability to continue to adopt the going concern basis of accounting
included consideration of the inherent risks to the Group’s and Company’s business model. We analysed how those risks might affect
the Group’s and Company’s financial resources or ability to continue operations twelve months from the date of approval of these annual
financial statements. The risks that we considered most likely to adversely affect the Group’s and Company’s available financial resources
over this period were:
•
availability of funding and liquidity in the event of a market wide stress scenario including the longer term impacts of COVID-19 and
post-Brexit EU/UK trade deal on the economy; and
impact on regulatory capital requirements in the event of an economic slowdown or recession.
•
As these were risks that could potentially cast significant doubt on the Group’s and the Company’s ability to continue as a going concern,
our evaluation of the Directors’ assessment included:
•
•
•
evaluating the design and determining the implementation of key controls over the preparation of financial plans and budgets;
assessing the Group and Company’s Capital and Liquidity forecasts including under stressed scenarios;
obtaining the updated financial planning exercise covering the period 2021 to 2023 undertaken by the Group in the second half of 2020.
Growth assumptions and profitability levels underpinning the plan have been revised downwards compared to previous years reflecting
the revised macroeconomic outlook;
assessing whether the level of forecasted profits in the updated financial plan were appropriate by challenging the growth, profitability
and economic assumptions within;
testing the accuracy of Management’s forecasting process by reviewing previous forecasts and comparing to actual results;
challenging the key assumptions used in the Directors assessment of the Group and the Company’s ability to continue as a going
concern; and
evaluating the adequacy of the relevant disclosures made in the financial statements.
•
•
•
•
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually
or collectively, may cast significant doubt on the Group and Company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code and the Irish Corporate Governance Annex,
we have nothing material to add or draw attention to in relation to the Directors’ statement in the financial statements about whether the
Directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of
this report.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of 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 2020Financial Statements
217
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.
The expected credit loss allowance on loans and advances to customers was € 2,510 million at
31 December 2020 (2019: € 1,238 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;
– Accounting interpretations and assumptions used to build the models that calculate the ECL;
– The determination of key assumptions, including collateral valuation and cash flow 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 of forward looking macroeconomic scenarios and their relative weightings
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 potential longer term impacts
of COVID-19 and post-Brexit EU/UK trade deal on the economy. This results in a wide range of
possible outcomes.
Please also refer to page 188 (Board Audit Committee Report), page 252 (Accounting Policy (s)
– Impairment of financial assets), Note 2 – Critical accounting judgements and estimates, Note 13 –
Net credit impairment charge and Note 23 – ECL allowance on financial assets.
How the scope of our
audit responded to the
key audit matter
We tested the operating effectiveness of 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.
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 the longer term impacts of COVID-19, as well as
assumptions made by Management around an ‘Extended high unemployment’ scenario.
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Independent Auditor’s Report
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 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.
Recognition of deferred tax assets
Key audit matter
description
Deferred tax assets of € 2,763 million (2019: € 2,771 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.
How the scope of our
audit responded to the
key audit matter
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
potential longer term impacts of COVID-19 and post-Brexit EU/UK trade deal on the economy. The Group
has reassessed profitability and growth forecasts for the period 2021 to 2023. Growth assumptions and
profitability levels underpinning the plan have been revised downwards compared to previous years and
results in an increase in the expected deferred tax utilisation period.
The key audit matter relates to the management judgement involved in recognition and measurement of
the deferred tax asset for unutilised tax losses.
Please refer to page 188 (Board Audit Committee Report), page 242 (Accounting Policy (k) – Income tax,
including deferred income tax), Note 2 – Critical accounting judgements and estimates and Note 29 –
Deferred taxation.
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 for unutilised tax losses are within a range we consider to be reasonable.
AIB Group plc Annual Financial Report 2020Financial Statements
219
Defined benefit obligations
Key audit matter
description
The key audit matter is that the recognition and measurement of defined benefit obligations of
€ 6,226 million (2019: € 5,904 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 188 (Board Audit Committee Report), page 241 (Accounting Policy (j) – Employee
benefits), and Note 2 – Critical accounting judgements and estimates and Note 30 – 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 determined the implementation of the relevant controls for determining the
actuarial assumptions and the approval of those assumptions by Management.
We 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.
Provisions for FSPO decision and tracker mortgage examination
Key audit matter
description
The calculation of provisions for the Financial Services and Pensions Ombudsman (“FSPO”) decision
and 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 36 – Provisions for liabilities and commitments, the Group has recorded a provision of
€ 80 million (2019: € 265 million) in regards to the FSPO Decision and, in regards to the tracker mortgage
examination, has recorded a provision of € 8 million (2019: € 13 million) for customer redress and
compensation and € 70 million (2019: € 70 million) for related enforcement fines expected to be imposed.
Please refer to page 188 (Board Audit Committee Report), page 257 (Accounting Policy (z) – Non-credit
risk provisions), Note 2 – Critical accounting judgements and estimates, Note 36 – Provisions for liabilities
and commitments, and Note 43 – Contingent liabilities and commitments.
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 FSPO and legal advice obtained. We assessed
Management’s interpretation of the impact of this decision. We reviewed the basis for recording and
retaining 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 Central Bank of
Ireland enforcement process.
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Independent Auditor’s Report
IT systems and controls
Key audit matter
description
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 and
the significant uncertainties that exist in respect of the provisions.
Based on the evidence obtained, we found that the assumptions used by Management in measurement of
the provisions for the FSPO decision and tracker mortgage examinations are within a range we consider to
be reasonable.
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.
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.
In addition, the COVID-19 pandemic has led to changes in the operation of certain key controls due to the
increased number of employees working remotely.
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. This included understanding and assessing whether the operation of key controls have
changed as a result of the increased number of employees working remotely.
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 relevant 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.
AIB Group plc Annual Financial Report 2020Financial Statements
221
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 2020, the Company tested its investment in Allied Irish Banks, p.l.c. for impairment as
the carrying value was above the fair value. An impairment test was performed by the Company using a
value-in-use (“VIU”) model to calculate an estimated recoverable amount.
The assumptions used in the VIU model involve 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 2020 was € 7,487 million
(2019: € 9,996 million). As a result of the impairment test, the recoverable amount of the equity shares
at 31 December 2020 was calculated at € 6,362 million and this resulted in an impairment charge of
€ 3,134 million.
Please refer to page 188 (Board Audit Committee Report), page 236 (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).
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 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
the 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.
How the scope of our
audit responded to the
key audit matter
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 2020Financial Statements123456
222
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 0.4% of the Group’s Total Equity. Given the significant
economic shock caused by the COVID-19 pandemic on the Group’s financial performance, we have reviewed the benchmark utilised in
determining materiality. While Profit before Tax was considered a suitable benchmark in previous years, following the losses recognised
in the financial year, we have considered Total Equity to be a critical component for determining materiality as it is one of the principal
measures for users of the financial statements in assessing the Group’s financial position. 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 0.7% 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.
Total Equity
€ 13,421 m
Total Equity
Group materiality
Group materiality
€ 55 m
Component materiality
range € 54 m to € 10 m
Audit Committee reporting
threshold € 2.75 m
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 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. We have considered the impact of COVID-19 on the Group
and Company’s business as part of our audit risk assessment and planning. This assessment resulted in an increased audit scope on key
audit areas including: consideration of changes in internal controls (including IT systems) as a result of the remote working environment;
additional focus on the key judgements and estimates driving expected credit losses on loans and advances to customers; and the impact of
the Group and Company’s revised profitability and growth forecasts covering the period 2021 to 2023 which have been revised downwards
compared to previous years, on the accounting judgements and estimates associated with the recognition of deferred tax assets and on the
potential impairment of investment in subsidiary which was identified as a Company only key audit matter.
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.
AIB Group plc Annual Financial Report 2020Financial Statements
223
An overview of the scope of our audit (continued)
Based on that assessment, we focused our Group audit work in AIB Group plc and the four legal entities as disclosed in Note 44 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.
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 virtual Group planning meetings, maintaining communications on the status of the audits and continuing with a programme
of virtual meetings and workshops designed so that the Group audit team engaged with each significant component audit team during the
year. At these meetings, the findings reported to the Group team were discussed in more detail, and any further work required by the Group
team was then performed by the component auditor.
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. The Directors are responsible for the other information contained within the Annual Financial Report.
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.
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.
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view and otherwise comply with the Companies Act 2014, 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’s or to cease operations, or have no realistic alternative but to do so.
AIB Group plc Annual Financial Report 2020Financial Statements123456 224
Independent Auditor’s Report
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 entity (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.
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.
AIB Group plc Annual Financial Report 2020Financial Statements 225
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 Statement required by the Companies Act 2014
We report, in relation to information given in the Corporate Governance Statement on pages 171 to 212 that:
•
In our opinion, based on the work undertaken during the course of the audit, the information given in the Corporate Governance
Statement 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 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 Corporate Governance Statement 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 Corporate Governance Statement.
Corporate Governance Statement
The Listing Rules and ISAs (Ireland) require us to review the Directors’ statement in relation to going concern, longer-term viability and the
part of the Corporate Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code
and Irish Corporate Governance Annex specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
•
the Directors’ statement with regards the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 172;
•
the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate set out on page 208;
the Directors’ statement on fair, balanced and understandable set out on page 214;
the board’s confirmation that it has carried out a robust assessment of the emerging and principal risks and the disclosures in the annual
•
•
report that describe the principal risks and the procedures in place to identify emerging risks and an explanation of how they are being
managed or mitigated set out on page 49;
•
the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
page 209; and
•
the section describing the work of the Board Audit Committee set out on pages 188 to 192.
AIB Group plc Annual Financial Report 2020Financial Statements123456 226
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 the those parts of the Directors’ report as specified for our review.
The Companies Act 2014 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 2020. We have nothing to report in this regard.
The Companies Act 2014 also requires us to report to you if, in our opinion, the Company has not provided the information required by
Section 1110N in relation to its remuneration report. 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 the 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 8 years, covering the years ending 2013 to 2020.
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 4 years,
covering the years ending 2017 to 2020.
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 we are required to provide in accordance with ISA
(Ireland) 260.
Use of our report
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.
John McCarroll
For and on behalf of Deloitte Ireland LLP
Chartered Accountants and Statutory Audit Firm
Deloitte & Touche House, Earlsfort Terrace, Dublin 2
4 March 2021
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 2020Financial Statements Consolidated income statement
for the financial year ended 31 December 2020
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
Net gain on other financial assets measured at FVTPL
Net gain/(loss) 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
Operating (loss)/profit
Associated undertakings
Profit on disposal of property
(Loss)/profit before taxation
Income tax credit/(charge)
(Loss)/profit for the year
Attributable to:
– Equity holders of the parent
– Non-controlling interests
(Loss)/profit for the year
Earnings per share
Basic (loss)/earnings per ordinary share
Diluted (loss)/earnings per ordinary share
Notes
4
4
4
5
6
7
7
8
9
10
11
12
26
27
13
25
14
16
40
17(a)
17(b)
227
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
2020
€ m
2,050
77
2,127
(255)
1,872
26
564
(169)
(32)
86
24
2
501
2,373
(1,544)
(214)
(101)
(1,859)
514
(1,460)
(946)
15
–
(931)
190
(741)
(769)
28
(741)
(30.0)c
(30.0)c
AIB Group plc Annual Financial Report 2020Financial Statements123456 228
Consolidated statement of comprehensive income
for the financial year ended 31 December 2020
Notes
16
16
16
16
16
(Loss)/profit for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
Net actuarial losses 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
2020
€ m
(741)
(38)
(18)
(56)
(70)
71
(55)
(54)
(110)
(851)
(879)
28
(851)
2019
€ m
364
(188)
(9)
(197)
66
184
(44)
206
9
373
336
37
373
AIB Group plc Annual Financial Report 2020Financial Statements Consolidated statement of financial position
as at 31 December 2020
229
Notes
2020
€ m
2019
€ m
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
Derivative financial instruments
Debt securities in issue
Lease liabilities
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
Brendan McDonagh
Deputy Chair
Colin Hunt
Chief Executive Officer
4 March 2021
48
19
20
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22
24
25
26
27
28
29
30
31
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109
60
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339
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11,543
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496
495
14,230
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AIB Group plc Annual Financial Report 2020Financial Statements123456 l
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AIB Group plc Annual Financial Report 2020Financial Statements123456
232
Consolidated statement of cash flows
for the financial year ended 31 December 2020
Cash flows from operating activities
(Loss)/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, redemptions 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
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 € 1 billion Tier 2 Notes
Net proceeds on issue of € 500 million Tier 2 Notes
Redemption of capital instruments
Proceeds on issue of debt securities – MREL
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
49
49
49
24
24
27
26
25
39
37
37
37/40
33
18
18
40
27
48
2020
€ m
(931)
2,079
1,982
13,304
(28)
16,406
(6,444)
4,074
(21)
11
(236)
–
–
(2,616)
619
1,000
–
(1,253)
–
–
(46)
(30)
(50)
(98)
(41)
101
13,891
12,923
(255)
26,559
2019
€ m
499
780
247
2,581
(56)
4,051
(4,937)
4,689
(69)
30
(259)
(60)
27
(579)
496
–
500
–
1,640
(461)
–
(37)
(59)
(70)
(31)
1,978
5,450
7,246
227
12,923
AIB Group plc Annual Financial Report 2020Financial Statements Notes to the consolidated financial statements
Note
1 Accounting policies
2 Critical accounting judgements and estimates
3 Segmental information
4
5
Interest and similar income
Interest and similar expense
6 Dividend income
7 Net fee and commission income
8 Net trading loss
9 Net gain on other financial assets measured
at FVTPL
10 Net gain/(loss) on derecognition of financial
assets measured at amortised cost
11 Other operating income
12 Operating expenses
13 Net credit impairment charge
14 Profit on disposal of property
15 Auditor's remuneration
16 Taxation
17 Earnings per share
18 Distributions on equity shares and other equity
interests
19 Disposal groups and non-current assets held
for sale
20 Derivative financial instruments
21 Loans and advances to banks
22 Loans and advances to customers
23 ECL allowance on financial assets
24 Investment securities
25 Interests in associated undertakings
26 Intangible assets and goodwill
27 Property, plant and equipment
28 Other assets
29 Deferred taxation
Page
Note
234
261
266
270
270
270
271
271
272
272
272
273
273
274
274
275
277
278
278
279
288
289
290
291
295
296
297
300
300
30 Retirement benefits
31 Deposits by central banks and banks
32 Customer accounts
33 Debt securities in issue
34 Lease liabilities
35 Other liabilities
36 Provisions for liabilities and commitments
37 Subordinated liabilities and other capital
instruments
38 Share capital
39 Other equity interests
40 Non-controlling interests in subsidiaries
41 Capital reserves, merger reserve and capital
redemption reserves
42 Offsetting financial assets and financial
liabilities
43 Contingent liabilities and commitments
44 Subsidiaries and consolidated structured
entities
45 Off-balance sheet arrangements and
transferred financial assets
46 Classification and measurement of financial
assets and financial liabilities
47 Fair value of financial instruments
48 Cash and cash equivalents
49 Statement of cash flows
50 Related party transactions
51 Employees
52 Regulatory compliance
53 Financial and other information
54 Dividends
55 Non-adjusting events after the reporting date
56 Approval of financial statements
233
Page
303
309
310
310
311
311
312
314
315
316
317
318
318
322
324
326
330
331
339
340
341
350
350
351
351
351
351
AIB Group plc Annual Financial Report 2020Financial Statements123456 234
1 Accounting policies
Index
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
Reporting entity
Statement of compliance
Basis of preparation
Basis of consolidation
Foreign currency translation
Interest income and expense recognition
Dividend income
Fee and commission income
Net trading income
Employee benefits
Income tax, including deferred income tax
Financial assets
(m)
Financial liabilities and equity
(n)
(o)
(p)
(q)
(r)
(s)
(t)
(u)
(v)
(w)
(x)
(y)
(z)
(aa)
(ab)
(ac)
(ad)
Leases
Determination of fair value of financial instruments
Sale and repurchase agreements (including securities borrowing and lending)
Derivatives and hedge accounting
Derecognition
Impairment of financial assets
Collateral and netting
Financial guarantees and loan commitment contracts
Property, plant and equipment
Intangible assets
Impairment of property, plant and equipment, goodwill and intangible assets
Disposal groups and non-current assets held for sale
Non-credit risk provisions
Equity
Cash and cash equivalents
Segment reporting
Prospective accounting changes
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 235
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
was changed to 10 Molesworth Street, Dublin 2, Ireland on 16 June 2020 (previously 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 2020 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 2020. 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 and Article 4 of the IAS Regulation. The accounting policies have been consistently applied by Group entities
and are consistent with the previous year, unless otherwise described.
(c) Basis of preparation
Functional and presentation currency
The financial statements are presented in euro, which is the functional currency of the parent company and a significant number of its
subsidiaries, rounded to the nearest million.
Basis of measurement
The financial statements have been prepared under the historical cost basis, with the exception of the following assets and liabilities which
are stated at their fair value: derivative financial instruments, financial instruments at fair value through profit or loss, certain hedged financial
assets and financial liabilities and investment securities at fair value through other comprehensive income (‘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, Financial Instruments:
Disclosures and IAS 1, Presentation of Financial Statements, contained in the ‘Business 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 261 to 265.
AIB Group plc Annual Financial Report 2020Financial Statements123456 236
1 Accounting policies (continued)
(c) Basis of preparation (continued)
Going concern
The financial statements for the financial year ended 31 December 2020 have been prepared on a going concern basis as the Directors are
satisfied, having considered the risks and uncertainties impacting the Group, that it has the ability to continue in business for the period of
assessment. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions,
including the recent Strategic Review, the approved three year Strategic Plan (2021 to 2023) and internally generated stress scenarios,
cognisant of the prolonged impacts of COVID-19 and Brexit. The period of assessment used by the Directors is twelve months from the date
of approval of these annual financial statements.
Adoption of new accounting standards/amendments to standards
During the financial year to 31 December 2020, the Group adopted the following amendments to standards and interpretations which had an
insignificant impact on these annual financial statements:
– Amendments to IFRS 3 Business Combinations (definition of a business);
– Amendments to References to the Conceptual Framework in IFRS Standards; and
– Amendments to IFRS 16 Leases COVID-19 Related Rent Concessions.
(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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 237
1 Accounting policies (continued)
(d) Basis of consolidation (continued)
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.
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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 238
1 Accounting policies (continued)
(d) Basis of consolidation (continued)
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.
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 a financial liability designated as a hedge of the net investment in a foreign operation
are reported in other comprehensive income.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements
1 Accounting policies (continued)
239
(e) Foreign currency translation (continued)
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.
(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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 240
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/FVOCI are recognised in the income statement when the entity’s right to receive
payment is established and 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.
Fee income and fee expenses in respect of services and prepaid credits for cellular phone and utilities sold to third parties are classified as
specialised payment services and are recognised when the performance obligation is satisfied.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 241
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 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 Employee Benefits 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 242
1 Accounting policies (continued)
(j) Employee benefits (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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 243
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, temporary differences are not provided for 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 244
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, 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 245
1 Accounting policies (continued)
(l) Financial Assets (continued)
Reclassifications
Reclassifications of financial assets to alternative asset 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 246
1 Accounting policies (continued)
(n) Leases (continued)
Lessee
Lease rentals payables 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 the Group’s contracts that meet the definition of a lease.
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
The right-of-use asset is 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 asset or restoring the site on which the asset is
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 the right-of-use asset 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 247
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. The Group uses its
incremental borrowing rate as the discount rate.
The lease payments include fixed payments (including in-substance fixed payments), variable lease payments that depend on an index or
a rate and amounts expected to be payable by the Group under a residual value guarantee. The lease payments also include 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.
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.
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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 248
1 Accounting policies (continued)
(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.
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 249
1 Accounting policies (continued)
(o) Determination of fair value of financial instruments (continued)
All adjustments in the calculation of the present value of future cash flows are based on factors market participants would take into account
in pricing the financial instrument.
Certain financial instruments (both assets and liabilities) may be valued on the basis of valuation techniques that feature one or more
significant market inputs that are not observable. When applying a valuation technique with unobservable data, estimates are made
to reflect uncertainties in fair values resulting from a lack of market data, for example, as a result of illiquidity in the market. For these
instruments, the fair value measurement is less reliable. Inputs into valuations based on non-observable data are inherently uncertain
because there is little or no current market data available from which to determine the price at which an orderly transaction between market
participants would occur under current market conditions. However, in most cases there is some market data available on which to base
a determination of fair value, for example historical data, and the fair values of most financial instruments will be based on some market
observable inputs even where the non-observable inputs are significant. All unobservable inputs used in valuation techniques reflect the
assumptions market participants would use when fair valuing the financial instrument.
The Group tests the outputs of the valuation model to ensure that it reflects current market conditions. The calculation of fair value for any
financial instrument may require adjustment of the quoted price or the valuation technique output to reflect the cost of credit risk and the
liquidity of the market, if market participants would include one, where these are not embedded in underlying valuation techniques or prices
used.
The choice of contributors, the quality of market data used for pricing and the valuation techniques used are all subject to internal review
and approval procedures.
Transfers between levels of the fair value hierarchy
The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change
occurred.
(p) Sale and repurchase agreements (including securities 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 250
1 Accounting policies (continued)
(q) Derivatives and hedge accounting (continued)
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.
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.
The Group applies the IBOR reform Phase 1 reliefs to hedging relationships directly affected by IBOR reform during the period before the
replacement of an existing interest rate benchmark with an alternative risk-free rate (RFR). A hedging relationship is affected if IBOR reform
gives rise to uncertainties about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument.
The reliefs require that for the purpose of determining whether a forecast transaction is highly probable, it is assumed that the IBOR on
which the hedged cash flows are based is not altered as a result of IBOR reform.
IBOR reform Phase 1 requires that for hedging relationships affected by IBOR reform, the Group must assume that for the purpose of
assessing expected future hedge effectiveness, the interest rate is not altered as a result of IBOR reform. Also, the Group is not required to
discontinue the hedging relationship if the results of the assessment of retrospective hedge effectiveness fall outside the range of 80% to
125%, although any hedge ineffectiveness must be recognised in profit or loss, as normal.
The reliefs cease to apply once certain conditions are met. These include when the uncertainty arising from IBOR reform is no longer
present with respect to the timing and amount of the benchmark-based cash flows of the hedged item, if the hedging relationship is
discontinued or once amounts in the cash flow hedge reserve have been released.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 251
1 Accounting policies (continued)
(q) Derivatives and hedge accounting (continued)
Fair value hedge accounting
Changes in fair value of derivatives that qualify and are designated as fair value hedges are recorded in the income statement, together
with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the
criteria for hedge accounting, the fair value hedging adjustment cumulatively made to the carrying value of the hedged item is, for items
carried at amortised cost, amortised over the period to maturity of the previously designated hedge relationship using the effective interest
method. For 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.
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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 252
1 Accounting policies (continued)
(r) Derecognition (continued)
Financial assets (continued)
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 and accordingly, expected credit losses (“ECLs”) are not recognised
separately for equity instruments.
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’).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 253
1 Accounting policies (continued)
(s) Impairment of financial assets (continued)
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 assets.
POCIs are financial 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.
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.
AIB Group plc Annual Financial Report 2020Financial Statements123456
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1 Accounting policies (continued)
(s) Impairment of financial assets (continued)
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).
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 securities 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 255
1 Accounting policies (continued)
(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.
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.
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256
1 Accounting policies (continued)
(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 9 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.
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 and provision
for impairment, if any. Amortisation is calculated using the straight line basis to allocate the cost over their estimated useful life (6 years).
(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 2020Financial Statements 257
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. These are
reported within Provisions for liabilities and commitments in the statement of financial position.
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, a 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.
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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 54.
Other equity interests
Other equity interests include
– Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities (AT1s) (note 39); 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 50). 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 2020Financial Statements 259
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 41).
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 revenue is based primarily on the
location of the office recording the transaction. The geographic distribution of loans and related impairment is based on the country of risk.
AIB Group plc Annual Financial Report 2020Financial Statements123456 260
1 Accounting policies (continued)
(ad) Prospective accounting changes
The following amendments to existing standards which have been approved by the IASB, but not early adopted by the Group, will impact
the Group’s financial reporting in future periods. The Group will consider the impact of these amendments as the situation requires.
The amendments which are most relevant to the Group are detailed below.
Interest Rate Benchmark Reform – Phase 2 Amendments to IFRS 9, IAS 39, IFRS 4 and IFRS 16
In August 2020, the IASB issued Interest Rate Benchmark Reform – Phase 2 Amendments to IFRS 9, IAS 39, IFRS 4 and IFRS 16 (IBOR
reform Phase 2), to address the accounting issues which arise upon the replacement of an Interbank offered rate (IBOR) with a Risk Free
Rate (RFR).
IBOR reform Phase 2 includes a number of reliefs that apply upon the transition of a financial instrument from an IBOR to a RFR.
The amendments introduce a practical expedient to account for a change to the basis for determination of the contractual cash flows at
the date on which interest rate benchmarks are altered or replaced. Under the practical expedient, the Group is required to account for a
change in the basis for determining contractual cash flows by revising the effective interest rate. This practical expedient only applies when
the change is a direct consequence of IBOR reform and the new basis for determining the contractual cash flows is economically equivalent
to the previous basis.
The amendments further introduce reliefs from existing hedge accounting requirements. IBOR reform Phase 2 amendments provide
temporary reliefs that will allow the Group’s hedging relationships to continue when changes to hedged items and hedging instruments arise
as a result of changes required by the reform. The reliefs required by the Phase 2 amendments are as follows:
• The Group will amend the formal designations of a hedging relationship to reflect the changes that are required by the reform.
This includes designating an alternative benchmark rate as the hedged risk, changing the description of the hedged item and/or the
hedging instrument and amending the method for assessing hedge effectiveness. The updates to hedging documentation to reflect
changes that are required as a direct consequence of IBOR reform do not result in the discontinuation of the hedge accounting.
• The amount accumulated in the cash flow hedge reserve at the date that the description of the hedged item is amended is deemed to
be based on the alternative benchmark interest rate on which the hedged future cash flows are determined.
• For the retrospective assessment of hedge effectiveness, the Group may elect on a hedge by hedge basis to reset the cumulative fair
•
value change to zero.
If the Group reasonably expects that an alternative benchmark rate will be separately identifiable within a period of 24 months, it can
designate the rate as a non-contractually specified risk component even if it is not separately identifiable at the designation date. This is
applied on a rate-by-rate basis.
• When a group of items is designated as a hedged item and an item in the group is amended to reflect the changes that are required by
the IBOR reform, the Group will allocate the hedged items to sub groups based on the benchmark rate being hedged, and designate the
benchmark rate for each sub-group as the hedged risk.
Disclosure requirements are added. The disclosures relate to how the transition to alternative rates is managed, the progress on the
transition and the risks arising from financial assets and financial liabilities due to the reform.
The Group will apply IBOR reform Phase 2 from 1 January 2021.
Effective date: Annual reporting periods beginning on or after 1 January 2021.
IFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of financial liabilities
As part of its 2018 – 2020 Annual Improvements to IFRS standards process, the IASB issued an amendment to IFRS 9. The amendment
clarifies the fees that an entity includes when it applies the 10% test in assessing whether to derecognise a financial liability. These fees
include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on
the other’s behalf.
The Group will apply the amendments to financial liabilities that are modified or exchanged on or after the beginning of the annual period in
which it will first apply the amendment and does not expect this will result in a significant impact on its financial statements.
Effective date: Annual reporting periods beginning on or after 1 January 2022.
Other
The IASB has published a number of other minor amendments to IFRSs through both standalone amendments and through the Annual
Improvements to IFRS Standards 2018 – 2020 cycle. None of the other amendments are expected to have a significant impact on reported
results or disclosures.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 261
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 29.
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 years 2014-2019 and the growth in the Irish economy in this period;
external forecasts for Ireland which indicate a return to 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 onset of COVID-19 in 2020 with its severe impact on the economy and the resultant impairment charge taken in 2020 which resulted
–
–
–
–
–
–
in a loss in the year;
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 potential longer term impacts of COVID-19 and post-Brexit EU/UK trade deal on the Irish economy;
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 2020Financial Statements123456 262
2 Critical accounting judgements and estimates (continued)
Deferred taxation (continued)
Profitability and growth were reassessed in the annual planning exercise covering the period 2021 to 2023 undertaken by the Group in the
second half of 2020. Growth assumptions and profitability levels underpinning the plan have been revised downwards compared to previous
years reflecting the revised macroeconomic outlook, 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 2021 to 2023 as a base and a profit growth rate of 2% from 2024, it was
assessed that it will take in excess of 25 years for the deferred tax asset (€ 2.7 billion) to be utilised. Furthermore, under this scenario, it is
expected that 94% of the deferred tax asset will be utilised within 25 years, 72% within 20 years (2019: 77%) and 50% utilised within 15 years
(2019: 51%). If the growth rate assumption was decreased by 1%, then the utilisation period increases by a further 3 years. The Group’s
analysis of this and other scenarios examined would not alter the basis of recognition or the current carrying value. In 2019, the Group
reported that it expected that it would take in excess of 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 £ 79 million at 31 December 2020 (31 December 2019: £ 87 million).
Legislation was enacted in the UK during 2020, whereby the previously legislated reduction in the corporation tax rate from 19% to 17%
from 2020 onwards was cancelled. This change has resulted in an increase of the Group’s UK deferred tax asset by c. £ 10 million.
In relation to the losses incurred in the year ended 31 December 2020 for the UK subsidiary, a deferred tax asset of £ 7 million has been
recognised. Furthermore, the deferred tax asset for unutilised losses carried forward was written down by £ 25 million at 31 December 2020
as the expected profitability over the 15 years, has reduced in the period, reflecting the revised macroeconomic outlook and includes the
potential impact of COVID-19 on business performance.
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 € 2,763 million (2019: € 2,771 million) of which
€ 2,675 million (2019: € 2,669 million) relates to Irish tax losses and € 88 million (2019: € 102 million) relates to UK tax losses.
IAS 12 Income Tax 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 2020 represent 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. This is particularly amplified at
31 December 2020 given the COVID-19 pandemic. 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;
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 263
2 Critical accounting judgements and estimates (continued)
Impairment of financial assets (continued)
The management process for the calculation of 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 107.
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 105
to 107 in the Risk management section of this report.
Retirement benefit obligations
The Group’s accounting policy for retirement benefit schemes is set out in accounting policy (j) in note 1.
The significant judgements applied by the Group are that:
–
a constructive obligation has not been created, notwithstanding certain decisions by the Group in the past, following an annual
process, to fund discretionary increases in pensions in payment; and
in a situation where the Group believes the Trustee has the ability to grant discretionary increases without any funding being provided
by the Group, that the Trustee will exercise that ability.
–
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. Under this process, the Group decided in February 2020
and in February 2021 that the funding of discretionary increases was not appropriate in either year. This process 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.
Notwithstanding the decision above by the Board in February 2020, during the second half of 2020 the Trustee awarded an increase of 1.1%
in respect of pensions eligible for discretionary pension increases, backdated to 1 April 2020, reflecting the ability of the Trustee to grant an
increase when the financial position of the scheme would enable such an increase at that point in time.
Taking this decision by the Trustee into consideration, the long term assumption for future increases in pension in payment should now
reflect an assessment of the Trustee ability to grant further increases without any funding from the Group. At 31 December 2020, this
has been assessed as an assumed rate of pension increase of 0.2% per annum and has increased Scheme’s liabilities as at that date by
€ 100 million.
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 36 to the financial statements.
Significant management judgement is required 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 estimating potential losses will change over time and the actual losses may vary significantly.
AIB Group plc Annual Financial Report 2020Financial Statements123456 264
2 Critical accounting judgements and estimates (continued)
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.
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 47.
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 allowance at 31 December 2020 amounted to € 2,510 million (2019: € 1,238 million). As noted above, there are significant judgements
involved in estimating ECL allowance, particularly given the COVID-19 pandemic. 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 the 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 against
a backdrop of the COVID-19 pandemic. These are subject to change as the COVID-19/economic landscape changes. Accordingly,
developments with regard to the pandemic and 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 100 to 103 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 30 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 30 to the financial statements.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 265
2 Critical accounting judgements and estimates (continued)
Provisions for liabilities and commitments
Provisions for liabilities and commitments are set out in note 36 to the financial statements and their recognition involves a significant degree
of estimation. The overall provision amounting to € 396 million comprising: € 80 million in respect of the FSPO decision relating to tracker
mortgage customers; € 70 million in respect of CBI penalties; € 16 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 and are not
expected to result in a material adjustment in the next financial year. The Group has not disclosed a range of outcomes for such provisions
given their diverse nature and the number of provisions involved.
Note 36 sets out the background and the current position as regards the FSPO decision regarding a tracker complaint and the level of
provisions that were set aside. Notwithstanding the near completion of payments to customers based on the FSPO decision, the level
of provision required for other costs, including tax liabilities arising that the Group will be required to discharge on behalf of impacted
customers, has been assessed at € 80 million. These issues are subject to uncertainty with a range of outcomes possible with the final
outcome being higher or lower depending on finalisation of such issues.
As detailed in notes 36 and 43, 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 has created a provision
of € 70 million for the impact of 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. This matter is progressing 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 the 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 at 31 December 2020 as the carrying value was above the
fair value. In determining the VIU, the estimated pre-tax cash flow projections in the Company’s financial plan for the period 2021 to 2023
were used as a base and a growth rate of 2% from 2023 was assumed into perpetuity. These projections were discounted at a risk adjusted
interest rate of 10%. The VIU was calculated at € 6,362 million which resulted in an impairment charge of € 3,134 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 2020Financial Statements123456
266
3 Segmental information
Segment overview
The Group’s performance is managed and reported across the Retail Banking, Corporate, Institutional & Business Banking (“CIB”), AIB UK
and Group segments. 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 provides 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 dedicated workout unit to which the Group has migrated the management of the majority of its non-performing exposures
(NPEs), with the objective of delivering the Group’s strategy to reduce NPEs.
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 a 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”). The Group’s revised
strategy (Strategy 2023) entails changes to the AIB UK business model including the withdrawal from SME lending in Great Britain and a
refocus on corporate business, particularly in renewables, infrastructure, health and manufacturing.
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, Finance, Risk, Legal, Corporate Governance & Customer Care, Human Resources, Corporate Affairs, Strategy &
Sustainability and Group Internal Audit.
Segment allocations
The segments’ performance statements include all income and directly related costs, excluding overheads which are managed centrally,
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 2020Financial Statements 267
2020
Total
€ m
1,872
395
106
501
2,373
3 Segmental information (continued)
Retail
Banking
CIB
AIB UK
Group
Total
€ m
€ m
€ m
€ m
€ m
Excep-
tional
items(1)
€ 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 charge
Operating profit/(loss)
Associated undertakings
Profit/(loss) before taxation
1,115
291
43
334
1,449
(908)
(404)
(320)
(184)
(2)
(910)
539
(485)
54
12
66
439
66
55
121
560
214
43
5
48
262
104
1,872
(5)
1
(4)
395
104
499
100
2,371
–
–
2(2)(7)
2
2
(132)
(164)
(323)
(1,527)
(217)
(1,744)
(93)
(28)
(11)
–
(132)
428
(767)
(339)
–
(339)
(90)
(51)
(23)
(1)
(165)
97
(208)
(111)
3
(108)
(147)
(115)
(61)
(734)
(514)
(279)
(42)(3)-(5)
(139)(4)-(7)
(36)(5)(8)
(112)
(435)
(115)
–
(1,642)
(217)
(335)
729
–
(1,460)
(215)
–
(335)
–
(335)
(731)
(215)
15
–
(716)
(215)
(776)
(653)
(315)
(115)
(1,859)
514
(1,460)
(946)
15
(931)
(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)Restructuring costs;
(6)Covid product costs;
(7)Other; and
(8)Impairment of intangibles.
For further information on these items see page 64.
*Analysis of net fee and commission income
Retail banking customer fees
Foreign exchange fees
Credit related fees
Specialised payment services fees
Other fees and commissions
Fee and commission income
Specialised payment services expenses
Other fee and commission expenses
Fee and commission expense
Retail
Banking
€ m
215
32
10
146
48
451
(131)
(29)
(160)
291
CIB
AIB UK
Group
€ m
€ m
21
20
17
–
10
68
–
(2)
(2)
66
25
9
13
–
–
47
–
(4)
(4)
43
€ m
18
(7)
–
–
(13)(1)
(2)
–
(3)
(3)
(5)
2020
Total
€ m
279
54
40
146
45
564
(131)
(38)
(169)
395
(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 7.
AIB Group plc Annual Financial Report 2020Financial Statements123456
268
3 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
Excep-
tional
items(1)
€ m
–
–
(40)
(40)(2)
(40)
2019
Total
€ m
2,076
472
107
579
2,655
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)Other (Property strategy);
(6)Restructuring costs; and
(7)Provision for regulatory fines.
For further information on these items see page 64.
*Analysis of net fee and commission income
Retail banking customer fees
Foreign exchange fees
Credit related fees
Specialised payment services fees
Other fees and commissions
Fee and commission income
Specialised payment services expenses
Other fee and commission expenses
Fee and commission expense
Retail
Banking
€ m
258
40
11
27
60
396
(25)
(36)
(61)
335
CIB
AIB UK
Group
€ m
€ m
27
21
21
–
11
80
–
(2)
(2)
78
35
9
18
–
2
64
–
(5)
(5)
59
€ m
18
1
–
–
(16)(1)
3
–
(3)
(3)
–
2019
Total
€ m
338
71
50
27
57
543
(25)
(46)
(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 7.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements
3 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
269
Retail
Banking
€ m
31 December 2020
CIB
AIB UK
Group
Total
€ m
€ m
€ m
€ m
34,008
14,453
8,269
140
56,870
–
75
–
–
75
34,008
56,874
14,528
12,735
8,269
10,959
140
1,404
56,945
81,972
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
–
16,172
9,069
–
121
11,347
10,364
1,456
77
60,888
71,803
35,526
48,636
Ireland
€ m
1,946
170
2,116
Ireland
€ m
2,154
139
2,293
Year to 31 December 2020
United
Kingdom
€ m
Rest of the
World
€ m
406
(153)
253
21
(17)
4
Total
€ m
2,373
–
2,373
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
Revenue from external customers comprises interest and similar income (note 4) and interest and similar expense (note 5), and all other
items of income (notes 6 to 11).
Geographic Information
Non-current assets(3)
Geographic Information
Non-current assets(3)
Ireland
€ m
1,587
Ireland
€ m
1,608
31 December 2020
United
Kingdom
€ m
Rest of the
World
€ m
71
4
Total
€ m
1,662
31 December 2019
United
Kingdom
€ m
107
Rest of the
World
€ m
5
Total
€ m
1,720
(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 2020Financial Statements123456 270
4 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
2020
€ m
1,888
12
116
2,016
34
2,050
75
2
77
2019
€ m
2,038
38
195
2,271
20
2,291
76
3
79
2,127
2,370
Interest income includes a credit of € 145 million (2019: a credit of € 115 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.
5 Interest and similar expense
Interest on deposits by central banks and banks
Interest on customer accounts
Interest on debt securities in issue
Interest on lease liabilities
Interest on subordinated liabilities and other capital instruments
Negative interest on financial assets at amortised cost
Negative interest on financial assets at FVOCI
Interest expense calculated using the effective interest method
2020
€ m
4
82
67
13
45
211
40
4
255
2019
€ m
12
128
91
14
33
278
16
–
294
Interest expense includes a charge of € 24 million (2019: a charge of € 31 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.
6 Dividend income
NAMA subordinated bonds at FVOCI
Equity investments at FVTPL
Total
2020
€ m
23
3
26
2019
€ m
23
3
26
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 7 Net fee and commission income
Retail banking customer fees
Foreign exchange fees
Credit related fees
Specialised payment services fees(1)
Other fees and commissions(2)
Fee and commission income
Specialised payment services expenses(1)
Other fee and commissions expenses(3)
Fee and commission expense
271
2019
€ m
338
71
50
27
57
543
(25)
(46)
(71)
472
2020
€ m
279
54
40
146
45
564
(131)
(38)
(169)
395
(1) Specialised payment services: fee income and fee expenses in respect of services and prepaid credits for cellular phone and utilities sold to third parties.
(2) Other fees and commissions includes wealth commissions € 17 million (2019: € 25 million), insurance commissions € 14 million (2019: € 20 million), and other
commissions € 14 million (2019: € 12 million).
(3) Other fee and commission expenses includes credit card commissions of € 28 million (2019: € 36 million), and ATM expenses of € 3 million (2019: € 4 million),
both of which relate to ‘Retail banking customer fees’. This also includes € 7 million (2019: € 6 million) relating to ‘Other fees and commissions’.
Fees and commissions which are an integral part of the effective interest rate are recognised as part of interest and similar income (note 4)
or interest and similar expense (note 5).
8 Net trading loss
Foreign exchange contracts
Interest rate contracts and debt securities(1)
Credit derivative contracts
Equity investments, index contracts and warrants(2)
2020
€ m
(11)
7
(11)
(17)
(32)
2019
€ m
(26)
25
(11)
(45)
(57)
(1)Includes a loss of € 5 million (2019: gain of € 10 million) in relation to XVA adjustments.
(2)Includes a loss amounting to € 17 million on a total return swap, which is hedging equities measured at FVTPL (2019: loss of € 45 million).
The total hedging ineffectiveness on cash flow hedges reflected in the consolidated income statement amounted to Nil (2019: Nil).
AIB Group plc Annual Financial Report 2020Financial Statements123456 272
9 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 4).
(2)Includes gain of € 9 million on equities hedged by a trading total return swap (2019: € 62 million).
2020
€ m
41
45
86
2019
€ m
66
74
140
10 Net gain/(loss) on derecognition of financial assets measured at amortised cost
Loans and advances to customers
Loans and advances to customers
Carrying
value at
derecognition
€ m
464
Carrying
value at
derecognition
€ m
1,487
(1)
Gain on
derecognition
(1)
Loss on
derecognition
€ m
26
€ m
(2)
(1)
Gain on
derecognition
(1)
Loss on
derecognition
€ m
254
€ m
(302)
2020
Net gain
on
derecognition
€ m
24
2019
Net loss
on
derecognition
€ m
(48)
(1) The gain/(loss) on derecognition has been based on the sales proceeds, net of costs, computed at a customer connection level. Settlements in 2020 relating
to prior year portfolio sales are reported on a net basis.
Derecognition in 2020 arose from the sale of individual loans from a specific loan portfolio. The loans were disposed of for credit
management purposes after credit deterioration had occurred. In 2019, loans and advances to customers were derecognised mainly due to
the sale of distressed loan portfolios.
11 Other operating income
Gain on disposal of investment securities at FVOCI – debt
Loss on termination of hedging swaps(1)
Miscellaneous operating income
2020
€ m
17
(17)
(2)
2
2
2019
€ m
93
(48)
1
46
(1) The majority of the loss on termination of hedging swaps relates to the disposal of debt securities at FVOCI. In addition, it includes a € 1 million charge (2019:
Nil) transferred from other comprehensive income in respect of cash flow hedges.
(2) Includes a net gain of € 3 million on the settlement of a legacy claim in 2020.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 12 Operating expenses
Personnel expenses:
Wages and salaries
Termination benefits(1)
Retirement benefits(2)
Social security costs
Other personnel expenses(3)(4)
Less: staff costs capitalised(5)
Personnel expenses
General and administrative expenses
Restitution and associated costs
Bank levies and regulatory fees
Operating expenses
273
2020
€ m
2019
€ m
593
31
92
65
20
801
(25)
776
536
117
653
115
1,544
619
48
100
69
23
859
(29)
830
585(6)
416(7)
1,001
104
1,935
(1) Relates to the voluntary severance programme charge of € 31 million (2019: € 48 million). The 2020 charge includes £ 19 million being the anticipated cost of
voluntary severance arising as part of the recently announced restructure within the UK business.
(2) Comprises a defined contribution charge of € 78 million (2019: a charge of € 80 million), a charge of € 5 million in relation to defined benefit expense (2019:
a charge of € 11 million), and a long term disability payments/death in service benefit charge of € 9 million (2019: a charge of € 9 million). For details of
retirement benefits, see note 30.
(3)Share-based payment* charge of Nil (2019: Nil).
(4)Other personnel expenses include staff training, recruitment and various other staff costs.
(5) Staff costs capitalised relate to intangible assets.
(6) Includes a provision for regulatory fines of € 70 million for the CBI investigation with regard to the Tracker Mortgage Examination created in 2019.
(7) Includes a provision of € 265 million for the ‘06-09 Ts & Cs who never had a tracker’ mortgage cohort following a preliminary decision by the FSPO created in
2019. See note 36.
The average number of employees for 2020 and 2019 is set out in note 51 ’Employees’.
* No shares have been awarded under the ‘AIB Approved Employees’ Profit Sharing Scheme 1998’ (‘the Scheme’) since 2008. (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. 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.)
13 Net credit impairment charge
The following table analyses the income statement net credit impairment charge on financial instruments for the years to 31 December 2020
and 2019.
Credit impairment charge 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
Recoveries of amounts previously written-off
Net credit impairment charge
Measured at
amortised
cost
€ m
2020
Total
Measured
at FVOCI
€ m
€ m
Measured at
amortised
cost
€ m
2019
Total
Measured
at FVOCI
€ m
€ m
–
(1,493)
(35)
(4)
(1)
(1,533)
72
(1,461)
–
–
–
–
1
1
–
1
–
(1,493)
(35)
(4)
–
(1,532)
72
(1,460)
–
(117)
6
5
–
(106)
90
(16)
–
–
–
–
–
–
–
–
–
(117)
6
5
–
(106)
90
(16)
AIB Group plc Annual Financial Report 2020Financial Statements123456 274
14 Profit on disposal of property
Profit on disposal of property amounted to Nil (2019: € 21 million).
15 Auditor’s remuneration
The disclosure of auditor’s remuneration is in accordance with Section 322 of the Companies Act 2014. This mandates disclosure of
remuneration 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.
Auditor’s remuneration (excluding VAT):
Audit of Group financial statements
Other assurance services
Other non-audit services
Taxation advisory services
2020
€ m
2019
€ m
2.8
0.6
0.9
–
4.3
2.6
0.9
0.8
–
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 remuneration for additional assurance issued by the firm outside of the audit of the statutory financial
statements of the Group and subsidiaries. This remuneration includes assignments where the Auditor, in Ireland, provides assurance to
third parties.
The Group policy on the provision of non-audit services to the parent and its subsidiary companies includes the prohibition on the provision
of certain services and the pre-approval by the Board Audit Committee of the engagement of the Auditor for non-audit work.
The Board Audit Committee has reviewed the level of non-audit services remuneration and is satisfied that it has not affected the
independence of the Auditor. It is Group policy to subject all large consultancy assignments to competitive tender, where appropriate.
The following table shows remuneration paid to overseas auditors (excluding Deloitte Ireland LLP):
Auditor’s remuneration excluding Deloitte Ireland LLP (excluding VAT)
2020
€ m
0.66
2019
€ m
0.71
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 16 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
Recognition of deferred tax assets in respect of current period losses
Increase/(reduction) in carrying value of deferred tax assets in respect of carried forward losses
Total tax credit/(charge) for the year
Effective tax rate
275
2020
€ m
2019
€ m
–
61
61
28
–
28
89
(2)
24
(32)
103
8
101
190
20.4%
(21)
–
(21)
(33)
–
(33)
(54)
(42)
2
(25)
–
(16)
(81)
(135)
27.1%
Factors affecting the effective tax rate
The following table sets out the difference between the tax credit/(charge) that would result from applying the standard corporation tax rate
in Ireland of 12.5% and the actual tax charge for the year:
(Loss)/profit before tax
Tax credit/(charge) at standard corporation tax rate in Ireland of 12.5%
Effects of:
Foreign losses/(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
Losses/(income) taxed at higher tax rates
Tax legislation on equity distributions
(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 credit/(charge)
2020
2019
€ m
(931)
116
12
(15)
–
2
7
10
(7)
(32)
1
11
85
190
%
12.5
1.3
(1.6)
–
0.2
0.8
1.1
(0.8)
(3.4)
–
1.2
9.1
20.4
€ m
499
(62)
(13)
(22)
4
3
(30)
5
12
(25)
(5)
(4)
2
(135)
%
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
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. During 2020, following resolution of a specific tax matter where uncertainty had existed relating to
prior years, previously recognised net liabilities for this and related matters of € 81 million were released.
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 2020Financial Statements123456 276
16 Taxation (continued)
Analysis of selected other comprehensive income
Property revaluation reserves
Net change in property revaluation reserves
Total
Retirement benefit schemes
Actuarial losses 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 (losses)/gains recognised in other comprehensive income
Total
Investment equity securities measured at FVOCI reserves
Fair value (losses) recognised in other comprehensive income
Total
Gross
€ m
Tax
€ m
2020
Net
€ m
Gross
€ m
Tax
€ m
–
–
–
–
–
–
–
–
(50)
(50)
–
(70)
(70)
12
12
(38)
(38)
(251)
(251)
–
–
–
–
(70)
(70)
–
66
66
–
–
63
63
–
–
–
2019
Net
€ m
–
–
(188)
(188)
–
66
66
–
–
–
–
–
–
(120)
201
81
15
(25)
(10)
(105)
176
71
(17)
(45)
(62)
(21)
(21)
2
5
7
3
3
(15)
(40)
(55)
(18)
(18)
(84)
295
211
(93)
43
(50)
(11)
(11)
10
(37)
(27)
(74)
258
184
12
(6)
6
2
2
(81)
37
(44)
(9)
(9)
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 277
17 Earnings per share
The calculation of basic (loss)/earnings per unit of ordinary shares is based on the (loss)/profit attributable to ordinary shareholders divided
by the weighted average number of ordinary shares in issue, excluding own shares held.
The diluted (loss)/earnings per share is based on the (loss)/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
(Loss)/profit attributable to equity holders of the parent
Distributions on other equity interests (note 18)
(Loss)/profit attributable to ordinary shareholders of the parent
Weighted average number of ordinary shares in issue during the year
(Loss)/earnings per share – basic
(b) Diluted
(Loss)/profit attributable to ordinary shareholders of the parent (note 17 (a))
Weighted average number of ordinary shares in issue during the year
Potential weighted average number of shares
(Loss)/earnings per share – diluted
2020
€ m
(769)
(46)
(815)
2019
€ m
327
–
327
Number of shares (millions)
2,714.4
2,714.4
EUR (30.0)c
EUR 12.1c
2020
€ m
(815)
2019
€ m
327
Number of shares (millions)
2,714.4
2,714.4
2,714.4
2,714.4
EUR (30.0)c
EUR 12.1c
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 38 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 2020Financial Statements123456 278
18 Distributions on equity shares and other equity interests
Ordinary shares – dividends paid
Other equity interests – distributions
2020
€ m
–
46
2019
€ m
461
–
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.
No dividends were paid during 2020. On 24 April 2019, a final dividend of € 0.17 per ordinary share, amounting in total to € 461 million was
approved at the Annual General Meeting of AIB Group plc and subsequently paid on 3 May 2019.
Distributions amounting to € 46 million were paid in 2020 on the Additional Tier 1 Securities issued by AIB Group plc in 2020 and 2019
(note 39).
19 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
(1)Includes property surplus to requirements and repossessed assets which are expected to be disposed of within one year.
2020
€ m
14
–
14
2019
€ m
19
1
20
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 279
20 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 2020 and 2019:
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
Total negative fair value
2020
€ m
50,430
1,353
(1,145)
7,848
70
(46)
49
–
(1)
350
1
(9)
58,677
1,424
(1,201)
2019
€ m
51,330
1,230
(998)
6,710
36
(180)
354
5
(6)
240
–
(13)
58,634
1,271
(1,197)
(1)Interest rate, exchange rate, equity and credit derivative contracts are entered into for both hedging and trading purposes.
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. Increased forward
hedging of foreign currency funding in light of uncertainty around potential EU/UK trade agreement outcomes in the run in to year end is
reflected in the growth in exchange rate contracts. Maturities of existing fair value hedges and a reduction in underlying exposures has led
to the reduction in interest rate and equity derivatives contracts.
AIB Group plc Annual Financial Report 2020Financial Statements123456 280
20 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 +
2020
Total
€ m
€ m
Less than
1 year
€ m
1 to 5
years
€ m
5 years +
2019
Total
€ m
€ m
Notional principal amount
18,180
19,064
21,433
58,677
17,901
20,638
20,095
58,634
Positive fair value
159
372
893
1,424
86
293
892
1,271
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
2019
€ m
2020
€ m
Positive fair value
2019
€ m
2020
€ m
55,688
2,857
132
58,677
55,604
2,856
174
58,634
992
418
14
1,424
857
400
14
1,271
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 2020 and 2019, are presented within this note.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 281
20 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 2020 and 2019. A description of how the fair values of derivatives are determined is set out in note 47.
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
Notional
principal
amount
€ m
2020
Fair values
Assets Liabilities
€ m
€ m
Notional
principal
amount
€ m
2019
Fair values
Assets
Liabilities
€ m
€ m
5,134
42
1,564
6,740
4,273
4,273
–
–
556
(475)
1
1
(1)
(1)
558
(477)
21
21
–
–
(113)
(113)
–
–
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)
–
–
Total interest rate derivatives
11,013
579
(590)
14,342
551
(573)
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
7,742
106
7,848
18
31
49
350
350
70
–
70
–
–
–
1
1
(46)
–
(46)
–
(1)
(1)
(9)
(9)
6,657
54
6,711
182
171
353
240
240
35
1
36
5
–
5
–
–
Total derivatives held for trading
19,260
650
(646)
21,646
592
(180)
–
(180)
(4)
(2)
(6)
(12)
(12)
(771)
AIB Group plc Annual Financial Report 2020Financial Statements123456 282
20 Derivative financial instruments (continued)
Notional
principal
amount
€ m
2020
Fair values
Assets Liabilities
€ m
€ m
Notional
principal
amount
€ m
2019
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
3,626
3,626
41
41
(59)
(59)
Interest rate swaps
15,483
177
(382)
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
15,483
19,109
3,114
880
3,994
177
218
89
73
162
(382)
(441)
(79)
–
(79)
Interest rate swaps
16,314
394
(35)
Total interest rate cash flow hedges – OTC
– central clearing
Total derivatives designated as cash flow hedges
Total derivatives held for hedging
16,314
20,308
39,417
394
556
774
(35)
(114)
(555)
Total derivative financial instruments
58,677
1,424
(1,201)
7,617
7,617
10,639
10,639
18,256
5,504
1,824
7,328
11,404
11,404
18,732
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)
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
47. The net mark to market on fair value hedging derivatives, excluding accrual and risk adjustments at 31 December 2020 is negative
€ 172 million (2019: negative € 138 million) and the net mark to market on the related hedged items at 31 December 2020 is positive
€ 173 million (2019: positive € 136 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 42.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 283
20 Derivative financial instruments (continued)
Nominal values and average interest rates by residual maturity
At 31 December 2020 and 2019, 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 +
2020
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)
140
0.60
–
–
–
–
152
0.55
452
0.05
288
0.61
500
2.25
–
–
480
0.83
4,605
0.43
6,645
0.26
12,158
0.36
–
–
–
–
4,926
2.14
25
5.12
5,451
2.16
500
1.88
1,000
2.88
1,500
2.54
1,760
0.23
2,425
0.21
4,140
0.60
7,460
0.37
15,937
0.39
2,168
0.04
444
0.19
580
0.93
727
2.24
4,371
0.54
2019
Total
Less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
5 years +
73
0.74
–
–
–
–
205
1.84
482
0.72
84
1.02
500
1.38
–
–
149
0.92
583
0.28
848
1.81
750
0.63
750
4.13
2,330
1.18
918
1.26
4,711
0.57
4,457
0.65
10,173
0.72
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
(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 2020Financial Statements123456 284
20 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 2020 and 2019:
Carrying amount(1)
Nominal
Assets Liabilities
(a) Hedging instruments
€ m
€ m
€ m
2020
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
12,158
5,451
1,500
3
212
(441) Derivative financial
instruments
– Derivative financial
instruments
3
– Derivative financial
instruments
(81)
59
(4)
(3) 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
12,822
404
Investment securities
Debt securities in issue
Subordinated debt
(5,602)
(1,504)
(152) Debt securities in issue
(4) Subordinated liabilities
and other capital
instruments
€ m
78
(59)
4
2020
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
–
–
–
2019
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
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
Carrying amount
of hedged items
recognised in
the SOFP*
Liabilities
€ m
Assets
€ m
10,789
(6,936)
(1,258)
(b) Hedged items
Investment securities – debt
Debt securities in issue
Subordinated debt
Accumulated amount
of fair value hedge
adjustments on the
hedged items included
in the carrying amount
of the hedged items
Liabilities
€ m
Assets
€ m
249
Line item in
SOFP* where
hedged item
is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Investment securities
(105) Debt securities in issue
(8) Subordinated liabilities
and other capital
instruments
€ m
106
(43)
(6)
(1)The mark to market of these instruments, excluding accruals of € 29 million, is € 252 million (2019: € 64 million is € 176 million).
*Statement of financial position
(2) Net trading
income
–
–
Net trading
income
Net trading
income
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
–
–
–
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements e
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AIB Group plc Annual Financial Report 2020Financial Statements
20 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
12
46
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
7
44
6
99
14
37
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
287
2020
Total
€ m
39
226
2019
Total
€ m
167
158
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
12
111
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
7
96
6
177
14
49
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
2020
Total
€ m
39
433
2019
Total
€ m
167
282
Ineffectiveness reflected in the income statement that arose from cash flow hedges at 31 December 2020 amounted to Nil
(31 December 2019: 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 2020 was a gain of
€ 71 million (2019: a gain of € 184 million).
AIB Group plc Annual Financial Report 2020Financial Statements123456 288
21 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
Amount include:
Reverse repurchase agreements
Securities borrowings
Loans and advances to banks by geographical area(1)
Ireland
United Kingdom
United States of America
2020
€ m
378
1,421
1,799
–
1,799
194
513
2020
€ m
1,276
521
2
1,799
2019
€ m
468
1,010
1,478
–
1,478
151
–
2019
€ m
881
595
2
1,478
(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 € 445 million (2019: € 631 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 35).
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 2020, the collateral received consisted of non-government securities with a fair value of
€ 194 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.
Under securities borrowings, 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 2020, the collateral received consisted of non-government securities and equities with a fair value of
€ 510 million, none of which had been resold or repledged. These transactions were conducted under terms that are usual and customary to
standard securities borrowing agreements.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 22 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(1)
289
2019
€ m
60,359
87
1,603
62,049
(1,238)
60,811
77
60,888
2020
€ m
57,684
104
1,592
59,380
(2,510)
56,870
75
56,945
2,829
3,147
1
1
(1)Undrawn commitments amount to € 117 million and are for less than one year (2019: € 104 million).
Loans and advances to customers include cash collateral amounting to € 14 million (2019: € 18 million) placed with derivative
counterparties.
Under reverse repurchase agreements, the Group has accepted collateral with a fair value of € 107 million (2019: € 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 23).
2020
€ m
618
431
320
200
101
20
1,690
(114)
16
1,592
81
648
2019
€ m
601
448
329
206
104
16
1,704
(116)
15
1,603
39
888
AIB Group plc Annual Financial Report 2020Financial Statements123456 290
23 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
Net re-measurement of ECL allowance – investment securities-debt
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
Other
At 31 December
Amounts include ECL allowance on:
Investment securities – debt measured at amortised cost
Loans and advances to banks measured at amortised cost
Loans and advances to customers measured at amortised cost
2020
€ m
1,238
(17)
1
–
1,493
(151)
(57)
4
2,511
1
–
2,510
2,511
2019
€ m
2,039
9
–
–
117
(362)
(565)
–
1,238
–
–
1,238
1,238
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 291
24 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 2020 and 2019:
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
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and government agencies
Asset backed securities
Euro bank securities
Euro corporate securities
Non Euro corporate securities
Carrying
value
Unrealised
gross
gains
Unrealised
gross
losses
€ m
5,421(1)
1,277
95
1,180
334
85
5,173
1,620
397
93
€ m
348
51
3
27
4
–
90
35
18
9
€ m
–
–
–
(1)
–
–
–
–
–
–
Net
unrealised
gains/
(losses)
€ m
Tax
effect
€ m
2020
Net
after
tax
€ m
348
(44)
304
51
3
26
4
–
90
35
18
9
(7)
–
(3)
(1)
–
(11)
(4)
(2)
(1)
(73)
44
3
23
3
–
79
31
16
8
511
15,675
585
(1)
584
2,294
90
55
208
727
87
107
35
Total debt securities at amortised cost
3,603
Equity securities
Equity investments at FVOCI
Equity investments at FVTPL
Total equity securities
Total investment securities
–
201
201
19,479
–
84
84
–
(7)
(7)
–
77
77
–
(25)
(25)
–
52
52
(1)Includes € 1,804 million in Euro commercial paper issued by the Irish Government.
AIB Group plc Annual Financial Report 2020Financial Statements123456 292
24 Investment securities (continued)
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
Equity investments at FVTPL
Total equity securities
Carrying
value
Unrealised
gross
gains
Unrealised
gross
losses
€ m
5,296
1,538
212
1,034
222
106
5,343
1,654
375
101
€ m
381
63
4
22
1
–
77
12
12
5
€ m
(1)
–
–
(1)
(2)
–
(3)
(2)
(1)
–
Net
unrealised
gains/
(losses)
€ m
380
63
4
21
(1)
–
74
10
11
5
Tax
effect
€ m
(47)
(8)
(1)
(3)
–
–
(9)
(1)
(1)
(1)
2019
Net
after
tax
€ m
333
55
3
18
(1)
–
65
9
10
4
15,881
577
(10)
567
(71)
496
591
14
30
635
458
357
815
414
147
561
–
(4)
(4)
414
143
557
(52)
(46)
(98)
362
97
459
Total investment securities
17,331
In addition to the existing business model Hold-to-Collect-and-Sell (“HTCS”) within Treasury, the Group introduced a new business model
Hold-to-Collect (“HTC”). This business model reflects the updated strategy to invest in long term high quality bonds to maturity for yield
enhancement purposes given the increasingly liability led nature of the balance sheet. On 1 January 2020, the Group transferred Irish
Government securities with a fair value of € 614 million out of HTCS to HTC with an amortised cost of € 577 million which had met the
criteria for inclusion under this business model. The HTC portfolio within Treasury at 31 December 2020 amounts to € 2,734 million of the
total debt securities at amortised cost.
The fair value at 31 December 2020 of the assets that were reclassified on 1 January 2020, amounted to € 641 million (31 December
2019: € 614 million). If the reclassification had not been made, the Group’s statement of comprehensive income for the period ended
31 December 2020 would have included additional fair value gains on the reclassified investment securities assets of € 7 million.
In early 2020, the Group fully redeemed its NAMA subordinated bonds. Up to 2019, the Group had 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 (2019: € 23 million) (note 6).
All equity investments apart from the NAMA subordinated bonds above are classified and measured at FVTPL.
Credit impairment losses recognised in the income statement in 2020 amounted to Nil (2019: Nil). For further details see ‘Net credit
impairment charge’ (note 13).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 24 Investment securities (continued)
The following table sets out an analysis of movements in investment securities:
At 1 January
Exchange translation adjustments
Purchases/acquisitions
New business model transfer
Sales/disposals/redemptions
Maturities
Amortisation of discounts net of premiums
Net change in FVTPL
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 gains/(losses)
At 31 December
Of which:
Listed
Unlisted
Debt
securities
at FVOCI
€ m
15,881
(156)
3,985
(614)
(1,130)
(2,272)
(54)
–
35
Debt
securities
at amortised
cost
€ m
635
(21)
2,429
577
(5)
–
(12)
–
–
15,675
3,603
15,675
–
15,675
3,603
–
3,603
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 amortised
cost
€ m
187
–
449
–
(1)
–
–
635
635
–
635
Equity investments
measured at
FVOCI
FVTPL
€ m
458
–
–
–
(437)
–
–
–
(21)
–
–
–
–
€ m
357
(1)
30
–
(230)
–
–
45
–
24
177
201
Equity investments
measured at
FVOCI
FVTPL
€ m
468
–
–
–
–
–
(10)
458
–
458
458
€ m
260
–
47
(24)
–
–
74
357
46
311
357
201
19,479
293
2020
Total
€ m
17,331
(178)
6,444
(37)
(1,802)
(2,272)
(66)
45
14
19,302
177
19,479
2019
Total
€ m
16,861
68
4,937
(2,216)
(2,473)
(62)
216
17,331
16,562
769
17,331
AIB Group plc Annual Financial Report 2020Financial Statements123456 294
24 Investment securities (continued)
The following table sets out at 31 December 2020 and 2019, 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
Total
Unrealised
losses
of less
than
12 months
Unrealised losses
Unrealised
losses
of more
than
12 months
2020
Total
€ m
€ m
€ m
€ m
Debt securities at FVOCI
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
25
181
5
4
34
249
12
261
–
–
33
113
10
156
22
178
Investments
with
unrealised
losses of
less than
12 months
€ m
Fair value
Investments
with
unrealised
losses of
more than
12 months
€ m
56
93
–
144
–
412
268
48
11
–
–
–
123
160
73
350
–
–
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
Non Euro corporate securities
25
181
38
117
44
405
34
439
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
(1)
–
–
–
–
(1)
(2)
(3)
–
–
–
–
–
–
(5)
(5)
Unrealised losses
Unrealised
losses
of less
than
12 months
Unrealised
losses
of more
than
12 months
(1)
–
–
–
–
(1)
(7)
(8)
2019
Total
€ m
€ m
€ m
(1)
–
–
(1)
–
(3)
(1)
(1)
–
(7)
(2)
(9)
–
–
–
–
(2)
–
(1)
–
–
(3)
(2)
(5)
(1)
–
–
(1)
(2)
(3)
(2)
(1)
–
(10)
(4)
(14)
For details of the credit quality of the investment securities portfolio, see the ‘Risk management’ section of this report.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 25 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)
At 31 December(3)
Of which listed on a recognised stock exchange
2020
€ m
15
15(1)
2020
€ m
83
15
–
98
–
295
2019
€ m
20
20(1)
2019
€ m
90
20
(27)
83
–
(1)Includes AIB Merchant Services € 15 million (2019: € 19 million).
(2)Dividends received from AIB Merchant Services Nil (2019: € 27 million).
(3)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 2020 and 2019:
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.
Proportion of ownership
interest and voting power
held by the Group
2019
%
2020
%
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 22 and 32.
Disclosures relating to the Group’s potential exposure to chargeback risk in AIB Merchant Services are set out in note 43 ‘Contingent
liabilities and commitments’.
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 2020 or 2019.
Change in the Group’s ownership interest in associates
In 2020, there was no change in the ownership interests in associates. During 2019, the ownership interest in Fulfil Holdings Limited
changed from 25% to 23.8%.
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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 296
26 Intangible assets and goodwill
Software
externally
purchased
€ m
Software
internally
generated
€ m
Software
under
construction
€ m
Goodwill(1)
Other
2020
Total
€ m
€ m
€ m
Cost
At 1 January
Additions
Transfers in/(out)
Amounts written-off(2)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(3)
Amounts written-off(2)
Exchange translation adjustments
At 31 December
Carrying value at 31 December
Cost
At 1 January
Additions
Acquisition of subsidiary
Transfers in/(out)
Amounts written-off(2)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(3)
Amounts written-off(2)
At 31 December
Carrying value at 31 December
296
11
–
(15)
–
292
279
10
–
(15)
–
274
18
1,153
103
114
(33)
(3)
1,334
529
166
24
(33)
(1)
685
649
170
122
(114)
(6)
–
172
–
–
6
(6)
–
–
70
–
–
–
–
70
–
–
–
–
–
–
172
70
40
–
–
–
–
40
4
8
–
–
–
12
28
1,729
236
–
(54)
(3)
1,908
812
184
30
(54)
(1)
971
937
2019
Total
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(4)
167
(117)
1
1,153
523
122
1
(117)
529
624
226
120
–
(167)
(10)
1
170
–
–
10
(10)
–
170
Goodwill(1)
Other
€ m
€ m
€ m
–
–
70
–
–
–
70
–
–
–
–
–
70
3
–
37(5)
–
–
–
40
3
1
–
–
4
36
1,515
259
120
–
(167)
2
1,729
833
134
12
(167)
812
917
(1)Relates to the acquisition of Semeral/Payzone. The goodwill was tested for impairment at 31 December 2020 and 2019 and no impairment was identified.
(2) Relates to assets which are no longer in use with a Nil carrying value.
(3)Included in ‘Impairment and amortisation of intangible assets’ in the consolidated income statement.
(4)Relates to the fair value of software acquired on the acquisition of Semeral/Payzone.
(5)Relates to customer contracts and related customer relationships recognised on the acquisition of Semeral/Payzone amounting to € 37 million.
Future capital expenditure in relation to both intangible assets and property, plant and equipment is set out in note 27.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 27 Property, plant and equipment
Owned assets
Freehold
Property
Long
leasehold
€ m
€ m
Leasehold
under
50 years
€ m
167
8
–
–
–
(2)
(1)
172
43
1
–
–
–
(1)
–
43
42
13
5
–
(2)
–
–
45
127
1
1
(1)
–
–
14
29
122
11
–
–
1
(5)
(1)
128
40
10
1
(5)
–
–
46
82
Cost
At 1 January
Transfers in/(out)
Additions
Net re-measurements
Transfers (to)/from
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)
Amounts written-off(1)
Transfers (to)/from
held for sale
Exchange translation
adjustments
At 31 December
Carrying value at
31 December
297
2020
Total
Equipment
Assets
under
construction
Leased assets
Right-of-use assets
Other
Property
€ m
367
13
21
–
3
(6)
(1)
397
288
22
2
(6)
1
1
308
89
€ m
€ m
€ m
€ m
44
(33)
–
–
–
(2)
(1)
8
2
–
–
(2)
–
–
–
8
501
–
5
(1)
–
(12)
(2)
491
57
55
3
(12)
–
–
103
388
2
–
2
–
–
(1)
–
3
1
1
–
(1)
–
–
1
2
1,246
–
28
(1)
4
(29)
(6)
1,242
443
94
7
(29)
1
1
517
725
(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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 298
27 Property, plant and equipment (continued)
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
Restated balance at
1 January 2019
Transfers in/(out)
Additions
Acquisition of subsidiary
Net re-measurements
Transfers (to)/from
held for sale
Amounts written-off(1)
Exchange translation
adjustments
At 31 December
Depreciation/impairment
At 31 December 2018
Impact of adopting
IFRS 16
Restated balance at
1 January 2019
Depreciation charge
for the year
Impairment charge
for the year(2)
Amounts written-off(1)
Transfers (to)/from
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)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 € 238 million (2019: € 236 million) in relation to owned assets
and € 388 million in relation to right-of-use assets (2019: € 444 million), 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 Nil (2019: € 1 million).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 299
27 Property, plant and equipment (continued)
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
2020
€ m
1
32
2019
€ m
2
44
Leased assets
Property
The Group leases property for its offices and retail branch outlets. The property lease portfolio consists of 175 leases, made up of 13 head
office locations and 162 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 year to 8 years.
Other
The Group leases motor vehicles, ATM offsite locations and IT equipment.
Lease liabilities
A maturity analysis of lease liabilities is shown in note 34.
Amounts recognised in income statement
Depreciation expense on right-of-use assets
Interest on lease liabilities (note 5)
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)
2020
€ m
56
13
1
2
2020
€ m
63
2019
€ m
58
14
2
2
2019
€ m
72
(1) Includes amounts reported as interest expense on lease liabilities of € 13 million (2019: € 13 million) and amounts reported as principal repayments on lease
liabilities of € 50 million (2019: € 59 million).
AIB Group plc Annual Financial Report 2020Financial Statements123456
300
28 Other assets
Proceeds due from disposal of loan portfolio(1)
Fair value of hedged asset positions(2)
Other(3)
Total
(1)ECL – Nil.
(2)The fair value of the hedged asset positions only relates to when the hedging item is at amortised cost.
(3)Includes items in transit € 34 million (2019: € 75 million) and sundry debtors € 84 million (2019: € 67 million).
29 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
Other
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the statement of financial position:
Deferred tax assets
Deferred tax liabilities
2020
€ m
–
80
155
235
2020
€ m
24
13
13
15
2,763
8
2,836
(1)
(1)
(77)
(7)
–
(21)
(34)
(4)
(24)
(169)
2,667
2,711
(44)
2,667
For each of the years ended 31 December 2020 and 2019, 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 16)
At 31 December
2020
€ m
2,557
(3)
12
101
2,667
2019
€ m
427
–
228
655
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
2019
€ m
2,595
(1)
44
(81)
2,557
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 301
29 Deferred taxation (continued)
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 261 and 262.
At 31 December 2020, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities, totalled
€ 2,667 million (2019: € 2,557 million).
The amount of recognised deferred tax assets arising from unused tax losses amounts to € 2,763 million (2019: € 2,771 million) of which
€ 2,675 million (2019: € 2,669 million) relates to Irish tax losses and € 88 million (2019: € 102 million) relates to UK tax losses.
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. The deferred tax asset for unutilised tax losses in the UK subsidiary amounts to
£ 79 million at 31 December 2020 (2019: £ 87 million).
Legislation was enacted in the UK during 2020, whereby the previously legislated reduction in the corporation tax rate from 19% to 17%
from 2020 onwards was cancelled. This change has resulted in an increase of the Group’s UK deferred tax asset by c. £ 10 million.
In relation to the losses incurred in the year ended 31 December 2020, a deferred tax asset of £ 7 million has been recognised.
Furthermore, the deferred tax asset for unutilised losses carried forward was written down by £ 25 million at 31 December 2020 as the
expected profitability over the 15 years has reduced compared to those estimated in 2019.
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.
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 2020 of € 2,646 million (2019: € 2,504 million) are expected to be recovered after more than
12 months.
The Group has not recognised deferred tax assets in respect of: Irish tax on unused tax losses at 31 December 2020 of € 161 million
(2019: € 122 million); overseas tax (UK and USA) on unused tax losses of € 3,270 million (2019: € 3,309 million); and foreign tax credits for
Irish tax purposes of € 12 million (2019: € 13 million). Of these tax losses totalling € 3,431 million for which no deferred tax is recognised:
€ 3 million expires in 2032; € 36 million in 2033; € 23 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 (2019: Nil).
Deferred tax recognised directly in equity amounted to Nil (2019: Nil).
AIB Group plc Annual Financial Report 2020Financial Statements123456 302
29 Deferred taxation (continued)
Analysis of income tax relating to other comprehensive income
Loss 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 (losses) in retirement benefit schemes
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Gross
Tax
Net of tax
€ m
(931)
(70)
81
(83)
(50)
(1,053)
(1,081)
28
€ m
190
–
(10)
10
12
202
202
–
€ m
(741)
(70)
71
(73)
(38)
(851)
(879)
28
Gross
Tax
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
Non-
controlling
interests
net of tax
€ m
28
–
–
–
–
28
–
28
Non-
controlling
interests
net of tax
€ m
37
–
–
–
–
37
–
37
2020
Net amount
attributable
to equity
holders of
the parent
€ m
(769)
(70)
71
(73)
(38)
(879)
(879)
–
2019
Net amount
attributable
to equity
holders of
the parent
€ m
327
66
184
(53)
(188)
336
336
–
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 303
30 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 € 78 million (2019: € 80 million) (note 12).
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 15,813 members comprising 4,186 pensioners and 11,627 deferred members at 31 December 2020.
7,762 members have benefits accrued from 2007 to 2013 under a hybrid arrangement. In addition, there are 980 members comprising
129 pensioners and 851 deferred members at 31 December 2020 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 163 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 next actuarial valuation of the UK
scheme as at 31 December 2020 is due to be completed by no later than 31 December 2021. The Group and the Trustee of the UK scheme
agreed funding payments under an arrangement agreed in December 2019 which is described below.
De-risking of the UK scheme
The Group and the Trustee undertook a substantial de-risking of the UK scheme in 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.
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. Under this funding arrangement, the Group expects to make payments of £ 18.5 million each year during 2021
to 2023, with the final balancing payment, which is currently expected to be c. £ 50 million, to be made in 2024/early 2025.
AIB Group plc Annual Financial Report 2020Financial Statements123456 304
30 Retirement benefits (continued)
Contributions
Total contributions to all defined benefit pension schemes operated by the Group in 2020 amounted to € 36 million (2019: € 43 million).
There were no contributions made to the Irish Scheme in 2020 (2019: € 12 million). Contributions of £ 30.5 million were made to the UK
scheme (2019: £ 27 million) as part of the revised funding arrangement which was implemented in December 2019.
Total contributions to all defined benefit pension schemes operated by the Group for the year to 31 December 2021 are estimated to be
€ 21 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 2020 and 2019. 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
2020
%
0.20
1.10
0.95
2.90
1.40
2.90
2019
%
0.00
1.42
1.05
2.90
2.10
2.90
0.00 – 2.90
1.10 – 2.40
0.95 – 2.90
0.00 – 2.90
1.40 – 3.15
1.05 – 2.90
(1) In 2020, the Group revised the basis of the long term rate of increase of pensions in payment assumption for the Irish scheme as set out below.
(2)The inflation assumption applies to the revaluation of deferred members’ benefits up to their retirement date.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 305
30 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. Under this annual
process, the Group decided in February 2020 and in February 2021 that the funding of discretionary increases was not appropriate in
either year.
Rate of increase of pensions in payment – Irish scheme
Notwithstanding the decision by the Board outlined above, during the second half of 2020, the Trustee of the Irish scheme awarded a 1.1%
increase to pensions eligible for discretionary pension increases with effect from 1 April 2020. The impact of this increase has been reflected
as an actuarial loss in these financial statements.
Taking this decision by the Trustee into consideration, the long term assumption for future discretionary increases in pension in payment
now reflects an assessment of the Trustee’s ability to grant further discretionary increases without funding from the Group. This change
does not apply to the other Group pension schemes.
The Group, having taken actuarial advice, has adopted a rate of 0.2% for the long term assumption for future discretionary increases in
pension in payment reflecting an assessment of the ability of the Trustee to grant future discretionary increases without funding from the
Group. This has increased scheme liabilities by € 100 million at 31 December 2020.
Mortality assumptions
The life expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2020 and 2019 are shown
in the following table.
Retiring today age 63
Retiring in 10 years at age 63
Life expectancy – years
Irish scheme
2020
2019
UK scheme
2020
2019
25.3
27.2
26.1
28.2
25.2
27.1
26.0
28.1
25.0
26.8
25.4
27.7
25.0
26.7
25.4
27.7
Males
Females
Males
Females
The mortality assumptions for the Irish and UK schemes were updated in 2017 and 2020 respectively, to reflect emerging market
experience. The table shows that a member of the Irish scheme retiring at age 63 on 31 December 2020 is assumed to live on average for
25.3 years for a male (25.0 years for the UK scheme) and 27.2 years for a female (26.8 years for the UK scheme). There will be variation
between members but these assumptions are expected to be appropriate for all members. The table also shows the life expectancy for
members aged 53 on 31 December 2020 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 306
30 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 2020 and 2019.
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
€ m
€ m
(5,904)
6,474
€ m
(591)
2020
Net
defined
benefit
(liabilities)
assets
€ m
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
€ m
€ m
(21)
(5,323)
6,136
At 1 January
Included in profit or loss
Past service cost
Settlement
Interest (cost)/income
Administration costs
Included in other comprehensive income
Re-measurements gain/(loss):
– Actuarial gain/(loss) arising from:
– Experience adjustments
– Changes in demographic
assumptions
– Changes in financial assumptions
– Return on scheme assets excluding
interest income
– Asset ceiling/minimum funding
adjustments
Translation adjustment on
non-euro schemes
Other
Contributions by employer
Benefits paid
(1)
–
(90)
–
(91)
(11)
3
(502)
–
–
98
(4)
94
–
–
–
–
301
64
(446)
–
215
215
(63)
238
36
(215)
(179)
(8)
(8)
159
159
(1)
–
–
(4)
(5)
(11)
3
(502)
301
159
(50)(2)
1
(49)
36
–
36
(39)
(12)
3
(119)
–
(128)
(9)
2
(620)
–
(5)
139
(3)
131
–
–
–
–
332
(52)
(679)
–
226
226
58
390
43
(226)
(183)
2019
Net
defined
benefit
(liabilities)
assets
€ m
192
(12)
(2)
6
(3)
(11)
(9)
2
(620)
332
44
(251)(2)
6
(245)
43
–
43
€ m
(621)
(14)
(14)
44
44
At 31 December
(6,226)
6,627
(440)
(5,904)
6,474
(591)
(21)
31 December
2020
€ m
31 December
2019
€ 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
26
3
29
–
(43)
(25)
(68)
(39)
32
7
39
–
(35)
(25)
(60)
(21)
(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 € 38 million (2019: € 188 million), see page 228.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 30 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(3)
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 303.
307
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
6,474
2020
€ m
193
70
109
150
66
204
168
140
249
113
48
1,317
–
1,317
881
1,775
2,656
257
14
11
279
6
262
128
40
117
12
–
855
855
238
1,097
6,627
AIB Group plc Annual Financial Report 2020Financial Statements123456 308
30 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 liabilities 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 2020. It is not
considered appropriate to give a sensitivity analysis for the rate of increase of pensions in payment for the Irish scheme as it is dependent
on actuarial advice at the reporting date.
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
(205)
55
122
223
(51)
(122)
(50)
49
47
53
(46)
(47)
Maturity of the defined benefit obligation
The weighted average duration of the Irish scheme at 31 December 2020 is 18 years and of the UK scheme at 31 December 2020 is
19 years.
Asset-liability matching strategies
The investment strategy of de-risking the Irish scheme continued during 2020 as there was a further increase in the level of bonds and
liability matching assets. The scheme also reduced its level of equities and has an equity protection strategy in place.
As part of the investment strategy of the UK scheme, it was significantly de-risked 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 schemes.
In 2020, the Group contributed € 9 million (2019: € 9 million) towards insuring these benefits which are included in Operating expenses
(note 12).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 31 Deposits by central banks and banks
Central Banks
Eurosystem refinancing operations
Borrowings – secured
– unsecured
Banks
Securities sold under agreements to repurchase
Other borrowings – unsecured
309
2019
€ m
–
294
178
472
–
351
351
823
2020
€ m
4,000
278
–
4,278
195
217
412
4,690
Amounts include:
Due to associated undertakings
–
–
Eurosystem refinancing operations are credit facilities from the Eurosystem secured by a fixed charge over securities and relates to
Targeted Long Term Refinancing Operation III (“TLTRO III”). For further details on TLTRO III see note 50.
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
€ 195 million repurchase agreements outstanding at 31 December 2020 (2019: Nil).
Deposits by central banks and banks include cash collateral at 31 December 2020 of € 204 million (2019: € 285 million) received from
derivative counterparties in relation to net derivative positions (note 42) 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
4,768
2,473
2,295
Banks
€ m
210
192
18
2020
Total
€ m
4,978
2,665
2,313
Central
banks
€ m
1,452
–
1,452
Banks
€ m
17
17
–
2019
Total
€ m
1,469
17
1,452
(1) The Group has issued covered bonds secured on pools of residential mortgages. Securities, other than those issued to external investors,
have been pledged as collateral in addition to other securities held by the Group.
AIB Group plc Annual Financial Report 2020Financial Statements123456 310
32 Customer accounts
Current accounts
Demand deposits
Time deposits
Securities sold under agreements to repurchase(1)
Other – non-controlling interests(2)
Of which:
Non-interest bearing current accounts
Interest bearing deposits, current accounts and short term borrowings
Amounts include:
Due to associated undertakings
2020
€ m
49,013
20,426
12,493
15
25
2019
€ m
40,283
17,742
13,755
–
23
81,972
71,803
39,310
42,662
81,972
32,544
39,259
71,803
277
208
(1) At 31 December 2020, the Group had pledged government investment securities with a fair value of € 16 million as collateral for these facilities (see note 42
for further information).
(2) Relates to long term loans from minority shareholders in Augmentum Limited, see note 40.
Customer accounts include cash collateral of € 81 million (2019: € 89 million) received from derivative counterparties in relation to net
derivative positions (note 42).
At 31 December 2020, the Group’s five largest customer deposits amounted to 1% (2019: 1%) of total customer accounts.
33 Debt securities in issue
Issued by AIB Group plc
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
Matured
Amortisation of discounts net of premiums
Exchange translation adjustments
At 31 December
2020
€ m
1,750
1,425
3,175
–
2,275
2,275
5,450
2020
€ m
6,831
–
(1,250)
–
(131)
5,450
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
All the issuances 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 regulation authority.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 34 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
Lease payments(1)
Interest expense(1)
Additions
Net re-measurements
Foreign exchange translation adjustments
At 31 December
(1)Repayment of lease liabilities amount to € 50 million (2019: € 59 million) i.e. lease payments net of interest expense.
35 Other liabilities
Notes in circulation
Items in transit
Creditors
Fair value of hedged liability positions(1)
Other(2)
311
2019
€ m
429
61
193
281
535
2019
€ m
465
(72)
13
23
(2)
2
429
2019
€ m
213
94
46
113
403
869
2020
€ m
382
53
182
240
475
2020
€ m
429
(63)
13
6
(1)
(2)
382
2020
€ m
145
81
42
156
531
955
(1) The fair value of the hedged liability positions only relates to when the hedging item is at amortised cost.
(2) Includes bank drafts € 193 million (2019: € 153 million), invoice discounting credit balances on customer accounts € 96 million (2019: Nil), items in course of
collection € 11 million (2019: € 14 million), the purchase of debt securities awaiting settlement Nil (2019: € 38 million).
AIB Group plc Annual Financial Report 2020Financial Statements123456 312
36 Provisions for liabilities and commitments
Onerous
contracts
Legal
claims
ROU(1)
commit-
ments
Other
provisions
€ m
10
–
–
–
(8)
–
2
€ m
37
(3)
6(2)
(3)(2)
(3)
–
34
€ m
15
–
–
–
–
–
15
€ m
399
3
93(2)
(16)(2)
(216)
(1)
262
Onerous
contracts
Legal
claims
ROU(1)
commit-
ments
Other
provisions
€ m
65
(3)
62
–
1(2)
(1)(2)
–
(52)
–
10
€ m
39
–
39
(1)
6(2)
(3)(2)
–
(4)
–
37
€ m
–
12
12
–
–
–
2
–
1
15
€ m
57
–
57
1
430(2)
(8)(2)
–
(81)
–
399
ECLs
on loan
commit-
ments
€ m
ECLs
on financial
guarantee
contracts
€ m
19
–
46(3)
(11)(3)
–
–
54
23
–
14(3)
(7)(3)
–
(1)
29
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
2020
Total
€ m
503
–
159
(37)
(227)
(2)
396(4)
2019
Total
€ m
219
9
228
–
456
(47)
2
(137)
1
503(4)
At 1 January 2020
Transfers in
Charged to income statement
Released to income statement
Provisions utilised
Exchange translation adjustments
At 31 December 2020
At 31 December 2018
Impact of adopting IFRS 16 at
1 January 2019
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
(1)Provisions for dilapidations included in measurement of right-of-use assets (‘ROU’).
(2)Included in ‘General and administrative expenses’ in note 12 ‘Operating expenses’.
(3) Included in ‘Net credit impairment charge’ (note 13) other than a debit of € 3 million (2019: a credit of € 5 million) which is included in ‘Net gain/(loss) on
derecognition of financial assets measured at amortised cost’ (note 10).
(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 € 228 million (31 December 2019: € 380 million).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 313
36 Provisions for liabilities and commitments (continued)
(a) Other provisions
Includes the provisions for customer redress and related matters, UK restructuring provision, other restitution provisions
and miscellaneous provisions.
FSPO Decision and Tracker Mortgage Examination related provisions
FSPO Decision: The provision at 31 December 2020 for customer redress and compensation and other related costs amounted to
€ 80 million (31 December 2019: € 265 million) in respect of certain mortgage customers – the ‘06-09 Ts & Cs(1) who never had a tracker’
cohort.
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 found that the Bank had breached the terms of the
customer’s mortgage loan contract and directed it to remedy the matter in what the FSPO believed was a fair and proportionate manner.
The Group considered this preliminary decision and recorded a provision of € 265 million as at 31 December 2019 based on an initial
assessment of the likelihood that the same remedy may be due to all customers in this cohort.
The Group subsequently received the FSPO’s final decision and decided to accept the decision in full and furthermore decided to apply
the remedy to all other customers within this cohort, with payments to customers commencing in July 2020. Following intervention by
the Central Bank of Ireland, some of these customers were also deemed eligible for inclusion in the Tracker Mortgage Examination.
This resulted in € 14 million of the original provision being reclassified accordingly.
The Group continues to engage with stakeholders and a number of related issues also exist that have yet to be resolved, including tax
liabilities arising that the Group will be required to discharge on behalf of impacted customers. Notwithstanding the near completion of
payments to customers based on the FSPO decision, the level of provision required for these other costs has been assessed at € 80 million
which resulted in a release of € 4 million in the year.
These issues are subject to uncertainty with a range of outcomes possible with the final outcome being higher or lower depending on
finalisation of such issues.
(1)Terms and conditions.
Tracker Mortgage Examination: In respect of customer redress and compensation a provision of € 8 million is held at 31 December 2020
for the ongoing appeals process and any individual impacted accounts which may be identified under the Tracker Mortgage Examination.
Provisions, including the € 14 million reclassified as noted earlier, amounting to € 208 million were created in the period 2015 to 2020
(€ 13 million in 2020). Over € 200 million of these provisions have now been utilised (€ 25 million in 2020).
The provision at 31 December 2020 for ‘Other costs’ amounted to € 8 million (31 December 2019: € 5 million). Provisions amounting
to € 97 million were created in the period 2015 to 2020 (€ 3 million 2020). Over € 89 million of these provisions have now been utilised
(Nil in 2020).
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 previously created a provision of € 70 million in 2019 for the impact of monetary penalties that is expected to
be imposed on the Group by the CBI. However, this matter is still ongoing, and the Group has retained the provision of € 70 million, as it
remains the Group’s best estimate. This 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 43: Contingent liabilities and
commitments, in the section ‘Legal Proceedings’.
UK restructuring provision
A provision for restructuring costs of € 28 million, in relation to the implementation of a revised strategy in the UK, was created at
31 December 2020 of which € 21 million relates to expected costs of termination benefits for staff impacted by the reorganisation.
(b) ECLs on loan commitments and financial guarantee contracts
The ECL allowance on loan commitments and financial guarantee contracts are presented as a provision in the balance sheet (i.e. as a
liability under IFRS 9) and separate from the ECL allowance on financial assets.
For details of the internal credit ratings and geographic concentration of contingent liabilities and commitments, see pages 129 and 140 in
the ‘Risk management’ section of this report.
AIB Group plc Annual Financial Report 2020Financial Statements123456 314
37 Subordinated liabilities and other capital instruments
Dated loan capital – European Medium Term Note Programme:
Issued by AIB Group plc
€ 500 million Subordinated Tier 2 Notes due 2029, Callable 2024
€ 1 billion Subordinated Tier 2 Notes due 2031, Callable 2026
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)
(d)
(d)
(d)
Maturity of dated loan capital
Dated loan capital outstanding is repayable as follows:
5 years or more
2020
€ m
2019
€ m
500
1,000
–
11
38
1
50
1,550
2020
€ m
500
–
750
10
38
1
799
1,299
2019
€ m
1,550
1,299
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 plc 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 the Group 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) € 1 billion Subordinated Tier 2 Notes due 2031, Callable 2026
On 23 September 2020, AIB Group plc issued € 1 billion Subordinated Tier 2 Notes due 2031, Callable 2026.
These notes mature on 30 May 2031 but may be redeemed in whole, but not in part, at the option of the Group on the optional redemption
date on 30 May 2026, 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 2.875%, payable annually in arrears on 30 May each year.
The interest rate will be reset on 30 May 2026 to Eur 5 year Mid Swap rate plus the initial margin of 330 basis points.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 315
37 Subordinated liabilities and other capital instruments (continued)
(c) € 750 million Subordinated Tier 2 Notes due 2025, Callable 2020
The € 750 million Subordinated Tier 2 Notes issued by Allied Irish Banks, p.l.c. on 26 November 2015 were redeemed in full on the optional
redemption date 26 November 2020.
The notes bore interest on the outstanding nominal amount up to the optional redemption date at a fixed rate of 4.125%, payable annually in
arrears on 26 November each year.
(d) 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.
38 Share capital
Authorised
Ordinary share capital
Ordinary shares of € 0.625 each
Issued and fully paid
Ordinary share capital
Ordinary shares of € 0.625 each(1)
(1)Number of shares in issue: 2,714,381,237.
31 December 2020
31 December 2019
Number of
shares
m
Number of
shares
m
€ m
€ m
4,000.0
2,500
4,000.0
2,500
2,714.4
1,696
2,714.4
1,696
There were no movements in issued share capital during 2019 and 2020.
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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 316
38 Share capital (continued)
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
Capital resources
The following table shows the Group's capital resources:
Equity
Dated capital notes (note 37)
Total capital resources
39 Other equity interests
Issued by AIB Group plc
31 December 2020
31 December 2019
Authorised
share
capital
%
Issued
share
capital
%
Authorised
share
capital
%
Issued
share
capital
%
100
100
100
100
31 December
2020
€ m
13,421
1,550
14,971
2020
€ m
496
619
1,115
2019
€ m
14,230
1,299
15,529
2019
€ m
496
–
496
€ 500 million Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities issued 2019
€ 625 million Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities issued 2020
(a)
(b)
Total
Other equity interests of € 1,115 million (2019: € 496 million) comprise Additional Tier 1 Perpetual Contingent Temporary Write-Down
Securities (‘AT1s’) issued by AIB Group plc (‘the Company’). The securities, which are accounted for as equity in the statement of financial
position, are included in the Group’s capital base.
(a) In 2019, the Company issued € 500 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities
(‘AT1s’).
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.
Under 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 317
39 Other equity interests (continued)
(b) In 2020, the Company issued € 625 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities
(‘AT1s’). The transaction costs incurred were € 6 million.
Interest on the securities, at a fixed rate of 6.250% per annum, is payable semi-annually in arrears on 23 June and 23 December,
commencing on 23 December 2020. On the first reset date on 23 December 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 662.9 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)
23 June 2025 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.
Under 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 by regulatory capital requirements, the Company may reinstate any previously written down amount.
40 Non-controlling interests in subsidiaries
At 1 January
Acquisition of subsidiary
Additions
Non-controlling interests share of net (loss)/profit
Redemption of Additional Tier 1 Securities issued by subsidiary
Distributions paid on Additional Tier 1 Securities issued by subsidiary
At 31 December
Of which:
Equity interests in subsidiary
Additional Tier 1 Securities issued by subsidiary
(1)Relates to a reclassification from “Other equity interests” during 2019.
2020
€ m
495
–
2
28
(494)
(30)
1
1
–
2019
€ m
494(1)
1
–
37
–
(37)
495
1
494
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’). Following a tender process in June 2020, € 202 million of the securities were redeemed for € 207 million, with the
remaining € 298 million AT1 redeemed in full in December 2020. The loss arising on the redemptions amounted to € 9 million and was
recognised directly in equity.
Non-controlling interests in subsidiary undertaking
Augmentum Limited 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. During 2020 additional equity was
contributed by the shareholders in Augmentum.
Semeral/Payzone place of business: 4 Heather Road, Sandyford Industrial Estate, Dublin 18.
AIB Group plc Annual Financial Report 2020Financial Statements123456
318
41 Capital reserves, merger reserve and capital redemption reserves
Capital
contribution
reserves
€ m
955 (1)
Other
capital
reserves
€ m
2020
Total
€ m
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
178
1,133
955(1)
178
2019
Total
€ m
1,133
Capital reserves
At beginning and end of year
(1)Relates to the acquisition of EBS d.a.c.
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 reserves
At beginning and end of year
2020
€ m
2019
€ m
(3,622)
(3,622)
2020
€ m
14
2019
€ m
14
42 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 € 804 million at 31 December
2020 (2019: € 575 million).
The Group’s sale and repurchase and reverse sale and repurchase transactions and securities borrowing and lending are covered by
netting agreements with terms similar to those of ISDA Master Agreements. Additionally, the Group has agreements in place which may
allow it to net the termination values of cross currency swaps upon the occurrence of an event of default.
The ISDA Master Agreements and similar master netting arrangements do not meet the criteria for offsetting in the statement of financial
position as they create a right of set-off of recognised amounts that become enforceable only following an event of default, insolvency or
bankruptcy of the Group or the counterparties. In addition, the Group and its counterparties do not intend to settle on a net basis or to realise
the assets and settle the liabilities simultaneously.
The Group provides and accepts collateral in the form of cash and marketable securities in respect of the following transactions:
–
–
–
–
derivatives
sale and repurchase agreements
reverse sale and repurchase agreements
securities lending and borrowing
Collateral is subject to the standard industry terms of Credit Support Annexes (‘CSAs’), which enable the Group to pledge or sell securities
received during the term of the transaction. The collateral must be returned on the maturity of the transaction. The terms also give each
counterparty the right to terminate the related transactions where the counterparty fails to post collateral. The CSAs in place provide
collateral for derivative contracts. At 31 December 2020, € 450 million (2019: € 643 million) of CSAs are included within financial assets and
€ 257 million (2019: € 347 million) of CSAs are included within financial liabilities.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 319
42 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 2020 and 2019:
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
20
21
21
22
1,244
–
1,244
(804)
(202)
3,012
513
104
4,873
(2,818)
–
–
(2,818)
194
513
104
2,055
(194)
(510)
(107)
(1,615)
(27)
–
–
(229)
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
2020
Net
amount
€ m
238
(27)
3
(3)
211
2020
Net
amount
€ m
31
3,013
(2,818)
195
(193)
(8)
(6)
32
20
15
1,181
4,209
–
–
(2,818)
15
1,181
1,391
(16)
(804)
(1,013)
–
(394)
(402)
(1)
(17)
(24)
Financial assets
Derivative financial instruments
Loans and advances to banks –
Reverse repurchase agreements
Securities borrowings
Loans and advances to customers –
Reverse repurchase agreements
Total
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
AIB Group plc Annual Financial Report 2020Financial Statements123456 320
42 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
1,131
–
1,131
(575)
(268)
2019
Net
amount
€ m
288
Financial assets
Derivative financial instruments
Loans and advances to banks –
Note
20
Reverse repurchase agreements
21
5,116
(4,965)
151
(151)
(21)
(21)
Loans and advances to customers –
Reverse repurchase agreements
22
Total
87
6,334
–
(4,965)
87
1,369
(86)
(812)
–
(289)
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 liabilities
Note
Deposits by central banks and banks –
Securities sold under agreements
to repurchase
Customer accounts –
Securities sold under agreements
to repurchase
Derivative financial instruments
Total
31
4,965
(4,965)
32
20
–
1,181
6,146
–
–
(4,965)
–
–
1,181
1,181
–
–
(575)
(575)
–
–
(564)
(564)
1
268
2019
Net
amount
€ m
–
–
42
42
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 321
42 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 2020 and 2019:
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
2020
Financial
assets not
in scope of
offsetting
disclosures
€ m
1,244
Derivative financial instruments
1,424
180
194
513
Loans and advances to banks
Loans and advances to banks
1,799
1,092
104
Loans and advances to customers
56,945
56,841
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
2020
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
Financial assets
Derivative financial instruments
Loans and advances to banks –
Reverse repurchase agreements
Securities borrowings
Loans and advances to customers –
Reverse repurchase agreements
Financial liabilities
Deposits by central banks and banks –
Securities sold under agreement to repurchase
195
Deposits by central banks and banks
4,690
4,495
Customer accounts –
Securities sold under agreement to repurchase
15
Customer accounts
Derivative financial instruments
1,181
Derivative financial instruments
81,972
1,201
81,957
20
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
Derivative financial instruments
1,181
Derivative financial instruments
Deposits by central banks and banks
823
823
–
–
Customer accounts
71,803
1,197
71,803
16
AIB Group plc Annual Financial Report 2020Financial Statements123456 322
43 Contingent liabilities and commitments
In the normal course of business, the Group is a party to financial instruments with off-balance sheet risk to meet the financing needs of
customers. These instruments involve, to varying degrees, elements of credit risk which are not reflected in the consolidated 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
2020
€ m
2019
€ m
631
91
722
92
8,537
3,875
12,504
13,226
596
115
711
84
8,129
3,326
11,539
12,250
(1) Contingent liabilities are off-balance sheet products and include guarantees, irrevocable 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 credit ratings and geographic concentration of contingent liabilities and commitments, see pages 129 to 140 in the ‘Risk
management’ section of this report.
Provisions for ECLs on loan commitments and financial guarantee contracts are set out in note 36.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 323
43 Contingent liabilities and commitments (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 which are
outlined in ‘Provisions for liabilities and commitments’ (note 36).
Further claims may also be served in the future in relation to tracker mortgages. The Group will also receive further rulings 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 is 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.
During the period 2002 to 2006 the Group sold a series of investment property funds, known as Belfry, to individual investors.
Following losses in those funds, c. 250 investors (who had invested c. £ 30 million) issued claims for alleged mis-selling which have been
ongoing in the Courts since 2015. In the intervening period the Courts have determined that a large portion of the Plaintiffs’ claims are
statute barred. A Supreme Court decision in December 2020 means that the remaining claims will now be considered by the Courts on their
merits for the first time, with the first hearing scheduled for June 2021. The continued strategy is to robustly defend these claims. Based on
the facts currently known and the current stage that the litigation is at, it is not practicable at this time to predict the final outcome of this
litigation, nor the timing and possible impact on the Group.
Chargeback risk
As outlined in note 25, the Group has a 49.9% equity interest in Zolter Services d.a.c. (Zolter) which owns 100% of First Merchant Processing
(Ireland) d.a.c. (FMPI), trading as AIB Merchant Services (AIBMS). FMPI activities are principally focused on the provision of merchant
processing services (acquiring) in respect of card transactions to merchants in Ireland, the UK, Europe and a number of markets globally.
As a merchant acquirer, FMPI processes payments for point of sale and e-commerce transactions on behalf of its merchants. If a merchant
fails to deliver goods or services which have been paid for by card transactions supported by FMPI, the purchaser of the goods or services
may seek a refund from the merchant or raise a claim from their card issuer, also known as a “chargeback” under VISA, MasterCard and
Other Schemes rules. In the event that the merchant is unwilling or unable to pay a valid chargeback, FMPI bears the potential financial
exposure.
The FMPI management team and Board of Directors regularly monitors and assesses the potential exposure arising from chargebacks.
At 31 December 2020, FMPI carries a gross exposure to potential chargebacks amounting to c. € 4 billion across many areas of economic
activity, including wholesale independent sales organisations, retail, airlines, hotels, restaurants and government. The FMPI Directors
have undertaken a risk assessment of these key chargeback exposures and is of the view that FMPI does not need to make any
material provision for this potential chargeback exposure. It is acknowledged that given the impact of COVID-19, the related uncertainties
affecting merchants and the sustainability of their business models, there is uncertainty in relation to the chargeback exposure. However,
the underlying assumption continues to be that merchants will recommence providing, or continue to provide, goods and services to
cardholders, thus reducing and mitigating potential gross chargeback exposure.
In the unlikely event that FMPI is unable to meet its obligations arising from chargebacks, the exposure reverts to AIB Group (Allied Irish
Banks, p.l.c. or AIB Group (UK) p.l.c.) as the principal members of the card schemes for FMPI. An indemnity is in place whereby the owner
of the remaining 50.1% of Zolter would bear 50.1% of any of such potential losses.
AIB Group plc Annual Financial Report 2020Financial Statements123456 324
43 Contingent liabilities and commitments (continued)
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 existence 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 permit 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.
44 Subsidiaries and consolidated structured entities
The material Group subsidiary companies at 31 December 2020 and 2019 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
Registered
Office
10 Molesworth Street,
Dublin 2,
Ireland.
AIB Mortgage Bank
Unlimited Company
Issue of mortgage covered securities
– a licensed bank
Ireland
EBS d.a.c.
Mortgages and savings
– a licensed bank
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
10 Molesworth Street,
Dublin 2,
Ireland.
The EBS Building,
2 Burlington Road,
Dublin 4,
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% of the ordinary share
capital. 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 40). Practically all subsidiaries in the Group are involved in the
provision of financial services or ancillary services.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 325
44 Subsidiaries and consolidated structured entities (continued)
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:
– Burlington Mortgages No. 1 DAC;
– 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.
Further details on these SPEs are set out in note 45.
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.
Acquisition of subsidiary
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 amounted to € 79 million. Furthermore, the transaction whereby Semeral issued shares to Augmentum for a subscription price of
€ 22 million was not part of the business combination, however, it was accounted for as an investment in subsidiary undertakings by
Augmentum and consolidated accordingly.
The Group recognised acquired intangible assets with a fair value € 50 million which consisted of customer contracts and customer
relationships and internally generated software.
The acquisition gave rise to the recognition of goodwill of € 70 million. The goodwill is mainly attributable to Payzone’s fintech capability and
its substantial footprint in Ireland.
AIB Group plc Annual Financial Report 2020Financial Statements123456 326
45 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.
Securities 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 31) and ‘Customer
accounts’ (note 32). 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 31 and 32. 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 2020Financial Statements 327
45 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 subsidiary, AIB Mortgage Bank Unlimited Company. (During 2020, EBS Mortgage Finance
(“EBSMF”) transferred its loan portfolio to EBS d.a.c. and at the request of EBSMF, its regulators the European Central Bank and Central
Bank of Ireland confirmed the withdrawal of EBSMF’s banking licence and designated mortgage credit institution authorisation with effect from
2 February 2021 and accordingly EBSMF will no longer issue covered bonds.) 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 33). As the Group segregates
the assets which back these debt securities into “cover asset pools” it does not have the ability to otherwise use such segregated financial
assets during the term of these debt securities. However, of the total debt securities of this type issued amounting to € 10.7 billion, internal
Group companies hold € 8.4 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 33). Under the terms of the securitisations, the rights
of the investors are limited to the assets in the securitised portfolios and any related income generated by the portfolios, without further
recourse to the Group. The Group does not have the ability to otherwise use the assets transferred as part of securitisation transactions
during the term of the arrangement.
Burlington Mortgages No. 1 DAC
In 2020, the Group securitised € 4 billion of its residential mortgage portfolio held in two of its subsidiaries, EBS d.a.c. and Haven Mortgages
Limited. These mortgages were transferred to a securitisation vehicle, Burlington Mortgages No. 1 DAC “Burlington”. In order to fund
the acquired mortgages, Burlington issued twelve classes of notes to EBS d.a.c. and Haven in the same proportion as the mortgages
securitised. The transferred mortgages have not been derecognised as the Group retains substantially all the risks and rewards of
ownership and continue to be reported in the Group’s financial statements. Burlington is consolidated into the Group’s financial statements
with all the notes being eliminated on consolidation. At 31 December 2020, the carrying amount of the transferred financial assets which the
Group continues to recognise is € 3.7 billion (fair value is € 3.8 billion) and the carrying amount of the associated liabilities is Nil.
Arising from the acquisition of EBS on 1 July 2011, the Group has control of the following special purpose entities which had previously been
set up by EBS: Emerald Mortgages No. 5 d.a.c. and Mespil 1 RMBS d.a.c.
Emerald Mortgages No. 5 d.a.c.
Following the repurchase by EBS d.a.c. of the mortgage portfolio and the redemption of outstanding bonds in 2019, a liquidator was
appointed to the company on 11 December 2019 and this process is expected to conclude in early 2021. (The bonds issued by Emerald 5 to
EBS d.a.c. were not shown in the Group’s financial statements as they were eliminated on consolidation previously).
Mespil 1 RMBS d.a.c.
Following the repurchase by EBS d.a.c. and Haven Mortgages Limited of the mortgage portfolio and the redemption of outstanding bonds in
2019, a liquidator was appointed to the company on 5 December 2019 and this process is expected to conclude in early 2021. (The bonds
issued by Mespil 1 RMBS d.a.c. to EBS d.a.c. were not shown in the Group’s financial statements, as these bonds were eliminated on
consolidation).
AIB Group plc Annual Financial Report 2020Financial Statements123456 328
45 Off-balance sheet arrangements and transferred financial assets (continued)
The following table summarises at 31 December 2020 and 2019, the carrying value and fair value of financial assets which did not qualify
for derecognition together with their associated financial liabilities
Sale and repurchase agreements/similar products
Covered bond programmes
Residential mortgage backed
Carrying
amount of
transferred
assets
€ m
3,039 (1)(2)
Carrying
amount of
associated
liabilities
€ m
210 (1)
Fair
value of
transferred
assets
€ m
Fair
value of
associated
liabilities
€ m
3,039
210
2020
Net fair
value
position
€ m
2,829
3,184 (3)
2,275 (4)
3,314
2,327
987
Sale and repurchase agreements/similar products
5,222(1)(2)
–(1)
5,222
–
Carrying
amount of
transferred
assets
€ m
Carrying
amount of
associated
liabilities
€ m
Fair
value of
transferred
assets
€ m
Fair
value of
associated
liabilities
€ m
2019
Net fair
value
position
€ m
5,222
Covered bond programmes
Residential mortgage backed
4,599(3)
3,025(4)
4,698
3,104
1,594
(1)See notes 31 and 32.
(2)Includes € 2,813 million of assets pledged in relation to securities lending arrangements (2019: € 5,205 million).
(3) The asset pools of € 15 billion (2019: € 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 € 3,184 million (2019: € 4,599 million) above refers to those assets apportioned to
external investors.
(4) Included in ‘Bonds and other medium term notes’ issued by subsidiaries (note 33).
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 30). Under this funding arrangement, the Group expects
to make further payments of £ 18.5 million each year during 2021 to 2023, with the final balancing payment, which is currently expected to
be c. £ 50 million, to be made in 2024/early 2025.
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 2020Financial Statements 329
45 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 2020, the Group recognised € 0.6 million (cumulative € 8.2 million) (2019:
€ 0.7 million (cumulative € 7.6 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 2020, the Group recognised € 2 million (cumulative € 96 million)
(2019: € 3 million (cumulative € 94 million)) in the income statement for the servicing of financial assets transferred to NAMA.
AIB Group plc Annual Financial Report 2020Financial Statements123456 330
46 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 2020 and 2019.
At fair value through
profit or loss
At fair value through other
comprehensive income
At amortised cost
2020
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
–
–
868(2)
–
75
201
–
–
–
–
–
–
15,675
–
1,144
15,675
–
–
1,087(3)
–
–
–
1,087
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
556
–
–
–
–
24,932
618(1)
25,550
43
–
1,799
56,870
–
–
–
–
43
1,424
1,799
56,945
–
–
3,603
19,479
365
365
556
83,644
4,586 105,605
–
–
114
–
–
–
114
–
–
–
–
–
–
–
4,690
4,690
81,972
81,972
–
5,450
1,201
5,450
1,550
1,550
970
970
94,632
95,833
€ m
€ m
€ m
€ m
€ m
€ m
2019
€ m
–
–
783(2)
–
77
357
–
–
–
–
–
–
15,881
–
1,217
15,881
–
–
1,074(3)
–
–
–
1,074
–
–
–
–
–
–
–
–
–
–
–
–
458
–
458
–
–
–
–
–
–
–
–
–
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
–
–
–
–
–
–
–
823
823
71,803
71,803
–
6,831
1,299
1,004
1,197
6,831
1,299
1,004
81,760
82,957
(1)Comprises cash on hand.
(2)Held for trading € 650 million (2019: € 592 million) and fair value hedges € 218 million (2019: € 191 million).
(3)Held for trading € 646 million (2019: € 771 million) and fair value hedges € 441 million (2019: € 303 million).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 331
47 Fair value of financial instruments
The term ‘financial instruments’ includes both financial assets and financial liabilities. The fair value of a financial instrument is the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date in the principal market, 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 note 1 accounting policy (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 2020.
The methods used for calculation of fair value in 2020 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 valuation of offsetting security, where
applicable. For smaller exposures where security valuations are not individually assessed, an LGD of 60% is applied 2019: 60%).
AIB Group plc Annual Financial Report 2020Financial Statements123456 332
47 Fair value of financial instruments (continued)
FVA is calculated as: Expected exposure (“EE”) multiplied by funding spread (“SF”) multiplied by counterpart 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 338. 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
bid prices which have been analysed and compared across multiple sources for reliability. Where bid 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.
With regard to the above 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. 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 2020Financial Statements
333
47 Fair value of financial instruments (continued)
Deposits by central banks and banks and customer accounts
The fair value of current accounts and deposit liabilities which are repayable on demand, or which re-price frequently, approximates to their
book value. The fair value of all other deposits and other borrowings is estimated using discounted cash flows applying either market rates,
where applicable, or interest rates currently offered by the Group.
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 43. 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 2020 and 2019:
AIB Group plc Annual Financial Report 2020Financial Statements123456 334
47 Fair value of financial instruments (continued)
Carrying amount
Fair Value
Fair value hierarchy
€ m
Level 1
€ m
Level 2
€ m
Level 3
€ m
2020
Total
€ m
1,353
70
1
75
6,793
1,180
419
6,793
490
–
201
17,375
25,550
43
1,799
30,459
27,087
57,546
3,769
365
89,072
1,145
46
1
9
1,201
217
4,473
49,013
20,426
12,561
15
5,725
1,639
970
1,353
70
1
75
6,793
1,180
419
6,793
490
–
201
–
–
–
–
6,793
1,180
344
6,793
490
–
24
864
70
1
–
–
–
75
–
–
–
–
17,375
15,624
1,010
25,550
43
1,799
29,901
26,969
56,870
3,603
365
88,230
1,145
46
1
9
1,201
217
4,473
49,013
20,426
12,518
15
5,450
1,550
970
94,632
618(1)
–
–
–
–
–
2,973
–
3,591
–
–
–
–
–
–
–
–
–
–
–
5,689
1,571
–
7,260
489
–
–
75
–
–
–
–
–
–
177
741
–
43
1,421
30,459
27,087
57,546
796
365
24,932
–
378
–
–
–
–
–
25,310
60,171
1,065
46
1
9
1,121
–
4,278
–
–
–
–
36
68
–
80
–
–
–
80
217
195
49,013
20,426
12,561
15
–
–
970
4,382
83,397
95,039
Financial assets measured at fair value
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
Credit 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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements
335
2019
Total
€ m
1,230
36
5
77
7,046
1,034
328
6,997
476
458
357
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
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
47 Fair value of financial instruments (continued)
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.
AIB Group plc Annual Financial Report 2020Financial Statements123456
336
47 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 2020
and 2019.
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
2020
Financial liabilities
Total
Derivatives
Total
Derivatives
€ m
447
–
42
–
42
–
–
–
–
–
–
489
€ m
359
–
88
–
88
–
–
–
–
–
–
447
At 1 January 2020
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 2020
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
Investment
securities
Debt
€ m
Equities
at FVOCI
€ m
–
–
–
–
–
–
–
–
–
–
–
–
€ m
9
(9)
–
–
–
–
–
–
–
–
–
–
458
–
–
–
–
(21)
–
(21)
–
(437)
–
–
€ m
468
–
–
–
–
(10)
–
(10)
–
–
–
458
€ m
77
–
–
41
41
–
–
–
–
–
(43)
75
€ m
147
–
–
66
66
–
–
–
5
(54)
(87)
77
€ m
311
–
€ m
1,293
–
–
29
29
–
–
–
30
(193)
–
177
€ m
236
1
–
72
72
–
–
–
26
(24)
–
311
42
70
112
(21)
–
(21)
30
(630)
(43)
741
€ m
1,219
(8)
88
138
226
(10)
–
(10)
31
(78)
(87)
1,293
€ m
107
–
(27)
–
(27)
–
–
–
–
–
–
80
€ m
122
–
(15)
–
(15)
–
–
–
–
–
–
€ m
107
–
(27)
–
(27)
–
–
–
–
–
–
80
2019
€ m
122
–
(15)
–
(15)
–
–
–
–
–
–
107
107
(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 337
47 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 2020 and 2019:
Net trading income – gains
Gains on equity investments at FVTPL
Gains on loans and advances at FVTPL
2020
€ m
89
23
–
112
2019
€ m
155
70
1
226
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
2020
€ m
2019
€ m Valuation
technique
Asset
Liability
489
80
447 CVA
107
Range of estimates
Significant
unobservable
input
LGD
PD
31 December
2020
58% – 74%
(Base 68%)
0.4% – 1.9%
31 December
2019
43% – 63%
(Base 53%)
0.2% – 0.7%
(Base 0.9%, 1 year PD)
(Base 0.4%, 1 year PD)
Asset
n/a
458 Discounted
Discount rate
cash flows
n/a
n/a
FVA
Funding spreads
(0.2%) to 0.3%
(0.2%) to 0.3%
1% – 4%
(Base 1.94%)
Asset
Asset
31
75
171 Quoted market
price (to which
a discount has
been applied)
77 Discounted
cash flows*
Collateral
values
Final
conversion rate
Discount on
market value
Collateral
changes
0% – 90%
0% – 75%
(1)% – 5%
(1%) – 7%
n/a
n/a
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 2020 ranges from (i) negative € 38 million to positive
€ 19 million for CVA (31 December 2019: negative € 29 million to positive € 14 million) and (ii) negative € 7 million to positive € 3 million for
FVA (31 December 2019: negative € 7 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
In early 2020, the NAMA subordinated bonds were fully redeemed. The fair value measurement sensitivity to unobservable discount rates at
31 December 2019 ranged from negative € 2 million to positive € 1 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 is convertible into Class A Common Stock of Visa Inc. over time, with the first partial conversion
occurring in 2020. The remaining 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. 80% haircut (2019: 41%). 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) 90%
discount for conversion rate variability.
AIB Group plc Annual Financial Report 2020Financial Statements123456
338
47 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
€ 4 million at 31 December 2020 (31 December 2019: negative € 1 million to positive € 5 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 2020 and 2019:
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
2020
Effect on income
statement
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
Favourable Unfavourable
€ m
€ m
20
46 (1)
4
70
2
2
(43)
(15)(1)
(1)
(59)
(2)
(2)
–
–
–
–
–
–
–
–
–
–
–
–
2019
Level 3
Effect on income
statement
Effect on other
comprehensive income
Favourable
€ m
Unfavourable
€ m
Favourable
€ m
Unfavourable
€ m
19
46(1)
5
70
–
–
(37)
(99)(1)
(1)
(137)
–
–
–
1
–
1
–
–
–
(2)
–
(2)
–
–
(1) Relates to a significant equity investment, the carrying value of which was € 31 million at 31 December 2020 (2019: € 171 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 2020Financial Statements 339
48 Cash and cash equivalents
For the purposes of the statement of cash flows, cash and 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)(2)
Total
2020
€ m
25,550
1,009
26,559
2019
€ m
11,982
941
12,923
(1)Included in ‘Loans and advances to banks’ total of € 1,799 million (2019: € 1,478 million) set out in note 21.
(2)Includes € 4 million relating to restricted balances held in trust in respect of certain payables which are included in ‘Other liabilities’ (note 35).
Cash and balances at central banks (net of ECL allowance of Nil) comprise:
Central Bank of Ireland
Bank of England
Federal Reserve Bank of New York
Other (cash on hand)
Total
2020
€ m
19,256
5,522
154
618
2019
€ m
6,953
4,094
276
659
25,550
11,982
The Group is required to hold minimum reserve balances with the Central Bank of Ireland. For details see page 348.
The Group is also required by law to maintain reserve balances with the Bank of England. At 31 December 2020, these amounted to
€ 378 million (31 December 2019: € 468 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 340
49 Statement of cash flows
Non-cash and other items included in profit before taxation
Non-cash items
Profit on disposal of property
Net gain/(loss) 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
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 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 on equity investments
Total other items
Non-cash and other items for the year ended 31 December
Change in operating assets(1)
Change in items in course of collection
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 debt securities in issue
Change in notes in circulation
Change in other liabilities
2020
€ m
–
(24)
(26)
–
(15)
1,532
80
5
315
45
97
(17)
17
66
(45)
–
22
(83)
120
2,089
(36)
26
(10)
2,079
2020
€ m
14
(13)
(285)
1,782
484
1,982
2020
€ m
3,903
10,931
(1,250)
(68)
(212)
13,304
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
2019
€ m
17
(63)
219
(72)
146
247
2019
€ m
(65)
3,504
(565)
(100)
(193)
2,581
(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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 341
50 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 10 Molesworth Street, Dublin 2.
(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 2020, reviews were completed of pricing
arrangements between Allied Irish Banks, p.l.c. and certain Irish subsidiaries, and between certain Irish subsidiaries. Arising from these
reviews, new pricing agreements were signed and implemented during 2020. The new agreements reflect revised 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 22 to the consolidated financial statements, while deposits from associates are
set out in note 31.
(c) Non-controlling interests
The Group has accepted a deposit from the non-controlling interests in a subsidiary which is detailed in note 40.
(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 45).
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 45).
AIB Group plc Annual Financial Report 2020Financial Statements123456
342
50 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 56 and 57). At 31 December 2020, the Group had 17 KMP (2019: 20 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 205 to 207.
Short term compensation(1)
Post-employment benefits(2)
Termination benefits
Total
2020
€ m
5.9
0.9
–
6.8
2019
€ m
6.1
0.7
–
6.8
(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
2020
€ m
3.00
–
(1.44)
1.56
2019
€ m
4.58
0.16
(1.74)
3.00
Total commitments outstanding refers to the total of any undrawn amounts on credit cards and/or overdraft facilities provided to KMP.
Total commitments outstanding at 31 December 2020 were € 0.13 million (2019: € 0.16 million).
Deposit and other credit balances held by KMP and their close family members at 31 December 2020 amounted to € 2.28 million
(2019: € 3.37 million).
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 343
50 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 12 Directors in office during the year, 6 of whom availed of credit facilities (2019: 11). Of the Directors who availed of credit
facilities, 3 had balances outstanding at 31 December 2020 (2019: 7 of 11).
Details of transactions with Directors for the year ended 31 December 2020 are as follows:
Balance at
31 December
2019
€ 000
Amounts
advanced
during 2020
€ 000
Amounts
repaid
during 2020
€ 000
Balance at
31 December
2020
€ 000
Tom Foley:
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**
Tomas O'Midheach:
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
–
–
–
790
10
800
–
4
4
–
–
–
361
7
368
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
49
–
49
–
–
–
–
–
–
38
–
38
–
–
–
–
51
741
12
753
6
807
–
13
13
–
14
–
–
–
–
1
323
9
332
9
374
* 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.
Ms Helen Normoyle held an overdraft facility which was not used during the year. Mr Tom Foley held a credit card facility with the
Group, which held an opening, closing and maximum debit 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 Brendan McDonagh, Mr Richard Pym, Mr Raj Singh, Ms Sandy Kinney Pritchard, Mr Basil Geoghegan and Ms Elaine MacLean had no
credit facilities with the Group in 2020.
All facilities are performing to their terms and conditions. An expected credit loss allowance of under € 500 was held on the above facilities
at 31 December 2020.
AIB Group plc Annual Financial Report 2020Financial Statements123456 344
50 Related party transactions (continued)
(f) Companies Act 2014 disclosures (continued)
(i) Loans to Directors (continued)
Details of transactions with Directors for the year ended 31 December 2019 are as follows:
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**
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
416
–
416
–
–
–
839
16
855
–
5
5
–
–
–
402
8
410
40
–
40
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
33
–
33
–
–
–
49
–
49
–
–
–
–
–
–
41
–
41
10
–
10
383
–
383
4
416
–
1
1
–
1
790
10
800
3
860
–
4
4
–
15
–
–
–
–
2
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 345
50 Related party transactions (continued)
(f) Companies Act 2014 disclosures (continued)
(i) Loans to Directors (continued)
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 was held on the above
facilities at 31 December 2019.
(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 9 persons; 2019: 22 persons):
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2020
€ 000
Balance at
31 December
2019
€ 000
369
9
378
5
426
2,015
47
2,062
49
3,238
All facilities are performing to their terms and conditions. An expected credit loss allowance of under € 500 was held on the above facilities
at 31 December 2020.
* 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 at 31 December 2020 represents c. 0.01%
of the net assets of the Group (2019: c. 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. No dividends were paid during 2020 to the Irish Government.
AIB enters into normal banking transactions with the Irish Government and many of its controlled bodies on ‘an arm’s length’ basis.
In addition, other transactions include the payment of taxes, pay related social insurance, local authority rates, and the payment of
regulatory fees, as appropriate.
AIB Group plc Annual Financial Report 2020Financial Statements123456 346
50 Related party transactions (continued)
(g) Summary of relationship with the Irish Government
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.
The relationship of the Irish Government with AIB is outlined under the following headings:
– Capital investments;
– Guarantee schemes;
– NAMA;
– Funding support; and
– Relationship Framework.
There were no significant changes to the various aspects of the relationship in the year to 31 December 2020.
– 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 2020 or 2019.
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.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 347
50 Related party transactions (continued)
(g) Summary of relationship with the Irish Government (continued)
– Guarantee schemes
European Communities (Deposit Guarantee Scheme) Regulations 2015
Eligible deposits (including credit balances in current accounts, demand deposit accounts and term deposit accounts) of up to € 100,000
per depositor per credit institution are covered under this scheme. The scheme is administered by the CBI and is funded by the credit
institutions covered by the scheme.
Strategic Banking Corporation of Ireland Scheme
The Group, through its participation in the Strategic Banking Corporation of Ireland (SBCI) Support loan Schemes (the ‘Schemes’),
benefits from an 80% Government guarantee against losses on qualifying finance agreements on amounts advanced under the
Schemes. At 31 December 2020, c. € 239 million has been advanced across the following individual schemes: Future Growth Loan
Scheme, Brexit/COVID-19 Working Capital Loan Scheme and the COVID-19 Credit Guarantee Scheme.
– NAMA
AIB was designated a participating institution under the NAMA Act in February 2010. Under this Act, AIB transferred financial assets to
NAMA for which it received consideration from NAMA in the form of NAMA senior bonds which were fully repaid during 2017 and NAMA
subordinated bonds which were fully redeemed in 2020.
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.
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 Irish Pension Scheme with the remainder invested on behalf of clients. The shareholders’ agreement from March 2010
featured a call option which entitled NAMA to repurchase the ‘B’ shares held by investors in NAMAIL. NAMA exercised this call option
and repurchased all of the ‘B’ shares in May 2020. The consideration received for the 12 million shares held by the AIB Group Irish
Pension Scheme was € 13.2 million (fair value at 31 December 2019: € 13 million).
– Funding support
The Group has availed of Targeted Long Term Refinancing Operation III (“TLTRO III”) funding from the ECB, through the Central Bank
and in September 2020 drew down € 4 billion of funding. At 31 December 2020, the amounts outstanding, totalling € 4 billion are
included in ‘Deposits by central banks and banks’ in the table below. The term of the TLTRO III is three years with AIB having the option
to repay after one year. The interest rate on TLTRO III is -50bps, however if certain lending targets are met, this rate will be reduced.
See note 31 for details of collateral.
These facilities, together with other assets and liabilities with Irish Government entity counterparties, are set out below.
– 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.
AIB Group plc Annual Financial Report 2020Financial Statements123456 348
50 Related party transactions (continued)
(g) Summary of relationship with the Irish Government (continued)
Balances held with the Irish Government and related entities
The following table outlines the balances held at 31 December 2020 and 2019 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
2020
Highest(2)
balance held
€ m
Balance
2019
Highest(2)
€ m
balance held
€ m
19,256
20,791
6,953
7,934
–
–
1
7,715
26,972
Balance
€ m
4,000
293
–
2
4,295
–
3
6
8,263
2020
Highest(2)
balance held
€ m
4,000
1,094
–
5
–
–
6
5,754
12,713
Balance
€ m
–
336
–
–
336
43
5
6
7,327
2019
Highest(2)
balance held
€ m
–
1,050
34
4
a
b
c
d
(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 Cash and balances at the central banks represent the placements which the Group holds with the Central Bank. The Group is required
to maintain minimum reserve balances with the Central Bank which can fluctuate due to the reserve requirement being determined on
the basis of the institution’s average daily reserve holdings over a one month maintenance period. While the monthly average Primary
Liquidity balance required by the Group was € 718 million at 31 December 2020 (2019: € 622 million), the balances reported reflect
excess liquidity in the Group during the period.
Investment securities at 31 December 2020 comprise € 7,715 million in Irish Government securities held in the normal course
of business, and includes Euro Commercial Paper amounting to € 1,804 million (31 December 2019: € 5,296 million and NAMA
subordinated bonds of € 458 million).
b
c This relates to funding received from the ECB through the Central Bank which is detailed under ‘Funding Support’ above.
d
Includes € 130 million (2019: € 215 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 2020Financial Statements 349
50 Related party transactions (continued)
(g) Summary of relationship with the Irish Government (continued)
Local government(1)
During 2020 and 2019, 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 2020 and 2019, 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 2020 and 2019:
Assets
Derivative financial instruments
Loans and advances to banks(1)
Investment securities
Liabilities
Deposits by central banks and banks(2)
Derivative financial instruments
2020
€ m
–
–
117
–
–
2019
€ m
1
2
284
–
–
(1)The highest balance in loans and advances to banks amounted to € 30 million in respect of funds placed during the year (2019: € 43 million).
(2) The highest balance in deposits by central banks and banks by these financial institutions amounted to € 29 million in respect of funds received during the year
(2019: € 48 million).
In connection with the acquisition by AIB Group of certain assets and liabilities of the former Anglo Irish Bank Corporation Limited (now Irish
Bank Resolution Corporation Limited (in Special Liquidation) (“IBRC”)), IBRC had indemnified AIB Group for certain liabilities pursuant to
a Transfer Support Agreement dated 23 February 2011. AIB Group had made a number of claims on IBRC pursuant to the indemnity prior
to IBRC’s Special Liquidation on 7 February 2013. AIB Group 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).
While certain progress has been made in the current year, engagement continues between AIB Group and the Joint Special Liquidators in
relation to the claim. AIB maintains its position that no financial loss is expected to occur.
AIB Group plc Annual Financial Report 2020Financial Statements123456 350
50 Related party transactions (continued)
(g) Summary of relationship with the Irish Government (continued)
Irish bank levy
The bank levy 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 2020. The annual levy paid by the Group for 2020 and reflected in
operating expenses (note 12) in the income statement amounted to € 35 million (2019: € 35 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.
51 Employees
The following table shows the geographical analysis of average employees for 2020 and 2019:
Average number of staff (Full time equivalents)
Ireland
United Kingdom
United States of America
Total
The following table shows the segmental analysis of average employees for 2020 and 2019:
Retail Banking
CIB
AIB UK(1)
Group(1)(2)
Total
2020
8,305
997
54
9,356
2020
4,251
667
920
3,518
9,356
2019
8,770
1,026
59
9,855
2019
4,686
610
792
3,767
9,855
(1) 144 FTEs that were reported in Group are now reported in AIB UK with effect from 1 January 2020.
(2) 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, Finance, Risk,
Legal, Corporate Governance & Customer Care, Human Resources, Corporate Affairs, Strategy & Sustainability and Group Internal Audit.
The average number of employees for 2020 and 2019 set out above excludes employees on career breaks and other unpaid long term leaves.
Actual full time equivalent numbers at 31 December 2020 were 9,193 (2019: 9,520).
52 Regulatory compliance
During the years ended 31 December 2020 and 2019, the Group and its regulated subsidiaries complied with their externally imposed
capital ratios.
Notes to the consolidated financial statementsAIB Group plc Annual Financial Report 2020Financial Statements 53 Financial and other information
Operating ratios
Operating expenses/operating income
Other income/operating income
Rates of exchange
€/$*
Closing
Average
€/£*
Closing
Average
351
2019
%
82.1
21.8
2020
%
78.3
21.1
2020
2019
1.2271
1.1417
0.8990
0.8897
1.1234
1.1194
0.8508
0.8777
*Throughout this report, US dollar is denoted by $ and Pound sterling is denoted by £.
Currency Information
Euro
Other
Assets
Liabilities and equity
2020
€ m
89,330
21,055
110,385
2019
€ m
77,213
21,349
98,562
2020
€ m
90,364
20,021
110,385
2019
€ m
77,824
20,738
98,562
54 Dividends
No final dividend on ordinary shares will be paid in respect of the financial year ended 31 December 2020.
On 30 March 2020, the Group announced, following the recommendation of the European Central Bank, that the Company did not intend to
seek shareholder approval for the payment of a final dividend for 2019, which had been previously recommended by the Board. Accordingly,
the relevant Annual General Meeting (“AGM”) resolution was withdrawn and the proposed dividend cancelled.
On 3 May 2019, AIB Group plc paid a final dividend to its shareholders of € 0.17 per ordinary share amounting in total to € 461 million.
55 Non-adjusting events after the reporting period
The Group announced on 19 February 2021 that it had agreed to sell a non-performing loan portfolio in long term default with a gross
carrying value of c. € 0.6 billion for a cash consideration of approximately € 0.4 billion.
The Group announced on 2 March 2021 that it has reached agreement to acquire Goodbody, a leading Irish provider of wealth
management, corporate finance and capital markets services. Under the terms of the agreement, the Group will acquire the entire share
capital for a consideration of € 138 million reflecting c. € 82 million enterprise value and c. € 56 million excess cash on the balance sheet.
Completion of the acquisition is conditional on the satisfaction of customary conditions including approval by the Central Bank of Ireland and
the Competition and Consumer Protection Commission.
56 Approval of financial statements
The financial statements were approved by the Board of Directors on 4 March 2021.
AIB Group plc Annual Financial Report 2020Financial Statements123456 352
AIB Group plc company statement of financial position
as at 31 December 2020
Assets
Loans and advances to banks – subsidiary
Investments 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
Notes
d
e
f
g
h
i
2020
€ m
4,686
7,487
–
41
12,214
3,175
1,500
61
4,736
1,696
–
4,657
6,353
1,125
7,478
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
12,214
13,842
The Company recorded a loss after taxation of € 3,088 million for the year ended 31 December 2020 (2019: loss € 2,985 million).
Brendan McDonagh
Deputy Chair
Colin Hunt
Chief Executive Officer
4 March 2021
AIB Group plc Annual Financial Report 2020Financial Statements AIB Group plc company statement of changes in equity
for the financial year ended 31 December 2020
Attributable to equity holders of the parent
353
2020
Total
€ m
9,987
–
625
(46)
–
579
7,478
2019
Total
€ m
12,933
–
€ m
5,000
–
–
(46)
2,791
2,745
4,657
€ m
5,002
–
(2,985)
(2,985)
–
–
(2,985)
(2,985)
–
500
(461)
3,444
2,983
5,000
(461)
–
39
9,987
Share
capital
€ m
1,696
Other
equity
interests
€ m
500
Merger
reserve
Revenue
reserves
(3,088)
(3,088)
–
–
(3,088)
(3,088)
–
–
–
–
–
–
–
–
1,696
Share
capital
€ m
1,696
–
–
–
–
–
–
–
–
–
–
–
–
625
–
–
625
1,125
Other
equity
interests
€ m
–
–
–
–
–
500
–
–
500
500
€ m
2,791
–
–
–
–
–
–
(2,791)
(2,791)
–
€ m
6,235
–
–
–
–
–
–
(3,444)
(3,444)
2,791
Attributable to equity holders of the parent
Merger
reserve
Revenue
reserves
At 1 January 2020
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)
Distributions paid to other equity interests
(note 18 to the consolidated financial statements)
Transfer between merger and revenue reserves (note i)
Total contributions by and distribution to owners
At 31 December 2020
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 18 to the consolidated financial statements)
Transfer between merger and revenue reserves (note i)
Total contributions by and distribution to owners
At 31 December 2019
1,696
AIB Group plc Annual Financial Report 2020Financial Statements123456 354
AIB Group plc company statement of cash flows
for the financial year ended 31 December 2020
Cash flows from operating activities
Loss before taxation for the year
Adjustments for:
– Non-cash and other items
Dividend income
Distributions from Additional Tier 1 Securities issued by subsidiary
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)
Other income
– Change in operating assets
Change in loans and advances to banks – subsidiary
– Taxation refund
Net cash outflow from operating activities
Cash flows from investing activities
Dividends received from subsidiary
Distributions received from Additional Tier 1 Securities issued by subsidiary
Investment in subsidiary undertaking (note e)
Net cash outflow from investing activities
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities (note j)
Net proceeds on issue of € 1 billion Tier 2 Notes due 2031 (note g)
Net proceeds on issue of € 500 million Tier 2 Notes due 2029 (note g)
Proceeds on issue of debt securities – MREL (note f)
Dividends paid on ordinary shares
Distributions paid to other equity interests
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
2020
€ m
2019
€ m
(3,088)
(2,985)
–
(47)
1
17
97
(6)
5
3,134
1
3,202
(1,000)
–
(886)
–
47
(625)
(578)
625
1,000
–
–
–
(46)
(98)
(9)
1,472
8
4
–
12
(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
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 2020Financial Statements Notes to AIB Group plc company financial statements
355
Background
AIB Group plc is a company domiciled in Ireland with its Registered Office address at 10 Molesworth Street, Dublin 2, 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 234 to 260.
The parent company financial statements and related notes set out on pages 352 to 360 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 2020. 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 261
to 265.
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.
b Operating expenses
Amounts payable to subsidiary under Master Service Agreement
2020
€ m
6
6
2019
€ m
6
6
c Auditors’ remuneration
The disclosure of auditor’s remuneration is in accordance with Section 322 of the Companies Act 2014. This mandates disclosure of
remuneration 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 remuneration was 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 2020.
d Loans and advances to banks
At amortised cost
Funds placed with subsidiary, Allied Irish Banks, p.l.c.
ECL allowance
2020
€ m
4,689
(3)
4,686
2019
€ m
3,813
(2)
3,811
In September 2020, AIB Group plc lent € 1 billion to Allied Irish Banks, p.l.c. repayable on 30 May 2031 with an optional redemption date of
30 May 2026 at a fixed interest rate of 3% up to the optional redemption date.
These borrowings by Allied Irish Banks, p.l.c. are unsecured and subordinated.
AIB Group plc Annual Financial Report 2020Financial Statements123456 356
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
2020
€ m
9,996
625
(3,134)
7,487
2019
€ m
12,940
500
(3,444)
9,996
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 10 Molesworth
Street, Dublin 2. It is the parent company of a number of subsidiaries, both credit institutions and others, all of which are 100% owned
apart from Augmentum Limited in which there are non-controlling interests (note 40 to the consolidated financial statements). 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 Unlimited Company and EBS d.a.c. are
regulated by the Central Bank of Ireland/Single Supervisory Mechanism. In 2020, as part of the corporate structure change in EBS Group,
EBS Mortgage Finance transferred its loan and entire business to EBS d.a.c. and is in the process of being wound down. The principal
subsidiary of Allied Irish Banks, p.l.c. 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 June 2020, the Company invested a further € 625 million in Additional Tier 1 Securities (AT1) issued by Allied Irish Banks, p.l.c., bringing
the total invested in AT1 issued by Allied Irish Banks, p.l.c. to € 1,125 million. These investments follow the company’s own issuance of AT1
securities as detailed in 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 2020, the market capitalisation of AIB Group plc was € 4.6 billion. This was below the carrying amount of its equity
investment in the subsidiary and had been below that carrying amount throughout 2020. 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 € 6,362 million which was lower than the carrying amount (i.e. € 9,496 million) but higher than the fair value,
accordingly, the Company recognised an impairment loss provision amounting to € 3,134 million in 2020. At 31 December 2019, the VIU
was calculated at € 9,496 million and an impairment loss amounting to € 3,444 million was recognised.
AIB Group plc Annual Financial Report 2020Financial Statements 357
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 Strategic Review and the three year Strategic Plan (2021 to 2023) approved by the Board. This output from
the Plan will be used by the Company on an ongoing 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 2023: 2%;
Discount rate: 10%; 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,
which has been heavily impacted by COVID-19, 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 2021 to 2023 undertaken by the Group in the second half of 2020. Profitability levels
underpinning the plan have been revised downwards compared to previous years reflecting the revised macroeconomic outlook.
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
100
(100)
(2)
918
(100)
100
(25)
(724)
Favourable change
bps
Increase in VIU
€ m
31 December 2020
Unfavourable change
bps
Decrease in VIU
€ m
In addition, if year 3 expected cash flows that are used as a base to derive the terminal value were increased/decreased by € 100 million,
the VIU calculation would increase by c. € 472 million/decrease by c. € 674 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 € 5,638 million to € 7,280 million.
31 December 2019
The Company recognised an impairment loss provision amounting to € 3,444 million, as the VIU calculation at 31 December 2019 amounted
to € 9,496 million, which was lower than the carrying value of € 12,940 million. The VIU calculation was based on the output of the three
year Strategic Plan (2020 – 2022), long term profit/risk-weighted asset growth rate after 2022: 3%, discount rate: 9%, and Common equity
Tier 1 target: 14%.
AIB Group plc Annual Financial Report 2020Financial Statements123456 358
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
Exchange translation adjustments
At 31 December
2020
€ m
1,750
1,425
3,175
2020
€ m
3,306
–
(131)
3,175
For details of debt securities issued by the Company during 2020, refer to note 33 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
€ 1 billion Subordinated Tier 2 Notes due 2031, Callable 2026
2020
€ m
500
1,000
1,500
2019
€ m
1,750
1,556
3,306
2019
€ m
1,655
1,640
11
3,306
2019
€ m
500
–
500
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 37 to the consolidated financial statements.
h Share capital
The ordinary share capital of AIB Group plc is detailed in note 38 to the consolidated financial statements.
i Merger reserve
At 1 January
Transfer to revenue reserves
At 31 December
2020
€ m
2,791
(2,791)
–
2019
€ m
6,235
(3,444)
2,791
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.
In 2019, an impairment loss provision of € 3,444 million was recognised which resulted in a transfer of € 3,444 million from revenue reserves
to merger reserve leaving a balance of € 2,791 million in merger reserve.
While an impairment loss of € 3,134 million was recognised in the profit or loss account (note e), only € 2,791 million could be transferred
from the revenue reserves to the merger reserve, bringing the balance on the merger reserve to Nil.
AIB Group plc Annual Financial Report 2020Financial Statements
j Other equity interests
Issued by AIB Group plc
€ 500 million Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities issued 2019
€ 625 million Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities issued 2020
Total
359
2019
€ m
500
–
500
2020
€ m
500
625
1,125
Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities
In 2020, AIB Group plc issued € 625 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 39 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 2020 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
Dividends received
Distributions received from Additional Tier 1 Securities
Notes
b
2020
€ m
121
6
–
47
2019
€ m
90
6
461
–
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
2020
€ m
7,487
4,686
41
21
2019
€ m
9,996
3,811
35
13
The following financing transactions occurred between AIB Group plc and its subsidiary, Allied Irish Banks, p.l.c. during 2020.
(a) AIB Group plc invested € 625 million in AT1 Securities (note e).
(b) AIB Group plc lent € 1 billion to Allied Irish Banks, p.l.c. (note d).
AIB Group plc Annual Financial Report 2020Financial Statements123456 360
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 2020 and 2019:
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.
2020
Total
€ m
4,686
41
4,727
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 2020 and 2019:
On demand
€ m
13
–
13
–
–
61
61
On demand
€ m
4
–
4
–
–
49
49
<3 months
but not on
demand
€ m
–
41
41
–
–
–
–
<3 months
but not on
demand
€ m
–
35
35
–
–
–
–
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
Subordinated liabilities and other
capital instruments
Other financial liabilities
(1)Shown gross of expected credit losses.
3 months
to 1 year
1–5 years
Over
5 years
€ m
€ m
€ m
€ m
–
–
–
–
–
–
–
3,176
1,500
–
–
3,176
1,500
4,689
41
4,730
3,175
–
3,175
–
–
1,500
–
3,175
1,500
3 months
to 1 year
1–5 years
Over
5 years
€ m
€ m
€ m
€ m
–
–
–
–
–
–
–
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
2019
Total
€ m
3,811
35
3,846
2020
Total
1,500
61
4,736
2019
Total
AIB Group plc Annual Financial Report 2020Financial Statements 361
General information
Shareholder information
Internet-based Shareholder Services
Ordinary Shareholders with access to the internet may:
–
–
register for electronic communications on the following link, www.computershare.com/register/ie;
view any outstanding payments, change 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 Euronext
Dublin and the premium listing segment of the Official List of the London Stock Exchange.
Migration of Securities
Euronext Dublin has to date relied on a Central Securities Depository (“CSD”) based in the United Kingdom. This CSD is operated by
Euroclear UK & 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. Euronext Dublin will transfer the settlement of trades in Irish equities from CREST to Euroclear
Bank, which is a CSD based in Belgium, on 15 March 2021. To facilitate the migration to Euroclear Bank, the Irish Government passed the
Migration of Participating Securities Act in December 2019. This legislation required the passing of certain resolutions at an Extraordinary
General Meeting (“EGM”) of the Company which was held on 5 February 2021 and all resolutions were passed at the EGM to effect the
migration.
Registrar and Shareholder Enquiries:
The Company’s Registrar for shareholder enquiries 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.
Massachusetts Financial Services Company holds 111,747,946 ordinary shares representing 4.11% of the total voting rights attached to the
issued share capital.
Financial calendar
Annual General Meeting: 6 May 2021, at 10 Molesworth Street, Dublin 2.
Interim results
A date for the announcement of the Half-Yearly Financial Report 2021 has yet to be finalised and will be published in due course.
AIB Group plc Annual Financial Report 2020General Information 123456 362
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 the Principal risks on pages 50 to 53 in the 2020 Annual Financial Report. In addition to matters
relating to the Group’s business, future performance will be impacted by direct and indirect impacts of the COVID-19 pandemic and by Irish,
UK and wider European and global economic and financial market considerations. Any forward looking statements made by or on behalf
of the Group speak only as of the date they are made. The Group cautions that the list of important factors on pages 50 to 53 of the 2020
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 2020General Information Glossary of terms
363
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
Banking book
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.
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 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
Common equity
tier 1 capital
(“CET1”)
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.
Contractual
maturity
Contractual
residual maturity
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.
AIB Group plc Annual Financial Report 2020General Information 123456 364
Glossary of terms
Credit default
swaps
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 rating
An evaluation of the creditworthiness of an entity seeking to enter into a credit agreement.
Credit risk
The risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation.
Credit risk
mitigation
Credit spread
Credit support
annex
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 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 (“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
Default
Liabilities of the Group which are represented by transferable certificates of indebtedness of the Group to the bearer of the certificates.
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.
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.
AIB Group plc Annual Financial Report 2020General Information 365
ECLs
Eurozone
Exposure at
default
Exposure value
Forbearance
Expected credit loss (“ECLs”) – The weighted average of credit losses with the respective risks of a default occurring as the weights.
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.
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.
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.
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.
Interest rate risk
in the banking
book (IRRBB)
Internal Capital
Adequacy
Assessment
Process
Internal liquidity
adequacy
assessment
process
The current or prospective risk to both the earnings and capital of the Group as a result of adverse movements in interests rates.
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.
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.
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.
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.
AIB Group plc Annual Financial Report 2020General Information 123456 366
Glossary of terms
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.
Minimum
requirement for
own funds and
eligible liabilities
(MREL)
National Asset
Management
Agency
Net interest
income
Net interest
margin
Net Stable
Funding Ratio
New transaction
lendings
Non-performing
exposures
A European Union wide requirement under the Bank Recovery and Resolution Directive for all European banks and investment banks
to hold a minimum level of equity and/or loss absorbing eligible liabilities to ensure the operation of the bail-in tool to absorb losses and
recapitalise an institution in resolution.
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 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 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.
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.
AIB Group plc Annual Financial Report 2020General Information 367
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
Risk-weighted
assets
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 (“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.
Structured
securities
Supervisory
Review and
Evaluation
Process (SREP)
Syndicated and
international
lending
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.
Supervisors regularly assess the risks banks face and check that banks are equipped to manage those risks properly. This activity is
called the Supervisory Review and Evaluation Process and its purpose is to allow banks’ risk profiles to be assessed consistently and
decisions about necessary supervisory measures to be taken.
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.
AIB Group plc Annual Financial Report 2020General Information 123456 368
Glossary of terms
Trade date and
settlement date
accounting
Value at Risk
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.
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 2020General Information Principal addresses
369
Ireland and Britain
Registered Office
10 Molesworth Street,
Dublin 2.
USA
AIB Commercial Finance Limited
10 Molesworth Street,
Dublin 2.
AIB Corporate Banking
North America
1345 Avenue of the Americas,
Telephone: + 353 1 772 5861
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 2020General Information 123456 370
Index
A
Accounting policies
Page
234
E
Earnings per share
Annual General Meeting
Approval of financial statements
Associated undertakings
Auditor’s remuneration
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
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
Deputy Chair’s statement
Derivative financial instruments
Directors
Directors’ interests
Directors’ remuneration report
Disposal groups and non-current
assets held for sale
Distributions on equity shares
Dividend income
Dividends
361
351
295
274
61
188
181
179
168
75
156
318
318
318
10
166
322
178
273
87
261
351
310
310
300
309
8
279
54
207
205
278
278
270
351
90 and 143
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
Forward looking statements
Funding and liquidity risk
G
Gain on financial assets
Glossary
Going concern
Governance and oversight
Group Company secretary
Group Internal Audit
I
Income statement
Independent auditor’s report
Intangible assets
Interest and similar income
Interest and similar expense
Page
277
95
290
350
351
331
289
351
153
361
154
227
144
362
147
272
363
236
171
181
191
227
215
296
270
270
Interest rate risk in the banking book 157
Interest rate sensitivity
Investment securities
159
291
Investments in Group undertakings 324
Irish Government
L
Lease liabilities
Liquidity risk
345
311
147
Loans and advances to banks
288
Loans and advances to customers 289
M
Market risk
Model risk
Page
157
169
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
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
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
271
271
196
351
233
326
318
60
273
164
316
311
272
163
167
369
297
260
312
75
350
165
341
172
303
82
80
80
80
79
209
AIB Group plc Annual Financial Report 2020General Information
371
S
Schedule to the
Group Directors’ report
Segmental information
Share-based
compensation schemes
Share capital
Statement of cash flows
Page
175
266
273
315
232
Statement of comprehensive income 228
Statement of changes in equity
230
Statement of Directors’
Responsibilities
Statement of financial position
Stock exchange listings
Structural foreign exchange risk
Subordinated liabilities and
other capital instruments
Subsidiaries and
consolidated structured entities
Supervision and regulation
T
Taxation
Transferred financial assets
V
Viability statement
W
Website
214
229
361
163
314
324
212
275
326
208
361
AIB Group plc Annual Financial Report 2020General Information 123456 ANNUAL FINANCIAL REPORT
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