BACKING
OUR
CUSTOMERS
ANNUAL FINANCIAL REPORT
for the financial year ended
31 December 2021
AIB Group plc
OUR PURPOSE IS TO BACK
OUR CUSTOMERS TO
ACHIEVE THEIR DREAMS
AND AMBITIONS
AIB Group operates predominantly in Ireland and the
United Kingdom. Our shares are quoted on the Irish and
London stock exchanges and we are a member of the
FTSE4Good Index. Our three core operating segments
are Retail Banking, Capital Markets and AIB UK.
Whether it’s adapting to a greener way of living,
planning for the future, growing a business or simply
navigating day-to-day life, our ambition as a Group is
to be at the heart of our customers’ financial lives every
step of the way.
Merchant
Services
ANNUAL FINANCIAL REPORT
for the financial year ended
31 December 2021
01
ANNUAL
REVIEW
Business Performance
2
4 AIB Group at a Glance
6 Chair’s Statement
Chief Executive’s Review
9
15 AIB in our Communities
16 Economic Outlook
18 Our Strategy
26 Risk Summary
Governance in AIB
32
36 Board of Directors
40 Executive Committee
42 Sustainability in AIB
04
GOVERNANCE
AND OVERSIGHT
170 Group Directors’ Report
173 Schedule to the Group
Directors’ Report
176 Corporate Governance Report
186 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
208
209
Corporate Governance
Remuneration Statement
Report of the Sustainable Business
Advisory Committee
Report of the Technology and Data
Advisory Committee
210 Viability Statement
211
213 Other Governance Information
214 Supervision and Regulation
Internal Controls
02
BUSINESS
REVIEW
03
RISK
MANAGEMENT
Operating and Financial Review
58
73 Capital
78 Framework
83
Individual Risk Types
05
FINANCIAL
STATEMENTS
216 Statement of Directors’ Responsibilities
Independent Auditor’s Report
217
229 Consolidated Financial Statements
Notes to the Consolidated
235
Financial Statements
AIB Group plc Company
Financial Statements
358
361 Notes to AIB Group plc
Company Financial Statements
06
GENERAL
INFORMATION
367 Shareholder Information
368 Forward Looking Statements
369 Glossary of Terms
375 Principal Addresses
376
Index
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 368.
2
Business Performance
Annual Review
AIB Group plc Annual Financial Report 2021
BUSINESS PERFORMANCE
2021 RESULTS
FINANCIAL PERFORMANCE
NET INTEREST INCOME
€1,794m
NET CREDIT IMPAIRMENT
WRITEBACK/(CHARGE)
€238m
PROFIT/(LOSS)
BEFORE TAX
€629m
2021
2020
€1,794m
€1,872m
2021
2020
€238m
2021
€629m
€(1,460)m
2020
€(931)m
Lower average loan volumes and low
interest rate environment impacting
Down 4% due to a reduction in average
loan volumes (including the redemption
and disposal of NPEs), the low interest
rate environment and lower investment
securities income partially offset by
TLTRO funding income benefit
Credit quality and economic backdrop
improving, some uncertainty remains
Writeback reflecting a more favourable
economic environment with
improved credit quality and updated
macroeconomic assumptions partially
offset by post-model adjustments
Return to profitability with net credit
impairment writeback
Operating profit1 down 6% to €688m
(impacted by higher regulatory levies with
stable operating income and expenses)
and impairment writeback of €238m partly
offset by exceptional items of €318m
NEW LENDING
NET LOANS
€10.4bn
€56.5bn
NON-PERFORMING
EXPOSURES2
€3.1bn
2021
2020
€10.4bn
€9.2bn
2021
2020
€56.5bn
€56.9bn
2021
2020
€3.1bn
€4.3bn
Strong growth in new lending up 13%
New lending up 13% with growth of
26% in mortgages in Ireland, strong
performance in renewable energy &
infrastructure and property lending
partly offset by lower UK lending
Net loans broadly stable at €56.5bn
Net loans down €1.3bn (excluding FX
impact) due to the redemption and
disposal of non-performing loans
5.4% of gross loans
Non-performing exposures (NPEs)
decreased by €1.2bn to €3.1bn primarily
driven by the disposal of non-performing
loan portfolios. Legacy² NPEs €0.9bn or
1.5% of gross loans
MEDIUM-TERM FINANCIAL TARGETS3 (END 2023)
MEDIUM-TERM FINANCIAL TARGETS3 (END 2023)
ABSOLUTE
COST BASE4
Cost of running the business, excluding
exceptional costs
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
<€1.475bn
TARGET
>9%
TARGET
>13.5%
Focused cost discipline; controlling
costs annually at <€1.475bn by 2023
Deliver sustainable returns; RoTE >9%
by 2023
Appropriate capital target of CET1
13.5% needed to run the business
OUTCOME
2021
2020
€1.534bn
€1.527bn
Costs broadly in line with 2020, down
1% excluding Goodbody
OUTCOME
2021
2020
(11.2)%
Improved RoTE on return to profitability
8.2%5
OUTCOME
2021
16.6%⁶
2020
15.6%
Strong capital position. Proposed
dividend €122m and share
buyback €91m
1. Operating profit before impairment losses and exceptional items.
2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes
€161m of off-balance sheet exposures. Legacy NPEs are exposures that entered into
default prior to 31 December 2018.
4. Before bank levies, regulatory fees and exceptional items. For exceptional items see
pages 62 and 71.
5. Based on CET1 revised target of 13.5%. 2020 RoTE is based on prior CET1 target of 14%.
6. Excludes the impact of the proposed buyback of €91m. Including the buyback CET1 is
3. Revised medium-term targets as published on 4 August 2021.
16.5%.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Business Performance
3
NON-FINANCIAL PERFORMANCE
GREEN
FINANCE
DIGITALLY ACTIVE
CUSTOMERS
CUSTOMER
SATISFACTION
Amount of new lending per year
for climate action
Number of active users
on digital channels
Transaction Net Promoter Score1
Measured after customer
transactions for key touch points
€2bn
2021
2020
1.85 million
€2bn
€1.5bn
2021
2020
1.85m
1.72m
+45
2021
2020
+45
+49
TARGET
€2bn per year
TARGET
>2.25 million by 2023
TARGET
+53 by 2023
INCLUSION
& DIVERSITY
REDUCTION
IN EMISSIONS3
Women as % of management
% reduction in Scope 1 & 2
emissions year-on-year
42%
2021
2020
42%
41%
19%
2021
2021
2020
19%
20%
TARGET
Gender Balanced
(Ongoing)2
TARGET
Net Zero by 2030
(Own Operations)
1. Transaction Net Promoter Score (NPS) is an aggregation of 20 customer journeys across
3. In our 2020 AFR, we reported our GHG emissions one year in arrears. In an enhancement,
Homes, Personal, SME, Digital, Retail, Direct and Day-to-Day Banking.
2. The Gender Equality Global Report & Ranking – 2021 Edition equates “gender balanced”
with between 40% and 60% of women.
we are now reporting Scope 1 & 2 emissions for the most recent financial year.
Consequently, we have restated our 2020 emissions data, as we now disclose our data
centre emissions in our Scope 3 emissions. Our ambition is to achieve Net Zero in our
financed emissions by 2040 for our full lending portfolio with the exception of Agriculture.
In addition, COVID-19 restrictions had an impact on our emissions reduction in 2021.
4
AIB Group at a Glance
Annual Review
AIB Group plc Annual Financial Report 2021
AIB GROUP AT A GLANCE
RETAIL BANKING
Retail Banking supports our consumer and business customers with a comprehensive
range of banking and financial services, delivered through our No. 1 digital bank in
Ireland whilst transforming our branch network. AIB’s leading Irish retail franchise
serves over 2.5 million customers with over 1.65 million digitally active customers.
Retail Banking has an expanded reach via EBS, Haven, AIB Merchant Services,
Payzone and Nifti.
59%
OF NET LOANS
RETAIL
FRANCHISE
Market-leading bank positions
across core personal and SME
products, including current accounts,
mortgages, credit cards and personal1
and business lending, with H2 versus
H1 new lending up 39%.
CUSTOMER
ENGAGEMENT
Transforming and enhancing how we
serve our customers across AIB, EBS
and Haven. We settled over 1 billion
customer transactions in 2021, with over
96% completed via Digital Channels,
Cards or Automated Payments.
RESOLVING
CUSTOMERS
IN DIFFICULTY
Our proven capability in resolving
non-performing exposures (NPEs) has
returned the Group to below pre-COVID
NPE levels, on track to reach our c.3%
target by 2023 with a transformed
business model.
€4.8bn
LENDING
€33.1bn
NET LOANS
€478m
OPERATING CONTRIBUTION2
CAPITAL MARKETS
Capital Markets serves AIB’s large and medium-sized business customers as well as our
private banking customers. A comprehensive product offering combined with deep sector
expertise allows us to develop long-term, strategic relationships with our customers. To
provide geographic and sector diversification, we selectively participate in European and US
syndicated loans and bonds. In September 2021, Goodbody became part of Capital Markets,
bringing additional capability in wealth management, corporate finance, asset management
and wider capital markets propositions.
27%OF NET LOANS
RELATIONSHIP
DRIVEN MODEL
Trusted strategic long-term partner
for Irish businesses, with a primary
focus on senior debt lending.
CUSTOMER-FOCUSED
SOLUTIONS
Complementing traditional debt
offering through specialised finance,
commercial finance, syndicated
finance and corporate finance
advisory services, as well as private
banking services and advice.
SECTOR
SPECIALIST TEAMS
Centre of Excellence approach
to management of key sectors to
bring sector-specific insights and
expertise to our customers.
€4.1bn
LENDING
€15.4bn
NET LOANS
€442m
OPERATING CONTRIBUTION2
1. No.1 among banks personal lending excluding car finance.
2. Operating contribution before impairments and exceptional items. For further information
see Segment Reporting on pages 66 to 70 in the Operating and Financial Review.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review AIB Group at a Glance
5
AIB UK
AIB UK operates in the two distinct markets of Great Britain and Northern Ireland.
In Great Britain, AIB supports corporate customers with a comprehensive range
of lending and deposit products, offering specific sector expertise. In 2021, AIB UK
began its withdrawal from the GB SME market. In Northern Ireland, AIB offers a full
service retail banking service to personal and business customers with a focus on
mortgages and business lending.
14%
OF NET LOANS
424K
CUSTOMERS
424k retail, corporate and business
customers across the United
Kingdom with 133k actively using
digital channels.
SECTOR-SPECIFIC
EXPERTISE
A relationship-driven and customer-
focused service, specialised in
supporting corporate growth, primarily
in renewables, infrastructure, real estate,
healthcare and manufacturing sectors.
RETAIL
BANKING
AIB in Northern Ireland provides a range
of products for personal and business
customers through multiple channels
including branch banking and digital
options, which continue to advance.
£1.3bn
LENDING
£6.7bn
NET LOANS
£91m
OPERATING CONTRIBUTION1
GROUP FUNCTIONS
OPERATING CONTRIBUTION1
BY SEGMENT
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
The Group’s control and support functions are:
Risk; Finance; Technology; Human Resources;
Operations; Corporate Affairs; Strategy &
Sustainability; Legal, Corporate Governance &
Customer Care; and Group Internal Audit.
10%
AIB UK
47%
Retail
Banking
43%
Capital
Markets
€1.0bn2
FY 2021 TOTAL
For a detailed report on our performance, read
the Operating and Financial Review section on
pages 58 to 72.
1. Operating contribution before impairments and exceptional items For further information
2. Excludes Group segment operating loss €0.3bn.
see Segment Reporting on pages 66 to 70 in the Operating and Financial Review.
6
Chair’s Statement
Annual Review
AIB Group plc Annual Financial Report 2021
CHAIR’S STATEMENT
BUILDING ON
MOMENTUM
FOR THE FUTURE
During the year, we strengthened our medium-term targets to reflect
the impact of the strategic initiatives in flight and we remain relentlessly
focused on the delivery of these by 2023.
It is a great honour for me to present this, my first
Chairman’s Statement since my appointment to
the Board in October 2021. I would first like to
thank and pay tribute to Brendan McDonagh,
Deputy Chair, who himself fulfilled the role of
acting chair at the Board’s request with such skill,
diligence and commitment since the retirement of
my predecessor, Richard Pym. Under Brendan’s
leadership, the Board supported Colin Hunt,
our Chief Executive Officer, and the Executive
Committee as they successfully navigated the
Group through the unprecedented disruption of
the COVID-19 pandemic. The Group has emerged
from this global shock with a robust balance
sheet, a refreshed strategy and medium-term
targets, an expanded product suite and exciting
business plans for the future. We are focused on
delivering sustainable growth by fostering deeper
relationships with our customers and being at the
heart of their financial lives.
RETURN TO DISTRIBUTIONS
2021 saw a welcome return to profitability with the
Group reporting profit before taxation of €629m.
Colin will elaborate further on this in his Chief
Executive’s Review on pages 9 to 14. This result
has enabled the Board to consider the issue of
distributions and I am very pleased to announce
that the Board is recommending a dividend per
share of 4.5 cent, subject to shareholder approval at
the Annual General Meeting on 5 May 2022.
SELL DOWN BY THE IRISH STATE
On 21 December 2021, we were pleased to note the
announcement by the Minister for Finance in which
he announced his intention to sell part of the State’s
71.12% shareholding in the Group. AIB owes the
Irish taxpayer an immense debt of gratitude for its
support during the global financial crisis. Your Board
remains focused on the Group executing its strategy
which we believe will benefit all shareholders as the
investment case for new shareholders in the Group
becomes more and more attractive.
BOARD CHANGES DURING 2021
2021 was a busy year for the Nomination and
Corporate Governance Committee and saw a
total of seven Directors joining the Board. On 22
January 2021 Fergal O’Dwyer, the former CFO of
DCC plc was appointed to the Board and the Audit
Committee. This was followed on 15 March 2021
when Andy Maguire, the former Group COO for
HSBC Holdings plc was appointed to the Board and
the Risk Committee. Donal Galvin, the Group CFO
was appointed to the Board as an Executive Director
on 28 May 2021. On 18 June 2021, we announced
the appointment of Anik Chaumartin, a former
senior partner at PricewaterhouseCoopers in Paris.
Anik joined the Board and the Audit Committee
with effect from 1 July 2021. On 14 September 2021,
we announced the appointment of two Directors,
Tanya Horgan, former CRO at Flutter Entertainment
plc and Jan Sijbrand, former executive at ABN
Amro Holding NV and Chairman for Supervision at
De Nederlandsche Bank N.V. (the central bank for
the Netherlands). Both joined the Board and Risk
Committee with immediate effect. Finally, my own
appointment was announced on 28 October 2021.
As part of their induction, all new Directors, including
myself, were invited to attend meetings while
awaiting the regulatory approval process to conclude
so all have been exposed to the Board, and the
business and strategy of the Group, for longer than
the foregoing dates suggest. This is a lot of change
for the Board in one year but I have been struck
since my own arrival at how well the new appointees
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Chair’s Statement
7
IT IS CLEAR TO ME
JUST HOW CENTRAL
SUSTAINABILITY IS IN
THE GROUP’S STRATEGY
had already settled in. On behalf of the Board, I
wish to express my sincere gratitude to Ms Carolan
Lennon, the Current Senior Independent Director,
for her significant contributions to the Board and the
Group since she joined in 2016. Carolan informed the
Board that she will step down on 30 June 2022 and
we wish her the very best for the future.
SUSTAINABILITY AND COMMUNITY INVOLVEMENT
It is clear to me just how central sustainability is in
the Group’s strategy and how it informs so much of
what we now decide as a Group. I have been equally
impressed by the Group’s commitment to supporting
local and national initiatives which undertake such vital
work in the communities where we operate. The pages
following Colin’s review, and our Sustainability Report
2021, provide more detail on the impressive work being
undertaken by the Group in these important areas.
THANK YOU TO COLLEAGUES
As the world pivots to a new normal in the aftermath
of the pandemic and as we see our colleagues return
to our offices in new hybrid ways of working, it is
opportune for me to record here the Board’s deep
appreciation to everyone working in AIB Group, for
their extraordinary support to the Group, to each other,
to our customers and our communities and those
who rely on us every day for their financial needs.
Everyone had an important part to play in keeping the
Group, our employees and our customers safe during
these difficult times, whether from their homes, from
branches or our offices and I thank them all on behalf
of the Board.
AMBITION FOR THE FUTURE
My first official duty as Chair of the Board was to chair
the strategy offsite meeting in November. I came away
with a real appreciation for the ambition of Colin, his
team and the Board for the growth and development
of the Group, with our valued customers at the heart
of every decision. During the year, we strengthened
our medium-term targets to reflect the impact of the
strategic initiatives in flight and we remain relentlessly
focused on the delivery of these by 2023.
As we look to the future, everyone in AIB Group is
focused on building on the momentum of a successful
year in 2021. Your Board remains confident that the
Group is well positioned to deliver real, sustainable
value in the years ahead for all our shareholders.
JIM PETTIGREW
Chair
2 March 2022
8
Our Group
Annual Review
AIB Group plc Annual Financial Report 2021
OUR GROUP
AT THE HEART
OF CUSTOMERS’
FINANCIAL LIVES
AIB is a financial services group of companies. Our main business
activities are retail, business and corporate banking, wealth
management, mobile payments and card acquiring.
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 predominantly mortgage-focused brand within the AIB Group, helping
thousands of people buy their own homes in Ireland. It offers mortgage,
personal banking, savings and investment products and services.
Haven is the trading name of our mortgage broker channel, which was
established as a subsidiary of EBS in 2007, providing mortgages through
intermediaries on behalf of AIB Group.
Payzone is a subsidiary of AIB Group. It is a leader in digital payments,
providing comprehensive solutions to more than 7,500 retail stores, over 100
clients and over 400,000 app users across Ireland.
Goodbody is a leading investment-led business, offering wealth management,
asset management and investment banking services with quality advice and
exceptional client service at the core of its offering.
AIB Merchant Services is a joint venture with Fiserv, a global leader in fintech
and payments. It is one of Ireland’s largest payment solution providers and one
of Europe’s largest e-commerce acquirers, with a global customer base.
NiftiBusiness and Nifti Personal Leasing promote sustainable mobility solutions for
Irish businesses and consumers. NiftiBusiness assists companies in achieving their fleet
management goals; Nifti focuses on helping consumers switch to electric driving.
AIB Group plc Annual Financial Report 2021
Annual Review Chief Executive’s Review
9
CHIEF EXECUTIVE’S REVIEW
POSITIONED
FOR GROWTH
In 2021, we accelerated the delivery of our strategy and
expanded our product suite, enabling us to sustainably
generate value for our stakeholders.
1
2
3
4
5
6
2021 was a year of very significant progress across the
Group despite uncertainties related to the COVID-19
pandemic. The Irish economy performed much better
than expected due to the successful vaccine rollout,
sustained government supports for business and
society’s willingness to adapt to tough restrictions.
Against this backdrop, I am pleased to report a robust
set of results with profit before tax of €629m, a strong
CET1 capital position of 16.6%1 and solid growth in
new lending – clear evidence of AIB’s ability to play a
key role in the country’s economic recovery.
We continued to simplify, streamline and strengthen
our business and maintained the No. 1 position in
our core markets. We are now the country’s leading
business bank and foremost mortgage provider
while also setting the sustainability agenda in
financial services in Ireland.
As the country and the world confronts the growing
threat of climate change, we expanded our green
lending portfolio and put a comprehensive set
of actions in train across the Group to ensure we
maintain and extend our position as a leading force
for sustainability. We have stated our ambition for
70% of our new lending to be green or transition by
2030 and have a clear target to achieve net zero in
our financed emissions by 2040 for our full lending
portfolio (2050 including agriculture).
Throughout 2021, we accelerated the delivery of our
strategy and began the year with the announcement of
the acquisition of Goodbody, now firmly in the Group
with integration going well. This was followed by our
agreement to set up a joint venture with Great-West
Lifeco. Both of these developments will enhance our
wealth offering to customers and provide material
long-term opportunities for the Group. We also
announced the acquisition of the Ulster Bank corporate
and commercial loan book, for which the competition
authority approval process is underway.
1. Excludes the impact of the proposed buyback of €91m. Including the
buyback CET1 is 16.5%.
10
Chief Executive’s Review
Annual Review
AIB Group plc Annual Financial Report 2021
NEW MORTGAGE LENDING WAS
26% HIGHER, AT €3bn, AS IRELAND’S
MORTGAGE MARKET CONTINUED
ITS STRONG PERFORMANCE
THROUGHOUT 2021
These initiatives help to complete our product suite
and position the Group for growth, sustainably
generating value for all our stakeholders and
enhancing our capacity to be at the very heart of our
customers’ financial lives.
The recently agreed sale of our SME loan book
in Great Britain is further evidence of how our
Transformation Programme is delivering real change
and tangible cost savings.
We remain on track to meet our medium-term
targets of a CET1 of greater than 13.5%, a cost base
of less than €1.475bn and a return on tangible equity
of greater than 9% in 2023. More details on the
progress made on each of our strategic initiatives can
be found on page 19.
FINANCIAL PERFORMANCE
Our core business segments contributed positively
to our financial performance in 2021 and we are
reporting a profit before tax of €629m for the full-year.
This includes an operating profit of €688m before
exceptional items and impairment writeback.
Total operating income of €2,384m was in line with
full year 2020. We have seen a further reduction in our
net interest income to €1,794m, a 4% decrease year-
on-year. This moderate decline was driven by lower
average customer loan volumes, the low interest rate
environment and lower investment securities income
partially offset by the TLTRO funding income benefit.
Other income of €590m is up 18%, or 13% excluding
Goodbody, compared to 2020 driven by an increase in
underlying net fee and commission income.
Our total operating expenses were €1,534m, down 1%
excluding Goodbody. We will continue to maintain
our focus on the cost agenda in 2022, leveraging
opportunities to reduce costs through increased
efficiencies.
There was a net credit impairment writeback of
€238m reflecting a more favourable economic
environment, improved credit quality and updated
macroeconomic assumptions partially offset by post-
model adjustments. Our overall approach remains
conservative, comprehensive and forward-looking
and is reflected in an expected credit loss coverage
rate of 3.2%.
Exceptional items of €318m include restitution-
related costs, restructuring costs and inorganic
transaction costs. In terms of legacy items, where
we identify an issue, our priority is to put things
right for our impacted customers. We continue to
work closely with the Central Bank of Ireland with
regard to any Tracker-related issues and associated
Enforcement investigations.
New lending of €10.4bn in 2021 was 13% higher
than 2020. We continued to see mixed trends across
our core segments; new mortgage lending was
26% higher at €3bn, as Ireland’s mortgage market
continued its strong performance throughout the
year, while personal lending was 5% lower at €0.9bn,
reflecting subdued credit demand and higher
savings as a result of COVID-19 restrictions. New
lending in Capital Markets was 33% higher at €4.1bn,
driven by an increase in property and renewable
energy lending. Irish SME lending was broadly in line
with 2020 with higher term lending (which benefited
from government-supported schemes) offset by
lower transaction lending.
Gross loans at €58.4bn were down €1.0bn driven
by a reduction in non-performing loans of €1.2bn
or 28% with performing loans of €55.3bn, broadly
stable when compared to 2020 year-end. Net
loans were down €1.3bn (excluding FX impact)
primarily due to the redemption and disposal of
non-performing loans. As at 31 December 2021,
87% of AIB’s loan book was of strong or satisfactory
AIB Group plc Annual Financial Report 2021
Annual Review Chief Executive’s Review
11
1
2
3
4
5
6
quality (up from 85% at 2020 year-end). Maintaining
the quality of new lending is critical, with more
than 98% of our new lending being of strong or
satisfactory credit quality in 2021.
Non-performing loans as a percentage of gross
loans to customers was 5.4% at 31 December
2021 compared to 7.3% at 31 December 2020. This
decrease primarily reflects the disposal of loan
portfolios and redemptions, partially offset by net
flow to non-performing. We remain committed to
reducing non-performing exposures (NPEs) to c.3%
of gross loans by 2023 given the impact on cost,
capital requirements and balance sheet resilience.
Legacy NPEs were €0.9bn or 1.5% of gross loans.
AIB’s funding ratios remain robust. As customer
deposits continue to accumulate, up 13% in 2021,
our Loan to Deposit Ratio was 61% at the end of
December 2021 and we continue to have strong
liquidity metrics (Liquidity Coverage Ratio 203% and
Net Stable Funding Ratio 160%).
In May, we issued our second green bond to the
market raising €750m and bringing MREL eligible
instruments to €6.6bn.
The Group has a strong capital base with a CET1
ratio of 16.6% at 31 December 2021, well in excess
of regulatory requirements and our medium-term
target of greater than 13.5%. Proposed distributions
include an ordinary dividend of €122m and a
directed share buyback of €91m.
DIGITAL
As Ireland’s leading digital bank, continued
investment in our digitally-enabled product lines is
imperative to ensure we provide our customers with
a seamless end-to-end journey characterised by
quicker decision times and access to funds.
The way our customers are choosing to interact
with us has fundamentally changed – and was
hastened by the pandemic with our digitally-active
base now standing at 1.85m. It is not only younger
IT IS NOT ONLY YOUNGER
CUSTOMERS WHO ARE
CHOOSING DIGITAL; WE
SAW A 41% INCREASE
IN THE NUMBER OF
ACTIVE MOBILE BANKING
CUSTOMERS AGED 65+
12
Chief Executive’s Review
Annual Review
AIB Group plc Annual Financial Report 2021
designed to equip our people with the skills and
knowledge to successfully manage and motivate
colleagues to be purpose-driven and performance
orientated, while positively impacting cultural change.
We are committed to creating an inclusive and
supportive organisation that delivers for all our
customers and creates an environment in which
our employees also develop and thrive. In 2021,
we were the first Irish bank to be awarded a Silver
accreditation by the Irish Centre for Diversity,
Ireland’s only equality, diversity and inclusion
performance mark. Gender diversity has been a
key strategic focus for AIB and last year’s Graduate
Programme intake had a 50/50 gender split. We
also launched our Employee Value Proposition
(EVP), which is designed to attract more diverse
talent while supporting our continued focus on
ensuring we have the right skills and capabilities in
place to deliver on our strategic objectives.
Despite the challenges posed by the pandemic,
our customer-facing colleagues continued to
work tirelessly supporting our customers, while
the majority of our colleagues continued to
work remotely. Progress was also made on our
Future of Work plans and in December 2021 we
defined our future Hybrid Working Model. We
will focus on new ways of working, enabling
team engagement in the office, and shifting the
emphasis to purposeful collaboration, networking
and innovation.
A number of announcements were made in 2021
regarding our Executive Committee. Fergal Coburn
was appointed Chief Technology Officer, Robert
Mulhall announced his decision to leave the Group
and Hilary Gormley has since been appointed
Managing Director Designate of AIB UK. Our Chief
Risk Officer, Deirdre Hannigan, also signalled her
intention to retire and a process to appoint her
successor is well advanced and an announcement
will be made in due course. I congratulate Fergal
and Hilary on their appointments and express
my appreciation to Deirdre and Robert for their
significant contributions to the Group and wish
them well in their future endeavours.
SUSTAINABLE COMMUNITIES
Sustainable Communities is a key strategic pillar for
AIB. The Environmental, Social and Governance
(ESG) agenda is being embedded as part of the very
fabric of the organisation and how we conduct our
activities day in, day out.
As underlined at COP26 in Glasgow last year, in
the fight against climate change there can be no
further delays.
customers who are choosing digital; in 2021 we
saw a 41% increase in the number of active mobile
banking customers aged 65+. Our customers have
also embraced new payment methods with a 218%
increase in digital wallet payments compared to pre-
pandemic levels, with the value of these payments
increasing by 382% on the same period.
Recognising the importance of cyber risk and
information security, we continue to educate AIB
staff and our customers on emerging cyber threats.
We sustain significant annual investment in a
range of sophisticated technologies and strategic
partnerships that underpin our cyber defence
capabilities. We actively participate in industry
fora, collaborating with other banks to ensure our
products and services remain available to customers
and their data remains protected.
CULTURE AND OUR PEOPLE
Our purpose, values and our people are the
cornerstones on which our culture is built.
Empowering our leaders and encouraging them
to live our organisation’s values and associated
behaviours is key to evolving our culture. With that in
mind, we held our first Leadership Summit in October
and launched our Leaders Enabling a Difference
(LEAD) Programme, an all-inclusive programme
EMPOWERING OUR LEADERS
AND ENCOURAGING THEM TO
LIVE OUR ORGANISATION’S
VALUES AND ASSOCIATED
BEHAVIOURS IS KEY TO
EVOLVING OUR CULTURE
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Chief Executive’s Review
13
WE CONTINUED TO EXPAND
OUR GREEN LENDING WHICH
ACCOUNTED FOR 19% OF
ALL NEW LENDING IN 2021
To this end, we continued to expand our green
lending which accounted for 19% of all new lending
in 2021 and is the fastest growing part of our
loan book. We also reduced our own scope 1 & 2
emissions by 19% and are now finalising a Corporate
Power Purchase Agreement (PPA) to directly source
renewable solar energy for our operations to reduce
our emissions further.
We gave further practical effect to our commitment
to social progress, particularly in relation to the
greatest issue facing our society – the housing
deficit. We announced a new €500m Social Housing
Fund to provide 3,000 social housing units in Ireland
in the coming three years. We published our Social
Bond Framework, we launched a financial literacy
and skills programme for secondary school students
and, in addition, AIB also became the title sponsor of
the GOAL Mile.
From a governance perspective, we established a new
Group Sustainability Committee which also oversees
our multi-year sustainability regulatory programme.
Overall, the Group is now well placed to continue
to drive ESG and Sustainability across both the
organisation and our customer base. For further
details on the progress we are making, please see
pages 42 to 55 and our detailed Sustainability Report.
We p l e d g e t o
D O M O R E
S U S TA I N A B I L I T Y R E P O RT
fo r t h e fi n a n c i a l ye a r e n d e d
3 1 D e ce m b e r 2 0 2 1
A I B G ro u p p l c
For more information see our
Sustainability Report 2021
OUTLOOK
Though COVID-related restrictions remained in place
for much of the year, it is a measure of the underlying
strength of the Irish economy that it could rebound
so strongly in 2021 across all sectors including
manufacturing, services, construction and retail.
Housing starts picked up sharply during 2021, with
the strongest level of commencement activity seen
since 2007. Forecasters are projecting another year of
strong economic growth, with the global economy
expected to perform well and scope for a rundown
of the large build-up of private sector savings seen
during the pandemic. However, there are still risks to
the economic recovery, including how well businesses
will cope with a withdrawal of government COVID-19
supports, as well as the marked rise in inflationary
pressures over the past year, which is expected to see
central banks move onto a policy-tightening path in
2022. The crisis in Ukraine adds further uncertainty
to the economic outlook, but any impact on growth
in our core markets is expected to be modest at this
point.
AIB Group’s robust balance sheet, its digital capability
and the scale of its operations mean we will continue
to play a key role in supporting our customers, our
communities and the wider Irish economy. We want
to build on the achievements of 2021, by enabling
and leveraging a platform for growth, focusing on
key areas including mortgages, Capital Markets and
our UK business. We will further enhance our wealth
proposition and go to market across a wide range of
customer groups. Combining this with our leading
customer franchise and the quality and ever increasing
functionality of our digital offering, these moves will
ensure that AIB is the market-leading, full-service
financial provider in Ireland.
We welcomed the decision in December by the
Minister for Finance, Mr Paschal Donohoe, in relation
14
Chief Executive’s Review
Annual Review
AIB Group plc Annual Financial Report 2021
to the further divestment of the State’s shareholding in
AIB Group plc. We owe the Irish taxpayer an immense
debt of gratitude for its support during the global
financial crisis.
And so, looking to 2022 and beyond, buoyed by
the momentum in our business and strong pipeline,
we are well positioned to deliver on our medium-
term targets and generate sustainable profits in the
interests of all our stakeholders.
Finally, I would like to thank my fellow Board and
Executive Committee members for their unwavering
support and determination to deliver a professional
and trusted banking service to our 2.8 million
customers. I welcome our new Chair, Jim Pettigrew,
to the Group, and I look forward to working closely
with him in implementing our strategy. I also thank
our interim Chair, Brendan McDonagh, and all of my
colleagues across the Group for their relentless effort
and commitment. Together, we are demonstrating
our ability to rise to unprecedented challenges and
to ensure that all our strategies have, at their core,
the welfare of our customers and the strengthening
of the Group’s balance sheet so that we continue to
play a key positive role in the Irish economy now and
in the years to come.
COLIN HUNT
Chief Executive Officer
2 March 2022
CREATING VALUE SUSTAINABLY
10,000
HOMES UNDER
DEVELOPMENT
2,000
SOCIAL HOMES
FUNDED
7,686
FIRST TIME
BUYERS
SUPPORTED
S
E
M
H O
#1 IN IR
E
L
A
N
D
€450M
4
€10M
€1.0BN
2.8M
CUSTOMERS
2,128
SUPPLIERS6
C
R
E
V
A
A
L
T
U
I
O
E
N
9,154
EMPLOYEES5
€796M
DIGITA L
LEADERS H I P
1.55M
ACTIVE MOBILE
CUSTOMERS
1.85M
DIGITALLY ACTIVE
CUSTOMERS
2.86M
DAILY
INTERACTIONS
€3.1BN
€10.4BN
€1.6BN
G
S
N
M
I
K
A
C
E
A
R
B
D
€2.0BN
Information as of 28 February 2022.
Source: Company information and independent market research.
1. New mortgage lending FY2021
2. No. 1 among banks personal lending excluding car finance
3. See “Personnel expenses” in our AFR 2021 – note 12 p.276.
4. “Tax paid” (€194m) refers to taxes borne by the Group, incl. corporate tax, bank levy, social
employer insurance and irrecoverable VAT.
“Tax collected” (€256m) comprises of payroll taxes/social insurance collected from
employees and net VAT collected from customers.
5. Average employees in 2021, including Payzone and Goodbody employees. Total
employees at 31 December 2021 including Payzone and Goodbody employees was 8,916.
6. For more details, see page 112 in our Sustainability Report 2021.
AIB Group plc Annual Financial Report 2021
Annual Review
AIB in our Community
15
AIB IN OUR COMMUNITY
DOING MORE FOR
OUR COMMUNITIES
In 2021, AIB continued to support local and national initiatives to do vital work in our communities.
1
2
3
4
5
6
In 2021 communities continued to be impacted
by the COVID-19 pandemic, and AIB continued to
respond. With our deep community roots, we have
demonstrated our support and are committed to
making a positive contribution to society and the
communities in which we live and work.
We make a meaningful impact through community
partnerships and our people; our physical presence
on high streets enables face-to-face advice and
support for local activities.
Our employees fundraised for over 600 local
organisations in 2021 and have now surpassed
10,000 recorded volunteering hours since 2018.
Our core community partners and programmes
enable us to further develop our impact on society
and focus on key areas where we can make a real
difference: Education & Opportunities; Sustainability,
and; Digital Innovation & Financial Inclusion.
THE
GOAL
MILE
First year of AIB sponsorship of the GOAL Mile,
supporting sustainable communities, raised €409k
with 20,000 participants in over 20 countries around
the world – making 2021 the largest GOAL Mile ever!
2021 was our fourth
year of partnering
with FoodCloud.
Since 2018, with AIB’s
support alone, over
19 MILLION MEALS
have been redistributed to over
600 charities throughout Ireland
6th year of partnering
with SOAR.
5,847
teenagers supported
across Ireland
25 years of partnering with Junior Achievement.
1,260 volunteers working with over
29,000 students in
355 schools
Through our AIB Together
Covid fund, we distributed
€1 MILLION
to those most in need, including our
charity partners Age NI, Age UK,
ALONE, FoodCloud, Pieta, and Soar
“ I FELT A REAL BOOST OF MORALE AND SUPPORT
FROM AIB BACKING THE GOAL MILE. I WAS
BOWLED OVER BY THE ENTHUSIASTIC AND
ENERGETIC HELP FROM AIB STAFF IN THE AREA...
TOGETHER WE FORMED A DYNAMIC TEAM OF
EVENT ORGANISERS AND LOCAL NETWORKERS”
Liam O’Brien, GOAL Mile Organiser,
Herbert Park and Lahinch
“ I LOVE WORKING IN
THE SHOP. I’VE MET SO
MANY PEOPLE IN THE
COMMUNITY, FRIENDS
AND NEIGHBOURS”
Emma Raben, AIB employee
and Sue Ryder Foundation
charity shop volunteer
“ I DEFINITELY FEEL
MORE PREPARED FOR MY
FUTURE WORK LIFE AND
FEEL LESS NERVOUS ABOUT
GOING FOR AN INTERVIEW”
Sean O’Leary, Junior Achievement
student at St. Paul’s CBS, North
Brunswick Street, Dublin 7
16
Economic Outlook
Annual Review
AIB Group plc Annual Financial Report 2021
ECONOMIC OUTLOOK
STRONG RECOVERY
AMID UNCERTAINTY
The global economy rebounded strongly last year and into 2022, albeit set
against a backdrop of continued concerns around the COVID-19 pandemic
and inflation.
+25%
NEW MORTGAGE
LENDING
20,500
HOUSING
COMPLETIONS
+4.9%
CORE RETAIL SALES
The global economy rebounded strongly in 2021
following the large contraction in output seen in
2020 as a result of the COVID-19 pandemic. The
strong rebound was very much aided by the rollout
of vaccines that proved effective in countering the
coronavirus and allowing economies to re-open
– many economies went back into lockdown in
the early part of the year before vaccines became
widely available. The vaccines, though, have not
proved fully effective in reducing the transmissibility
of the virus, and a number of countries re-imposed
some restrictions late in the year as COVID-19 case
numbers rose again.
Overall, though, global growth proved stronger
than expected in 2021, with the OECD putting the
rise in world GDP at 5.6%. It estimates that the US,
UK and Eurozone economies grew by 5.6%, 6.9%
and 5.2%, respectively, in 2021. Meanwhile, labour
markets recovered more quickly than anticipated,
with the unemployment rate falling towards 4%
by year-end in the US and UK and near 7% in the
Eurozone. On the other hand, inflation picked up
much more rapidly than expected in 2021, most
notably energy prices, with headline CPI rates rising
to 7% in the US and c. 5% in Europe.
IRISH ECONOMY PERFORMS VERY WELL
The Irish economy also recovered well in 2021,
despite being in lockdown for the first four months
of the year, with both exports and the domestic
economy performing strongly. GDP growth,
though, continued to be inflated by trade-related
flows in the multinational sector. According to the
latest CSO data, GDP increased by 14.5% year-on-
year in the first three quarters of 2021. By contrast,
modified final domestic demand rose by 5.3%
year-on-year over the same period.
Consumer spending, which took a considerable
hit in 2020, rose by 5% in the first three quarters
of 2021. Full year CSO figures show that core retail
sales (i.e. excluding the motor trade) rose by 4.9%
in 2021, while new car registrations were up by
21%. Meanwhile, domestic investment rose by 6.7%
year-on-year in the first three quarters of 2021 per
CSO data.
The recession in the domestic economy in 2020
saw employment contract and unemployment
rise, but the labour market recovered strongly in
2021. By end of 2021, the level of employment
had recovered to 6.3% its pre-pandemic levels.
Meanwhile, the unemployment rate fell sharply
over the course of the year. By end 2021, the
pandemic adjusted jobless rate had fallen to 7.4%,
having stood at 27% earlier in the year when the
economy was back in lockdown.
HOUSING COMPLETIONS HOLDS STEADY
House prices in Ireland, as elsewhere, rose very
strongly in Ireland in 2021. The latest CSO data show
prices rose by 14.4% year-on-year in December. Rents
in the residential sector also rose strongly during 2021,
with CSO data showing them up 8.4% in December
on previous year levels.
House building activity held up in 2021, despite the
lockdown earlier in the year, with CSO data putting
house completions at 20,500, broadly unchanged
on the levels in 2020 and 2019. Meanwhile, official
government data show housing commencements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review
Economic Outlook
17
CORE RETAIL SALES (YOY, %)
20
16
8
4
0
-4
-8
-16
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4
2018
Q2
2019
Q4
2019
Q2
2020
Q4
2020
Q2
2021
Q4
2021
SOURCE: CSO VIA REFINITIV
PRIVATE SECTOR DEPOSITS (TOTAL, €MN)
290,000
270,000
250,000
230,000
210,000
190,000
DEC 18
JUN 19
DEC 19
JUN 20
DEC 20
JUN 21
DEC 21
SOURCE: CBI VIA REFINITIV
MODIFIED FINAL DOMESTIC DEMAND (3 QTR MOV AVG, YOY, %)
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
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
2021
Q3
2021
SOURCE: CSO VIA REFINITIV
NEW DWELLING COMPLETIONS (TOTAL, 4 QTR MOV AVG)
24,000
21,000
18,000
15,000
12,000
9,000
6,000
3,000
0
Q4
2014
Q2
2015
Q4
2015
Q2
2016
Q4
2016
Q2
2017
Q4
2017
Q2
2018
Q4
2018
Q2
2019
Q4
2019
Q2
2020
Q4
2020
Q2
2021
Q4
2021
SOURCE: CSO VIA REFINITIV
picked up sharply during 2021, rising to over 30,700.
This points to a likely rise in housing completions over
the next couple of years.
SAVINGS RISE FURTHER,
MORTGAGE LENDING REBOUNDS
A notable feature of the pandemic has been a very
sharp increase in private sector savings in many
economies, including Ireland. This manifested itself in
a further rise in levels of Irish banking deposits in 2021.
These rose to €286.5bn by December from €255bn at
the start of the year.
Mortgage lending rebounded in 2021, increasing
by 25% having fallen to €8.4bn in 2020. Meanwhile,
Central Bank data show new lending to the SME
sector amounted to €2.1bn to end-September, up 8%
from the same period in 2020.
ECONOMIC OUTLOOK
All the main official international and domestic
forecasters are projecting a continuation of the strong
global economic recovery in 2022, helped by an
ongoing supportive stance to macroeconomic policy
and with scope for a rundown of the large buildup of
private sector savings seen during 2020-2021. Both
these factors are very much in evidence in Ireland and
should be supportive of continuing strong growth in
activity here during 2022.
However, forecasters also warn of risks to the
economic outlook, in particular with regard to
the future path of the coronavirus, impact of
the withdrawal of government Covid supports,
ongoing disruptions and bottlenecks in supply
chains, geopolitical tensions as well as elevated
inflationary pressures.
18
Our Strategy
Annual Review
AIB Group plc Annual Financial Report 2021
OUR STRATEGY
A PLATFORM
FOR GROWTH
In 2021, we continued to make steady progress against our
strategic initiatives to address product gaps, generate cost
savings and position AIB for growth, while supporting the
transition to a low-carbon economy.
Following an acceleration towards digital banking
and changing ways of working associated with the
COVID-19 pandemic, we announced a refreshed
three-year strategy and Transformation Programme
for AIB Group in December 2020. Our strong
capital base, leading customer franchise and
digital capability enabled the Group to adapt to
uncertainty and change while remaining focused on
our long-term strategic objectives.
In 2021, we made good progress in our
Transformation Programme, delivering real
change to enable cost-savings across each of
our strategic initiatives over the course of a
multi-year plan. These initiatives are aligned to
our five strategic pillars – Customer First, Simple
& Efficient, Risk & Capital, Talent & Culture and
Sustainable Communities. For more details, and
an overview of the progress made in 2021, see the
table on page 19.
Amid the uncertainty caused by the pandemic, there
was also a growing recognition globally of a need to
create a more sustainable world. Increasing evidence
of the climate crisis, as witnessed by extreme
weather events across the world in 2021, has
reinforced and accelerated the drive to sustainability.
GOVERNANCE AND
OVERSIGHT REMAIN
KEY TO ENSURING OUR
STRATEGY IS DELIVERED
AND EFFECTIVE
At AIB, Sustainable
Communities is
a key strategic
pillar and a core
consideration in
everything we
do. We continue
to progress
our sustainability agenda across each of the ESG
categories – environment, social, and governance
(see page 19). A comprehensive set of actions
is in train across the Group to further integrate
sustainability practices and offer our customers more
green propositions and services. To oversee and
progress this integration appropriately, in 2021 we
introduced a new executive governance committee,
the Group Sustainability Committee (GSC),
complementing the existing Sustainability Board
Advisory Committee. For more information about
these committees, see our Sustainability Report 2021.
Governance and oversight remain key to ensuring
our strategy is delivered and effective. To ensure the
Group achieves our purpose and strategic goals in
an appropriately risk-controlled manner, the Group’s
Risk Committee safeguards proper oversight of
the Group’s risk appetite, management structure,
frameworks and policies, as well as challenging
whether the management controls in place are
adequately robust. More information about our risk
approach can be found in the Risk Summary on
pages 26 to 31.
In managing our strategy, the Group remains
adaptable to changing circumstances and
has responded appropriately in recent times,
including the establishment of new Board advisory
committees, such as the Technology & Data
Advisory Committee in 2020.
Our focus for the next year is to leverage the
progress made in 2021, using it as a platform for
growth. While we remain alert to uncertainties
in the economic environment and the evolving
banking landscape, we have strong business
fundamentals underpinning our growth strategy.
Looking forward, we will maintain focus on our
products and services, aligning our Group operating
model and ways of working to ensure we can
serve customers as their banking needs evolve, as
a complete provider of financial services. And we
will continue to action our pledge to support the
transition to a low-carbon economy, reducing our
own carbon footprint and assisting our customers
to do the same.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Our Strategy
19
IN 2021, WE FOCUSED ON STRATEGIC INITIATIVES ACROSS OUR FIVE
PILLARS, MAKING GOOD PROGRESS IN EACH DURING THE YEAR.
STRATEGIC PILLAR INITIATIVE
UPDATE
CUSTOMER
FIRST
PRODUCT GAPS;
INORGANIC
GROWTH
SIMPLE
& EFFICIENT
RISK
& CAPITAL
REFOCUSED
BRANCH
NETWORK
CHANGE
DELIVERY
AIB GB
BUSINESS
MODEL
END-TO-END
CREDIT
• Acquired Goodbody to enhance capital markets, wealth management and
corporate finance propositions
• CCPC approval received for a joint venture with Great-West Lifeco; CBI
application underway
• Completed commercial negotiations with NatWest Holdings Limited for the
acquisition of the performing Ulster Bank corporate and commercial loan
portfolio; CCPC process underway
• Acquired a 50% stake in Autolease Fleet Management – trading as
NiftiBusiness and Nifti Personal Leasing – for car leasing solutions
• Reorganised c.20% of our AIB and EBS branch network in Ireland and the UK
• Amalgamated 21 AIB branches and closed 3 EBS offices in Ireland; closed 8
branches in Northern Ireland
• Created 17 new Sales & Advisory branches, making 22 in total, dedicated to
meeting our customers’ lending, mortgage and financial planning needs
• Expanded the services on offer for AIB customers at An Post locations
• Created 240 technology, data and digital specialist roles, reducing reliance
on third parties
• Enhanced cost management across the Group using zero-based budgeting
methodology
• Reorganised the business to focus on Corporate growth in specific
sectors, including renewables, infrastructure, real estate, healthcare and
manufacturing
• Exited the SME market with agreed bid on portfolio sale of £0.6bn
• Streamlined existing credit, customer and account management and
fulfilment activities for SMEs
• Completed design work on long-term credit solutions for corporate and
SME customers
• Implemented CreditLogic technology to enable digitalisation of EBS
mortgage journeys
TALENT
& CULTURE
FUTURE
OF WORK
• Designed our Future of Work approach around a hybrid working model
• Physical exit completed of Burlington Road office building in Dublin
• Launched aib Connect, our new employee communications and
engagement app
ENVIRONMENT
• Launched the AIB Personal Green Loan and Haven Green Mortgage
• Raised €750m on completion of our second green bond issuance
• Doubled our Climate Action Fund to €10bn to support large-scale green and
transition projects
SUSTAINABLE
COMMUNITIES
SOCIAL
GOVERNANCE
• Launched a Social Bond Framework to support communities across Ireland
• Launched Future Sparks, supporting financial literacy among post-primary
schools in Ireland
• Agreed a three-year partnership to support the annual GOAL Mile
• Appointment of Jim Pettigrew as Chair of the Board
• Established the Group Sustainability Committee (GSC)
• Advanced the work of the new Technology & Data Advisory Committee
(TDAC)
• Appointed Elaine MacLean as our NED designated to engage directly on
employee issues
KEY:
DIGITALISATION
WAYS OF WORKING
SUSTAINABILITY
BUSINESS MODEL
20
Our Strategy
Annual Review
AIB Group plc Annual Financial Report 2021
CUSTOMER
FIRST
SIMPLE &
EFFICIENT
RISK &
CAPITAL
TALENT &
CULTURE
SUSTAINABLE
COMMUNITIES
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Our Strategy
21
OUR STRATEGY
CUSTOMER
FIRST
AWARD-WINNING CX
The International Customer Experience Awards (ICXA) recognise
organisations leading the way in managing Customer Experience
excellence. In November, AIB won Gold Awards in Best Use of Insights
and Feedback and Customer Experience in the Crisis categories and a
Silver Award for Customer Experience Team of the Year.
COMPETITIVE
MORTGAGE
OFFERINGS
In 2021, AIB Group continued to offer market-leading mortgages:
• Launched AIB Higher Value 4 Year Fixed Rate
• Reduced AIB Green 5 Year Fixed Rate
• Launched Haven Green 4 Year Fixed Rate
• Reduced EBS 3 and 5 Year Fixed Rates
• Reduced Haven long-term 7 and 10 Year Fixed Rates
€1.6BN
NEW LENDING
TO SMEs
including
Government
support schemes
10,000 NEW
SUSTAINABLE
HOMES
AIB is the main Irish bank for most large
residential development groups, with primary
lending facilities on current live developments
with the potential to deliver over 10,000 new
sustainable homes, including 1,100 social
housing units. And in the second half of 2021, we
launched a new €500m Social Housing Fund to
provide over 3,000 individuals and families with
the keys to their own homes.
IRELAND’S
#1
MORTGAGE
PROVIDER
IRELAND’S
#1
BUSINESS
BANK
MEASURE
OUTCOME 2021
TARGET
CUSTOMER
SATISFACTION
TRANSACTION NET
PROMOTER SCORE (NPS)1
Measured after customer
transactions for key touch points
+45
+53
MEDIUM-TERM (END 2023)
1. Transaction Net Promoter Score (NPS) is an aggregation of 20 customer journeys across
Homes, Personal, SME, Digital, Retail, Direct and Day-to-Day Banking.
22
Our Strategy
Annual Review
AIB Group plc Annual Financial Report 2021
OUR STRATEGY
SIMPLE &
EFFICIENT
AWARD-WINNING
AUTOMATION
In October, we won the EMEA Automation &
Management category at the Red Hat Digital
Leaders Awards. Our CTO team was recognised
for the speed at which we provision and
decommission systems, the empowerment
of our developers through a fully automated
self-service model, the level of security codified
upfront and the focus on our team training and
capability uplift.
FASTER
COMMERCIAL
GRADING
In October, we launched our new
Commercial Grading System for facilities
where the borrower’s total AIB exposure
is €300,000 or greater. The new
system has many efficiencies including
accelerated completion time.
85%
PERSONAL LOANS
COMPLETED ONLINE
BEST IN CLASS E2E
In December, our nCino Programme won
Best Use of Technology – Transformation
Programme in the Customer Contact & Shared
Services Awards 2021 for its transparent and
seamless customer credit journey.
CONTINUED
DIGITAL
GROWTH
AIB customers made c. 107m digital wallet payments in 2021,
almost double the number in 2020 (57m) and three times the
amount before the pandemic (c. 34m in 2019).
The value of these payments has increased 382% since 2019
from €0.5bn to €2.4bn in 2021. Overall, AIB’s digitally active
customer base grew by a further 8% in 2021.
MEASURE
OUTCOMES 2021
TARGETS
DIGITALLY ACTIVE
CUSTOMERS
Number of active customers
on digital channels
1.85m
>2.25m
MEDIUM-TERM (END 2023)
ABSOLUTE
COST BASE1
Cost of running the business,
excluding exceptional costs €1.534bn <€1.475bn
MEDIUM-TERM (END 2023)
1. Before bank levies, regulatory fees and exceptional items. For exceptional items, see pages 62 and 71.
AIB Group plc Annual Financial Report 2021
Annual Review Our Strategy
23
OUR STRATEGY
RISK &
CAPITAL
€750m
GREEN BOND
ISSUANCE
In May, we raised €750m after completing our second green
bond issuance in less than a year. The proceeds will finance
projects with clear environmental and climate change benefits
and further strengthen AIB’s capital position.
MANAGING
OUR ESG
RISKS
In June, we launched new initiatives that will
further embed ESG considerations across our
lending business: our Sustainable Lending
Framework which will categorise green or
transition lending; our ESG Questionnaire
for borrowers in high climate risk sectors
to help assess ESG risk before we agree to
lend; and our Collateral Valuations to capture
Building Energy Ratings/Energy Performance
Certificates for our property assets.
1
2
3
4
5
6
FIGHTING
FINANCIAL
CRIME
In May, we mobilised a new
centre of excellence for AML,
Fraud and Sanctions to ensure
timely detection and response
in the first line of defence.
OUR SOCIAL BOND
FRAMEWORK
In August, we became the first Irish bank to launch
a Social Bond Framework. Funds raised under
this new framework will support a wide range of
social issues, including the provision of social and
affordable housing, healthcare and education as
well as charitable and non-profit organisations.
€6.6bn
MREL ELIGIBLE
INSTRUMENTS
MEASURE
OUTCOMES 2021
TARGETS
RETURN ON
TANGIBLE EQUITY1
A measure of how well capital is
deployed to generate earnings growth
8.2%
>9%
MEDIUM-TERM (END 2023)
CET1 RATIO
(FULLY LOADED)2
A measure of our ability to withstand
financial stress and remain solvent
16.6%
>13.5%
MEDIUM-TERM (END 2023)
1. Based on CET1 revised target of 13.5%. 2020 RoTE is based on prior CET1 target of 14%.
2. Excludes the impact of the proposed buyback of €91m. Including the buyback CET1 is 16.5%.
24
Our Strategy
Annual Review
AIB Group plc Annual Financial Report 2021
OUR STRATEGY
TALENT &
CULTURE
CHAMPIONING
#WOMENINTECH
In November, we were awarded the
#WomeninTech Company Initiative of the Year
by Technology Ireland. We were recognised for
our work with Skillnet ReBOOT, supporting the
ambitions of IT-qualified women and helping to
reignite their careers in technology.
YOUNG BANKER
OF THE YEAR
In October, AIB UK’s Rosie Lyon won the 2021 UK
Chartered Banker Institute’s Global Young Banker of
the Year competition for her proposal to create a fairer
financial future for victims/survivors of domestic violence.
In November, we launched our week-long Speak
Your Mind campaign, encouraging our people
to speak up about opinions, ideas and issues,
and report wrongdoing through AIB’s Speak Up
Policy. AIB’s commitment to an open, transparent
and supportive culture is supported by our senior
leaders, our CEO, CPO and Whistle-blowers’
Champion, who shared videos encouraging staff
to ‘Speak Your Mind’.
INVESTING
IN DIVERSITY
In August, we became the first bank in Ireland
to be awarded the Investors in Diversity Silver
accreditation. Supported by the Irish Business
and Employers Confederation (Ibec), Investors
in Diversity is Ireland’s only equality, diversity
and inclusion performance mark.
GENDER
BALANCED
2021 Graduate
Programme in-take
#1
IN IRELAND
#11
IN EUROPE
Gender Diversity
Index Report 2021
EMPLOYEE CHECK-IN SURVEY, NOVEMBER 2021
RESPONDENTS AGREED
STATEMENT
82%
83%
85%
AIB is supporting employees to adapt to new ways of working.
AIB has communicated clearly and consistently during COVID-19.
My people leader keeps me informed about what is going on at AIB.
MEASURE
OUTCOME 2021
TARGET
INCLUSION & DIVERSITY
Women as % of management
42%
GENDER BALANCED
ONGOING
1. Based on a participation rate of 59%.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Our Strategy
25
OUR STRATEGY
SUSTAINABLE
COMMUNITIES
SUPPORTING
ZERO-CARBON
COMMUNITIES
Throughout the summer, we
worked with social enterprise
the Think Tank for Action on
Social Change (TASC), piloting
The People’s Transition Project
in Ardara, Donegal, and
Phibsborough, Dublin. The project
aimed to facilitate community
stakeholders to identify local
challenges and create a strategic
plan of potential climate solutions
to benefit their community.
€10BN
CLIMATE
ACTION
FUND
In October we doubled
our Climate Action Fund
to €10bn, due to strong
customer demand. The fund
was originally launched in
2019 with a target of lending
€1bn per annum for green
lending over five years. Having
comfortably exceeded this
annual target for two years,
it is now €2bn.
SKILLS FOR
SECONDARY
SCHOOL STUDENTS
In September, we launched our Future Sparks
programme for post-primary school students
aimed at supporting their development and
learning of key life skills, including financial
literacy. We plan to support 500,000
customers with financial literacy by 2023.
GAA: FROM THE
GRASSROOTS UP
AIB is proudly the longest continuous sponsor of the GAA.
We are now in our 31st season as sponsor of the All-Ireland
Club Championships, our ninth season as sponsor of the AIB
Camogie Club Championships, and we have sponsored the
All-Ireland Senior Football Championships since 2014.
MEASURE
OUTCOMES 2021
TARGETS
REDUCTION
IN EMISSIONS1
% reduction in Scope 1 & 2 emissions
from operations year-on-year
19%
NET ZERO BY 2030
(OWN OPERATIONS)
LONG-TERM
GREEN FINANCE
Amount of new lending per year for
climate action
€2bn
€2bn per year
MEDIUM-TERM (END 2023)
1. In our 2020 AFR, we reported our GHG emissions one year in arrears. In an enhancement, we are now reporting Scope 1 & 2 emissions for the most recent financial year. Consequently,
we have restated our 2020 emissions data, as we now disclose our datacentre emissions in our Scope 3 emissions. Our ambition is to achieve Net Zero in our financed emissions by
2040 for our full lending portfolio with the exception of Agriculture. In addition, COVID-19 restrictions had an impact on our emissions reduction in 2021.
26
Risk Summary
Annual Review
AIB Group plc Annual Financial Report 2021
RISK SUMMARY
OUR APPROACH
TO RISK
Supported by a risk-aware culture, our risk management approach allows
AIB Group to respond effectively to changing circumstances.
AIB Group’s risk management approach seeks to
identify the key risks to our strategy, provide a risk
management framework for each Principal Risk, sets
an appropriate risk appetite, and regularly stresses
our risk exposures to test the Group’s resilience to
the occurrence of those risks. This process occurs
quarterly, allowing the Group to respond to changing
circumstances in a dynamic manner and enabling the
Group to meet our purpose of backing our customers
to achieve their dreams and ambitions.
Our Risk Management Framework sets out the
integrated approach to risk management across the
Group, providing a clear, concise and comprehensive
approach to the governance, implementation and
embedding of risk management practices across
the Group and its subsidiaries. This is supported by
a Group-wide focus on risk culture, in particular our
Customer First and Risk & Capital strategic pillars.
The Principal Risks facing the Group are identified
through the Material Risk Assessment (MRA), which
also identifies the key emerging risk drivers, which
are described on page 31. Changes in the risk profile
and outlook of the Group’s Principal Risks, which
are outlined in more detail on pages 28 to 30, are
reported monthly to the Group Risk Committee and
regularly to the Board Risk Committee and Board.
We manage each Principal Risk within a set of
individual risk frameworks and policies that are
maintained by the Risk function. We review these
regularly to ensure they continue to support the
strategy while remaining aligned to regulatory
requirements and industry good practice.
On an annual basis, the Board sets out the maximum
amount of risk the Group is willing to accept within our
Risk Appetite Statement (RAS). The approved risk limits
are monitored monthly and reported to the Board to
ensure the Group remains within our risk appetite.
and stress-testing. The scenarios used are informed
by the key emerging risk drivers identified in the
MRA. These are used to assess the internal capital
adequacy assessment process (ICAAP) and the three-
year financial plan, including testing the financial plan
outcomes against the approved risk appetite.
The Group is closely monitoring the rapidly evolving
situation in Ukraine and its potential impact on the
Group's business. Further details are provided on page
78. The Risk Management section of this Report, from
pages 78 to 168, provides a more in-depth overview
of how risk is managed within the Group, detailing the
approach to risk governance including the three lines
of defence, committee structures, risk appetite and
stress testing.
RISK DEVELOPMENTS IN 2021
2021 was another year of high uncertainty. COVID-19
continued to pose significant challenges to the
Group’s activities; our customers continued to be
impacted by public health restrictions and many
of our customers and employees are still working
remotely. As the global economy recovers from
COVID-19, inflation and supply-chain concerns have
come to the fore. Other risks, such as cyber risk and
information security, sustainability and climate change
and competition in the Irish market have also been a
key focus for the Board in 2021. The Risk Management
Framework has remained robust and continued to
support the Group’s response to these risks. The key
developments in 2021, and the risk actions undertaken
to manage these, are set out below.
COVID-19
Despite continuing uncertainty from new variants such
as the recent Omicron wave, economies have been
more resilient than was expected at the beginning
of 2021 albeit that certain sectors have been, and
continue to be, adversely impacted by COVID-19.
We test the resilience of the Group’s strategy across
each of the Principal Risks through scenario analysis
The Group has continued to enhance the sector
review process recognising that COVID-19, along
with Brexit, has impacted some sectors more than
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Risk Summary
27
A NEW ESG QUESTIONNAIRE
HAS BEEN IMPLEMENTED TO
ASSIST THE GROUP’S CREDIT
PROCESSES
others. This sectoral outlook is reviewed regularly
by the Group Credit Committee, requiring increased
governance for new lending to sectors that are
viewed as higher risk, supporting the Group in
remaining within our risk appetite. The Group’s
expected credit loss and stress-testing processes
have continued to incorporate risks from COVID-19
and other downside risks, such as the impact of more
persistent high inflation. The Group’s capital position
remains strong under our adverse scenarios. There
are further details on our macro-economic scenarios
on page 94.
CYBER RISK, INFORMATION SECURITY, THIRD
PARTY AND DATA RISK
There has been an increase in cyber-related crime,
both at a national and global level, during the
COVID-19 period as cyber criminals seek to take
advantage of peoples’ vulnerabilities and exploit
new weaknesses introduced through the rapid
operational changes required to sustain new ways of
working through the pandemic. Through our cyber
programme, we continue to invest significantly in
our cyber security capability to prevent, detect and
respond to this evolving cyber threat landscape, and
have focused on educating staff and customers on
actions they can take to prevent cyberattacks. This
includes detailed guidance on how to identify and
prevent common fraud and threats such as phishing
and smishing.
The Group has also partnered with other banks
across Europe through the Banking & Payments
Federation of Ireland (BPFI) and the Cyber Defence
Alliance, playing an active role in fostering an open,
knowledge-based and mutual protection culture
that enhances the ability of all participants to protect
against cyber threats.
There has also been an increased emphasis and focus
on the identification, monitoring and management
of our operational resilience, concentration and data
related risks arising from our third party ecosystem.
Through the combination of the active monitoring of
supplier performance and ongoing risk assessments
this has further embedded the identification,
monitoring and management of the risks associated
with our outsourcing and third-party arrangements.
SUSTAINABILITY AND CLIMATE CHANGE
Sustainability is at the core of the Group’s strategy.
The Group recognises that climate change risk
continues to evolve rapidly. We are committed
to managing our climate risk and supporting our
customers’ transition to a low-carbon economy with
enhanced green products, propositions and support.
Climate change risks have been classified into two
main categories: physical risk and transition risk.
Physical risk arises from the increasing frequency
and severity of events related to climate change
(flooding and extreme weather events), while
transition risk is the financial loss that may incur,
directly or indirectly, as a result of the process of
adjusting to a low-carbon economy.
The impact of climate change poses an emerging
Credit Risk. We have continued to embed these risks
within Credit Risk by updating credit sanctioning
policies and lending procedures across different
sectors to require greater consideration of ESG
factors in the credit origination process. These have
been supported by the development of a sectoral
heatmap in order to identify those sectors that are
highly impacted by climate risks.
A new ESG questionnaire has been implemented to
assist the Group’s credit processes and procedures
in identifying and assessing ESG risk during the
lending process. This has been implemented for
customers in high climate risk sectors in Ireland.
The ESG Questionnaire enables simple and efficient
engagement with customers that also serves to
increase their awareness of the transition risks of
climate change. We will further embed ESG factors in
our credit risk underwriting in 2022 along with a roll-
out across the other risks that are identified as being
significantly impacted by climate risk.
COMPETITION IN IRISH BANKING MARKET
Another focus during the year was the changing Irish
banking market landscape, with KBC Bank Ireland and
Ulster Bank both announcing their intention to exit the
Irish market. Additionally, new competitors continue
to focus on their specific market segments. COVID-19
has also accelerated the move to online banking and
driven a change in the expectations a customer has of
their bank, which impacts on our business model.
To respond in part to these competitive pressures,
each of the inorganic transactions agreed in 2021
aims to strengthen the Group’s business model,
providing broader services to our customers,
particularly in areas such as wealth management
and insurance. While we expect integration of these
initiatives to progress as planned during 2022, if the
implementation risks are not mitigated successfully,
or if financial performance was to deviate materially
from expectations, then the Business Model Risk
profile of the Group would increase accordingly.
These inorganic transactions have been incorporated
into the Group’s risk management framework and
processes in 2021, with integration expected to
continue during 2022.
28
Risk Summary
Annual Review
AIB Group plc Annual Financial Report 2021
OUR PRINCIPAL
RISKS
CUSTOMER
FIRST
SIMPLE
& EFFICIENT
RISK
& CAPITAL
TALENT
& CULTURE
SUSTAINABLE
COMMUNITIES
Principal Risks are those risks that could have a material adverse effect on our customers or the
financial, operational or reputational standing of the Group. All of the Group’s Principal Risks are
outlined below, and did not change in 2021. The key elements of these Principal Risks are reported
regularly to the Board Risk Committee through the Risk Reporting process.
BUSINESS
MODEL RISK
CREDIT
RISK
OPERATIONAL
RISK
The risk of not achieving the agreed strategy
The risk that the Group will incur losses
The risk arising from inadequate or failed
or approved business plan either as a result
as a result of a customer or counterparty
internal processes, people and systems, or
of an inadequate implementation plan or
being unable or unwilling to meet their
from external events. This includes legal
failure to execute the implementation plan
contractual obligations and associated bank
risk – the potential for loss arising from
as a result of the inability to secure the
credit exposure in respect of loans or other
the uncertainty of legal proceedings and
required investment. This also includes the
financial transactions.
potential legal proceedings.
risk of implementing an unsuitable strategy
or maintaining an obsolete business model in
KEY DEVELOPMENTS IN 2021
The Group’s focus continued to be impacted
KEY DEVELOPMENTS IN 2021
2021 brought a heightened focus and
light of known internal and external factors.
by COVID-19 throughout 2021 by adapting
challenge on key areas of operational
KEY DEVELOPMENTS IN 2021
The announced acquisitions and joint
credit risk management processes and policies
risk in the current environment namely
to support existing customers and ensure
cyber, change risk, operational resilience,
ventures in 2021 provide the Group with a
they were provided with the appropriate
third-party management and products
platform to grow income in the near term.
measures taking account of the current
and propositions risks. Progress has been
While the planned exits of KBC Bank Ireland
expected financial impact and recovery
made to further develop and embed strong
and Ulster Bank creates opportunities for
outlook, with sectors believed to be most
operational risk practices, however this
increased market share in ROI Retail, the
impacted continuing to be closely monitored.
is an evolving and dynamic landscape.
growth of non-banks in the mortgage market
The Group also continues to be proactive in
The key areas of focus included: ongoing
intermediary channel will ensure continued
terms of adapting its credit risk management
oversight, review and challenge of the
competition. The Group developed new
green products to continue supporting
our customers. While these are positive
processes and policies to capture ESG risks in
transformation agenda across the Group,
order to achieve our sustainability ambition of
including inorganic activities; uplift in our
70% of our new lending to be green/transition
cyber security capabilities in response to
developments in our business model risk,
lending by 2030.
should the Group not achieve its financial
plan objectives, its business model risk could
increase.
KEY RISK INDICATORS
» NPE outstanding as % of customer loans
» Migration to Stage 2
KEY RISK INDICATORS
» Operating Profit (pre-exceptional items)
negative variance to plan
LINKAGE TO THE GROUP’S STRATEGY
the evolving external threats; and enhanced
oversight of third-party service providers to
drive improved resilience.
KEY RISK INDICATORS
» Cumulative operational risk losses
» Cyber security metric
» Aggregate Group Risk Adjusted Return on
Customer First
LINKAGE TO THE GROUP’S STRATEGY
Capital (RAROC) on new business
LINKAGE TO THE GROUP’S STRATEGY
Customer First
Simple and Efficient
Simple and Efficient
Sustainable Communities
Risk & Capital
Risk & Capital
Customer First
Talent & Culture
Risk & Capital
+ Read more: pages 83 to 144
Sustainable Communities
+ Read more: page 163
Talent & Culture
Sustainable Communities
+ Read more: page 162
AIB Group plc Annual Financial Report 2021
Annual Review
Risk Summary
29
CONDUCT
RISK
REGULATORY
COMPLIANCE RISK
PEOPLE &
CULTURE RISK
The risk that inappropriate actions or
The risk of legal or regulatory sanctions
The risk to achieving the Group’s strategic
inactions by the Group cause poor and
or material financial loss the Group may
objectives as a result of an inability to recruit,
unfair customer outcomes or negatively
suffer as a result of a failure to comply with
retain or develop resources, or the inability
impact market integrity.
principal laws, regulations, rules, related
to evolve the culture aligned to the Group’s
1
2
3
4
5
6
KEY DEVELOPMENTS IN 2021
Managing the impact of legacy issues
self-regulatory organisation standards, and
values and behaviours.
codes of conduct applicable to banking
continues to be a key feature of conduct risk
activities as outlined in our regulatory
KEY DEVELOPMENTS IN 2021
The Group has a number of defined
management for the Group. Improvements
compliance universe.
strategic initiatives, and programmes of work
in the Conduct Risk profile through ongoing
reviews and challenges of the control
KEY DEVELOPMENTS IN 2021
The dynamic and evolving regulatory
are underway to respond to the various
people- and culture-related headwinds,
environment by the three lines of defence.
change landscape continues to be a key
such as wellbeing and engagement,
This level of challenge ensured that root
feature of the management of regulatory
increased uncertainty relating to COVID-19,
causes of issues were being identified and
compliance risk for the Group. In 2021, we
a buoyant employment market resulting in
preventative actions taken resulting in the
saw a continued focus by our regulators
a competition for talent and our workforce
impact to the customer being remediated.
on regulatory change implementation
continuing to adapt to new ways of working.
Throughout 2021, the identification of these
dates. AIB Group has identified areas for
There has also been significant investment
legacy operational and process design
enhancement which would allow for an
in terms of developing capabilities across
issues resulted in the declaration of nine
improved experience when implementing
the bank including running a number
restitutions to address the poor customer
new regulations.
outcomes identified. This is a decrease on
the number of restitutions when compared
to the total of 14 in 2020.
KEY RISK INDICATORS
» Number of complaints and time taken to
KEY RISK INDICATORS
» Number of data protection incidents
» Reporting of suspicious transactions to
manage anti-money laundering and
financial crime risks
resolve
» Number of overdue product reviews
LINKAGE TO THE GROUP’S STRATEGY
Customer First
Customer First
Risk & Capital
Risk & Capital
+ Read more: pages 164 to 165
Talent & Culture
of Leadership Development and Talent
Management programmes during the
year. Efforts are also underway to develop
an internal talent depository capturing
the existing skills, capabilities, knowledge
and experience of the workforce enabling
the Group to scenario plan for the future.
development journey and much progress
has been made throughout the year,
including significant enhancements to our
wellbeing, engagement and inclusion and
diversity (I&D) strategies.
KEY RISK INDICATORS
» Attrition of Senior Roles
LINKAGE TO THE GROUP’S STRATEGY
The Group continues on our culture
+ Read more: page 165 to 166
LINKAGE TO THE GROUP’S STRATEGY
Talent & Culture
Customer First
+ Read more: pages 167 to 168
30
Risk Summary
Annual Review
AIB Group plc Annual Financial Report 2021
CAPITAL
ADEQUACY RISK
MODEL
RISK
LIQUIDITY &
FUNDING RISK
The risk that the Group breaches or may
The potential loss the Group may incur,
The risk that the Group will not be able to
breach regulatory capital ratios and internal
as a consequence of decisions that could
fund our assets and meet our payment
targets measured on a forward-looking
be principally based on the output of
obligations as they come due, without
basis across a range of scenarios, including
models, due to errors in the development,
incurring unacceptable costs or losses.
a severe but plausible stress.
implementation or use of such models.
Funding is the means by which liquidity
KEY DEVELOPMENTS IN 2021
The Group maintained a strong capital
KEY DEVELOPMENTS IN 2021
The Model Risk profile improved in the last
is generated, e.g. secured or unsecured,
corporate or retail. In this respect, Funding
position throughout 2021 with substantial
year, reflecting improvements in the control
Risk is the risk that liquidity cannot be
buffers to regulatory requirements for
environment and validation coverage
obtained at an acceptable cost.
Fully Loaded Common Equity Tier 1 (CET1)
subsequent to its introduction. In the second
and Total Capital ratios. Various stress
half of the year, the Model Risk score was
KEY DEVELOPMENTS IN 2021
Customer deposits have continued to grow
testing activities in 2021 demonstrated the
recalibrated to reduce subjectivity in the
at pace predominantly due to the low
robustness of the capital position including
assessment; improve transparency; reduce
interest rate environment and COVID-19-
the annual Internal Capital Adequacy
the element of double-counting / overlap
related dynamics of precautionary savings
Assessment Process (ICAAP) and the
in scoring considerations; and to simplify
and lower consumer consumption. While
biennial European-wide EBA Stress Test.
the model risk reporting summary. A four-
the planned exit of KBC Bank Ireland
RAS metrics were reviewed during 2021
point measurement process was introduced
and Ulster Bank creates opportunities for
to ensure they continued to appropriately
to align to the four-point validation and
increased market share in this space, it
reflect both regulatory requirements and the
monitoring scoring systems. This has added
further contributed to higher volumes of
uncertain external environment.
benefit of differentiating between models in
excess liquidity held with the Central Bank
KEY RISK INDICATORS
» Fully Loaded CET1 ratio
» Fully Loaded Total Capital Ratio
a more risk-sensitive way.
at negative rates.
KEY RISK INDICATORS
» Quarterly risk assessment of live models
KEY RISK INDICATORS
» Liquidity Coverage Ratio (LCR)
» Survival Period
LINKAGE TO THE GROUP’S STRATEGY
LINKAGE TO THE GROUP’S STRATEGY
Simple and Efficient
Risk & Capital
LINKAGE TO THE GROUP’S STRATEGY
Risk & Capital
+ Read more: pages 145 to 152
Talent & Culture
+ Read more: page 168
Risk & Capital
+ Read more: page 153
FINANCIAL
RISK
The uncertainty of returns attributable to
fluctuations in market factors. Where the
uncertainty is expressed as a potential loss in
earnings or value, it represents a risk to the
income and capital position of the Group.
KEY DEVELOPMENTS IN 2021
Central Bank stimulus helped to bring
stability to financial markets in 2021.
However, economic growth in the second
half of the year, and particularly rising
inflation, led to the tapering of stimulus
programmes globally and a return of
market volatility as central banks re-assess
the appropriateness of their interest rate
policies.
KEY RISK INDICATORS
» Earnings Sensitivity
» Interest Rate Capital at Risk (CaR)
LINKAGE TO THE GROUP’S STRATEGY
Risk & Capital
Simple and Efficient
+ Read more: pages 154 to 161
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review
Risk Summary
31
EMERGING RISKS AND UNCERTAINTIES
The Group takes a proactive approach to identifying and assessing the potential
impact of emerging risks, which could have a material impact on the Group’s
strategy, operations and on our customers over the medium to long term. Where
the probability of their occurrence or the expected magnitude may be difficult to
accurately evaluate, the use of scenarios and expert judgement is applied. The key
themes of focus in 2021 were broadly similar to those identified in 2020 but also
included integration risk, and attracting and retaining talent.
EMERGING RISK
MITIGANTS
LINKS TO RISKS
TREND 2021
COVID-19 VARIANTS
The risk of continuous cycles of
outbreaks and lockdowns triggered by
COVID-19 variants, driving increased
credit losses to vulnerable sectors
such as hospitality.
INTEGRATION RISK
The risks from the execution of the
inorganic transactions including the
integration of systems, operations,
people and culture.
CYBER THREATS
The risk of diminished operational
capability of the Group’s systems,
data risk exposures and potential for
legal liability from customers due to
evolutions in ransomware and cyber
criminals' practices including fraudulent
phishing and smishing activities.
CLIMATE TRANSITION RISKS
Transitioning to a lower-carbon
economy, including climate-related
financial risks.
UNEXPECTED MACROECONOMIC
EVENTS, GEOPOLITICAL RISKS
Elevated uncertainties regarding the
macroeconomic and geopolitical
(including events in Ukraine) outlook
arising from volatility in financial
markets, inflation and interest rates.
Should higher inflation persist longer
than expected, it could prompt central
banks to raise interest rates sharply in
order to restore price stability. Adverse
developments such as these may have
an impact on the Group with higher-
than-expected credit losses, sudden
reduction in asset quality and increases
in capital requirements.
TALENT AND SKILLS
The loss of high-performing, high-
potential, senior and highly skilled
employees due to a competitive labour
market and limitations on the Group’s
ability to attract and retain such skills.
• The Group has implemented additional measures in
response to COVID-19, such as a suite of forbearance
measures, payment breaks, enhanced portfolio asset
quality monitoring, case-specific reviews and top-
down vulnerable sector reviews.
• The Group continues to stress test the risks that
COVID-19 created in order to identify weakness and
mitigate appropriately.
• The Group MRA includes an assessment of any potential
new material risks created by new transactions.
• The Group has established a programme with dedicated
resources to assess each transaction individually.
• The Group ensures appropriate governance is in place
to manage the integration change and identify risks to
delivering the change.
Across all
Principal Risks
DECREASING
RISK
Credit Risk
Regulatory Compliance Risk
Conduct Risk
Operational Risk
Model Risk
INCREASING
RISK
• The Group continues to invest in our controls around
information technology.
• There is an well-resourced active Cyber Security and
Operational Risk
Business Model Risk
Conduct Risk
Intelligence Unit.
• There is a key focus on staff awareness around Cyber
Risk, both from an external and internal threat.
STABLE
• Enhanced qualitative risk appetite statements for
Business Model Risk and Credit Risk approved by the
Board to take ESG considerations into account when
formulating the Group’s strategy.
• All material lending decisions >€300k for customers in
high climate risk sectors, are in scope for completion
of an ESG Questionnaire as part of the customer credit
application.
Credit Risk
Business Model Risk
Operational Risk
Regulatory Compliance Risk
Model Risk
Liquidity & Funding Risk
Financial Risk
INCREASING
RISK
Credit Risk
Capital Adequacy Risk
Financial Risk
Business Model Risk
• The Group assesses the impact of changing
macroeconomic conditions and internal factors as part
of the detailed annual financial planning processes. The
Financial Plan is integral to the Group’s Risk Management
process. It drives the delivery of the Group’s strategy
aligned to the Risk Appetite Statement (RAS).
• The Group also incorporates geopolitical risks in
scenarios assessing adequacy of provisions and capital.
• A suite of sanctioning and credit management policies
are reviewed in line with the policy governance
framework to ensure they are aligned to the Group’s risk
appetite.
INCREASING
RISK
• The Group has invested in developing staff capabilities
with a strong focus on identifying senior talent and
increase on internal mobility.
• Significant enhancement of the Group’s wellbeing,
engagement, inclusion and diversity strategies which
has been one of the Group’s key response to the
challenges of COVID-19.
People & Culture Risk
Business Model Risk
INCREASING
RISK
32
Governance in AIB
Annual Review
AIB Group plc Annual Financial Report 2021
GOVERNANCE IN AIB
ADVANCING
OUR CORPORATE
GOVERNANCE
Strong corporate governance standards, underpinning effective decision-making
and accountability, are the basis on which we conduct our business and engage with
our customers and other stakeholders.
AIB Group’s Board is fully aware of the importance
of its role and is strongly committed to upholding
high standards of corporate governance and
seeking continual enhancements. The Board
engages with, and considers, the Group’s
stakeholders in its decision-making to ensure
that all decisions are informed by their views and
advance the sustainable success of the Group.
Below are some key developments in our
governance over the course of 2021.
SUCCESSION PLANNING AND INDUCTION
2021 saw the successful conclusion of a number
of Board succession planning searches, with the
appointments of Fergal O’Dwyer, Andy Maguire,
Anik Chaumartin, Tanya Horgan and Jan Sijbrand as
Non-Executive Directors and the appointment of Jim
Pettigrew as Chair. Our Chief Financial Officer, Donal
Galvin, also joined the Board as an Executive Director.
These appointments were made following targeted
search processes with due regard for the Board
Diversity Policy, the Board Skills Matrix and the future
strategic direction of the Group. The knowledge, skills
and experience that these Directors bring to the Board
serve to enhance its overall skills profile, most notably
in the following areas: Customer and Conduct; Digital;
Finance, Accounting and Audit; Retail Banking; Risk
Management; and Technology. All newly-appointed
Directors underwent extensive and tailored induction
AIB GROUP BOARD IS FULLY
AWARE OF THE IMPORTANCE
OF ITS ROLE AND IS
STRONGLY COMMITTED
TO UPHOLDING HIGH
STANDARDS OF CORPORATE
GOVERNANCE
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Governance in AIB
33
programmes to accelerate their familiarisation with
the Group. The strength of the Board composition
ensures it is positioned to continue to provide effective
leadership now and into the future.
2021 and it supported the Board in this area by
devoting time to the oversight of cyber risk and
controls and cyberattack scenarios. Cyber strategy
and cyber risk will remain an area of continued
focus for the Board Risk Committee in 2022.
Details on the key skills and experience of Board
members are available on pages 36 to 39.
TECHNOLOGY & DATA
In recognition of the importance of the technology
and data agenda for the Group, a new Board
Advisory Committee, the Technology & Data Advisory
Committee (TDAC), was established in late 2020.
Throughout 2021, the TDAC supported the Board
in fulfilling its oversight responsibilities by reviewing,
challenging and advising the Board on the strategy,
governance and execution of technology, data and
cyber matters. This was particularly relevant in the
TDAC’s review and challenge of the Group’s technology
strategy in advance of the Executive Committee and
Board strategy sessions held in November. An overview
of TDAC’s work during 2021 is available on page 209.
The area of cyber risk was also an important
consideration for the Board Risk Committee during
RISK CULTURE AND SPEAK UP
The Board places great importance on the ongoing
evolution of AIB’s culture. In 2021, it oversaw and
supported management to enhance risk culture
within the Group. During the course of Risk
Awareness Week 2021, a number of Non-Executive
Directors participated in interactive Board Member
Conversation sessions open to all employees where
they discussed their views on risk management topics.
In addition, there was considerable focus by the
Board Audit Committee on the Group’s Speak Up
policy during 2021. The Board Audit Committee
Chair, Sandy Kinney Pritchard, is the Group’s
Whistleblower Champion and participated in the
Group’s ‘Speak Your Mind’ campaign. She expressed
the Board’s commitment to high standards in this
area, encouraging all employees to report concerns
about any suspected wrongdoing in order to protect
the Group, our customers and other stakeholders.
AIB GROUP GOVERNANCE STRUCTURE
AIB GROUP BOARD
BOARD AUDIT
COMMITTEE
BOARD RISK
COMMITTEE
Independently oversees the quality and integrity of the Group’s accounting policies,
financial reporting and disclosures, internal control framework and audit, as well as
the mechanisms through which employees may raise concerns.
BOARD
COMMITTEE
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.
BOARD
COMMITTEE
REMUNERATION
COMMITTEE
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.
BOARD
COMMITTEE
NOMINATION &
CORPORATE GOVERNANCE
COMMITTEE
Oversees Board and Executive Committee succession planning and keeps the Board’s
governance arrangements and corporate governance compliance under review.
BOARD
COMMITTEE
SUSTAINABLE BUSINESS
ADVISORY COMMITTEE
Supports the Group’s sustainable business strategy which includes the development
and safeguarding of the Group’s social license to operate.
ADVISORY
COMMITTEE
TECHNOLOGY & DATA
ADVISORY COMMITTEE
Reviews and challenges the strategy, governance and execution of matters relating
to technology, data and cyber.
ADVISORY
COMMITTEE
34
Governance in AIB
Annual Review
AIB Group plc Annual Financial Report 2021
GOVERNANCE IN AIB
ENGAGING OUR
STAKEHOLDERS
We have adapted how we interact with our stakeholders in response to COVID-19
so that we can maintain active engagement and ensure the interests of all
stakeholders continue to be taken into consideration in decision-making.
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 as it is a provision of
UK Company Law, the Board recognises the benefits
of considering the spirit intended by section 172 of the
UK Companies Act 2006 as part of its decision-making
process. An overview of Board engagement with each
of AIB’s key stakeholder groups, the importance of
each to the business and operations, and the strategic
direction of the Group is set out below.
WHO
HOW
Our 2.8 million customer relationships, which are managed by dedicated
teams across Retail Banking, Capital Markets, and AIB UK.
OUR
CUSTOMERS
Our purpose is to back our customers to achieve their dreams and
ambitions, and our ambition is to be at the heart of our customers’
financial lives by meeting their evolving needs at every life stage.
Regular Board oversight of customer performance and satisfaction
metrics, including customer journey times, Net Promoter Scores,
complaints, digitalisation, as well as Brexit and COVID-19 impacts and
supports.
OUR
EMPLOYEES
As at 31 December 2021, AIB directly employed 8,916 people across
Ireland, the United Kingdom and the United States of America.
The Board is acutely aware that our people are the key resource and
enabler for the Group to deliver our overall ambition and strategy in
a manner underpinned by our values. Ensuring we have an engaged
workforce is critical to delivery for all of our stakeholders. As such, we aim
to ensure our employees are satisfied and empowered in their work.
The Board monitors metrics and considers reporting on matters
including AIB’s Culture Evolution Programme, Speak Up, Inclusion &
Diversity, Wellbeing, Talent Development, and Employee Engagement.
Elaine MacLean is the Non-Executive Director designated to engage
directly with employees on behalf of the Board to enhance the
‘employee voice’ at the Board table. A number of Non-Executive
Directors participated in interactive Board Member Conversation
sessions with employees during Risk Awareness Week.
We have a diverse range of institutional and individual investors. The Irish
State is a significant shareholder of the Group.
OUR
INVESTORS
In order to ensure that we continue to generate attractive and sustainable
returns for all our shareholders, the Board aims to lead the Group in
executing its strategy and meeting its financial and non-financial targets.
Our communities, and society as a whole, permeate all of our stakeholder
considerations and are also central to our sustainability strategy.
SOCIETY
We strive to make a meaningful contribution to the communities in which
we operate and to support economic and social progress as an integral part
of the Group’s business and operations.
Engaging with our shareholders in advance of, during and after our
AGM and EGM in 2021. The Board also receives investor views and
feedback through the Investor Relations programme, which in 2021
included a two-day ESG investor roadshow. There is an extensive
programme of engagement which includes the Chair, CEO, CFO,
and major shareholders, and other institutional investors. This will
continue through 2022 and will also involve the Senior Independent
Director.
The Board is supported in considering stakeholder views in relation to
the Group’s sustainability strategy, which encompasses three pillars:
Climate & Planet, Economic & Social Inclusion and Future-proof
Business, through the work of the Sustainable Business Advisory
Committee (SBAC). The Group’s annual Sustainability Conference in
2021 provided the opportunity for engagement between Directors
and stakeholders.
REGULATORS
Includes the Central Bank of Ireland (CBI), European Central Bank (ECB),
European Commission, Prudential Regulation Authority (PRA), Financial
Conduct Authority (FCA) and Federal Reserve Bank of New York.
The Board strives to ensure that the Group supports financial stability,
consumer protection and market integrity across the jurisdictions in
which we operate. Strong engagement with our regulators ensures
the Group is well positioned to meet regulatory requirements and
expectations.
Ongoing supervisory engagement, including inspections, thematic
reviews and regular engagement with the Board, particularly
Committee Chairs, and Senior Executives. The Group also has a
dedicated Regulatory Relations team which reports to the Board
regularly.
In 2021, representatives of the Joint Supervisory Team (JST)
attended a Board meeting to engage directly with Directors on
top-of-mind supervisory matters.
While not included among our five principal stakeholder groups, AIB recognises the importance of engagement with our over 4,000 suppliers to ensure their adherence to our
Responsible Supplier Code. Additional Information can be found in our Sustainability Report 2021 and in the Suppliers section of the AIB website at aib.ie/suppliers.
AIB Group plc Annual Financial Report 2021
Annual Review
Governance in AIB
35
1
2
3
4
5
6
IMPACTED
STAKEHOLDERS:
IMPACTED
STAKEHOLDERS:
IMPACTED
STAKEHOLDERS:
IMPACTED
STAKEHOLDERS:
EXAMPLES OF STAKEHOLDER
CONSIDERATION
SUPPORTING OUR CUSTOMERS
Our Customer First strategic pillar is a core
consideration for the Board in its deliberations and
brings a customer lens to all discussions to ensure
positive customer outcomes are reached. The Board
has supported management in ensuring ongoing
support for customers as they deal with the impacts
of Brexit and COVID-19. In 2021, this took the form
of low-cost loans to small businesses, including
those in farming and fishing, through the Strategic
Banking Corporation of Ireland (SBCI) Brexit Impact
Loan Scheme, and a range of COVID-19 supports for
customers. In addition, the Board has overseen the
implementation of a range of products and services
for personal and business customers to support them
on their transition journey to reduce their carbon
footprint and will continue to monitor progress in
achieving our ambition that 70% of new lending is
categorised as ‘green’ or ‘transition’ lending by 2030.
SOCIETY & OUR COMMUNITIES
The Board is keenly aware of the importance of the
Group’s role in making a positive and meaningful
contribution to the communities in which we operate
and to society more broadly.
In February 2021, the Board approved AIB becoming a
UN Global Compact Signatory and the related Human
Rights Commitment. Other initiatives overseen by the
Board during 2021 included the launch of the Social
Bond Framework to support communities across
Ireland with the issuance of bonds for environmental,
social and governance (ESG) purposes, becoming the
first Irish organisation to do so. The launch of a Social
Housing Fund will help provide 3,000 homes across
Ireland over the next two-to-three years. In the area
of financial inclusion, the Board monitored progress
against the target to support the financial literacy of
500,000 customers by 2023, with 2021 seeing the
launch of a dedicated programme for secondary
school students in Ireland.
CLIMATE ACTION
The Board is committed to remaining at the
forefront of the sustainability agenda in financial
services in Ireland and recognises the crucial role
that financial institutions can play in promoting
climate action. The Board demonstrated this
commitment further in 2021, overseeing a
sustainability programme of work to deliver on
new sustainability requirements and initiatives to
support customers on this transition, which included
doubling our Climate Action Fund to €10bn. The
Board approved increased resourcing and focus on
renewables and a scaling up of investment in green
energy and infrastructure.
The Board monitored progress in delivering our
sustainability strategy in 2021, as well as the
management of climate change risks, as it is being
embedded throughout the organisation. Among
many elements, this included providing support
to farmers so that they can implement strategies,
based on solid scientific research, to reduce
greenhouse gas emissions.
CULTURE EVOLUTION PROGRAMME
Our culture continues to evolve in AIB and it
remained a key focus area for the Board who
oversaw the progress made during 2021.
The Board was keenly focused on the results of
the second Irish Banking Culture Board (IBCB)
survey, which measures culture across the five
IBCB member banks through the views of their
employees. AIB had the highest employee
participation rate of the member banks in this
iteration of the survey, and the Board was pleased
to note that the concentrated focus placed on
improving AIB’s culture had delivered many
positive results. More generally, the IBCB had the
view that progress had been made across the
industry since 2018.
In June 2021, AIB’s first ever Employee Values
Awards took place to recognise and celebrate
Culture Heroes who are truly living our values every
day. Over 3,300 colleagues from across the Group
were nominated by their peers.
Notwithstanding the great strides made to
date, the Board is committed to supporting
management in those areas where further work
is required, and our culture evolution remains a
priority for the Board in 2022.
Additional information on considerations of our stakeholders is available in this Annual Financial Report on pages 21 to 25 where the
strategy is presented through the lens of each of strategic pillar, as well as within the Corporate Governance Report on page 178.
36
Governance
Annual Review
AIB Group plc Annual Financial Report 2021
OUR BOARD
OF DIRECTORS
JIM PETTIGREW
ANIK CHAUMARTIN
BASIL GEOGHEGAN
TANYA HORGAN
Non-Executive Chair,
independent on appointment
Independent
Non-Executive Director
Date of appointment
28 October 2021
Date of appointment
1 July 2021
Independent
Non-Executive Director
Date of appointment
4 September 2019
Independent
Non-Executive Director
Date of appointment
14 September 2021
Nationality British
Nationality French
Nationality Irish
Nationality Irish
COMMITTEE MEMBERSHIP & TENURE (as at 31 December 2021, in years or months)
N
R
2 mths
A
6 mths
Ri
2 y
Ri
T
3 mths
SKILLS, EXPERTISE AND EXPERIENCE
Key Skills Deep technical
accountancy and audit expertise in
financial services, talent and culture
development, and stakeholder
management
Anik has over 37 years’ international
and professional services experience.
She was a partner in PwC in Paris
for 27 years, and held various
leadership positions in the firm for
15 of those years. During her time in
PwC she acted in the roles of Global
Client Relationship Partner and
Lead Audit Partner for a number of
major banking and financial services
organisations. Anik currently serves
as Chair of the Banking Committee
of the Compagnie Nationale des
Commissaires aux Comptes (the
French Statutory Auditors’ Institute).
Key Skills In-depth knowledge of
international finance, corporate
banking, strategy and risk
management
Key Skills Robust risk management,
compliance, finance, accounting and
audit, customer and conduct, and
technology skills
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 Chair of daa plc and
Patron of The Ireland Fund of Great
Britain. He holds an LLB from Trinity
College, Dublin, and an LLM from the
European University Institute.
Tanya is a Chartered Accountant with
extensive industry-based experience
in the areas of compliance, internal
audit and risk management and has
over 20 years’ experience in publicly
listed companies. Tanya trained and
qualified with PwC. She has since held
roles in a number of organisations
including Tesco, Mercury Engineering,
Paddy Power Betfair plc and, most
recently, was the Group Chief Risk
Officer of Flutter Entertainment plc.
She has a B.Comm in Accounting from
University College Cork.
Key Skills Extensive financial services
experience, retail banking, customer
and conduct, governance, strategy
and culture development
Jim has over 30 years’ experience in
UK and international financial services
leadership in public, listed and private
company environments, including at
board level, as CEO and as Chair. He
was Chair of Scottish Financial Services,
the Scottish financial services trade
body, served as Co-Chair of Scotland’s
Financial Services Advisory Board and
is a former President of the Institute
of Chartered Accountants of Scotland.
In 2020, he retired as Chair of Virgin
Money and CYBG plc (Clydesdale Bank)
having overseen the bank’s successful
demerger from National Australia Bank
Group, its IPO and acquisition of Virgin
Money. He has built considerable
non-executive experience over the past
10 years across retail, wholesale and
investment banking, asset and wealth
management and the insurance sectors.
KEY EXTERNAL APPOINTMENTS
Chair of BlueBay Asset Management
Chair of Scottish Ballet
Chair of Dundee Industrial Heritage Trust
Non-Executive Director of ALD
Automotive.
Non-Executive Director of La Banque
Postale
Chair of daa plc
Partner at PJT Partners
Chief Risk Officer of Primark
BOARD
COMMITTEES
R
N
Remuneration
Nomination & Corporate Governance
A Board Audit
Ri
Board Risk
S
T
Sustainable Business Advisory
Committee Chair
Technology & Data Advisory
AIB Group plc Annual Financial Report 2021
Annual Review
Governance
37
1
2
3
4
5
6
SANDY KINNEY PRITCHARD
CAROLAN LENNON
ELAINE MACLEAN
ANDY MAGUIRE
Independent
Non-Executive Director
Date of appointment
22 March 2019
Senior Independent Director
Date of appointment
27 October 2016
Independent
Non-Executive Director
Date of appointment
4 September 2019
Independent
Non-Executive Director
Date of appointment
15 March 2021
Nationality Irish
Nationality Irish
Nationality British
Nationality Irish
COMMITTEE MEMBERSHIP & TENURE (as at 31 December 2021, in years or months)
AA
Ri
2.5 y 2.5 y
N
S
3 mths
4.5 y
R
2 y
NN
1 y
N
N
2 y
Ri
T
9 mths
9 mths
SKILLS, EXPERTISE AND EXPERIENCE
Key Skills Expertise in finance,
accounting and audit, governance,
regulation, customer and conduct, risk
management, wealth management,
retail and investment banking
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 and Permanent plc, Skipton
Building Society, the FSCS, TSB Bank
plc and MBNA Ltd.
Key Skills Substantial leadership,
strategy, technology, customer
operations and sustainability skills
Key Skills Significant experience
in remuneration and governance,
organisational structures, and people
and culture development
Key Skills Extensive retail
banking, technology and digital,
transformation, and risk management
skills
Carolan was the CEO of eir for four
years up to January 2022. Prior to
the CEO role, she held a variety of
executive roles in eir Limited, including
Managing Director of Open eir and
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.
Elaine is a highly experienced human
resources director specialising in
financial services and retail. Following
her early retail career with roles at
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. She is
the Designated Non-Executive Director
for workforce engagement.
Andy has extensive financial services
experience spanning 35 years,
including 16 years with the Boston
Consulting Group where he rose
to become Managing Partner of
the London office covering the UK
and Ireland, prior to which he held
several global roles including Global
Head of Retail Banking. From 2014
to 2020, Andy was the Group Chief
Operating Officer for HSBC Holdings
plc with responsibility for operations,
technology, real estate, change and
transformation and operational
resilience. He holds a BA and a BAI
from Trinity College, Dublin.
KEY EXTERNAL APPOINTMENTS
Non-Executive Director and Chair
of the Audit Committee and the
Remuneration Committee of Credit
Suisse (UK) Ltd
AIB NON-EXECUTIVE DIRECTORS
GENDER
Female: 7 – 50%
Male: 7 – 50%
Sits on the Council of Patrons for
Special Olympics Ireland
None
Non-Executive Director of The Boston
Consulting Group UK
Chair of Thought Machine Group
Chair of CX Holdings (Cennox Group)
AGE
56-64: 8 – 57%
46-55: 4 – 36%
65-70: 1 – 7%
BOARD TENURE
NATIONALITIES
0-2 yrs: 6 – 43%
2-4 yrs: 5 – 36%
4-6 yrs: 2 – 14%
6-8 yrs: 1 – 7%
Irish: 9 – 64%
British: 2 – 14%
USA: 1 – 7%
Dutch: 1 – 7%
French: 1 – 7%
38
Governance
Annual Review
AIB Group plc Annual Financial Report 2021
OUR BOARD
OF DIRECTORS
BRENDAN MCDONAGH
HELEN NORMOYLE
ANN O’BRIEN
Independent Non-Executive
Director and Deputy Chair
Independent
Non-Executive Director
Date of appointment
27 October 2016
Date of appointment
17 December 2015
Independent
Non-Executive Director
Date of appointment
25 April 2019
FERGAL O’DWYER
Independent
Non-Executive Director
Date of appointment
22 January 2021
Nationality Irish
Nationality Irish
Nationality Irish
Nationality Irish
COMMITTEE MEMBERSHIP & TENURE
(as at 31 December 2021, in years or months)
Ri
2 y
Ri
A
N
5 y
3.5 y
2 y
R
3 y
S
N
T
5.5 y
1.5 y
1 y
A
R
S
T
T
1.5 y
2.5 y 2.5 y
1 y
1 y
A
11 mths
SKILLS, EXPERTISE AND EXPERIENCE
Key Skills Significant global financial
services experience in retail and
commercial banking, strategy,
governance, regulation, and risk
management
Brendan started his banking career
with HSBC in 1979, working across
Asia, Europe, North America and the
Middle East, 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 (NTMA).
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.
Key Skills Deep knowledge
and experience of sustainability,
customer and conduct, digital,
stakeholder management, and culture
development
Helen is a highly experienced
marketeer with over 30 years’
experience in consumer marketing
and market research across a range of
sectors and geographies. A graduate
of the University of Limerick, she
started her career with Infratest+GfK,
based in Germany. From there she
moved to Motorola, where she held
a range of roles including Director
of Global Consumer Insights and
Product Marketing and Director of
Marketing. After working in broadcast
and telecoms regulation at Ofcom as
the Director of Market Research, she
held Marketing Director and Chief
Marketing Officer roles at the BBC, DFS,
Countrywide and Boots, where she was
also the Chair and Director of the Boots
Charitable Trust. Helen also serves on
the Board of AIB Group (UK) p.l.c as a
Non-Executive Director.
Key Skills Significant technology and
digital expertise, and highly-skilled
in the areas of sustainability, strategy
and leadership
Key Skills Extensive experience in
finance and accounting, treasury and
liquidity management, strategy, and
capital markets
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 by
the Board on the nomination of the
Irish Minister for Finance 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.
KEY EXTERNAL APPOINTMENTS
Non-Executive Director and Chair of
Audit & Risk Committees of Bradford
& Bingley Limited and NRAM Limited
Chair of PEAL Capital Group Limited
Serves on the Board of The Ireland
Funds, Ireland Chapter
Council Member of Global Advisory
Council, Impact Ireland Fund
Chair of the Trinity Business School
Advisory Board
Co-founder and Executive Director of My
Menopause Centre
Non-Executive Director of Thame and
London Ltd
Non-Executive Director of Royal
London Asset Management
Advisory role with Euroclear UK &
Ireland
Non- Executive Director of Hibernia
REIT plc
Non-Executive Director of ABP Food
Group Unlimited
Board Member of Focus Ireland and
Focus Housing Association
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 2021
Annual Review
Governance
39
1
2
3
4
5
6
JAN SIJBRAND
RAJ SINGH
COLIN HUNT
DONAL GALVIN
Independent
Non-Executive Director
Date of appointment
14 September 2021
Independent
Non-Executive Director
Chief Executive Officer &
Executive Director
Chief Financial Officer &
Executive Director
Date of appointment
25 April 2019
Date of appointment
8 March 2019
Date of appointment
28 May 2021
Nationality Dutch
Nationality United States
Nationality Irish
Nationality Irish
COMMITTEE MEMBERSHIP & TENURE
(as at 31 December 2021, in years or months)
Ri
3 mths
Ri
S
2.5 y 2.5 y
S
3 y
SKILLS, EXPERTISE AND EXPERIENCE
Key Skills Highly-skilled in the areas
of risk management, retail and
commercial banking, governance,
financial regulation and oversight
Jan has had an extensive executive
career including roles in Royal Dutch
Shell PLC, Rabobank Nederland,
ABN AMRO Holding N.V. and NIBC
Bank N.V. and was a Member of the
Executive Board and Chairman for
Supervision at De Nederlandsche
Bank N.V. (the central bank of the
Netherlands). He is currently a
member of the Supervisory Board
and Chair of the Public Interest
Committee of PwC Nederland and
joined the Global Board of PwC
in June 2021. Jan has an MSc in
Applied Mathematics and a PhD
in Mathematics, both from the
University of Utrecht.
Key Skills Significant international
experience in risk management,
governance, retail and corporate
banking, insurance, wealth and asset
management, and sustainability
Raj has over 35 years’ business, risk
and governance experience gained
in large and complex global listed
financial services organisations
including Citibank, Allianz, Swiss Re,
Standard Life Aberdeen and EFG
International with the last 20 years
at the executive committee level
as Group Chief Risk Officer. He has
served as a Non-Executive Director
of a national credit bureau and two
listed financial institutions as well
as many of the banking, insurance,
reinsurance and asset management
subsidiaries of those firms. Raj was
appointed by the Board on the
nomination of the Irish Minister
for Finance under the Relationship
Framework between the Irish
Minister for Finance and AIB Group.
Key Skills Strategic leadership,
extensive executive experience
covering risk, treasury, research,
capital markets, customer focus,
and sustainability
In March 2019, Colin was
appointed Chief Executive Officer
of AIB Group. 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, 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 and BComm and MEconSc
degrees from University College
Cork.
Key Skills Significant international
retail and wholesale banking,
capital, liquidity, treasury, investor
relations, and risk management
skills
Donal joined AIB as Group
Treasurer in September 2013
and was appointed to the role of
Chief Financial Officer in March
2019 and to the Board in May
2021. Donal has gained significant
experience working in domestic
and international financial markets
over the last 25 years. Prior to
joining AIB, Donal held a number
of senior executive roles including
Managing Director in Mizuho
Securities Asia, Managing Director
in Dutch Rabobank and Treasurer
of Rabobank International.
He serves as a Non-Executive
Director of Goodbody.
KEY EXTERNAL APPOINTMENTS
Non-Executive Director of PwC
Nederland
Non-Executive Director of
PricewaterhouseCoopers International
Ltd
Non-Executive Chair of Muscat
Insurance Company
Non-Executive Director of HSBC Bank
Oman
Serves on the Board of The Ireland
Funds, Ireland Chapter
Non-Executive Director and
President 2021/2022 of the Institute
of Bankers in Ireland
None
40
Governance
Annual Review
AIB Group plc Annual Financial Report 2021
OUR EXECUTIVE
COMMITTEE
CJ
BERRY
Chief Operating
Officer Designate
CATHY
BRYCE
Managing Director of
Capital Markets
GERALDINE
CASEY
Chief People Officer
FERGAL
COBURN
Chief Technology
Officer
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 19 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 oversees the
bank’s transformation
agenda, identifying
and leading initiatives
that contribute to
the strategy. 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
Capital Markets. She is
a Business graduate of
Trinity College Dublin
and holds an MBA from
INSEAD.
Chief People Officer
Geraldine, originally
from Kerry and a
graduate of University
College Cork, joined AIB
in January 2020 from
her most recent role
as Director of People,
Communications &
IT at Tesco Ireland.
She was 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,
and has brought that
experience to bare in
driving AIB’s inclusion,
culture, people and
future of work agendas.
Geraldine joined the
Board of AIB Group (UK)
plc as a Non-Executive
Director in May 2021.
Prior to his appointment
to Chief Technology
Officer, Fergal was Chief
Digital & Innovation
Officer, responsible
for the strategy and
development of AIB’s
digital businesses. Over
the previous 20 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, before joining
AIB Fergal spent five
years in the oil and gas
exploration industry
as a senior wireline
engineer followed by
five years with Eircom
in network support
systems development.
He holds Bachelor’s and
Master’s 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 AIB
Group in 2011. Over
the last 20 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 2021
Annual Review
Governance
41
1
2
3
4
5
6
HILARY
GORMLEY
Managing Director Designate
of AIB Group (UK) plc
DEIRDRE
HANNIGAN
Chief Risk Officer
ROBERT
MULHALL
Managing Director of
AIB Group (UK) plc
JIM
O’KEEFFE
Managing Director
of Retail Banking
SKILLS, EXPERTISE AND EXPERIENCE
Hilary has over 30
years’ experience in AIB,
enjoying a wide and
varied career across
retail, commercial and
corporate banking,
holding a number of
senior roles and leading
teams across different
geographies. She has
successfully completed
highly strategic
priorities for the Group,
from leading strategic
change programmes
to completing large
portfolio transactions.
Hilary holds a Bachelor’s
degree in Financial
Services from University
College Dublin, has
completed the Harvard
General Management
Programme, and is a
member of the Institute
of Bankers.
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. In
April, it was announced
that Deirdre would
retire in 2022.
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.
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 a director of the
Irish Banking Culture Board
(IBCB). In December, it was
announced that Robert
would step down from
his position in AIB Group
in 2022.
MARY
WHITELAW
Director of Corporate
Affairs, Strategy &
Sustainability
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 Group 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. Mary is
also a Non-Executive
Director of Goodbody.
Colin Hunt, Chief Executive Officer, and Donal Galvin,
Chief Financial Officer, are also on the Executive
Committee. Their biographies can be found on page 39.
42
Sustainability in AIB
Annual Review
AIB Group plc Annual Financial Report 2021
SUSTAINABILITY IN AIB
ADOPTING GLOBAL
STANDARDS
To help embed sustainability across AIB, we are committed to providing both
mandatory and voluntary reporting disclosures as outlined on pages 43 to 55.
We recognise that the scale and impact of our
business confers on us a responsibility and role
across the economy and society. At the heart of
our strategy is a commitment to help ensure a
greener tomorrow by backing those building it
today. Our strategy for Sustainable Communities
is focused on three areas: Climate & Environment,
Economic & Social Inclusion, and Future Proof
Business. Our priorities for each area are the
result of extensive stakeholder engagement,
including an independent bi-annual materiality
and evaluation process.
As part of our commitment to transparency and
pledge To Do More, in this section we disclose our
reporting against the following: World Economic
Forum (WEF) Stakeholder Capitalism metrics; the
Task Force on Climate-related Financial Disclosures;
our Non-Financial Statement; and the EU Taxonomy.
In 2021, we were pleased to become the first Irish
company to commit to using WEF metrics in our
reporting as detailed on pages 43-47. For our full
Sustainability reporting, read our Sustainability
Report 2021.
ENSURING A GREENER TOMORROW BY BACKING THOSE BUILDING IT TODAY
CLIMATE & ENVIRONMENT
ECONOMIC & SOCIAL INCLUSION
FUTURE PROOF BUSINESS
S
U
C
O
F
R
U
O
We’re actively integrating climate change into
our business to accelerate our understanding,
strengthen our strategy and clarify our actions.
We’re reducing our own carbon footprint and
commit to being Net Zero by 2030. We’re supporting
our customers and communities in their transition
to a low-carbon economy with an ambition that
green and transition products will account for 70%
of all our new lending by 2030.
We recognise the responsibility that comes with
the scale and impact of our business. We aspire to
contribute and advocate for a fairer society that is
socially and economically inclusive. We do this by
investing and raising awareness in access, education
and innovation for our customers, our colleagues
and our communities.
Our future sustainability depends on our ongoing
investment in our business, people and processes.
We want to give our customers the best possible
banking experience – we’re always learning and
improving. In an increasingly digitalised world,
we are focused on keeping our systems resilient
and our data secure.
OUR TARGETS
OUR 2021 PROGRESS
OUR TARGETS
OUR 2021 PROGRESS
OUR TARGETS
OUR 2021 PROGRESS
2023
€10BN
IN NEW CLIMATE
& ENVIRONMENT
LENDING
€4.5BN
GREEN LENDING
SINCE 2019
2024
€800M
FINANCE FOR
SOCIAL HOUSING
€300M
FULLY ALLOCATED
2023
+53
TRADITIONAL
NPS3
+45
TRADITIONAL
NPS (2021)
2030
NET ZERO1
IN OUR OPERATIONS
AMBITION OF
70% OF NEW LENDING
TO BE GREEN2
19%REDUCTION IN
EMISSIONS
(YEAR ON YEAR)
19% OF NEW LENDING
IS GREEN
2030
500K
CUSTOMERS
SUPPORTED
FINANCIAL
LITERACY
288K
SECONDARY
SCHOOLS
PROGRAMME
2023
>2.25M
DIGITALLY ACTIVE
CUSTOMERS
1.85M
DIGITALLY ACTIVE
CUSTOMERS
2040
NET ZERO
AMBITION
CUSTOMER PORTFOLIO
LENDING (AGRI 2050)
INTERNAL
SCIENCE BASED
TARGETS SET
ONGOING
AIB IN OUR
COMMUNITY
ON-GOING
STRATEGIC FOCUS
€10M
SUPPORTING
COMMUNITY
CAUSES
ONGOING
GENDER
BALANCED4
BOARD, EXCO &
ALL MANAGEMENT
GENDER
BALANCED
1. Includes Scopes 1 & 2 emissions.
2. Green includes Transition Lending.
3. Transactional Net Promoter Score (NPS) is an aggregation of 20 Homes, Personal,
SME, Digital, Retail, Direct and Day-to-Day Banking Journeys.
4. The Gender Equality Global Report & Ranking – 2021 Edition equates “gender
balanced” with between 40% and 60% of women.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review
Sustainability in AIB
43
CLIMATE & ENVIRONMENT
THEME
METRIC
RESPONSE
PLANET
CLIMATE
CHANGE
GREENHOUSE GAS (GHG) EMISSIONS
For all relevant greenhouse gases (carbon dioxide, methane,
nitrous oxide, F-gases etc.), report in metric tonnes of carbon
dioxide equivalent (tCO2e) GHG Protocol Scope 1 and
Scope 2 emissions. Estimate and report material upstream
and downstream (GHG Protocol Scope 3) emissions where
appropriate.
(Note: Scope 1 – all direct emissions from owned / controlled
sources including boilers and vehicles. Scope 2 – all indirect
emissions from the consumption of purchased electricity, heat
or steam. Scope 3 – all indirect emissions occurring in the
value chain of the reporting company.)
NATURE LOSS
TCFD IMPLEMENTATION
Fully implement the recommendations of the Task
Force on Climate-related Financial Disclosures (TCFD). If
necessary, disclose a timeline of at most three years for full
implementation.
Disclose whether you have set, or have committed to set,
GHG emissions targets that are in line with the goals of the
Paris Agreement – to limit global warming to well below
2°C above pre-industrial levels and pursue efforts to limit
warming to 1.5°C – and to achieve net-zero emissions before
2050.
LAND USE AND ECOLOGICAL SENSITIVITY
Report the number and area (in hectares) of sites owned,
leased or managed in or adjacent to protected areas and/
or key biodiversity areas (KBA).
We reduced GHG Scope 1 & 2 emissions by 19% (year on year) in 2021. Our most recent
CO2 emissions are:
• Scope 1 (location-based): 3,653 tCO2e (2021)
• Scope 2 (location-based): 5,863 tCO2e (2021)
• Scope 2 (market-based): 101 tCO2e (2021)
• Scope 3 (location-based): 11,739 tCO2e (2020)
Our Scope 3 emissions include the following:
• Purchased goods and services: 2,422 tCO2e (2020)
• Capital goods: 3,557 tCO2e (2020)
• Fuel and energy-related activities: 2,410 tCO2e (2020)
• Waste generated in operations: 106 tCO2e (2020)
• Business travel: 884 tCO2e (2020)
• Employee commuting: 2,360 tCO2e (2020)
We currently do not report on our Scope 3 financed emissions but are in the process
of setting science-based Net Zero targets and aim to disclose these in 2022. Scope 1 &
Scope 2 emissions are reported for the 12 months to 31 December 2021 whereas Scope 3
emissions are reported for the 12 months to 31 December 2020. Scope 1, 2 & 3 emissions
are independently verified by EcoAct. For more detail on our GHG emissions, see our
Sustainability Report 2021 on pages 107-110.
It is our intention to fully implement the recommendations of the TCFD by 2023, while
recognising that the climate-related financial disclosures will mature over time. Our TCFD
disclosures are summarised on pages 48-49. Further information on our progress towards
implementing the TCFD disclosures, together with an update on our progress since we
announced our Net Zero ambitions and commitments, is set out in greater detail in our
Sustainability Report 2021 on pages 20-50.
AIB operates sites in Ireland, Northern Ireland, Great Britain and the United States of
America. To date, we have mapped our Ireland and Northern Ireland sites to KBAs. We
identified one site in Northern Ireland (0.082 hectares) with a property which is adjacent
to a regional KBA with marine and terrestrial attributes. The property is a leasehold
office, located within a shopping centre which is multi-tenanted. Based on the analysis
completed to date, which covers the majority of our operations, and on the nature of
our operations (i.e. offices), it is our understanding that the sites of our operations do not
represent a heightened risk of adverse impacts on biodiversity. For more information, see
our Sustainability Report 2021 on page 111.
FRESH WATER
AVAILABILITY
WATER CONSUMPTION AND WITHDRAWAL
IN WATER-STRESSED AREAS
Report for operations where material: megalitres of water
withdrawn, megalitres of water consumed and the percentage
of each in regions with high or extremely high baseline
water stress, according to the World Resources Institute (WRI)
Aqueduct water risk atlas tool.
Estimate and report the same information for the full value
chain (upstream and downstream) where appropriate.
We report discharged water as water consumed. We rely on municipal water networks
for our water demand. There are no other sources of withdrawals. In 2021, AIB withdrew
and consumed 112.4 megalitres of water from our global operations. Of this, 1.5% of
water withdrawn and consumed was from high water-stressed regions in Great Britain,
according to the WRI Aqueduct water risk atlas tool. At 31 January 2022, the tool did
not indicate that any of our operations in GB were in an extremely high water-stressed
region. None of our operations in Ireland, where AIB operates predominantly, Northern
Ireland or the United States are located in a region of high/extremely high water stress.
For more information, see our Sustainability Report 2021 on page 110.
For more information about our sustainability
strategy, go to aib.ie/sustainability
44
Sustainability in AIB
Annual Review
AIB Group plc Annual Financial Report 2021
ECONOMIC AND SOCIAL INCLUSION
THEME
METRIC
RESPONSE
PROSPERITY
EMPLOYMENT
AND WEALTH
GENERATION
ABSOLUTE NUMBER AND RATE OF EMPLOYMENT
Total number and rate of new employee hires during the
reporting period, by age group, gender, other indicators of
diversity and region.
Total number and rate of employee turnover during the
reporting period, by age group, gender, other indicators of
diversity and region.
ECONOMIC CONTRIBUTION
1. Direct economic value generated and distributed (EVG&D),
on an accruals basis, covering the basic components for
AIB’s global operations, ideally split out by: revenues;
operating costs; employee wages and benefits; payments
to providers of capital; payments to government;
community investment.
2. Financial assistance received from the government: total
monetary value of financial assistance received by AIB
from any government during the reporting period.
FINANCIAL INVESTMENT CONTRIBUTION
Total capital expenditures (CapEx) minus depreciation,
supported by narrative to describe the company’s investment
strategy.
Share buybacks plus dividend payments, supported by
narrative to describe the company’s strategy for returns of
capital to shareholders.
HIRES IN FY21 NUMBER
RATE
LEAVES
NUMBER
RATE
<30 yrs
30-50 yrs
>50 years
Female
Male
Ireland
United
Kingdom
United States
of America
639
237
28
417
487
894
10
71%
26%
3%
46%
54%
99%
1%
0% —%
<30 yrs
30-50 yrs
>50 years
Female
Male
Ireland
United
Kingdom
United States
of America
668
574
374
876
740
1,313
293
41%
36%
23%
54%
46%
81%
18%
10
1%
This above data does not include Payzone or Goodbody employees. Further data on our
employees is set out in our Sustainability Report 2021 on pages 103-105.
1. For FY2021, direct economic value generated was €2,635m, and economic value distributed
was €1,762m. The components of economic value generated and distributed include:
Revenues
Operating costs (excluding community investments)
Employee wages and benefits
Payments to providers of capital
Payments to government
Community investment
€2,379m
€711m
€796m
€65m1
€180m
€10m
Information on the components of economic contribution for the Group is set out in our
Sustainability Report 2021 on page 106.
2. AIB operates predominantly in Ireland, and received no financial assistance (including
tax relief and tax credits, subsidies, investment grants, research and development grants,
financial assistance from export credit agencies, financial incentives or other financial
benefits received/receivable) from the Irish Government in 2021.
The issued share capital of AIB Group plc is 2,714,381,237 ordinary shares of €0.625 each.
At 2 March 2022, the Minister for Finance holds 1,926,309,424 ordinary shares representing
70.97% of the total voting rights attached to the issued share capital. The nature of the
Group’s relationship with the Irish Government is set out on page 352 in note 51(g) Related
party transactions – Summary of the relationship with the Irish Government.
For FY2021, total CapEx minus depreciation was €8m. CapEx for the year included additions
to property and plant of €30m, additions to intangibles of €204m, depreciation charge
for the year on property, plant and equipment of (€29m) and amortisation for the year on
intangible assets of (€197m). AIB continues to invest significantly to transform itself into a
market leading technology driven Group with infrastructure that is both secure and resilient.
These investments have focused on enhancing the customer experience. The current
investment strategy approach encompasses i) regulatory change ii) cyber iii) transformation
iv) inorganics including the following areas:
• A world class personal mobile app and business payments platform.
• Streamlining and digitalisation of the mortgage customer journey.
• Transforming the Group’s credit processes and technologies.
In addition, the Group’s property strategy has focused on adapting to an agile model, both in
terms of IT solutions and location that enables us to drive collaboration and efficiency to best
deliver for our customers.
For FY2021, €65 million of distributions were paid on other equity instruments (AT1 coupons)
and there were no distributions on ordinary shares. The company’s strategy for ordinary
shareholder distributions is a target 40-60% payout of attributable earnings, subject to
regulatory approval. Any decision on the balance between dividends and buybacks in any
year will be assessed at the appropriate time. Information on the components of CapEx and
share buybacks is in the Sustainability Report 2021 on page 106.
INNOVATION
IN BETTER
PRODUCTS
AND SERVICES
TOTAL R&D EXPENSES (€)
Total costs related to research and development.
While R&D expenses are indicative of a company’s investment in innovation and producing
better products and services for their customers, it is not the only way to measure a
company’s efforts to innovate new products and services, and to be fit for the future.
AIB is keenly focused on implementing the Sustainable Communities pillar of our Group
strategy, which has a strong focus on financing our customers’ transition to a low-carbon
economy. We have invested in a suite of sustainable finance options, continue to build
our understanding of climate risk and are adapting our systems and processes to capture
ESG data. In addition, we have a sustained programme of investment in IT to support our
digitalisation strategy and the resilience of our business systems.
COMMUNITY
AND SOCIAL
VITALITY
TOTAL TAX PAID
The total global tax borne by the company, including
corporate income taxes, property taxes, non-creditable VAT
and other sales taxes, employer-paid payroll taxes, and other
taxes that constitute costs to the company, by category of
taxes.
The table below sets out the total global tax paid by AIB for FY2021.
Corporate income taxes
Property taxes
Non-creditable VAT and other sales taxes
Employer-paid payroll taxes
Other taxes – Bank levy
Total
(€9m)
-
€98m
€68m
€37m
€194m
1. Distributions paid to other equity interests.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review
Sustainability in AIB
45
FUTURE PROOF BUSINESS
THEME
METRIC
RESPONSE
PRINCIPLES OF GOVERNANCE
GOVERNING
PURPOSE
SETTING PURPOSE
The company’s stated purpose, as the expression of the
means by which a business proposes solutions to economic,
environmental and social issues. Corporate purpose should
create value for all stakeholders, including shareholders.
QUALITY OF
GOVERNING
BOARD
GOVERNANCE BODY COMPOSITION
Composition of the highest governance body and its
committees by: competencies relating to economic,
environmental and social topics; executive or non-
executive; independence; tenure on the governance body;
number of each individual’s other significant positions and
commitments, and the nature of the commitments; gender;
membership of under-represented social groups; and
stakeholder representation.
AIB’s purpose is to back our customers to achieve their dreams and ambitions. Our
purpose was developed by the Group’s Executive Committee and approved by the Group’s
Board in 2017. In 2018, our purpose was systematically rolled out and communicated
across the Group. Upon completion of a consultation across the business, we launched
an updated set of values and associated behaviours in March 2020. Following the
acceleration towards digital banking and changing ways of working associated with the
COVID-19 pandemic, AIB announced a refreshed three-year strategy in December 2020,
which was developed by the Executive Committee and approved by the Board. The
strategy cycle includes a rolling annual review process.
The Group is headed by an effective Board which is collectively responsible for the
long-term, sustainable success of the organisation, generating value for shareholders
and contributing to wider society. 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.
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
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 Nomination and Corporate Governance 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. At 31 December 2021, there
was 44% female representation on our Board.
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 has a balanced list from which to select candidates for interview. All Board
succession planning processes during 2021 were conducted in line with the policy. For more
information, see Board Succession Planning and Appointments on page 181.
The composition of the Board and its committees is set out in Our Board of Directors on pages
36 to 39. Committee membership is also reported within each of the Committee reports on
pages 186 to 209.
STAKEHOLDER
ENGAGEMENT
MATERIAL ISSUES IMPACTING STAKEHOLDERS
A list of the topics that are material to key stakeholders and
the company, how the topics were identified and how the
stakeholders were engaged.
Through our Materiality Exercise, the following issues have been identified as being
material to our stakeholders (customers, employees, suppliers, investors, regulators and
society & community) and to AIB:
1. Ensure a climate resilient & responsive business model
2. Products and services to address environmental issues
3. Responsible lending and investments
4. Usability of services and accessibility of products
5. Enable customers to make better informed financial decisions
6. Housing
7. Customer experience
8. Digitalisation and interconnectivity
9. Cyber security and business system resilience
10. Protect our customers’ data and privacy
11. Talent attraction, retention and development
12. Corporate governance & accountability
We also report on Community Investment, as this is a key area of strategic focus for AIB.
Further details on our Materiality Exercise and our approach to managing each topic can
be found in our Sustainability Report 2021.
ETHICAL
BEHAVIOR
ANTI-CORRUPTION
1. Total percentage of governance body members,
employees and business partners who have received
training on AIB’s anti-corruption policies and procedures,
broken down by region.
a) Total number and nature of incidents of corruption
confirmed during the current year, but related to previous
years; and
b) Total number and nature of incidents of corruption
confirmed during the current year, related to this year.
2. Discussion of initiatives and stakeholder engagement to
improve the broader operating environment and culture, in
order to combat corruption.
Training on AIB’s anti-corruption policies and procedures was provided to the Board, to our
employees and business partners in 2021.
By year end, 100% of our Board, 90% of our employees and 87% of our business partners
had completed our anti-corruption training. For a more detailed breakdown, see our
Sustainability Report 2021 on page 105.
Two incidents of corruption were confirmed in 2021 – one related to 2021 and the other
to a previous year. Both incidents arose from customer complaints and have been fully
investigated. The monetary amount for both is not material.
Our Code of Conduct, Conflicts of Interests Policy and Anti-Bribery & Corruption policy
and training builds awareness across the organisation to assist in combating corruption.
Our Speak Up (whistleblowing) policy and training clearly sets out how our employees can
raise any concerns. Other stakeholders can raise concerns through our complaints process.
PROTECTED ETHICS ADVICE AND REPORTING
MECHANISMS
A description of internal and external mechanisms for:
1. Seeking advice about ethical and lawful behaviour and
organisational integrity; and
2. Reporting concerns about unethical or unlawful behaviour
and lack of organisational integrity.
Our key mechanism for seeking advice about ethical and lawful behaviour and
on reporting concerns is our Speak Up (whistleblowing) policy and process. This is
underpinned by our Code of Conduct, which sets out clear expectations for how we
behave and how we do business. The Code guides our behaviours and emphasises
our commitment to acting ethically, honestly and with integrity while demonstrating
trustworthiness. All employees are required to complete mandatory training on both our
Code of Conduct and on Speak Up to ensure awareness and understanding of what is
expected and how to raise any concerns. Our Speak Up policy and our Code of Conduct
are publicly available at www.aib.ie/sustainability.
46
Sustainability in AIB
Annual Review
AIB Group plc Annual Financial Report 2021
FUTURE PROOF BUSINESS
THEME
METRIC
RESPONSE
PEOPLE
RISK AND
OPPORTUNITY
OVERSIGHT
INTEGRATING RISK AND OPPORTUNITY INTO BUSINESS
PROCESS
Company risk factor and opportunity disclosures that clearly
identify the principal material risks and opportunities facing
the company specifically (as opposed to generic sector
risks), the company appetite in respect of these risks, how
these risks and opportunities have moved over time and the
response to those changes. These opportunities and risks
should integrate material economic, environmental and social
issues, including climate change and data stewardship (which
includes responsibility for personal data, as well as the use
and governance of artificial intelligence and cyber security).
DIGNITY AND
EQUALITY
INCLUSION & DIVERSITY (%)
Percentage of employees per employee category, by age
group, gender and other indicators of diversity (e.g. ethnicity).
PAY EQUALITY (%)
Ratio of the basic salary and remuneration for each employee
category by significant locations of operation for priority areas
of equality: women to men, minor to major ethnic groups,
and other relevant equality areas.
WAGE LEVEL (%)
1.
Ratios of standard entry level wage by gender compared
to local minimum wage.
2. Ratio of the annual total compensation of the CEO to
the median of the annual total compensation of all its
employees, except the CEO.
In our Risk Summary, we set out how AIB manages material risks, including our approach
to Climate Change and Cyber and Information Security, which we see as Emerging Risk
Drivers. Our Material Risks, Emerging Risk Drivers together with the linkage of these Risk
Drivers for each of the Principal Risks, are set out on pages 28-31. Further insights into the
risks and opportunities associated with Climate Change and Data Stewardship are set out in
our Sustainability Report 2021 on pages 20-50 and pages 75-83.
EMPLOYEES (BY AGE)
<30 YRS
30-50 YRS
>50 YRS
Senior management
Junior management
Non-management
—%
1%
20%
65%
72%
64%
EMPLOYEES (BY GENDER)
FEMALE
Senior management
Junior management
All management
Non-management
36%
44%
42%
60%
35%
28%
16%
MALE
64%
56%
58%
40%
Diversity is a key strategic priority for AIB. We have a long-term strategic target for gender
balance in our Board, ExCo, and all management. Further data on diversity is set out in our
Sustainability Report 2021 on page 104.
Within AIB Group we are committed to being open, transparent and clear in relation
to our position on inclusion and diversity and with this mind we are making our first
disclosure on gender pay gap in Ireland, our most significant location of operation.
Our gender pay gap for Ireland is 12.9% mean and 7.4% median. The gender pay gap
represents the difference between both the mean (average) and the median (midpoint
of all wages) hourly pay of male and female employees. Our disclosures are made ahead
of the finalisation of Irish regulations on gender pay gap reporting, therefore we have
based our calculations on the UK methodology. We have used a snapshot date of 25
September 2021. Please note, gender pay gap is not the same as equal pay. An equal pay
comparison involves a direct comparison between a man and a woman, or a group of
men and women, who are carrying out the same work.
We have achieved a lot during 2021 reflecting our commitment to gender equality. We
were the first bank to achieve a Silver “Investors in Diversity” Accreditation. In addition,
we were named Best Practice Leader in the 2021 European Women on Boards Gender
Diversity Index.
We recognise that fair compensation and benefits contribute to the economic wellbeing of
employees.
The ratio of AIB’s standard entry level wage compared to local minimum wage is 1.31:1
(Ireland) and 1.1:1 (United Kingdom). In AIB, the standard entry level wage is equal for
female and male employees. Data excludes Payzone and Goodbody employees.
The ratio of the annual total compensation of the CEO to the median of the annual total
compensation of all AIB employees, except the CEO, is 9.84:1. Our CEO’s total compensation
is set out on page 205.
For more information, see our Sustainability Report 2021 on page 105.
RISK FOR INCIDENTS OF CHILD,
FORCED OR COMPULSORY LABOUR
An explanation of the operations and suppliers considered
to have significant risk for incidents of child labour, forced or
compulsory labour. Such risks could emerge in relation to:
a) type of operation (such as manufacturing plant) and type
of supplier; and
b) countries or geographic areas with operations and
suppliers considered at risk.
AIB does not have suppliers considered to have a significant risk for incidents of child
labour. In 2021, we have made significant progress in relation to Human Rights, launching
our Human Rights Commitment developed in line with the standards set out in the UN
Guiding Principles on Human Rights. We also completed a pilot project to model the
identification of our salient human rights issues, recognising our responsibilities relating to
our rolel as an employer, as a procurer of goods and services, and as a provider of retail
banking and corporate lending. For more information, see our Sustainability Report 2021
on page 91.
AIB Group plc Annual Financial Report 2021
Annual Review
Sustainability in AIB
47
FUTURE PROOF BUSINESS
THEME
METRIC
RESPONSE
PEOPLE
HEALTH AND
WELLBEING
HEALTH AND SAFETY (%)
1. The number and rate of fatalities as a result of work-related
injury; high-consequence work-related injuries (excluding
fatalities); recordable work-related injuries; main types of
work-related injury; and the number of hours worked.
2. An explanation of how AIB facilitates workers’ access to
non-occupational medical and healthcare services, and
the scope of access provided for employees and workers.
For all employees and workers who are not employees but whose work and/or workplace is
controlled by AIB, we reported the following for FY2020:
HIRES
NUMBER
Fatalities from work-related injury
High-consequence work-related
injuries (excl. fatalities)
Recordable work-related injuries
0
1
13
RATE
0.00
0.06
0.83
1
2
3
4
5
6
The main types of work-related injuries include slips/trips/falls, trapped/crushed, hit against
something fixed or stationary. We use FY2020 data which is our most current available.
Please note the rate is calculated using an estimate of the number of hours worked, and
indicates the number of work-related injuries per 500 full-time worked in 2020. Further
details on health and safety matters are set out in our 2020 Health & Safety Report available
at www.aib.ie/sustainability.
AIB provides access to additional professional, emotional and wellbeing support via an
external provider, Workplace Options, in addition to an occupational health service provided
to employees by Medmark.
SKILLS FOR
THE FUTURE
TRAINING PROVIDED (HOURS, €)
1. Average hours of training per person that AIB’s employees
have undertaken during the reporting period, by gender
and employee category (total number of hours of
training provided to employees divided by the number of
employees).
2. Average training and development expenditure per
full-time employee (total cost of training provided to
employees divided by the number of employees).
AIB has a proud tradition of investing in best-in-class training and development to support
employees to perform their best work, and reach their potential. Our objective is to make
learning inclusive and accessible to everyone who works in AIB, and our employees access
a wide range of training, skills development and leadership development programmes.
In 2021, training continued to be delivered virtually and a number of new initiatives were
launched to support employees to lead effectively in a hybrid work environment. Our
employees completed on average 28 hours of training (females 28.2, males 27.7). These
training hours include all training types such as Instructor Led training, Virtual Instructor
Lead training, SMT, iLearn: Web Based Training and external training, and relates to
permanent and temporary employees. The average training spend per FTE employee
was €800.
For more detail on the above data, including information on assumptions, inclusions/exclusions, please refer to the
Non-Financial Information section of our Sustainability Report 2021, available at www.aib.ie/sustainability.
We p l e d g e t o
D O M O R E
S U S TA I N A B I L I T Y R E P O RT
fo r t h e fi n a n c i a l ye a r e n d e d
3 1 D e ce m b e r 2 0 2 1
A I B G ro u p p l c
For our full Sustainability disclosures,
see our Sustainability Report 2021
48
Sustainability in AIB
Annual Review
AIB Group plc Annual Financial Report 2021
SUSTAINABILITY IN AIB
OUR TCFD
DISCLOSURES
AIB is a supporter of the Task Force on Climate-related Financial Disclosures (TCFD)
and this is our second year of disclosing our progress against its recommendations.1
Our full set of TCFD disclosures is contained as part of our update on Climate &
Environment on pages 20-50 in our Sustainability Report 2021 alongside our other
ESG disclosures, which allows for the inclusion of more detailed and technical
content. See www.aib.ie/sustainability.
GOVERNANCE
TCFD FOCUS AREA
RECOMMENDED DISCLOSURE
OUR DISCLOSURE
Disclose the
organisation’s
governance around
climate-related risks
and opportunities
Describe the Board’s
oversight of climate-related
risk and opportunities
Describe management’s role
in assessing and managing
climate-related risks and
opportunities
§ Oversight of climate change and material items reviewed at Board level. Board and Executive Committee
oversight and review of climate-related metrics that appear on the AIB Group Scorecard.
§ Enhanced ESG governance with new Sub-Executive Committee, the Group Sustainability Committee, in
addition to existing Board committee that has been in place since 2016, the Sustainability Board Advisory
Committee. For more details, see our Sustainability Report 2021 – ESG Goverance section on page x.
§ Roles & responsibilities and Terms of Reference of Board and Executive committees updated to reflect
consideration of Climate Risk.
§ Multi-year programme in train and sustainability working groups in place across key business areas.
§ Sustainability training (including Climate Risk training) at Board, Executive Committee and employee levels.
§ Mandatory sustainability objectives for all employees.
§ First disclosures on WEF Stakeholder Capitalism metrics and continuing Carbon Disclosure Project disclosures
(Leadership rated for six consecutive years).
STRATEGY
TCFD FOCUS AREA
RECOMMENDED DISCLOSURE
OUR DISCLOSURE
Disclose the actual and
potential impacts of
climate-related risks
and opportunities on
the organisation’s
businesses, strategy,
and financial
planning where such
information is material
Describe the climate-related
risks and opportunities the
organisation has identified
over the short, medium, and
long term
Describe the impact of
climate-related risks and
opportunities on the
organisation’s businesses,
strategy, and financial
planning
Resilience of the
organisation’s strategy,
taking into consideration
different climate-related
scenarios, including a 2°C
or lower scenario
§ Integrated consideration of climate risks and opportunities in the annual strategic planning process.
§ Review of climate action opportunities and areas prioritised for investment as part of strategy review.
§ Undertook initial climate risk quantification – physical flood risk for our residential mortgage portfolio and
transition risk for our high climate risk sectors.
§ New propositions launched to support customer transition including joint venture with leasing company for
electric & hybrid vehicles (Nifti) and new green mortgage propositions across other AIB brands (in addition to
existing Green Mortgage, Electric Vehicle proposition, Green Consumer Loan and Sustainability Linked Loans).
§ Sustainable Lending Framework defined for categorisation of green and transition lending published
externally.
§ Internal science-based targets set for 63% of the lending portfolio based on International Energy Agency 2ºC
or lower scenarios. Embedded within multi-year financial plans with plan to externally validate and disclose
in 2022.
§ Partnerships or collaboration to build awareness of climate change and promote action including prevention
of food waste (FoodCloud), biodiversity (Coillte), community dialogues (TASC), in addition to annual
Sustainability Conference and other events.
§ AIB signed up to Net Zero Banking Alliance, Equator Principles, WEF Stakeholder Capitalism metrics and UN
Global Compact in 2021.
1. We comply with the FCA’s Listing Rule 9.8.6R(8) and make disclosures consistent with
the 2017 TCFD recommendations and recommended disclosures across all four of the
TCFD pillars: Strategy; Governance; Risk Management; and Metrics and Targets.
AIB Group plc Annual Financial Report 2021
Annual Review
Sustainability in AIB
49
1
2
3
4
5
6
RISK MANAGEMENT
TCFD FOCUS AREA
RECOMMENDED DISCLOSURE
OUR DISCLOSURE
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks
Organisation’s processes for
identifying and assessing
climate-related risks
§ Conducted climate risk heat-mapping to determine the most likely sectors with greatest exposure to physical
and transition risks and developed a methodology to use scenario analysis to quantify climate-related risks for
our commercial and retail customers.
Organisation’s processes for
managing climate-related risks
§ Detailed work on ECB stress testing (Modules 1, 2 & 3) in progress.
§ Introduced a new ESG Questionnaire to assess a borrower’s ESG risk (for customers in high climate risk
sectors), the outputs of which feed into the credit assessment process.
Processes for identifying,
assessing, and managing
climate-related risks
are integrated into the
organisation’s overall risk
management
§ In-depth review of AIB Group’s Enterprise Risk Management Framework with respect to climate risk and areas
for enhancement identified, with a number of gaps closed in 2021 including updates to a number of policies.
§ Climate Risk has been recognised as a key risk driver within Material Risk Assessment and updates made to
AIB’s Risk Appetite Statement (RAS) relating to Business Model Risk and Credit Risk.
§ An assessment of climate-related risks over short, medium and long term was performed and linked to
existing risk categories.
§ Data & Systems programme of work in train to capture required data fields for Climate Risk quantification and
emissions reduction measurement.
METRICS & TARGETS
TCFD FOCUS AREA
RECOMMENDED DISCLOSURE
OUR DISCLOSURE
Disclose the metrics
and targets used to
assess and manage
relevant climate-
related risks and
opportunities where
such information is
material
Disclose the metrics used by
the organisation to assess
climate-related risks and
opportunities in line with its
strategy and risk management
process
Disclose Scope 1, Scope 2,
and, if appropriate, Scope
3 greenhouse gas (GHG)
emissions, and the related risks
Describe the targets used
by the organisation to
manage climate-related
risks and opportunities and
performance against targets
§ Progress made on 2020 climate ambition announcements including:
§ – €2bn of green financing accounting for 19% of new lending (excludes transition finance);
– issuance of second €750m Green Bond;
– contracting for a power purchase agreement for 100% certified solar renewable energy.
§ Climate action lending target doubled from €5bn over five years to €10bn in the same period.
§ Science-based emissions reduction targets disclosed for a number of key sectors (residential mortgages,
commercial real estate and electricity generation) covering 63% of lending balance sheet, with internal
measurement processes in place to track progress.
§ Reduction of emissions from our own operations (Scope 1 & Scope 2) of 19% in 2021.
We p l e d g e t o
D O M O R E
S U S TA I N A B I L I T Y R E P O RT
fo r t h e fi n a n c i a l ye a r e n d e d
3 1 D e ce m b e r 2 0 2 1
A I B G ro u p p l c
For our full Sustainability disclosures,
see our Sustainability Report 2021
50
Sustainability in AIB
Annual Review
Annual Review
AIB Group plc Annual Financial Report 2021
SUSTAINABILITY IN AIB
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.
This Non-Financial Statement offers some high-
level information to provide an understanding of
the development, performance, position and impact
of our activities in the four non-financial matters.
We have provided references to supplemental
information in this report and in our Sustainability
Report 2021, which is published to the Global
Reporting Initiative (GRI) Standards. For information
on our business model, see pages 2 to 5.
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.
For more information, see our Sustainability
Report 2021.
ENVIRONMENTAL MATTERS
ENVIRONMENTAL
POLICY
ENERGY
POLICY
GROUP CREDIT RISK
POLICY
PROJECT FINANCE
POLICY
Our Environmental Policy is sponsored by our Chief Operating Officer Designate and our Director of Corporate Affairs,
Strategy & Sustainability. The purpose of our policy is to enable us to carry out our business in an environmentally
responsible and compliant manner. It will allow for greater management of the risks to the environment in our
operations. The policy includes AIB’s commitment to decarbonise our operations and to support initiatives aimed
at preventing, mitigating, adapting or responding to climate change and decarbonisation of our operations. AIB is
certified to ISO 14001 for environmental management. Our policy is publicly available at www.aib.ie/sustainability.
Our Energy Policy is sponsored by our Chief Operating Officer Designate and our Director of Corporate Affairs,
Strategy & Sustainability. The purpose of our policy is to enable us carry out our business as energy efficiently as
possible, reduce our carbon footprint and to achieve continuous improvement in energy performance. AIB is certified
to ISO 50001 for energy management. Our policy is publicly available at www.aib.ie/sustainability.
Our Group Credit Risk Policy includes a list of excluded business activities that are considered to be incompatible with
Group Strategy due to negative environmental impacts associated with deforestation, nuclear power generation,
natural gas fracking and the exploration, extraction or refining of oil or coal. The policy rule prohibits providing new
money for any term lending facilities to businesses, or any of its subsidiaries, involved in the excluded business
activities. This rule applies to all business customers with a Gross Connected Exposure of > €/£300k and who are
relationship managed. The full list is publicly available on www.aib.ie/sustainability.
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 analyses provided
by external parties to support our assessment.
SUSTAINABLE
LENDING FRAMEWORK
Our Sustainable Lending Framework (SLF) enables the classification of customer loans as green, transition or
social. The SLF was developed to provide transparency on the criteria that AIB employs in reporting on green
and transition lending to help us achieve our ambition that 70% of new lending should be green or transition by
2030. The SLF is based on industry best practice and is largely aligned, where applicable, to the EU Taxonomy
regulation and will evolve as the EU Taxonomy develops. It was approved by the Group Sustainability Committee
and is publicly available at www.aib.ie/sustainability.
KPIs
Our main key performance indicators for environmental matters are Reduction in Emissions and Green Finance metrics.
• Reduction in emissions – in FY2021 we achieved a 19% reduction in our Scope 1 & 2 GHG emissions (year on year).
• Green Finance – in FY2021 we advanced €2bn in new green lending.
PRINCIPAL RISKS
Operational Risk (see page 163) and Credit Risk (see pages 83-144).
AIB Group plc Annual Financial Report 2021
Annual Review Sustainability in AIB
51
1
2
2
3
3
4
4
5
5
6
6
SOCIAL & EMPLOYEE MATTERS
CODE OF
CONDUCT
INCLUSION &
DIVERSITY CODE
SOCIAL HOUSING
POLICY
HEALTH
& SAFETY POLICY
Our Code of Conduct 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 and complete a declaration of compliance with our Code
as part of their annual performance review. Annual e-learning on the Code is mandatory for all employees.
We report annually to the Board Audit Committee in relation to the Code. on training completed and any
breaches. The Code is available on www.aib.ie/sustainability.
Our Inclusion & Diversity Code is based on an ethos that respecting, developing and harnessing the talents of
all our employees creates an inclusive and supportive organisation. It enables the Group to deliver 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.
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 develops and maintains
policies to ensure responsible lending practices, aligned with our Risk Appetite Statement (RAS). It was approved
by our Group Credit Committee.
Our Health & Safety policy is based on the safety of our customers and employees which are paramount. Our
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, virtual and blended
options) and regular accident awareness communications.
For social and employee matters, our key performance indicators include:
KPIs
female representation of 44%, 45% and 42% respectively.
• Diversity – In 2021, we maintained gender balance at Board, ExCo and across all management levels with
• Social housing finance – In 2021, we fully allocated our €300m Social Housing Fund and in July we launched
an additional €500m. The additional funds aim to provide a further 3,000 homes.
PRINCIPAL RISKS
See People and Culture Risk (see pages 167-168) and Credit Risk (see pages 83-144).
52
Sustainability in AIB
Annual Review
Annual Review
AIB Group plc Annual Financial Report 2021
RESPECT FOR HUMAN RIGHTS
HUMAN RIGHTS
COMMITMENT
CODE OF CONDUCT
DATA PROTECTION
POLICY
RESPONSIBLE
SUPPLIER CODE
Our Human Rights Commitment, published in Q1 2021, was developed in line with the standards set out in
the UN Guiding Principles on Business and Human Rights. During 2021, we conducted a pilot project to model
the identification of our salient human rights issues, recognising our responsibilities relating to our role as an
employer, as a procurer of goods and services, and as a provider of retail banking and corporate lending.
The pilot project focused on two areas of our business (Corporate Banking and Supplier procurement and
management). It centred on building internal awareness on human rights within our business and identifying
priority salient human rights risks relevant to the bank for further review and action. Our Human Rights
Commitment is publicly available at www.aib.ie/sustainability.
Our Code of Conduct is our central policy for the human rights of our employees. In addition, our wider policy
suite exists to protect our employees and respect their rights. Additional supporting policies include: our
Inclusion & Diversity Code, Anti-Bullying & Harassment Policy, Domestic Abuse Handbook, Speak Up Policy, and
Grievance Policy. We ensure that we not only fulfil our legislative requirements, but that we seek to go above and
beyond the minimum standards for the jurisdictions in which we operate. The Code is available on www.aib.ie/
sustainability.
Our Data Protection 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 that 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 www.aib.ie/dataprotection.
Our Responsible Supplier Code, launched in October 2020, sets out our expectations that our suppliers conduct
their business in a fair, lawful, and honest manner with all their stakeholders, employees, subcontractors, and
any other third parties. It describes our expectations on human rights, health, safety and welfare, supply chain,
and inclusion and diversity. Suppliers are expected to abide by it, along with all applicable laws, regulations, and
standards in the countries in which their 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. The Code is available on our
suppliers portal on www.aib.ie/suppliers.
MODERN SLAVERY
STATEMENT
Our Modern Slavery and Human Trafficking Statement is released annually. AIB recognises our responsibility to
comply with all relevant legislation, including the UK Modern Slavery Act 2015. Our 2021 statement (published
in June 2021), sets out the steps we took during 2020 to prevent modern slavery and human trafficking in our
business and supply chains. An updated statement will be published in June 2022. The current statement is
available at www.aib.ie/content/dam/aib/group/Docs/modern-slavery-statement-2021.pdf.
We report on these performance indicators annually in our Sustainability Report:
KPIs
• Breaches of data privacy: In 2021, we received 17 complaints from the Data Protection supervisory authorities in
Ireland and the UK regarding breaches of data privacy, the majority of which related to 2020.
• Personal data breaches: In 2021, we reported 141 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
reported related to unauthorised disclosure of personal data.
PRINCIPAL RISKS
See People and Culture Risk (see pages 167-168), Credit Risk (see page 83) and Regulatory Compliance Risk (see
pages 164-165).
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Annual Review Sustainability in AIB
53
ANTI-BRIBERY & CORRUPTION
ANTI-BRIBERY &
CORRUPTION POLICY
Our Anti-Bribery & Corruption 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
www.aib.ie/sustainability.
CONFLICTS
OF INTERESTS POLICY
Our Conflicts of Interest Policy provides a clear statement of the standards for recognising and preventing
potential conflicts of interest and for managing conflicts of interests where they cannot be avoided. Conflicts
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 appear
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. All employees are required to complete annual
Conflicts 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 www.aib.ie/sustainability.
FINANCIAL CRIME
FRAMEWORK
Our robust Financial Crime Framework 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, and subject to at least an annual content verification
to ensure they are kept up to date.
All employees and Directors are made aware of our Financial Crime policy and standards. Employees must
complete mandatory e-learning annually. Our Money Laundering Reporting Officer (or Deputy) provides
comprehensive annual training to the Board. Bespoke training tailored to consider the money laundering /
terrorism financing risks relevant to the specific roles is also provided to key staff. To further enhance awareness,
Financial Crime AML and Sanctions Bulletins are issued periodically to our employees outlining key trends and
other topical items.
Our key performance indicators for these matters include:
KPIs
• Conflicts of Interests training – 90% completion rate in 2021. We target a completion rate of 90% annually, to
allow for employees who are on leave during the training period. On returning from leave, they are expected
to complete the training.
• Incidents of corruption – Two incidents of corruption were confirmed in 2021 – one related to 2021 and
the other related to a previous year. Both incidents arose from customer complaints and have been fully
investigated. The monetary amount for both is not material.
PRINCIPAL RISKS
See Regulatory Compliance Risk (see pages 164-165) and Conduct Risk (see pages 165-166).
54
Sustainability in AIB
Annual Review
Annual Review
AIB Group plc Annual Financial Report 2021
SUSTAINABILITY IN AIB
EU TAXONOMY
The EU Taxonomy is a sustainability classification system that translates the
EU’s climate and environmental objectives into criteria for specific economic
activities for investment purposes. Here we outline the background and
methodology to our first EU Taxonomy disclosure, relating to 2021.
CONTEXTUAL INFORMATION INCLUDING THE
SCOPE OF ASSETS AND ACTIVITIES COVERED
BY THE KPIs, INFORMATION ON DATA SOURCES
AND LIMITATIONS
Our EU Taxonomy disclosure covers AIB Group.
Our proportion of in-scope assets exposure to
taxonomy eligible economic activities is 38% which
is driven by the proportion of retail mortgages
on our balance sheet and the fact that the
acquisition and ownership of buildings is an eligible
activity. The main category of assets for eligibility
considerations covered in our disclosure includes
households. In our denominator, we include local
government financing, financial corporations,
non-financial corporations (NFCs), derivatives, on
demand interbank loans, cash and cash-related
assets and other assets (e.g. goodwill, commodities
etc.). The scope of activities covered includes the
eligible activities under climate change mitigation
(CCM)1 and climate change adaptation (CCA)2. Total
exposure for other assets not covered in either
denominator or numerator has been provided
for central governments, central banks and
supranational issuers, and the trading portfolio.
Given this is the first year of reporting, published
counterparty data was limited by 10 February 2022.
For this reason, financial corporations, and NFCs not
subject to Non-financial Reporting Directive (NFRD)
disclosure obligations were excluded from eligibility
considerations. As data availability improves, we
will look to include these assets in our numerator.
For our numerator, we determined the proportion
of Taxonomy-eligible assets using the associated
Nomenclature of Economic Activities (NACE)
codes within the Technical Screening Criteria. Our
categorisation of the full book was reviewed.
In AIB, sustainability forms a key pillar of our
business strategy. We have set an ambition of
green/transition lending to account for 70% of all
new lending by 2030. To support this goal, we have
developed a Sustainable Lending Framework (SLF)
where we have used the EU Taxonomy as one of
the considerations to inform our criteria for green,
transition or social loans. This framework is reviewed
annually and will continue to evolve as the EU
Taxonomy expands.
We have also published a list of excluded business
activities with negative environmental impacts that
AIB Group will not finance, such as deforestation
and nuclear power generation. It has been
incorporated into our Group Credit Risk policy,
which supports the management of Credit Risk
across the Group.
AIB offers a range of products that promote
Taxonomy-eligible activities and help our
customers become more sustainable. For example,
our green mortgages in Ireland and the UK are
available to new and existing customers whose
property has a Building Energy Rating (BER) of
between A1-B3. We also launched our green
consumer loans in early 2021 targeted with
initiatives, for example, to help customers retrofit
their homes and achieve a higher energy efficiency
rating. Our ‘Power of Zero’ initiative in partnership
with Nissan offers our customers the opportunity
to buy a new Nissan LEAF electric vehicle and to
move away from transport options reliant on fossil
fuels. Looking forward, in 2022 we will continue to
build out our green product offering further.
AIB Private Banking also offers a range of ESG
portfolios that contain underlying Sustainable
Finance Disclosures Regulation Article 8 and Article
9 funds to our clients. We discuss ESG matters with
our clients at the point of origination. Additionally,
we collect data from our corporate customers as
part of the Sustainable Lending Framework to
enable loan classification as green or transition.
1. CCM: The process of holding the increase in the global average
2. CCA: The process of adjustment to actual and expected climate
temperature to well below 2 °C and pursuing efforts to limit it to 1.5°C
above pre-industrial levels, as laid down in the Paris Agreement.
change and its impacts.
AIB Group plc Annual Financial Report 2021
Annual Review Sustainability in AIB
55
OUR 2021 DISCLOSURE
AIB carefully monitors progress towards the EU Taxonomy. The following table
outlines the breakdown of Taxonomy-eligible assets on the balance sheet with
reference to disclosure requirements for 2021. We will continue to develop our
disclosures over the coming years as requirements and data availability increase.
Our proportion of total assets exposure to taxonomy eligible economic activities
is 38%, which is driven by the proportion of retail mortgages on our balance sheet
and the fact that the acquisition and ownership of buildings is an eligible activity
under climate change mitigation and climate change adaptation.
1
2
3
4
5
6
MANDATORY DISCLOSURE
TOTAL GROSS
AMT (€M)1
% IN-SCOPE
ASSETS
% TOTAL
ASSETS
ASSETS COVERED IN BOTH NUMERATOR AND DENOMINATOR
(Loans & advances, debt securities and equity instruments)
HOUSEHOLDS
LOCAL GOVERNMENTS FINANCING (HOUSING)
ASSETS EXCLUDED FROM THE NUMERATOR (COVERED IN THE DENOMINATOR)
HOUSEHOLDS (non eligible)
LOCAL GOVERNMENTS FINANCING (non eligible)
38%
38%
0%
€29,664
€29,664
€0
€49,035
€2,963
€471
FINANCIAL CORPORATIONS (Loans & advances, debt securities and equity instruments)
€12,467
Credit institutions
Other financial corporations
€8,923
€3,544
NON-FINANCIAL CORPORATIONS (Loans & advances, debt securities and equity instruments)
€25,897
DERIVATIVES
ON DEMAND INTERBANK LOANS
CASH AND CASH-RELATED ASSETS
OTHER ASSETS (e.g. Goodwill, commodities etc.)
TOTAL ASSETS FOR DENOMINATOR
OTHER ASSETS NOT COVERED IN EITHER DENOMINATOR OR NUMERATOR
Sovereigns
Central banks exposure
Trading book
TOTAL ASSETS
1. This table is prepared on the prudential scope of consolidation per FINREP.
€423
€960
€545
€5,309
€78,699
€50,930
€7,997
€42,467
€466
€129,629
100%
We p l e d g e t o
D O M O R E
S U S TA I N A B I L I T Y R E P O RT
fo r t h e fi n a n c i a l ye a r e n d e d
3 1 D e ce m b e r 2 0 2 1
A I B G ro u p p l c
For more information, see our
Sustainability Report 2021
23%
23%
0%
38%
2%
0%
10%
7%
3%
20%
0%
1%
0%
4%
61%
39%
6%
33%
0%
56
Sustainability in AIB
Annual Review
AIB Group plc Annual Financial Report 2021
BACKING A
SUSTAINABLE
FUTURE
At AIB, we want to ensure a greener
tomorrow by backing those building
it today. For more information about
our Sustainable Communities strategy,
targets and progress, see our detailed
Sustainability Report 2021.
AIB Group plc Annual Financial Report 2021
Business Review
57
Business review
1. Operating and financial review
2. Capital
Page
58
73
1
2
3
4
5
6
58
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
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 71. These measures should be considered in conjunction with IFRS measures as set out in the consolidated financial
statements from page 229. A reconciliation between the IFRS and management performance summary income statements is set out on
page 72.
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.
Management performance – summary income statement
Net interest income
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 writeback/(charge)
Operating profit/(loss) before exceptional items(1)
Share of equity accounted investments
Profit/(loss) before exceptional items(1)
Restitution costs
Restructuring costs
Inorganic transaction costs
Covid product costs
Other
Total exceptional items(1)
Profit/(loss) before taxation
Income tax credit
Profit/(loss) for the year
2021
€ m
1,794
590
2,384
(738)
(512)
(284)
(1,534)
(162)
688
238
926
21
947
(173)
(132)
(21)
–
8
(318)
629
16
645
2020
€ m
1,872
499
2,371
(734)
(514)
(279)
(1,527)
(115)
729
(1,460)
(731)
15
(716)
(117)
(73)
(2)
(22)
(1)
(215)
(931)
190
(741)
%
change
-4
18
1
1
-1
2
–
41
-6
–
–
37
–
–
–
–
–
–
–
–
-92
–
(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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Business Review
59
Net interest income
Net interest income
€1,794m
Net interest income
2021
€ m
2020
%
€ m change
The reduction in funding costs was primarily due to:
• Deposits by banks which reflects the impact of TLTRO III
Interest income(1)
Interest expense(1)
Net interest income
Average interest earning assets
1,797
(3)
1,794
113,401
2,049
(177)
1,872
96,037
-12
-98
-4
18
%
1.58
% Change
-0.36
1.94
Net interest margin (NIM)
Net interest income
€1,794m
€ 78 million or 4% compared to 2020.
Net interest income of
€ 1,794 million decreased by
Interest income
Interest income of € 1,797 million in 2021 decreased by
€ 252 million compared to 2020 primarily due to:
•
Lower average customer loan volumes reflecting the redemption
and disposal of non-performing loans and due to redemptions of
performing loans exceeding new lending in 2020.
• Higher volumes of excess liquidity held with the central bank at
negative rates.
• Reduced asset yields driven by the lower interest rate
•
environment.
Lower income on investment securities due to maturities and
disposals of higher yielding securities and reinvestment at
lower yields.
Interest expense
Interest expense of € 3 million in 2021 decreased by € 174 million
compared to 2020.
funding including an additional income benefit of € 65 million
(€ 15 million in respect of the March 2021 lending benchmark
and the full € 50 million benefit in respect of the December
2021 lending benchmark) recognised when it was subsequently
determined that the Group had a reasonable expectation that
the relevant lending targets would be met.(2)
• The lower cost of customer accounts which includes the impact
from continuing to broaden the scope of accounts to which
negative rates are applied.
•
Lower cost of other debt issued.
Net interest margin
1.58%
1.94% in 2020 due to:
• Higher excess liquidity impacting average interest earning
NIM decreased by 36 bps to
1.58% in 2021 compared to
assets c. -29 bps
• Reduced interest income primarily due to lower average
customer loan volumes, the impact of the lower interest rate
environment and the decrease in investment security yields
c. -20 bps partly offset by;
Lower interest expense on customer accounts and other debt
issued c. +7 bps and,
•
• Additional TLTRO III income benefit c. +6 bps.
Average interest earning assets of € 113.4 billion in 2021 increased
by € 17.4 billion from 2020 primarily due to funds placed with banks.
This was driven by an increase in excess liquidity mainly due to
higher customer account balances and TLTRO III funding drawdown.
Average balance sheet
Assets
Loans and advances to customers
Investment securities
Loans and advances to banks(3)
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
Total average liabilities & equity
Year ended
31 December 2021
Average
rate
%
3.20
0.37
(0.30)
1.58
(1.32)
(0.01)
0.98
2.65
3.28
–
Interest(1)
€ m
1,846
65
(114)
1,797
1,797
(102)
(3)
55
41
12
3
3
Average
balance
€ m
57,697
17,676
38,028
113,401
6,294
119,695
7,722
48,439
5,587
1,553
364
63,665
42,518
13,512
119,695
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
103,264
177
Net interest income
1,794
1.58
1,872
1.94
(1) Negative interest income on assets amounting to € 129 million in 2021 (2020: € 44 million) is offset against interest income. Negative interest expense on
liabilities amounting to € 158 million in 2021 (2020: € 34 million) is offset against interest expense.
(2) For further information see note 4 ‘Interest and similar income’ in the consolidated financial statements.
(3) Loans and advances to banks includes Securities financing.
60
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
Other income
Other income(1)
€590m
Other income(1)
Net fee and commission income
Dividend income
Net trading income/(loss)
– Equity investment hedges
– Other
Net gain on equity investments (FVTPL)
Net gain on loans and advances to customers (FVTPL)
Other operating income
Other income
Other income(1)
€590m
compared to 2020. This reflects the impact from the acquisition of
increased by € 91 million or 18%
Other income of € 590 million
2021
€ m
480
3
15
2
13
58
20
14
590
2020
€ m
%
change
395
26
(32)
(9)
(23)
45
42
23
499
21
-90
–
–
–
29
-51
-38
18
Net trading income (excluding equity hedges) of € 13 million in
2021 increased by € 36 million compared to a net trading loss
of € 23 million in 2020 mainly due to favourable movements on
Goodbody for four months of 2021 of € 24 million and an underlying
derivative valuation adjustments (XVA) and on non-customer
increase of € 67 million or 13%.
foreign exchange contracts.
Net fee and commission income
Customer accounts
Card income
Lending related fees
Customer related foreign exchange
Payzone
Other fees and commissions
Goodbody
Net fee and commission income
2021
€ m
208
78
50
67
15
38
456
24
480
2020
%
€ m change
179
69
40
54
15
38
395
–
395
15
13
26
23
1
–
15
–
21
Net income from equity investments of € 60 million in 2021 (2020:
€ 36 million) reflected the disposal and revaluation of equity
investments. This comprises a net gain on equity investments
(FVTPL) of € 58 million in 2021 (2020: € 45 million) and equity
investment hedges of € 2 million (2020: loss of € 9 million).
Net gain on loans and advances to customers (FVTPL) of
€ 20 million in 2021 (2020: € 42 million) represents income
recognised on previously restructured loans carried at fair value
through profit or loss.
Other operating income of € 14 million in 2021 includes a
€ 7 million gain on disposal of investment securities (2020: Nil)
Net fee and commission income of € 480 million in 2021 increased
and a gain on disposal of individual loans for credit management
by € 85 million compared to 2020 reflecting the impact from
purposes of € 6 million (2020: € 23 million).
Goodbody and an increase in underlying net fee and commission
income of € 61 million or 15%.
The increase in underlying net fee and commission income
primarily reflected higher transaction volumes due to a recovery in
economic activity and the removal of the exemption on customer
account fees for customers that maintain a minimum credit balance.
Dividend income in 2020 included € 23 million received on NAMA
subordinated bonds, which were redeemed in 2020.
IFRS basis
On an IFRS basis other income, including a net loss of € 5 million
on exceptional items(1), was € 585 million in 2021 compared to
€ 501 million in 2020.
(1) Other income before exceptional items. A net loss of € 5 million on exceptional items in 2021 (2020: € 2 million gain) comprises: € 5 million loss on disposal of
loan portfolios (2020: Net loss on loans and advances to customers (FVTPL) € 1 million and Other operating income gain on settlement € 3 million).
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Business Review
61
Cost income ratio(1)(2)
64%
resulted in a cost income ratio of 64% in 2021 in line with 2020.
income of € 2,384 million
Costs of € 1,534 million and
Bank levies and regulatory fees
€162m
Bank levies and regulatory fees
Irish bank levy
Deposit Guarantee Scheme
Single Resolution Fund
Other regulatory levies and charges
2021
€ m
2020
€ m
37
48
53
24
35
39
17
24
Bank levies and regulatory fees
162
115
Bank levies and regulatory fees of € 162 million increased by
€ 47 million compared to 2020 primarily due to Single Resolution
Fund (SRF) and higher Deposit Guarantee Scheme fees. The SRF
fee includes a provision of € 25 million following a reassessment of
the liability due in respect of previous years.
IFRS basis
On an IFRS basis total costs, including bank levies and
regulatory fees of € 162 million and the cost of exceptional
items(2) of € 310 million, were € 2,006 million in 2021 compared to
€ 1,859 million in 2020. This results in a cost income ratio (IFRS
basis) of 84% in 2021, compared to 78% in 2020.
Operating expenses
Total operating expenses(1)(2)
€1,534m
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)
2021
€ m
738
512
2020
%
€ m change
734
514
284
279
1,534
1,527
8,916
9,193
9,154
9,356
1
-1
2
–
-3
-2
€1,534m
line with 2020. This includes the impact from the acquisition of
€ 1,534 million were broadly in
Total operating expenses of
Goodbody for four months of 2021 of € 23 million and an underlying
reduction in costs of € 16 million or 1%.
Personnel expenses
Personnel expenses increased by € 4 million compared to 2020
primarily due to the impact of Goodbody of € 16 million partly offset
by a decrease in average staff numbers as the expected benefits of
Strategy 2023 were realised towards the end of the year.
General and administrative expenses
General and administrative expenses were broadly in line with 2020
with an increase due to the impact of Goodbody offset by lower
underlying costs.
Depreciation, impairment and amortisation
Depreciation, impairment and amortisation increased by € 5 million
compared to 2020.
(1)Before bank levies and regulatory fees and exceptional items.
(2) The cost of exceptional items of € 310 million in 2021 (2020: € 217 million) comprised: Personnel expenses € 58 million (2020: € 42 million), General and
administrative expenses € 209 million (2020: € 139 million) and Depreciation, impairment and amortisation € 43 million (2020: € 36 million).
(3) Staff numbers are on a full time equivalent (“FTE”) basis. Staff numbers at 31 December 2021 include 333 FTEs following the acquisition of Goodbody in the
second half of 2021.
2021
€ m
(173)
(132)
(51)
(58)
(10)
(13)
(21)
–
8
2020
€ m
(117)
(73)
(30)
(16)
–
(27)
(2)
(22)
(1)
62
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
Net credit impairment writeback
Total exceptional items
€238m
There was a net credit impairment writeback of € 238 million in
2021 reflecting a more favourable economic environment and
improved credit quality partially offset by post model adjustments.
The net credit impairment writeback of € 238 million reflected
a € 233 million writeback on loans and advances to customers
(net remeasurement of expected credit loss (“ECL”) allowance
€318m
Total exceptional items
Restitution costs
Restructuring costs:
– Termination benefits
– Property transformation
writeback of € 158 million and recoveries of amounts previously
– UK portfolio sale
written-off of € 75 million) and a € 6 million writeback for off-balance
– Other restructuring
sheet exposures. There was also a € 1 million charge on securities
financing.
There was a net credit impairment charge of € 1,460 million in 2020
comprising of a € 1,421 million charge on loans and advances
to customers (net remeasurement 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.
For further information see pages 83 to 144 in the Risk
Management section.
Income tax credit
€16m
There was an income tax credit of € 16 million in 2021 due to an
Inorganic transaction costs
Covid product costs
Other
Total exceptional items
(318)
(215)
These gains/costs were viewed as exceptional by management.
Restitution costs includes provisions of € 100 million related to a
series of investment property funds which were sold to individual
investors during the period 2002 to 2006. See note 37 ‘Provisions
for liabilities and commitments’ in the consolidated financial
statements for further information. It also includes compensation
in relation to customer redress of € 28 million, tracker mortgage
examination redress of € 3 million, along with € 42 million of
associated costs.
Restructuring costs reflect the implementation of the Group’s
increase in the deferred tax asset recognised for tax losses in the
revised strategy (Strategy 2023) including termination benefits,
UK in earlier years, driven by an increase in forecast profits and
impairment and other costs associated with the reduction in the
an increase in the UK corporation tax rate, partially offset by tax on
Group’s property footprint, changes to the Retail network in ROI
profits in the year at the applicable statutory rates.
and the exit from the SME market in Great Britain. 2020 also
included termination benefits of € 9 million relating to a previous
In 2020 there was an income tax credit recognised of € 190 million.
voluntary severance programme and € 30 million relating to the
For further information see note 15 ‘Taxation’ and note 30 ‘Deferred
In December 2020 the Group announced its revised strategy
impairment of intangible assets.
taxation’ of the consolidated financial statements.
(Strategy 2023) and outlined restructuring costs of c. € 400 million
to deliver annualised cost savings as a key driver in achieving the
medium term targets. Restructuring costs of € 166 million have
been incurred in 2020 and 2021 with the remaining costs expected
to be incurred primarily in 2022.
Inorganic transaction costs includes costs associated with the
proposed acquisition of a portfolio of performing Ulster Bank
corporate and commercial loans and the agreed creation of a joint
venture with Great-West Lifeco Inc to provide life, pension and
investment solutions.
Other in 2021 reflects the writeback of a provision for regulatory
fines and a profit on disposal of non-performing loan portfolios.
Assets
Net loans to customers
New lending
€56.5bn
€10.4bn
Assets(1)
Gross loans to customers
ECL allowance
Net loans to customers
Investment securities
Loans and advances to banks
Securities financing
Other assets
Total assets
Net loans to customers
31 Dec
2021
€ bn
31 Dec
2020
%
€ bn change
58.4
(1.9)
56.5
17.0
44.0
3.9
6.5
59.4
(2.5)
56.9
19.5
26.6
0.8
6.6
127.9
110.4
-2
-25
-1
-13
65
–
-1
16
Net loans, excluding the impact of
€56.5bn
€ 0.9 billion, decreased by € 1.3 billion compared to 31 December
2020 primarily due to the redemption and disposal of
non-performing loans.
currency movements of
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Business Review
63
New lending comprises € 9.1 billion term lending in 2021 (€ 7.7 billion
in 2020) and € 1.3 billion transaction lending (€ 1.5 billion in 2020).
Non-performing loans
Non-performing loans ratio
5.4%
€3.1bn
Non-performing loans decreased by € 1.2 billion or 28% to
€ 3.1 billion at 31 December 2021 primarily reflecting the disposal
of loan portfolios of € 1.0 billion and redemptions of € 0.7 billion
partially offset by net flow to non-performing of € 0.5 billion.
Legacy NPEs (exposures that entered into default prior to
31 December 2018) amount to € 0.9 billion or 1.5% of total loans at
31 December 2021.
Non-performing loans ratio
Non-performing loans as a percentage of gross loans to
customers was 5.4% at 31 December 2021 compared to 7.3% at
31 December 2020.
New lending
€10.4bn
13% higher than in 2020.
New lending of € 10.4 billion in
ECL allowance
Non-performing loans cover
2021 was € 1.2 billion or
Mortgage lending was 29% higher at € 3.1 billion with property
related lending up 31% to € 1.8 billion. Non-property lending was
1% higher at € 4.6 billion with strong new lending in renewable
energy & infrastructure and an increase in corporate lending in
Ireland partially offset by the reduction in UK lending.
Irish SME lending was broadly in line with 2020 with higher term
lending (which benefited from government supported schemes)
offset by lower transaction lending. Personal lending was down 5%
to € 0.9 billion.
32%
€1.9bn
The ECL allowance on non-performing loans (at amortised cost) of
€ 1.9 billion at 31 December 2021 decreased from € 2.5 billion at
31 December 2020 primarily reflecting the impact of the disposal
of non-performing loan portfolios and the net credit impairment
writeback in 2021.
Non-performing loans cover
The ECL allowance cover rate on non-performing loans has
remained at 32% at 31 December 2021.
Summary of movement in loans to customers
The table below sets out the movement in loans to customers from 1 January 2021 to 31 December 2021.
Loans to customers
Gross loans (opening balance 1 January 2021)
New lending
Redemptions of existing loans
Portfolio disposals
Write-offs and restructures
Net movement to non-performing
Foreign exchange movements
Gross loans (closing balance 31 December 2021)
ECL allowance
Net loans (closing balance 31 December 2021)
Performing
loans
€ bn
Non-performing
loans
€ bn
Loans to
customers
€ bn
55.1
10.4
(10.2)
(0.3)
–
(0.5)
0.8
55.3
(1.0)
54.3
4.3
–
(0.7)
(1.0)
(0.1)
0.5
0.1
3.1
(0.9)
2.2
59.4
10.4
(10.9)
(1.3)
(0.1)
–
0.9
58.4
(1.9)
56.5
(1) Following a significant increase in securities borrowing and reverse repurchase agreements a new line item ‘Securities financing’ has been introduced.
In previous years, securities borrowings were reported in ‘Loans and advances to banks’ and reverse repurchase agreements were reported in ‘Loans and
advances to banks’ and ‘Loans and advances to customers’. The comparatives for 2020 have been restated accordingly. For further information see note 22
‘Securities financing’ in the consolidated financial statements.
64
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
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 77 to 168.
At amortised cost
At FVTPL(1)
Residential
mortgages
€ bn
Other
personal
€ bn
Property
and
construction
€ bn
Non-
property
business
€ bn
Loan portfolio profile
31 December 2021
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 (%)
29.4
1.5
1.0
0.4
1.3%
2.8%
ECL allowance cover non-performing (%) 30.1%
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 (%)
€ bn
30.6
2.0
2.1
0.9
2.8%
3.7%
ECL allowance cover non-performing (%) 33.9%
2.7
0.2
0.2
0.2
8.2%
15.5%
64.4%
7.4
1.4
0.6
0.3
4.3%
6.6%
27.5%
€ bn
€ bn
2.8
0.3
0.2
0.2
8.5%
15.4%
61.1%
7.3
2.1
1.0
0.4
5.4%
6.4%
22.0%
18.7
3.7
1.1
1.0
5.2%
14.4%
28.6%
€ bn
18.6
5.0
1.0
1.0
5.5%
11.6%
32.3%
Total
€ bn
58.2
6.8
2.9
1.9
3.2%
10.4%
31.9%
€ bn
59.3
9.4
4.3
2.5
4.2%
9.0%
32.4%
Total
€ bn
0.2
–
0.2
–
–
–
–
€ bn
0.1
–
–
–
–
–
–
Total
€ bn
58.4
6.8
3.1
1.9
–
–
–
€ bn
59.4
9.4
4.3
2.5
–
–
–
Investment securities
Investment securities of € 17.0 billion, primarily held for liquidity
Securities financing
Securities financing of € 3.9 billion has increased by € 3.1 billion
purposes, have decreased by € 2.5 billion from 31 December 2020
from 31 December 2020.
due to sales and maturities exceeding purchases.
Loans and advances to banks
Loans and advances to banks of € 44.0 billion, including
Other assets
Other assets of € 6.5 billion comprised:
• Deferred tax assets of € 2.8 billion(2), € 0.1 billion increase from
€ 42.7 billion of cash and balances at central banks, were
31 December 2020.
€ 17.4 billion higher than 31 December 2020. The increased
• Derivative financial instruments of € 0.9 billion, € 0.5 billion
placement with banks was primarily due to an increase in excess
liquidity due to higher customer account balances and a further
decrease from 31 December 2020 primarily reflecting interest
rate and foreign exchange rate movements in the period.
€ 6 billion TLTRO III funding drawdown.
• Remaining assets of € 2.8 billion, increased by € 0.3 billion
from 31 December 2020 mainly due to proceeds from a loan
sale awaiting settlement.
(1)Loans at FVTPL relate to the property and construction asset class.
(2)For further information see note 2 Critical accounting judgements and estimates ‘Deferred taxation’ in the consolidated financial statements.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Business Review
65
Liabilities & equity
Customer accounts
Equity
€92.9bn
€13.7bn
31 Dec 31 Dec
2020
%
€ bn change
2021
€ bn
92.9
10.4
5.8
1.6
3.5
82.0
4.7
5.5
1.6
3.2
114.2
97.0
13.7
13.4
127.9
110.4
13
121
7
–
9
18
2
16
%
61
% Change
69
-8
Debt securities in issue
Debt securities of € 5.8 billion increased by € 0.3 billion from
31 December 2020 following a further MREL related green bond
issuance of € 0.75 billion partly offset by the maturity of a covered
bond of € 0.5 billion.
Subordinated liabilities
Subordinated liabilities of € 1.6 billion were in line with
31 December 2020.
Other liabilities
Other liabilities of € 3.5 billion comprised:
• Derivative financial instruments of € 1.1 billion, € 0.1 billion
decrease from 31 December 2020.
• Remaining liabilities of € 2.4 billion, € 0.4 billion increase from
31 December 2020.
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
€92.9bn
€ 1.0 billion, increased by € 9.9 billion compared to 31 December
impact of currency movements of
Customer accounts, excluding the
Equity
€13.7bn
€ 13.4 billion at 31 December 2020 mainly driven by the profit
to € 13.7 billion compared to
Equity increased by € 0.3 billion
2020 reflecting substantially higher balances primarily due to
for the year partly offset by movements in the cash flow hedging
COVID-19 related dynamics of increased savings.
reserve and AT1 coupons.
Customer account balances subject to negative rates at
31 December 2021 were € 12 billion compared to € 5 billion at
31 December 2020.
Loan to deposit ratio
The loan to deposit ratio decreased to 61% at 31 December 2021
compared to 69% at 31 December 2020 due to increased customer
accounts.
Deposits by banks
Deposits by banks of € 10.4 billion increased by € 5.7 billion
compared to 31 December 2020 driven by a further € 6.0 billion
TLTRO III funding drawdown in June 2021 bringing total TLTRO III
funding to € 10.0 billion.
66
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
Segment reporting
Segment overview
The Group’s performance is managed and reported across the Retail Banking, AIB Capital Markets (“Capital Markets”), 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.
Capital Markets
Capital Markets provides institutional, corporate and business banking services to the Group’s larger customers and customers requiring
specific sector or product expertise. Capital Markets’ 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,
Capital Markets 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. Capital Markets also has syndicated and international finance teams based in Dublin and in New York. In 2021
Goodbody became part of Capital Markets, bringing additional capability in wealth management, corporate finance, asset management and
wider capital markets propositions.
AIB UK
AIB UK offers corporate, retail and business banking services in two distinct markets, a sector-led corporate 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) identified changes to the AIB UK business model including the withdrawal from SME lending in Great Britain to refocus on
our corporate business, particularly in renewables, infrastructure, health and manufacturing and a reduction in branch footprint in Northern
Ireland.
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 Technology,
Operations, 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.
AIB Group plc Annual Financial Report 2021
Business Review
67
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 writeback/(charge)
Operating contribution before
exceptional items
Share of equity accounted investments
Contribution before exceptional items
2021
€ m
2020
€ m
%
change
Retail Banking
balance sheet metrics
31 Dec 31 Dec
2020
%
€ bn change
2021
€ bn
1,024
1,115
367
334
1,391
1,449
(911)
(908)
(2)
(2)
478
86
564
16
580
539
(485)
54
12
66
-8
10
-4
–
13
-11
–
–
27
–
Mortgages
Personal
Property
Non-property business
New lending
Mortgages
Personal
Property
Non-property business
Gross loans
ECL allowance
Net loans
Current accounts
Deposits
Customer accounts
2.9
0.9
0.1
0.9
4.8
2.3
0.9
0.1
1.1
4.4
27.7
29.0
2.6
0.6
3.2
34.1
(1.0)
33.1
37.9
27.3
65.2
2.6
0.7
3.2
35.5
(1.5)
34.0
31.7
25.2
56.9
9
-4
-31
-3
19
9
15
1
2
3
4
5
6
New lending
€4.8bn
New lending was 9% higher at € 4.8 billion due to
a strong increase in mortgage lending of € 0.6 billion or 26% and
higher SME term lending partly offset by lower transaction lending.
Net loans
€33.1bn Net loans decreased by € 0.9 billion primarily due
to the redemption and disposal of non-performing loans.
ECL allowance
€1.0bn
decreased by € 0.5 billion from € 1.5 billion at 31 December 2020
primarily reflecting the disposal of non-performing loan portfolios.
The ECL allowance of € 1.0 billion in 2021
Customer accounts
€65.2bn Customer accounts increased by € 8.3 billion
compared to 31 December 2020 reflecting higher savings which
elevated balances across all sectors.
Net interest income
€1,024m Net interest income has decreased by € 91 million
compared to 2020. This was primarily due to lower average loan
volumes reflecting the redemption and disposal of non-performing
loans and due to redemptions of performing loans exceeding new
lending in 2020. It also reflects the increase in customer account
volumes coupled with the impact of the negative interest rate
environment partially offset by lower funding costs.
Other income increased by € 33 million compared
Other income
€367m
to 2020, mainly due to an increase in net fee and commission
income driven by customer accounts, card income and customer
related foreign exchange income partly offset by lower income
recognised on previously restructured loans. Customer accounts
income has benefited from the removal of the exemption on
customer account fees for customers that maintain a minimum
credit balance.
Total operating expenses were broadly in line with
Total operating expenses
€911m
2020 as reductions in personnel costs due to lower average staff
numbers was offset by an increase in general and administration
costs and depreciation and amortisation.
There was a net credit impairment writeback
Net credit impairment writeback
€86m
of € 84 million on loans and advances to customers (net
remeasurement of ECL allowance writeback of € 15 million and
recoveries of amounts previously written-off of € 69 million) and a
€ 2 million writeback for off-balance sheet exposures. There was a
net credit impairment charge of € 485 million in 2020.
68
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
Capital Markets
Capital Markets
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 writeback/(charge)
Operating contribution before
exceptional items
Share of equity accounted investments
Contribution before exceptional items
2021
€ m
460
137
597
439
121
560
(154)
(132)
(1)
–
442
137
579
1
580
428
(767)
(339)
–
(339)
2020
%
€ m change
Capital Markets
balance sheet metrics
31 Dec 31 Dec
2020
%
€ bn change
2021
€ bn
5
12
6
17
–
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
1.3
2.8
4.1
0.5
0.0
5.1
10.4
16.0
(0.6)
15.4
0.0
0.0
0.9
2.2
3.1
0.6
0.1
4.7
9.9
15.3
(0.8)
14.5
Investment securities
1.5
1.1
Current accounts
Deposits
Customer accounts
11.1
3.4
14.5
9.0
3.7
12.7
33
5
-18
6
43
23
-9
14
Net interest income
€460m
compared to 2020. This was primarily due to lower funding costs
Net interest income increased by € 21 million
New lending
€4.1bn
€ 1.0 billion compared to 2020 with strong new lending in property
New lending of € 4.1 billion increased by
partially offset by the impact of lower average loan volumes.
and renewable energy & infrastructure as well as an increase in
corporate lending.
Other income
€137m
to 2020 driven by the impact of the acquisition of Goodbody for
Other income increased by € 16 million compared
four months of 2021, higher lending related and customer related
Net loans
€15.4bn Net loans of € 15.4 billion at 31 December 2021
increased by € 0.9 billion compared to 2020 primarily due to new
foreign exchange fee income as well as an increase in income from
lending exceeding redemptions, the impact of currency movements
equity investments. This was partly offset by a reduction in FVTPL
of € 0.3 billion and a reduction in the ECL allowance of € 0.2 billion.
loan valuations and a decrease in gain on loan disposals.
Total operating expenses
€154m
compared to 2020 due to the impact from Goodbody.
Total operating expenses increased by € 22 million
ECL allowance
€0.6bn
2021 decreased by € 0.2 billion from 31 December 2020 driven by
The ECL allowance of € 0.6 billion at 31 December
the net credit impairment writeback recognised in 2021.
Net credit impairment writeback
€137m
€ 137 million in 2021 comprising of a € 133 million writeback on
There was a net credit impairment writeback of
loans and advances to customers and a € 4 million writeback for
off-balance sheet exposures. There was a net credit impairment
charge of € 767 million in 2020.
Investment securities
€1.5bn
€ 0.4 billion higher than 31 December 2020.
Investment securities of € 1.5 billion were
Customer accounts
€14.5bn Current accounts of € 11.1 billion were € 2.1 billion
higher than 31 December 2020. Deposits of € 3.4 billion decreased
by € 0.3 billion compared to 31 December 2020.
AIB Group plc Annual Financial Report 2021
Business Review
69
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 writeback/(charge)
Operating contribution before
exceptional items
Share of equity accounted investments
Contribution before exceptional items
Contribution before exceptional items € m
2021
£ m
2020
%
£ m change
AIB UK balance sheet metrics
31 Dec 31 Dec
2020
%
£ bn change
2021
£ bn
186
46
232
191
43
234
(140)
(146)
(1)
(1)
91
13
87
(184)
104
3
107
124
(97)
2
(95)
(108)
-3
7
-1
-4
6
5
–
–
42
–
–
AIB GB
AIB NI
New lending
AIB GB
AIB NI
Gross loans
ECL allowance
Net loans
Current accounts
Deposits
Customer accounts
0.9
0.4
1.3
4.9
2.0
6.9
(0.2)
6.7
6.9
3.0
9.9
1.1
0.4
1.5
5.6
2.1
7.7
(0.3)
7.4
6.8
3.0
9.8
-19
-13
-17
-11
-8
-10
-19
-10
2
-1
1
1
2
3
4
5
6
Net interest income
£186m
compared to 2020 primarily due to lower average loan volumes and
Net interest income decreased by £ 5 million
New lending
£1.3bn
£ 0.2 billion compared to 2020. There was an increase in mortgage
New lending of £ 1.3 billion in 2021 was down
lower average interest rates partially offset by lower funding costs.
lending offset by a reduction in commercial and corporate lending.
Other income
£46m
2020 mainly due to favourable movements on derivative valuation
Other income increased by £ 3 million compared to
Net loans
£6.7bn
compared to 31 December 2020 primarily due to the Group’s
Net loans of £ 6.7 billion decreased by £ 0.7 billion
adjustments (XVA).
decision to exit the SME market in Great Britain.
Total operating expenses
£140m
compared to 2020 driven by lower personnel expenses.
Total operating expenses decreased by £ 6 million
Net credit impairment writeback
£13m
£ 13 million in 2021. There was a net credit impairment charge of
There was a net credit impairment writeback of
£ 184 million in 2020.
In November 2021 AIB UK plc announced an agreement to sell
c. £ 0.6 billion of performing small and medium enterprise (SME)
loans in Great Britain (GB). At 31 December 2021 £ 0.3 billion
of loans has been derecognised from the balance sheet with the
remainder to be completed in 2022 subject to receipt of required
external approvals.
ECL allowance
£0.2bn
31 December 2021 decreased by £ 0.1 billion from
The ECL allowance of £ 0.2 billion at
31 December 2020.
Customer accounts
£9.9bn
31 December 2021 were broadly in line with 31 December 2020.
Customer accounts of £ 9.9 billion at
70
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
Group
Group contribution statement
Net interest income
Other income
Total operating income
Total operating expenses
Bank levies and regulatory fees
Contribution before exceptional items
2021
€ m
2020
%
€ m change
94
33
127
(306)
(158)
(337)
104
(4)
100
(323)
(112)
(335)
-9
–
29
-5
42
1
Group balance sheet metrics
Investment securities
Customer accounts
31 Dec 31 Dec
2020
%
€ bn change
2021
€ bn
15.5
1.3
18.4
1.4
-16
-5
Net interest income
€94m
by € 10 million compared to 2020 reflecting the impact of the
Net interest income of € 94 million decreased
Investment securities
€15.5bn
held for liquidity purposes, decreased by € 2.9 billion from
Investment securities of € 15.5 billion, primarily
lower interest rate environment and lower income on investment
31 December 2020 due to sales and maturities exceeding
securities.
purchases.
Other income
€33m
to 2020 driven by favourable movements on derivative valuation
Other income increased by € 37 million compared
Customer accounts
€1.3bn
31 December 2021 compared to € 1.4 billion at 31 December 2020.
Customer accounts were € 1.3 billion at
adjustments (XVA) and foreign exchange contracts, higher income
from equity investments and a gain on disposal of investment
securities. 2020 included € 23 million of dividend income on NAMA
subordinated bonds, which were redeemed in 2020.
Total operating expenses
€306m
decreased by € 17 million compared to 2020 driven by lower
Total operating expenses of € 306 million
general and administrative expenses.
Bank levies and regulatory fees
€158m
in 2021 include the Single Resolution Fund (SRF) € 53 million,
Bank levies and regulatory fees of € 158 million
Deposit Guarantee Scheme of € 48 million, the Irish bank levy of
€ 37 million and other regulatory levies and charges of € 20 million.
The SRF fee includes a provision of € 25 million following a
reassessment of the liability due in respect of previous years.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Business Review
71
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
Interest income/expense for balance sheet categories divided by the corresponding average
balance.
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 72. Exceptional items
include:
– Restitution costs includes provisions related to a series of investment property funds which were
sold to individual investors during the period 2002 to 2006. It also includes compensation in
relation to the tracker mortgage examination and other customer redress along with associated
costs.
– Restructuring costs reflect the implementation of the Group’s revised strategy (Strategy 2023)
including termination benefits, impairment and other costs associated with the reduction in the
Group’s property footprint, changes to the Retail network in ROI and the exit from the SME
market in Great Britain. 2020 also included termination benefits relating to a previous voluntary
severance programme and relating to the impairment of intangible assets.
–
Inorganic transaction costs includes costs associated with the proposed acquisition of a portfolio
of performing Ulster Bank corporate and commercial loans and the agreed creation of a joint
venture with Great-West Lifeco Inc to provide life, pension and investment solutions.
– 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.
– Other in 2021 reflects the writeback of a provision for regulatory fines and a profit on disposal of
non-performing loan portfolios.
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 exposures 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 (13.5 per cent.) CET1 capital on a fully
loaded basis. Details of the Group’s RoTE is set out in the Capital Section on page 76.
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
• Operating profit before impairment losses
and exceptional items
• Operating profit/(loss) before
• General and administrative expenses
exceptional items
• Depreciation, impairment and amortisation
•
Loss on disposal of property
• Total operating expenses
• Profit/(loss) before exceptional items
• Bank levies and regulatory fees
• Total exceptional items
72
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 1. Operating and financial review
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 writeback/(charge)
Operating profit/(loss)
Share of equity accounted investments
Loss on disposal of property
Profit/(loss) before taxation
Income tax credit
Profit/(loss) 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
Inorganic transaction costs
Covid product costs
Other
2021
€ m
1,794
585
2,379
(2,006)
373
238
611
21
(3)
629
16
645
5
162
310
2020
€ m
1,872
501
2,373
(1,859)
514
(1,460)
(946)
15
–
(931)
190
(741)
(2)
115
217
1
(3)
117
73
2
22
3
6
(1)
173
122
21
–
(6)
Loss on disposal of property
of which: exceptional items
Other
3
3
–
–
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 writeback/(charge)
Operating profit/(loss) before exceptional items(1)
Share of equity accounted investments
Loss on disposal of property(1)
Profit/(loss) before exceptional items(1)
Total exceptional items(1)
Profit/(loss) before taxation
Income tax credit
Profit/(loss) for the year
1,794
590
2,384
(1,534)
(162)
688
238
926
21
–
947
(318)
629
16
645
1,872
499
2,371
(1,527)
(115)
729
(1,460)
(731)
15
–
(716)
(215)
(931)
190
(741)
(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.
1
2
3
4
5
6
Business review – 2. Capital
AIB Group plc Annual Financial Report 2021
Business Review
73
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 153.
Regulatory capital and capital ratios(1)
Equity
Less: Additional Tier 1 Securities
Proposed ordinary dividend
Regulatory adjustments:
Intangible assets
Cash flow hedging reserves
IFRS 9 CET 1 transitional add-back
Pension
Deferred tax
Calendar provisioning(2)
Other
Total common equity tier 1 capital
Additional tier 1 capital
Additional Tier 1 issuance
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 and settlement risk
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
2021
€ m
31 December
2020
€ m
31 December
2021
€ m
31 December
2020
€ m
13,664
(1,115)
(122)
(552)
(149)
565
(39)
(1,977)
(136)
(37)
(2,325)
10,102
1,115
1,115
11,217
13,422
(1,115)
–
(485)
(540)
796
(22)
(1,654)
(317)
(38)
(2,260)
10,047
1,115
1,115
11,162
13,664
(1,115)
(122)
(552)
(149)
–
(39)
(2,801)
(136)
(37)
(3,714)
8,713
1,115
1,115
9,828
13,422
(1,115)
–
(485)
(540)
–
(22)
(2,721)
(317)
(38)
(4,123)
8,184
1,115
1,115
9,299
1,500
1,500
1,500
1,500
24
133
(133)
1,524
12,741
47,646
446
4,435
110
52,637
%
19.2
21.3
24.2
19
131
(131)
1,519
12,681
47,807
429
4,686
114
53,036
%
18.9
21.0
23.9
28
133
–
1,661
11,489
47,367
446
4,435
110
52,358
%
16.6
18.8
21.9
24
131
–
1,655
10,954
47,350
429
4,686
114
52,579
%
15.6
17.7
20.8
(1) Prepared under the regulatory scope of consolidation.
(2) 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
74
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 2. Capital
Capital requirements
The table below sets out the capital requirements at 31 December
2021 and the pro forma requirements for 31 December 2022 and
31 December 2023. The table does not include Pillar 2 Guidance
(“P2G”) which is not publicly disclosed.
Regulatory Capital Requirements
CET1 Requirements
Pillar 1
Actual
31 Dec
2021
Pro Forma
31 Dec
2022
31 Dec
2023
4.50% 4.50% 4.50%
Pillar 2 requirement (P2R)
1.69% 1.55% 1.55%
Capital Conservation Buffer (CCB)
2.50% 2.50% 2.50%
Other Systemically Important
Institutions Buffer (O-SII)
1.50% 1.50% 1.50%
Countercyclical buffer (CCYB) Impact
0.01% 0.15% 0.35%
CET1 Requirement
10.20% 10.20% 10.40%
Capital ratios at 31 December 2021
Fully Loaded Ratio
The fully loaded CET1 ratio increased to 16.6% at 31 December
2021 from 15.6% at 31 December 2020 due to profit for the
year attributable to equity holders of the parent less proposed
ordinary dividend (+1.0%), a decrease in calendar provisioning
deduction following NPE disposals in the year (+0.3%) and RWA
reduction (+0.1%). These were partially offset by the acquisition
of Goodbody (-0.2%), AT1 coupon paid (-0.1%) and other capital
adjustments (-0.1%).
RWA reductions include increased application of Article 501/501A
for SME exposures (+0.1%) and reduced operational risk RWAs
(+0.1%). Elsewhere model related RWA increases (-0.4%) were
offset by a reduction in loans and advances to customers (+0.3%)
driven by business mix, volumes and credit grade movements.
AT1
Tier 2
2.06% 2.02% 2.02%
The fully loaded total capital ratio increased to 21.9% from 20.8%
2.75% 2.69% 2.69%
at 31 December 2020. The increase in the ratio was driven by the
Total Capital Requirement
15.01% 14.90% 15.10%
movements outlined above.
On 1 January 2022 the Group’s Pillar 2 Requirement (“P2R”)
reduced to 2.75% from 3.00% in 2021. Under CRD V Article 104a,
at least 1.55% must be held in CET1, 0.69% can be held in Tier 2,
with the balance (c. 0.52%) held in AT1.
The Bank of England (“BOE”) has announced the reintroduction
of the UK Countercyclical capital buffer (“CCyB”) at 1% by
December 2022, with an expected increase to 2% in quarter 2
2023. This equates to an estimated 0.15% Group requirement
for 2022, and 0.35% for 2023. The Central Bank of Ireland is the
authority responsible for setting the CCyB in Ireland. No change
to the current 0% CCyB has been announced by the CBI and this
position is reviewed every 3 months. It is anticipated that a phase-
in period will be provided to any re-introduction of the buffer.
Transitional Ratio
The transitional CET1 ratio increased to 19.2% at 31 December
2021 from 18.9% at 31 December 2020. This increase is driven
by the fully loaded movements detailed above, partially offset by
an additional year’s phasing of the deferred tax asset deduction
and the IFRS 9 transitional addback.
At 31 December 2021 the transitional total capital ratio increased
to 24.2% from 23.9% at 31 December 2020.
Acquisition of Ulster Bank corporate and commercial
loans
Note 56 ‘Proposed acquisition’ sets out the details on the
proposed transaction.
The minimum requirement for the total capital ratio is 15.0%
at 31 December 2021 and is expected to be 14.9% by the
end of 2022.
The Group estimates that had the transaction completed on
31 December 2021 the increase in the Group’s RWAs would have
led to a reduction in the CET1 ratio of c. -1.3%.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Business Review
75
Distributions
Proposed dividend
The Board proposes to pay an ordinary dividend of 4.5 cent per
Finalisation of Basel III
The Group continues to closely monitor regulatory developments
to ensure that the Group maintains a strong capital position.
share totalling € 122 million from 2021 profits. This is subject to
The final Basel III requirements in respect of Counterparty Credit
shareholder approval at the Annual General Meeting in May 2022.
Risk have been implemented as part of CRR2.
Proposed buyback of ordinary shares
Pursuant to the shareholder authorities granted at the 2021
Further regulatory developments in respect of the finalisation of
Basel III are expected in the near term. Exact implementation
AGM, AIB Group plc has the authority to undertake on-market
details will be confirmed once the finalised requirements are
purchases of up to 10% of its ordinary shares and, subject to
transposed into law (i.e. the CRR is further updated). Initial
the Minister for Finance’s agreement, off-market purchases from
assessments signal some upward pressure on RWAs, mostly in
the Minister for Finance of up to 4.99% of its ordinary shares
relation to operational risk.
(“Directed Buyback”). In this context, the Group has received
regulatory approval from the European Central Bank to undertake
In relation to RWA floors, the Group’s high RWA density makes it
a buyback of its ordinary shares in an aggregate consideration
less likely to be severely impacted by their introduction.
amount of up to € 91 million. Any buyback of ordinary shares
by the Group, whether by way of a Directed Buyback from the
Minister for Finance or by way of open-market purchases, would
be subject to the approvals of the Board and the Minister for
Minimum Requirement for Own Funds and Eligible
Liabilities (“MREL”)
At 31 December 2021 the Group has a MREL ratio of 31.9% of
Finance.
RWAs.
The combined proposed ordinary dividend and buyback
represents 40% of distributable profits. In determining
distributable profits, the Group considers profit after tax less AT1
coupons paid adjusted for the deferred tax asset utilisation.
The pro forma capital impact of the proposed share buyback at
31 December 2021 is c. 15 basis points which would reduce the
fully loaded CET1 ratio to 16.5% from the reported 16.6%.
Leverage Ratio
The fully loaded leverage ratio is 7.6% at 31 December 2021
(8.3% at 31 December 2020).
The Single Resolution Board (“SRB”) has set the Group’s
binding intermediate MREL target under the BRRD II
legislative framework to be complied with by 1 January 2022.
The intermediate binding target is 27.1% of RWAs including
the January 2022 combined buffer requirement. The Group
anticipates that the final target (1 January 2024) will be higher
as the final elements of the MREL calibration are phased in.
The MREL target including the combined buffer target will also be
impacted by any changes in the overall capital requirement.
The Group’s MREL ratio is in excess of the target for 2022 and
there is currently sufficient loss absorption and re-capitalisation
capability. The Group has now completed issuances of
The decrease is driven by an increase in the exposure measure
€ 6.6 billion MREL qualifying liabilities of which € 0.75 billion was
driven primarily by excess funding placed with central banks.
issued in the first half of 2021.
Leverage Ratio Metrics
Total Exposure (Transitional Basis)
Total Exposure (Fully Loaded)
2021
€ m
130,894
129,373
2020
€ m
113,344
111,378
Tier 1 Capital (Transitional Basis)
11,217
11,162
Tier 1 Capital (Fully Loaded)
Leverage Ratio (Transitional Basis)
Leverage Ratio (Fully Loaded)
9,828
8.6%
7.6%
9,299
9.8%
8.3%
The Group continues to monitor changes in MREL requirements
together with developments in the SRB’s MREL policy which has
the potential to impact on the Group’s MREL target.
Return on Tangible Equity (“RoTE”)*
The RoTE for 2021 is 8.2% (2020: -11.2%).
Return on Tangible Equity (RoTE)
Profit/(loss) after tax
AT1 coupons paid
Attributable earnings
2021
€ m
645
(65)
579
2020
€ m
(741)
(76)
(817)
Average RWA
RWA * 13.5% CET1 target
52,469
52,289
7,083
7,320(1)
Return on Tangible Equity
8.2% (11.2)%
(1)2020 based on a prior CET1 target of 14%.
The Group has set a medium term target for RoTE of greater
than 9%.
* RoTE is considered an Alternative Performance Measure.
Return on Assets
The Return on Assets (RoA) at 31 December 2021 is 0.5%
(2020: -0.7%).
76
Business Review
AIB Group plc Annual Financial Report 2021
Business review – 2. Capital
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).
AIB Group plc
On 13 July 2021, Moody’s upgraded the credit rating by one
notch to Baa1 following the publication of their updated Banks
Methodology. The stable outlook was reaffirmed. On 4 October
2021, Fitch revised the outlook to stable from negative and
reaffirmed the ratings. S&P reaffirmed their ratings in January
2022 following the publication of their revised Financial
Institutions Rating Methodology.
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 2021
Fitch
S&P
Baa1
BBB-
Stable Negative
BBB
Stable
Moody’s
31 December 2020
Fitch
S&P
Baa2
BBB-
BBB
Stable Negative Negative
Moody’s
31 December 2021
Fitch
S&P
A2
A-
Stable Negative
BBB+
Stable
Moody’s
31 December 2020
Fitch
S&P
A2
BBB+
BBB+
Stable Negative Negative
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 management lifecycle
1.6
Risk culture
1.7
Testing and assurance
2
Individual risk types
2.1
Credit risk
2.2
Liquidity and funding risk
2.3
Capital adequacy risk
2.4
Financial risks
(a) Market risk
(b) Pension risk
(c) Equity risk
2.5
Business model risk
2.6 Operational risk
2.7
Regulatory compliance risk
2.8
Conduct risk
2.9
People and culture risk
2.10 Model risk
AIB Group plc Annual Financial Report 2021
Risk Management
77
1
2
3
4
5
6
Page
78
78
79
80
80
82
82
83
145
153
154
160
161
162
163
164
165
167
168
78
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 1. Framework
1. Introduction
One of the Group’s core priorities is to continuously strengthen its risk management as this enables the Group to respond to changing
circumstances in a dynamic manner while continuing to meet its purpose to back its customers to achieve their dreams and ambitions.
The Group’s risk management approach is underpinned by a set of risk management principles, together with a risk culture embedded
throughout the Group, a solid governance structure and advanced risk processes. The core aspects of the Group’s risk management
approach are described below.
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 distinguishes between risk governance, risk management, risk oversight and
risk 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 is reviewed, updated and approved by the Board at least
annually to reflect any changes to the Group’s business or consideration of external regulations, corporate governance requirements and
industry best practice.
In 2021 the Group announced the acquisitions of Goodbody and the proposed Ulster Bank’s commercial loan book, the joint ventures
with Great-West LifeCo Inc and Autolease Fleet Management Limited. These transactions have been assessed as part of the Group’s risk
management processes including the material risk assessment to identify any new material risks that may impact the Group, risk appetite
statement and through the financial planning process.
The Group is monitoring closely the rapidly developing situation in Ukraine and the potential impact it may have on the Group’s business.
The Group has negligible direct credit exposure to Ukraine, Russia or Belarus and is closely monitoring payment flows. An initial risk
assessment of the key impacts on the Group has identified the key risks as being operationalising complex sanctions regime, potential for
increase in cyberattacks and financial and market risks arising from volatility in asset values, interest rates or foreign exchange markets.
Regular updates on the changing situation will be provided to the Executive Committee and Board Risk Committee as appropriate.
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 has adopted a three lines of defence model and
risks are managed in alignment with the model
Identification and assessment
3. The Group identifies, assesses and reports all its material
risks as per the material risk assessment taxonomy
4. The Group operates and manages its risks in line with the
Group's Risk Appetite Statement
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 in place a system of internal controls
designed to mitigate rather than eliminate risk
12. A comprehensive, fit-for-purpose framework and policy
architecture is in place to support risk management and is
reviewed regularly
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 176 to 185.
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. The core overarching areas of oversight and decision
making for the Executive Committee are:
• Strategy and Business Development
• Performance and Operations
• Business Structure and Risk Management
• Talent and Culture
• Stakeholder Management
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 the most senior management risk
committee and is accountable to the Executive Committee to
set policy and monitor all risk types across the Group to enable
delivery of the Group’s risk strategy.
The roles and responsibilities of the Group Risk Committee are:
• Approving risk frameworks, risk appetite statements, risk
policies and limits to manage the risk profile of the Group;
• Reviewing the Group’s risk profile (enterprise wide);
• Periodically reviewing the effectiveness of the Group’s risk
management policies for identifying, evaluating, monitoring,
managing, and measuring significant risks;
• Providing oversight and challenge of regulatory, operational
and conduct risk related matters;
• Providing oversight and challenge of credit risk management
related matters and periodically 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;
• Providing advice to the Board Risk Committee on risk
governance, current and future risk exposures and risk
appetite;
• Reviewing the annual risk assessments prepared by the first
line of defence to identify and evaluate all significant risks and
related risk management activities;
• Considering the annual Money Laundering Reporting Officer’s
report; and
• Considering and assessing management’s response to Group
Internal Audit findings.
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
79
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, interest rate
risk in the banking book (“IRRBB”) from an economic value and
net interest margin (“NIM”) perspective, foreign exchange (“FX”)
risks and other 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
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
80
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 1. Framework
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, and always providing an exceptional customer
experience, while simultaneously delivering a bank with compelling,
sustainable capital returns and a considered, transparent and
controlled risk profile. The Group’s strategy is driven by the
five strategic pillars that determine the areas of focus and drive
investment. The strategy is defined within the boundaries of the
Group’s Risk Appetite Statement and approved by the Board.
The Group’s Risk Appetite Statement defines the amount and type
of risk that the Group is willing to accept, in pursuit of its strategic
goals.
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.
Sustainability
Sustainability is a key strategic objective of the Group and
Sustainable Communities is one of the Group’s five Strategic
Pillars. Managing the sustainability related aspects of the Group
involves identifying and managing all related risks that relate to
both day-to-day and future operations. See pages 42 to 54 for
more details on Sustainability in AIB.
Material risk assessment
The material risk assessment is a top down process performed
on an at least 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.
1.5 Risk management lifecycle
The key processes which support the Group’s approach to risk
management are set out below:
The Group’s risk appetite statement is built on the following
overarching qualitative statements:
• Aim to grow our business sustainably, recognising the positive
1.5.1 Identification and assessment
Risk is identified and assessed in the Group through a
combination of the following:
• Material risk assessment;
• Risk and control assessment;
• Setting risk appetite;
• Annual Financial Plan;
•
•
• Stress testing;
• Recovery planning;
• Resolution planning.
Internal Capital Adequacy Assessment Process (“ICAAP”);
Internal Liquidity Adequacy Assessment Process (“ILAAP”);
contribution we make to the communities we serve. We
do this 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 and
sustainable dividend payments;
• Do not have an appetite for large proprietary market risk
positions in our trading book;
• 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;
• Seek to offer our customers choice, by providing 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 at all times to comply with all relevant laws, regulations,
codes and guidelines applicable to the Group’s activities and
to proactively implement new regulatory obligations;
• Seek to maintain a strong capital base that generates
sustainable 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.
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 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
81
Stress testing
Stress testing is recognised as a key risk management process
by the Group. It seeks to ensure that risk assessment is dynamic
and forward looking, and considers not only existing risks but also
potential and emerging threats. Stress test methodologies are
developed to assess the material risks identified in the material
risk assessment process.
The Group’s stress testing programme embraces a range of
forward looking stress tests and takes all the Group’s material
risks into account. These include:
•
ICAAP stress testing undertaken on an annual basis in
support of the Internal Capital Adequacy Assessment Process
and is integrated with the Group’s annual financial planning
process. This aims to highlight the key vulnerabilities of the
Group and inform potential future capital needs including
capital buffers, in excess of minimum regulatory capital
requirements and internal capital requirements under both
base and stressed conditions over the planning horizon;
Internal capital stress tests on all the material risks of the
Group. These consider the implications of a severe shock
across the Group’s material risks and additional supporting
scenarios as deemed appropriate;
Annual ILAAP stress testing applied to the funding and
liquidity plan to formally assess the Group’s liquidity risks;
Reverse stress testing undertaken at least annually to explore
the vulnerabilities of the Group’s strategies and plans in
extreme adverse events that would cause the Group to fail.
The Group will adopt an action plan to prevent and mitigate in
the strategic plans;
Ad hoc stress testing on key core portfolios as required, of
emerging risks identified from the material risk assessment
process and as well as in response to regulatory requests;
and
Sensitivity analysis assesses the marginal impact of an
incremental change in one risk parameter on the Group’s
capital and liquidity position.
•
•
•
•
•
Stress testing methodology
Across all of the Group’s material risks, the methodology will
be an appropriate blend of model based and expert judgement
approaches. Assumptions and outputs are reviewed by impacted
businesses and central functions, and via Risk review, to
ensure they are plausible and intuitive. All models used in the
stress testing process are subject to model validation as per
the Group’s Model Risk Management Framework. The stress
tests comply with all regulatory requirements, achieved through
the comprehensive review and challenge of macroeconomic
scenarios and stress test outcomes, and the ongoing validation of
stress testing models. The Group will be participating in the EBA’s
inaugural European-wide Climate Stress Test in 2022.
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 suite
of indicators and options are included in the Group’s recovery
plan, which together presents the identification of stress events
and the tangible mitigating actions available to the Group to
restore viability.
82
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 1. Framework
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 Group is under the remit of the Single Resolution Board
(“SRB”) due to its systemic importance. The SRB, in cooperation
with 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.
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 and Resolution Steering Committee that
provides governance and oversight around resolution planning.
Key deliverables to the SRB are approved by Resolution Steering
Committee, GRC/ExCo (Group and UK) and Board (Group
and UK).
1.5.2 Measurement and management
Risk measurement
Each of the material risks has a specific approach to how the
risk is measured. The Group Risk Appetite Statement and the
separate risk appetite statements for the licensed subsidiaries
contain metrics which are measured on a monthly basis against
the limits set.
Risk management
The material risk types are actively managed and measured
against their respective frameworks, policies and processes
on an ongoing basis. Risk models are used to measure credit,
market, liquidity and funding risk, and where appropriate, capital
is allocated (taking account of risk concentrations) to mitigate
material risks. The management and measurement of the Group’s
risk profile also informs the Group’s strategic and operational
planning processes.
1.5.3 Monitoring, escalating and reporting
The Group has designed risk appetite statement metrics for each
of its material risk categories. Material risks are actively monitored
under their respective frameworks and policies to ensure material
risks are managed effectively in line with the Group’s Risk
Appetite Statement. The material risk frameworks and policies
set out the process for the escalation of the relevant risk appetite
statement limit breaches.
Risk reporting
Risk reporting facilitates management decision-making and
is a critical component of risk governance and oversight. Risk
reporting processes are in place for each of the material risks
under the relevant risk frameworks and policies. This enables
management, governance committees and other stakeholders
to oversee: the effectiveness of the risk management processes,
adherence to risk policies, and (where relevant) adherence to
regulatory requirements.
The CRO reports actual performance against risk appetite
statements to the Board Risk Committee. Should a breach of a
risk appetite statement limit occur, it is reported to the Board and
the Group’s regulator.
1.6 Risk culture
Risk culture is an integral part of the Group’s overall culture and
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, behaviours, beliefs, knowledge, attitudes,
awareness and understanding of, and towards risk shared by
people. It sets the foundation for how the Group manages risk in a
consistent and coherent manner. An effective Group Risk Appetite
Statement is highly dependent on risk culture. 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 including a Conduct Risk Framework which emphasises
the criticality of ensuring fair customer outcomes. The Group’s
promotion of risk learning through recommended risk training and
education supports the embedding of risk culture. These ongoing
activities are supported by an annual Group wide risk awareness
week to reinforce key risk themes.
1.7 Testing and assurance
The Group has implemented testing and assurance activities with
the objective to provide assurance to the Board, and its delegated
sub-committees on the design and operating effectiveness of the
control environment within the Group. 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. Each line of defence is responsible for
preparing business controls testing plans with consideration of the
adequacy of the risk identified and the design and effectiveness of
the controls in place. The combined assurance is the alignment of
governance, risk and assurance activities, linked with the Group’s
strategy with the objective to provide better co-ordinated efforts,
risk reporting, and to continuously improve performance and
resilience.
1
2
3
4
5
6
Risk management – 2. Individual risk types
AIB Group plc Annual Financial Report 2021
Risk Management
83
2.1 Credit Risk
Definition
Credit risk organisation and structure
Measurement, methodologies and judgements
Credit risk monitoring
Credit profile of the loan portfolio
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
84
85
89
102
106
112
119
121
123
132
139
141
141
142
84
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Definition of 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 counterparties 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; securities
financing; derivatives; investment securities; asset backed securities and partial failure of a trade in a settlement or payment system.
Identification and assessment
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:
–
–
Include a clear indication of the Group’s target market(s), in line with Group and segment risk appetite statements;
Require a thorough understanding and assessment of the borrower or counterparty, as well as the purpose and structure of credit,
and the source of repayment; and
– Enforce compliance with minimum credit assessment and facility structuring standards.
Credit risk approval is undertaken by professionals operating within a defined delegated authority framework. However, for certain selected
retail portfolios, scorecards and automated strategies (together referred to as ‘score enabled decisions’) are deployed to automate and to
support credit decisions and credit management (e.g. score enabled auto-renewal of overdrafts).
The Board is the ultimate credit approval authority in the Group. The Board has delegated credit authority to various credit committees and
to the Chief Credit Officer (“CCO”). The CCO is permitted to further delegate this credit authority to individuals within the Group on a risk
appropriate basis. Credit limits are approved in accordance with the Group’s written risk policies and guidelines.
All exposures above certain levels require approval by the Group Credit Committee (“GCC”) and/or Board. Other exposures are approved
according to a system of tiered individual authorities which reflect credit competence, proven judgement and experience. Depending on
the borrower/connection, grade or weighted average facility grade and the level of exposure, limits are sanctioned by the relevant credit
authority. Material lending proposals are referred to credit units for independent assessment/approval or formulation of a recommendation
and subsequent adjudication by the applicable approval authority.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
85
2.1 Credit risk
Credit risk organisation and structure
The Group’s credit risk management systems operate through a hierarchy of lending authorities. All customer loan requests are subject to
a credit assessment process. The role of the Credit Risk function is to provide direction, independent oversight of and challenge to credit
risk-taking.
Internal credit ratings*
One of the objectives of credit risk management is to accurately quantify the level of credit risk to which the Group is exposed through the
initial credit approval and ongoing review process. All relevant exposures are assigned to a rating model and within that to an internal risk
grade (rating). A grade is assigned on the basis of rating criteria within each rating model from which estimates of probability of default (PD)
are derived.
Internal credit grades are fundamental in assessing the credit quality of loan exposures, and for assessing capital requirements for portfolios
where prior regulatory approval has been received. Internal credit grades are key to management reporting, credit portfolio analysis,
credit quality monitoring and in determining the level and nature of management attention applied to exposures. Changes in the objective
information are reflected in the credit grade of the borrower/loan 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 appropriate 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 106 and 107 sets out the profile of the Group’s loan portfolio under each
of the above grade categories.
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 89 to 101.
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.
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. 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) which are no longer classified as credit
impaired but continue to be classified as non-performing and in default. 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 borrower to be unlikely to pay their loans in full without realisation of collateral, regardless of the existence
of any past-due amount; or
– The borrower is 90 days or more past due on any material loan. Day count starts when any material amount of principal, interest or fee
has not been paid by a borrower on the due date.
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
86
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Management and measurement
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 credit risk profile of the Group including any changes in credit 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 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 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 grade 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 and 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 other 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.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
87
2.1 Credit risk
Credit risk mitigants* (continued)
Collateral (continued)
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/non-property 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 valuation rule methodologies applied and processes used to assess the value of property assets taken as collateral are
described in the Group Property Valuation Policy and Property Valuation Guidance. Both documents were reviewed and updated in 2021
due to changes required under the EBA Guidelines on Loan Origination and Monitoring which came into effect on 1 July 2021. The Group
has updated property valuation guidance to assist case managers in determining market values given current COVID-19 related market
uncertainty on impacted sectors.
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 Property Valuation Policy and Guidelines, the Group employs a number of methods to assist in reaching
appropriate valuations for property collateral held.
External Valuation firms on the Group’s Valuers Panel, are engaged by the Group to undertake valuations of Immovable Property collateral
in accordance with the rules set out in the Group Property Valuation Policy.
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 are completed in limited circumstances (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
or if available stabilised EBITDA.
When assessing the value of residential properties, the Central Statistics Office (“CSO”) Residential Property Price index in the Republic of
Ireland and the UK Nationwide index for Great Britain and Northern Ireland is used.
The value of property collateral is assessed at loan origination and at certain stages throughout the credit life cycle in accordance with the
Group Property Valuation Policy e.g. at annual review where required.
*Forms an integral part of the audited financial statements
88
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Credit risk mitigants* (continued)
Collateral and ECLs
Applying one or a combination of the above methodologies, in line with the Group Property Valuation Policy, has resulted in an appropriate
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.
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.
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 104.
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 2021
and 2020:
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%
50% - 70%
71% - 80%
81% - 90%
91% - 100%
Partially collateralised
Collateral value relating to
loans over 100% loan-to-value
Total collateral value
Gross residential mortgages
ECL allowance
Net residential mortgages
At amortised cost
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
13,192
8,657
3,843
1,040
102
703
486
158
54
19
447
237
86
51
51
2021
Total
€ m
At amortised cost
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2020
Total
€ m
14,377
10,679
9,419
4,100
1,153
173
8,163
3,491
3,294
687
722
610
258
193
89
834
472
198
127
132
30
64
30
25
17
12,265
9,309
3,977
3,639
925
POCI
€ m
35
39
13
8
1
26,834
1,420
872
96
29,222
26,314
1,872
1,763
166
30,115
61
18
26,895
1,438
26,937
1,446
(34)
(41)
26,903
1,405
28
900
921
(276)
645
1
97
108
29,330
151
55
155
7
368
26,465
1,927
1,918
173
30,483
103
29,407
26,535
1,950
1,980
184
30,649
(31)
72
(382)
29,025
(39)
(73)
(662)
(69)
(843)
26,496
1,877
1,318
115
29,806
(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 2021 and 2020 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 (Great Britain and Northern Ireland) to these values to take account of price movements in the interim.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
89
2.1 Credit risk
Credit risk mitigants* (continued)
Securities financing
In addition to the credit risk mitigants outlined on the previous page, the Group, from time to time, enters securities financing transactions.
Securities financing consists of securities borrowing and lending and sale and repurchase agreements. At 31 December 2021, the total
fair value of the collateral received was € 3,890 million (2020: € 811 million) in relation to repurchase agreements, reverse repurchase
agreements and securities borrowing agreements (note 22 to the consolidated financial statements).
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 2021 amounted to € 882 million (2020: € 1,424 million) and those with a negative fair value are
reported as liabilities which at 31 December 2021 amounted to € 1,062 million (2020: € 1,201 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets and
liabilities by € 529 million at 31 December 2021 (2020: € 804 million). The Group also has Credit Support Annexes (“CSAs”) in place which
provide collateral for derivative contracts. At 31 December 2021, € 570 million (2020: € 450 million) of CSAs are included within financial
assets as collateral for derivative liabilities and € 100 million (2020: € 257 million) of CSAs are included within financial liabilities as collateral
for derivative assets (note 43 to the consolidated financial statements). Additionally, the Group has agreements in place which may allow it
to net the termination values of cross currency swaps upon occurrence of an event of default.
Investment securities
At 31 December 2021, government guaranteed senior bank debt which amounted to € 317 million (2020: € 294 million) was held within the
investment securities portfolio.
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 2021.
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 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 Purchased or Originated Credit Impaired (“POCI”); 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.
*Forms an integral part of the audited financial statements
90
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
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.
Stage 1 characteristics
Obligations are classified Stage 1 at origination, unless 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 origination lifetime probability of default
(“LTPD”) (see ‘Credit risk at origination’) to its current estimated 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
at least 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 kept under 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.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
91
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
SICR assessment (continued)
The criteria for this Qualitative 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.
Lender assessed SICR triggers: The qualitative SICR criteria for non-retail portfolio Stage 2 classification has been enhanced and expanded
in the year in relation to the Group’s leverage lending portfolio and gross connected exposures >€/£ 10 million in Capital Markets and AIB
UK. Further specific qualitative SICR indicators have been identified in order to ensure appropriate and timely identification of increased
credit risk, which when occur, trigger a SICR event.
The criteria for this lender assessed trigger include, for example:
– A post distressed restructure payment default occurs where the borrower is neither in default nor forborne;
– A material adverse event has occurred for the borrower which may impact the borrower’s ability to repay such as: adverse publicity
which raises concerns over the viability of a business; loss of key personnel (CEO/CFO/COO) which raises concerns over the strategy/
viability of the business or significant negative macroeconomic events (including but not limited to economic or market volatility, changes
in legislation and technological threats to an industry, changes in access to markets) where the financial impact to the borrower is
deemed material.
Backstop indicators: The Group has adopted the rebuttable presumption within IFRS 9 that loans 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 loans (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 borrower 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 borrower to be unlikely to pay their loans in full without realisation of collateral, regardless of the existence
of any past-due amount; or
– The borrower is 90 days or more past due on any material loan (day count starts when any material amount of principal, interest or fee
has not been paid by a borrower at the date it was due).
Identification of non-performing exposures and unlikeliness to pay are included in the Group’s Definition of Default and Credit Impairment
policy.
Purchased or originated credit impaired (“POCI”)
POCIs are assets originated credit impaired that have a discount of more than or equal to 5% of the contractual value when measured at fair
value. 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 change 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. The Group’s IFRS 9 models have been developed and approved in line with the Group’s Model Risk Management
Framework. (An overview of credit risk models is outlined on pages 93 and 94).
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).
*Forms an integral part of the audited financial statements
92
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Measurement of expected credit loss (continued)
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). Multiple DCFs are captured where gross credit
exposure is ≥ € 15 million (Republic of Ireland) or ≥ £ 10 million (UK) to reflect the case specific impacts of up and downside scenarios
for these higher value exposures.
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. Where a single DCF is
utilised this 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. Where a range of scenarios
are captured through multiple DCF’s these are probability weighted to produce the final ECL.
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 any relevant 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 2021 year end ECL estimates are outlined on pages 100
and 101.
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.
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 debt securities investment 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’s IFRS 9 Impairment Policy does not require calculation of an ECL for short term cash at central banks and other banks which
have a low risk of default 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.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
93
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
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 85, 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 relevant costs expected to be incurred in the recovery process. If an account returns to performing from default
(excluding 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 based on historical experience of discounted recoveries.
For secured loans, the value of the underlying collateral is estimated at the reporting date. This is used to estimate the ECL based on
historical experience of discounted recoveries.
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.
*Forms an integral part of the audited financial statements
94
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Forward looking indicators in the 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 may 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. When the following criteria exist (or comparable circumstances arise), the loan can
be subject to a partial or full write-off:
–
A decision has been taken to enforce on a loan, due to no agreement with the customer for a restructure / settlement and all customer
engagement with the Bank regarding their loan agreement has ceased;
Inception of informal insolvency proceedings has commenced or is about to commence;
Receivership or other formal recovery action (e.g. where expectation of recovery of collateral is expected through enforcement activity
but no additional recoveries above the collateral value are anticipated) has commenced or is about to commence; and
A loan is substantially provided for or no material repayments have been received for a period of time (minimum 12 months) and all
customer engagement with the Bank regarding their loan agreement has ceased.
–
–
–
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 131
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.
Macroeconomic scenarios and weightings
The macroeconomic scenarios used by the Group for ECL allowance calculation purposes have been developed in a consistent way
with that set out in the 2020 Annual Financial Report and have been subject to the Group’s established 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
frequently during 2021 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 COVID-19 pandemic is the main risk to the short term economic outlook during the reporting period. The Irish and UK economies have
been more robust than expected in 2021, supported by strong vaccine roll-out campaigns. However, the emergence of new variants of the
virus during 2021 continue to have negative impacts on economic activity and employment levels. As part of the process of preparing the
ECL calculation, a number of plausible scenarios were considered, as at the reporting date, which reflected a reasonable range of prevailing
risks and uncertainties including inter alia possible trajectories for the public health crisis as well as for inflation that might trigger a future
economic downturn. In total, 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, one relatively mild downside scenario that considers unexpected prevalence
of the virus and a more severe downside arising from persistently high inflation which necessitates a hike in official interest rates) with the
consequent economic impacts. 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.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
95
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings (continued)
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. Central Bank of Ireland, Bank of England, Department of Finance, ESRI, ECB, IMF, 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 long term projections reflect the relatively limited climate change mitigation policies, mainly comprising the continued gradual
substitution of gas for coal, that have been announced so far. Without significantly enhanced mitigating actions, the world is on course to
warm by about 2°C above pre-industrial levels by 2050. The AIB long term baseline scenario seeks to follow the IEA’s “stated policies”
scenario and implies emissions remaining roughly constant. The Group is also participating in the ECB Climate Stress Tests in early 2022
and the scale of the economic shocks applied is quite modest compared to those applied in stress testing for ICAAP and ECL calculations.
The impacts considered under this ECB Climate Stress Test process will be repeated every second year. The nature of the shock is different
with a long term horizon compared to front loaded shocks as part of quarterly stress tests.
The scenarios used for the year-end ECL process are described below and reflect the views of the Group as at the reporting date.
Base case: The scenario assumes that, with the rapid and successful roll-out of COVID-19 vaccines and the supportive role of fiscal and
monetary policies, the outlook for the global economy improves.
Very strong growth in economic activity is anticipated in most economies during 2022. The surge in GDP growth in Ireland, the UK, US and
euro area reverts to a more normal pace from 2023 onwards. In this scenario, Irish economic activity (as measured by modified domestic
demand) has returned to pre-pandemic levels, but this is unlikely to occur until the second quarter of 2022 in the UK.
The rise in unemployment has been mitigated in many countries, including Ireland, by government income support schemes. Our projection
for the unemployment rate estimates what this rate would be in the absence of such support measures. This estimate is conservative
relative to the range provided by the traditional unemployment rate and the COVID-19 adjusted unemployment rate (which includes
recipients of temporary pandemic unemployment payments) published by the Central Statistics Office. In this scenario, unemployment
remains relatively high only reverting to a pre-pandemic ‘norm’ during 2024.
House prices performed much better than expected in 2021 in both Ireland and the UK with supply shortages in the housing market
exacerbated by the pandemic. Prices are forecast to rise by 8% on average in Ireland between 2021 and 2022. Expiry of a stamp duty cut
and interest rate hikes could weigh on UK prices next year. CRE prices are expected to remain soft in Ireland and UK in 2022, with modest
growth of 2% per annum during 2023-2026.
Downside 1 (‘Lower growth in 2022’): This scenario assumes that the production and speed of vaccine deployment does not prove fast
enough to stop transmission of the virus and emergence of new vaccine resistant variants. Economic activity is slower to recover as a result
of the re-introduction of some containment measures during 2022 with business and consumer confidence impacted as uncertainty remains
high. Economic growth, as measured by GDP, is two percentage points lower in 2022 and the additional scarring effects from this results in
growth being between 2.3% and 2.9% lower, relative to the Base case, across the main economies over the 2022–2026 period.
Irish unemployment rises from 10% at the end of 2021 to 12% in early 2023, before starting to decline while the unemployment rate in the
UK remains two percentage points higher than in the Base case by 2026.
House prices in Ireland and the UK are c. 7% and 10% lower, respectively, than in the Base case by the end of 2026. Commercial real
estate prices remain under downward pressure in 2022–2023, with prices falling a further 8–9%. There is a moderate recovery in property
prices in both countries during 2024–2026.
*Forms an integral part of the audited financial statements
96
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Macroeconomic scenarios and weightings (continued)
Downside 2 (‘Persistent high inflation’): In this scenario, it is assumed that the rise in inflation in 2021 does not prove temporary with
wage inflation picking up sharply, the rate of increase in the consumer price index remains elevated in 2022, with growing risks to price
stability over the medium-term. Central banks are required to tighten policy aggressively during 2022, ending quantitative easing and hiking
official rates significantly. This has very negative consequences for financial markets and the global economy. The policy stance begins to
loosen in 2023 as inflation eases somewhat. This results in a marked deceleration in GDP growth over 2022-2024, with cumulative growth
over 2022-2026 being c. 5.7% lower than in the Base case for both Ireland and the UK.
Irish unemployment rises sharply to 14.5 % by the first quarter in 2023 and remains high over the forecast period, still averaging in excess
of 11% in 2025 and 9.5% in 2026. The average rate of unemployment over the period 2022 to 2026 is more than 6 percentage points higher
than in the Base case. In the UK, unemployment peaks at c. 9% in 2024, declining to 6.9% by 2026 (2.9 percentage points higher than the
Base scenario).
With both the Irish and UK economies in recession, there are very large residential property price falls in both markets (by c.18% and
24.0%, respectively) between 2022 and 2024 with values 23-26% lower than the base by the end of 2026. CRE prices in both Ireland and
the UK fall by between 28-30% in the period 2022-2024 and values are 29-30% lower than the Base case by the end of 2026.
Upside (‘Quick economic recovery’): More effective vaccine developments and rollouts reduce uncertainty which, in addition to a faster
than anticipated rundown of personal savings, underpins a stronger recovery in this scenario than assumed in the Base case for the
period 2022-2024. The boost to confidence of both households and businesses leads to a more robust pick-up in consumer spending and
investment. In Ireland, GDP grows by 7.5% in 2022 and increases by 5% in 2023 and 4% in 2024. By 2026, the level of GDP is in excess of
3% above what it would be 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 2021
(average over 2022-2026) and at 31 December 2020 (average over 2021-2025).
Base
December 2021
5 year (2022-2026) average forecast
Downside
(‘Lower
growth in
2022’)
Downside
(‘Persistent
high
inflation’)
Upside
(‘Quick
economic
recovery’)
3.8
2.9
5.7
1.7
2.6
3.5
1.7
2.4
2.0
4.6
1.5
2.0
3.4
1.4
9.7
0.3
2.0
2.6
1.3
1.8
(0.1)
6.6
(0.6)
1.7
2.6
(2.1)
11.9
(4.6)
1.4
1.8
2.4
1.1
(3.7)
8.0
(5.1)
2.5
4.5
5.0
4.8
4.0
2.9
3.8
2.2
3.0
3.0
4.3
3.6
2.4
December 2020
5 year (2021-2025) average forecast
Downside
(‘Lower
growth in
2021’)
Downside
(‘Extended
high
unemploy-
ment’)
Upside
(‘Quick
economic
recovery’)
3.0
0.8
8.9
1.1
1.9
1.4
1.0
2.3
0.4
6.8
1.2
1.5
2.0
(3.6)
11.9
(3.8)
1.0
1.3
0.9
1.1
(4.4)
10.1
(3.9)
1.2
4.4
3.4
6.6
3.1
2.5
2.5
1.4
3.7
2.9
4.6
3.1
1.8
Base
3.7
1.7
7.2
1.8
2.3
1.8
1.1
2.9
1.3
5.6
2.2
1.7
Macroeconomic factor (%)
Republic of Ireland
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Employment growth
Average disposable income growth
Inflation
United Kingdom
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Inflation
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
97
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 2021. This is because, due to the increased variability as a result of COVID-19, the average for the five years
2022-2026 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
Inflation
United Kingdom
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Inflation
Macroeconomic factor
Republic of Ireland
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Employment growth
Average disposable income growth
Inflation
United Kingdom
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Inflation
Estimate
2021
%
2022
%
2023
%
2024
%
2025
%
Base
2026
%
Downside 1
(‘Lower growth in 2022’)
2022
%
2023
%
2024
%
2025
%
2026
%
14.0
12.0
10.4
(3.0)
1.1
2.5
2.2
6.5
3.5
5.1
(0.5)
2.5
6.0
4.0
7.2
0.5
4.9
2.0
2.7
5.5
–
5.5
(0.5)
2.2
4.0
3.0
6.0
2.0
2.6
3.5
1.5
1.8
1.5
4.8
2.0
2.0
3.4
3.0
5.3
2.0
2.2
4.0
1.5
1.6
2.5
4.5
2.0
2.0
3.0
2.5
5.0
2.0
1.8
4.0
1.5
1.5
3.0
4.2
2.0
2.0
2.8
2.0
4.8
2.0
1.7
4.0
1.5
1.4
3.0
4.0
2.0
2.0
4.0
(3.5)
11.2
(8.5)
1.0
–
1.5
4.0
(6.0)
6.5
(6.0)
1.9
2.3
–
11.4
–
1.0
2.5
1.2
0.5
(2.5)
7.0
(2.5)
1.5
3.0
5.0
9.8
4.0
2.9
3.0
1.2
1.0
2.0
7.0
1.5
1.6
3.5
3.0
8.6
3.0
2.6
3.5
1.3
1.5
3.0
6.6
2.0
1.7
4.0
2.5
7.3
3.0
2.7
4.0
1.4
1.8
3.0
6.0
2.0
1.8
Downside 2
(‘Persistent high inflation’)
Upside 1
(‘Quick economic recovery’)
2022
%
2023
%
2024
%
2025
%
2026
%
2022
%
2023
%
2024
%
2025
%
2026
%
2.5
1.0
(6.0)
(12.5)
2.4
–
3.3
4.0
12.5
14.0
12.6
11.1
(12.5)
(17.5)
(1.0)
(0.7)
1.0
4.0
(0.8)
(0.5)
3.2
2.2
(1.2)
(10.0)
(15.0)
7.1
8.8
(12.0)
(17.0)
4.0
3.3
2.7
2.0
2.0
1.0
(0.5)
9.1
(4.5)
2.2
4.0
2.8
2.8
1.4
1.7
4.0
8.1
3.5
1.6
4.0
4.0
9.5
4.0
3.0
3.5
1.2
2.0
3.0
6.9
4.5
1.4
7.5
7.0
6.7
4.5
5.4
2.7
3.2
7.0
5.0
5.2
5.0
2.5
5.0
6.0
5.2
5.5
3.0
3.7
2.0
3.0
3.0
4.5
4.5
2.5
4.0
5.0
4.4
5.5
2.4
4.1
2.0
2.2
3.0
4.1
4.0
2.4
3.0
4.0
4.0
2.5
2.0
4.3
2.0
1.5
2.0
3.9
2.5
2.4
2.8
3.0
3.9
2.0
1.8
4.1
2.0
1.4
2.0
3.7
2.0
2.3
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 gave rise to elevated uncertainty regarding the outlook and possible outcomes at the previous
reporting period (31 December 2020). The disruption to economic activity brought about by a series of public health measures designed to
limit social mobility, and subsequent recoveries following the lifting of these restrictions, also resulted in a significant re-assessment of the
outlook and balance of risks during 2021.
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 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
98
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 AIB Group’s view that risks remain skewed to the
downside due to rising COVID-19 cases and the spread of a new variant which was a cause for concern; rising inflationary pressures,
continuing disruptions to supply chains and labour shortages that impede the pace of activity and raise the potential for greater than
expected economic scarring. Additionally, other risks remain which also support AIB Group’s view that risks have become somewhat
tilted to the downside. These include the risk that government supports to businesses and households may be delaying, but not
preventing, future defaults and bankruptcies. There are also rising tensions between the UK and the EU relating to Brexit and the
Northern Ireland protocol. In addition, excess savings built up during the pandemic may be retained for precautionary motives, rather
than spent, impacting on economic growth.
– The weightings also consider the fact that unemployment is trending lower than expected in many economies, with little evidence yet of
major scarring in labour markets from the pandemic. House prices are performing better than anticipated. Meanwhile, a much greater
than expected rundown of private sector savings in the next couple of years could fuel stronger than anticipated growth, especially given
the extent of pent-up consumer demand.
– Risks were adjudged to be evenly balanced at June 2021 (the weighting assigned to downside risks was 25% while the upside scenario
weight was also 25%). In the final quarter of 2021, however, the AIB Group view was that the balance of risks had tilted more to the
downside due to the above mentioned developments.
The weightings that have been applied as at the reporting date are:
Scenario
Base
Downside 1 (‘Lower growth in 2022’)
Downside 2 (‘Persistent high inflation’)
Upside (‘Quick economic recovery’)
Weighting
December
2021
50%
25%
5%
20%
Base
Downside 1 (‘Lower growth in 2021’)
Downside 2 (‘Extended high unemployment’)
Upside (‘Quick economic recovery’)
Weighting
December
2020
50%
25%
5%
20%
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 2021
Risk Management
99
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 2022’ and ‘Persistent high inflation’ scenarios, the ECL allowance
increases by c. 16% and c. 34% respectively. In the 100% upside scenario, the ECL allowance declines by c. 3%, showing that the ECL
impact of the two downside scenarios is greater than that of the upside scenario. For 31 December 2021, a 100% downside ‘Lower growth
in 2022’ and ‘Persistent high inflation’ scenario sees a higher ECL allowance sensitivity of € 304 million and € 645 million respectively
compared to base (€ 210 million and € 551 million respectively compared to reported). Lower relative impacts are observed for the
AIB UK portfolio.
1
2
3
4
5
6
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
382
222
313
968
1,885
53
26
1,964
Total
€ m
376
216
284
921
1,797
49
24
1,870
ECL allowance at 31 December 2021
100% Downside
Scenario
(‘Lower growth
in 2022’)
Total
€ m
100% Downside
Scenario
(‘Persistent high
inflation’)
Total
€ m
100% Upside
Scenario
(‘Quick economic
recovery’)
Total
€ m
392
237
378
1,074
2,081
63
30
2,174
434
257
473
1,236
2,400
80
35
2,515
370
213
266
895
1,744
45
22
1,811
268
266
277
321
253
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
100% Downside
Scenario
(‘Lower growth
in 2021’)
Total
€ m
ECL allowance at 31 December 2020
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
*Forms an integral part of the audited financial statements
100
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Management judgements
Post model adjustments (PMAs) are applied where management believe that they are necessary to ensure an adequate level of overall
ECL provision and to address known model limitations and/or emerging trends. All PMAs are approved under the ECL governance process
through which, the completeness and accuracy of post model adjustments are considered against the backdrop of the risk profile of the loan
book, recent loss history, changes in underlying resolution strategies not captured in the models, and where key uncertainties exist such as
COVID-19.
The PMAs approved for year end 2021 (and 2020 comparison), are set out below and categorised as follows:
• NPE resolution strategy – ECL adjustments where the model does not take into account alternative strategies such as portfolio sales.
Uncertainty due to the impact of COVID-19 – ECL adjustments are required as the modelled probability of default did not reflect
•
the uncertainties associated with the impact of COVID-19. Management determined that increased ECL was required, until further
information on the impact of COVID-19 became known, particularly in relation to the withdrawal of government support programmes.
Macroeconomic factors – ECL adjustments reflecting the changed impact of certain macroeconomic factors primarily as a result of the
alternative recovery strategies now being adopted.
•
• Other – ECL adjustments where it was judged that amendment to the modelled ECL was required.
Management Judgements
NPE resolution strategy
Uncertainty due to the impact of COVID-19
Macroeconomic factors
Other
PMA Total
Management Judgements
NPE resolution strategy
Uncertainty due to the impact of COVID-19
Other
PMA Total
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
207
18
29
1
255
5
9
–
–
14
26
5
–
1
32
28
153
–
72
253
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
442
24
9
475
1
9
–
10
–
22
(9)
13
–
128
63
191
2021
Total
€ m
266
185
29
74
554
2020
Total
€ m
443
183
63
689
NPE resolution strategy
Similar to 2020, an ECL adjustment exists where it is expected that portfolio sale or other alternative strategies may be adopted which are
not included within the current IFRS 9 models. LGD models are based on empirical internal data assuming business as usual resolution.
Given that the models do not account for portfolio sale outcomes, post model adjustments have been applied to reflect the potential
outcomes, pending model redevelopment.
This post model adjustment primarily relate to mortgages which have been classified as non-performing for a considerable length of time.
In the second half of 2021, an additional cohort of unresolved longer-dated non-performing loans across property, non-property business
and other personal together with additional non-performing mortgages have also been included in scope for potential portfolio sales.
The ECL PMA stock has reduced from € 443 million at 31 December 2020 to € 266 million at 31 December 2021 primarily reflecting portfolio
sales during 2021 which reduced ECL by € 261 million. This is partially offset by new ECL PMA’s of € 110 million for additional exposures
identified in the second half of 2021 as requiring increases to the LGD component of the modelled outcome to reflect the expected
resolution strategy. The PMA is underpinned by an independent external benchmark exercise and a range of outcomes specific to collateral
values underpinning the loans, market conditions and prior loan sale outcomes.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
101
2.1 Credit risk
Measurement, methodologies and judgements* (continued)
Uncertainty due to the impact of COVID-19
Particular focus from Management was on ensuring that sectors which were severely impacted by Government measures to contain
COVID-19 retain an appropriate level of ECL. The risk was not considered to be adequately captured in the modelled probability of default
where certain sectors (e.g. hospitality) were identified to be highly impacted and where borrowers were receiving government supports
which are likely to be withdrawn in the near future.
For certain highly impacted non-property business sector exposures, within Capital Markets, a post model adjustment of € 117 million was
applied (€ 13 million relating to Stage 1 and € 104 million relating to Stage 2).
Similarly, in the Retail Banking business unit, € 68 million post model adjustment was applied (€ 56 million relating to Stage 1 and
€ 12 million relating to Stage 2) across residential mortgages € 18 million, other personal € 9 million, and other non-property business
€ 41 million in relation to where the borrower is either in receipt of ongoing government supports or the supports have been withdrawn for
less than 3 months.
Macroeconomic factors
An ECL adjustment has been applied to reflect limitations within the mortgage model relating to two parameters, the house price index (HPI)
growth and employment growth. This is to ensure that the ECL remains appropriate for the underlying portfolio acknowledging the limitations
within the model.
The HPI index parameter, which assumes growth over the long term, has reduced the LGD arising in business by the NPE resolution
strategy impacting ECL cover on Stage 1, Stage 2 and Stage 3 loans (not covered by the NPE resolution strategy adjustment above).
An adjustment has been made to reflect the Group’s potential alternative recovery strategies for the impacted loans that are or become
credit impaired.
Furthermore, due to the impact COVID-19, the employment growth rate parameter within the model had a temporary spike resulting in a
reduction of the ECL allowance. This is expected to be a temporary event due to COVID-19 and the ECL was adjusted to reflect a more
appropriate level of expected loss outcome.
These adjustments amount to € 29 million (Stage 1 € 9 million, Stage 2 € 8 million and Stage 3 € 12 million).
Other
For the Syndicated & International Finance (SIF) portfolio in Capital Markets, it was previously determined that historically observed
relationships between default rates and macroeconomic factors in the modelled probabilities of default needs to be increased for this portfolio.
Accordingly, expert credit judgement has determined a post model adjustment is required of € 53 million at 31 December 2021 (Stage 1
€ 24 million, Stage 2 € 29 million).
Other post model adjustments in this category are not individually significant.
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 2021 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 and subsidiaries 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), which also includes subsidiaries, 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
102
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Monitoring, escalating and reporting
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, 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 142, 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’.
2021 Developments in response to COVID-19 and consideration of ESG risks
Credit risk management response to COVID-19
The Group continued to adapt 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, particularly for those sectors
believed to be most impacted by COVID-19. In adapting its credit operating model, the Group continued to provide a number of customer
support measures as required in a streamlined, agile and risk appropriate manner.
In 2021, the Group’s focus continued to be on supporting its existing customers and ensuring they were provided with appropriate measures
(e.g. covenant reliefs) taking account of the expected financial impact and recovery outlook. As part of the Group’s credit risk management
response to COVID-19, a range of actions were taken to ensure the appropriate measurement, classification, and reporting of its credit risk
exposures during the year. These included:
–
The continued use 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.
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.
–
–
Moving forward, the Group will continue to proactively review borrowers particularly where reliefs such as government supports are
withdrawn. This has been considered as part of the governance process and was an explicit consideration as part of year-end and
ECL appropriateness. Where an appropriate ECL has been taken to reflect any potential latent risk, this is outlined in the management
judgements section “Uncertainty due to the impact of COVID-19”.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
103
2.1 Credit risk
Monitoring, escalating and reporting
Credit risk management consideration of ESG risks
The Group continues to adapt its credit risk management processes and policies to capture environmental, social, and governance (“ESG”)
risks. Key additional steps taken during the year included:
–
–
A heat mapping exercise was conducted to scale individual sub-sector exposures to levels of climate change and environment risks.
Relevant Business Credit Application Guidelines/Procedures and Credit Sanctioning Policies were updated to require the assessment of
certain borrower’s exposure to ESG factors, in particular environmental factors and impact of climate change and the appropriateness of
mitigating strategies as set out by the borrower.
–
An ESG questionnaire was introduced for certain cohorts requiring a more intensive analysis of borrowers in sub-sectors considered as
part of the heat mapping exercise to have a higher risk to climate change related and environment risks.
–
The property valuation process was updated to obtain BER/EPC ratings where applicable, which will be captured in collateral valuations
and recorded on the Group’s systems going forward.
–
A new Sustainable Lending Framework was introduced which categorises relevant lending activities as green/transition for internal
tracking and external disclosure purposes.
–
The impact of climate risk was considered as part of the ECL governance process for the position as at December 2021 and it was
deemed that insufficient evidence of the likely loss impacts from climate events is available to adjust ECLs materially but that the
Group’s approach to individual counterparty risk assessment adequately captures climate risk where appropriate. The impact of climate
risk will continue to be monitored in 2022 to ensure ECLs appropriately reflect latent risk from potentially emerging climate risks.
These enhancements are important building blocks in achieving our sustainability ambition of 70% of the Group’s new lending to be green/
transition lending by 2030, and also in increasingly understanding the Group’s exposure to ESG risk.
Credit risk management in the ECL governance process*
The Group considered climate risk in the ECL governance process as follows:
–
The Group’s approach to individual counterparty risk assessment adequately captures climate risk where appropriate.
The impact of climate risk will continue to be monitored in 2022.
*Forms an integral part of the audited financial statements
104
Risk Management
AIB Group plc Annual Financial Report 2021
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 2021 and 2020:
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
Securities financing
Investment securities(4)
Included elsewhere:
Trade receivables
Accrued interest
Loan commitments and other credit
related commitments
Financial guarantees
Amortised
cost(1)
€ m
42,109
44
–
1,323
56,265
3,890
4,109
372
307
Fair
value(2)
€ m
–
–
882
–
243
–
12,589
–
–
2021
Total
€ m
42,109
44
882
1,323
56,508
3,890
16,698
372
307
Amortised
cost(1)
€ m
24,932
43
–
1,092
56,766
811
3,603
87
212
Fair
value(2)
€ m
–
–
1,424
–
75
–
2020
Total
€ m
24,932
43
1,424
1,092
56,841
811
15,675
19,278
–
–
87
212
108,419
13,714
122,133
87,546
17,174
104,720
13,727
819
14,546
–
–
–
13,727
819
14,546
12,504
722
13,226
–
–
–
12,504
722
13,226
Total
122,965
13,714
136,679
100,772
17,174
117,946
(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 are classified as ‘fair value through profit or loss’ except investment securities at FVOCI, net investment hedge derivatives and
cash flow hedging derivatives.
(3)Included within cash and balances at central banks of € 42,654 million (2020: € 25,550 million).
(4)Excluding equity shares of € 274 million (2020: € 201 million).
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
105
2.1 Credit risk – Credit exposure overview
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; securities
financing; 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 2021 and 2020:
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
€ m
42,654
44
1,323
€ m
–
–
–
€ m
42,654
44
1,323
58,150
(1,885)
56,265
243
58,393
3,891
16,699
36
13,727
819
n/a
243
(1,885)
56,508
(1)
(1)
(1)
(53)
(26)
3,890
16,698
35
(53)
(26)
2021*
Income
statement
Net credit
impairment
writeback/
(charge)
€ m
–
–
–
233
–
233
(1)
–
–
2
4
238
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
€ m
25,550
43
1,092
€ m
–
–
–
€ m
25,550
43
1,092
2020*
Income
statement
Net credit
impairment
(charge)/
writeback
€ m
–
–
–
59,276
(2,510)
56,766
(1,421)
75
n/a
75
–
59,351
(2,510)
56,841
(1,421)
811
19,279
–
12,504
722
–
(1)
–
(54)
(29)
811
19,278
–
(54)
(29)
–
–
–
(35)
(4)
(1,460)
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
Securities financing
Investment debt securities(1)
Other – Stockbroking client debtors
Loan commitments
Financial guarantee contracts
Total
(1)ECL allowance amounting to € 3 million (2020: € 3 million) included in carrying amount of investment securities at FVOCI.
There was a € 238 million net credit impairment writeback in the year (2020: € 1,460 million charge). This comprised of a € 233 million
writeback on loans and advances to customers (net remeasurement of ECL allowance writeback of € 158 million and recoveries of amounts
previously written-off of € 75 million) and a € 6 million writeback for off-balance sheet exposures. There was also a € 1 million charge on
securities financing measured at amortised cost. (2020: € 1,421 million charge, (net remeasurement € 1,493 million, offset by recoveries
€ 72 million) and a € 39 million charge for off-balance sheet exposures).
Further details on the net credit impairment charge in the year to 31 December 2021 are set out on page 109 and 276.
*Forms an integral part of the audited financial statements
106
Risk Management
AIB Group plc Annual Financial Report 2021
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 2021 and 2020:
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
Retail
Banking
€ m
Capital
Markets
€ m
27,744
2,550
548
63
636
4,800
3,225
10,351
34,155
15,762
23,406
6,888
9,578
4,010
30,294
13,588
1,389
567
1,956
1,905
449
1,309
1,758
416
€ m
1,115
91
1,924
5,090
8,220
4,436
2,335
6,771
296
518
814
635
AIB UK
Group
2021
Total
€ m
€ m
29,407
28,949
Retail
Banking
€ m
Capital
Markets
€ m
2,569
712
3,236
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
AIB UK
Group
2020
Total
€ m
1,090
112
1,964
5,398
8,564
4,233
3,214
7,447
567
47
614
503
€ m
€ m
–
23
–
13
36
–
36
36
–
–
–
–
30,649
2,766
7,260
18,601
59,276
36,603
13,692
50,295
3,650
982
4,632
4,349
–
–
–
13
13
–
13
13
–
–
–
–
2,704
7,360
18,679
58,150
37,420
13,246
50,666
2,134
2,394
4,528
2,956
Gross carrying amount
34,155
15,762
8,220
13
58,150
35,466
15,210
8,564
36
59,276
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 remeasurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
30,135
11,985
2,083
1,834
103
3,361
416
–
6,261
1,324
635
–
13
48,394
29,500
–
–
–
6,768
2,885
103
2,924
2,858
184
9,364
5,132
714
–
6,709
1,352
503
–
36
45,609
–
–
–
9,408
4,075
184
34,155
15,762
8,220
13
58,150
35,466
15,210
8,564
36
59,276
120
138
722
31
1,011
%
0.4
6.6
39.4
29.9
€ m
(15)
(69)
(84)
79
465
75
–
619
%
0.7
13.8
18.2
–
€ m
(131)
(2)
(133)
37
97
121
–
255
%
0.6
7.4
19.0
–
€ m
(12)
(4)
(16)
–
–
–
–
–
%
–
–
–
–
€ m
–
–
–
%
–
236
700
918
31
1,885
%
0.5
10.3
31.8
29.9
€ m
(158)
(75)
(233)
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
%
%
%
%
(0.40)
1.33
4.65
2.31
–
–
–
–
–
%
–
–
–
–
€ m
–
–
–
%
–
281
845
1,315
69
2,510
%
0.6
9.0
32.3
37.5
€ m
1,493
(72)
1,421
%
2.34
Net credit impairment (writeback)/charge
on average loans
(0.24)
(0.87)
(0.19)
%
%
%
(1)Further analysis of internal credit grade profile by ECL staging is set out on pages 110 and 111.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
107
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 2021
and 2020:
FVTPL
Carrying amount
Property and construction
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Total criticised
Non-performing
Total
Retail
Banking
€ m
Capital
Markets
€ m
AIB UK
Group
€ m
€ m
–
–
–
–
–
–
–
–
243
243
–
74
74
–
169
243
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2021
Total
€ m
243
243
–
74
74
–
169
243
Retail
Banking
€ m
Capital
Markets
€ m
–
–
75
75
–
–
–
–
–
–
75
–
75
–
–
75
AIB UK
Group
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2020
Total
€ m
75
75
75
–
75
–
–
75
Gross loans and advances to customers
Total gross loans and advances to customers reduced by € 1.0 billion in the year to 31 December 2021. Of the total portfolio of
€ 58.4 billion, € 58.2 billion is measured at amortised cost with the remaining € 0.2 billion being measured at fair value through profit or
loss. The reduction in the year was largely due to the sales of non-performing mortgage portfolios completed in the year which resulted
in a € 1.0 billion reduction in non-performing loans. Overall, from a segment perspective, Retail Banking and AIB UK decreased by € 1.3
billion and € 0.4 billion respectively. The reduction in AIB UK was primarily due to the Group’s decision to exit the SME market in Great
Britain. Capital Markets experienced a strong performance in new lending, particularly in the final quarter of 2021 as advances increased
by € 0.7 billion in the year. The level of new lending activity in 2021 of € 10.4 billion continues to be impacted by the COVID-19 pandemic.
New lending activity remains lower than pre-pandemic levels (2019: € 12.3 billion), however, there was a € 1.2 billion increase versus last
year (2020: € 9.2 billion). The increase in new lending was driven by Capital Markets which increased by € 1.0 billion in the year with strong
demand experienced in the property and energy sectors. Retail Banking new lending increased € 0.4 billion in the year due to new mortgage
lending, however, this was offset by AIB UK which experienced a € 0.2 billion reduction in new lending activity due to reduced lending in key
sectors classified as high risk due to the COVID-19 pandemic.
Of the total loans to customers of € 58.4 billion, € 50.8 billion or 87% are rated as either ‘strong’ or ‘satisfactory’ which is an increase of
€ 0.4 billion (2020: € 50.4 billion or 85%), primarily evidenced within Capital Markets. The ‘criticised’ classification includes ‘criticised watch’
of € 2.1 billion and ‘criticised recovery’ of € 2.4 billion, the total of which has decreased by € 0.1 billion in the year. The ‘criticised recovery’
portfolio increased by € 1.4 billion in the year which was predominately driven by increased levels of customers in receipt of forbearance
arrangements migrating from ‘criticised watch’. The total performing book has increased by € 0.3 billion to € 55.3 billion or 95% of gross
loans and advances to customers (2020: € 55.0 billion or 93%).
Despite the ongoing impact regarding the COVID-19 pandemic, the credit quality of the portfolio has improved in the year. Stage 2 loans
have decreased by € 2.6 billion to € 6.8 billion as Stage 1 loans increased by € 2.8 billion to € 48.4 billion. The reduction in Stage 2 loans
was driven by the non-property portfolio which decreased by € 1.3 billion, while the property and mortgage portfolios reduced by € 0.7 billion
and € 0.5 billion respectively. Redemptions/repayments net of interest credited accounted for € 2.2 billion and net stage transfers from
Stage 2 to Stage 1 resulted in a € 0.2 billion reduction.
Stage 3 loans have decreased by € 1.2 billion to € 2.9 billion. The decrease was primarily due to the sales of non-performing mortgage
portfolios completed in the year which accounted for € 1.0 billion. Net transfers to Stage 3 accounted for € 0.6 billion and were offset by
redemptions/repayments net of interest credited of € 0.7 billion. Transfers to Stage 3 in the year predominately related to the non-property
portfolio (€ 0.6 billion) as a result of cases in this sector directly impacted by COVID-19.
The characteristics of each stage including the Group’s approach to identifying significant increase in credit risk are outlined on page 90.
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.
108
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
Non-performing loans
The table below sets out the Group’s non-performing loans and advances to customers by asset class and by time in default at
31 December 2021:
Non-performing loans
At amortised cost
At FVTPL
Total non-performing loans and advances to customers
Non-performing loans as a % of total loans and advances
Residential
mortgages
€ m
Other
personal
€ m
Property and
construction
€ m
Non-property
business
€ m
991
–
991
247
–
247
628
169
797
1,090
–
1,090
5.8%
2021
Total
€ m
2,956
169
3,125
5.4%
to customers
3.4%
9.1%
10.5%
ECL allowance as a % of total loans and advances
to customers carried at amortised cost
30%
64%
28%
29%
32%
Split of non-performing loans and advances by time in default
Legacy/Pre 31 December 2018
Non Legacy/Post 31 December 2018
499
492
991
71
176
247
161
636
797
151
939
1,090
Non-performing loans
Total non-performing loans and advances to customers
Non-performing loans as a % of total loans and advances
to customers
ECL allowance as a % of total loans and advances
to customers carried at amortised cost
Residential
mortgages
€ m
2,156
Other
personal
€ m
234
Property and
construction
€ m
Non-property
business
€ m
955
1,004
7.0%
34%
8.5%
61%
13.2%
22%
5.4%
32%
882
2,243
3,125
2020
Total
€ m
4,349
7.3%
32%
Total Group non-performing loans have decreased by € 1.2 billion or 28% to € 3.1 billion in the year (2020: € 4.3 billion). The decrease
reflects the sales of non-performing mortgage portfolios completed in the year of € 1.0 billion and other net underlying decreases of
€ 0.2 billion to non-performing loans. The total Group non-performing loans portfolio consists of € 2.9 billion in loans and advances
to customers measured at amortised cost together with € 0.2 billion of loans measured at FVTPL. The ECL allowance cover rate on
non-performing loans (at amortised cost) has remained at 32% at 31 December 2021 (2020: 32%). Non-performing loans as a percentage
of total loans and advances to customers is 5.4% compared to 7.3% at 31 December 2020.
Exposures that entered into default prior to 31 December 2018 amount to € 0.9 billion or 1.5% of total loans and advances to customers
and are classified as legacy. These balances relate to exposures which may form part of alternative recovery strategies including future loan
sales.
Exposures that have defaulted after 31 December 2018 amount to € 2.2 billion or 3.8% of total loans and advances to customers and are
classified as non-legacy. These exposures were largely impacted by COVID-19 and spread across all asset classes. The non-property
portfolio (€ 0.9 billion) includes sectors most significantly impacted by COVID-19 restrictions. The ECL allowance reflects stronger credit
underwriting standards and asset valuations in addition to a higher propensity to cure, particularly as the macroeconomic environment
improves post COVID-19.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
109
2.1 Credit risk – Credit profile of the loan portfolio
ECL allowance
The ECL allowance on loans and advances to customers has decreased by € 0.6 billion to € 1.9 billion in the year. The decrease was
predominately in Stage 3 which reduced by € 0.4 billion due to the sales of non-performing mortgage portfolios and net remeasurements
within stage. The total ECL cover rate has decreased from 4.2% at 31 December 2020 to 3.2% at 31 December 2021.
Income statement
There was a € 233 million net credit impairment writeback in the year to 31 December 2021 which comprised a net remeasurement of
ECL allowance writeback of € 158 million and recoveries of amounts previously written-off of € 75 million (2020: € 1,421 million charge
comprising € 1,493 million charge offset by € 72 million of recoveries).
The key drivers of the ECL writeback in the year were improvements in credit quality and stage transfers, along with improvements in the
macroeconomic scenarios and weightings. These writebacks were partially offset by an increase in post model adjustments in the second
half of the year relating to the Group’s NPE reduction strategy and the Group’s decision to maintain a cautious ECL approach in specific
sectors where evidence of latent risk remains.
There were three components which contributed to the net remeasurement of ECL allowance writeback of € 158 million.
There was a € 161 million writeback comprising of a € 240 million ECL writeback occurring within stage driven by improvements in credit
quality, offset by a charge of € 79 million due to net stage movements.
Updated macroeconomic scenarios and weightings applied during 2021 resulted in a € 132 million writeback, which was evident across all
asset classes due to improvements in the macroeconomic outlook.
Post model adjustments resulted in a net € 135 million ECL charge. The updated post model adjustments take into consideration the
broadening of the portfolio in scope as part of the Group’s NPE reduction strategy which may form part of future loan sales. In addition,
following improvements in the macroeconomic scenarios and weightings, post model adjustments relating to COVID-19 have been updated
to retain the ECL allowance where appropriate in order to protect against latent risk for exposures in high risk sectors as government
supports are withdrawn. Further details are outlined under the management judgements section on pages 100 and 101.
Further details on the ECL allowance movements are outlined on pages 132 to 136.
Recoveries of amounts previously written-off of € 75 million (2020: € 72 million) included € 50 million recoveries (2020: € 56 million) which
reflects cash recoveries against legacy non-performing exposures in line with the Group’s resolution strategies.
110
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
Internal credit grade profile by ECL staging
The table below analyses the internal credit grading profile by ECL staging for loans and advances to customers at 31 December 2021
Gross carrying amount
48,394
6,768
and 2020:
Amortised cost
Total
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
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
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
POCI
€ m
2021*
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
36,521
11,023
47,544
755
93
848
2
895
2,220
3,115
1,377
2,276
3,653
–
–
–
–
–
–
–
2,885
2,885
4
3
7
2
25
27
69
37,420
13,246
50,666
2,134
2,394
4,528
2,956
35,341
9,307
44,648
834
27
861
100
1,257
4,384
5,641
2,814
953
3,767
–
103
58,150
45,609
9,408
–
–
–
–
–
–
5
1
6
2
2
4
4,075
4,075
174
184
(236)
(700)
(918)
(31)
(1,885)
(281)
(845)
(1,315)
(69)
(2,510)
48,158
6,068
1,967
72
56,265
45,328
8,563
2,760
115
56,766
2020*
Total
€ m
36,603
13,692
50,295
3,650
982
4,632
4,349
59,276
22,071
4,464
26,535
395
6
401
1
306
192
498
549
399
948
–
26,937
1,446
(34)
(41)
26,903
1,405
1,259
913
2,172
65
1
66
–
2,238
(30)
2,208
3,948
1,261
5,209
58
79
137
–
34
89
123
74
22
96
–
219
(33)
186
413
613
1,026
143
217
360
–
5,346
1,386
(50)
(91)
5,296
1,295
–
–
–
–
–
–
921
921
(276)
645
–
–
–
–
–
–
247
247
(159)
88
–
–
–
–
–
–
628
628
(172)
456
4
3
7
2
25
27
69
22,381
4,659
27,040
946
430
1,376
991
23,478
2,654
26,132
395
6
318
574
892
602
456
401
1,058
2
–
103
29,407
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
30,649
(843)
(31)
72
(382)
29,025
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,293
1,002
2,295
139
23
162
247
2,704
(222)
2,482
4,361
1,874
6,235
201
296
497
628
7,360
(313)
7,047
26,496
1,877
1,318
115
29,806
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
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2021
Risk Management
111
1
2
3
4
5
6
2020*
Total
€ m
7,770
7,325
15,095
2,109
393
2,502
1,004
18,601
(1,037)
17,564
2021*
Total
€ m
9,385
5,711
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
7,639
4,593
15,096
12,232
848
1,645
2,493
1,090
298
17
315
7
131
2,732
2,863
1,811
376
2,187
–
18,679
12,554
5,050
(968)
(126)
(588)
17,711
12,428
4,462
–
–
–
–
–
–
997
997
(323)
674
–
–
–
–
–
–
–
–
–
–
POCI
€ m
–
–
–
–
–
–
–
–
–
–
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
9,243
4,385
13,628
237
7
244
1
142
1,326
1,468
611
1,638
2,249
–
13,873
3,717
(122)
(535)
13,751
3,182
–
–
–
–
–
–
1,089
1,089
(311)
778
*Forms an integral part of the audited financial statements
112
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Residential mortgages
Residential mortgages amounted to € 29.4 billion at 31 December 2021, with the majority (96%) relating to residential mortgages in the
Republic of Ireland and the remainder relating to the United Kingdom. This compares to € 30.6 billion at 31 December 2020, of which 96%
related to residential mortgages in the Republic of Ireland. The split of the residential mortgage portfolio was owner-occupier € 27.6 billion
and buy-to-let € 1.8 billion (2020: owner-occupier € 28.5 billion and buy-to-let € 2.1 billion).
Income statement
During 2021, there was a net credit impairment writeback of € 80 million to the income statement, compared to a € 306 million charge in
2020. This was driven by a net remeasurement of ECL allowance writeback of € 55 million and by recoveries of previously written-off loans
of € 25 million.
There were three components which contributed to the net remeasurement of ECL allowance writeback of € 55 million.
There was a € 40 million writeback comprising of a € 50 million ECL writeback occurring within stage due to improved credit quality and a
charge of € 10 million due to net stage movements.
Updated macroeconomic scenarios and weightings applied during 2021 resulted in a writeback of € 59 million.
Post model adjustments impacting the residential mortgage portfolio were updated to take into consideration the broadening of the
portfolio in scope as part of the Group’s NPE reduction strategy which may form part of future loan sales, which is the primary reason for a
€ 44 million increase in ECL charge due to post model adjustments. Further details are outlined under the management judgements section
on pages 100 to 101.
At 31 December 2021, the ECL allowance for the Group’s residential mortgages portfolio totalled € 0.4 billion, or 1.3% total cover rate
(2020: € 0.8 billion and 2.8%).
Residential mortgages – page 113
– Residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging
Republic of Ireland residential mortgages – pages 114 to 118
– 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 2021
Risk Management
113
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
AIB UK
Group
2021*
Total
AIB UK
Group
2020*
Total
€ m
€ m
€ m
€ m
1
2
3
4
5
6
31 December 2021 and 2020:
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
Capital
Markets
€ m
26,181
1,563
27,744
21,337
4,165
25,502
889
415
1,304
938
429
119
548
352
175
527
12
5
17
4
€ m
1,038
77
1,115
692
319
1,011
45
10
55
49
Gross carrying amount
27,744
548
1,115
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
25,393
1,380
868
103
511
33
4
–
1,033
33
49
–
27,744
548
1,115
34
40
270
31
375
%
0.1
2.9
31.1
29.9
–
1
–
–
1
%
–
1.8
–
–
–
–
6
–
6
%
–
–
10.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
Income statement
€ m
€ m
€ m
€ m
€ m
Net remeasurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
(42)
(24)
(66)
%
(5)
–
(5)
%
(8)
(1)
(9)
%
Net credit impairment (writeback)/charge
on average loans
(0.24)
(0.96)
(0.76)
–
–
–
%
–
*Forms an integral part of the audited financial statements
Retail
Banking
€ m
Capital
Markets
€ m
27,648
1,759
29,407
27,051
1,898
28,949
22,381
4,659
27,040
946
430
1,376
991
22,648
2,856
25,504
928
443
1,371
2,074
452
158
610
545
43
588
7
10
17
5
€ m
1,005
85
1,090
608
330
938
64
11
75
77
29,407
28,949
610
1,090
26,937
1,446
921
103
25,043
1,824
1,898
184
534
71
5
–
958
55
77
–
29,407
28,949
610
1,090
34
66
641
69
810
%
0.1
3.6
33.8
37.5
€ m
322
(31)
291
34
41
276
31
382
%
0.1
2.8
29.9
29.9
(55)
(25)
(80)
%
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
–
–
–
%
%
%
%
%
(0.27)
1.00
0.64
0.95
–
0.99
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
28,508
2,141
30,649
23,801
3,229
27,030
999
464
1,463
2,156
30,649
26,535
1,950
1,980
184
30,649
39
73
662
69
843
%
0.1
3.7
33.4
37.5
€ m
339
(33)
306
114
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 2021
and 2020:
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 remeasurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
Owner-
occupier
€ m
26,610
24,572
1,226
714
98
Buy-to-let
€ m
1,682
1,332
187
158
5
2021*
Total
€ m
28,292
25,904
1,413
872
103
Owner-
occupier
€ m
27,503
Buy-to-let
€ m
2,056
2020*
Total
€ m
29,559
24,082
1,495
25,577
1,611
1,631
179
284
272
5
1,895
1,903
184
26,610
1,682
28,292
27,503
2,056
29,559
32
35
203
28
298
2
6
67
3
78
34
41
270
31
376
29
51
553
66
699
6
20
88
3
117
35
71
641
69
816
26,312
1,604
27,916
26,804
1,939
28,743
%
0.1
2.8
28.4
28.8
€ m
(37)
(16)
(53)
%
0.1
3.2
42.6
51.7
€ m
(10)
(8)
(18)
%
0.1
2.9
30.9
29.9
€ m
(47)
(24)
(71)
%
%
%
%
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
%
Net credit impairment (writeback)/charge
on average loans
(0.20)
(0.98)
(0.25)
0.93
1.67
0.99
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
115
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 € 28.3 billion at 31 December 2021 compared to € 29.6 billion at 31 December 2020.
The decrease in the portfolio was primarily due to the sale of non-performing mortgage portfolios of € 1.0 billion and loan repayments
exceeding new lending. Total drawdowns during the year were € 3.0 billion (2020: € 2.4 billion), of which 99% was to owner-occupiers,
whilst the weighted average indexed loan-to-value for new residential mortgages was 67% (2020: 69%).
The split of the Irish residential mortgage portfolio is 94% owner-occupier and 6% buy-to-let and comprises 21% tracker rate, 39% variable
rate and 40% fixed rate mortgages.
Non-performing loans decreased from € 2.1 billion at 31 December 2020 to € 0.9 billion at 31 December 2021, primarily due to the sale of
non-performing mortgage portfolios completed in the year.
Income statement
There was a net credit impairment writeback of € 71 million to the income statement in the year compared to a net credit impairment charge
of € 295 million in 2020.
The net remeasurement of ECL allowance writeback of € 47 million was driven by improvements in the grade profiles within stage.
ECL writebacks from improvements in the revised macroeconomic assumptions were partially offset by ECL charges associated with post
model adjustments. In addition, the Group also recovered € 24 million on loans previously written-off.
The ECL allowance provision cover level at 31 December 2021 for the Irish residential mortgage portfolio is 1.3% (2020: 2.8%), due to the
sale of non-performing mortgage portfolios. For the Stage 3 element of the Irish residential mortgage portfolio, € 0.3 billion of ECLs are held
providing Stage 3 cover of 31% (2020: € 0.6 billion and 34% respectively).
Residential mortgage arrears
Total loans in arrears (including non-performing loans) by value decreased by 58% during the year, due to the sale of non-performing
mortgage portfolios. Total value of arrears in the owner-occupier and buy-to-let portfolios decreased by 60% and 45% respectively.
The number of loans in arrears (based on number of accounts) greater than 90 days was 2.2% at 31 December 2021 and remains below
the industry average of 5.6%(1). For the owner-occupier portfolio, the number of loans in arrears greater than 90 days at 1.9% were below
the industry average of 4.7%(1). For the buy-to-let portfolio, loans in arrears greater than 90 days at 6.0% were below the industry average of
12.4%(1).
(1) Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and Repossessions Statistics as at 30 September 2021, based on numbers of accounts.
Forbearance
Irish residential mortgages subject to forbearance measures decreased by € 0.9 billion from € 2.1 billion at 31 December 2020 to
€ 1.2 billion at 31 December 2021. The decrease in the forbearance portfolio was due to the sales of non-performing mortgage portfolios.
Details of forbearance measures are set out on pages 142 to 144.
116
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 2021 and 2020:
At amortised cost
Stage 1 Stage 2 Stage 3
€ m
€ m
24,771
1,322
1,058
28
42
68
9
13
25,899
1,412
5
1
25,904
1,413
€ m
739
97
19
12
867
5
872
2021*
POCI Overall
total
€ m
€ m
86
10
–
–
96
7
26,918
1,233
56
67
28,274
18
At amortised cost
Stage 1
Stage 2
Stage 3
POCI
€ m
€ m
€ m
€ m
2020*
Overall
total
€ m
21,567
1,559
1,461
124
24,711
3,853
275
251
42
4,421
103
50
39
21
99
78
7
2
248
151
25,573
1,894
1,889
175
29,531
4
1
14
9
28
103
28,292
25,577
1,895
1,903
184
29,559
23,460
1,158
632
1,052
24
35
56
4
8
24,571
1,226
1
–
24,572
1,226
60
14
6
712
2
714
85
10
–
–
95
3
98
25,335
1,178
42
49
26,604
6
26,610
20,183
1,325
1,282
123
22,913
3,773
247
195
42
4,257
89
35
28
11
86
61
7
1
210
108
24,080
1,611
1,624
173
27,488
2
–
7
6
15
24,082
1,611
1,631
179
27,503
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 2021 was 50% (2020: 57%),
new residential mortgages issued during the year was 67% (2020: 69%) and Stage 3 residential mortgages was 54% (2020: 61%).
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
117
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 2021
and 2020:
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
2021
Total
€ m
POCI
€ m
At amortised cost
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2020
Total
€ m
25,897
1,363
440
92
27,792
25,575
1,852
779
155
28,361
7
–
–
–
–
–
27
18
5
–
–
–
25,904
1,413
(34)
(41)
25,870
1,372
10
13
7
36
65
301
872
(270)
602
–
1
1
2
2
5
44
32
13
38
67
306
2
–
–
–
–
–
21
19
3
–
–
–
22
27
8
39
114
914
1
2
–
1
4
21
46
48
11
40
118
935
103
28,292
25,577
1,895
1,903
184
29,559
(31)
(376)
(35)
(71)
(641)
(69)
(816)
72
27,916
25,542
1,824
1,262
115
28,743
24,568
1,182
365
89
26,204
24,080
1,574
674
151
26,479
4
–
–
–
–
–
22
17
5
–
–
–
24,572
1,226
9
12
7
34
56
231
714
–
1
1
2
1
4
35
30
13
36
57
235
2
–
–
–
–
–
17
17
3
–
–
–
16
26
6
35
83
1
2
–
1
4
36
45
9
36
87
791
20
811
98
26,610
24,082
1,611
1,631
179
27,503
118
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 2021 and 2020 is set out below:
Owner-occupier
Buy-to-let
Total
Stock
103
12
115
2021
Balance
outstanding
€ m
18
5
23
Stock
432
16
448
2020
Balance
outstanding
€ m
100
3
103
(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 333 properties in 2021 (2020: 67 properties). This decrease relates to the
disposal of 66 properties (2020: 93 properties) which were slightly offset by the addition of 15 properties (2020: 39 properties), the majority
of which were voluntary surrenders or abandonments. The remaining reductions were primarily due to the inclusion of properties in the sales
of non-performing mortgage portfolios which concluded during 2021.
The disposal of 66 residential properties in the Republic of Ireland resulted in a total loss on disposal of € 3 million at 31 December 2021
(before ECL allowance) and compares to 31 December 2020 when 93 residential properties were disposed of resulting in a total loss of
€ 7 million. COVID-19 has continued to impact the closing of sales throughout 2021. 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 2021 and 2020:
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
64
2
66
13
–
13
Gross sales
proceeds
on disposal
Costs
to sell
2021
(1)
Loss
on sale
€ m
12
–
12
€ m
€ m
2
–
2
3
–
3
Number of
disposals
90
3
93
Outstanding
balance at
repossession
date
€ m
21
1
22
Gross sales
proceeds
on disposal
€ m
16
1
17
Costs
to sell
2020
(1)
Loss
on sale
€ m
€ m
2
–
2
7
–
7
AIB Group plc Annual Financial Report 2021
Risk Management
119
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
2021 and 2020:
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
Capital
Markets
€ m
AIB UK
Group
€ m
€ m
590
1,960
2,550
1,208
944
2,152
135
23
158
240
6
57
63
16
42
58
2
–
2
3
24
67
91
69
16
85
2
–
2
4
2021*
Total
€ m
620
2,084
2,704
1,293
1,002
2,295
139
23
162
247
Retail
Banking
€ m
Capital
Markets
€ m
558
2,011
2,569
1,179
973
2,152
149
40
189
228
6
56
62
35
19
54
2
4
6
2
AIB UK
Group
€ 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
2,704
2,569
62
112
23
2,766
1
2
3
4
5
6
Gross carrying amount
2,550
63
91
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 remeasurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
2,102
208
240
–
2,550
30
33
156
–
219
%
1.4
16.0
65.1
–
€ m
12
(15)
(3)
%
54
6
3
–
63
–
–
1
–
1
%
–
–
82
5
4
–
91
–
–
2
–
2
%
–
–
21.7
–
42.1
–
(2)
–
(2)
%
–
–
–
%
Net credit impairment (writeback)/charge
on average loans
(0.10)
(3.13)
(0.16)
*Forms an integral part of the audited financial statements
2,238
2,032
219
247
–
310
227
–
2,704
2,569
30
33
159
–
222
%
1.3
15.4
64.2
–
€ m
10
(15)
(5)
40
50
139
–
229
%
1.9
16.0
61.2
–
€ m
91
(12)
79
47
13
2
–
62
–
1
1
–
2
%
–
10.5
53.1
–
1
–
1
99
23
2,201
9
4
–
–
–
–
332
233
–
112
23
2,766
41
51
142
–
234
%
1.8
15.4
60.9
–
€ m
92
(12)
80
1
–
2
–
3
%
1.0
–
44.7
–
–
–
–
–
–
%
–
–
–
–
–
–
–
–
–
–
%
–
%
%
%
(0.16)
3.05
1.42
%
%
–
2.87
€ m
€ m
€ m
€ m
€ m
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
–
–
–
%
–
120
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Other personal (continued)
At 31 December 2021, the other personal lending portfolio of € 2.7 billion comprises € 2.1 billion in loans and overdrafts and € 0.6 billion
in credit card facilities (2020: € 2.8 billion, € 2.2 billion and € 0.6 billion respectively). Despite the impact of COVID-19, the credit quality of
the portfolio improved slightly throughout the year, with 15% categorised as less than satisfactory, of which defaulted loans amounted to
€ 0.2 billion (2020: 16% and € 0.2 billion).
New lending totalled € 0.9 billion for the year to 31 December 2021 (2020: € 0.9 billion). Demand for personal loans, which accounts for
the largest portion of the portfolio, increased in the final quarter of 2021 compared to the same period in 2020 as Government COVID-19
protection measures were comparatively less restrictive to consumer activity.
Stage 3 loans, predominately in Retail Banking increased by € 14 million in 2021, primarily due to COVID-19. At 31 December 2021,
the ECL allowance cover was 8% with Stage 3 cover at 64% (2020: 8% and 61% respectively).
Income statement
There was a net credit impairment writeback of € 5 million to the income statement in the year to 31 December 2021 compared to a
€ 80 million charge for the year to 31 December 2020.
The writeback was mainly due to recoveries of amounts previously written-off which amounted to € 15 million. This was offset by net stage
transfers and remeasurements within stage which resulted in a € 13 million charge. ECL writebacks from improvements in the revised
macroeconomic assumptions were partially offset due to an ECL charge in post model adjustments regarding potential latent risk due to
COVID-19 which resulted in a net writeback of € 3 million.
AIB Group plc Annual Financial Report 2021
Risk Management
121
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 2021 and 2020:
Retail
Banking
€ m
Capital
Markets
€ m
AIB UK
Group
2021*
Total
€ m
€ m
€ m
Retail
Banking
€ m
Capital
Markets
€ m
AIB UK
Group
2020*
Total
€ m
€ m
€ m
1
2
3
4
5
6
Gross carrying amount
Investment:
Commercial investment
Residential investment
Land and development:
Commercial development
Residential development
Contractors
Housing associations
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance – statement of financial position
Stage 1
Stage 2
Stage 3
POCI
Total
ECL allowance cover percentage
Stage 1
Stage 2
Stage 3
POCI
Income statement
Net remeasurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
281
89
370
106
50
156
110
–
636
113
213
326
58
25
83
227
636
312
97
227
–
636
5
10
107
–
122
%
1.8
10.0
47.3
–
€ m
3
(18)
(15)
2,907
724
614
676
3,631
1,290
377
606
983
78
108
34
124
158
115
361
4,800
1,924
3,187
1,061
994
667
4,181
1,728
98
246
344
275
45
25
70
126
4,800
1,924
3,358
1,167
275
–
1,676
122
126
–
4,800
1,924
33
77
39
–
149
%
1.0
6.6
14.4
–
€ m
(52)
–
(52)
12
4
26
–
42
%
0.7
3.8
20.7
–
(4)
(1)
(5)
%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
3,802
1,489
5,291
517
780
1,297
303
469
7,360
4,361
1,874
6,235
201
296
497
628
7,360
5,346
1,386
628
–
7,360
50
91
172
–
313
%
0.9
6.6
27.5
–
(53)
(19)
(72)
%
–
–
–
%
–
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
11
10
35
–
56
%
0.7
5.2
11.2
27.9
–
–
13
15
99
–
51
108
54
–
127
213
%
3.9
11.2
38.1
–
€ m
19
(13)
6
%
2.2
6.2
€ m
195
–
195
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
%
–
–
–
–
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
%
€ m
€ m
€ m
€ m
€ m
31
(1)
30
%
–
–
–
%
Net credit impairment (writeback)/charge
on average loans
(2.31)
(1.14)
(0.27)
*Forms an integral part of the audited financial statements
%
%
%
%
(1.00)
0.78
4.48
1.43
–
3.20
122
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 € 7.4 billion in loans and advances to customers measured at amortised cost together
with € 0.2 billion of loans measured at FVTPL (total € 7.6 billion).
The portfolio measured at amortised cost amounted to 13% of total loans and advances to customers. The portfolio comprised of
72% investment loans (€ 5.3 billion), 18% land and development loans (€ 1.3 billion) and 10% other property and construction loans
(€ 0.8 billion). The Capital Markets and AIB UK segments continue to account for the majority of this portfolio at 65% and 26% respectively.
The portfolio measured at amortised cost increased by € 0.1 billion in the year as new lending of € 1.8 billion was mainly offset by
redemptions/repayments net of interest credited of € 1.6 billion. Increase in new lending was predominately in the Capital Markets segment
which increased by € 0.4 billion in the year. At 31 December 2021, € 6.2 billion of the portfolio was in a strong/satisfactory grade, which is
an increase of € 0.4 billion in the year. The level of non-performing loans have reduced by € 0.3 billion in the year to € 0.6 billion. However,
this reduction mainly reflects two significant customer loans; one which exited default having completed the probation period and a further
defaulted customer loan was reclassified as FVTPL in the year following a restructure and changes to the terms and conditions relating to
this loan.
Property and construction loans measured at FVTPL increased by € 168 million to € 243 million in the year, as a result of the
aforementioned significant defaulted customer loan which was reclassified as FVTPL.
Income statement
There was a net credit impairment writeback of € 72 million to the income statement in the year to 31 December 2021, compared to a
€ 231 million charge in 2020. This comprises a net remeasurement writeback of € 53 million and recoveries of previously written-off loans of
€ 19 million.
The net remeasurement writeback of € 53 million was driven by net transfers and remeasurements within stage of € 38 million and a further
writeback of € 35 million due to improvements in the revised macroeconomic assumptions. These writebacks were partially offset by a
€ 20 million post model adjustment charge which primarily relates to a cohort of unresolved longer-dated non-performing property loans
which have been included in scope for future loan sales.
The ECL allowance for the portfolio totalled € 0.3 billion providing ECL allowance cover of 4%. For the Stage 3 portfolio, the ECL allowance
cover is 28% (2020: € 0.4 billion, 5% and 22% respectively).
Investment
Investment property loans amounted to € 5.3 billion at 31 December 2021 (2020: € 5.6 billion) of which € 3.8 billion related to commercial
investment. The geographic profile of the investment property portfolio is predominately in the Republic of Ireland (€ 3.4 billion) and the
United Kingdom (€ 1.3 billion). Commercial Investment in the retail sector, including shopping centres in particular, have been adversely
impacted by COVID-19, with 60% of the Group’s € 1.1 billion exposure to this sector now designated Stage 2 or Stage 3, with an associated
ECL of € 0.1 billion.
At 31 December 2021, there was a net credit impairment writeback of € 78 million to the income statement on the investment property
element of the property and construction portfolio (2020: € 168 million charge).
Land and development
At 31 December 2021, land and development loans amounted to € 1.3 billion (2020: € 1.0 billion) of which € 1.0 billion related to loans in
the Capital Markets segment, € 0.1 billion in the Retail Banking segment and € 0.2 billion in the AIB UK segment. 2021 was a mixed year for
the construction sector in Ireland. The first half of 2021 was characterised by limited construction activity due to COVID-19 restrictions on
development sites. These restrictions impacted on the delivery of existing development schemes and delayed the commencement of new
schemes. In the second half of 2021, all schemes were fully reopened. This coincided with significant demand for residential development
which resulted in an increase in new lending as existing borrowers increased their activity to commence new schemes. Challenges facing
the sector include increasing construction costs and disruptions to supply chains. The Group is also monitoring broader government policy
for residential and commercial development and potential changes in taxation and planning.
The income statement net credit impairment charge for the year was € 5 million (2020: € 41 million charge).
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
123
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 2021 and 2020:
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
Capital
Markets
€ m
1,232
21
185
146
179
474
93
892
212
14
669
351
996
2,109
1,136
135
1,040
195
2,506
1,494
359
2,536
3,225
10,351
748
1,566
2,314
307
104
411
500
6,023
2,799
8,822
337
1,058
1,395
134
AIB UK
Group
€ m
94
1,197
248
806
108
233
140
1,287
503
135
1,626
5,090
2,614
1,333
3,947
204
483
687
456
€ m
–
–
–
–
–
–
–
–
–
13
–
13
–
13
13
–
–
–
–
Retail
Banking
€ m
Capital
Markets
€ m
2021*
Total
€ m
1,677
2,214
2,542
2,088
422
1,747
428
4,685
2,209
521
4,831
1,202
17
200
153
185
496
86
920
224
16
657
18,679
3,236
9,385
5,711
15,096
848
1,645
2,493
1,090
642
1,530
2,172
468
116
584
480
AIB UK
Group
2020*
Total
€ 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
€ m
–
–
–
–
–
–
–
–
–
13
–
13
–
13
13
–
–
–
–
€ m
1,671
1,815
2,547
2,192
501
1,867
426
4,986
1,829
526
5,227
18,601
7,770
7,325
15,095
2,109
393
2,502
1,004
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
Gross carrying amount
3,225
10,351
5,090
13
18,679
3,236
9,954
5,398
13
18,601
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 remeasurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
Net credit impairment (writeback)/charge
on average loans
2,328
398
499
–
8,062
2,155
134
–
3,470
1,164
456
–
13
13,873
2,110
–
–
–
3,717
1,089
–
653
473
–
6,433
3,293
228
–
3,998
1,104
296
–
13
12,554
–
–
–
5,050
997
–
3,225
10,351
5,090
13
18,679
3,236
9,954
5,398
13
18,601
51
55
189
–
295
%
2.2
13.9
37.9
–
€ m
12
(12)
–
%
–
46
387
35
–
468
%
0.6
18.0
26.2
–
25
93
87
–
205
%
0.7
7.9
19.2
–
–
–
–
–
–
%
–
–
–
–
122
535
311
–
968
%
0.9
14.4
28.6
–
€ m
€ m
€ m
€ m
(72)
(2)
(74)
%
–
(2)
(2)
%
(0.72)
(0.04)
–
–
–
%
–
(60)
(16)
(76)
%
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
–
–
–
–
–
%
–
–
–
–
€ m
–
–
–
126
588
323
–
1,037
%
1.0
11.6
32.4
–
€ m
817
(13)
804
%
%
%
%
%
(0.40)
3.12
4.97
3.00
–
4.10
*Forms an integral part of the audited financial statements
124
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 largest geographic concentration of the portfolio exposure is to Irish borrowers (48%) with the UK (29%)
and USA (12%) being the other main geographic concentrations.
The portfolio increased slightly by € 0.1 billion to € 18.7 billion in the year to 31 December 2021 (31 December 2020: € 18.6 billion).
The increase was primarily due to new lending of € 4.5 billion (31 December 2020: € 4.5 billion) and foreign exchange adjustments of
€ 0.6 billion exceeding redemptions/repayments net of interest credited of € 4.8 billion and disposals of € 0.3 billion. The non-property
business portfolio amounted to 32% of total Group loans and advances to customers in the year (31 December 2020: 31%).
COVID-19 continues to impact the asset quality of the non-property business portfolio. Timing of recovery is dependent on sector specific
dynamics. Loans graded as strong/satisfactory were unchanged in the year to 31 December 2021 at 81%. The value of loans graded
less than satisfactory (including defaulted loans) increased from € 3.5 billion at 31 December 2020 to € 3.6 billion at 31 December 2021.
This was specifically evident in the non-property forbearance portfolio as the criticised recovery category increased by € 1.2 billion
to € 1.6 billion at 31 December 2021 (31 December 2020: € 0.4 billion). Interest only and term extensions were the most prominent
forbearance solutions availed of by customers.
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 has proven to be resilient and robust throughout
2021. Demand for credit to support on-farm investment has been strong and above 2020 levels. Increased input costs are being offset
by higher output prices, which is expected to continue assuming normalised weather conditions;
The energy sub-sector comprises 12% of the portfolio at € 2.2 billion. The increase of € 0.4 billion is driven by new lending to renewable
energy initiatives (wind and solar). To date, this sub-sector is proving very resilient to COVID-19;
The manufacturing sub-sector comprises 14% of the portfolio at € 2.6 billion. Food manufacturing continued to adapt effectively
to mitigate the impact of COVID-19 and the sector delivered strong levels of profitability with strong liquidity evident. Non-food
manufacturing had a positive year with increasing production and employment levels. However, challenges exist for manufacturing due
to inflation, labour (availability and cost) and supply chain pressures;
The hotels sub-sector comprises 11% of the portfolio at € 2.1 billion. This sector has been severely impacted by Government measures
to contain COVID-19. Hotels were either closed or operating at significantly reduced occupancy for a significant proportion of 2020 and
the first half of 2021. Hotels catering to domestic leisure visitors experienced strong trade during the summer months. However, hotels
reliant on international tourism, conferencing and corporate bookings did not fare as strongly. The emergence of new variants towards
the end of the year has impacted trade again and the sector is also facing into increasing cost challenges. A return to pre-COVID-19
occupancy levels is expected to be slow, particularly for those most reliant on international tourism/corporate sector;
The licensed premises sub-sector comprises 2% of the portfolio at € 0.4 billion. This sector has been severely negatively impacted by
Government measures to contain COVID-19. Licensed premises were either closed or operating at significantly reduced capacity in
Ireland from March 2020 to June 2021. The reopening of the sector in June 2021 generated a relatively strong sector performance,
particularly in suburban and regional locations. The emergence of new variants towards the end of the year has impacted trade again.
In the UK, restrictions were less severe throughout 2021 but restrictions towards the end of the year impacted the strongest trading
quarter. While near term outlook is improving some challenges remain in the sector including staff availability, labour cost and reduced
footfall in urban locations;
The retail/wholesale sub-sector comprises 9% of the portfolio at € 1.8 billion. There has been a strong recovery in consumer spending
following the easing of restrictions. Grocery retail/wholesalers continued to trade well with many businesses experiencing increases
in profitability despite increased costs. Non grocery retail continues to face challenges including the transition of ‘bricks and mortar’
to online, rising inflation, staff shortages and reduced footfall, particularly in urban locations;
The transport sub-sector comprises 12% of the portfolio at € 2.2 billion and consists primarily of logistic, storage and travel businesses.
After initial negative impacts due to COVID-19 and Brexit in 2020, logistics and storage rebounded strongly due to increased demand for
logistics and warehousing to deal with increased online retail purchasing. However, cost challenges remain due to border and custom
delays, fuel costs and labour (cost and availability). The travel sector continued to be severely impacted by COVID-19 throughout 2021
due to international travel restrictions;
The financial sub-sector comprises 3% of the portfolio at € 0.5 billion. This sub-sector is proving resilient to COVID-19 as companies
have been able to operate remotely; and
The other services sub-sector comprises 26% of the portfolio at € 4.8 billion, which includes businesses such as solicitors, accounting,
audit, tax, computer services, research and development, consultancy, hospitals and nursing homes. Performance across this
sub-sector has been mixed depending on the impact of COVID-19 on specific sub-sectors throughout 2021.
–
–
–
–
–
–
–
–
AIB Group plc Annual Financial Report 2021
Risk Management
125
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Non-property business (continued)
Income statement
There was a net credit impairment writeback of € 76 million to the income statement in the year to 31 December 2021, compared to a
€ 804 million charge in 2020. This comprises a net remeasurement writeback of € 60 million and recoveries of previously written-off loans of
€ 16 million.
The net remeasurement writeback of € 60 million was driven by net stage transfers and remeasurements within stage which accounted
for a € 96 million writeback. In addition, the revised macroeconomic assumptions accounted for a further € 31 million writeback. These
writebacks were partially offset by post model adjustments which resulted in a net € 67 million charge primarily relating to the Capital
Markets non-property portfolio post model adjustment reflecting potential latent risk in sectors highly impacted by COVID-19 and longer-
dated non-performing non-property loans which have also been included in scope for future loan sales as outlined under the management
judgements section on pages 100 and 101.
The ECL allowance for the portfolio totalled € 1.0 billion providing ECL allowance cover of 5%. For the Stage 3 portfolio, the ECL allowance
cover is 29% (2020: € 1.0 billion, 6% and 32% respectively).
1
2
3
4
5
6
126
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 at 31 December 2021 and 2020. 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
1,397
2,054
1,322
119
83
1,171
222
1,595
1,306
264
3,031
€ m
188
139
264
1,524
199
184
40
1,947
271
14
497
10,969
3,320
€ m
87
2
56
362
140
146
25
673
43
4
210
1,075
Gross
carrying
amount
€ m
1,672
2,195
1,642
2,005
422
1,501
287
4,215
1,620
282
3,738
15,364
2,904
397
14
3,315
Analysed by ECL stage profile
Stage 1
Stage 2
Stage 3
2021
ECL
allowance
€ m
9
11
8
9
4
17
5
35
7
2
26
98
24
€ m
13
19
15
255
34
26
6
321
26
1
42
437
98
535
€ m
36
2
15
44
36
53
12
145
25
2
84
309
2
311
€ m
58
32
38
308
74
96
23
501
58
5
152
844
124
968
13,873
3,717
1,089
18,679
122
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
269
2,948
9,679
2,875
€ m
365
47
431
1,573
242
442
69
2,326
379
29
767
4,344
706
12,554
5,050
€ m
94
15
71
223
146
143
19
531
69
9
193
982
15
997
Gross
carrying
amount
€ m
1,642
1,762
1,552
2,117
501
1,602
288
4,508
1,326
307
3,908
15,005
3,596
18,601
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
The SIF business unit, which is a specialised lending unit within Capital Markets, are 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 portfolio has
reduced by € 0.3 billion to € 3.3 billion at 31 December 2021 (2020: € 3.6 billion).
At 31 December 2021, 94% of the SIF lending portfolio is in a strong/satisfactory grade (2020: 96%). 88% of the SIF portfolio is rated by
S&P, with 67% rated B+ or above, 18% rated B and 3% rated B- or below. The majority of the loans (70%) are to large borrowers with
EBITDA > € 250 million. Exposures are well diversified by name and sector with the top 20 borrowers accounting for 24% 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 (primarily Europe)
(2020: 63% in the USA, 3% in the UK and 34% in the Rest of the World (primarily Europe) respectively).
The SIF portfolio had a net credit impairment writeback to the income statement in 2021 of € 12 million (2020: € 195 million charge).
AIB Group plc Annual Financial Report 2021
Risk Management
127
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 2021 and 2020:
Gross exposures to customers
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2021
At FVTPL
1
2
3
4
5
6
Loans and
advances
to customers
€ m
1,677
2,214
2,542
4,685
2,209
521
4,831
7,360
29,407
2,704
58,150
44,583
8,605
2,232
2,730
Loan
commitments
and financial
guarantees
issued
€ m
614
1,100
1,733
1,308
632
504
2,189
2,365
1,245
2,856
14,546
11,306
2,572
182
486
58,150
14,546
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
2,291
3,314
4,275
5,993
2,841
1,025
7,020
9,725
30,652
5,560
72,696
55,889
11,177
2,414
3,216
72,696
1,970
3,130
3,821
2,880
2,448
957
6,108
7,571
28,167
4,909
61,961
48,089
8,993
2,196
2,683
223
146
387
2,404
347
65
686
1,483
1,452
393
7,586
5,556
1,486
206
338
98
38
67
709
46
3
226
671
930
258
3,046
–
–
–
–
–
–
–
–
103
–
103
2,141
103
698
12
195
–
–
–
2,291
3,314
4,275
5,993
2,841
1,025
7,020
9,725
30,652
5,560
72,696
55,889
11,177
2,414
3,216
–
–
–
–
–
–
–
243
–
–
243
243
–
–
–
61,961
7,586
3,046
103
72,696
243
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2021
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Loans and
advances
to customers
€ m
59
32
53
557
67
25
175
313
382
222
1,885
1,471
266
50
98
1,885
Loan
commitments
and financial
guarantees
issued
€ m
4
1
9
20
3
2
13
20
–
7
79
62
13
3
1
79
€ m
€ m
€ m
€ m
€ m
€ m
63
33
62
577
70
27
188
333
382
229
10
13
17
40
11
5
41
53
35
32
15
18
27
388
34
20
62
93
41
38
1,964
257
736
1,533
279
53
99
1,964
182
44
19
12
257
516
109
32
79
736
38
2
18
149
25
2
85
187
275
159
940
804
126
2
8
940
–
–
–
–
–
–
–
–
31
–
31
31
–
–
–
31
63
33
62
577
70
27
188
333
382
229
1,964
1,533
279
53
99
1,964
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.
128
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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
2020
At FVTPL
Total
Stage 1
Stage 2
Stage 3
POCI
Total
Total
€ m
€ m
€ m
€ m
€ m
€ m
439
91
707
2,911
452
96
1,139
2,321
1,956
556
10,668
8,102
1,689
419
458
1,740
2,607
3,346
2,773
1,810
991
5,977
5,977
27,354
4,837
57,412
44,431
9,087
1,971
1,923
€ m
99
36
87
573
73
9
225
902
1,992
242
4,238
–
–
–
–
–
–
–
–
184
–
184
3,424
184
605
17
192
–
–
–
2,278
2,734
4,140
6,257
2,335
1,096
7,341
9,200
31,486
5,635
72,502
56,141
11,381
2,407
2,573
57,412
10,668
4,238
184
72,502
–
–
–
–
–
–
–
75
–
–
75
75
–
–
–
75
Loans and
advances
to customers
€ m
1,671
1,815
2,547
4,986
1,829
526
5,227
7,260
30,649
2,766
59,276
45,813
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
59,276
13,226
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
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.
2,278
2,734
4,140
6,257
2,335
1,096
7,341
9,200
31,486
5,635
72,502
56,141
11,381
2,407
2,573
72,502
€ m
70
17
92
607
65
23
209
426
843
241
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2020
Total
Stage 1
Stage 2
Stage 3
POCI
Total
€ m
€ m
€ m
€ m
€ m
15
12
15
42
10
4
43
82
39
42
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
2,593
304
2,067
334
63
129
2,593
214
61
15
14
304
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
129
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 2021 and 2020.
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
Capital Markets
AIB UK
Group
1–30 days
€ m
31–60 days
€ m
14
–
4
34
6
–
25
30
50
40
203
65
86
52
–
203
119
17
67
–
203
5
–
2
8
2
–
17
10
34
10
88
–
43
43
2
88
58
14
16
–
88
61–90 days 91–180 days 181–365 days
€ m
€ m
€ m
1
–
–
13
1
–
1
4
14
9
43
–
15
27
1
43
35
–
8
–
43
> 365 days
€ m
21
2
8
85
8
2
42
163
322
139
792
–
–
786
6
792
688
47
57
–
792
%
1.36
2021
Total
€ m
50
2
19
251
31
3
106
271
530
248
1,511
65
144
1,291
11
1,511
1,148
149
214
–
1,511
%
2.60
5
–
2
47
13
–
12
14
42
21
4
–
3
64
1
1
9
50
68
29
156
229
–
–
155
1
156
104
19
33
–
156
%
0.27
–
–
228
1
229
144
52
33
–
229
%
0.39
As a percentage of total gross loans at
amortised cost
%
0.35
%
0.15
%
0.07
The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.
There were no contractually past due loans measured at FVTPL at 31 December 2021 and 2020.
130
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
Aged analysis of contractually past due loans and advances to customers (continued)
1–30 days
€ m
31–60 days
€ m
61–90 days
€ m
91–180 days 181–365 days
€ m
€ m
> 365 days
€ m
At amortised cost
Industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
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
Capital Markets
AIB UK
Group
As a percentage of total gross loans at
amortised cost
68
109
79
1
257
165
23
69
–
257
%
0.43
–
88
108
2
198
111
46
41
–
198
%
0.33
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
2020
Total
€ m
52
2
29
319
28
4
102
302
1,245
236
2,319
68
225
1,997
29
2,319
17
2
14
40
6
2
29
172
968
117
1,367
–
–
1,345
22
1,367
1,275
1,909
7
85
–
138
272
–
1,367
2,319
%
0.12
%
0.23
%
0.49
%
2.30
%
3.90
At 31 December 2021, total loans past due reduced by € 0.8 billion to € 1.5 billion or 2.6% of total loans and advances to customers
(2020: € 2.3 billion or 3.9%).The reduction is directly attributed to the sales of non-performing mortgage portfolios completed in the year as
the total residential mortgage loans past due reduced by € 0.7 billion. This reduction was predominantly in the greater than 365 days past
due category as the total residential mortgage loans past due at 31 December 2021 amounted to € 0.5 billion or 35% of total loans past due
(31 December 2020: € 1.2 billion or 54%).
Non-property business loans which were past due represent 31% or € 0.5 billion (2020: 23% or € 0.5 billion), with property and construction
at 18% or € 0.3 billion (2020: 13% or € 0.3 billion), and other personal at 16% or € 0.2 billion (2020: 10% or € 0.2 billion).
All loans past due by 90 days or more on any material obligation are considered non-performing/defaulted.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
131
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 2021 and 2020:
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
0.9
–
1.8
6.8
0.1
0.1
5.2
24.6
44.4
21.4
105.3
88.6
15.2
1.5
105.3
2021
Recoveries of
amounts
previously
written-off
€ m
3.9
0.3
0.8
5.6
0.4
–
5.4
19.4
24.8
14.8
75.4
70.5
4.6
0.3
75.4
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
The contractual amount outstanding of loans written-off during the year that are subject to enforcement activity amounted to € 5 million
(2020: € 23 million) which includes both full and partial write-offs. Total cumulative non-contracted loans written-off at 31 December 2021
amounted to € 1,082 million (2020: € 1,730 million).*
*Forms an integral part of the audited financial statements
132
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 2021 and 31 December 2021 and the corresponding movements between 1 January 2020 and
31 December 2020.
Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed on
page 90) 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 3
€ m
4,075
POCI
€ m
184
Stage 1
€ m
45,609
(3,817)
4,012
(116)
55
10,460
(9,324)
1,363
–
(295)
641
(209)
15
Stage 2
€ m
9,408
3,817
(4,012)
(912)
335
–
(2,390)
240
–
(138)
170
209
41
Stage 1
€ m
54,723
(11,954)
2,534
(459)
105
8,578
(8,911)
1,471
–
(221)
(651)
519
(125)
Stage 2
€ m
3,992
11,954
(2,534)
(1,483)
352
–
(2,224)
285
–
(214)
(120)
(519)
(81)
–
–
1,028
(390)
–
(751)
69
(104)
(988)
45
–
(99)
–
–
1,942
(457)
–
(616)
72
(148)
(86)
(23)
–
251
(16)
(12,481)
4
(1)
(72)
–
–
4
1,676
(105)
(1,493)
856
–
(39)
2021*
Total
€ m
59,276
–
–
–
–
10,460
2020*
Total
€ m
62,049
–
–
–
–
8,578
–
–
–
–
–
–
–
–
–
–
(17)
(11,768)
8
(3)
–
–
–
2
1,836
(151)
(521)
(794)
–
47
48,394
6,768
2,885
103
58,150
Stage 3
€ m
3,140
POCI
€ m
194
45,609
9,408
4,075
184
59,276
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
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
(1)Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2021
Risk Management
133
1
2
3
4
5
6
2021*
Total
€ m
2,510
143
(107)
81
(38)
(234)
62
(68)
135
(132)
(158)
(105)
(393)
31
1,885
2020*
Total
€ m
1,238
195
(34)
143
(40)
406
82
(98)
438
401
1,493
(151)
(57)
(17)
4
2,510
–
–
–
–
–
–
–
(13)
–
(13)
(1)
(24)
–
31
POCI
€ m
31
–
–
–
–
–
–
–
33
8
41
(3)
–
–
–
69
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 remeasurement
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 (writeback)/charge
Write-offs
Derecognised due to disposals
Exchange translation adjustments
At 31 December
Stage 1
€ m
Stage 2
€ m
281
(61)
87
(7)
3
(43)
62
(25)
(4)
(58)
(46)
–
(4)
5
236
845
204
(194)
(125)
32
(38)
–
(43)
53
(41)
(152)
–
(8)
15
700
Stage 3
€ m
1,315
POCI
€ m
69
–
–
213
(73)
(153)
–
–
99
(33)
53
(104)
(357)
11
918
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 remeasurement
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
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
*Forms an integral part of the audited financial statements
134
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans and ECL movements (continued)
Total exposures to which an ECL applies decreased during the year by € 1.1 billion from € 59.3 billion at 1 January 2021 to € 58.2 billion at
31 December 2021.
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
remeasurement of ECL due to change in risk parameters within a stage. An ECL writeback of € 161 million due to stage transfers and net
remeasurement within stage occurred due to underlying credit management activity and improvement in credit parameters which inform the
modelled outcomes.
The updated macroeconomic scenarios and weightings resulted in a release of € 132 million. This ECL movement is presented separately
within ‘Impact of credit or economic risk parameters’. This release was most significant within the mortgage portfolio accounting for a release
of € 59 million within the portfolio. This was driven by an improvement in macroeconomic forecasts specific to the residential property market
and is largely offset by an ECL charge resulting from model and overlay changes.
Model and overlay changes resulted in an ECL charge of € 135 million and further detail on the changes is outlined within the management
judgements section on pages 100 and 101. These ensure exposures subject to risk not adequately reflected in the modelled outcomes
retain an appropriate ECL.
The gross loan transfers from Stage 1 to Stage 2 of € 3.8 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.
64% 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 6% was caused solely by the backstop of 30 days past due. Of the € 3.8 billion which transferred from Stage 1 to
Stage 2 in the year approximately € 2.1 billion is reported as Stage 2 at 31 December 2021.
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 € 4.0 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 and incorporates loans which transferred due to the impact of the updated macroeconomic scenarios and weightings.
Transfers from Stage 2 to Stage 3 of € 0.9 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 loans 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 borrowers that are 90 days or more past due on a
material obligation. Of the transfers from Stage 2 to Stage 3 € 0.3 billion had transferred from Stage 1 to Stage 2 earlier in the year.
Transfers from Stage 3 to Stage 2 of € 0.3 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.
In summary, the staging movements of the overall portfolio were as follows:
Stage 1 loans increased by € 2.8 billion in the year to € 48.4 billion with an ECL of € 0.2 billion and resulting cover of 0.5%
(31 December 2020: 0.6%).
Stage 2 loans decreased by € 2.6 billion in the year to € 6.8 billion with an ECL of € 0.7 billion and resulting cover of 10.3%
(31 December 2020: 9.0%). This was primarily driven by loans returning to Stage 1 where the triggers for significant increase in credit risk
no longer apply including loans that have fulfilled a probation period and repayments.
Stage 3 exposures decreased by € 1.2 billion in the year to € 2.9 billion with the ECL cover decreasing from 32.3% to 31.8%. The key driver
was portfolio sales of distressed loans.
Further details on stage movements by asset class are set out in the following tables:
AIB Group plc Annual Financial Report 2021
Risk Management
135
–
–
–
–
m
€
l
a
t
o
T
1
0
6
,
8
1
–
–
m
€
7
9
9
9
7
5
)
4
4
1
(
3
2
6
,
4
–
m
€
0
5
0
,
5
5
1
7
,
1
m
€
)
5
1
7
,
1
(
4
5
5
,
2
1
)
7
2
7
,
1
(
7
2
7
,
1
)
5
3
5
(
–
8
1
1
)
4
4
(
6
2
3
2
6
,
4
)
5
1
(
6
3
5
)
1
2
3
(
3
3
6
–
)
5
3
(
0
3
)
5
1
(
)
7
4
(
–
7
2
0
3
–
6
3
1
)
4
1
1
(
1
8
4
1
8
8
1
–
0
7
3
)
0
6
1
(
8
5
4
)
6
6
(
)
8
8
1
(
)
3
4
3
,
5
(
)
8
6
3
(
)
3
6
2
,
1
(
)
2
1
7
,
3
(
–
–
–
–
m
€
l
a
t
o
T
2
1
3
,
0
2
–
–
m
€
8
3
4
3
9
8
)
0
4
1
(
5
9
0
,
4
–
m
€
3
3
1
,
1
5
1
5
,
6
)
2
0
4
(
)
3
7
6
(
–
4
8
m
€
)
5
1
5
,
6
(
1
4
7
,
8
1
2
0
4
)
0
2
2
(
6
5
5
9
0
,
4
)
8
3
(
7
3
6
)
1
1
5
(
)
9
8
5
(
–
)
6
6
(
6
2
)
8
3
(
)
6
7
(
)
4
1
(
–
7
5
1
–
8
4
1
)
4
1
2
(
)
0
0
1
(
–
–
3
6
4
)
1
2
2
(
)
5
7
4
(
–
)
3
1
1
(
)
0
1
1
(
)
9
3
2
,
5
(
)
9
4
2
(
)
8
2
3
,
1
(
)
2
6
6
,
3
(
0
2
0
2
9
7
6
,
8
1
9
8
0
,
1
7
1
7
,
3
3
7
8
,
3
1
0
6
3
,
7
–
–
–
–
m
€
l
a
t
o
T
0
6
2
,
7
2
4
8
,
1
)
3
4
8
,
1
(
)
5
2
(
7
0
2
)
9
4
1
(
0
4
1
–
)
2
7
(
–
–
–
–
m
€
l
a
t
o
T
9
9
2
,
7
2
7
1
,
1
)
8
2
3
,
1
(
)
0
2
(
)
0
1
(
2
1
2
)
0
3
1
(
–
5
6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
m
€
I
C
O
P
–
–
–
–
–
–
–
–
–
–
–
–
–
–
m
€
I
C
O
P
–
–
m
€
5
6
8
)
4
4
(
1
3
1
–
5
1
)
5
2
(
)
3
1
(
–
2
1
)
5
5
1
(
8
2
6
–
–
m
€
7
6
3
)
6
5
(
6
2
6
–
)
4
9
(
2
1
)
0
2
(
)
0
1
(
)
4
(
–
4
4
5
6
8
m
€
m
€
6
7
0
,
2
9
1
3
,
4
7
7
6
)
1
8
5
(
)
6
0
1
(
–
9
2
–
7
4
)
0
2
(
8
1
9
1
0
1
)
7
7
6
(
1
8
5
)
5
2
(
5
1
)
2
0
9
(
5
4
1
–
)
6
1
1
(
0
1
1
)
9
1
(
3
7
m
€
7
2
4
m
€
5
0
5
,
6
9
8
1
,
3
)
9
8
1
,
3
(
)
5
6
2
(
)
1
3
4
(
–
3
3
)
9
7
4
(
–
–
4
5
)
4
1
(
)
9
1
5
(
1
8
5
6
2
)
5
9
1
(
3
2
)
5
5
7
(
6
4
1
2
7
1
,
1
–
–
)
2
1
1
(
)
0
6
(
9
1
5
1
2
3
4
5
6
1
0
6
,
8
1
7
9
9
0
5
0
,
5
4
5
5
,
2
1
0
6
2
,
7
6
7
0
,
2
9
1
3
,
4
6
6
7
,
2
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
s
s
e
n
s
u
b
i
y
t
r
e
p
o
r
p
-
n
o
N
n
o
i
t
c
u
r
t
s
n
o
c
d
n
a
y
t
r
e
p
o
r
P
l
a
n
o
s
r
e
p
r
e
h
t
O
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
s
e
R
i
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
1
2
0
2
s
s
e
n
i
s
u
b
y
t
r
e
p
o
r
p
-
n
o
N
n
o
i
t
c
u
r
t
s
n
o
c
d
n
a
y
t
r
e
p
o
r
P
l
a
n
o
s
r
e
p
r
e
h
t
O
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
i
s
e
R
s
s
a
l
c
t
e
s
s
A
–
s
t
n
e
m
e
v
o
m
t
n
u
o
m
a
g
n
i
y
r
r
a
c
s
s
o
r
G
:
0
2
0
2
d
n
a
1
2
0
2
r
e
b
m
e
c
e
D
1
3
o
t
r
a
e
y
e
h
t
r
o
f
i
g
n
g
a
t
s
L
C
E
d
n
a
s
s
a
c
l
t
e
s
s
a
y
b
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
l
r
o
f
e
c
n
a
w
o
l
l
a
L
C
E
d
n
a
t
n
u
o
m
a
i
g
n
y
r
r
a
c
s
s
o
r
g
e
h
t
n
i
s
t
n
e
m
e
v
o
m
e
h
t
t
u
o
t
e
s
l
s
e
b
a
t
g
n
w
o
i
l
l
o
f
e
h
T
o
i
l
o
f
t
r
o
p
n
a
o
l
e
h
t
f
o
e
l
i
f
o
r
p
t
i
d
e
r
C
–
k
s
i
r
t
i
d
e
r
C
1
.
2
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
e
v
o
m
L
C
E
d
n
a
)
1
(
s
n
a
o
l
s
s
o
r
G
2
4
8
,
1
9
5
8
)
8
5
1
(
)
3
8
7
(
)
8
2
1
,
1
(
)
6
5
(
)
1
1
1
(
6
8
3
,
1
6
4
3
,
5
4
0
7
,
2
8
3
2
,
2
7
0
4
,
9
2
3
0
1
1
2
9
6
4
4
,
1
7
3
9
,
6
2
–
–
–
–
m
€
l
a
t
o
T
6
6
7
,
2
)
1
2
(
)
3
2
(
3
2
2
7
–
1
2
–
–
m
€
3
3
2
3
9
)
1
2
(
–
m
€
2
3
3
2
5
2
)
1
1
2
(
)
0
8
(
–
8
1
5
)
3
(
)
1
2
(
–
–
7
1
7
4
2
–
5
2
)
1
(
1
1
)
7
(
9
1
2
m
€
1
0
2
,
2
)
2
5
2
(
)
3
1
(
1
1
2
3
9
5
8
)
1
6
9
(
3
9
1
–
)
9
1
(
6
)
1
(
1
1
m
€
l
a
t
o
T
9
4
6
,
0
3
–
–
–
–
6
3
1
,
3
–
–
–
–
–
m
€
4
8
1
m
€
0
8
9
,
1
–
–
5
2
2
)
1
8
1
(
–
m
€
0
5
9
,
1
3
7
1
,
1
m
€
)
3
7
1
,
1
(
5
3
5
,
6
2
)
3
9
4
,
1
(
3
9
4
,
1
)
1
9
1
(
0
7
1
–
)
4
3
(
1
1
6
3
1
,
3
I
C
O
P
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
)
7
6
1
,
4
(
)
6
1
(
)
9
6
1
(
)
3
3
2
(
)
9
4
7
,
3
(
)
4
4
(
0
1
7
4
)
1
(
9
1
)
3
4
(
–
2
3
)
0
0
0
,
1
(
)
2
7
(
)
5
2
9
(
)
3
(
–
6
7
7
4
–
–
4
6
–
9
3
1
7
3
–
–
)
1
(
)
3
(
7
6
5
5
6
s
e
g
n
a
h
c
y
a
l
r
e
v
o
d
n
a
r
e
t
e
m
a
r
a
p
,
l
e
d
o
m
f
o
t
c
a
p
m
I
s
t
n
e
m
t
s
u
d
a
j
l
n
o
i
t
a
s
n
a
r
t
e
g
n
a
h
c
x
E
s
t
n
e
m
e
v
o
m
r
e
h
O
t
r
e
b
m
e
c
e
D
1
3
t
A
2
e
g
a
t
S
o
t
1
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
1
e
g
a
t
S
o
t
2
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
y
r
a
u
n
a
J
1
t
A
s
p
u
-
p
o
t
/
d
e
t
a
n
g
i
r
o
i
s
n
a
o
l
w
e
N
s
t
n
e
m
y
a
p
e
r
/
s
n
o
i
t
p
m
e
d
e
R
3
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
3
e
g
a
t
S
o
t
d
e
r
r
e
f
s
n
a
r
T
l
s
a
s
o
p
s
d
i
o
t
e
u
d
i
d
e
s
n
g
o
c
e
r
e
D
d
e
t
i
d
e
r
c
t
s
e
r
e
n
t
I
s
f
f
o
-
e
t
i
r
W
m
€
l
a
t
o
T
4
8
9
,
2
–
–
–
–
1
4
8
–
–
m
€
2
9
1
1
1
1
)
8
2
(
–
m
€
8
8
2
8
3
4
)
8
9
(
)
5
7
1
(
–
5
2
m
€
4
0
5
,
2
)
8
3
4
(
)
3
1
(
5
7
1
3
1
4
8
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
m
€
l
a
t
o
T
4
5
4
,
1
3
–
–
–
–
0
7
4
,
2
I
C
O
P
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
–
–
–
–
–
m
€
4
9
1
m
€
3
4
1
,
2
–
–
2
1
3
)
3
3
2
(
–
m
€
4
4
1
,
2
2
1
8
,
1
m
€
)
2
1
8
,
1
(
3
7
9
,
6
2
)
2
9
6
,
1
(
2
9
6
,
1
)
1
8
2
(
0
1
2
–
)
1
3
(
3
2
0
7
4
,
2
)
2
7
2
,
1
(
)
9
4
(
)
6
5
1
(
)
7
6
0
,
1
(
)
9
2
9
,
3
(
)
7
1
(
)
4
2
2
(
)
1
6
2
(
)
7
2
4
,
3
(
2
e
g
a
t
S
o
t
1
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
1
e
g
a
t
S
o
t
2
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
y
r
a
u
n
a
J
1
t
A
s
p
u
-
p
o
t
/
d
e
t
a
n
g
i
r
o
i
s
n
a
o
l
w
e
N
s
t
n
e
m
y
a
p
e
r
/
s
n
o
i
t
p
m
e
d
e
R
3
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
3
e
g
a
t
S
o
t
d
e
r
r
e
f
s
n
a
r
T
)
3
3
(
2
2
2
–
)
7
(
–
1
3
9
)
3
3
(
–
–
–
1
3
3
3
2
–
–
3
3
)
1
(
–
)
2
2
(
2
3
3
–
–
)
6
(
–
2
2
0
8
1
)
0
6
(
5
6
7
–
)
8
6
(
–
7
1
8
)
3
(
–
–
–
2
5
2
)
7
5
(
–
)
5
(
–
9
1
–
–
0
5
)
5
(
–
)
7
2
(
–
–
2
8
6
)
8
5
(
–
3
2
1
0
2
,
2
9
4
6
,
0
3
4
8
1
0
8
9
,
1
0
5
9
,
1
5
3
5
,
6
2
s
e
g
n
a
h
c
y
a
l
r
e
v
o
d
n
a
r
e
t
e
m
a
r
a
p
,
l
e
d
o
m
f
o
t
c
a
p
m
I
s
t
n
e
m
t
s
u
d
a
j
l
n
o
i
t
a
s
n
a
r
t
e
g
n
a
h
c
x
E
s
t
n
e
m
e
v
o
m
r
e
h
O
t
r
e
b
m
e
c
e
D
1
3
t
A
l
s
a
s
o
p
s
d
i
o
t
e
u
d
i
d
e
s
n
g
o
c
e
r
e
D
d
e
t
i
d
e
r
c
t
s
e
r
e
n
t
I
s
f
f
o
-
e
t
i
r
W
i
.
s
s
a
b
’
s
h
t
n
o
m
e
h
t
f
o
m
u
s
‘
a
n
o
d
e
r
a
p
e
r
p
n
e
e
b
e
v
a
h
e
b
a
t
l
s
n
a
o
l
s
s
o
r
g
e
h
t
n
o
s
t
n
e
m
e
v
o
M
)
1
(
s
s
e
n
s
u
b
i
y
t
r
e
p
o
r
p
-
n
o
N
n
o
i
t
c
u
r
t
s
n
o
c
d
n
a
y
t
r
e
p
o
r
P
l
a
n
o
s
r
e
p
r
e
h
t
O
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
s
e
R
i
l
a
t
o
T
m
€
5
0
3
1
3
1
)
3
(
3
8
)
2
1
(
3
7
3
1
2
)
0
6
(
4
7
1
0
1
1
7
1
8
)
8
3
(
)
1
5
(
)
2
1
(
6
1
7
3
0
,
1
–
–
m
€
2
4
1
3
9
1
)
8
2
(
6
4
–
–
4
3
1
)
8
3
(
)
8
2
(
)
3
(
8
2
2
2
2
3
2
3
4
8
m
€
4
8
1
)
0
4
(
)
7
9
(
0
1
7
4
3
–
)
6
4
(
8
1
1
7
5
–
3
3
5
)
8
1
(
)
7
(
)
4
(
9
7
m
€
)
3
5
(
7
3
)
3
1
(
6
)
0
2
(
1
2
)
4
1
(
2
5
0
4
6
5
–
)
5
(
)
2
(
)
2
(
8
8
5
6
2
1
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
m
€
9
8
1
l
a
t
o
T
6
)
5
(
6
1
)
3
(
6
8
2
4
)
8
2
(
0
1
1
2
1
5
4
2
)
0
2
(
)
6
(
)
4
(
)
8
(
6
9
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
m
€
I
C
O
P
m
€
2
3
1
–
–
0
9
)
8
(
1
3
–
–
–
)
3
2
(
0
9
)
0
2
(
)
6
(
)
3
(
)
5
(
6
2
9
3
m
€
)
0
2
(
)
6
4
(
4
–
0
6
)
8
3
(
3
7
0
1
1
3
m
€
)
3
3
(
5
1
)
8
2
(
1
)
5
(
2
4
0
1
7
7
3
9
0
1
6
4
–
–
)
1
(
)
1
(
–
–
–
)
2
(
5
7
8
8
1
3
3
1
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
m
€
5
7
1
l
a
t
o
T
2
2
)
2
(
5
1
)
9
(
)
3
(
5
1
)
4
(
9
9
4
2
9
)
3
3
(
–
–
–
4
3
2
–
–
m
€
4
1
1
0
5
)
6
1
(
6
2
–
–
–
2
2
6
)
3
3
(
–
–
)
1
(
2
4
1
m
€
0
4
9
2
)
5
(
)
4
3
(
7
)
1
1
(
–
)
2
(
4
3
2
1
1
–
–
–
–
1
5
m
€
1
2
)
7
(
3
)
1
(
–
)
8
1
(
5
1
)
2
(
5
4
2
9
1
–
–
–
1
1
4
m
€
9
6
5
6
3
)
4
2
(
9
2
)
6
1
(
)
0
5
(
4
)
6
(
5
4
2
1
2
1
)
0
6
(
9
3
3
–
)
1
(
)
4
(
1
3
m
€
–
–
–
–
–
–
–
8
3
3
)
3
(
1
4
–
–
–
–
–
m
€
6
7
4
9
4
)
1
3
(
2
–
–
5
4
3
8
1
)
7
5
(
8
4
2
–
)
1
(
)
4
(
2
5
3
5
m
€
)
7
4
(
)
0
2
(
2
1
)
4
3
(
–
)
3
(
9
1
0
4
0
2
–
–
–
1
3
4
8
9
6
2
6
6
3
7
0
1
m
€
)
7
1
(
3
2
–
3
4
)
3
(
0
1
8
2
)
8
1
(
–
–
–
0
3
)
1
(
9
3
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
l
a
t
o
T
I
C
O
P
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
136
Risk Management
AIB Group plc Annual Financial Report 2021
m
€
l
a
t
o
T
7
3
0
,
1
4
7
)
1
6
(
6
4
)
5
1
(
8
1
)
5
3
(
7
6
)
1
3
(
)
0
6
(
)
5
1
(
)
2
2
(
4
4
2
8
6
9
0
2
0
2
)
3
2
1
(
)
3
0
1
(
–
–
m
€
3
2
3
1
2
1
)
1
3
(
–
–
0
2
)
3
(
4
)
5
1
(
)
1
1
(
6
4
m
€
8
8
5
0
1
1
)
7
1
1
(
)
1
7
(
4
1
)
4
2
(
–
)
3
2
(
5
6
)
5
1
(
)
1
6
(
–
)
8
(
4
1
2
m
€
6
2
1
)
6
3
(
6
5
)
4
(
2
4
8
1
)
2
1
(
)
8
1
(
)
3
1
(
)
3
(
–
)
3
(
4
)
2
(
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
l
a
t
o
T
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
l
a
t
o
T
3
e
g
a
t
S
2
e
g
a
t
S
1
e
g
a
t
S
0
2
0
2
s
s
e
n
i
s
u
b
y
t
r
e
p
o
r
p
-
n
o
N
n
o
i
t
c
u
r
t
s
n
o
c
d
n
a
y
t
r
e
p
o
r
P
l
a
n
o
s
r
e
p
r
e
h
t
O
s
e
g
a
g
t
r
o
m
l
a
i
t
n
e
d
i
s
e
R
o
i
l
o
f
t
r
o
p
n
a
o
l
e
h
t
f
o
e
l
i
f
o
r
p
t
i
d
e
r
C
–
k
s
i
r
t
i
d
e
r
C
1
.
2
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
e
v
o
m
L
C
E
d
n
a
s
n
a
o
l
s
s
o
r
G
s
s
a
l
c
t
e
s
s
A
–
s
t
n
e
m
e
v
o
m
e
c
n
a
w
o
l
l
a
L
C
E
1
1
3
5
3
5
2
2
1
2
2
2
9
5
1
3
3
m
€
6
9
3
l
a
t
o
T
8
)
8
(
5
)
3
(
)
5
4
(
9
2
)
4
2
(
0
2
)
5
3
(
)
3
5
(
)
5
2
(
)
7
(
5
)
3
(
3
1
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
m
€
I
C
O
P
–
–
m
€
8
8
1
6
1
)
5
(
)
5
1
(
–
–
5
2
)
4
(
7
1
)
5
2
(
)
6
(
3
)
5
(
2
7
1
m
€
3
3
1
8
1
)
9
1
(
)
9
(
2
)
7
(
–
)
2
(
)
9
(
)
6
1
(
5
7
m
€
)
0
1
(
1
1
)
2
(
–
)
3
2
(
9
2
)
8
(
)
3
(
)
2
2
(
)
2
4
(
)
8
2
(
–
–
1
)
1
(
1
9
–
)
1
(
1
3
0
5
m
€
4
3
2
9
3
)
2
2
(
4
1
)
8
(
)
8
1
(
2
1
)
4
(
4
)
7
(
0
1
)
1
(
)
1
2
(
–
–
–
–
m
€
2
4
1
6
4
)
2
1
(
3
–
–
1
–
8
3
)
1
(
)
1
2
(
–
1
1
5
9
4
m
€
)
0
3
(
)
1
3
(
4
)
4
(
–
)
1
(
)
3
(
)
2
(
1
4
m
€
)
0
1
(
8
)
1
(
–
)
7
1
(
2
1
)
3
(
6
)
5
(
)
8
1
(
)
0
1
(
–
–
–
–
–
–
–
)
1
(
0
3
m
€
3
4
8
2
2
)
6
1
(
6
1
)
2
1
(
)
8
4
(
3
)
5
(
4
4
)
9
5
(
)
5
5
(
)
4
4
(
)
3
6
3
(
2
)
1
(
2
8
3
9
6
m
€
I
C
O
P
–
–
–
–
–
–
–
–
)
3
1
(
)
3
1
(
)
1
(
)
4
2
(
–
–
1
3
–
–
m
€
2
6
6
0
3
)
5
2
(
)
8
3
(
–
–
3
5
)
6
2
(
)
6
(
)
3
4
(
)
9
3
3
(
2
–
6
7
2
)
1
3
(
)
5
(
–
–
–
)
1
(
1
4
–
–
–
–
4
3
3
7
7
2
m
€
)
8
2
(
)
4
1
(
2
1
)
3
(
–
)
3
(
)
7
(
9
3
)
5
(
2
1
–
1
)
7
(
3
)
2
(
1
1
m
€
2
1
e
g
a
t
S
o
t
e
g
a
t
S
o
t
1
2
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
y
r
a
u
n
a
J
1
t
A
s
p
u
-
p
o
t
/
d
e
t
a
n
g
i
r
o
i
s
n
a
o
l
w
e
N
s
t
n
e
m
y
a
p
e
r
/
s
n
o
i
t
p
m
e
d
e
R
3
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
3
e
g
a
t
S
o
t
d
e
r
r
e
f
s
n
a
r
T
t
n
e
m
e
r
u
s
a
e
m
e
r
t
e
N
s
e
g
n
a
h
c
y
a
l
r
e
v
o
d
n
a
l
e
d
o
m
f
o
t
c
a
p
m
I
)
5
1
(
)
8
1
(
s
r
e
t
e
m
a
r
a
p
k
s
i
r
i
c
m
o
n
o
c
e
r
o
t
i
d
e
r
c
f
o
t
c
a
p
m
I
2
1
e
g
a
t
S
o
t
e
g
a
t
S
o
t
1
2
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
y
r
a
u
n
a
J
1
t
A
s
p
u
-
p
o
t
/
d
e
t
a
n
g
i
r
o
i
s
n
a
o
l
w
e
N
s
t
n
e
m
y
a
p
e
r
/
s
n
o
i
t
p
m
e
d
e
R
3
e
g
a
t
S
m
o
r
f
d
e
r
r
e
f
s
n
a
r
T
3
e
g
a
t
S
o
t
d
e
r
r
e
f
s
n
a
r
T
t
n
e
m
e
r
u
s
a
e
m
e
r
t
e
N
s
r
e
t
e
m
a
r
a
p
k
s
i
r
i
c
m
o
n
o
c
e
r
o
t
i
d
e
r
c
f
o
t
c
a
p
m
I
s
e
g
n
a
h
c
y
a
l
r
e
v
o
d
n
a
l
e
d
o
m
f
o
t
c
a
p
m
I
t
i
d
e
r
c
t
e
n
t
n
e
m
e
t
a
t
s
e
m
o
c
n
I
e
g
r
a
h
c
t
n
e
m
r
i
a
p
m
i
s
t
n
e
m
t
s
u
d
a
j
l
n
o
i
t
a
s
n
a
r
t
e
g
n
a
h
c
x
E
s
t
n
e
m
e
v
o
m
r
e
h
O
t
r
e
b
m
e
c
e
D
1
3
t
A
s
t
n
e
m
t
s
u
d
a
j
l
n
o
i
t
a
s
n
a
r
t
e
g
n
a
h
c
x
E
s
t
n
e
m
e
v
o
m
r
e
h
O
t
r
e
b
m
e
c
e
D
1
3
t
A
l
s
a
s
o
p
s
d
i
o
t
e
u
d
i
d
e
s
n
g
o
c
e
r
e
D
s
f
f
o
-
e
t
i
r
W
t
i
d
e
r
c
t
e
n
t
n
e
m
e
t
a
t
s
e
m
o
c
n
I
e
g
r
a
h
c
t
n
e
m
r
i
a
p
m
i
l
s
a
s
o
p
s
d
i
o
t
e
u
d
i
d
e
s
n
g
o
c
e
r
e
D
s
f
f
o
-
e
t
i
r
W
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
137
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 2021 and 2020:
Loan commitments
Financial guarantee contracts
2021*
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
Total
€ m
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
11,259
1,113
132
12,504
(266)
814
(17)
11
1,023
12,824
266
(814)
(7)
5
205
768
–
–
24
(16)
(5)
–
–
–
–
1,223
135
13,727
544
(17)
101
(1)
1
115
743
147
17
(101)
(1)
1
(13)
50
31
–
–
2
(2)
(5)
26
Total
€ m
722
–
–
–
–
97
819
2020*
Loan commitments
Financial guarantee contracts
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ 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
–
–
1
(4)
(9)
31
Total
€ m
711
–
–
–
–
11
722
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
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
*Forms an integral part of the audited financial statements
138
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Credit profile of the loan portfolio
Movements in off-balance sheet exposures (continued)
ECL allowance movements
Loan commitments
Financial guarantee contracts
2021*
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 remeasurement
Net income statement (credit)/charge
Other movements
At 31 December
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 remeasurement
Net income statement (credit)/charge
Other movements
At 31 December
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
20
(4)
7
–
–
(7)
(4)
–
16
30
15
(18)
(1)
–
3
(1)
–
29
4
–
–
2
–
1
3
1
8
Total
€ m
54
11
(11)
1
–
(3)
(2)
1
53
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
3
(1)
3
–
1
(2)
1
1
5
8
4
(9)
–
–
3
(2)
1
7
18
–
–
–
(1)
(2)
(3)
(1)
14
Total
€ m
29
3
(6)
–
–
(1)
(4)
1
26
2020*
Loan commitments
Financial guarantee contracts
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
10
(7)
10
–
–
7
10
–
20
8
18
(8)
(1)
–
13
22
–
30
1
–
–
2
–
1
3
–
4
19
11
2
1
–
21
35
–
54
3
(1)
2
–
–
(1)
–
–
3
Total
€ m
23
5
–
1
(1)
(1)
4
2
29
2020*
€ m
8,187
4,445
413
18
163
18
–
–
2
(2)
(3)
(3)
3
18
2
6
(2)
(1)
1
3
7
(1)
8
2021*
€ m
9,564
4,399
327
95
161
14,546
13,226
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 € 161 million (2020 € 163 million).
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
139
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
2021 and 2020:
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 %
2021
At FVOCI
Irish Government securities
Euro government securities
Non Euro government securities
Supranational banks and
government agencies
Collateralised mortgage obligations
Other asset backed securities
Euro bank securities
Non Euro bank securities
Euro corporate securities
Non Euro corporate securities
Total at FVOCI
At amortised cost
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
–
279
10
42
–
–
1,005
297
–
–
1,633
–
–
–
–
–
–
–
–
–
–
1,884
2.0
0.9
1.8
–
–
0.4
1.5
–
–
0.9
–
–
–
–
–
–
–
–
–
503
63
299
–
–
1,994
1,236
210
68
6,257
–
–
–
–
–
–
17
16
33
2.6
1.3
0.5
0.9
–
–
0.4
1.3
0.9
2.0
1.4
–
–
–
–
–
–
2.2
3.0
2.6
1,434
359
34
584
3
–
903
130
191
48
3,686
1,855
70
55
175
265
87
113
22
2,642
0.8
0.3
0.1
0.3
2.1
–
0.1
1.1
0.8
3.1
0.5
0.3
0.2
0.4
0.2
1.9
0.1
1.8
3.6
0.5
186
–
–
335
425
67
–
–
–
–
0.7
–
–
1.7
1.1
0.4
–
–
–
–
3,504
1,141
107
1,260
428
67
3,902
1,663
401
116
1,013
1.2
12,589
545
20
–
33
836
–
–
–
0.5
1.1
–
0.3
1.5
–
–
–
2,400
90
55
208
1,101
87
130
38
1,434
1.1
4,109
1.8
1.2
0.4
0.8
1.1
0.4
0.3
1.3
0.8
2.5
1.1
0.3
0.4
0.4
0.2
1.6
0.1
1.8
3.4
0.7
2020
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
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
140
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk – Investment securities
Debt securities and related ECL analysed by IFRS 9 staging at 31 December 2021 and 2020*
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
4,110
(1)
4,109
12,589
(3)
16,698
Stage 2
€ m
Stage 3
€ m
–
–
–
–
–
–
–
–
–
–
–
–
2021*
Total
€ m
4,110
(1)
4,109
12,589
(3)
16,698
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
Debt securities at FVOCI
Debt securities held at fair value through other comprehensive income (“FVOCI”) decreased to € 12.6 billion (nominal € 12.2 billion) at
31 December 2021 from a fair value of € 15.7 billion (nominal € 14.9 billion) at 31 December 2020. The main drivers were a decrease in
euro bank securities of € 1.3 billion and a decrease in euro commercial paper issued by the Irish Government of € 1.8 billion.
Debt securities at amortised cost
In addition to the existing business model Hold-to-Collect-and-Sell (“HTCS”) within Treasury, the Group previously introduced on
1 January 2020 a Hold-to-Collect (“HTC”) business model. 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.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2021
Risk Management
141
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 2021 and 2020.
These include loans and advances to banks of € 1,323 million (2020: € 1,092 million), securities financing of € 3,890 million
(2020: € 811 million), and investment debt securities (at amortised cost of € 4,109 million (2020: € 3,603 million) and at FVOCI of
€ 12,589 million (2020: € 15,675 million)). Information on the credit ratings for loans and advances to customers where an external credit
rating is available is disclosed on page 126.
At amortised cost
Bank Corporate Sovereign
€ m
€ m
€ m
597
3,756
25
1
–
–
920
2
105
62
296
2,420
37
–
–
Other
€ m
895
201
5
–
–
Total
€ m
1,788
7,297
69
106
62
4,379
1,089
2,753
1,101(1)
9,322
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which: Stage 1
4,379
1,089
2,753
1,101
9,322
Stage 2
Stage 3
–
–
–
–
–
–
–
–
–
–
At FVOCI
Bank Corporate Sovereign
€ m
€ m
€ m
3,883
1,283
399
–
–
5,565
5,565
–
–
72
248
197
–
–
517
486
31
–
Other
€ m
495
–
–
–
–
Total
€ m
5,632
5,252
1,705
–
–
2021
Total
€ m
7,420
12,549
1,774
106
62
495
12,589
21,911
1,182
3,721
1,109
–
–
6,012(2)
6,012
495
12,558
21,880
–
–
–
–
31
–
31
–
1
2
3
4
5
6
At amortised cost
Bank Corporate Sovereign
€ m
€ m
€ m
733
1,134
18
1
–
–
–
–
73
69
295
2,314
38
–
–
Other
€ m
510
212
5
–
–
Total
€ m
1,538
3,660
61
74
69
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
At FVOCI
Bank Corporate Sovereign
€ m
€ m
€ m
5,032
1,380
381
–
–
1,227
5,527
1,219
–
–
37
257
165
31
–
490
Other
€ m
419
–
–
–
–
Total
€ m
6,715
7,164
1,765
31
–
2020
Total
€ m
8,253
10,824
1,826
105
69
1,886
142
2,647
727 (1)
5,402
6,793
7,973 (2)
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
–
(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 2021, the Group’s top 50 drawn exposures amounted to € 4.9 billion, and accounted for 8.5% (2020: € 4.7 billion and
7.8%) of the Group’s on-balance sheet total gross loans and advances to customers. In addition, these customers have undrawn facilities
amounting to € 1,089 million (2020: € 862 million). No single customer exposure exceeded regulatory requirements.
*Forms an integral part of the audited financial statements
142
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 loans 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 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 temporary forbearance measures (such as interest only and capital and interest moratorium),
this includes permanent 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 permanent forbearance
solutions currently include; arrears capitalisation, term extension, 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 temporary measures (such as interest only and capital and interest moratorium) and permanent
measures (such as term extension and arrears capitalisation). 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
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
143
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 2021
and 2020:
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
629
564
1,193
–
–
–
–
430
430
763
1,193
6
399
694
94
1,193
272
37
77
114
–
–
–
–
23
23
91
114
1
22
91
–
114
61
169
348
517
–
–
–
–
296
296
221
517
79
217
221
–
517
139
1,039
1,293
2,332
–
–
–
–
1,645
1,645
687
2,332
7
1,638
687
–
2,332
537
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
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
2021
Total
€ m
1,874(1)
2,282(2)
4,156
–
–
–
–
2,394
2,394
1,762
4,156
93
2,276
1,693
94
4,156
1,009
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
(1) Of which: interest only € 1,161 million, reduced payment € 164 million, payment moratorium € 521 million (2020: of which: interest only € 1,002 million,
reduced payment € 171 million, payment moratorium € 413 million).
(2) Of which: arrears capitalisation and term extension € 864 million, restructure € 255 million, breech/adjustment of covenant € 416 million (2020: of which:
arrears capitalisation and term extension € 898 million, restructure € 274 million, low fixed interest rate € 149 million).
144
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance (continued)
The Group’s focus continues to be on supporting its existing customers and ensuring they are provided with the appropriate forbearance
measures, particularly in the current environment by providing support to customers impacted by COVID-19. The total forbearance portfolio
has increased by € 0.8 billion to € 4.2 billion in the year (31 December 2020: € 3.4 billion).
The increase in the year was predominately in the non-property business portfolio which increased by € 1.6 billion to € 2.3 billion
(31 December 2020: € 0.7 billion) as permanent and temporary forbearance measures increased by € 1.0 billion and € 0.6 billion
respectively. Term extensions and interest only requests were the most prevalent. The Capital Markets and AIB UK segment non-property
forbearance portfolios both experienced increases of € 0.8 billion in the year. The increase reflects specific sectors in this portfolio which are
highly impacted by COVID-19 such as hotels, licensed premises and retail. These sectors continue to be closely monitored by the Group.
Republic of Ireland residential mortgages
Residential mortgages subject to forbearance measures decreased by € 1.0 billion from € 2.2 billion at 31 December 2020 to € 1.2 billion
at 31 December 2021. The decrease in the forbearance portfolio was impacted by the sales of non-performing mortgage portfolios
completed during the year. The Group continues to closely monitor the residential mortgage portfolio for potential latent risk as the expiry
of government support measures to support customers during COVID-19, may be delaying the realisation of forbearance and affordability
issues. The residential mortgage portfolio subject to forbearance consists of € 0.6 billion relating to temporary arrangements and € 0.6 billion
relating to permanent solutions. Interest only and arrears capitalisation were the most prominent forbearance solutions availed of by
customers.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
145
2.2 Liquidity and funding risk
Liquidity risk is the risk that the Group will not be able to fund its assets and meet its payment obligations as they fall due, without incurring
unacceptable costs or losses. Funding is the means by which liquidity is generated, e.g. secured or unsecured, corporate or retail. In this
respect, funding risk is the risk that a specific form of liquidity cannot be obtained at an acceptable cost.
Identification and assessment
Liquidity and funding risk is identified and assessed by the Group’s Material Risk Assessment (“MRA”) process in support of the Internal
Liquidity Adequacy Assessment Process (“ILAAP”). The MRA process is a ‘top-down’ assessment performed on at least an annual basis and
identifies the key material risks to the Group, taking into account its strategic objectives, in addition to internal and external risk information.
The ILAAP is fully integrated and embedded in the strategic, financial and risk management processes of the Group. Embedding of the
ILAAP is facilitated through the setting of risk appetite, liquidity and funding planning and the dynamic review thereof in light of key strategic
decisions.
The Group has a comprehensive ILAAP Framework for managing the Group’s liquidity risk and complying with the Board’s risk appetite as
well as evolving regulatory standards. This is delivered through a combination of policy formation, governance, analysis, stress testing and
limit setting and monitoring, and is part of the wider Risk Management Framework.
Management and measurement*
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. The ILAAP framework and supporting Funding and Liquidity risk policy
set out the key requirements for managing the risk. These include:
•
Adherence to both internal limits and regulatory defined liquidity ratios including the Liquidity Coverage Ratio (“LCR”) and the Net Stable
Funding Ratio (“NSFR”). 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;
•
Performing a multiyear projection of the Group’s funding sources taking into account its baseline scenario, strategy and operational
plans as outlined in the Group’s Funding and Liquidity Plan. The purpose of this Plan is to set out a comprehensive, forward looking
liquidity and funding strategy for the Group including subsidiary companies;
•
Assessing the Funding and Liquidity Plan under a range of adverse scenarios, the outcomes of which should ensure sufficient liquidity
to implement a sustainable strategy even in a stressed environment;
•
Maintaining a Contingency Funding Plan that identifies and quantifies actions that are available to the Group in deteriorating liquidity
conditions and emerge from a temporary liquidity crisis as a credit worthy institution;
•
Monitoring a further set of triggers and liquidity options outlined in the Group’s Recovery Plan, which presents the actions available to
the Group to restore viability in the event of extreme stress; and
•
Having an approved liquidity cost-benefit allocation mechanism in place to attribute funding costs, benefits and risks to the Group’s
business lines.
Monitoring, escalating and reporting
The Group liquidity and funding 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 (“ExCo”) and the Board
are briefed on liquidity and funding 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 liquidity and funding 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.
*Forms an integral part of the audited financial statements
146
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.2 Liquidity and funding 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 2021, the Group held € 67,240 million (2020: € 53,816 million) in qualifying liquid assets “QLA”(1)/contingent funding of
which € 17,366 million (2020: € 10,028 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 2021, the Group liquidity pool was € 49,874 million
(2020: € 43,788 million). During 2021, the liquidity pool ranged from € 43,602 million to € 50,932 million (2020: € 29,176 million to
€ 45,241 million) and the average balance was € 47,196 million (2020: € 38,118 million).
(1) QLA are assets 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 2021 by € 6,086 million which was predominantly due to an increase in customer deposits in Ireland,
senior debt issuance, customer loan redemptions and proceeds from the sale of loan portfolios offset by covered bond maturities and
securities financing activities where cash was exchanged for non QLA eligible collateral.
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, ExCo
and Board.
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. The Group adheres to these requirements.
Liquidity metrics
Liquidity Coverage Ratio
Net Stable Funding Ratio
Loan to Deposit Ratio
2021
%
203
160
61
2020
%
193
148
69
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 2021.
The calculated NSFR is based on the second Capital Requirements Regulation (CRR2) that came into force in June 2021 and introduced a
binding NSFR requirement of 100% (December 2020 comparative based on the legacy Basel standard).
AIB Group plc Annual Financial Report 2021
Risk Management
147
2.2 Liquidity and funding 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.
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
Total
Of which:
Euro
Sterling
US dollar
Other currencies
2021
€ m
92,866
77,129
13,200
2,347
190
2020
€ m
81,957
67,998
12,207
1,546
206
Customer accounts increased by € 10,909 million in 2021 predominantly due to continued COVID-19 related dynamics of precautionary
savings and lower consumer consumption. This was reflected across the Group’s three significant currencies (EUR, GBP, USD) primarily
in Euro current and demand deposit accounts. There was an increase in the value of both GBP and USD deposits of € 1,043 million due to
currency movements coupled with an underlying increase in GBP and USD deposits of € 751 million on a constant currency basis.
1
2
3
4
5
6
*Forms an integral part of the audited financial statements
148
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.2 Liquidity and funding risk (continued)
Composition of wholesale funding(1)
The Group maintains access to a variety of sources of wholesale funding including bank deposits, securities financing, debt securities
and subordinated debt. At 31 December 2021, total wholesale funding outstanding was € 17,802 million (2020: € 11,705 million) of which
€ 879 million is due to mature in less than one year (2020: € 927 million).
Deposits by central banks and banks
Securities financing
Senior debt
ACS
Subordinated liabilities and
other capital instruments
Total 31 December
Of which:
Secured
Unsecured
Deposits by central banks and banks
Securities financing
Senior debt
ACS
Subordinated liabilities and
other capital instruments
Total 31 December
Of which:
Secured
Unsecured
< 1
month
€ m
1–3
months
€ m
3–6
months
€ m
6–12
months
€ m
Total
< 1 year
€ m
84
28
–
–
–
112
28
84
112
–
17
–
750
–
767
767
–
767
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1–3
years
€ m
10,000
–
1,911
1,000
–
3–5
years
€ m
298
–
1,383
–
–
84
45
–
750
–
879
12,911
1,681
2021
Total
€ m
10,382
45
4,044
1,775
> 5
years
€ m
–
–
750
25
1,556
2,331
1,556
17,802
795
84
879
11,000
1,911
12,911
298
1,383
1,681
25
12,118
2,306
2,331
5,684
17,802
< 1
month
€ m
1–3
months
€ m
3–6
months
€ m
6–12
months
€ m
Total
< 1 year
€ m
217
185
–
–
–
402
185
217
402
–
25
–
500
–
525
525
–
525
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
217
210
–
500
–
927
710
217
927
1–3
years
€ m
4,278
–
1,111
1,750
–
3–5
years
€ m
–
–
2,064
–
–
> 5
years
€ m
–
–
–
25
2020
Total
€ m
4,495
210
3,175
2,275
1,550
1,550
7,139
2,064
1,575
11,705
6,028
1,111
7,139
–
2,064
2,064
25
1,550
6,763
4,942
1,575
11,705
(1)The maturity analysis has been prepared using the residual contractual maturity of the liabilities.
The Group continued to participate in the ECB three year Targeted Long Term Refinancing Operation III (“TLTRO III”) scheme. 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. Deposits by central banks and banks increased by € 5,887 million to € 10,382 million predominantly due to the Group’s € 6 billion
drawdown in TLTRO III operations in June 2021. For further details, see note 32 ‘Deposits by central banks and banks’ to the consolidated
financial statements.
During 2021, senior debt increased € 869 million primarily reflecting a € 750 million issuance and a € 119 million USD foreign currency
translation increase. Over the twelve months to 31 December 2021, outstanding asset covered securities (“ACS”) decreased € 500 million
to € 1,775 million due to a contractual maturity. For further details, see note 34 ‘Debt securities in issue’ to the consolidated financial
statements.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
149
2.2 Liquidity and funding risk (continued)
Currency composition of wholesale debt
At 31 December 2021, 89% (2020: 84%) 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
Securities financing
Senior debt
ACS
Subordinated liabilities and
other capital instruments
Total wholesale funding
% of wholesale funding
EUR
€ m
10,083
15
2,500
1,775
1,512
15,885
%
89
GBP
€ m
298
–
–
–
44
342
%
2
USD
€ m
Other
€ m
–
30
1,544
–
–
1,574
%
9
1
–
–
–
–
1
%
–
2021
Total
€ m
10,382
45
4,044
1,775
1,556
17,802
%
100
2020
Total
€ m
4,495
210
3,175
2,275
1,550
11,705
Other
€ m
–
–
–
–
–
–
USD
€ m
16
65
1,425
–
–
1,506
%
13
%
–
%
100
GBP
€ m
283
–
–
–
40
323
%
3
EUR
€ m
4,196
145
1,750
2,275
1,510
9,876
%
84
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. As part of managing its funding requirements, the Group encumbers assets as collateral to support
wholesale funding initiatives. This would include covered bonds, securities repurchase agreements and other structures that are secured
over customer loans. The Group manages encumbrance levels to ensure that the Group has sufficient contingent collateral to maximise
balance sheet flexibility.
The Group’s encumbrance ratio has increased to 15% at 31 December 2021 (2020: 11%) with € 19,841 million of the Group’s assets
encumbered (2020: € 12,971 million). The increase in encumbered assets was due to the € 6 billion TLTRO III drawdown during the year.
The encumbrance level is based on the amount of assets that are required in order to meet regulatory and contractual commitments.
150
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.2 Liquidity and funding 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 2021 and 2020:
Financial assets(1)
Derivative financial instruments(2)
Loans and advances to banks(3)
Loans and advances to customers(3)
Securities financing
Investment securities(4)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
Derivative financial instruments(2)
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
Financial assets(1)
Derivative financial instruments(2)
Loans and advances to banks(3)
Loans and advances to customers(3)
Securities financing
Investment securities(4)
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
Derivative financial instruments(2)
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
On demand
€ m
–
1,209
2,225
–
–
–
<3 months
but not on
demand
€ m
3 months
to 1 year
1–5 years
Over
5 years
2021
Total
€ m
€ m
€ m
€ m
58
113
1,489
853
522
842
28
1
1,993
1,324
1,111
–
211
–
585
–
16,776
35,910
1,713
6,290
–
–
8,775
–
882
1,323
58,393
3,890
16,698
842
3,434
3,877
4,457
24,990
45,270
82,028
78
87,634
–
–
–
–
1,375
89,087
6
4,161
45
116
750
–
–
–
851
–
104
–
–
–
10,298
192
–
170
4,294
–
–
–
28
–
672
775
1,556
–
10,382
92,866
45
1,062
5,819
1,556
1,375
5,078
955
14,954
3,031
113,105
On demand
€ m
–
1,052
2,829
–
–
–
<3 months
but not on
demand
€ m
103
40
1,494
648
689
365
3 months
to 1 year
1–5 years
Over
5 years
2020
Total
€ m
56
–
1,867
163
2,540
–
€ m
372
–
€ m
€ m
893
–
1,424
1,092
16,664
36,497
59,351
–
7,343
–
–
811
8,706
19,278
–
365
3,881
3,339
4,626
24,379
46,096
82,321
212
69,302
–
–
–
–
970
70,484
5
8,377
210
20
500
–
–
–
2,961
–
42
–
–
–
4,278
1,291
–
197
4,925
–
–
–
26
–
942
25
1,550
–
4,495
81,957
210
1,201
5,450
1,550
970
9,112
3,003
10,691
2,543
95,833
(1)Excludes balances at central banks – 2021: € 42,109 million (2020: € 24,932 million).
(2)Shown by maturity date of contract.
(3)Shown gross of expected credit losses.
(4)Excluding equity shares.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2021
Risk Management
151
2.2 Liquidity and funding 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 2021
and 2020:
1
2
3
4
5
6
<3 months
but not on
demand
€ m
6
4,160
45
140
771
–
–
3 months
to 1 year
1–5 years
Over
5 years
€ m
€ m
–
10,124
853
–
152
94
38
–
194
–
391
4,512
159
–
€ m
–
32
–
355
780
1,857
–
2021
Total
€ m
10,208
92,873
45
1,038
6,157
2,054
1,375
5,122
1,137
15,380
3,024
113,750
<3 months
but not on
demand
€ m
5
8,378
210
67
533
–
–
3 months
to 1 year
1–5 years
Over
5 years
€ m
€ m
(15)
2,966
–
179
85
28
–
4,237
1,293
–
562
5,215
153
–
€ m
–
26
–
371
31
1,847
–
2,275
9,193
3,243
11,460
2020
Total
€ m
4,439
81,965
210
1,179
5,864
2,028
970
96,655
Financial liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
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
Securities financing
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
On demand
€ m
78
87,634
–
–
–
–
1,375
89,087
On demand
€ m
212
69,302
–
–
–
–
970
70,484
*Forms an integral part of the audited financial statements
152
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.2 Liquidity and funding 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 note 44 ‘Contingent liabilities and commitments’ to the consolidated financial statements.
The following table analyses undiscounted cash flows potentially payable under guarantees and similar contracts at 31 December 2021
and 2020:
Contingent liabilities
Commitments
Contingent liabilities
Commitments
On demand
€ m
819
13,727
14,546
On demand
€ m
722
12,504
13,226
<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
–
–
–
–
–
–
–
–
–
2021
Total
€ m
819
13,727
14,546
2020
Total
€ m
722
12,504
13,226
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
153
2.3 Capital adequacy risk*
Capital adequacy risk is the risk that the Group breaches or may breach regulatory capital ratios and internal targets, measured on a
forward looking basis across a range of scenarios, including a severe but plausible stress.
Identification and assessment
Capital adequacy risk is primarily evaluated through the annual financial planning and the Group’s 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. An annual material risk assessment is conducted to identify all relevant (current and anticipated)
material risks which are then assessed from a capital perspective.
Management and measurement
The ICAAP is fully integrated and embedded in the strategic, financial and risk management processes of the Group. The Business Model
and Capital Adequacy Framework 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. 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. 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.
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 new 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.
The Board reviews and approves the ICAAP on an annual basis and is also responsible for approving a capital adequacy statement
attesting that the Board has reviewed and is satisfied with the capital adequacy of the Group.
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
setting out the evolution of the Group’s capital position. The risk profile including performance against risk appetite is presented to the Board
Risk Committee and Board via the CRO report. The escalation process as stipulated under the RAS policy is commenced in the event
of a breach of either the RAS watch trigger or limit for any of the metrics. This ensures Board and Regulator notification within approved
timeframes. 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.
*Forms an integral part of the audited financial statements
154
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.4 Financial risks (a) Market risk
Market risk is 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.
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.
Identification and assessment
The key risks that the Group assumes in market risk as a result of its banking and trading book activities that have been identified as part of
the MRA 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 Group’s Treasury
function.
Market risk scenarios are developed to test the capital requirements for this risk in the quarterly stress-testing process and the annual
ICAAP.
Management and measurement*
The Market Risk Management framework and policies set out the key requirements for managing market risk. The key aspects of this are:
•
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 Group documents its 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; and
•
Market risk is managed against a range of Board approved VaR limits which cover market risk in the trading book, interest rate risk 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.
Market risk is managed and measured 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.
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.
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.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
155
2.4 Financial risks (a) Market risk (continued)
The following table sets out financial assets and financial liabilities at 31 December 2021 and 2020 subject to market risk analysed between
trading and non-trading portfolios, showing the principal market risks to which the assets and liabilities are exposed:
Market risk measures
Carrying
amount
€ m
Trading
portfolios
€ m
Non-trading
portfolios
€ m
Risk factors
2021
Assets subject to market risk
Cash and balances at central banks
Trading portfolio financial assets
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities
Liabilities subject to market risk
Deposits by central banks and banks
Customer accounts
Securities financing
Trading portfolio financial liabilities
42,654
8
882
1,323
56,508
3,890
16,972
10,382
92,866
45
2
–
8
458
–
–
–
–
–
–
–
2
Derivative financial instruments
1,062
565
42,654
Interest rate, foreign exchange
–
424
1,323
56,508
3,890
16,972
Interest rate, foreign exchange,
equity
Interest rate, foreign exchange,
credit spreads, equity,
inflation swap rates
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate, credit spreads,
foreign exchange
Interest rate, foreign exchange,
credit spreads, equity
10,382
92,866
Interest rate, foreign exchange
Interest rate, foreign exchange
45
–
497
Interest rate, credit spreads,
foreign exchange
Interest rate, foreign exchange,
equity
Interest rate, foreign exchange,
credit spreads, equity,
inflation swap rates
Debt securities in issue
Subordinated liabilities and other capital instruments
5,819
1,556
–
–
5,819
Interest rate, credit spreads,
foreign exchange
1,556
Interest rate, credit spreads
Assets subject to market risk
Cash and balances at central banks
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities
Liabilities subject to market risk
Deposits by central banks and banks
Customer accounts
Securities financing
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
1,092
56,841
811
19,479
4,495
81,957
210
1,201
5,450
1,550
–
650
–
–
–
–
–
–
–
646
–
–
25,550
Interest rate, foreign exchange
774
1,092
56,841
811
19,479
4,495
81,957
210
555
5,450
Interest rate, foreign exchange, credit
spreads, equity, inflation swap rates
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate, credit spreads,
foreign exchange
Interest rate, foreign exchange,
credit spreads, equity
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate, credit spreads,
foreign exchange
Interest rate, foreign exchange, credit
spreads, equity, inflation swap rates
Interest rate, credit spreads,
foreign exchange
1,550
Interest rate, credit spreads
156
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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, +25 basis point and
+50 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:
December 2021
Euro
Sterling
Other (mainly US $)
Total
€ m
- 100bps
€ m
+ 25bps
€ m
+ 50bps
€ m
+ 100bps
(193)
(59)
(20)
(272)
13
14
5
32
33
29
10
72
195
57
20
272
December 2020
Euro
Sterling
Other (mainly US $)
Total
€ m
- 100bps
€ m
+ 25bps
€ m
+ 50bps
€ m
+ 100bps
(134)
(63)
(5)
(202)
12
19
1
32
23
37
3
63
139
74
6
219
The above sensitivity table is computed under the assumption that all market rates (RFRs/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.
Euro currency NII sensitivity to rising rates is subdued while Euribor rates are below zero due to the impact of floors on reference rates in
certain loan contracts.
The interest rate sensitivity increased during the year as a result of additional balances held at the Central Bank, driven by the c. € 11 billion
increase in deposits from customers throughout the year.
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.
Group interest rate and foreign exchange rate VaR are calculated to a 95% confidence level with a one day holding period, and equity VaR
is calculated to a 99% confidence level with a one day holding period. All VaR measures remained within limits throughout 2021 and at
31 December 2021, interest rate VaR stood at € 7.5 million, foreign exchange rate VaR at € 0.07 million and equity VaR at € 0.15 million.
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.
Interest rate sensitivity*
The net interest rate sensitivity of the Group at 31 December 2021 and 2020 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 rate sensitive financial instruments, and are shown separately below.
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2021
Risk Management
157
*
1
2
0
2
l
a
t
o
T
m
€
8
3
2
3
,
1
8
0
5
,
6
5
0
9
8
,
3
2
7
9
,
6
1
4
7
1
,
9
4
5
7
8
,
7
2
1
2
8
3
,
0
1
6
6
8
,
2
9
2
5
4
9
1
8
,
5
6
5
5
,
1
5
4
5
,
3
0
6
6
,
3
1
5
7
8
,
7
2
1
m
€
8
–
–
–
–
8
5
4
6
6
4
–
–
–
2
–
–
5
6
5
–
7
6
5
–
–
)
1
0
1
(
m
€
)
3
0
1
(
)
8
3
4
,
1
(
)
8
1
(
m
$
1
9
0
,
1
m
£
9
1
0
6
4
m
€
g
n
i
r
a
e
b
–
5
7
2
)
7
9
9
,
1
(
–
4
7
2
7
0
6
,
6
9
5
1
,
5
–
9
6
1
,
1
4
–
–
–
–
–
0
8
9
,
2
0
6
6
,
3
1
9
0
8
,
7
5
)
0
5
6
,
2
5
(
1
0
1
m
€
)
5
3
3
,
1
(
)
7
5
7
,
3
4
(
m
$
)
2
0
4
,
1
(
9
0
1
,
1
m
£
)
8
2
4
,
7
(
1
4
4
m
€
–
–
–
2
8
6
6
1
6
,
6
–
8
9
2
,
7
–
6
2
–
–
5
2
6
5
–
–
7
0
1
)
0
1
4
(
1
0
6
,
7
1
5
7
,
2
5
m
€
4
8
8
,
5
2
2
4
,
2
4
)
1
4
(
m
$
1
1
5
,
2
m
£
8
5
7
,
1
9
6
8
,
7
i
g
n
d
a
r
T
t
s
e
r
e
t
n
i
-
n
o
N
+
s
r
a
e
y
5
5
<
4
m
€
s
r
a
e
Y
–
–
9
5
7
,
2
–
9
5
4
,
1
–
8
1
2
,
4
–
–
–
–
–
–
0
5
7
0
0
0
,
1
0
5
7
,
1
)
4
3
4
,
1
(
2
0
9
,
3
0
5
1
,
5
4
m
€
2
7
9
,
2
8
3
5
,
6
3
m
$
0
5
1
2
5
5
,
2
m
£
0
7
7
1
1
1
,
6
4
<
3
m
€
s
r
a
e
Y
–
–
7
5
7
,
2
–
–
8
1
9
5
7
6
,
3
–
–
–
–
–
–
–
0
0
5
0
0
5
)
8
2
2
(
3
0
4
,
3
8
4
2
,
1
4
m
€
4
0
0
,
3
6
6
5
,
3
3
0
3
m
$
2
0
4
,
2
m
£
0
7
3
1
4
3
,
5
3
<
2
m
€
s
r
a
e
Y
–
–
4
5
4
,
3
–
–
2
2
2
,
1
6
7
6
,
4
–
–
–
–
–
–
0
0
5
2
3
6
,
1
2
3
1
,
2
)
6
6
9
,
1
(
0
1
5
,
4
5
4
8
,
7
3
m
€
2
5
1
,
4
2
6
5
,
0
3
)
1
3
(
m
$
2
7
3
,
2
m
£
0
9
3
1
7
9
,
4
2
<
1
m
€
s
r
a
e
Y
–
–
6
9
9
,
2
–
9
8
9
,
1
–
5
8
9
,
4
–
–
–
2
6
1
2
6
1
,
2
–
–
–
4
2
3
,
2
)
9
9
1
,
2
(
0
6
8
,
4
5
3
3
,
3
3
m
€
3
0
1
,
4
0
1
4
,
6
2
)
0
2
(
m
$
3
0
4
,
2
m
£
6
7
7
1
8
5
,
4
m
€
2
1
<
3
s
h
t
n
o
M
3
<
1
m
€
s
h
t
n
o
M
–
1
8
9
4
,
3
–
–
1
7
0
,
1
0
7
5
,
4
–
0
5
8
–
–
–
–
–
–
0
5
8
)
3
0
8
,
1
(
3
2
5
,
5
5
7
4
,
8
2
m
€
1
0
1
,
3
7
0
3
,
2
2
6
5
m
$
3
2
4
,
2
m
£
7
6
3
,
2
5
0
8
,
3
–
–
1
9
1
,
7
–
–
3
8
7
4
7
9
,
7
–
5
8
3
–
7
1
0
5
7
–
–
–
2
5
1
,
1
)
9
1
3
,
2
(
1
4
1
,
9
2
5
9
,
2
2
m
€
2
6
8
,
4
6
0
2
,
9
1
m
$
6
8
5
7
6
3
,
2
m
£
3
3
6
,
3
8
3
4
,
1
1
<
0
m
€
h
t
n
o
M
–
7
4
0
,
1
8
6
1
,
5
3
0
9
8
,
3
0
4
6
,
2
9
0
1
,
2
4
4
5
8
,
4
8
8
2
2
8
3
,
0
1
4
7
2
,
0
5
–
–
–
–
–
4
8
6
,
0
6
9
5
3
,
0
1
1
1
8
,
3
1
1
1
8
,
3
1
m
€
4
4
3
,
4
1
4
4
3
,
4
1
m
$
1
8
7
,
1
1
8
7
,
1
m
£
)
5
9
1
,
2
(
)
5
9
1
,
2
(
1
)
3
1
1
(
)
3
6
(
)
4
1
1
(
–
)
1
5
(
0
1
)
1
5
(
–
)
1
6
(
–
)
1
6
(
–
)
1
6
(
–
)
1
6
(
9
5
)
1
6
(
)
0
2
1
(
)
0
2
1
(
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
s
t
n
e
m
u
r
t
s
n
i
l
a
t
i
p
a
c
r
e
h
t
o
d
n
a
s
e
i
t
i
l
i
b
a
i
l
i
d
e
t
a
n
d
r
o
b
u
S
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
i
g
n
i
t
c
e
f
f
a
s
e
v
i
t
a
v
i
r
e
D
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
y
t
i
u
q
e
d
n
a
s
e
i
t
i
l
i
b
a
i
l
l
t
a
o
T
s
e
i
t
i
l
i
b
a
i
l
r
e
h
O
t
y
t
i
u
q
E
s
k
n
a
b
d
n
a
s
k
n
a
b
l
a
r
t
n
e
c
y
b
s
t
i
s
o
p
e
D
s
e
i
t
i
l
i
b
a
i
l
l
i
a
c
n
a
n
i
f
o
i
l
o
f
t
r
o
p
i
g
n
d
a
r
T
e
u
s
s
i
n
i
s
e
i
t
i
r
u
c
e
s
t
b
e
D
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
i
g
n
c
n
a
n
i
f
s
e
i
t
i
r
u
c
e
S
s
e
i
t
i
l
i
b
a
L
i
s
t
e
s
s
a
l
i
a
c
n
a
n
i
f
o
i
l
o
f
t
r
o
p
i
g
n
d
a
r
T
s
k
n
a
b
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
t
e
s
s
A
s
e
i
t
i
r
u
c
e
s
t
n
e
m
t
s
e
v
n
I
i
g
n
c
n
a
n
i
f
s
e
i
t
i
r
u
c
e
S
s
t
e
s
s
a
r
e
h
O
t
s
t
e
s
s
a
l
t
a
o
T
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
)
s
t
n
u
o
m
a
y
c
n
e
r
r
u
c
o
r
u
E
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
£
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
$
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
i
s
e
c
n
e
r
r
u
c
r
e
h
O
t
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
)
d
e
u
n
i
t
n
o
c
(
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
I
–
k
s
i
r
t
e
k
r
a
M
)
a
(
s
k
s
i
r
l
a
i
c
n
a
n
F
4
.
2
i
1
2
3
4
5
6
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
f
d
e
t
i
d
u
a
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
s
m
r
o
F
*
158
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
*
0
2
0
2
l
a
t
o
T
m
€
2
9
0
,
1
1
4
8
,
6
5
1
1
8
9
7
4
,
9
1
2
6
1
,
2
3
5
8
3
,
0
1
1
5
9
4
,
4
7
5
9
,
1
8
0
1
2
0
5
4
,
5
0
5
5
,
1
2
0
3
,
3
1
2
4
,
3
1
5
8
3
,
0
1
1
m
€
–
–
–
–
0
5
6
0
5
6
–
–
–
–
–
6
4
6
–
6
4
6
–
4
–
)
2
(
m
€
)
2
0
1
(
)
3
(
m
$
)
2
6
5
(
m
£
1
1
1
5
1
m
€
g
n
i
r
a
e
b
2
6
2
)
0
0
6
,
2
(
–
1
0
2
9
7
5
,
6
2
4
4
,
4
–
–
–
–
1
1
3
,
9
3
–
6
5
6
,
2
1
2
4
,
3
1
8
8
3
,
5
5
)
6
4
9
,
0
5
(
)
4
(
m
€
)
0
0
1
(
)
0
0
7
,
2
4
(
m
$
)
9
5
5
(
)
3
8
5
,
1
(
m
£
0
4
1
)
5
0
2
,
7
(
m
€
–
4
6
8
–
9
9
8
,
6
–
3
6
7
,
7
–
3
2
–
5
2
–
–
0
5
0
,
1
8
9
0
,
1
)
4
8
3
,
1
(
9
4
0
,
8
2
4
9
,
0
5
m
€
0
9
4
,
6
0
0
6
,
2
4
m
$
6
5
4
2
0
,
1
m
£
3
0
5
,
1
5
4
3
,
7
i
g
n
d
a
r
T
t
s
e
r
e
t
n
i
-
n
o
N
+
s
r
a
e
y
5
5
<
4
m
€
s
r
a
e
Y
–
7
7
5
,
2
–
1
0
9
–
8
7
4
,
3
–
4
–
0
0
5
–
–
–
4
0
5
)
9
3
5
(
3
1
5
,
3
3
9
8
,
2
4
m
€
2
9
2
,
3
0
1
1
,
6
3
)
9
4
(
m
$
8
6
9
m
£
0
7
2
2
4
8
,
5
4
<
3
m
€
s
r
a
e
Y
–
6
7
0
,
2
–
–
3
2
5
,
1
9
9
5
,
3
–
–
4
2
2
0
0
5
5
6
5
,
1
–
–
9
8
2
,
2
)
2
1
3
,
1
(
2
2
6
,
2
0
8
3
,
9
3
m
€
7
3
3
,
2
3
<
2
m
€
s
r
a
e
Y
–
1
7
5
,
2
–
–
1
0
3
,
2
2
7
8
,
4
–
–
7
5
1
0
1
1
,
2
–
–
–
7
6
2
,
2
)
7
1
3
,
1
(
2
2
9
,
3
8
5
7
,
6
3
m
€
8
7
5
,
3
2
<
1
m
€
s
r
a
e
Y
–
2
3
9
,
1
–
0
3
5
,
1
–
2
6
4
,
3
–
5
7
7
–
0
5
7
–
–
–
)
4
1
1
(
5
2
5
,
1
1
5
0
,
2
6
3
8
,
2
3
m
€
0
6
6
,
1
m
€
2
1
<
3
s
h
t
n
o
M
–
5
6
2
,
3
3
6
1
0
9
4
,
2
–
8
1
9
,
5
–
3
5
8
,
2
–
–
–
–
–
3
5
8
,
2
)
9
4
5
,
1
(
4
1
6
,
4
5
8
7
,
0
3
m
€
0
2
4
,
2
3
<
1
m
€
s
h
t
n
o
M
–
4
5
5
,
8
4
4
5
6
0
3
,
1
–
4
0
4
,
0
1
–
8
4
8
5
2
0
0
5
–
–
–
)
9
8
5
(
3
7
3
,
1
0
2
6
,
9
1
7
1
,
6
2
m
€
3
2
8
,
7
8
1
8
,
2
3
1
8
4
,
0
3
3
0
9
,
6
2
3
4
2
,
5
2
3
2
8
,
2
2
3
m
$
7
1
0
,
1
m
£
2
8
2
2
7
5
,
5
m
$
4
2
4
1
0
,
1
m
£
0
2
3
0
9
2
,
5
m
$
6
2
0
9
9
m
£
5
6
3
0
7
9
,
4
m
$
7
2
2
4
6
9
m
£
7
6
9
,
1
5
0
6
,
4
m
$
3
3
4
7
3
7
m
£
8
5
3
,
1
8
3
6
,
2
1
<
0
m
€
h
t
n
o
M
0
3
8
2
0
6
,
7
3
4
0
1
8
2
3
,
2
3
3
9
,
4
2
7
9
7
,
5
6
5
8
1
5
9
4
,
4
2
6
7
,
7
3
–
–
–
–
2
4
4
,
2
4
4
0
8
,
6
1
5
5
,
6
1
1
5
5
,
6
1
m
€
0
0
0
,
5
1
0
0
0
,
5
1
m
$
4
0
3
4
0
3
m
£
0
8
2
,
1
0
8
2
,
1
)
2
(
3
1
5
2
4
5
5
1
5
–
)
7
2
(
–
)
7
2
(
–
)
7
2
(
–
)
7
2
(
–
)
7
2
(
–
)
7
2
(
6
)
7
2
(
)
3
3
(
)
3
3
(
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
m
€
r
e
h
t
O
s
t
n
e
m
u
r
t
s
n
i
l
a
t
i
p
a
c
r
e
h
t
o
d
n
a
s
e
i
t
i
l
i
b
a
i
l
i
d
e
t
a
n
d
r
o
b
u
S
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
i
g
n
i
t
c
e
f
f
a
s
e
v
i
t
a
v
i
r
e
D
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
y
t
i
u
q
e
d
n
a
s
e
i
t
i
l
i
b
a
i
l
l
t
a
o
T
s
e
i
t
i
l
i
b
a
i
l
r
e
h
O
t
y
t
i
u
q
E
s
k
n
a
b
d
n
a
s
k
n
a
b
l
a
r
t
n
e
c
y
b
s
t
i
s
o
p
e
D
e
u
s
s
i
n
i
s
e
i
t
i
r
u
c
e
s
t
b
e
D
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
i
g
n
c
n
a
n
i
f
s
e
i
t
i
r
u
c
e
S
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
k
n
a
b
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
s
t
e
s
s
A
s
e
i
t
i
r
u
c
e
s
t
n
e
m
t
s
e
v
n
I
i
g
n
c
n
a
n
i
f
s
e
i
t
i
r
u
c
e
S
s
t
e
s
s
a
r
e
h
O
t
s
t
e
s
s
a
l
t
a
o
T
s
e
i
t
i
l
i
b
a
L
i
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
)
s
t
n
u
o
m
a
y
c
n
e
r
r
u
c
o
r
u
E
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
$
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
£
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
l
)
s
t
n
e
a
v
u
q
e
i
o
r
u
e
n
i
i
s
e
c
n
e
r
r
u
c
r
e
h
O
t
(
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
n
t
I
p
a
g
y
t
i
v
i
t
i
s
n
e
s
t
s
e
r
e
t
n
i
e
v
i
t
l
a
u
m
u
C
)
d
e
u
n
i
t
n
o
c
(
y
t
i
v
i
t
i
s
n
e
s
e
t
a
r
t
s
e
r
e
t
n
I
–
k
s
i
r
t
e
k
r
a
M
)
a
(
s
k
s
i
r
l
a
i
c
n
a
n
F
4
.
2
i
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
f
d
e
t
i
d
u
a
e
h
t
f
o
t
r
a
p
l
a
r
g
e
t
n
i
n
a
s
m
r
o
F
*
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
159
2.4 Financial risks (a) Market risk (continued)
Interest rate benchmark reform
Authorities and regulators have been 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. In line with regulatory guidance and transformed market practice,
SONIA (Sterling Overnight Index Average) has effectively replaced GBP LIBOR and SOFR (Secured Overnight Financing Rate) has been
adopted to replace USD LIBOR in pricing new loans.
The transition not only impacted financial market participants, but also many of the Group’s customers who had an IBOR referenced in their
contract. IBORs were extensively embedded within the Group’s processes, hence, the transformation had far reaching impacts in terms of
pricing, operations, risk, accounting, data and technology infrastructure, along with potential conduct risk implications.
The Group established a bank-wide Interest Rate Benchmark Reform Transition Programme (“the Programme”) with sponsorship from
the Chief Financial Officer to manage the effort. The Programme spanned all business lines and had cross-functional support to ensure
an orderly transition was achieved by the 31 December 2021 deadline. The Programme, which is formally concluding in the first quarter of
2022, oversaw the successful execution of all business readiness, technology, GBP LIBOR contract re-papering, customer communication
and conduct activities.
The Group proactively engaged with its customer base and market counterparties to complete the repapering of substantially all GBP
LIBOR contracts by 31 December 2021, with a minimum number transitioning to synthetic GBP LIBOR (a regulatory-approved form of Libor
with limited application) at that point. New RFR lending products have also been introduced and adopted across the Group’s key currencies.
Following the conclusion of the formal Programme, residual IBOR transition activities will be undertaken by the relevant business and
support functions under established procedures. In particular, the focus will move to proactively managing the € 2.4 billion of USD LIBOR
lending and € 2.4 billion of USD LIBOR related derivatives.
Details on the Group’s adoption of the “Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform” can be found in note
1 accounting policy (q).
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
2021
(0.18%)
0.20%
2020
(0.17%)
0.16%
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.
160
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
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 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.
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.
Management and measurement*
The pension risk framework and policies set out the key risk management rules in place for this risk. 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.
The Irish scheme continued to de-risk in 2021, with further allocations to liability matching assets. As part of a strategy to increase the
holding in inflation linked assets, the allocation to the Liability Driven Investment (“LDI”) portfolio, which is used to hedge the scheme’s
liabilities against both interest rate and inflation risk, has increased. Inflation swap exposures account for 12% of scheme assets as at
31 December 2021 and inflation linked bond holdings account for 31% of assets, an increase from 23% as at 31st December 2020. The LDI
fund is comprised of a mixture of nominal bonds, inflation linked bonds and inflation derivatives. The scheme maintained a similar weighting
in equities in 2021 and continues to have an equity protection strategy in place.
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. The next actuarial valuation of the Irish scheme as at 30 June 2021 is ongoing and due to be
completed by no later than 31 March 2022. No deficit funding is anticipated at this time as the Irish scheme continues to meet 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 March 2022. The Group and the Trustee of the UK scheme
agreed funding payments under an arrangement agreed in December 2019 which is described below.
As part of the investment strategy in the UK scheme, it was significantly de-risked in 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 £ 18.5 million was made
in 2021. Under this funding arrangement, the Group also expects to make payments of £ 18.5 million in both 2022 and 2023, with a final
balancing payment, based on latest estimates of c. £ 60 million. This is subject to change prior to finalisation.
*Forms an integral part of the audited financial statements
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
161
2.4 Financial risks (b) Pension risk (continued)
Monitoring, escalating and reporting*
Pension risk is monitored and controlled in line with the requirements of the Group’s pension risk framework and policy. The surplus
or deficit is monitored on a monthly basis by the Group’s risk team and is currently reported monthly in both the financial risk report
to the Group Assets and Liabilities Committee and the Group Chief Risk Officer (“CRO”) report to Group Risk Committee and Board
Risk Committee.
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.
2.4 Financial risks (c) Equity risk
Banking book equity investment risk refers to the possibility of losses arising in the equity investment portfolio of the Group due to changes
in the economic value of the investments. Where the uncertainty is expressed as a potential loss in value, it represents a risk to the income
and capital position of the Group.
Identification and assessment
All equity proposals are considered to ensure all aspects of the proposal are fully and consistently addressed. Where a proposal for a
new equity investment or divestment opportunity arises, the business sponsor must engage with the Equity Capital team when developing
the proposal, and liaise with Finance to assess the accounting and regulatory implications. The business will review and comment on all
proposals and recommend proposals for approval through the appropriate governance process. All new investments need to adhere to
relevant regulatory and accounting requirements.
Management and measurement
Exposures are reported on in line with Risk appetite requirements. Risk measurement is also captured through stress testing. A forward
looking stress test must be produced on a quarterly basis. The stress test will project the impact on the capital requirements for the
business, of stresses to the underlying risk factor. Management projections of the future business mix must be factored into the analysis
and be consistent with projections included in business area plans for equity risk. Where appropriate, risk exposures must be proxied with
historical data to enable standard risk measurement techniques to be applied.
Monitoring, escalating and reporting
The Equity Capital team reviews risk exposure levels on an ongoing basis, ensures there is no undue risk concentration and considers
whether the level of risk exposures remains appropriate. Exposures are currently reported monthly to Risk and the Group Assets and
Liabilities Committee (“ALCo”) and any limit/policy breaches or exceptions are recorded that arose during the period.
Risk provide management with an independent perspective on the risk-taking activities within the equity investment portfolio monthly via
the Financial Risk ALCo report, RAS limit report and the CRO report. Additionally, there is a quarterly valuation review process in place and
Board and segment limits are applied and reported on and an escalation process is set out in the Equity Policy.
*Forms an integral part of the audited financial statements
162
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.5 Business model risk
Business model risk is 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’s material risk assessment process identifies the key elements of business model risk. The process includes identifying the
associated sub-risks such as strategic planning risk, strategic execution risk and governance risk and the emerging risk drivers including
weak credit demand, increased competition and market volatility.
The Group also identifies and assesses the 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 ICAAP and ILAAP processes.
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 discussions 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 impact of inorganic initiatives such as the
recent acquisition of Goodbody and the proposed Ulster Bank commercial loan book on the Group’s financial outcomes and business model
risk profile is assessed as part of the approval process and through the financial planning process.
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 business 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.
The Group reviews underlying assumptions on its external operating environment to identify potential risks 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.
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 business 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. Monitoring of the risk profile via the CRO report, including performance against risk appetite is presented to the Board Risk
Committee and Board. The escalation process, as stipulated under the RAS policy, is commenced in the event of a breach of either the RAS
watch trigger or limit for any of the metrics. This ensures Board and Regulator notification within approved timeframes.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
163
2.6 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.
Identification and assessment
Operational risk is identified and assessed by the Group’s material risk assessment which is a top-down process and it also identifies the
sub risks such as information security (including cyber risk), change risk, physical safety and property risk, continuity and resilience risk,
product and proposition risk, third party risk, IT risk, data risk (including data quality risk) and legal risk. The risk and control assessment is
the Group’s core bottom-up process for the identification and assessment of operational risk across the Group.
The risk and control assessment 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. Service assessments and risk assessments are performed on all critical or important
outsourcing arrangements and are recorded on SHIELD.
SHIELD provides all areas with one consistent view of the operational risks, controls, actions and events across the Group. Risk and control
assessments are regularly reviewed and updated by business unit management.
The potential impact of the identified risks are then assessed through the ICAAP and stress-testing processes where scenarios relating
to this risk such as internal/external fraud, systems failure, property damage, third party technical issues, disruptive weather conditions,
are developed and incorporated into the overall outcomes.
Management and measurement
The Operational Risk Framework sets out the principles, supporting policies, roles and responsibilities, governance arrangements and
processes for operational risk management across the Group. Each sub risk has a supporting policy in place to outline the minimum control
standards and core policy rules that must be adhered to. The nine material operational sub risks are owned and actively monitored under
the Operational Risk Framework and underlying Policies to ensure material operational risks are managed effectively within the Group
RAS limits. The Operational Risk Framework and policies set out the process for risk and control assessments, identification of the key
non-financial risks arising from key business processes and activities. It also includes the process for the escalation of the relevant RAS
metric limit and watch-trigger breaches.
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 such as:
•
•
•
comprehensive crime/computer-crime/cyber/professional indemnity/civil liability;
employment practices liability; and
directors and officers liability and a suite of general insurance policies to cover such things as property and business interruption,
terrorism, employee and public liability and personal accident.
Operational risk is measured through a series of risk appetite metrics and key risk indicators, these include metrics on operational risk
losses and events; cyber security, change initiatives, quality and accessibility of priority data, service availability and third party risks.
Monitoring, escalating and reporting
In addition to risk appetite measures and limits, operational risk is monitored on a regular basis via the Group’s risk governance committees.
This provides senior management, through the Operational Risk Committee and Group Risk Committee and the Board through Board
Risk Committee with timely updates on the Group’s operational risk profile. The profile update details the current status of the Group’s key
operational risks and includes an overview of current trends. It also includes an update on recent major risk events and any remediation
actions/lessons identified following events.
Operational risk events are identified and captured in the SHIELD system. These are escalated through a defined process depending on
impact and severity. Root causes of events are determined, and action plans are implemented to ensure there are enhanced controls in
place to keep customers and the business safe.
164
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.7 Regulatory compliance risk
Regulatory compliance risk is defined in the Regulatory Risk Management Framework as the risk of legal or regulatory sanctions, material
financial loss, or loss to reputation a bank may suffer as a result of its failure to comply with principal laws, regulations, rules, related self-
regulatory organisation standards, and codes of conduct applicable to its banking activities as outlined in its regulatory compliance universe.
This includes the suite of Conduct of Business, Prudential, Data Protection and Financial Crime laws, codes and regulations.
Identification and assessment
The Group’s material risk assessment and risk and control assessment forms the basis for identifying the key drivers of regulatory
compliance risk. The associated sub-risks risk include prudential regulation, conduct of business regulation, financial crime and data
protection. The material risk assessment has identified other key risks in this regard as:
•
The complexity and volume of regulatory change for example PSD2 eCommerce SCA, AMLD, CRR II, Loan Origination and the rapidly
evolving international sanctions environment, raises the risk of regulatory compliance failure and/or regulatory sanction.
The key areas of focus of both the Central Bank of Ireland (“CBI”) and the Joint Supervisory Teams (“JST”) includes:
• CBI Consumer Protection Outlook report and Dear CEO letters;
• Tracker Mortgage Examination;
•
Regulated firms that are subject to the regulation from the CBI and JST are fully compliant with their obligations and are treating their
customers, existing and new, in a fair and transparent way, including the embedding of directives and regulations;
• Consumer protection following the COVID-19 pandemic;
•
Continued focus on the full implementation of the suite of prudential requirements including Capital Requirements Directive (“CRD”) and
Capital Requirements Regulation (“CRR”), and the binding technical standards and guidelines; and
•
Climate and ESG issues where the CBI has noted its expectations for firms to follow including the requirements relating to governance,
risk management frameworks, scenario analysis, disclosures and strategy, and business model risks.
Management and measurement
The Regulatory Compliance Risk Management Framework sets out the principles, roles and responsibilities, and governance arrangements
and is supported by a number of key policies.
The upstream regulation team identifies and communicates new and/or amended regulations, within the regulatory compliance universe,
to the relevant business area for impact assessment.
The key steps in upstream regulation risk management are:
• Upstream regulation team identifies regulatory compliance change through horizon scanning;
•
Impact assessment is performed by the relevant business unit or stakeholder area to establish high level change, potential impact and
timeframe for completion;
•
Stakeholder engagement in the consultation process, including identification of business sponsors and communication of same to the
relevant compliance relationship managers;
•
If required, such as in the event of a policy or framework update as a result of impacting regulations, the regulatory gap analysis is
performed and documented by the business unit;
•
If required as a result of impacting regulations, a regulatory change project is established by the business unit with relevant impacted
stakeholders. Impacted areas are required to review their procedures and processes to ensure compliance with regulations by the
implementation date;
•
Regulatory interpretations are drafted and managed by the regulation/article owner, with second line of defence review and challenge
completed by the compliance advisory team;
•
Regulatory compliance universe is updated as required as new regulation is issued which sits in the regulatory compliance universe.
The horizon is monitored to capture any updates required; and
•
A regulatory compliance risk appetite statement metric exists in relation to upstream monitoring and it considers issues impacting the
ability to meet regulatory implementation dates.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
165
2.7 Regulatory compliance risk (continued)
Monitoring, escalating and reporting
Regulatory compliance risks are monitored on a monthly basis via the Group’s risk governance committees. This occurs initially at the
Regulatory and Conduct Risk Committee (“RCR”) and key items are brought through to Group Risk Committee and Board Risk Committee
for discussion and escalation where appropriate. This includes an update on recent significant events and any remediation actions or
lessons identified following events.
The RCR is the forum that provides risk oversight of regulatory and conduct risks of the Group including oversight of its subsidiaries.
The RCR was established by, and is accountable to, the Group Risk Committee, to oversee regulatory and conduct risks across the Group,
including monitoring, reviewing the regulatory and conduct risk profile, compliance with risk appetite and other approved policy limits.
It is also responsible for reviewing risk policies and recommending these for approval to the Group Risk Committee.
Compliance Advisory establish written guidance to staff on the appropriate implementation of relevant laws, rules and standards through
relevant regulatory compliance policies and support the first line business units in understanding and implementing their regulatory
compliance obligations and management of the associated regulatory compliance risks in line with the Regulatory Compliance and Conduct
Risk Appetite Statements. As part of their role engaging with the first line, Compliance Advisory assist the business in maintaining a positive
and transparent relationship with the Regulators in respect of regulatory compliance and conduct matters.
Group Risk Assurance (“GRA”) provides independent review and objective assurance on the quality and effectiveness of the Group’s
internal control system, including the Risk Governance Policies and Frameworks in accordance with a Board approved risk-based
assurance plan.
2.8 Conduct risk
Conduct risk is defined as the risk that inappropriate actions or inactions by the Group cause poor and unfair customer outcomes or
negatively impact market integrity.
The effective management of conduct risk requires embedding of a strong conduct culture with a customer centric approach to conduct risk
management as articulated in the Group’s values, behaviours and code of conduct.
The conduct risk priorities for the Group include:
•
A Customer First culture, as articulated by the brand values, behaviours and code of conduct, is embedded and demonstrated
throughout the organisation;
•
A mature Group Conduct Risk Framework aligned with the Group’s Strategy, is embedded in the organisation that provides oversight of
conduct risks at Executive Committee and Board level; and
• Customers, existing and new, are treated in a fair and transparent way.
Identification and assessment
The Group’s material risk assessment and risk and control assessment forms the basis for identifying the key elements of conduct risk.
The Group has identified the main risk drivers 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 societal expectations of banks can influence the conduct decisions by the appropriate authorities;
•
Increased competition in terms of resources, skills, financial service industry participants including competitors where the customer
engages digitally and remuneration practices;
•
Negative macroeconomic environment can result in unexpected bank and/or employee behaviour and potential increased market
instability and wholesale market conduct risk; and
•
Climate change-related risks (both physical and transition) may result in poor customer outcomes such as products not aligned to
climate risk drivers.
Conduct risks are identified during the risk and control assessment process which provides documentary evidence of risk assessments.
It determines the risk profile of the business, drives risk management and actions plans including key risk indicator development and
reporting. A risk register of the Group’s material risks is also maintained. The risk and control assessment has identified a number of key
conduct risks relating to customer satisfaction, employee behaviour and clients, business and product practice.
Group Conduct completes horizon scanning and benchmarking to identify future conduct risk considerations within business and
regulatory environments. In addition, Risk, through the Compliance and Group Risk Assurance function, identify upstream conduct risk and
communicate to the relevant business areas.
166
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.8 Conduct risk (continued)
Management and measurement
The Group has a Conduct Risk Framework and Conduct Risk Policy which applies to the Group including all subsidiaries. This Framework
and Policy, as well as other supporting policies, are in place to drive the consistent management of this risk such as:
•
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. These are subject to review by the Group Conduct Risk function prior to approval and also throughout
the year to test the embeddedness of the strategy;
•
All new products, propositions, training and awareness building are independently assessed by the Group Conduct Risk function to
ensure they are aligned to the Group’s conduct strategy and cannot be implemented without their approval. More consistent complaints
management has been developed by differentiating between complex and less complex complaints, 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. This has resulted in improved closure times, customer satisfaction rates, improvements to
products as feedback from complaints to product areas has improved; and
•
The Conduct risk RAS is owned by the Compliance function, consisting of qualitative statements and key risk indicator metrics.
The key risk indicators establish specific limits, ceilings and floors that relate to the qualitative RAS. Risk, through the Compliance and
Group Risk Assurance function, provide independent challenge of potential and identified conduct risks and provide advice to business
segments on Conduct risk issues.
Business conduct dashboards measure key management information trends under the five key conduct risk areas, as reflected in the
Group’s conduct strategy.
• Trends and themes are monitored including social media and root cause analysis is conducted of underlying issues.
•
The Group Head of Conduct in the first line of defence is a member of a number of key working groups and fora regarding the
management and measurement of conduct risk, and provides challenge on RAS metrics which are monitored monthly, customer
solutions and the resolution of materialised conduct risks.
Monitoring, escalating and reporting
The Group Conduct Committee together with Business 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. Significant conduct events are assessed and remedial actions implemented where necessary. These are
escalated based on a materiality assessment, in line with the Conduct Risk Framework.
Conduct risks and controls are monitored on a monthly basis via the Group’s risk governance committees. This provides the Group Risk
Committee and the Board Risk Committee with relevant updates on the conduct risk profile. The profile update details the current status of
the Group’s key conduct risks, includes an overview of current trends, an update on recent significant events and any remediation actions or
lessons identified following events. From a Prudential perspective the Group reports the financial impact of conduct risk events through the
annual operational risk ICAAP, quarterly COREP submissions and the biennial EBA Stress Testing exercise.
The Regulatory and Conduct Risk Committee (“RCR”) is the forum that provides risk oversight of regulatory and conduct risks of the Group
including oversight of its subsidiaries. The RCR was established by, and is accountable to, the Group Risk Committee to oversee regulatory
and conduct risks across the Group. This includes monitoring and reviewing the Group’s regulatory and conduct risk profile, compliance with
risk appetite and other approved policy limits, reviewing risk policies and recommending these for approval to the Group Risk Committee.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Risk Management
167
2.9 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 the inability to evolve the culture aligned to its values and behaviours.
Identification and assessment
The material risk assessment identifies the Group’s key material risks including people and culture risk and its sub-risks including attrition
risk, engagement risk, capability risk and culture risk and the emerging risk drivers including changing workforce demographics, future
COVID-19 variants, remote/hybrid working for longer term, changing market perceptions as employer of choice, changing business model,
ineffective leadership and negative media coverage through the completion of a top-down review.
Bottom-up risk assessments are then captured through the risk and control assessment process in each business area across the Group.
The risk and control assessment in 2021 has identified the key people and culture risks to be capacity, resourcing, recruitment and retention.
The risk and control assessment is the Group’s core bottom-up process which serves to ensure that key risks are proactively identified,
evaluated, monitored and reported, and that appropriate action is taken. The risk and control assessment includes a requirement to perform
a self-assessment of the risks at each business unit level. The potential impact of these risks are then assessed through the ICAAP and
stress-testing processes where scenarios relating to this risk such as employment practices and workplace safety are developed and
incorporated into the overall outcomes.
Management and measurement
There is a People and Culture Risk Framework in place which is supported by various HR policies to drive the consistent management of
this risk. Key management actions include:
•
Significant enhancement of the Group’s wellbeing, engagement, inclusion and diversity strategies which has been one of the Group’s
key response strategies and mitigants to the unprecedented challenges of COVID-19.
•
2021 has seen an acceleration in the competition for talent with expectations that the external environment is going to remain strong
in terms of demand for talent. The Group has responded with a very strong focus on senior talent identification and has in particular
generated increased internal talent mobility. There has also been significant investment in terms of developing staff capabilities across
the Group.
•
Continuing the Group’s Culture development journey with progress being made throughout the year. The Group continues to be an
active member of the Irish Banking Culture Board.
•
Continued embedding of 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.
•
Further re-iteration of the Group’s ‘Speak up’ policy through the “Speak Your Mind” week held in 2021 that encouraged employees to
speak their mind, and in particular the importance of reporting wrongdoing. This 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 ongoing quantum and pace of the transformation and change agenda across the Group impacting on resource contention and
capacity, together with the accelerated pace of recruitment across the external market in certain highly skilled and specialised areas.
A number of positive initiatives are underway to address these issues.
•
Ongoing use of the Aspire Performance Management Programme (“Aspire”), which facilitates quality performance discussions with
staff that contributes 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.
•
There has been significant investment in terms of developing capabilities across the bank including running a number of Leadership
Development and Talent Management programs during the year. Efforts are also underway to develop an internal talent repository
capturing the existing skills, capabilities, knowledge and experience of the workforce enabling the bank to scenario plan for the future.
•
People and culture risk is measured through a series of RAS metrics such as taking accountability using the ‘How’ performance
management metric, top performers attrition rates, senior attrition rates and mandatory training completion rates.
168
Risk Management
AIB Group plc Annual Financial Report 2021
Risk management – 2. Individual risk types
2.9 People and culture risk (continued)
Monitoring, escalating and reporting
In addition to risk appetite measures and limits, people and culture risks are monitored on a monthly basis via the Group’s risk governance
committees. This provides senior management, through the Operational Risk Committee, Group Risk Committee and the Board with timely
updates on the Group’s operational risk profile. The profile update details the current status of the Group’s key people and culture risks.
It also includes an overview of current trends, an update on recent significant events and any remediation actions or lessons identified
following events. This allows the Group Risk Committee and Board Risk Committee to understand and discuss key people and culture risk
metrics, with escalation to the Board where appropriate.
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, 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 balanced scorecard and culture dashboard.
As the Group deals with the extended uncertainly of COVID-19, phased-based approach of the Group’s return-to-work program in line with
Government requirements, a number of challenges remain in the Group’s efforts to support the workforce to remain connected, engaged
and address the mental, physical, social and financial challenges.
2.10 Model risk
Model risk is the potential loss an institution 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 Group’s material risk assessment and the risk and control assessment forms the basis for identifying the key elements of the risk.
The material risk assessment identifies the key sub-risks including oversight, data, development, implementation and use and the emerging
risk drivers such as climate risk through a top-down review. The risk and control assessment is the Group’s core bottom-up process in the
identification and assessment of model risk across the Group.
The RCA includes a requirement to perform a self-assessment of the risks at each business unit level. The potential impact of model
risk is assessed through the ICAAP. As model risk is generally mitigated through specific model adjustments, there is no explicit capital
requirement generated from this risk, it is indirectly assessed through the other risks.
Management and measurement
There is a Model Risk Framework and supporting policies in place to drive the consistent management of this risk. This sets out the key
controls required to mitigate model risk across the model lifecycle, from initiation of a model build through to implementation, use and
ongoing monitoring. The key controls include:
•
A complete inventory of all models in the Group, with a clear tiering of models to ensure key controls such as model validation and
monitoring are being applied on a risk-based approach.
Requirement for clear hand-offs between each stage in the lifecycle to mitigate the risk of issues propagating through the lifecycle of the
model.
Models are built, validated and monitored by suitably qualified analytical personnel, supported by relevant business, risk and finance
functions.
The best available data, both internal and external, must be used, and any data weaknesses are appropriately mitigated through the
model build.
•
•
•
• The use of industry standard techniques are applied for stages in the model lifecycle where appropriate.
•
All material 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.
Model risk is measured using a composite assessment of model outcomes across the lifecycle for all models in the inventory.
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, the outcomes of validation and other reviews are brought to the appropriate committees based on
the model materiality assessment, for oversight to ensure all models remain fit for their intended use and that any issues are appropriately
escalated.
Model monitoring on material models is reported to committees quarterly to ensure the model is performing as expected, with appropriate
actions raised when models fall below the required performance levels.
An overall assessment of model risk is performed on a quarterly basis and is reported to the Group Risk Committee and Board Risk
Committee. The status of model risk is reported on a monthly basis in the CRO report, which includes an update on recent significant events
and any remediation actions that are underway.
1
2
3
4
5
6
Governance and oversight
AIB Group plc Annual Financial Report 2021
Governance and Oversight
169
– Directors' Report
– Schedule to the 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
– Report of the Sustainable Business Advisory Committee
– Report of the Technology and Data Advisory Committee
– Viability statement
–
Internal controls
– Other governance information
– Supervision and regulation
Page
170
173
176
186
193
196
199
201
208
209
210
211
213
214
170
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Directors’ report for the financial year ended 31 December 2021
The Directors of AIB Group plc (‘the Company’) present their
report and the audited financial statements for the financial
year ended 31 December 2021. The Statement of Directors’
Responsibilities is shown on page 216.
For the purposes of this report ‘AIB Group’ or ‘the Group’
comprises the Company and its subsidiaries in the financial year
ended 31 December 2021.
Results
The Group’s profit attributable to the ordinary shareholders of the
Company amounted to € 647 million and was arrived at as shown
in the consolidated income statement on page 229.
Dividend
The Board is recommending a dividend of 4.5 cent per share,
totalling € 122 million, payable on 13 May 2022 to shareholders
on the Company’s Register of Members at the close of business
on 1 April 2022. There was no dividend paid to shareholders
during 2021.
Buyback of ordinary shares
Each year at the Annual General Meeting (“AGM”) the Board
seeks, and has received, a renewal of its authority from
shareholders to undertake on-market purchases of up to
10 percent of its ordinary shares. In addition, at the AGM on 6 May
2021, shareholders also approved the Company entering into a
Directed Buyback Contract (the “DBB Contract”) with the Minister
for Finance, the terms of which would permit the Company to
make off-market purchases of shares from the Minister of up
to 4.99 percent of the Company’s issued share capital in any
12 month period, with the agreement of the Minister at that time.
Any such off-market purchases would be made at the relevant
market price, the calculation of which was set out in the DBB
Contract. No such off-market purchases have been made to date.
In accordance with the “Joint Decision of the European
Central Bank (“ECB”) and Prudential Regulatory Authority”
of 25 November 2016 as updated on 3 December 2019, the
Company is required to obtain prior approval from the ECB in
order to make any distribution from earnings whether through
dividends or share buybacks (including a Directed Buyback).
In this context, the company has received regulatory approval
from the ECB to undertake a buyback of its ordinary shares in an
aggregate consideration amount of up to € 91 million.
Going concern
The financial statements for the financial year ended
31 December 2021 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 this Annual Financial Report (“AFR”).
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 2022 to 2024,
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 28 to 30.
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.
Capital
Information on the structure of the Company’s share capital,
including the rights and obligations attaching to each class of
shares, is set out in the Schedule on pages 173 to 175 and is part
of note 39 to the consolidated financial statements.
Accounting policies
The principal accounting policies, together with the basis on which
the financial statements have been prepared, are set out in note 1
to the consolidated financial statements.
Review of principal activities
The statement by the Chair on pages 6 and 7, the review by the
Chief Executive Officer on pages 9 to 14, and the operating and
financial review on pages 58 to 72 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 2021, the Board of Directors of the Company
was comprised of Mr Jim Pettigrew, Ms Anik Chaumartin,
Mr Donal Galvin, Mr Basil Geoghegan, Ms Tanya Horgan,
Dr Colin Hunt, Ms Sandy Kinney Pritchard, Ms Carolan Lennon,
Ms Elaine MacLean, Mr Andy Maguire, Mr Brendan McDonagh,
Ms Helen Normoyle, Ms Ann O’Brien, Mr Fergal O’Dwyer, Mr Jan
Sijbrand and Mr Raj Singh.
Since 31 December 2020, the following Board changes occurred
with effect from the dates shown:
– Mr Fergal O’Dwyer was appointed as Independent
Non-Executive Director on 22 January 2021.
– Mr Andy Maguire was appointed as Independent
Non-Executive Director on 15 March 2021.
– Mr Donal Galvin was appointed as Executive Director on
28 May 2021.
– Ms Anik Chaumartin was appointed as Independent
Non-Executive Director on 1 July 2021.
– Ms Tanya Horgan was appointed as Independent
Non-Executive Director on 14 September 2021.
– Mr Jan Sijbrand was appointed as Independent Non-Executive
Director on 14 September 2021.
– Mr Jim Pettigrew was appointed as Non-Executive Director
and Chair on 28 October 2021. He was considered
independent on appointment.
Biographical details of each Director are provided on pages
36 to 39.
AIB Group plc Annual Financial Report 2021
Governance and Oversight
171
1
2
3
4
5
6
sustainable and ethically responsible corporate and social
practices in every aspect of its business. The table included on
pages 50 to 53 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 and 5 of the Annual Financial Report and the table on pages
28 to 30 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 of the Group’s risk management governance and
organisational framework can be found on pages 78 to 82.
Substantial interests in the share capital
At 31 December 2021, the Company had been notified of the
following substantial interests:
–
the Minister for Finance in Ireland held 1,930,436,543
ordinary shares representing 71.12% of the total voting rights
attached to the issued share capital.
– Massachusetts Financial Services Company held 90,955,080
ordinary shares representing 3.35% of the total voting rights
attached to the issued share capital.
In December 2021, the Minister for Finance announced the
planned sell down of a part of the State’s shareholding in the
Company through a pre-arranged trading plan. This has resulted
in the reduction of the State’s shareholding to 70.97% as at
2 March 2022.
On 25 February 2022, Massachusetts Financial Services
Company notified the Company that as of 23 February 2022,
following a disposal of voting rights, it held an interest in
79,913,716 ordinary shares, representing 2.94% 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 2021 to 2 March 2022.
Corporate governance
The Directors’ Corporate Governance report is set out on pages
176 to 185 and forms part of this report. Additional information,
disclosed in accordance with the European Communities
(Takeover Bids (Directive 2004/25/EC)) Regulations 2006, is
included in the Schedule to the Directors’ Report on pages 173
to 175.
Political donations
The Directors of the Company have satisfied themselves that
there were no political contributions that require disclosure under
the Electoral Act 1997.
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 173
to 175.
Directors’ and Secretary’s Interests in Shares
The beneficial interests of the Directors and the Company
Secretary in office at 31 December 2021, and of their spouses
and minor children, in the Company’s ordinary shares as
disclosed to the Company are as follows:
Ordinary shares
Directors:
Anik Chaumartin
Donal Galvin
Basil Geoghegan
Tanya Horgan
Colin Hunt
Sandy Kinney Pritchard
Carolan Lennon
Elaine MacLean
Andy Maguire
Brendan McDonagh
Helen Normoyle
Ann O'Brien
Fergal O'Dwyer
Jim Pettigrew
Jan Sijbrand
Raj Singh
31 December
2021
1 January
2021*
–
–
9,835
–
40,000
10,000
7,700
–
–
20,000
2,000
–
10,000
–
–
–
–
–
9,835
–
22,500
10,000
7,700
–
–
20,000
2,000
–
–
–
–
–
Company Secretary:
Conor Gouldson
*Or date of appointment if later.
15,210
15,210
There is no requirement for Directors, or the Company Secretary,
to hold shares in the Company.
There were no changes in the interests of the Directors and the
Company Secretary shown above between 31 December 2021
and 2 March 2022.
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 2021 and 2020 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
172
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Directors’ report for the financial year ended 31 December 2021
Accounting records
The measures taken by the Directors to secure compliance
Auditor
The auditor, Deloitte Ireland LLP (“Deloitte”), were appointed to
with the Company’s obligation to keep adequate accounting
the Group on 20 June 2013 following shareholder approval at the
records include the use of appropriate systems and procedures,
2013 Annual General Meeting (“AGM”) on that date. Furthermore,
incorporating those set out within ‘Internal controls’ in the
Deloitte were re-appointed as auditor of the Company at the
Corporate Governance report on pages 211 and 212, and the
last AGM held on 6 May 2021 and shall hold office until the
employment of competent persons. The accounting records
conclusion of the next AGM of the Company pursuant to section
are kept at the Company’s Registered Office at 10 Molesworth
382 of the Companies Act 2014. Their continued appointment
Street, Dublin 2, Ireland and at the principal addresses outlined
will be proposed to the shareholders for approval at the next
on page 375.
Principal risks and uncertainties
Information concerning the principal risks and uncertainties facing
the Group, as required under the terms of the European Accounts
Modernisation Directive (2003/51/EEC) (implemented in Ireland
by the European Communities (International Financial Reporting
Standards and Miscellaneous Amendments) Regulations 2005),
is set out on pages 28 to 30.
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., previously established
branches in the United Kingdom and the United States
of America.
AGM. Deloitte have indicated a willingness to continue in office
in accordance with section 383(2) of the Companies Act 2014.
Subject to this approval at the next AGM, Deloitte will step down
as auditor at the conclusion of the 2023 AGM, having at that point
served as the Group’s statutory auditor for the maximum legally
permitted unbroken tenure in office of 10 years.
Statement of relevant audit information
Each of the persons who is a Director at the date of approval of
this report confirms that:
(a) so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
(b) the Director has taken all the steps that he/she ought to have
taken as a Director in order to make himself/herself aware
of any relevant audit information and to establish that the
Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 330 of the Companies
Act 2014.
Other information
Other information relevant to the Directors’ Report may be found in the following pages of the report:
2021 Results – Financial Performance
Risk management
Non-adjusting events after the reporting period
Page
2
77 to 168
357
The Directors’ Report for the financial year ended 31 December 2021 comprises these pages and the sections of the report referred to
under ‘Other information’ above, which are incorporated into the Directors’ Report by reference.
Jim Pettigrew
Chair
2 March 2022
Colin Hunt
Chief Executive Officer
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
173
Governance and oversight –
Schedule to the Directors’ report for the financial year ended 31 December 2021
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 at
31 December 2021.
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.
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
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 Registrars of the original share
certificate and the usual form of stock transfer duly executed by
the holder of the shares.
Shares held in uncertificated form are transferable in accordance
with the rules or conditions imposed by the operator of the
relevant system 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.
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
question of adjournment is also taken forthwith, and a poll on any
other question is taken either immediately or at such time (not
being more than 30 days from the date of the meeting at which
the poll was demanded or directed) as the Chair of the meeting
174
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Schedule to the Directors’ report for the financial year ended 31 December 2021
directs. Where a person is appointed to vote for a shareholder
– One-third of the Directors for the time being (or, if their
as proxy, the instrument of appointment must be received by the
number is not three or a multiple of three, not less than one-
Company not less than 48 hours before the time appointed for
third) are obliged to retire from office at each Annual General
holding the meeting or adjourned meeting at which the appointed
Meeting on the basis of the Directors who have been longest
proxy proposes to vote, or, in the case of a poll, not less than
in office since their last appointment. While not obliged to do
48 hours before the time appointed for taking the poll.
so, the Directors have, in recent years, adopted the practice
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.
of all (those wishing to continue in office) offering themselves
for re-election at the Annual General Meeting.
– A person is disqualified from being a Director, and their
office as a Director ipso facto vacated, in any of the following
circumstances:
–
if at any time the person has been adjudged bankrupt or
has made any arrangement or composition with his/her
creditors generally;
–
if found to no longer have adequate decision making
capacity in accordance with law;
–
if the person be prohibited or restricted by law from being
a Director;
–
if, without prior leave of the Directors, he/she be absent
from meetings of the Directors for six successive months
(without an alternate attending) and the Directors resolve
that his/her office be vacated on that account;
–
if, unless the Directors or a court otherwise determine, he/
she be convicted of an indictable offence;
–
if he/she be requested, by resolution of the Directors, to
resign his/her office as Director on foot of a unanimous
resolution (excluding the vote of the Director concerned)
passed at a specially convened meeting at which every
Director is present (or represented by an alternate)
and of which not less than seven days’ written notice of
the intention to move the resolution and specifying the
grounds 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
175
– 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.
176
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Corporate Governance report
The Group’s corporate governance
arrangements have proven to be resilient and
capable of operating effectively when faced with
the challenges of the pandemic.
Jim Pettigrew,
Chair
Chair’s introduction
Dear Shareholder,
Corporate Governance Framework
Statements of Compliance
This report, in conjunction with the Statement of Directors’
Responsibilities, Corporate Governance Remuneration Statement,
On behalf of the Board, I am pleased to present our Corporate
Risk Governance section of the Risk Management Framework report
Governance Report for 2021. This report sets out how corporate
and the Statement on Internal Control, sets out the Group’s approach
governance standards are applied across the Group and includes
to governance in practice, the work of the Board and its Committees,
statements of compliance with our key corporate governance
and explains how the Group applied the principles of the Central
requirements. This report provides information on the Group’s
Bank of Ireland’s Corporate Governance Requirements for Credit
governance arrangements presented under the five headings of the
Institutions 2015 (the ‘2015 Requirements’), European Union (Capital
UK Corporate Governance Code 2018. This report should be read
Requirements) Regulations 2014 (S.I. 158/2014) (‘CRD’) and UK
in conjunction with ‘Governance in AIB’ at the start of this Annual
Corporate Governance Code 2018 (the ‘Code’) during 2021 under the
Financial Report and the Board Committee Reports which follow.
headings prescribed by the Code.
Further information on governance practices in place in the Group
Central Bank of Ireland’s Corporate Governance
are available on the Group’s website at www.aib.ie/investorrelations.
Requirements for Credit Institutions 2015 and European Union
The Board strives to ensure ongoing adherence to the various
(Capital Requirements) Regulations 2014
AIB Group plc is authorised as a financial holding company and is
applicable requirements as well as to the underlying principles and
not directly required to comply with the 2015 Requirements (which
ways of working recommended by those requirements.
are publicly available on www.centralbank.ie). However, Allied
Irish Banks, p.l.c., the principal subsidiary of AIB Group plc, is a
I am satisfied that the Board and the Group has operated within
credit institution and is subject to the 2015 Requirements, including
an effective and robust corporate governance environment which
compliance with requirements specifically relating to ‘high impact
provides the framework to ensure sound and timely decision making
institutions’ and additional corporate governance obligations on
in the best interests of the Group and its stakeholders.
credit institutions deemed significant for the purposes of the CRD
Jim Pettigrew
Chair
(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. is noted herein.
During 2021, Allied Irish Banks, p.l.c. was materially compliant with
all of the 2015 Requirements and with the corporate governance
aspects of CRD. As previously reported, Mr Richard Pym retired
as Chair in March 2020. At the Board’s request, the Deputy Chair,
Mr Brendan McDonagh, carried out the role and responsibilities
of a Chair in the period from March 2020 up to the appointment of
Mr Jim Pettigrew as Chair in October 2021.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
177
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, 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, and the rationale is 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.
Due to certain agreements in place with the Irish State, variable
remuneration structures are not generally permitted. As such,
both decisions relating to Principle R and certain associated
provisions (particularly Provisions 36 and 37) and the timing of
when the remuneration restrictions may change are outside of
the Board’s sphere of influence or control. Further detail on the
background to these restrictions can be found in the Corporate
Governance Remuneration Statement on pages 201 to 207.
Provision 38: The pension contribution rates for executive
directors, or payments in lieu, should be aligned with those
available to the workforce.
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.
Irish Corporate Governance Annex
Additional obligations apply to the Group under the Irish
The Board ensures a clear division of responsibilities between
the Chair, who is responsible for the overall leadership of the
Corporate Governance Annex (publicly available on www.ise.ie),
Board and for ensuring its effectiveness, and the CEO, who
which applies to relevant Irish companies with a primary listing
manages and leads the business. The governance framework
on the Main Securities Market of the Euronext Dublin Stock
and organisational structure are sufficient to ensure that no
Exchange. The Group is fully compliant with the Irish Corporate
one individual has unfettered powers of decision or exercises
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 (CEO),
is supported by the Executive Committee, being the most senior
management committee of the Group. The Executive Committee
has primary responsibility for the 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.
excessive influence. Key roles and responsibilities are clearly
defined, documented and communicated to key stakeholders via
the Group’s website (www.aib.ie/investorrelations). The Board
is supported in discharging 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. These matters are reviewed at least
annually to ensure that they remain relevant and are available on
the Group’s website (www.aib.ie/investorrelations).
178
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Corporate Governance report
Board Focus
2021 was year two of the Group’s three year strategy and therefore, a key focus of the Board was on strategy delivery and execution which
included the delivery of a number of inorganic growth initiatives. In parallel, the delivery of key regulatory programmes across the Group was
also a significant area of focus for the Board. While most of the Board’s meetings and engagements happened virtually due to COVID-19
restrictions, the Board continued to execute its business as usual duties in line with its work programme, and also focused on a number of
additional matters that arose during the year. The following is a high level overview of material matters considered by the Board throughout
the year:
Financial
Strategy
Governance
2022–2024 Financial Plan
Group Strategy Approval and Implementation
Board Effectiveness Evaluation
2020 results and analyst presentations
Mortgage Market Strategy
Dividend considerations
Transformation Plan Implementation
Macroeconomic environment
Inorganic growth initiatives
Expected Credit Losses
Sustainability Strategy and Conference
ICAAP/ILAAP
Cyber Strategy
Quarterly Trading Updates
NPE Strategy and Loan Portfolio Sales
Corporate Governance Frameworks and
Policies
Board Succession including Chair Search
Central Securities Depositary Migration
Extraordinary General Meeting
Annual General Meeting
2021 Half-Yearly Financial Report
Stakeholder Perspectives
Risk Management
Culture and Values
Customer First Business Updates
Group Risk Appetite Statement
Culture Evolution Programme Updates
Regulatory
Risk Culture
People updates
IBCB Survey Results
Regulatory engagement updates
Outcome of Supervisory Review and
Evaluation Process
Employee communication and COVID-19
related supports
Related Party Lending
Market Abuse Regulation
Vulnerable Customer Programme
Speak Up Policy and Framework
Anti-Money Laundering and Criminal Terrorist
Financing Updates
Open Banking/SCA Implementation
IRB Rollout Plan
Material Risk Assessments
Recovery Planning and Resolvability Plan
Risk Policies and Frameworks
Pillar 3 Reporting
Cyber Security and E-Fraud Reports
Regular Updates
Executive Management Updates
Business and Financial Performance
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 186 to 200.
Conflicts of Interest
The Board approved Code of Conduct and Conflicts of Interest
Policy for Directors sets out how actual, potential or perceived
conflicts of interest are to be evaluated, reported and managed
to ensure that Directors act at all times in the best interests of the
Group and its stakeholders. Executive Directors, as employees of
the Group, are also subject to the Group’s Code of Conduct and
Conflicts of Interests Policy for employees.
Stakeholder Engagement
The five 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 and to take stakeholder views into consideration
in its decision making, the Board strives to ensure that effective
engagement is maintained with these groups.
The Group engages with stakeholders through various means
such as face-to-face meetings including regular and structured
engagement and also out of course meetings on specific topics,
research, focus groups and surveys, media engagement, direct
partnerships and collaboration, sponsorship and community
initiatives, participation in expert forums and events, and through
the Group’s in-house experts liaising directly with associated
business, public or charitable groups.
The Group’s Investor Relations team manages an extensive
programme of engagement which includes the Chair, CEO and
CFO and major shareholders and other institutional investors.
The results of such engagement are communicated to the other
Directors to ensure that the views of major shareholders and the
investment community are understood by the Board as a whole.
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. Shareholders are invited to attend and participate in
the AGM. Details in relation to the 2022 AGM along with other
shareholder-related information can be found on page 367 and on
the Group’s website at www.aib.ie/investorrelations.
There is a Designated Non-Executive Director for workforce
engagement whose role is described under ‘Key Roles and
Responsibilities’ below.
Further detail on how the Board engages with each of the
principal groups can be found on page 34 and 35 in the ‘Engaging
Our Stakeholders’ section.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
179
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, and a further reduction in 2022
to date, the State currently holds 70.97% of the issued ordinary
shares of AIB Group plc.
The relationship between the Group and the State is governed
by a Relationship Framework which is available on the Group’s
website at www.aib.ie/investorrelations.
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
Group’s regulatory and legal obligations.
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.
Division of Responsibilities
Key Roles and Responsibilities
Chair
The Chair leads the Board, setting its agenda, ensuring Directors
receive adequate and timely information, facilitating the effective
contribution of Non-Executive Directors, ensuring the ongoing
training and development of all Directors, and reviewing the
performance of individual Directors. Mr Jim Pettigrew was
appointed as Chair on 28 October 2021. His biographical details
are available on page 36.
Deputy Chair
The Deputy Chair deputises for the Chair as may be required
from time to time and is available to the Directors for consultation
and advice. Mr Brendan McDonagh was appointed as Deputy
Chair on 24 October 2019 and, in his capacity as Deputy Chair,
led the Board from the former Chair, Mr Richard Pym’s retirement
on 6 March 2020 until the appointment of Mr Jim Pettigrew.
Mr McDonagh’s biographical details are available on page 38.
Senior Independent Director
As Senior Independent Director (‘SID’), Ms Carolan 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. The SID also leads the annual review
of the Chair’s performance and succession planning for the
Chair role. Ms Lennon was appointed as SID with effect from 29
April 2020 and her biographical details are available on page 37.
Ms Lennon has advised the Board that she intends to step down
as Director with effect from 30 June 2022. An announcement
regarding the appointment of a new SID will be made in due
course.
Designated Non-Executive Director for Workforce
Engagement
Ms Elaine MacLean was appointed as the Group’s Designated
Non-Executive Director for workforce engagement in 2020 in
order to enhance the Group’s existing workforce engagement
mechanisms. The purpose of this role is to engage directly with
employees, facilitate two way communication between employees
and the Board, and enhance the Board’s understanding of
workforce views. Ms MacLean’s biographical details are available
on page 37.
Independent Non-Executive Directors
Independent Non-Executive Directors represent a key layer of
oversight, scrutinising the performance of Management in meeting
agreed objectives and monitoring reporting against performance.
They bring an independent viewpoint to the deliberations of the
Board that is objective and independent of the activities of the
Management and of the Group. They constructively challenge
and help develop proposals on strategy and other key matters.
Biographical details for each Independent Non-Executive Director
are available on pages 36 to 39.
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. 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 39.
Company Secretary
The Directors have access to the advice and services of Mr Conor
Gouldson, the 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. Both the appointment and removal of the Company
Secretary is a matter for the Board as a whole.
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
www.aib.ie/investorrelations.
The Board governance structure is available on page 33
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 the Annual Financial Report.
In addition to the four main Board Committees, the Board
also has a Sustainable Business Advisory Committee and 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. Overviews
of the role and areas of focus of both the Sustainable Business
Advisory Committee and the Technology and Data Advisory
Committee are available on pages 208 and 209.
180
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Corporate Governance report
Board Meetings
The Board met on 18 occasions during 2021. 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 on a regular basis. The remainder of its agenda is built from the indicative annual work programme, strategic items for consideration,
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
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 considered at the preceding
Committee meeting.
Attendance at the Board and Board Committee meetings is outlined below. Attendance at the Advisory Committees is captured within
their respective reports on pages 208 and 209. The Non-Executive Directors also met throughout the year in the absence of the 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
Anik Chaumartin
Appointed 01/07/2021
Donal Galvin
Appointed 28/05/2021
Basil Geoghegan
Tanya Horgan
Appointed 14/09/2021
Colin Hunt
Sandy Kinney Pritchard
Carolan Lennon
Elaine MacLean
Andy Maguire
Appointed 15/03/2021
Brendan McDonagh
Helen Normoyle
Ann O’Brien
Fergal O’Dwyer
Appointed 22/01/2021
Jim Pettigrew
Appointed 28/10/2021
Jan Sijbrand
Appointed 14/09/2021
Raj Singh
7
9
18
4
18
18
18
18
13
18
18
18
18
2
4
18
7
9
18
4
18
18
16
18
12
18
18
18
18
2
4
18
8
8
12
12
16
16
16
16
16
15
16
16
13
4
13
10
11
13
13
4
13
10
10
13
4
13
4
12
3
10
10
10
2
10
10
10
2
2
8
8
8
8
8
8
Professional Development and Continuous
Education Programme
The Board’s professional development and continuous education
programme continued throughout 2021 and was designed in
conjunction with the indicative work programme to ensure that
training was delivered at a time when it would be of most benefit
or relevance to the Board.
The sessions were delivered by a mix of internal and external
subject matter experts and the topics included the Internal
Capital and Liquidity Adequacy Assessment Processes, Stress
Corporate Governance Library and a suite of AIB Group specific
online training courses. Additional training and individual sessions
with subject matter experts on areas of interest to the Directors
are facilitated upon request.
A structured induction programme is ready to be delivered to
any incoming Director and includes a series of meetings with
senior management, relevant briefings, together with any specific
training identified during the course of the appointment of the
individual.
Testing, Sustainability and Climate Risk, IFRS 9 and Internal
Rating Based Models, Anti-Money Laundering and Financial
Access to Advice
There is a procedure in place to enable the Directors to take
Crime, Cyber Security, Recovery and Resolution Planning,
independent professional advice, at the Group’s expense, on
Fitness and Probity Pre-Approval Controlled Function Ongoing
matters concerning their role as Directors. The Group holds
Obligations, Regulatory Reporting Requirements, the European
Banking Market, Market Abuse and Inside Information, and Anti-
insurance to protect Directors and Officers against liability
arising from legal actions brought against them in the course of
Bribery and Corruption. Directors also have access to an online
their duties.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
181
Composition, Succession and Evaluation
Board Composition
At 31 December 2021, the Board consisted of the Chair, who was deemed independent on appointment, thirteen Independent
Non-Executive Directors and two Executive Directors, being the Chief Executive Officer and the Chief Financial Officer.
A number of Board and Committee changes occurred in 2021 which are set out below.
Appointments during 2021(1)
Board and Committee Roles
Fergal O’Dwyer
Andy Maguire
Donal Galvin
Anik Chaumartin
Tanya Horgan
Jan Sijbrand
Jim Pettigrew
Non-Executive Director
Member of the Board Audit Committee
Non-Executive Director
Member of the Board Risk Committee
Member of the Technology and Data Advisory Committee
Executive Director
Non-Executive Director
Member of the Board Audit Committee
Non-Executive Director
Member of the Board Risk Committee
Non-Executive Director
Member of the Board Risk Committee
Non-Executive Chair of the Board
Member of the Nomination and Corporate Governance Committee
When
January 2021
March 2021
May 2021
July 2021
September 2021
September 2021
October 2021
(1) Ms Tanya Horgan and Mr Jim Pettigrew were appointed to the Technology and Data Advisory Committee and Remuneration Committee, respectively, from
1 January 2022.
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.
The skills included in the Board Skills Matrix were identified taking
into account the Group’s strategic priorities and relevant regulatory
requirements. Each Director was selected for appointment on
the basis of their knowledge, skills and experience which enable
them to effectively discharge their duties, ensure the effective
governance of the Group, and contribute to its long term,
sustainable success. The biographies on pages 36 to 39 set
out the key skills and experience which each Director brings to
the Board.
In addressing appointments to the Board, a role profile for the
proposed new Directors is prepared by the 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 selection activity,
the Group ensures a formal and rigorous process is followed.
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.
182
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Corporate Governance report
Q&A with Tanya Horgan, Non-Executive Director
and Member of the Board Risk Committee and
the Technology and Data Advisory Committee
Q&A with Anik Chaumartin, Non-Executive
Director and Member of the Board Audit
Committee
Q: As a new director what were your first impressions of AIB and its
culture?
A: The emphasis that the Group and the Board place on ensuring
that AIB’s culture continues to evolve has been clear from the
outset. I believe that an organisation’s people are its key asset and
I have seen the level of commitment there is across the Group to
continuing this culture journey, leveraging off the talent that exists
in the organisation and ensuring that the positive momentum on
culture is maintained. In particular, I was impressed with the Group’s
commitment to inclusion and diversity, demonstrated not just through
the tone set by the Group’s leadership but also in tangible and
measurable outcomes.
Another of my key motivations for joining the Board was the Group’s
commitment to sustainability and playing its part in addressing the
climate change challenge. From my first meetings with executive
Management it was made clear to me that driving the sustainability
agenda and leading innovation in this space was fundamental to the
Group’s strategy. I have seen ongoing evidence of that commitment
permeating throughout the organisation and driving principle based
decision making. The Group continues to be a vocal and active leader
in pursuing a sustainable agenda in the financial services industry.
This commitment is a very strong indicator of a positive culture and a
recognition across the Group of the importance of business being a
responsible part of society.
My background is predominantly in risk, compliance and internal
audit and I was particularly interested in seeing, and supporting, the
risk culture and the customer and conduct focus of the Group. I have
seen how the Board applies a customer lens to its discussions and
how it strives to achieve positive customer outcomes. An example of
where this is evident is at the Board Risk Committee where oversight
of conduct risk management and fair customer outcomes is a key
consideration. Continuing focus on the Group’s risk culture will remain
on the agenda for 2022 and I look forward to supporting initiatives in
this area.
Q: What were your experiences of the strategy development process?
A: The Board and Executive Committee held the annual strategy
offsite across a number of days in November 2021 and it was a
positive experience in a number of ways. It was one of the few times
that the Board was able to meet in person during the year and I felt
those face-to-face interactions were important, particularly for newer
Directors like myself. It was an opportunity to work alongside the
Executive Committee with a sole focus on the strategic direction of the
Group at a time of significant change both within the Group and in the
external environment.
Defining a strategy that meets the current and future needs of the
Group has many strands and takes into account not only the main
business units but also the key enablers including the sustainability
agenda, digital and technology, and the future of work. There was, of
course, challenge from the Non-Executives to Management but the
discussions were always open and constructive as the ultimate goal is
to design a strategy that is fit for purpose to meet the Group’s targets
and deliver sustainable success for our stakeholders.
Q: As a new director what were your first impressions of AIB and its
culture?
A: I was formally appointed to the Board on 1 July 2021 following the
regulatory assessment process. In advance of this date and since
the beginning of March, the Deputy Chair and Chair of the Board
Audit Committee invited me to attend both Board and Board Audit
Committee meetings as an observer while a Director Designate.
This helped with my onboarding and also gave me a first opportunity to
see the Group’s culture in action by observing the Board’s discussions
and decision-making, interactions with Management, and regular
reporting on culture matters.
I was eager to learn about the existing culture in AIB and to draw
on my own experience of leading culture and behavioural change
programmes as I am deeply aware of the importance of an
organisation’s culture to how it achieves its goals.
I was pleased to see the focus and resources that the Group has on its
Culture programme and also the Board’s commitment to demonstrating
a strong ‘tone from the top’ through its leadership and oversight. I also
have seen the Non-Executive Directors’ deep involvement in this area
by regularly reviewing, scrutinising and challenging Management’s
proposals. It is vital that our discussions take the Group’s stakeholders
into consideration and that our customers are truly at the heart of our
decision making. I found the Board’s engagement to be open and
direct and such constructive challenge promotes a culture of respectful
discussion and diversity of viewpoints which ensures the best outcome
for our customers.
Q: What were your experiences of the strategy development process?
A: I joined the Board at a very interesting time in terms of the Group’s
strategy. In 2021, the Group was in the second year of its three-year
strategy cycle with large-scale strategic transformation and inorganic
growth initiatives underway.
It was also a time when the Group, like every other organisation,
was having to deal with the challenges of operating in the midst of
a global pandemic. We were fortunate that government and public
health guidelines in force in Ireland in November 2021 enabled the
Board and Executive Committee Members to come together for a
multi-day strategy offsite. It was a welcome opportunity for the Board
and Executive Committee to really focus on and get into in-depth
discussion on the various elements of the Group Strategy at such a
critical stage in the process. The fact that these sessions were held
over a number of days meant that the Executive Committee were able
to take away and incorporate Directors’ feedback for the following
day’s discussions which made it a dynamic and iterative process.
On a more personal note, it was wonderful to be able to gather in
person with my fellow Board Members, when, like so many of us,
the majority of our interactions during 2021 were online or virtual.
We did so following all health and safety guidelines and I feel that this
experience helped cement relationships and enhance Board dynamics.
I look forward to continuing to work with my fellow Directors and
management throughout 2022 and beyond.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
183
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 of the appointment dates and length of
tenure of each Director is available from their appointment dates
included in their biographies on pages 36 to 39.
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 2021,
namely Ms Anik Chaumartin, Mr Basil Geoghegan, Ms Tanya
Horgan, Ms Carolan Lennon, Ms Elaine MacLean, Mr Andy
Maguire, Mr Brendan McDonagh, Ms Helen Normoyle, Ms Ann
O’Brien, Mr Fergal O’Dwyer, Ms Sandy Kinney Pritchard, Mr Jan
Sijbrand, and Mr Raj Singh were independent in character and
judgement and free from any business or other relationship with
the Group that could affect their judgement.
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, at the registered office
during business hours or on request from the 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 letters 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 Company Secretary, and in certain cases
the Board as a whole and/or the Central Bank of Ireland, must be
sought.
There is a procedure in place to assess and seek Board approval
for any additional external roles proposed by Directors to ensure
that there will be no impact on their ongoing suitability or ability to
continue to dedicate sufficient time to their Group roles.
During 2021, the Board considered and approved the proposal
that Ms Helen Normoyle assume an executive directorship of
My Menopause Centre, a company which she co-founded, and
also considered and approved a proposal that Ms Tanya Horgan
assume the role of Chief Risk Officer of Primark. In reaching
its decision to approve the external roles, the Board took into
consideration the Directors’ existing commitments, the limitations
on the number of directorships permitted to be held, any potential
conflicts of interest, and ongoing suitability requirements.
There is a procedure in place to monitor Non-Executive Director
time commitment on an ongoing basis and the results of this
monitoring are reported to the Nomination and Corporate
Governance Committee.
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.
In determining independence, the Board had particular regard to
the fact that Ms O’Brien and Mr Singh were appointed in 2019
following their nomination by the Minister for Finance in Ireland.
In determining that they should properly be considered to be
independent, the Board gave due regard to the following matters:
the nature and history of the shareholding and the alignment of
the Irish State’s interests with other shareholders, the nature of
the individuals nominated and the process followed in identifying
them for nomination, their performance and nature of their
contribution to the business of and matters 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 Chair, Mr Jim Pettigrew, was determined as independent on
appointment.
Inclusion and Diversity
Employee inclusion and diversity in the Group is addressed
through policy, practices and values which recognise that a
productive workforce comprises of diverse backgrounds, cultures,
experiences, characteristics and work styles. The Group has
implemented a Diversity and Inclusion Code and 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 which in 2021 endorsed the
Group’s inclusion and diversity strategy supported by short term
activities and targets as one of the key focus areas of the Culture
Programme. The Board also considers inclusion and diversity as
part of the Group’s People strategy and Future of Work strategy.
The Board is supported in its oversight by its Committees,
specifically by the Nomination and Corporate Governance
Committee which considers diversity as a key element within
the context of succession planning for the Executive Committee
and its succession pipeline within the Group. In addition, the
Sustainable Business Advisory Committee considers inclusion
and diversity in the Group as it relates to that Committee’s role in
overseeing the Group’s efforts to promote economic and social
inclusion as part of the sustainability agenda.
With regard to diversity among Directors, there is a Board
Diversity Policy in place which sets out the approach to diversity
on the Board. This Policy is available on the Group’s website at
www.aib.ie/investorrelations.
184
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Corporate Governance report
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 Committee, in conjunction with Board succession and skills
planning, and any proposed changes to the Policy are presented
to the Board for approval. In 2021, the Committee recommended
and the Board approved an increase in the Policy’s target from
30% to 40% female representation on the Board in recognition
of the Group’s strong track record and commitment to continued
progress.
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 has a balanced list from which to select candidates for
interview. All Board succession planning processes during 2021
were conducted in line with the Policy.
At 31 December 2021, the percentage of females on the Board
stood at 44% and thus exceeded the target of 40% set out in the
Policy.
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 an external evaluation in 2020
facilitated by Praesta Ireland, the Board agreed to conduct an
internal evaluation in 2021, which was facilitated by the Corporate
Governance function.
The process undertaken in 2021 included an anonymous online
survey of Board Members and a shorter survey of Executive
Committees Members, as well as one-to-one meetings between
the Directors, the Deputy Chair and the newly appointed Chair to
discuss the overall effectiveness of the Board and the individual
performance of Directors.
The evaluation included the Board and each of its Committees.
Overall, the final report was positive and demonstrated the
strength of the Board and its Committees.
The areas reviewed included: role of the Board; chairing of the
Board; Board papers and reporting; strategic focus and culture;
Board composition and competence; Board structure and
processes; Board Committees; Communication and Stakeholder
Management; Board Dynamics and Board Evaluations.
Arising from the evaluation process, a number of
recommendations and actions were agreed by the Board and will
be implemented throughout 2022 with regular check-ins to ensure
progress is being made against these actions.
The key areas for continued improvement and action
include:
– Enhanced strategic focus by the Board on culture,
resourcing, market trends and competition, technology,
data and cyber strategy, including a stronger focus
at Board meetings on the delivery of the regulatory
compliance agenda.
– Continued enhancement of Board papers to ensure clarity
and conciseness as well as a clear focus on outcomes.
– Board Succession Planning to ensure a smooth transition
through any potential Director changes.
– Forging good Board dynamics with the new Chair and
Directors.
– Continued engagement by the Board with its key
stakeholders.
The recommendations from the evaluation on Board composition
will be considered on a continuous basis to ensure the current
Board Succession Plan continues to ensure continuity of
leadership taking account of the most appropriate size of the
Board and Directors’ tenure.
Alongside this process, the Deputy Chair and Chair conducted
evaluations of the individual performance of each of the
Non-Executive Directors and also led a discussion in private
session with the other Non-Executive Directors in December
2021 to consider the performance of the Executive Directors.
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 conducted in
2020 which noted the strength of the Board as a whole. Each of
the six Board Committees 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 2020
external 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 2021
Governance and Oversight
185
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 in 2021 can be found in their respective
reports on pages 186 to 193.
Remuneration
The Board has delegated responsibility for the consideration
and approval of the remuneration arrangements of the Chair,
Executive Directors, Executive Committee Members, the
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
2021 can be found in the Report of the Remuneration Committee
on pages 199 to 200.
1
2
3
4
5
6
186
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Governance and oversight –
Report of the Board Audit Committee
Report of the Board Audit Committee
Despite unprecedented COVID-19 pandemic challenges
to the business and to our customers, I report with confidence
that the opinion of the Audit Committee continues to be that
the Group has met its obligations for financial reporting and
disclosure, and that the internal control framework is both
effectively designed and operated.
Sandy Kinney Pritchard,
Committee Chair
Chair’s Overview
On behalf of the Board Audit Committee (the “Committee”),
I am pleased to report on the Committee’s focus of attention
and how it has discharged its responsibilities for the year ended
31 December 2021.
2021 proved to be another challenging year in terms of monitoring
the effectiveness of internal and business control environments
alongside reviewing the Group’s financial performance in light of
the COVID-19 pandemic, however, encouragingly it was a year in
which the resilience of the Group was proven.
In line with its Terms of Reference, which can be found on the
Group’s website at www.aib.ie/investorrelations, the Committee
ensured that it was fully aligned with the Group’s strategy and
values and supported the Board in its responsibilities relating to the
monitoring of the Group’s financial and narrative reporting process,
reviewing and monitoring the effectiveness of risk management
and internal control systems, overseeing the Group’s Internal Audit
function, ensuring appropriate whistleblowing arrangements and
advising the Board on the appointment and independence of the
Group’s external Auditor.
Over the year, the Committee continued to focus on the impact
of the COVID-19 pandemic on the credit risk profile of the Group
and the calculation of credit impairment allowances remained
a priority. Whilst there were significant positive developments
over the year, including portfolio sales and recovery rates, the
Committee remained cognisant of a number of headwinds to
the credit environment, most notably the potential impact of
the removal of government supports, the pace of economic
recovery and inflation challenges. With these factors in mind,
the Committee is satisfied that the closing ECL stock amount of
€ 1,885 million is appropriate at this time.
Deloitte will complete their maximum allowable term of 10
years in office as statutory Auditor when they report in 2023 on
the financial year ending 31 December 2022. As such, during
the year, the Committee oversaw the process for the selection
of a new Auditor. Following a competitive and transparent
tender process, which included presentations by relevant firms,
the Committee recommended to the Board the appointment
of PricewaterhouseCoopers (“PwC”) as Auditor in 2023.
This appointment will be subject to approval by the shareholders in
a general meeting in due course. The Committee look forward to
working with the current Auditor, Deloitte, and PwC on the smooth
and effective transition of the audit.
The Committee reviewed the outcomes of half-year and year
end overall assessments of the control environment undertaken
by Group Internal Audit (“GIA”), noting that the system of
internal controls is designed to manage, rather than eliminate,
the risk of failure to achieve business objectives and can only
provide reasonable and not absolute assurance against material
misstatement or loss. On reviewing these reports from GIA,
alongside reports from the Auditor, the Committee concurred
that it was satisfied with the overall effectiveness of the control
environment.
Committee Membership
The Committee currently comprises five Non-Executive Directors,
all of whom are considered by the Board to be independent and
whom the Board have determined have the skills, competence
and recent and relevant experience to enable the Committee to
discharge its responsibilities.
Mr Basil Geoghegan left the Committee in August 2021. I would
like to take this opportunity to thank Basil for his significant
contribution during his tenure on the Committee. Following their
appointments to the Board, Mr Fergal O’Dwyer and Ms Anik
Chaumartin joined the Committee in January 2021 and July
2021, respectively. Both Fergal and Anik have provided valuable
insights and enriched the Committee’s deliberations, given their
significant experience in the areas of finance, accounting and
audit. To ensure co-ordination of the work of the Committee with
the Board Risk Committee, two members of the Committee are
also Members of the Board Risk Committee, with this common
membership providing ongoing oversight of risk and finance
issues. Additionally, a number of joint meetings of the Committee
and the Board Risk Committee were also held during the year.
The biographies of Committee Members are set out on pages
36 to 39, with details of the Committee’s membership and
attendance at meetings outlined on page 180.
The Chief Financial Officer, Chief Risk Officer, Group Head of
Internal Audit and the Lead Audit Partner from Deloitte normally
attend all Committee meetings. In order to provide additional
opportunity for open dialogue and feedback, the Committee
holds closed sessions with members of Executive Management,
the Group Head of Internal Audit and the Lead Audit Partner
throughout the year without members of Management
being present.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
187
The Committee has exercised its authority delegated by the
Board for ensuring the integrity of the Group’s published financial
information by reviewing and challenging the judgements
and disclosures made by Management, and the assumptions
and estimates on which they are based. The Committee has
applied judgement in deciding which of the issues it considered
to be significant in the financial statements, and the following
pages set out the material matters that it has considered in
these deliberations. Management reporting to the Committee
from across the business has provided the opportunity for
the Committee to challenge, probe and seek assurance from
management, enabling the Committee to provide an independent
perspective.
Into 2022, the Committee will continue to focus on delivery
against its mandated responsibilities, with oversight of the
ongoing effectiveness of the three lines of defence model
across the Group and continued scrutiny of the overall control
environment, particularly in light of the programme of change
delivered by the Group’s transformation programme and inorganic
growth initiatives. In addition to the Committee’s standing
obligations, I expect there to be increased focus on the evolving
areas of climate-related disclosures and audit reform, both of
which will be kept to the forefront of the Committee’s attention.
Ongoing critical priorities will include further consideration of
ECL outcomes, monitoring of the Group’s material restitution
programmes, and overseeing the smooth transition of the Group
Auditor ahead of 2023 year end.
I would like to take this opportunity to sincerely thank my fellow
Committee colleagues for their continued support and diligence
during 2021.
Sandy Kinney Pritchard
Committee Chair
188
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Report of the Board Audit Committee
Financial Reporting – Activities for the year
A key activity for the Committee is the consideration of significant matters relating to the Annual Financial Report, with key accounting
judgements and disclosures subject to in depth review with Management and Deloitte. A summary of these judgements is set out below,
and the judgements are disclosed in detail within note 2 “Critical accounting judgements and estimates” on page 263.
Key Issue
Committee Consideration
Committee Conclusion
IFRS 9 and the
Impairment of
Financial Assets
Following detailed assessment
of the conclusions made
by Management, and the
approval of the underlying
scenarios therein, the
Commitee is satisfied that the
judgements and assumptions
utilised in determining the
total ECL provision stock of
€ 1,885 million, and year end
writeback of € 238 million,
are appropriate.
The process for undertaking the assessment of ECL amounts requires
use of a number of accounting judgements, estimates and assumptions,
some of which are highly subjective and very sensitive to risk factors such
as changes to economic conditions, including determining the criteria for a
significant increase in credit risk and for being classified as credit impaired;
applying the definition of default policy for classifying financial instruments
as credit impaired; assumptions for measuring ECL and the estimation and
methodology for post-model adjustments.
In assessing these key judgements and estimates, the Committee received
and reviewed regular reports from Management on the ECL position.
The Committee met in joint session 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 these scenarios. Modelled outcomes were adjusted
for management judgements and post model adjustments amounting to
€ 550 million were approved.
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.
Going Concern
and Long Term
Viability
The Directors are required to make an assessment of the Group’s ability to
operate as a going concern for at least a 12 month period from publication
of this Annual Financial Report. The Committee was asked to express an
opinion to the Board as to whether a statement to this effect could properly
be made. In considering this statement, the Committee assessed the
Group’s detailed forecasts, as well as the capital position of the Group, with
due regard for potential stress events and the impact of the macroeconomic
environment.
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.
The Board is also required to make a Viability Statement in the Annual
Financial Report, with the Committee required to express an opinion to the
Board as to whether this Viability Statement could properly be made. In
doing so, the Committee assessed a number of activities undertaken by the
management body over the course of the year relating to the risk profile,
capital, liquidity and funding positions, and recovery and resolution planning.
Retirement Benefit
Obligations
There is a significant degree of judgement and estimation 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 payment increases, and approved these assumptions as inputs in the
calculation of the IAS 19 pensions position and specifically for the AIB Group
Irish pension scheme.
Based on the assessment
undertaken, the Committee
was satisfied that three years
was a suitable timeframe for
the Viability Statement, and
recommended the Viability
Statement to the Board for
approval.
The Viability Statement
is available for review on
page 210.
Based on the work performed,
the Committee is satisfied that
the assumptions supporting the
retirement benefit obligations
are reasonable.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
189
Key Issue
Committee Consideration
Committee Conclusion
Deferred Taxation
Provisions for
Liabilities and
Commitments
Investment in
Subsidiary in the
Separate Financial
Statements
The Group has recognised deferred tax assets for unutilised losses of
€ 2,840 million (€ 2,763 million in 2020). The recognition of deferred tax
assets is reliant on the assessment of future profitability and the sufficiency
of those profits to absorb losses carried forward. A number of significant
judgements are made as to the projection of long term future profitability due
to the period over which recovery extends.
In assessing the recognition of the deferred tax assets, the Committee
considered a range of evidence presented by Management.
The Committee noted, for unutilised losses in Ireland which represent the
vast majority of the Group’s deferred tax assets, that based on the Group’s
three year financial plan, with the application of a profit growth rate of 2%
from 2025, that it is assessed that it will take in excess of 20 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.
For the UK, 15 years is the period that taxable profits are considered
more likely than not. The Committee considered the current uncertainties
in longer term profitability forecasting in the context of the early stage of
implementation of the new AIB UK strategy at 31 December 2021.
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. Further details of the Group’s
provisions for liabilities and commitments are shown in note 37 to the
financial statements, with further detail regarding the Belfry investment funds
and related review programme within this note.
Significant management judgement and estimation is required in this process
which, of its nature, may require revisions to earlier judgements and estimates,
particularly in establishing provisions and the range of reasonable potential
losses. It is accepted that a range of outcomes are possible, however, the
provision in place at 31 December 2021 reflects Management’s best estimate
of provision amounts based on the information available.
The Company undertook an impairment review by comparing the carrying
value of the equity investment in Allied Irish Banks, p.l.c. with its estimated
recoverable amount. At 31 December 2021, the market capitalisation of AIB
Group plc was € 5.8 billion which is a proxy for the fair value of Allied Irish
Banks, p.l.c. This was below the carrying amount of the Company’s equity
investment in Allied Irish Banks, p.l.c. Accordingly, the Company tested
its investment for impairment and this resulted in a reversal of an earlier
impairment amounting to € 2,707 million. Testing for impairment requires
considerable estimation and judgement. The key estimates and assumptions
used in assessing the value in use of the Company’s investment in the
subsidiary, which were considered by the Committee are as follows:
• The estimation of expected cash flows;
• The assumption of an appropriate growth rate; and
• The assumption of an appropriate discount rate.
In light of the evidence
presented by Management,
the Committee agreed that
they were supportive of the
recognition policy in place for
the deferred tax assets, and
agreed that the management
judgement applied was
appropriately supported by the
Group’s long term financial and
strategic plans.
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.
Based on an assessment of
the information provided, the
Committee is satisfied that the
judgements and estimates that
support the reversal of an earlier
impairment are reasonable.
190
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Report of the Board Audit Committee
Other Key Areas of Focus
Financial
Reporting
Internal Audit
During the course of the year, the Committee considered each of the areas above and the significant
matters pertaining to this Annual Financial Report and the Group’s Half-Yearly Financial Report for the six
months ended 30 June 2021. The Committee concluded that it could recommend to the Board for approval
on the basis that the information therein was a fair, balanced and understandable assessment of the
Company’s position and prospects.
In addition, as integral to that review of both this Annual Financial Report and the Half-Yearly Financial
Report, the Committee considered the minutes of the Group Disclosure Committee, in advance of making
any recommendations.
The Company’s Pillar 3 report is subject to the same review processes as its Annual Financial Report and
accounts. The Committee therefore reviewed the year end 2020 and Half-Yearly 2021 Pillar 3 disclosures,
as well as the Pillar 3 Policy, and made positive recommendations in that regard.
The Committee is responsible for considering and approving the remit of the Internal Audit function,
approving the internal audit plan, and ensuring it has adequate resources and appropriate access to
information to enable it to perform its function effectively and in accordance with the relevant professional
standards. It also receives the function’s reports and evaluates the adequacy of the Group’s responses
to them. The Committee ensures that the Internal Audit function has adequate standing and is free from
management or other restrictions which may impair its independence.
Given the significant change in Committee composition over 2021, outlined earlier in the report, coupled
with a newly appointed Group Head of Internal Audit in 2020, the Committee Chair requested that an
independent External Quality Assessment of Internal Audit be undertaken. The outcome of that review,
which concluded in mid-2021, reported that the Internal Audit function operates efficiently within the Group.
However, in response to the Group’s Strategy and external environment, it was agreed that the function
would benefit from additional resourcing, with a focus on specific skills and capabilities in critical domains
such as Credit Risk. The function will also focus on the further adoption of best in class Data Analytics audit
techniques, thus ensuring that the team continues to be in the best possible position to protect the Group
into the future.
In December 2020, the Committee considered and approved the annual internal audit plan for 2021, which
was based on an assessment of the key risks faced by the Group. Progress in respect of the plan was
monitored throughout the year. With the approval of the Committee, the audit plan may be revised during
the year based on the ongoing assessment of the key risks or in response to the requirements of the
Group. Due to the demands of the COVID-19 pandemic in 2021, the plan was subject to revisions, with a
number of audits added during the year and a number of intended audits for completion being moved to the
first quarter of 2022. Any revisions to the annual plan were considered with due regard for the overall risk
profile of the Group.
The Group Head of Internal Audit provides the Committee with regular assessments of the skills required
to conduct the audit plan and whether the internal audit budget is sufficient to recruit and retain staff, or to
procure subject matter expert resources with relevant experience.
Significant findings of internal audit reports and Management’s responses were discussed at meetings of
the Committee throughout the year. Any overdue actions were reviewed and challenged by the Committee.
During the year, the Chair of the Committee met regularly with the Group Head of Internal Audit between
scheduled meetings of the Committee to discuss audit issues arising and insights into the control
environment. The Group Head of Internal Audit has unrestricted access to the Chair of the Board Audit
Committee.
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.
Additionally, the Committee considered Group Internal Audit’s approach for ensuring adherence to
Article 191 of the Capital Requirements Regulation including the output of the Annual General Risk
Assessment relating to Internal Models and the related annual work plan as detailed in the 2022–2024
Audit Plan.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
191
External Audit
The Committee has primary responsibility for overseeing the relationship with, and performance of the
Group’s existing Auditor, Deloitte. The Audit Committee reviewed the terms of engagement and monitored
the independence and effectiveness of the Auditor. The remuneration of the Auditor for the year 2021 was
also considered by the Committee and recommended to the Board for approval.
The Committee provided oversight of the Auditor, including a review of the Auditor’s internal policies and
procedures for maintaining independence and objectivity and consideration of their approach to audit
quality and materiality. The Committee reviewed and approved the audit plan (for both the half-year and
annual audit) as presented by Deloitte at the Audit Committee meetings in 2021. The Committee also
reviewed the performance of the Auditor and assessed the qualifications and expertise of their resources
as well as considering the Auditor’s findings, conclusions and recommendations arising from their work.
In line with monitoring the objectivity, independence and effectiveness of the Auditor and in accordance
with the EU Audit Regulations 537/2014 and Directive 2014/56/EU, which was transposed into Irish law on
25 July 2018, an update was received in relation to the Group’s policy on the hiring of former employees of
the Auditor.
The Group’s policy is that the Auditor and its affiliates may be used for non-audit services that are not in
conflict with the Auditor’s independence and where sound commercial reasons exist. This policy, which
outlines the types of non-audit fees for which the use of the Auditor is pre-approved or requires specific
approval, was reviewed and approved by the Committee and all non-audit services and fees were
approved in accordance with Group policy. Further details on the approach can be found at the Group’s
website at: https://aib.ie/investorrelations. Details of fees paid for audit and non-audit services are outlined
in note 14.
Appointment of
External Auditor
Deloitte were appointed as the Group’s Auditor in 2013 and, in accordance with the relevant regulatory
requirements, will complete their maximum term of 10 years with the audit for the year ended
31 December 2022.
The Committee oversaw the tender process of the appointment of the next Group Auditor. It was agreed
that the tender process should be concluded in 2021 to ensure future compliance with the UK Corporate
Governance Code and EU legislation.
In mid-2021, following an evaluation by the Committee, a number of firms who were considered to have
the required resources and competencies were invited to participate in the process. Written submissions
and presentations from the proposed firms were evaluated and a shortlist of firms, who demonstrated
the calibre, resources and experience needed to deliver the audit were selected to make presentations
to the Audit Tender Selection Committee, a subcommittee chaired by the Audit Committee Chair.
This subcommittee also included Non-Executive Director, Executive Director and Executive Management
membership, including the Chair of the UK Audit Committee.
Following the presentations and an evaluation of the capabilities, competencies and resources of the
shortlisted firms, a recommendation was made to the Board that PwC be selected as Auditor of the Group
with effect for financial year end 31 December 2023. A resolution to this effect will be presented to the
shareholders at the Annual General Meeting of the Company in due course.
A transition plan setting out the agreed principles, framework and timeline to ensure the efficient transfer
of the audit from the existing Auditor Deloitte to PwC will be prepared and considered by the Committee to
ensure a smooth transition.
192
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Report of the Board Audit Committee
Speak Up
and Code of
Conduct
The Committee reviews the arrangements in place that allow workers to raise any concerns, in confidence,
about possible wrongdoings in financial reporting or other matters. Given this important role in relation to
whistleblowing and protected disclosures, the Committee Chair met with the Group Head of Speak Up
to discuss material cases and enhancements to Speak Up arrangements over the course of the year.
The Group has a Speak Up Policy, which allows workers to safely and confidentially report concerns about
suspected wrongdoing related to the Group through designated channels, including through a dedicated
Speak Up channel and to nominated senior leaders. To ensure that the Speak Up policy and whistleblowing
options are embedded in the operations of the Group, all employees received training and were tested to
ensure their understanding.
The Committee also considered the operation of the enhanced Code of Conduct Framework and assisted
the Board in its assessment of the adequacy of the arrangements. The Committee also received updates
from Management on the operation of the Speak Up process and the Committee further considered reports
on the operation of the Group Code of Conduct.
Internal Controls
The Group’s internal control and risk management systems are embedded within the organisation structure
and it is the Committee’s responsibility to review the adequacy and effectiveness of the control environment
on behalf of the Board.
Throughout the year the Committee:
•
Received updates from the Chief Financial Officer, aligned to the half-year and year end reporting
timelines, regarding the testing, operation and effectiveness of the system of controls over financial
reporting.
Reviewed and advised the Board on the appropriateness of the Directors’ statements in this Annual
Financial Report relating to the Group’s systems of internal controls.
Reviewed the outcomes of half-year and year end overall assessments of the control environment
undertaken by Group Internal Audit.
Reviewed quarterly reports from the Chief Credit Officer regarding the credit control environment.
Received an update on the continuous improvement initiatives and streamlining efficiencies in relation
to “Key Control Enhancement Themes” – IT, Governance, Change and Third Party Management.
Considered the approach to combined assurance across the Group, as well as the operation of the
three lines of defence model.
•
•
•
•
•
Subsidiary
Oversight
The Committee, having assessed the above information over the year, is satisfied that the internal control
and risk management framework is operating effectively.
This year, the Committee sought to further strengthen collaboration between the Group Audit Committees.
The Committee Chair met with the material subsidiary audit committee Chairs outside of the regular
scheduled Committee meetings in order to discuss audit committee priorities and to gain a full
understanding of matters of relevance for the individual subsidiaries. To develop a better understanding of
the key issues and challenges across the Group, the Committee Chair also attended a number of material
subsidiary audit committee meetings throughout the Group. 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 those audit committees to ensure effective oversight and awareness of
any issues and discussion themes.
AIB Group plc Annual Financial Report 2021
Governance and Oversight
193
Governance and oversight –
Report of the Board Risk Committee
During the year, the Committee maintained
oversight of the risks arising from the impact of
COVID-19, as well as considering the potential
impact of the delivery and implementation of the
Group’s inorganic growth initiatives on the overall
risk profile.
Brendan McDonagh,
Committee Chair
1
2
3
4
5
6
Chair’s Overview
On behalf of the Board Risk Committee (the “Committee”), I am
The Group Chief Risk Officer has unrestricted access to the
Committee, and attends all Committee meetings. The Chief
pleased to report on how the Committee has discharged its duties
Financial Officer, Group Head of Internal Audit, the lead External
during 2021. The objective of this report is to provide an insight
Audit partner and the Chair of AIB Group (UK) p.l.c. are also
into the workings of, and the key matters considered by, the
invited to attend all Committee meetings.
Committee during the course of 2020.
Looking ahead to 2022, delivery against the ongoing regulatory
The primary purpose of the Committee is to assist and advise
compliance commitments and obligations of the Group will
the Board in fulfilling its risk governance and oversight role. In
continue to be reviewed on an ongoing basis. In addition, the
addition to satisfying the wide-ranging responsibilities of the
Committee will continue to focus on the management of strategic
Committee as set out in its Terms of Reference, during the year
and emerging risks for the Group throughout the delivery of the
the Committee maintained oversight of the risks arising from
overall strategic objectives. Aligned to the emerging risk profile
the impact of COVID-19, and considered the potential impact of
and the external operating environment, there will also be an
the delivery and implementation of the Group’s inorganic growth
increased emphasis on the increasingly prevalent Environmental,
initiatives on the overall risk profile. A detailed summary of the key
Social and Governance risk agenda and on the threats posed
areas of focus for the Committee throughout 2021 has been set
from the external cyber risk landscape. Other risk areas, including
out for your information overleaf.
Committee Membership
The Committee currently consists of seven Non-Executive
Directors, all considered by the Board to be independent.
Ms Carolan Lennon stepped down from the Committee in October
2021. I would like to take this opportunity to thank Carolan for her
significant contribution during her time as Committee Member.
I am very pleased to welcome Mr Andy Maguire who joined
the Committee in March 2021, and the Committee was further
strengthened by the addition of two new Members in September,
Mr Jan Sijbrand and Ms Tanya Horgan. I look forward to working
with our new Committee Members over the coming years.
To ensure co-ordination of the work of the Committee with the
Board Audit Committee, both myself and Ms Sandy Kinney
Pritchard, the Board Audit Committee Chair, are members of
both Committees. This approach assists with providing effective
oversight of risk and finance matters. To ensure the Group’s
remuneration 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 attendance at meetings are outlined on
page 180.
any potential tail risk arising from the COVID-19 pandemic, will
continue to be monitored through the ongoing reporting provided
to the Committee.
In what has been a busy year for the Committee, I would also like
to thank my fellow Committee Members for their contributions
over the past twelve months.
I would also like to take this opportunity to extend my thanks to
the outgoing Chief Risk Officer (“CRO”), Ms Deirdre Hannigan,
for her commitment and dedication to the role since she joined
the Group in 2017. Deirdre has made a significant contribution
to driving the positive risk culture which has developed in the
organisation, and has delivered enhancements to the three lines
of defence model. The Committee wishes her well in the next
stage of her career.
Brendan McDonagh
Committee Chair
194
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Report of the Board Risk Committee
Key Areas of Focus
Credit Risk
Regulatory
Compliance
Risk
Management
Business Model,
Financial and
Market Risks
During 2021, the Committee considered overall credit quality and received regular updates on customers
impacted by COVID-19. The Committee also considered the impact of the pandemic on individual sectors,
and the associated risk ratings applied to those sectors. The focus of the Committee shifted from the
initial response by the Group to COVID-19 to the ongoing credit management and oversight of the Group
credit portfolio. The Committee assessed the credit risk profile and trends, including the performance
of significant credit transactions on a regular basis. The Committee also met in conjunction with the
Board Audit Committee to review, challenge, and approve the macroeconomic scenarios for use in the
Group’s Expected Credit Loss (“ECL”) models. An improvement in the Credit Risk profile was reported
to the Committee during 2021, reflective of a slowdown in the migration to default across portfolios, and
the trajectory of new lending quality across all asset classes. Notwithstanding these improvements, the
Committee has remained cognisant of the external pressures on inflation and the impact of COVID-19
restrictions, as well as the long term impact of Brexit for customers.
Oversight of the Group’s adherence to, and delivery of, regulatory compliance commitments is a key
focus for the Committee. Throughout the year, both the CRO and the Group Chief Compliance Officer
provided updates regarding the status of the regulatory compliance risk profile at each of its scheduled
meetings. The Committee also received regular updates regarding the delivery of specific regulatory
change programmes, including the Payment Services Directive 2 (“PSD2”) Strong Customer Authentication
eCommerce programme, and a review of progress against the delivery of adherence to the European
Banking Authority (“EBA”) guidelines on Loan Origination and Monitoring (“LOaM”).
The area of financial crime was considered on a regular basis throughout the year, through ongoing
reporting as well as a number of standalone updates provided by the Money Laundering Reporting Officer.
The Committee received reports regarding the outcome of the 2021 Group Financial Crime Business
Risk Assessment, which reviewed the Anti-Money Laundering/Counter Terrorist Financing and Financial
Sanctions risks and controls across the Group, including relevant subsidiaries. Given the importance of
ensuring that the Group keep pace with the external threat landscape and related legal and regulatory
requirements, the Committee also received updates in relation to the establishment of a programme
to manage the implementation of the 5th Anti-Money Laundering Directive (“5AMLD”), as well as the
embedding of a revised Financial Crime Operating Model.
The Group continued to be active from a corporate development perspective, with a number of inorganic
transactions undertaken during the year with a view to strengthening the Group’s overall business model.
The Committee is cognisant of the potential risks arising from the delivery of the strategic aims of the
Group, both in terms of the business model risk profile and the potential impact on the operational risk
profile of the Group. In providing oversight of the risks associated with these key change initiatives, the
Committee received updates in terms of the manner in which entities, including Goodbody, would be
integrated into the overall risk management framework of the Group. The Committee also received regular
reports regarding the status of business model risk in the context of delivery of the Financial Plan and
medium term targets.
Given the potential impact of external factors outside the direct influence of the Group, including economic
cycles and technological changes, financial and market risk is also managed through Board-approved
risk appetite limits with comprehensive polices in place to ensure that the risks posed by changes and
mismatches in interest rates are effectively managed. In terms of their oversight role, the Committee
considered a financial risk deep-dive during the course of the year with particular attention given to the
Interest Rate Risk in the Banking Book (“IRRBB”) and macroeconomic factors, including inflation.
Conduct Risk
Delivery of fair customer outcomes and the related management of conduct risk continue to be a central
objective for the Group. To that end, the Committee received regular reporting regarding the status of
the conduct risk profile throughout the year, including an overview of current trends, the status of open
restitution programmes, and customer complaints metrics, including the status of SME complaints.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
195
Risk Appetite,
Risk Profile and
Risk Strategy
The Committee provided oversight of the Group Risk Appetite Statement (“RAS”) throughout the year, and
made recommendations to the Board in that regard. The risk profile of the Group was monitored on an
ongoing basis against agreed Group RAS Metrics through regular reports from the CRO 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.
Capital, Funding
and Liquidity
Regular reviews are undertaken to ensure that the Group is compliant with internal minimum capital
and liquidity targets and regulatory liquidity requirements. With this in mind, the Committee reviewed the
results of regular stress testing, as well as documents underpinning the ICAAP and ILAAP. In conjunction
Operational
Risk
with the Board Audit Committee, the Committee also reviewed the macroeconomic scenarios for use
in stress testing and the ICAAP models, and recommended those scenarios 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.
Managing operational risk continues to be a key focus for the Group, due to the complexity and volume of
change, the IT infrastructure and cyber risk. The Committee focused on ensuring that the Group has an
effective framework for managing operational risk, including the use of key risk and control indicators for
flagging operational risk events. The Committee received regular updates on the Operational Risk profile
and considered a deep-dive on organisational operational challenges over the course of 2021. Updates
were also received on the Group’s approach to third party management, providing enhanced oversight of
key outsourcing and critical arrangements across the Group in line with the EBA Guidelines on outsourcing.
Cyber Security
Risk
Throughout 2021, the Committee received regular updates from the Chief Technology Officer on cyber
security. Additionally, cyber training was provided to the Board as part of the continuous education
programme. There continues to be significant focus on cyber capability and IT resilience, with the
development of an enhanced Cyber Strategy Framework into 2022 which will form the basis for future
iterations of the Group’s Cyber Strategy.
Model Risk
Regulatory
Engagement
Climate Risk
The Committee received regular updates on model capabilities and considered a revision to the IRB
Rollout plan, which was subsequently recommended to the Board for approval. Additionally, quarterly
Model Risk Reports were considered, with an assessment of model risk improvements and progress
against deadlines undertaken. The various model risk improvements and the status of the quality and
adequacy of those models was assessed through independent validation, the outcome of which was also
reported to the Committee.
Throughout the year, the Committee considered the management action plans put in place to address
findings identified as part of regulatory inspections, and also received regular updates on ongoing
regulatory programmes. The Committee received regular reports on the structured and holistic approach
to engagement with all regulators across the Group, given the importance of continuously fostering strong
stakeholder relationships.
During the year, the Committee approved amendments to the Risk Management Framework and the Group
Credit Risk Policy in relation to climate risk. Qualitative risk appetite statements were updated for two of
the Group’s material risks, Credit and Business Model risk. These take into account Environmental, Social
and Governance (“ESG”) issues when considering Group strategy and when lending in climate related risk
areas. Management will continue to monitor transitional and physical climate change risks in 2022 with
plans to identify key risk indicators and develop quantitative risk appetite metrics for managing climate and
environmental exposure in line with Group strategy.
196
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Report of the Nomination and
Corporate Governance Committee
There was significant progress made on the
Board Succession Plan over the course of the
year with the appointment of the Chair, five other
Non-Executive Directors and one Executive
Director to the Board.
Elaine MacLean,
Committee Chair
Committee Membership
The Committee currently consists of five Members: four Non-
Executive Directors considered by the Board to be independent
and the Non-Executive Chair of the Board who was deemed
independent on appointment. Ms Carolan Lennon and Mr Jim
Pettigrew were appointed on 1 October and 28 October 2021,
respectively, and joined myself, Mr Brendan McDonagh and
Ms Helen Normoyle on the Committee. The biographies of the
Committee Members and a record of attendance at meetings are
set out on pages 36 to 39 and page 180.
The Chief Executive Officer and Chief People Officer normally
attend Committee meetings except where the business of the
meeting relates to their successors. The Committee also met with
no Management present on a number of occasions.
I would like to thank my fellow Committee Members for their
continued commitment through another busy year.
Elaine MacLean
Committee Chair
Chair’s Overview
I am pleased to present the report of the Nomination and
Corporate Governance Committee (the “Committee”) for the
year ended 31 December 2021 which sets out the Committee’s
main areas of focus over the past year and priorities for 2022.
2021 saw significant changes in Board composition and built
on the succession planning work undertaken by the Committee
in recent years, most notably on the Chair selection process
which culminated with the appointment of Mr Jim Pettigrew as
Non-Executive Chair of the Board on 28 October 2021. I would
like to thank Ms Carolan Lennon, our Senior Independent
Director, for leading this search process.
There was significant progress made on the Board Succession
Plan over the course of the year with the appointment of the Chair,
five other Non-Executive Directors and one Executive Director to
the Board. These appointments mark the successful conclusion
of a number of Director selection processes which had sought to
enhance the overall skills profile of the Board taking into account
the Board Skills Matrix and the future strategic direction of the
Group. The Committee is satisfied that the new Board Members
bring a diverse range of skills that complement the skills of existing
Directors and ensure an effective and appropriate balance of
knowledge, skills and experience on the Board. The current
Board size of sixteen Directors reflects the need to balance
the onboarding of newer Directors and ensure an appropriate
transition period and continuity of leadership to position the Board
to remain effective in its leadership and oversight of the Group into
the future as Board members with longer tenure prepare to retire
from the Board in the coming years.
The number of Board appointments during 2021 meant a
considerable amount of time was dedicated to the onboarding and
induction of the new Non-Executive Directors and the Committee
oversaw this process. In addition, the Group’s acquisition of
Goodbody meant additional subsidiary board composition
planning and appointments for the Committee to consider.
A summary of the other key areas of focus for the Committee
throughout 2021 is set out below.
Looking ahead, the Committee’s key priorities for 2022 will include
ensuring the orderly and planned retirement of longer-serving
Directors, material subsidiary board composition, and Executive
Committee succession planning and appointments.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
197
Key Areas of Focus
Board
Succession
Planning,
Renewals
and Board
Committee
Composition
Chair Search
The size, structure, composition and succession plans of the Board and Board Committees was a standing
item on the agenda of scheduled Committee meetings in 2021. Considerations in this regard included
oversight and monitoring of the search processes which concluded in 2021, reviewing Director tenure and
ongoing suitability, and making recommendations to the Board to refresh Board Committee composition.
The Committee used the services of both Egon Zehnder and MERC Partners Spencer Stuart during 2021
to support Non-Executive Director searches. 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. 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 appointment of a number of new Non-Executive Directors to the Board over the course of 2021
provided the opportunity for the Committee to consider and make recommendations to refresh Committee
membership where appropriate. Details of changes to Committee membership during 2021 are available
in each of the Committee reports. The current Committee memberships and any additional roles held by
Directors are set out on pages 36 to 39.
As previously reported, Mr Richard Pym retired as Chair on 6 March 2020. While work to identify a
successor had commenced prior to his resignation, the process took longer than anticipated. The search
was led by the Senior Independent Director, Ms Carolan Lennon, and Egon Zehnder were engaged as
the external search agents. The Committee considered the shortlisted candidates’ skills and experience,
independence, fitness and probity, capacity to devote sufficient time to the role and broader diversity and
collective suitability requirements before recommending the final preferred candidate to the Board. The
process concluded successfully with the appointment of Mr Jim Pettigrew as Chair on 28 October 2021.
Executive
Succession
Planning and
Appointments
Executive succession planning was considered on an ongoing basis by the Committee during the year. In
addition to broader succession planning activities, the Committee considered specific proposals regarding
Head of Control Function and Executive Committee member appointments. The Committee recommended a
preferred candidate for the role of the Chief Risk Officer to the Board for approval. The Committee oversaw
the process to identify a successor for the role of AIB Group UK Managing Director and approved a proposal
in February 2022.
Diversity
The Committee reviewed the Board Diversity Policy and recommended an increase in the gender diversity
target to 40% to reflect the Group’s ambition and to build on its strong track record on diversity. At 31
December 2021, the percentage of females on the Board was 44%.
In relation to management, the Committee considered diversity as a key component within the succession
plan for the Executive Committee and its succession pipeline which aims for gender balance, a number
of female talent development initiatives, and the further embedding of broader inclusion and diversity
considerations within senior selection processes.
In line with reporting requirements under the UK Code, at 31 December 2021, the gender balance of senior
management, which for this purpose is considered to be the Executive Committee, was 45% female and 55%
male, and of their direct reports was 41% female and 59% male.
198
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight – Report of the Nomination and
Corporate Governance Committee
Corporate
Governance
The Committee undertook its annual schedule of work in relation to the Group’s governance arrangements,
corporate governance compliance, and related policies including:
•
a review of the internal policies on the assessment of suitability of members of the Board and key
function holders;
a review of the Board’s Code of Conduct and Conflicts of Interest Policy for Directors;
a review of the Board Diversity Policy and diversity target;
a review of the ongoing independence of Non-Executive Directors;
a review and assessment of sufficient time commitment for incoming Directors and existing Board
members;
a review of the ongoing collective suitability of the Board;
oversight of compliance with applicable corporate governance requirements and guidelines;
oversight of upstream regulatory developments in corporate governance and best practice;
oversight of the internal Board Effectiveness Evaluation 2021; and
consideration of workforce engagement processes via the Designated Non-Executive Director.
•
•
•
•
•
•
•
•
•
Further details on a number of these matters are available in the Corporate Governance Report on pages
176 to 185.
Subsidiary
Board and
Committee
Composition
The Committee considered a number of executive and non-executive appointments to the Group’s material
subsidiary boards and their committees, including for AIB Group (UK) p.l.c., AIB Mortgage Bank u.c., EBS
d.a.c. and Goodbody Stockbrokers u.c. Such appointments included the recommended appointment of
independent Non-Executive members of the Group Board to the subsidiary boards and committees, where
established, to ensure appropriate information flow, oversight, consistency and alignment between the
Group and its subsidiaries.
The Committee also considered Non-Executive Director term anniversaries and made recommendations
for re-appointment to the subsidiary boards where relevant, taking account of ongoing suitability
considerations.
AIB Group plc Annual Financial Report 2021
Governance and Oversight
199
Governance and oversight –
Report of the Remuneration Committee
The Committee would like to see the
implementation of a competitive, performance-
based remuneration model across the Group
which meets regulatory requirements 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
Committee (the “Committee”) for the year ended 31 December
2021. This report provides an overview of the Committee’s key
areas of focus in 2021 and its priorities for the year ahead.
The remuneration restrictions contained in certain agreements
with the Irish State following the recapitalisation of the Group
in 2010 and 2011 continue to impact the Group’s remuneration
structures and the Committee’s independent judgement and
discretion to authorise remuneration outcomes that are linked to
the delivery of the Group’s long term strategy. The Committee
awaits the outcome of the Minister for Finance’s review into the
retail banking sector and the remuneration restrictions in place.
The Committee would like to see the implementation of a
competitive, performance-based remuneration model across the
Group which meets regulatory requirements and best practice
guidance and operates in the best interests of employees,
shareholders and other stakeholders by supporting and promoting
the long term, sustainable success of the Group.
Further detail on the Group Remuneration Policy and the
Committee’s oversight of same is available in the Corporate
Governance Remuneration Statement which follows this report.
The Committee’s remit broadened in 2021 following the
acquisition of Goodbody which remains a separately regulated
legal entity within the Group and will continue to operate a
variable remuneration structure for its employees. The Committee
spent a considerable amount of time in 2021 deliberating the
most appropriate governance approach for the Goodbody
variable remuneration structures. Other key areas of focus for the
Committee during 2021 are set out below.
A priority for the Committee in 2022 is continued focus on the
implementation, governance and oversight of the remuneration
structures in place across the Group. This will include oversight
of the variable remuneration arrangements for Goodbody
employees, engaging with the Board Risk Committee as required.
Committee Membership
The Committee currently consists of four Members: three
Independent Non-Executive Directors, namely myself, Mr Brendan
McDonagh and Ms Ann O’Brien, and the Chair of the Board, Mr
Jim Pettigrew, who was considered independent on appointment.
Mr Pettigrew joined the Committee with effect from 1 January
2022. In addition to being a Committee Member, Mr Brendan
McDonagh is also the Chair of the Board Risk Committee and this
cross-membership supports information flow and co-ordination
between the work of the two Committees. The biographies of the
Committee Members and a record of attendance at meetings are
outlined on pages 36 to 39 and page 180.
The Committee was supported in its work by the Group Reward
team and by PricewaterhouseCoopers LLP (PwC UK). PwC
UK was appointed as independent remuneration adviser by the
Committee in 2019, following a review of potential advisers and
the services provided. PwC UK is a signatory to the voluntary
code of conduct in relation to remuneration consulting in the UK.
Aside from their work supporting the Committee, during 2021,
PwC UK and its network firms provided professional services in
the ordinary course of business including advisory, regulatory
and taxation related services to AIB and may, from time to time,
provide services to individual Directors as part of directorship
or executive roles held outside of the Group. The Committee is
satisfied that the advice received is independent and objective.
The Chief Executive Officer, the Chief People Officer and other
members of Management are invited to attend meetings at the
Committee’s request and where required for the business of
the meeting. The Chief Risk Officer is a permanent attendee at
meetings to provide a risk view on any matters submitted for
the Committee’s consideration except where the Committee is
considering the Chief Risk Officer’s own remuneration or that
of peers. The Committee operates under the principle that no
individual shall be involved in decisions regarding their own
remuneration and no member of Management is permitted to attend
where a matter for discussion relates to their own remuneration.
I would like to thank my fellow Committee Members for the
commitment they have shown throughout 2021.
Elaine MacLean
Committee Chair
200
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Report of the Remuneration Committee
Key Areas of Focus
Remuneration
Policy
Goodbody
Remuneration
Governance
Remuneration
of Individuals
Subsidiary
Chair and
Non-Executive
Director Fees
Gender
Pay Gap
Reporting
Committee
Briefings
Compliance
and Annual
Reviews
The Committee conducted its annual review of the Group Remuneration Policy and was satisfied that
the Policy was operating effectively and as intended. The Committee also considered how executive
remuneration aligned to wider employee remuneration, how the Policy aligned to the culture of the Group
and its five strategic pillars, and how the Group’s remuneration policies and practices were transparent to
the wider employee population.
Further details on the Remuneration Policy is available in the Corporate Governance Remuneration
Statement which follows this report.
During the year the Committee:
•
considered and approved the remuneration governance approach, establishing responsibility for
oversight of remuneration matters within Goodbody and the appropriate engagement and communication
mechanism between the Goodbody Board and the Group Board on remuneration matters;
•
considered and approved the identification of a number of Goodbody roles as Material Risk Takers
(MRTs) of the Group; and
•
considered and approved the recommended approach for 2021 variable remuneration subject to the
appropriate risk adjustment at an organisational and individual level.
The Committee considered a number of individual remuneration proposals at Executive Director, Executive
Committee and Head of Control Function level in line with its terms of reference.
The Committee considered proposals to revise the fee structure in place for the Chair and Non-Executive
Directors of a number of the Group’s material subsidiaries. These changes were recommended to the
Board for approval with a view to ensuring alignment in the fee structure across the Group’s entities, with
the market and best practice.
The Committee received updates on analysis and benchmarking undertaken with regard to the Group’s
preparation for the introduction of Gender Pay reporting requirements in Ireland.
In preparation for the integration of Goodbody into the Group, the Committee received briefings on the
applicable regulatory requirements under the Capital Requirements Directive V and the Investment Firms
Directive.
The Committee conducted its programme of annual reviews including a review of the process for identifying
MRTs and the limited variable commission schemes in operation across the Group. Each review was
accompanied by a view from the Risk function to support the Committee in its oversight of same. The
Committee approved a change to the timing of the MRT process to make the process more pro-active
going forward.
Further details on the identification of MRTs is available in the Corporate Governance Remuneration
Statement which follows this report.
Directors’ Remuneration
Details of the total remuneration of the Directors in office during 2021 and 2020 are provided in the Corporate Governance Remuneration
Statement on pages 201 to 207.
External Directorships held by Executive Directors
Dr Colin 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 he receives no remuneration from either role.
Mr Donal Galvin does not hold any Non-Executive Directorships outside of the Group. He is a Non-Executive Director of Goodbody.
Mr Galvin does not receive remuneration for this role.
Limitations on such external directorships are outlined in the Capital Requirements Directive and both of the Group’s Executive Directors are
fully compliant with these limitations.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
201
Governance and oversight –
Corporate Governance Remuneration statement
Remuneration Constraints
The Group has been required to comply with certain executive
The Remuneration Policy is governed by the Remuneration
Committee on behalf of the Board. The Committee is responsible
pay and compensation restrictions following the Group’s
for determining the Remuneration Policy and for overseeing its
re-capitalisation by the Irish Government in 2010 and 2011.
implementation. The Committee oversees the operation and
The application of market aligned remuneration policies and
effectiveness of the Remuneration Policy, including the process
practices are significantly constrained by the terms of Subscription
for the identification of material risk takers. The Committee’s
and Placing Agreements entered into between AIB and the Irish
governance role in this respect is outlined in its Terms of
Government. In particular, AIB is precluded from introducing any
Reference.
new bonus or incentive schemes, allowances or other fringe
benefits without prior agreement with the State. Consequently, the
The Committee further ensures that the Remuneration Policy
absence of performance based variable pay, combined with the
and practices are subject to a review at least annually, taking into
requirement to operate within an overall cap on individual salaries
account the alignment of remuneration to the Group’s culture
and allowances of € 500,000, precludes AIB from aligning the
for all employees and directors. The annual review is informed
remuneration of key executives and other key employees with
by appropriate input from the Group’s risk and internal audit
the achievement of longer term customer, financial and strategic
functions to ensure that remuneration policies and practices are
targets for the vast majority of employees.
operating as intended, are consistently applied across the Group
and are compliant with regulatory requirements.
The Group’s inability to apply market aligned remuneration
practices and, in particular, the inability to offer executive
Taking into account the constraints on variable remuneration
remuneration on an equal footing with competitors for talent in
in place, the Group has historically and continues to comply
the market represents a key risk to the Group. The Remuneration
with the UK Corporate Governance Code where such matters
Committee endeavours to monitor and address this risk on an
are within the Group’s control, and uses the Code to inform the
ongoing basis.
Group’s decision making and disclosures. The Group complies
with the relevant remuneration requirements of S.I. No. 81 of
As part of the acquisition of Goodbody in 2021 (see note 28), it
2020 – European Union (Shareholders’ Rights) Regulations 2020,
was agreed with the Department of Finance that the remuneration
although the constraints on variable remuneration in AIB mean
restrictions that apply to AIB would not apply to Goodbody
that some of the requirements of both it and the Code are not
employees, and that they could continue to remain eligible for
applicable to the Group at this time. This is something the Group
variable remuneration.
will continue to keep under review.
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 the
Group’s customers and shareholders; to attract, develop and
retain the best people and to safeguard the Group’s capital,
liquidity and risk positions. The Board recognises that the
long term success of the Group is dependent on the talent of
employees and, in particular, the ability to consistently perform at
the highest level in the best interests of our customers.
The 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 and the Committee’s Terms of
Reference were previously 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. 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 Directors’ 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 – While for the majority of employees,
including the Executive Directors, the Group does not
currently operate any incentive schemes, the Group’s
Remuneration Policy is aligned to the Group’s culture and
values.
202
Governance and Oversight
AIB Group plc Annual Financial Report 2021
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 and Risk Oversight
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 established 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 United
• As the same remuneration restrictions generally remained in
Kingdom.
place and there were no material changes to remuneration
policy during 2021, shareholder engagement was not required
Group Risk provide an assessment of the risks impacting the
in this area;
Group and performance against the Group’s Risk Appetite
• The Corporate Governance report references engagement
Statement to ensure that the Remuneration Policy is aligned
with the workforce; and
with the Group’s risk profile. The Chief Risk Officer reviews the
•
In the absence of variable remuneration, discretion is not a
list of Material Risk Takers in conjunction with Group Reward
material factor.
and provides the Remuneration Committee with an annual
assessment of the risks facing the Group to ensure that policies
It should be noted that some of the provisions of the Code
and practices are consistent with and promote sound and
(including provisions 36 and 37) are not currently applicable to
effective risk management.
the Group, as the Group does not operate variable incentive
arrangements for the Executive Directors.
European Banking Authority (EBA) Guidelines
Remuneration policies, procedures and practices reflect the
Reward Structure and Operation in 2021
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
provisions, where applicable, of national and EU legislation,
practices.
State Agreements and commitments provided to the Irish
Government, the Capital Requirements Directive (CRD V), the
During 2021, remuneration across the Group continued to be
Investment Firms Directive (IFD) and relevant guidelines issued
principally comprised of fixed pay elements encompassing base
by the European Banking Authority (EBA) and other regulatory
salary, allowances, employer pension contributions and non-
authorities. In the general absence of variable incentive schemes,
financial benefits. Base salary is the principal component of fixed
there was little scope in practice to apply the provisions of
remuneration and is designed to be fair and competitive and set
the EBA Guidelines pertaining to variable remuneration. The
according to appropriate salary ranges which reflect the size
Remuneration Policy incorporates the provisions of the EBA
and level of responsibilities attaching to each role. Allowances
Guidelines in relation to the ongoing design, implementation and
mainly consist of non-pensionable cash allowances which are
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
payable to eligible senior employees which recognise equivalent
benefits and allowances available in the market. The Group
places considerable emphasis on the need for employees to
plan for an appropriate standard of living in retirement and an
appropriate pension scheme is available to all employees for
that purpose. Further details in respect of the Group’s fixed pay
elements (including standard pension contributions and those for
Executive Directors and ExCo Members) are outlined in the table
professional activities are considered to have a material impact
on page 204. All of the Group’s defined benefit pension schemes
on the Group’s risk profile and the key components of the Group’s
were closed to future accrual by 31 December 2013 and all Group
remuneration structure. The Group’s Pillar 3 Report is available
on the Group website.
employees accrue pension benefits on a defined contribution
basis from 1st January 2014. Further details in respect of the
Group’s fixed pay elements are provided in the table below.
EBA remuneration benchmarking requirements require the Group
to disclose remuneration data in respect of material risk takers
Increases to salary in 2021 were awarded following the annual
and high earners (those earning above € 1 million) to the Central
pay review process, through promotion, progression and, in
Bank of Ireland. The Group continued to comply with these
exceptional cases, through out-of-course increases to retain key
reporting requirements during 2021. There were no employees
talent and skills.
whose total remuneration exceeded € 1 million during 2021.
The Group published its gender pay gap report for 2020 in 2021
in relation to its UK based employees. The disclosures are
available on the AIB (GB) website, www.aibgb.co.uk.
For 2021, a decision was taken to award flat pay increases of
€ 600/ £ 540/ $ 705 to our non-manager employees (Career
Levels 1–3). Managers at Level 4 and above received no
increase in 2021, irrespective of their performance. These
AIB Group plc Annual Financial Report 2021
Governance and Oversight
203
1
2
3
4
5
6
The Chief Executive Officer and the Chief Financial Officer were
Executive Directors of the Group during 2021. 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 Financial Officer receives 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 2021.
The Committee undertakes a periodic review of the remuneration
of Executive Directors and ExCo members against external
benchmark data.
increases represented a one year agreement with employee
representatives. The next annual pay review is due to take place
in April 2022. Through the Appreciate programme, recognition
awards were made to all employees, apart from members of the
Executive Committee, during 2021, which they could choose to
redeem for Appreciate programme points, or have a donation
made to charity. All eligible employees received at least one
award (total value of € 125).
The remuneration of Executive Directors and members of the
Executive Committee was determined and approved by the
Remuneration Committee within the remuneration constraints set
by the State.
The Group operates three business specific variable commission
schemes which are designed to protect the rights and interests
of customers via robust customer centric performance criteria,
the prevention of conflicts of interest and the assessment and
mitigation of risks to the customer. For those limited numbers
of employees who currently participate in these schemes,
sustainability risk is considered as part of the determination of
final award outcomes.
As stated earlier, a separate reward structure applies to
employees of Goodbody, which is not subject to the remuneration
restrictions of the Group, as agreed with the Department of
Finance. The remuneration structures at Goodbody comply with
all applicable remuneration regulatory requirements.
Remuneration of Executive Directors and ExCo
The remuneration of Executive Directors and Executive
Committee (“ExCo”) members 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 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.
204
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Corporate Governance Remuneration statement
Fixed Pay Elements
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 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 (excluding
Goodbody employees), including Executive
Directors, are managed in accordance with
existing remuneration restrictions.
The annual base salary for each Executive
Director is set out in the Directors’
Remuneration Report.
Non-pensionable cash allowances are
provided to eligible employees according
to their career level.
Non-pensionable allowances for senior
career levels range from € 10,000 to € 20,000
per annum (£ 8,300 to £ 11,000 in the UK).
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 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
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
205
Directors’ remuneration*
The following tables detail the total remuneration of the Directors in office during 2021 and 2020:
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)
2021
Total
€ 000
€ 000
€ 000
€ 000
500
283
783
–
13
13
100
56
156
38
81
22
95
109
85
64
218
85
95
71
63
22
80
30
1,128
30
59
–
8
600
352
952
38
81
22
95
109
85
64
218
115
95
71
63
22
80
1,158
17
67
2,194
Remuneration
Executive Directors
Colin Hunt
Donal Galvin
(Appointed 28 May 2021)
Non-Executive Directors
Anik Chaumartin
Basil Geoghegan
Tanya Horgan
Sandy Kinney Pritchard
Carolan Lennon
Elaine McLean
Andy Maguire
Brendan McDonagh(1(a))
(Deputy Chair)
Helen Normoyle
Ann O'Brien
Fergal O'Dwyer
Jim Pettigrew
(Chair)
Jan Sijbrand
Raj Singh
Former Directors
Anne Maher(5)
Tomás O’Midheach(6)
Total
(1)Fees paid to Non-Executive Directors in 2021 were as follows:
(a) In 2020, 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 the Chair of the Board was appointed in October 2021.
This additional remuneration ceased at that time;
(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, Ms Helen Normoyle earned fees as quoted during 2021;
(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 Defined Contribution Scheme, in respect of which she earned fees as quoted, during 2021.
(6) Mr O’Midheach, a former Executive Director, resigned from the Group with effect from the end of January 2021. The amount quoted represents his normal
salary, pension contributions and allowances, in accordance with Mr O’Midheach’s employment contract, up to the date of his resignation.
*Forms an integral part of the audited financial statements
206
Governance and Oversight
AIB Group plc Annual Financial Report 2021
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
2020
Total
€ 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
Remuneration
Executive Directors
Colin Hunt
Non-Executive Directors
Basil Geoghegan
Sandy Kinney Pritchard
Carolan Lennon
Elaine McLean
Brendan McDonagh
(Deputy Chair)
Helen Normoyle
Ann O'Brien
Raj Singh
Former Directors
Richard Pym
Tom Foley
Tomás O'Midheach
Anne Maher
Total
*Forms an integral part of the audited financial statements
AIB Group plc Annual Financial Report 2021
Governance and Oversight
207
1
2
3
4
5
6
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
appropriate.
All Directors, should they choose to stand, are subject to annual
re-election by shareholders.
Directors’ remuneration* (continued)
Interests in shares
The beneficial interests of the Directors and the Company
Secretary in office at 31 December 2021, and of their spouses
and minor children, in the Company’s ordinary shares are set out
in the Directors’ Report on page 171.
Share options
No share options were granted or exercised during 2021,
and there were no options to subscribe for ordinary shares
outstanding in favour of the Executive Directors or Company
Secretary at 31 December 2021.
Performance shares
There were no conditional grants of awards of ordinary shares
outstanding to Executive Directors or the Company Secretary at
31 December 2021.
Apart from the interests set out in the Directors’ Report on
page 171, the Directors and Company Secretary in office at
31 December 2021 and their spouses and minor children, have
no other interests in the shares of the Company.
The year end closing price of the Company’s ordinary shares on
the Main Market of the Euronext Dublin Stock Exchange was
€ 2.41 per share.
*Forms an integral part of the audited financial statements
208
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Report of the Sustainable Business
Advisory Committee
Sustainability and generating value sustainably are fundamental to
the Group’s policies and goals of achieving economic, environmental
and social outcomes. The delivery of these outcomes is subject to
rigorous oversight by the Committee, which oversees and challenges
the implementation of the Sustainability Strategy in order to drive
meaningful change across the Group and in the communities in which
we operate.
Helen Normoyle,
Committee Chair
Chair’s Overview
On behalf of the Sustainable Business Advisory Committee (the
“Committee”), I am pleased to report on the Committee’s activities
during the financial year end 31 December 2021 and provide an
insight into the workings of, and key matters considered by, the
Committee during the course of 2021.
The Committee was established by the Board as an Advisory
Committee to support the execution of the Group’s sustainable
communities strategy (the “Strategy”), one of the Group’s five
strategic pillars.
Specifically, the Committee considers and advises on the
Strategy’s key areas of focus: Climate and Environment,
Economic and Social Inclusion, and Future Proof Business.
It oversees and challenges the development, implementation and
embedding of this Strategy in order to drive meaningful change
across the Group and in the communities in which the Group
operates.
The Committee currently consists of four Non-Executive
Directors, one Executive Director (the Chief Executive Officer),
and three other members of senior management being the
Director of Corporate Affairs, Strategy and Sustainability and
2021 Highlights
During 2021, the Committee considered and challenged a number
of key areas including the:
– Group’s Sustainability Ambition and Targets;
– Group Sustainable Lending Framework and ESG
Questionnaire for its customers;
– Delivery of the Group’s Green products and propositions to its
customers;
– Responsible Supplier Code;
– Corporate Power Purchase Agreement;
– Embedding of Climate Risk across the Group;
– Employee communications and training approach;
– Group’s Community Strategy including Social Bond
Framework;
– Regulatory expectations and requirements on Climate Risk
and the mechanisms in place to deliver same;
– UN Global Compact Signatory, with its related Human Rights
Commitment; and
– Sustainability disclosures in the Group’s annual reporting
including signing up to using the World Economic forum
(WEF) Stakeholder Capitalism metrics in its reporting.
The Committee also provided support to the Group’s
Sustainability Teams across the organisation to ensure
momentum during the year as well as supported the annual AIB
the Chief People Officer, both of whom are also Executive
Sustainability Conference and Climate Finance Week events.
Committee members, and the Head of Energy, Climate Action
and Infrastructure. The Chief Sustainability Officer and the Chief
Risk Officer are invited to attend all meetings of the Committee.
There were no changes to Committee membership during 2021.
Sustainable Business Advisory Committee
Geraldine Casey
Chief People Officer
Colin Hunt
Chief Executive Officer
Carolan Lennon
Non-Executive Director
Helen Normoyle
Non-Executive Director, Chair
Ann O'Brien
Non-Executive Director
Raj Singh
Paul Travers
Non-Executive Director
Head of Energy, Climate
Action and Infrastructure
Mary Whitelaw
Director of Corporate Affairs,
Strategy and Sustainability
Eligible to
attend
Attended
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
5
Looking ahead to 2022
Over the course of 2022, our strategic priorities will be to continue
to embed and integrate sustainability and climate action into the
Group’s strategy via quantification of risks and opportunities,
appropriate training, development of Science Based Targets and
integration into our risk management framework and supporting
policies and credit processes.
I would like to take this opportunity to thank my fellow Committee
Members and wider Sustainability Team for their steadfast
commitment to this important area in what has been another
busy year.
Helen Normoyle
Committee Chair
AIB Group plc Annual Financial Report 2021
Governance and Oversight
209
Governance and oversight –
Report of the Technology &
Data Advisory Committee
The Committee further established itself in 2021,
and supported the Board in fulfilling its oversight
responsibilities by reviewing, challenging and
advising the Board on the strategy, governance and
execution of technology, data and cyber matters.
Ann O’Brien,
Committee Chair
1
2
3
4
5
6
Chair’s Overview
On behalf of the Technology & Data Advisory Committee (the
2021 Highlights
During 2021, the Committee considered and challenged a number
“Committee”), I am pleased to report on the Committee’s activities
of key areas including:
and provide an insight into the workings of the Committee during
– Technology & Data Strategy to support the delivery of the
the financial year ended 31 December 2021.
Group Strategy including the integration of inorganic growth
initiatives;
The Committee was constituted in September 2020 in recognition
– Cyber Strategy prior to recommendation to the Board for
of the Group’s substantial investment into technology and data
approval;
to support the delivery of the Group’s strategy. The Committee
– Technology & Data Operating Effectiveness including
was appointed by the Board to assist in fulfilling its oversight
investment priorities and delivery of key change programmes;
responsibilities by reviewing and challenging the strategy,
– Technology & Data Governance including management
governance and execution of matters relating to Technology
information and change control, data protection and data
and Data.
privacy, and key programmes, for example, business credit
Specifically, the Committee considers and advises on the
– Strategic & Commercial Opportunities and developing our
Technology Strategy’s key areas of focus: Cyber, Data, Digital,
thought leadership in new and evolving technology and data
Operating Model and Sustainment & Simplification. It oversees
areas including Cloud; and DevSecOps model and our future
and challenges the development and implementation of this
ambitions in these areas.
accounting;
Strategy across the Group with a key focus on measureable
outcomes and deliverables. The Committee also focuses on
areas of thought leadership to help influence and shape the
Strategy into the future.
The Committee currently consists of four Non-Executive Directors
Looking ahead to 2022
Over the course of 2022, our strategic priorities will be to continue
to embed and integrate the technology strategy across the Group
with a key focus on how technology is delivered to, and adopted
by, the Group as well as ensuring AIB is truly a digital bank for our
and two members of senior management, the Chief Technology
customers.
Officer and the Chief Operating Officer (Designate), who are
both members of the Executive Committee. During 2021, two
Non-Executive Directors joined the Committee. Ms Helen
Normoyle joined the Committee in January 2021 and Mr Andy
Maguire joined in March 2021. Ms Tanya Horgan also joined the
Committee in January 2022. The Chair of the AIB UK Technology
& Operational Resilience Advisory Committee, the Chief Risk
Officer, Group Head of Internal Audit, and the Data Protection
Officer also attend the meetings of the Committee by invitation.
I would like to take this opportunity to thank my fellow Committee
Members and wider Technology and Data Teams for their
significant commitment throughout 2021.
Technology & Data Advisory Committee
CJ Berry
Chief Operating Officer,
Designate
Fergal Coburn
Chief Technology Officer
Andy Maguire
Non-Executive Director
Helen Normoyle
Non-Executive Director
Ann O'Brien
Non-Executive Director, Chair
Eligible to
attend
Ann O’Brien
Attended
Committee Chair
4
4
3
4
4
4
4
3
4
4
210
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Viability statement
Viability statement
In accordance with provision 31 of the UK Corporate Governance
There is a continued focus on the impact of the COVID-19
pandemic on the risk profile of the Group. There have been
Code published in July 2018, the Directors have assessed the
positive developments during the year including the vaccine
viability of the Group taking into account its current position,
rollout and the re-opening of economies, however, the Board
the prevailing economic and trading conditions and principal risks
remains cognisant of and monitors a number of headwinds to
facing the Group over the next three years to the end of 2024.
the credit environment, most notably the potential impact of the
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;
removal of government supports, the pace of economic recovery,
inflation challenges and geopolitical risks.
The Group is also working to understand and prepare to manage
risks that could arise in relation to climate risk, both in terms of the
transition to net zero and the physical risks from climate change.
• The Group prepares its annual Internal Capital Adequacy
Assessment (ICAAP) and Internal Liquidity Adequacy
Assessment (ILAAP) on an annual basis using a three year
Assessment of risks
During the year, the Directors rely on the following processes to
identify and assess risks which could impact on the continued
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 liquidity and
funding and capital position. The Group’s regulatory capital has
increased on a transitional and fully loaded basis by € 55 million
and € 529 million respectively from year end 2020, as profit for
the year more than offset the additional years phasing of the
transitional adjustments. The Group’s transitional total capital ratio
of 24.2% is comfortably above regulatory requirements as set
out on pages 73 to 75. The Group’s LCR of 203% and NSFR of
160% demonstrate a very strong liquidity position as described on
pages 145 and 146.
The Group announced a refreshed three-year strategy and
Transformation Programme in December 2020. Throughout 2021,
the Group accelerated the delivery of the strategy and began
the year with the announcement of the acquisition of Goodbody.
This was followed by an agreement to set up a joint venture with
Great-West Life Co and the announcement of the Ulster Bank
corporate and commercial loan book acquisition, for which the
competition authority approval process is underway. This strategy
which is described on pages 83 to 168, continues to inform the
Board planning process covering the period of assessment.
As part of the delivery of the Group’s Strategy, the Directors
consider 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.
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.
• The Board Risk Committee oversees the Group’s risk
management.
A full description of the principal risks facing the Group is provided
in the Risk management section – Individual risk types pages 83
to 168.
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 pages 153. 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
211
Governance and oversight –
Viability statement / Internal controls
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.
The Group’s base case underpins the financial plan, which
forecasts improved prospects for the global economy following
the roll out of vaccines but also includes consideration of
downside scenarios. In 2021, the Group considered two downside
scenarios; (i) further transmission of COVID-19 and emergence
of new vaccine resistant variants and (ii) a severe but plausible
scenario which is used for internal stress testing of the Group’s
capital position. The Group also considers the impacts of
transitioning to a low-carbon economy and physical risks as part
of climate risk stress testing. In addition, the Group performs
regular stress testing of its liquidity position.
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 continued
profitability in each of the forecast years;
• Demonstrate capacity to carry out the proposed distribution
strategy to shareholders as well as the buyback strategy to
return the state’s investment in the Group;
• 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 have a reasonable
expectation, taking into account the Group’s current position,
and subject to the identified risks and mitigating actions, that the
Group will be able to continue in operation and meet its liabilities
as they fall due over the three year period of assessment.
Internal controls
Directors’ Statement on risk management and
internal controls
The Board of Directors is responsible for the 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 accounts, 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 & 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
finances 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 statement and
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. BRC oversees and challenges the
risk management function, which is managed on a day-to-day
basis by the Chief Risk Officer (“CRO”), and liaises regularly
with the CRO to ensure the Risk Function is adequately
resourced and has appropriate access to information to
enable it to perform its functions effectively and in accordance
with relevant professional standards. The Committee further
provides advice on the ongoing viability of the Group, taking
into account the Group’s overall position and principal risks.
212
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Internal controls
– 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.
– The Chief Financial Officer (“CFO”), the Chief Risk Officer
(“CRO”) and the Group Internal Auditor are involved in all
meetings of the BAC and BRC.
– The 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 reward
fairly and responsibly, with a clear link to corporate and
individual performance in compliance 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 its 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, climate and broader environmental impacts,
reputation and trust and external reporting.
– The TDAC is 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, data and cyber security.
– 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 material subsidiaries. It keeps Board
governance arrangements, corporate governance compliance
and related policies under review and makes appropriate
recommendations to the Board to ensure corporate
governance practices are consistent with best practice
standards.
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 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
and exceptions are reported to the GRC and BRC through the
CRO report. Elements of the CRO report are also contained
in the Executive Management Report reported to the full
Group Board. 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 the Group’s Fitness and Probity programme.
For further information on the risk management framework of the
Group, see pages 78 to 82 of this report.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Governance and Oversight
213
Governance and oversight –
Internal controls / Other governance information
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.
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 Chairs of the Board Committees are available to answer
questions about the Committee’s activities. A help desk facility is
available to shareholders attending the AGM.
The Company’s 2022 AGM is scheduled to be held on 5 May
2022. 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. The location of the meeting and
attendance options will be communicated with the distribution of
the aforementioned Notice.
214
Governance and Oversight
AIB Group plc Annual Financial Report 2021
Governance and oversight –
Supervision and Regulation
Throughout 2021, 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 2021 as the
regulatory landscape for the banking sector continued to evolve.
2021 saw a continued focus by the Group’s regulators on
regulatory change implementation dates amidst this evolving
regulatory landscape.
The Regulatory focus on Conduct and Culture will continue
in 2022 and beyond, with expected finalisation of the Senior
Executive Accountability Regime, and the onset of the 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 2021 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 5th
AML Directive in 2021, the PSD2 Regulatory Technical Standards,
the EBA Guidelines on Loan Origination and Monitoring, Climate
change/Sustainability and LIBOR transition.
Although 2022 will see a heightened focus by regulators and
supervisors assessing how recent key regulatory requirements
have been implemented and the process for implementation,
the level of regulatory change is expected to still remain at high
levels in 2022 and beyond.
United Kingdom
During 2021, 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 2022.
Regulatory change horizon – UK
Since the UK left the EU, the regulatory regime within the UK
has remained closely aligned with EU regulation. EU regulation
has effectively been onshored onto the UK statute book.
There remains a risk that UK regulation may diverge over time
and AIB UK is well position to identify and comply with any
changes.
2021 saw the satisfactory transition of loans away from
LIBOR onto risk free interest rates by the regulatory deadline.
Preparations continued for the implementation of Secure
Customer Authentication in respect of online transactions
conducted using cards. This regulatory requirement will better
protect customers from fraud and will be implemented by
14 March 2022.
There were a number of strategic initiatives implemented within
AIB UK during 2021. Each of these were implemented in line
with regulatory requirements and all customers risks and the
associated mitigating actions were fully considered through our
Conduct Committee.
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
2022. The level of regulatory change remained high in 2021.
The passing of the Anti-Money Laundering Act 2020 which
represents the most significant amendments and enhancements
to US AML laws in two decades will continue to be a focus
throughout 2022 with the implementation of new rules.
The Regulatory focus on BSA/AML/OFAC, climate change,
LIBOR transition, cybersecurity, 3rd party risk management
and corporate compliance continues in 2022 and beyond, with
anticipated regulatory developments in cybersecurity, including
an increased focus on reporting, increased state and federal
regulation and enforcements.
AIB New York will continue to maintain the Transaction Monitoring
and Filtering Programme (DFS 504) and Cybersecurity (DFS 500)
Programme and annually certify Compliance of these regulations
to the NYSDFS.
AIB New York will work closely with AIB Group on regulatory
changes, in particular the LIBOR transition and sustainability
and the implementation of relevant EU requirements taking into
consideration the NYSDFS and FRB guidance/regulations.
AIB Group plc Annual Financial Report 2021
Financial Statements
215
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
216
217
229
235
358
361
1
2
3
4
5
6
216
Financial Statements
AIB Group plc Annual Financial Report 2021
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 36 to 39 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 2021 and of its profit for the year then ended;
–
the Company financial statements prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the state of the
Company’s affairs as at 31 December 2021;
–
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
Jim Pettigrew
Chair
2 March 2022
Colin Hunt
Chief Executive Officer
Independent Auditor’s Report
AIB Group plc Annual Financial Report 2021
Financial Statements
217
Independent auditor’s report to the members of AIB Group plc
Report on the audit of the European Single Electronic Format financial statements (the ‘financial statements’)
Opinion on the financial statements of AIB Group plc (the ‘Company’)
In our opinion the Group and Company financial statements:
•
give a true and fair view of the assets, liabilities and financial position of the Group and Company as at 31 December 2021 and of the
profit of the Group for the financial year then ended; and
•
have been properly prepared in accordance with the relevant financial reporting framework and, in particular, with the requirements of
the Companies Act 2014 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
1
2
3
4
5
6
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 Flows; and
the related notes 1 to 58, 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 of Cash Flows; 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
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 assets;
• Defined benefit obligations;
• Provisions for liabilities and commitments;
•
IT systems and controls; and
• Recoverability 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
.
Materiality
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 € 55 million which is 0.5% of Total Equity of the Company.
218
Financial Statements
AIB Group plc Annual Financial Report 2021
Independent Auditor’s Report
Scoping
Significant
changes in our
approach
We focused the scope of our Group audit primarily on the audit work in AIB Group plc and four legal
entities, all of which were subject to individual statutory audit work, whilst the other legal entities were
subject to specified audit procedures, where the extent of our testing was based on our assessment
of the risks of material misstatement and of the materiality of the Group’s operations in those entities.
These audits and specified audit procedures covered over 94% of the Group’s total assets and 92% of the
Group’s total operating income.
There were no significant changes in our approach which we feel require disclosure.
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 models. 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 potential prolonged impacts of COVID-19
and the continuing impacts of Brexit on the ecomony; 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;
understanding the Group and Company’s Capital and Liquidity process, including under stressed scenarios;
obtaining the updated financial planning exercise covering the period 2022 to 2024 undertaken by the Group in the second half of 2021;
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
219
Expected credit losses on loans and advances to customers
Key audit matter
description
In line with IFRS 9, losses on financial assets which are classified at amortised cost, are recognised on
an Expected Credit Loss (“ECL”) basis. ECLs are required to incorporate forward looking information,
reflecting Management’s view of potential future economic environments. The complexity involved in the
calculations require Management to develop methodologies involving the use of significant judgements.
Expected credit loss allowances on loans and advances to customers was € 1,885 million at
31 December 2021 (2020: € 2,510 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;
– The definition of default;
– Accounting interpretations and assumptions used to build the models that calculate the ECL;
– The determination of key assumptions, including collateral valuation and cashflow timings, used in
discounted cash flows (“DCFs”) of individually assessed loans;
– The completeness and accuracy of data used to calculate the ECL;
– The completeness and valuation of post-model adjustments determined by Management for certain
higher risk portfolios and to address known model limitations; and
– Establishing the number and relative weightings for forward looking macroeconomic scenarios applied
in measuring the ECL. This is highly subjective given that such assumptions are subject to significant
uncertainty related to future economic outcomes, including the potential prolonged impacts of
COVID-19 and the continuing impacts of Brexit. This results in a wide range of possible outcomes.
Please also refer to page 186 (Report of the Board Audit Committee), page 254 (Accounting Policy (s)
– Impairment of financial assets), Note 2 – Critical accounting judgements and estimates, Note 13 – Net
credit impairment writeback/(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 potential prolonged impacts of COVID-19.
220
Financial Statements
AIB Group plc Annual Financial Report 2021
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 portfolio sales and
non-contracted write-offs, as well as recoveries on amounts previously written-off.
We evaluated the adequacy of disclosures made in the financial statements. In particular, we focused
on challenging Management that the disclosures were sufficiently clear in highlighting the significant
uncertainties that exist in respect of the ECL allowance and the sensitivity of the allowance to changes in
the underlying assumptions.
Based on the evidence obtained, we found that the ECLs on loans and advances to customers are within a
range we consider to be reasonable.
Recognition of deferred tax assets
Key audit matter
description
Deferred tax assets of € 2,840 million (2020: € 2,763 million) are recognised for unutilised tax losses to the
extent that it is probable that there will be sufficient future taxable profits against which the losses can be
used.
The assessment of the conditions for the recognition of a deferred tax asset is a critical Management
judgement, given the inherent uncertainties associated with projecting profitability over a long time
period. This is highly subjective given the significant uncertainty related to future economic outcomes,
including the potential longer term residual 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 2022 to 2024.
Growth assumptions and profitability levels underpinning the plan have been revised upwards compared to
previous years and results in a decrease 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.
Please refer to page 186 (Report of the Board Audit Committee), page 244 (Accounting Policy (k) – Income
tax, including deferred income tax), Note 2 – Critical accounting judgements and estimates and Note 30 –
Deferred taxation.
How the scope of our
audit responded to the
key audit matter
We have evaluated the design and determined the implementation of key controls over the preparation of
financial plans and budgets.
We assessed whether the level of forecasted profits were appropriate by challenging the growth,
profitability and economic assumptions. We tested the accuracy of Management’s forecasting process by
reviewing previous forecasts and comparing to actual results.
We reviewed the model used by Management to assess the likelihood of future profitability and challenged
Management’s assessment of a range of positive and negative evidence for the projection of long term
future profitability.
We compared Management’s assumptions to industry norms and other economic metrics where possible.
We reviewed Management’s analysis of the “more likely than not” test and assessed the adequacy of the
financial statement disclosures.
Based on the evidence obtained, we found that the assumptions used by Management in the recognition of
the deferred tax asset are within a range we consider to be reasonable.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
221
Defined benefit obligations
Key audit matter
description
The key audit matter is that the recognition and measurement of defined benefit obligations of
€ 6,241 million (2020: € 6,226 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 186 (Report of the Board Audit Committee), page 243 (Accounting Policy (j) –
Employee benefits), and Note 2 – Critical accounting judgements and estimates and Note 31 – Retirement
benefits.
How the scope of our
audit responded to the
key audit matter
We have evaluated the design and determined the implementation of key controls over the 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 liabilities and commitments
Key audit matter
description
The calculation of provisions for liabilities and commitments, including the Financial Services and Pensions
Ombudsman (“FSPO”) decision, the tracker mortgage examination and the sale of a series of property
investment funds, known as Belfry, 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 37 – Provisions for liabilities and commitments, the Group has recorded a provision
of € 79 million (2020: € 80 million) in regard to the FSPO Decision. In regard to the tracker mortgage
examination the Group has recorded a provision of € 70 million (2020: € 70 million) for related enforcement
fines expected to be imposed. The Group has recorded a provision of € 75 million (2020: Nil) for the
anticipated cost of redress and other related costs that may be payable under the Belfry programme.
Please refer to page 186 (Report of the Board Audit Committee), page 259 (Accounting Policy (z) – Non-
credit risk provisions), Note 2 – Critical accounting judgements and estimates, Note 37 – Provisions for
liabilities and commitments, and Note 44 – 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 provisions for liabilities and commitments, and we also
assessed Management review and governance controls.
We reviewed the relevant regulatory and legal correspondence. We challenged the reasonableness
of assumptions used by Management and tested the underlying data and assumptions used in the
determination of the provisions recorded. We reviewed the basis for recording and retaining a provision
taking into consideration the information available and the requirements of IAS 37.
222
Financial Statements
AIB Group plc Annual Financial Report 2021
Independent Auditor’s Report
IT systems and controls
Key audit matter
description
Given the inherent uncertainty in the calculation of the provisions and their 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 liabilities and commitments 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.
We regard this area as a key audit matter owing to the high level of IT dependency within the Group, as well
as the associated complexity and the risk that automated controls are not designed and operating effectively.
How the scope of our
audit responded to the
key audit matter
We examined the design of the governance framework associated with the Group’s IT architecture.
We gained an understanding and tested relevant General IT Controls for systems we considered relevant
to the financial reporting process, including access management, programme development and change
management.
We gained an understanding of relevant IT controls over applications, operating systems and databases
that are relevant for the financial reporting process and tested their operating effectiveness.
We assessed the 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
223
Recoverability 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 2021, the Company tested its investment in Allied Irish Banks, p.l.c. for impairment.
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 involved significant Management judgement and estimation.
This includes determining future cash flow projections during the period of the financial plan and the
selection of growth and discount rates.
The carrying amount of the Company’s investment in subsidiary at 31 December 2021 was € 6,362 million.
As a result of the impairment test, the recoverable amount at 31 December 2021 was calculated at
€ 9,069 million and this resulted in an impairment reversal of € 2,707 million.
Please refer to page 186 (Report of the Board Audit Committee), page 238 (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 specialists, 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.
224
Financial Statements
AIB Group plc Annual Financial Report 2021
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. 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 € 55 million which is 0.5% of Company Total Equity. We have selected Total Equity as an
appropriate benchmark for Company materiality as the Company’s primary purpose is to act as a holding Company with investments in the
Group’s primary subsidiary and therefore a profit based measure is not relevant.
Materiality
Total Equity
€ 13,660 m
Total Equity
Group materiality
Group materiality
€ 55 m
Component materiality
range € 55 m to € 9 m
Board 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
Identification and scoping of components
We determined the scope of our Group audit by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the Group
engagement team, or by auditors within Deloitte network firms operating under our instruction (“component auditors”). Where the work was
performed by component auditors, we determined the level of involvement we needed to have in the audit work at those components to be
able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated financial
statements as a whole.
Based on that assessment, we focused our Group audit work in AIB Group plc and the four legal entities as disclosed in Note 45 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 whether there were any additional significant risks
of material misstatement arising from the aggregated financial information of the remaining entities not subject to audit or specified audit
procedures.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
225
An overview of the scope of our audit (continued)
Working with other auditors
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.
Our consideration of climate-related risks
In planning our audit, we have considered the potential impacts of the climate-related risks identified by management on the Group’s
business and its financial statements.
The Group has set out its strategic ambition on climate and the related risks and governance processes on pages 26–55 of the annual
financial report and in more detail throughout their sustainability report. Management have identified that climate-related risks could have a
material impact on the strategy and operations of the Group, and the timing and ultimate impact of these risks contain an inherent level of
uncertainty.
As part of our audit, we have made inquiries of management to understand their process for considering the impact of climate-related risks
including their qualitative loan sector analysis. In addition, we are required to read the Group’s disclosure of climate related information
in the front half of the annual report, including the TCFD disclosures listed on pages 48–49, to consider whether they are materially
inconsistent with the financial statements or knowledge obtained in the audit. We did not identify any material inconsistencies as a result of
these procedures.
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.
226
Financial Statements
AIB Group plc Annual Financial Report 2021
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), 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
227
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 169 to 214 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 170;
•
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 210;
the directors’ statement on fair, balanced and understandable set out on page 216;
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 31;
•
the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
page 211; and
•
the section describing the work of the Board Audit Committee set out on pages 186 to 192.
228
Financial Statements
AIB Group plc Annual Financial Report 2021
Independent Auditor’s Report
Matters on which we are required to report by exception
Based on the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit,
we have not identified material misstatements in those parts of the directors’ report as specified for our review.
The Companies Act 2014 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 2021. 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 9 years, covering the years ending 2013 to 2021.
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 5 years,
covering the years ending 2017 to 2021.
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
2 March 2022
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 2021
Financial Statements
229
Consolidated income statement
for the financial year ended 31 December 2021
Interest income calculated using the effective interest rate 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 income/(loss)
Net gain on other financial assets measured at FVTPL
Net gain on derecognition of financial assets measured at amortised cost
Other operating income
Other income
Total operating income
Operating expenses
Impairment and amortisation of intangible assets
Impairment and depreciation of property, plant and equipment
Total operating expenses
Operating profit before impairment losses
Net credit impairment writeback/(charge)
Operating profit/(loss)
Share of equity accounted investments
Loss on disposal of property
Profit/(loss) before taxation
Income tax credit
Profit/(loss) for the year
Attributable to:
– Equity holders of the parent
– Non-controlling interests
Profit/(loss) for the year
Earnings per share
Basic earnings/(loss) per ordinary share
Diluted earnings/(loss) per ordinary share
Notes
4
4
4
5
6
7
7
8
9
10
11
12
26
27
13
25
15
41
16(a)
16(b)
1
2
3
4
5
6
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
2021
€ m
2,003
81
2,084
(290)
1,794
3
640
(160)
15
78
1
8
585
2,379
(1,679)
(198)
(129)
(2,006)
373
238
611
21
(3)
629
16
645
647
(2)
645
21.4c
21.4c
230
Financial Statements
AIB Group plc Annual Financial Report 2021
Consolidated statement of comprehensive income
for the financial year ended 31 December 2021
Notes
15
15
15
15
15
Profit/(loss) for the year
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Remeasurement of defined benefit asset/(liability), 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 of tax
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
2021
€ m
645
17
–
17
87
(391)
(54)
(358)
(341)
304
306
(2)
304
2020
€ m
(741)
(38)
(18)
(56)
(70)
71
(55)
(54)
(110)
(851)
(879)
28
(851)
1
2
3
4
5
6
Consolidated statement of financial position
as at 31 December 2021
AIB Group plc Annual Financial Report 2021
Financial Statements
231
Notes
2021
€ m
2020
€ m
Assets
Cash and balances at central banks
Items in course of collection
Disposal groups and non-current assets held for sale
Trading portfolio financial assets
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities
Investments accounted for using the equity method
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
Securities financing
Trading portfolio financial liabilities
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
Jim Pettigrew
Chair
2 March 2022
Colin Hunt
Chief Executive Officer
49
17
18
19
20
21
22
24
25
26
27
29
30
31
32
33
22
18
19
34
35
30
31
36
37
38
39
40
41
42,654
25,550
44
8
8
882
1,323
56,508
3,890
16,972
127
996
631
483
37
2,834
424
54
43
14
–
1,424
1,092
56,841
811
19,479
98
937
725
235
57
2,711
339
29
127,875
110,385
10,382
92,866
45
2
1,062
5,819
346
10
53
54
1,235
284
501
1,556
114,215
1,696
10,850
12,546
1,115
(1)
13,660
127,875
4,495
81,957
210
–
1,201
5,450
382
1
44
68
955
255
396
1,550
96,964
1,696
10,609
12,305
1,115
1
13,421
110,385
232
Financial Statements
AIB Group plc Annual Financial Report 2021
Consolidated statement of changes in equity
for the financial year ended 31 December 2021
At 1 January 2021
Total comprehensive income for the year
Profit for the year
Other comprehensive income (note 15)
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners of the Group
Distributions paid to other equity interests (note 40)
Other movements
Total contributions by and distributions
to owners of the Group
At 31 December 2021
Attributable to equity holders of parent
Share
capital
Other
equity
interests
Capital
reserves
Merger
reserve
€ m
1,696
€ m
1,115
€ m
1,133
€ m
(3,622)
Capital
redemp-
tion
reserves
€ m
14
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,696
1,115
1,133
(3,622)
14
Reval-
uation
reserves
€ m
14
–
–
–
–
(1)
(1)
13
Invest-
ment
securities
reserves
€ m
Cash
flow
hedging
reserves
€ m
Revenue
reserves
€ m
Foreign
currency
translation
reserves
€ m
Total
Non-
controlling
interests
Total
equity
€ m
€ m
€ m
206
540
12,923
(599)
13,420
1
13,421
–
(54)
(54)
–
(391)
(391)
–
–
–
–
–
–
647
17
664
(65)
1
(64)
–
87
87
–
–
–
647
(341)
306
(65)
–
(65)
(2)
–
(2)
–
–
–
645
(341)
304
(65)
–
(65)
152
149
13,523
(512)
13,661
(1)
13,660
Consolidated statement of changes in equity
for the financial year ended 31 December 2021
Consolidated statement of changes in equity
for the financial year ended 31 December 2020
AIB Group plc Annual Financial Report 2021
Financial Statements
233
Attributable to equity holders of parent
Share
capital
Other
Capital
Merger
Capital
equity
reserves
reserve
redemp-
Reval-
uation
Invest-
ment
Cash
Revenue
Foreign
Total
Non-
Total
flow
reserves
currency
controlling
equity
interests
tion
reserves
securities
hedging
reserves
reserves
reserves
translation
reserves
interests
€ m
1,696
€ m
1,115
€ m
1,133
€ m
(3,622)
€ m
14
€ m
540
€ m
12,923
€ m
€ m
€ m
€ m
(599)
13,420
1
13,421
At 1 January 2021
Profit for the year
Total comprehensive income for the year
Other comprehensive income (note 15)
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners of the Group
Distributions paid to other equity interests (note 40)
Other movements
Total contributions by and distributions
to owners of the Group
At 31 December 2021
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
€ m
14
–
–
–
–
(1)
(1)
13
€ m
206
–
(54)
(54)
–
–
–
–
(391)
(391)
–
–
–
647
17
664
(65)
1
(64)
–
87
87
–
–
–
647
(341)
306
(65)
–
(65)
(2)
–
(2)
–
–
–
645
(341)
304
(65)
–
(65)
1,696
1,115
1,133
(3,622)
14
152
149
13,523
(512)
13,661
(1)
13,660
At 1 January 2020
Total comprehensive income for the year
Loss for the year
Other comprehensive income (note 15)
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners of the Group
Non-controlling interests in subsidiary (note 41)
Redemption of capital instruments (note 41)
Issue of Additional Tier 1 Securities (note 40)
Distributions paid to other equity interests (note 40)
Distributions paid to non-controlling interests (note 41)
Total contributions by and distributions
to owners of the Group
Realised gains on equity shares held at fair value
through other comprehensive income
Attributable to equity holders of parent
Share
capital
Other
equity
interests
€ m
1,696
€ m
496
Capital
reserves
Merger
reserve
€ m
€ m
Capital
redemp-
tion
reserves
€ m
1,133
(3,622)
14
Reval-
uation
reserves
€ m
14
Invest-
ment
securities
reserves
€ m
Cash
flow
hedging
reserves
€ m
Revenue
reserves
€ m
Foreign
currency
translation
reserves
€ m
Total
Non-
controlling
interests
Total
equity
€ m
€ m
€ m
623
469
13,441
(529)
13,735
495
14,230
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
619
–
–
619
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(73)
(73)
–
71
71
(769)
(38)
(807)
–
(70)
(70)
(769)
(110)
(879)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9)
–
(46)
–
(55)
344
–
–
–
–
–
–
–
–
(9)
619
(46)
–
–
564
(522)
28
–
28
2
(494)
–
–
(30)
–
1
(741)
(110)
(851)
2
(503)
619
(46)
(30)
42
–
13,421
At 31 December 2020
1,696
1,115
1,133
(3,622)
540
12,923
(599)
13,420
–
14
–
14
(344)
206
1
2
3
4
5
6
234
Financial Statements
AIB Group plc Annual Financial Report 2021
Consolidated statement of cash flows
for the financial year ended 31 December 2021
Cash flows from operating activities
Profit/(loss) before taxation for the year
Adjustments for:
– Non-cash and other items
– Change in operating assets
– Change in operating liabilities
– Taxation refund/(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
Investments accounted for using the equity method
Net cash inflow/(outflow) from investing activities
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities
Net proceeds on issue of € 1 billion Tier 2 Notes
Redemption of capital instruments
Proceeds on issue of debt securities – MREL
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
50
50
50
24
24
27
26
28
25
40
38
34
40
41
27
49
2021
€ m
629
270
(2,312)
15,344
13
13,944
(2,517)
4,928
(31)
10
(204)
(60)
(8)
2,118
–
–
–
750
(65)
–
(43)
(97)
(28)
517
16,579
26,559
419
43,557
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
1
2
3
4
5
6
Notes to the consolidated financial statements
AIB Group plc Annual Financial Report 2021
Financial Statements
235
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 income/(loss)
9 Net gain on other financial assets measured
at FVTPL
10 Net gain on derecognition of financial assets
measured at amortised cost
11 Other operating income
12 Operating expenses
13 Net credit impairment writeback/(charge)
14 Auditor’s remuneration
15 Taxation
16 Earnings per share
17 Disposal groups and non-current assets held
for sale
18 Trading portfolio
19 Derivative financial instruments
20 Loans and advances to banks
21 Loans and advances to customers
22 Securities financing
23 ECL allowance on financial assets
24 Investment securities
25 Investments accounted for using the
equity method
26 Intangible assets and goodwill
27 Property, plant and equipment
28 Acquisition of subsidiary
29 Other assets
30 Deferred taxation
Page
Note
Page
236
263
269
273
273
274
274
274
275
275
275
276
276
277
278
280
280
280
281
291
292
293
294
295
299
300
301
304
305
306
31 Retirement benefits
32 Deposits by central banks and banks
33 Customer accounts
34 Debt securities in issue
35 Lease liabilities
36 Other liabilities
37 Provisions for liabilities and commitments
38 Subordinated liabilities and other capital
instruments
39 Share capital
40 Other equity interests
41 Non-controlling interests in subsidiaries
42 Capital reserves, merger reserve and capital
redemption reserves
43 Offsetting financial assets and financial
liabilities
44 Contingent liabilities and commitments
45 Subsidiaries and consolidated structured
entities
46 Off-balance sheet arrangements and
transferred financial assets
47 Classification and measurement of financial
assets and financial liabilities
48 Fair value of financial instruments
49 Cash and cash equivalents
50 Statement of cash flows
51 Related party transactions
52 Employees
53 Regulatory compliance
54 Financial and other information
55 Dividends
56 Proposed acquisition
57 Non-adjusting events after the reporting
period
58 Approval of financial statements
309
315
316
316
317
317
318
320
321
322
323
323
324
328
331
332
336
338
346
347
348
355
356
356
356
357
357
357
236
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
237
1 Accounting policies (continued)
The significant accounting policies that the Group applied in the preparation of the financial statements are set out in this section.
(a) Reporting entity
AIB Group plc (‘the parent company’ or ‘the Company’) is a company domiciled in Ireland. The address of the Company’s registered office
is 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.
The consolidated financial statements for the year ended 31 December 2021 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/joint ventures 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 2021. 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 Financials 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.
Voluntary change in accounting policy – presentation of securities financing
The Group has voluntarily changed its accounting policy for the presentation of certain financial instruments relating to securities financing.
A new line item and a related note (note 22) ‘Securities Financing’ was introduced for both assets and liabilities in the consolidated
statement of financial position. In previous years, securities borrowings were reported in ‘Loans and advances to banks’, reverse repurchase
agreements were reported in ‘Loans and advances to banks’ and ‘Loans and advances to customers’ and securities sold under agreements
to repurchase were reported in ‘Deposits by central banks and banks’ and ‘Customer accounts’. The comparatives for 2020 have been
restated accordingly. This approach was adopted following a significant increase in securities borrowing and reverse repurchase agreement
transactions. The Group believes this accounting policy changes provides reliable and more relevant information as it provides greater
transparency of the level of securities financing activity by the Group.
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 may involve 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 judgements 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 263 to 268.
238
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
1 Accounting policies (continued)
(c) Basis of preparation (continued)
Going concern
The financial statements for the year ended 31 December 2021 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.
This includes capital forecasts and internally generated stress scenarios with additional scenarios to take account of the inorganic initiatives
that the Group has committed to. The scenarios include the potential prolonged impacts of COVID-19 and the continuing impacts of Brexit.
The period of assessment used by the Directors is 12 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 2021, the Group applied for the first time certain standards and amendments which are effective
for annual periods beginning on or after 1 January 2021 (unless otherwise stated), The following are amendments to standards and
interpretations which had an insignificant impact on these annual financial statements:
– Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate Benchmark Reform – Phase 2.
Interest Rate Benchmark Reform – Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (“IBOR”) is replaced
with an alternative nearly risk-free interest rate (“RFR”). The amendments include a number of practical expedients. These amendments had
no material impact on the consolidated financial statements of the Group.
(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;
(v) reclassify to profit or loss, or transfer directly to retained earnings if required by IFRS, the amounts recognised in other comprehensive
income in relation to the subsidiary; and
(vi) 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
239
1 Accounting policies (continued)
(d) Basis of consolidation (continued)
Business combinations
The Group accounts for the acquisition of a business using the acquisition method except for a business 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 in its capacity as a trustee
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.
Investments accounted for using the equity method
The Group’s investments accounted for using the equity method comprise its investments in associates and joint ventures.
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.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the
arrangement.
240
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
1 Accounting policies (continued)
(d) Basis of consolidation (continued)
Investments in associated undertakings and joint ventures 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 or joint venture.
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 or joint venture after tax reflects the Group’s proportionate interest 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 instruments designated as a hedge of the net investment in a foreign
operation are reported in other comprehensive income.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
241
1 Accounting policies (continued)
(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 rate 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 rate 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.
242
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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 rate basis;
Interest on investment debt securities measured at FVOCI calculated on an effective interest rate 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).
Targeted Long Term Refinancing Operation III (“TLTRO III”)
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”).
TLTRO III has specific terms attached to it which are different from other sources of funding available to banks including other sources of
funds provided by the European Central Bank (“ECB”). The financial conditions incorporated into TLTRO III reflect ECB monetary policy
initiatives to prospectively reduce the cost of funding for banking institutions. Accordingly, the Group has concluded that the ECB has
established a separate market for TLTRO programmes and TLTRO III transactions are at market rates and the requirements of IAS 20
Accounting for Government Grants do not apply.
The borrowing rate applicable to the TLTRO III loans is linked to the lending patterns of the Group and are subject to the achievement of
predefined lending performance thresholds based on the eligible net lending of the Group in certain specified periods.
The amount of interest income recognised during the period on TLTRO III depends on whether the Group had a reasonable expectation of
meeting the relevant lending performance thresholds. The Group interprets reasonable expectations as highly probable (i.e. the probability
of meeting the lending targets is substantially greater than the probability that it will not). As a result, if interest income is recognised during
the period based on the expectation of meeting the targets, there should be only a limited possibility that the interest may need to be
reversed in future periods.
If the Group does not have a reasonable expectation that the lending targets will be met but subsequently determines it will meet the
relevant lending performance thresholds, it revises its estimates of receipts and recalculates the present value of the estimated future
contractual cash flows that are discounted at the original effective interest rate and recognises the adjustment in the Group’s consolidated
income statement as negative interest on financial liabilities at amortised cost.
(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, either at a ‘point in time’ or
‘over time’ if the performance obligation is performed over a period of time unless the income has been included in the effective interest rate
calculation.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
243
1 Accounting policies (continued)
(h) Fee and commission income (continued)
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.
(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.
244
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
1 Accounting policies (continued)
(j) Employee benefits (continued)
Retirement benefit obligations (continued)
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.
Remeasurements of the net defined benefit liability/(asset), comprising actuarial gains and losses and the return on scheme assets
(excluding amounts included in net interest on the net defined benefit liability/(asset)) are recognised in other comprehensive income.
Amounts recognised in other comprehensive income in relation to remeasurements of the net defined benefit liability/(asset) will not be
reclassified to profit or loss in a subsequent period.
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.
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
245
1 Accounting policies (continued)
(k) Income tax, including deferred income tax (continued)
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 it is probable that sufficient taxable profits will be available to allow all of the asset to be recovered.
The tax effects of income tax losses available for carry forward are recognised as an asset to the extent that it is probable that future taxable
profits will be available against which these losses can be utilised.
Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both
the legal right and the intention to settle the current tax assets and liabilities on a net basis or to realise the asset and settle the liability
simultaneously.
The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial assets and
financial liabilities including derivative contracts, provisions for pensions and other post-retirement benefits, and in relation to acquisitions,
on the difference between the fair values of the net assets acquired and their tax base.
Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing
of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse in the foreseeable
future. In addition, 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. In a situation where the Group commits to purchase financial assets under
a contract which is not considered a regular-way transaction, the assets to be acquired are not recognised until the acquisition contract is
settled. In this case, the contract to acquire the financial asset is a derivative that is measured at FVTPL in the period between the trade
date and the settlement date.
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:
246
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
1 Accounting policies (continued)
(l) Financial Assets (continued)
– 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 rate 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.
– 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
247
1 Accounting policies (continued)
(l) Financial Assets (continued)
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.
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 rate 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 rate method.
The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Any gain or loss on the
extinguishment or remeasurement of a financial liability is recognised in profit or loss.
Issued financial instruments are classified as equity when the Group has no contractual obligation to transfer cash, or other financial assets
or to issue a variable number of its own equity instruments. Incremental costs directly attributable to the issue of equity instruments are
shown as a deduction from the proceeds of issue, net of tax.
248
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
1 Accounting policies (continued)
(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.
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.
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.
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 remeasurement 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
249
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 remeasuring the carrying amount to reflect any reassessment or
lease modifications.
The lease liability is measured at amortised cost using the effective interest rate method. It is remeasured 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 remeasured 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 allocate the consideration in the modified contract to the lease components, determine the lease term of the modified lease
and remeasure the lease liability by discounting the revised lease payments using a revised discount rate.
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 by reference to the right-of-
use asset being leased, not the actual underlying asset.
250
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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.
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.
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.
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
251
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 rate 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 whereas interest rate swaps, currency swaps, cross currency interest rate swaps and credit
derivatives are used for hedging purposes.
The Group maintains trading positions in a variety of financial instruments including derivatives. Trading transactions arise both as a result
of activity generated by customers and from proprietary trading with a view to generating incremental income.
Non-trading derivative transactions comprise transactions held for hedging purposes as part of the Group’s risk management strategy
against assets, liabilities, positions and cash flows.
Derivatives
Derivatives are measured initially at fair value on the date on which the derivative contract is entered into and subsequently remeasured at
fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and from valuation
techniques using discounted cash flow models and option pricing models as appropriate. Derivatives are included in assets when their fair
value is positive, and in liabilities when their fair value is negative, unless there is the legal ability and intention to settle an asset and liability
on a net basis.
252
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
1 Accounting policies (continued)
(q) Derivatives and hedge accounting (continued)
Derivatives (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 Financial Instruments: Recognition and Measurement 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
Financial Instruments.
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, 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
253
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 rate
method. For debt securities measured at FVOCI, the fair value adjustment for hedged items is recognised in the income statement using the
effective interest rate 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.
254
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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”).
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
255
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 asset.
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 and a
modification gain or loss is 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.
256
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
257
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.
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.
258
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
1 Accounting policies (continued)
(w) Intangible assets
Computer software and other intangible assets
Computer software and other intangible assets are stated at cost, less amortisation on a straight line basis and provisions for impairment,
if any. The identifiable and directly associated external and internal costs of acquiring and developing software are capitalised where the
software is controlled by the Group, and where it is probable that future economic benefits that exceed its cost will flow from its use over
more than one year. Costs associated with maintaining software are recognised as an expense when incurred. Capitalised computer
software is amortised over 3 to 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 remeasurement. 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 remeasurement and impairment losses subsequent to classification as disposal groups and non-current assets held for
sale are shown within continuing operations in the income statement, unless they qualify as discontinued operations.
Disposal groups and non-current assets held for sale which are not classified as discontinued operations are presented separately from
other assets and liabilities on the statement of financial position. Prior periods are not reclassified.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
259
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
rate 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, 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 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.
260
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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 55.
Other equity interests
Other equity interests include
– Additional Tier 1 Perpetual Contingent Temporary Write-down Securities (“AT1s”) (note 40); 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 51).
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
261
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 42).
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.
262
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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.
Amendments to IAS 1 Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 to specify the requirements for classifying liabilities as
current or non-current. The amendments clarify:
– what is meant by a right to defer settlement;
–
–
–
that a right to defer must exist at the end of the reporting period;
that classification is unaffected by the likelihood that an entity will exercise its deferral right; and;
that only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its
classification.
Effective date: Annual reporting periods beginning on or after 1 January 2023.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies
The amendments to IAS 1 and IFRS Practice Statement 2 regarding disclosure of accounting policies which were issued in February 2021,
amends IAS 1 in the following way:
– Disclosure of material accounting policy information is now required instead of significant accounting policies.
– Amendments have been included to clarify that accounting policy information may be material because of its nature, even if the related
amounts are immaterial and if users of an entity’s financial statements would need it to understand other material information in the
financial statements.
Effective date: Annual reporting periods beginning on or after 1 January 2023.
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates
The amendments to IAS 8 regarding accounting policies, changes in accounting estimates and errors were issued in February 2021 to help
entities to distinguish between accounting policies and accounting estimates. The changes relate entirely to accounting estimates and clarify
the following:
– The definition of a change in accounting estimates is replaced with a definition of accounting estimates.
– Entities develop accounting estimates if accounting policies require items in financial statements to be measured in a way that involves
measurement uncertainty.
– A change in accounting estimate that results from new information or new developments is not the correction of an error.
– A change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and
future periods.
Effective date: Annual reporting periods beginning on or after 1 January 2023.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
The amendments to IAS 12 regarding deferred taxes related to assets and liabilities arising from a single transaction which were issued in
May 2021, require the following change:
–
an exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24.
Accordingly, the initial recognition exemption does not apply to transactions in which equal amounts of deductible and taxable temporary
differences arise on initial recognition.
Effective date: Annual reporting periods beginning on or after 1 January 2023.
Other
The IASB has published a number of minor amendments to IFRSs through standalone amendments. None of the other amendments are
expected to have a significant impact on reported results or disclosures.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
263
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 judgements that are deemed critical to the Group’s results and financial position, in terms of the materiality of the items to
which the judgements are applied and the estimates that have 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 certain of these
judgements also necessarily involves estimations which are discussed separately.
– Deferred taxation;
–
Impairment of financial assets;
– Retirement benefit obligations; and
– Provisions for liabilities and commitments.
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 30.
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:
• The estimated utilisation period for such losses in Ireland is within the timeframe that taxable profits are considered more likely than
not; and
•
15 years is the period that taxable profits are considered more likely than not in the UK.
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 these 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 changing banking landscape in Ireland following the commitment by KBC and Ulster Bank to exit the Irish market and evidenced by
the proposed acquisition of certain Ulster Bank loans by the Group;
the recent inorganic activity of the Group including the recently completed acquisition of Goodbody;
the turnaround evident in the financial performance over the years 2014–2019 and 2021 including the growth in the Irish economy in this
period;
–
external forecasts for Ireland and the UK 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 the 2009 to 2013 prior years.
264
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
2 Critical accounting judgements and estimates (continued)
Deferred taxation (continued)
The Board considered negative evidence and the inherent uncertainties in any long term financial assumptions and projections, including:
–
the enduring impact of COVID-19 in 2020 and 2021 with its severe impact on the economy and the resultant impairment charge taken in
2020 which resulted in a loss in that 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 residual 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 Organisation for Economic Co-operation and Development (“OECD”) tax reform, 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.
–
–
–
–
–
–
Profitability and growth were reassessed in the annual planning exercise covering the period 2022 to 2024 undertaken by the Group in the
second half of 2021. Growth assumptions and profitability levels underpinning the plan have been revised upwards 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 2022 to 2024 as a base and a profit growth rate of 2% from
2025, it was assessed that it will take in excess of 20 years for the deferred tax asset (€ 2.8 billion) to be utilised. Furthermore, under this
scenario, it is expected that c. 92% will be utilised within 20 years (2020: c. 72%) and c. 64% utilised within 15 years (2020: c. 50%). If the
growth rate assumption was decreased by 1%, then the utilisation period increases by a further c. 2 years. The Group’s analysis of this and
other scenarios examined would not alter the basis of recognition or the current carrying value. In 2020, the Group reported that it expected
that it would take in excess of 25 years for the deferred tax asset to be utilised.
Given the relative size of the Group’s operations in the UK compared to the role that the Irish operations play in supporting a functioning
banking environment, a different judgement has been applied to the period that taxable profits are considered more likely than not in the UK.
Despite 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.
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 € 2,840 million (2020: € 2,763) of which
€ 2,645 million (2020: € 2,675 million) relates to Irish tax losses and € 195 million (2020: € 88 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. Details of the Group’s expected
credit loss (“ECL”) allowance are set out in note 23.
The calculation of the ECL allowance is complex and requires the use of a number of accounting judgements.
The most significant judgements applied by the Group in determining the ECL allowance are as follows:
– Determining the criteria for a significant increase in credit risk and for being classified as credit impaired;
– Applying the definition of default policy for classifying financial assets as credit impaired;
– Choosing the appropriate models for measuring ECL; and
– Determining an appropriate methodology for post-model adjustments.
The significant management judgements and the governance process, relating to ECL, are set out on page 100 and 101 in the Risk
Management section.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
265
2 Critical accounting judgements and estimates (continued)
Retirement benefit obligations
The Group’s accounting policy for retirement benefit schemes is set out in accounting policy (j) in note 1.
The most significant judgement, applied by the Group, is 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.
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 2017, the Board implemented this process which has continued to date. Under this process, the Group decided in February 2021 and
February 2022 that the funding of discretionary increases was not appropriate in either year in relation to the Irish scheme. 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. A discussion on the assumption of the Trustee’s ability to grant increases at any point in the future is
set out in the section below on critical accounting estimates.
Provisions for liabilities and commitments
The Group’s accounting policy for provisions for liabilities and commitments is set out in accounting policy (z) ‘Non-credit risk provisions’ in
note 1. Details of the Group’s provision for liabilities and commitments are shown in note 37.
Significant management judgement is required to determine whether the Group has a present obligation as a result of a past event and
whether it is probable an outflow of resources will be required to settle the obligation.
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.
Judgement is required in determining whether the Group has a present obligation and whether it is probable that an outflow of economic
benefits will be required to settle this obligation. This judgement is applied to information available at the time of determining the provision
including, but not limited to, judgements around interpretations of legislation, regulations and case law depending on the nature of the provision.
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:
– Deferred taxation;
–
Impairment of financial assets;
– Retirement benefit obligations;
– Provisions for liabilities and commitments;
– Determination of fair value of financial instruments; and
–
Investment in subsidiary in the separate financial statements.
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 30.
The most significant source of estimation uncertainty in relation to deferred tax is the forecast profit that is used to determine the Group’s
UK deferred tax asset, which is based on the Group’s annual plan.
The deferred tax asset for unutilised tax losses in the UK amounts to £ 164 million at 31 December 2021 (31 December 2020: £ 79 million).
On an annual basis profitability and growth are reassessed in the annual planning exercise undertaken by the Group. Growth assumptions
and profitability levels underpinning the plan are reassessed and reflect the revised macroeconomic outlook and the current market as well
as revised business strategies. Recognising the current uncertainties in longer term profitability forecasting and, given the early stage of
implementation of the new AIB UK strategy at 31 December 2021, minimal growth has been forecast beyond 2023. The forecast expected
profits for the 15 year period have increased compared to expected profits in 2020 reflecting the benefits of the revised UK strategy together
with the impact of a higher rate environment.
Separately, legislation has been enacted to increase the UK Corporation Tax rate from 19% to 25% from 1 April 2023. This change has
resulted in an increase of the Group’s UK deferred tax asset from unutilised losses by £ 22 million.
Forecast profits are subject to uncertainty with a range of possibilities. Subsequent forecasts of profits in future years may be higher or lower
which could result in a significant risk of adjustment to the carrying amounts of deferred tax assets, within the next financial year.
266
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
2 Critical accounting judgements and estimates (continued)
Impairment of financial assets
The Group’s accounting policy for impairment of financial assets is set out in accounting policy (s) in note 1. Details of the Group’s expected
credit loss (“ECL”) allowance are set out in note 23.
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 estimates and assumptions, some of which by their nature, are highly subjective and very sensitive
to risk factors such as changes to economic conditions. Changes in the ECL allowance can materially affect net income.
ECL allowance for Loans and advances to customers at 31 December 2021 amounted to € 1,885 million (2020: € 2,510 million). The ECL
for financial assets represents management’s best estimate of the expected credit losses on the various portfolios at the respective
reporting dates.
The key estimates and assumptions that the Directors have used in determining the ECL allowance are as follows:
– Discounted cash-flows (“DCFs”) for certain Stage 3 credit impaired obligors;
– Establishing the number and relative weightings for forward looking scenarios;
– The assumptions for measuring ECL (e.g. PD, LGD and EAD and the parameters to be included within the models); and
– The estimation of post model adjustments where required.
Certain of these estimates may have a significant risk of material adjustment to carrying amounts of assets within the next financial year.
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 and the economic landscape which are continuously evolving. 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 page 99 of the Risk Management section of this report.
The Group has developed a standard approach for the measurement of ECL for the majority of the Group’s exposures where each ECL
input parameter (e.g. PD, LGD and EAD) is developed in line with standard modelling methodology. These are discussed further on page
91 and 92 of the Risk Management section. In addition, 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 may consider it
appropriate for an adjustment to ECL. These are referred to as post model adjustments and are set out in detail on page 100.
On an ongoing basis, the various 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 management process for
the calculation of ECL allowance is underpinned by second-line levels 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 101.
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 Group’s retirement
benefit obligations are set out in note 31.
The key estimates and assumptions that the Directors have used in determining the retirement benefit obligation are as follows:
–
In a situation where the Group believes the Trustee has the ability to grant discretionary increases without any funding being
provided by the Group, the Group has assumed that the Trustee will grant increases and as a result the scheme’s liabilities include
an estimate for this matter; and
– The significant actuarial assumptions used to determine the present value of the retirement benefit obligation.
During the second half of 2020 the Trustee of the Irish scheme awarded an increase of 1.1% in respect of pensions eligible for discretionary
pension increases backdated to 1 April 2020 notwithstanding the decision by the Group not to fund increases in pensions in payment.
This reflected 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
267
2 Critical accounting judgements and estimates (continued)
Retirement benefit obligations (continued)
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’s ability to grant further increases without any funding from the Group. At 31 December 2021, this has
been assessed as an assumed rate of pension increase of 0.65% per annum (2020: 0.2%) and has increased Scheme’s liabilities as at that
date by € 350 million (2020: € 100 million).
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. Details of the assumptions adopted by the Group in calculating the schemes’ liabilities are set out in note 31
to the financial statements. A sensitivity analysis for the principal assumptions used to measure the schemes’ liabilities is set out in note 31
to the financial statements.
Provisions for liabilities and commitments
The Group’s accounting policy for provisions for liabilities and commitments is set out in accounting policy (z) in note 1. Details of the
Group’s provision for liabilities and commitments are shown in note 37.
The most significant source of estimation uncertainty, in relation to provisions, is the assumptions that the Group makes about future
events affecting different classes of provisions including the future outcome of litigation and regulatory proceedings as well as the outcome
of restitution activities.
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 estimated potential losses will change over time
and the actual losses may vary significantly.
The overall provision amounting to € 501 million comprised: € 79 million in respect of the FSPO decision relating to tracker mortgage
customers; € 70 million in respect of CBI penalties; € 75 million in respect of the anticipated cost of redress and other related costs that
may be payable in relation to the review of the sale of Belfry funds during the period 2002 to 2006 and a number of separate provisions,
the majority of which are not individually significant and do not have a significant risk of 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 37 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 € 79 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 37 and 44, 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 not practicable
to quantify a range of outcomes.
Note 37 sets out the background on the Group’s sale of a series of investment property funds, known as Belfry, to c. 2,500 individual investors
(c. £ 214 million invested) during the period 2002 to 2006. The Group instigated a programme, which is ongoing, to review all investments in
the Belfry funds on a case by case basis and to determine if redress may be due in certain instances. The Group has recorded a provision
of € 75 million for the anticipated cost of redress and other related costs that may be payable under this programme. While the programme
principles and its approach are established, the redress strategy is currently being defined. As a result the anticipated cost of redress is subject
to uncertainty, with a range of possible outcomes, with the final outcome being higher or lower depending on finalisation of such matters.
Other than the above, there is no individually significant provision where there is a significant risk of a material adjustment in the next
financial year.
268
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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.
Details of the fair value of financial instruments are shown in note 48.
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.
The key estimates and assumptions that the Directors have used, in determining the fair value of the financial instruments, are as follows:
– The estimation of expected cash flows for the instruments;
– The assumption of an appropriate risk free rate; and
– The assumption of 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 particular 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 48.
Investment in subsidiary 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 of the Group
financial statements. Details of the Company’s investment in subsidiary are shown in note e to the Company’s financial statements.
The key estimates and assumptions that the Directors have used, in assessing the VIU of its investment in subsidiary, are as follows:
– The estimation of expected cash flows based on the financial plan for 2022–2024;
– The assumption of an appropriate growth rate; and
– The estimation of an appropriate discount rate including the assumption of an appropriate risk free rate and the assumption of an
appropriate credit spread.
The investment in subsidiary 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 2021 as the carrying value was below the
market capitalisation of the Group. In determining the VIU, the estimated pre-tax cash flow projections in the Company’s financial plan for
the period 2022 to 2024 were used as a base and a growth rate of 2% from 2024 was assumed into perpetuity. These projections were
discounted at a risk adjusted interest rate of 10%. The VIU was calculated at € 9,069 million which resulted in a reversal of an earlier
impairment of € 2,707 million.
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 to the
Company’s financial statements.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
269
3 Segmental information
Segment overview
The Group’s performance is managed and reported across the Retail Banking, AIB Capital Markets (“Capital Markets”) (previously
Corporate, Institutional & Business Banking), 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.
Capital Markets
Capital Markets provides institutional, corporate and business banking services to the Group’s larger customers and customers requiring
specific sector or product expertise. Capital Markets’ 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, Capital Markets 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. Capital Markets also has syndicated and international finance teams based in Dublin and in New York.
In 2021 Goodbody became part of Capital Markets, bringing additional capability in wealth management, corporate finance and wider capital
markets propositions.
AIB UK
AIB UK offers corporate, 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) identified changes to the AIB UK business model including the withdrawal from SME lending in Great
Britain to refocus on corporate business, particularly in renewables, infrastructure, health and manufacturing and a reduction in branch
footprint in Northern Ireland.
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 Technology,
Operations, 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.
2021
Total
€ m
1,794
480
105
585
2,379
270
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
3 Segmental information (continued)
Retail
Banking
Capital
Markets
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 writeback
Operating profit/(loss)
Share of equity accounted investments
Loss on disposal of property
Profit/(loss) before taxation
1,024
333
34
367
1,391
(911)
(397)
(326)
(188)
(2)
(913)
478
86
564
16
–
580
460
106
31
137
597
(154)
(107)
(36)
(11)
(1)
(155)
442
137
579
1
–
216
45
8
53
269
(163)
(88)
(53)
(22)
(1)
(164)
105
15
120
4
–
94
(4)
37
33
1,794
480
110
590
127
2,384
–
–
(5)(4)(6)
(5)
(5)
(306)
(146)
(97)
(63)
(158)
(464)
(337)
–
(337)
–
–
(1,534)
(310)
(1,844)
(738)
(512)
(284)
(58)(2)-(4)
(209)(3)-(6)
(43)(4)(6)
(796)
(721)
(327)
(162)
–
(1,696)
(310)
(162)
(2,006)
688
238
926
21
–
947
(315)
–
(315)
–
(3)(4)
(318)
373
238
611
21
(3)
629
580
124
(337)
(1) Exceptional items are shown separately above. These are items that Management view as distorting comparability of performance year-on-year.
Exceptional items include:
(2)Termination benefits;
(3)Restitution costs;
(4)Restructuring costs;
(5)Inorganic transaction costs; and
(6)Other.
For further information on these items see page 62.
*Analysis of net fee and commission income
Customer accounts
Card income
Foreign exchange fees
Credit related fees
Specialised payment services fees
Other fees and commissions
Fee and commission income
Specialised payment services expenses
Card expenses
Other fee and commission expenses
Fee and commission expense
Retail
Banking
€ m
Capital
Markets
€ m
AIB UK
Group
€ m
€ m
160
93
38
9
133
50
483
(118)
(28)
(4)
(150)
333
15
7
25
27
–
35
109
–
(1)
(2)
(3)
106
15
11
8
14
–
1
49
–
(4)
–
(4)
45
18
–
(4)
–
–
(15)(1)
(1)
–
–
(3)
(3)
(4)
2021
Total
€ m
208
111
67
50
133
71
640
(118)
(33)
(9)
(160)
480
(1) Reflects the allocation of the Group’s segment fee and commission income to Retail Banking and Capital Markets segments.
Further information on ‘Net fee and commission income’ is set out in note 7.
AIB Group plc Annual Financial Report 2021
Financial Statements
271
1
2
3
4
5
6
2020
Total
€ m
1,872
395
106
501
2,373
3 Segmental information (continued)
Retail
Banking
Capital
Markets
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)
Share of equity accounted investments
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 items are shown separately above. These are items that Management view as distorting comparability of performance year-on-year.
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 62.
*Analysis of net fee and commission income
Customer accounts
Card income
Foreign exchange fees
Credit related fees
Specialised payment services fees
Other fees and commissions
Fee and commission income
Specialised payment services expenses
Card expenses
Other fee and commission expenses
Fee and commission expense
Retail
Banking
€ m
Capital
Markets
€ m
132
83
32
10
146
48
451
(131)
(25)
(4)
(160)
291
14
7
20
17
–
10
68
–
(2)
–
(2)
66
AIB UK
Group
€ m
16
9
9
13
–
–
47
–
(4)
–
(4)
43
€ m
18
–
(7)
–
–
(13)(1)
(2)
–
–
(3)
(3)
(5)
2020
Total
€ m
180
99
54
40
146
45
564
(131)
(31)
(7)
(169)
395
(1) Reflects the allocation of the Group’s segment fee and commission income to Retail Banking and Capital Markets segments.
Further information on ‘Net fee and commission income’ is set out in note 7.
272
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial 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
Retail
Banking
€ m
Capital
Markets
€ m
31 December 2021
AIB UK
Group
Total
€ m
€ m
€ m
33,144
15,143
7,965
–
243
–
33,144
65,227
15,386
14,470
7,965
11,831
13
–
13
1,338
56,265
243
56,508
92,866
Retail
Banking
€ m
Capital
Markets
€ m
31 December 2020
AIB UK
Group
Total
€ m
€ m
€ m
34,008
14,453
8,269
–
34,008
56,874
75
14,528
12,735
–
8,269
10,959
36
–
36
1,389
56,766
75
56,841
81,957
Ireland
€ m
2,197
(105)
2,092
Ireland
€ m
1,946
170
2,116
Year to 31 December 2021
United
Kingdom
€ m
Rest of the
World
€ m
180
100
280
2
5
7
Total
€ m
2,379
–
2,379
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
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
1,562
Ireland
€ m
1,587
31 December 2021
United
Kingdom
€ m
Rest of the
World
€ m
62
3
Total
€ m
1,627
31 December 2020
United
Kingdom
€ m
71
Rest of the
World
€ m
4
Total
€ m
1,662
(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 2021
Financial Statements
273
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 securities financing at amortised cost
Interest on investment securities
Interest income on financial assets
Deposits by central banks and banks at amortised cost
Customer accounts at amortised cost
Negative interest on financial liabilities
Interest income calculated using the effective interest rate 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
1
2
3
4
5
6
2021
€ m
1,765
7
3
70
1,845
103
55
158
2,003
74
7
81
2020
€ m
1,888
12
–
116
2,016
7
27
34
2,050
75
2
77
2,084
2,127
The Group presents interest resulting from negative effective interest rates on financial liabilities as interest income rather than as offset
against interest expense.
Included in “negative interest on financial liabilities” is negative interest expense of € 102 million (2020: € 5 million), from the TLTRO
programme. The accounting policy and related judgements made by the Group in relation to interest income recognition for TLTRO are set
out in note 1 (f).
Under the conditions of the TLTRO programme, interest rates can be as favourable as 50 basis points below the average interest rate on
the ECB’s deposit facility. This applies to all TLTRO operations outstanding over the discrete periods from 24 June 2020 to 23 June 2021,
and from 24 June 2021 to 23 June 2022, for banks that show growth in lending volumes equal to or above 0% between the special
reference periods of 1 March 2020 to 31 March 2021 and 1 October 2020 to 31 December 2021 respectively.
Interest income of c. € 36 million was initially based on an EIR of -0.5% (the Main Refinancing Operations rate minus 50 bps), as the
Group assessed that it did not have a reasonable expectation that the relevant lending targets would be met. When it was subsequently
determined that the Group had a reasonable expectation that the relevant lending targets would be met, the Group recognised additional
interest income of € 66 million in the year (c. € 15 million for the special reference period from 1 March 2020 to 31 March 2021 and
c. € 51 million for the special reference period from 1 October 2020 to 31 December 2021).
Interest income includes a credit of € 161 million (2020: a credit of € 145 million) transferred from other comprehensive income in respect of
cash flow hedges which is included in ‘Interest on loans and advances to customers’ at amortised cost.
5 Interest and similar expense
Interest on deposits by central banks and banks
Interest on customer accounts
Interest on securities financing
Interest on debt securities in issue
Interest on lease liabilities
Interest on subordinated liabilities and other capital instruments
Interest expense on financial liabilities
Cash and balances at central banks
Loans and advances to banks
Securities financing
Investment securities
Negative interest on financial assets
Interest expense calculated using the effective interest rate method
2021
€ m
1
53
–
54
12
41
161
115
3
6
5
129
290
2020
€ m
3
82
1
67
13
45
211
36
3
1
4
44
255
The Group presents interest resulting from negative effective interest rates on financial assets as interest expense rather than as offset
against interest income.
Interest expense reported above, calculated using the effective interest rate method, relates to financial liabilities not carried at fair value
through profit or loss.
Interest expense includes a charge of € 19 million (2020: a charge of € 24 million) transferred from other comprehensive income in respect
of cash flow hedges which is included in ‘Interest on customer accounts’.
274
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
6 Dividend income
NAMA subordinated bonds at FVOCI
Equity investments at FVTPL
Total
7 Net fee and commission income
Customer accounts(1)
Card income(1)
Foreign exchange fees
Credit related fees
Specialised payment services fees(2)
Other fees and commissions(3)
Fee and commission income
Specialised payment services expenses(2)
Card expenses(4)
Other fee and commissions expenses
Fee and commission expense
2021
€ m
–
3
3
2021
€ m
208
111
67
50
133
71
640
(118)
(33)
(9)
(160)
480
2020
€ m
23
3
26
2020
€ m
180
99
54
40
146
45
564
(131)
(31)
(7)
(169)
395
(1) Customer accounts income amounting to € 180 million and card income of € 99 million were reported together as ‘Retail banking customer fees’
at 31 December 2020. For 31 December 2021, these items are reported separately to better represent the various fees included in each category.
The comparatives have been reclassified accordingly.
(2) Specialised payment services: fee income and fee expenses in respect of services and prepaid credits for cellular phone and utilities sold to third parties.
(3) Other fees and commissions includes asset management and advisory fees € 6 million (2020: Nil), stockbroking client fees and commissions € 18 million
(2020: Nil), wealth commissions € 23 million (2020: € 17 million), insurance commissions € 12 million (2020: € 14 million), and other commissions € 12 million
(2020: € 14 million).
(4) Card expenses includes credit card commissions of € 31 million (2020: € 28 million) and ATM expenses of € 2 million (2020: € 3 million).
Fees and commissions which are an integral part of the effective interest rate are recognised as part of interest and similar income (note 4)
or interest and similar expense (note 5).
8 Net trading income/(loss)
Foreign exchange contracts
Interest rate contracts and debt securities(1)
Credit derivative contracts
Equity investments, index contracts and warrants
2021
€ m
(16)
29
(3)
5
15
2020
€ m
(11)
7
(11)
(17)
(32)
(1) Includes a gain of € 16 million (2020: loss of € 5 million) in relation to XVA adjustments. (XVA comprises counterparty valuation adjustments (“CVA”) and
funding valuation adjustments (“FVA”)).
The total hedging ineffectiveness on cash flow hedges reflected in the consolidated income statement amounted to Nil (2020: Nil).
AIB Group plc Annual Financial Report 2021
Financial Statements
275
9 Net gain on other financial assets measured at FVTPL
Loans and advances to customers(1)
Investment securities – equity
Total
(1)Excludes interest income (note 4).
10 Net gain on derecognition of financial assets measured at amortised cost
2021
€ m
20
58
78
2020
€ m
41
45
86
1
2
3
4
5
6
Loans and advances to customers
Loans and advances to customers
Carrying value of
derecognised financial
assets measured at
amortised cost
€ m
1,100
Carrying value of
derecognised financial
assets measured at
amortised cost
€ m
464
2021
Gain from
derecognition
€ m
1
2020
Gain from
derecognition
€ m
24
Derecognition in 2021 arose from the sale of portfolios of non-performing loans, the sale of a portfolio of performing small and medium
enterprise (“SME”) loans in AIB UK and the sale of individual loans (for credit management purposes) from a specific loan portfolio where
credit deterioration had occurred.
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.
11 Other operating income
Gain on disposal of investment securities at FVOCI – debt
Loss on termination of hedging swaps(1)
Miscellaneous operating income
2021
€ m
18
(12)
2
8
2020
€ m
17
(17)
2
2
(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
(2020: € 1 million) transferred from other comprehensive income in respect of cash flow hedges.
276
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial 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
2021
€ m
597
51
91
67
15
821
(25)
796
548
173(6)
721
162(7)
2020
€ m
593
31
92
65
20
801
(25)
776
536
117
653
115
1,679
1,544
(1) Includes charges for voluntary severance programmes of € 51 million (2020: € 31 million). This includes a charge of £ 10 million (2020: £ 19 million) for the
anticipated cost of voluntary severance arising as part of the restructuring of the UK business.
(2) Comprises a defined contribution charge of € 79 million (2020: a charge of € 78 million), a charge of € 3 million in relation to defined benefit expense
(2020: a charge of € 5 million), and a long term disability payments/death in service benefit charge of € 9 million (2020: a charge of € 9 million). For details of
retirement benefits, see note 31.
(3)Share-based payment* charge of Nil (2020: Nil).
(4)Other personnel expenses include staff training, recruitment and various other staff costs
(5) Staff costs capitalised relate to intangible assets.
(6) Relates primarily to the Belfry provisions (see note 37) and the associated costs related to the Tracker Mortgage Examination.
(7) This includes a provision of € 31 million (of which € 25 million relates to prior periods) in relation to the annual fee to the Single Resolution Fund. For details of
provisions, see note 37.
The average number of employees for 2021 and 2020 is set out in note 52.
* 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 writeback/(charge)
The following table analyses the income statement net credit impairment writeback/(charge) on financial instruments for the years to
31 December 2021 and 2020.
Credit impairment writeback/(charge)
on financial instruments
Net remeasurement of ECL allowance
Loans and advances to banks
Loans and advances to customers
Securities financing
Loan commitments
Financial guarantee contracts
Investment securities – debt
Credit impairment writeback/(charge)
Recoveries of amounts previously written-off
Net credit impairment writeback/(charge)
Measured at
amortised
cost
€ m
2021
Total
Measured
at FVOCI
€ m
€ m
Measured at
amortised
cost
€ m
2020
Total
Measured
at FVOCI
€ m
€ m
–
158
(1)
2
4
–
163
75
238
–
–
–
–
–
–
–
–
–
–
158
(1)
2
4
–
163
75
238
–
(1,493)
(35)
(4)
(1)
(1,533)
72
(1,461)
–
–
–
–
1
1
–
1
–
(1,493)
(35)
(4)
–
(1,532)
72
(1,460)
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
277
14 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
2021
€ m
2.7
0.8
0.1
–
3.6
2020
€ m
2.8
0.6
0.9
–
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 total remuneration paid to overseas auditors (excluding Deloitte Ireland LLP):
Auditor’s remuneration excluding Deloitte Ireland LLP (excluding VAT)
2021
€ m
1.2
2020
€ m
0.7
278
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
15 Taxation
Current tax
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
Current tax (charge)/credit for the year
Deferred tax
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 in carrying value of deferred tax assets in respect of carried forward losses
Deferred tax credit for the year
Total tax credit for the year
Effective tax rate
2021
€ m
2020
€ m
(8)
3
(5)
(13)
–
(13)
(18)
(26)
7
–
4
49
34
16
–
61
61
28
–
28
89
(2)
24
(32)
103
8
101
190
(2.5)%
20.4%
Factors affecting the effective tax rate
The following table sets out the difference between the tax (charge)/credit that would result from applying the standard corporation tax rate
in Ireland of 12.5% and the actual tax charge for the year:
Profit/(loss) before tax
Tax (charge)/credit at standard corporation tax rate in Ireland of 12.5%
Effects of:
Foreign (profits)/losses taxed at other rates
Expenses not deductible for tax purposes
Exempted income, income at reduced rates and tax credits
Share of results of investments accounted for using the equity method
shown post tax in the income statement
(Income)/losses 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
2021
2020
€ m
629
(79)
(9)
(12)
2
2
(11)
8
82
–
1
22
10
16
%
12.5
1.4
1.9
(0.3)
(0.3)
1.7
(1.3)
(13.0)
–
–
(3.5)
(1.6)
(2.5)
€ 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
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
279
15 Taxation (continued)
Analysis of selected other comprehensive income
Property revaluation reserves
Net change in property revaluation reserves
Total
Retirement benefit schemes
Remeasurement of defined benefit asset/(liability)
Total
Foreign currency translation reserves
Amounts reclassified from the foreign currency translation 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
Recognised in other comprehensive income:
– Net (losses) on net investment hedges
– Exchange differences on translation of foreign operations
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 (losses)/gains recognised in other comprehensive income
Total
Investment debt securities at FVOCI reserves
Fair value (gains) transferred to income statement
Fair value (losses) 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
2021
Net
€ m
Gross
€ m
Tax
€ m
2020
Net
€ m
–
–
19
19
–
–
(100)
174
74
–
(141)
(307)
(448)
(18)
(44)
(62)
–
–
–
–
(2)
(2)
–
–
13
–
13
–
18
39
57
2
6
8
–
–
–
–
17
17
–
–
(87)
174
87
–
(123)
(268)
(391)
(16)
(38)
(54)
–
–
–
–
–
–
–
–
(50)
(50)
12
12
(38)
(38)
–
–
–
(70)
(70)
–
–
–
–
–
–
–
–
(70)
(70)
–
–
–
(120)
201
81
15
(25)
(10)
(105)
176
71
(17)
(45)
(62)
(21)
(21)
2
5
7
3
3
(15)
(40)
(55)
(18)
(18)
280
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
16 Earnings per share
The calculation of basic earnings/(loss) per unit of ordinary shares is based on the profit/(loss) attributable to ordinary shareholders divided
by the weighted average number of ordinary shares in issue, excluding own shares held.
The diluted earnings/(loss) per share is based on the profit/(loss) attributable to ordinary shareholders divided by the weighted average
number of ordinary shares in issue, excluding own shares held, adjusted for the effect of dilutive potential ordinary shares.
(a) Basic
Profit/(loss) attributable to equity holders of the parent
Distributions on other equity interests (note 40)
Profit/(loss) attributable to ordinary shareholders of the parent
Weighted average number of ordinary shares in issue during the year
Earnings/(loss) per share – basic
(b) Diluted
Profit/(loss) attributable to ordinary shareholders of the parent (note 16 (a))
Weighted average number of ordinary shares in issue during the year
Potential weighted average number of shares
Earnings/(loss) per share – diluted
2021
€ m
647
(65)
582
2020
€ m
(769)
(46)
(815)
Number of shares (millions)
2,714.4
2,714.4
EUR 21.4c
EUR (30.0)c
2021
€ m
582
2020
€ m
(815)
Number of shares (millions)
2,714.4
2,714.4
2,714.4
2,714.4
EUR 21.4c
EUR (30.0)c
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 39 for further detail).
These warrants were not included in calculating the diluted earnings per share as they were antidilutive.
17 Disposal groups and non-current assets held for sale
Property and non-financial assets held for sale(1)
Total disposal groups and non-current assets held for sale
2021
€ m
8
8
2020
€ m
14
14
(1)Includes property surplus to requirements and repossessed assets which are expected to be disposed of within one year.
18 Trading portfolio
Equity securities
Trading portfolio
financial assets
2021
€ m
2020
€ m
8
8
–
–
Trading portfolio
financial liabilities
2021
€ m
2
2
2020
€ m
–
–
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
281
19 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 2021 and 2020:
Derivative financial instrument(1)
Interest rate contracts
Exchange rate contracts
Equity contracts
Credit derivatives
Total
Notional
principal
amount
€ m
51,694
11,277
174
175
2021
Fair values
Assets Liabilities
€ m
806
76
–
–
€ m
(839)
(200)
(17)
(6)
Notional
principal
amount
€ m
50,430
7,848
49
350
2020
Fair values
Assets
Liabilities
€ m
1,353
€ m
(1,145)
70
–
1
(46)
(1)
(9)
63,320
882
(1,062)
58,677
1,424
(1,201)
(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. During the year
there was increased forward hedging of foreign currency funding, and management of Euro surplus liquidity, in light of uncertainty in markets
regarding COVID-19, ongoing EU/UK trade discussions and geopolitical tensions.
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 +
2021
Total
€ m
€ m
Less than 1
year
€ m
1 to 5
years
€ m
5 years +
2020
Total
€ m
€ m
Notional principal amount
22,480
20,804
20,036
63,320
18,180
19,064
21,433
58,677
Positive fair value
86
211
585
882
159
372
893
1,424
282
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
19 Derivative financial instruments (continued)
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
2020
€ m
2021
€ m
Positive fair value
2020
€ m
2021
€ m
59,897
3,304
119
63,320
55,688
2,857
132
58,677
576
295
11
882
992
418
14
1,424
Trading book 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.
Banking book 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 risk that
counterparties to derivative contracts (both trading and banking book) 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
Netting Agreements and increased clearing of derivatives through Central Clearing Counterparties (CCP’s). As the traded instruments are
recognised at market value, any changes in market value directly affect reported income for a given period. The notional principal and fair
value amounts for instruments held for risk management purposes entered into by the Group at 31 December 2021 and 2020, are presented
within this note.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
283
19 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 2021 and 2020. A description of how the fair values of derivatives are determined is set out in note 48.
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
Total interest rate derivatives
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 – central clearing
Credit derivatives
Total credit derivatives
Notional
principal
amount
€ m
2021
Fair values
Assets Liabilities
€ m
€ m
Notional
principal
amount
€ m
2020
Fair values
Assets
Liabilities
€ m
€ m
5,286
–
1,776
7,062
5,311
5,311
12,373
9,809
1
9,810
12
162
174
175
175
334
(353)
–
4
–
(3)
338
(356)
5,134
42
1,564
6,740
556
(475)
1
1
(1)
(1)
558
(477)
44
44
382
76
–
76
–
–
–
–
–
(26)
(26)
(382)
(160)
–
(160)
–
(17)
(17)
(6)
(6)
4,273
21
(113)
4,273
11,013
21
579
(113)
(590)
7,742
106
7,848
18
31
49
350
350
70
–
70
–
–
–
1
1
(46)
–
(46)
–
(1)
(1)
(9)
(9)
Total derivatives held for trading
22,532
458
(565)
19,260
650
(646)
284
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
19 Derivative financial instruments (continued)
Notional
principal
amount
€ m
2021
Fair values
Assets Liabilities
€ m
€ m
Notional
principal
amount
€ m
2020
Fair values
Assets
Liabilities
€ m
€ m
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
Total derivatives designated as fair value hedges
– OTC
Derivatives designated as fair value hedges
– OTC – central clearing
Interest rate swaps
Total interest rate fair value hedges – OTC
– central clearing
Total derivatives designated as fair value hedges
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
Total interest rate cash flow hedges – OTC
Derivatives designated as cash flow hedges – OTC
– central clearing
Interest rate swaps
Total interest rate cash flow hedges – OTC
– central clearing
Total derivatives designated as cash flow hedges
Derivatives designated as net investment hedges –
OTC
Forward exchange contracts
Total derivatives designated as net investment
hedges – OTC
Total derivatives held for hedging
Total derivative financial instruments
2,324
2,324
16,902
16,902
19,226
1,940
82
2,022
18,073
18,073
20,095
1,467
1,467
40,788
63,320
22
22
234
234
256
35
–
35
133
133
168
–
–
424
882
(28)
(28)
(164)
(164)
(192)
(53)
(6)
(59)
(206)
(206)
(265)
(40)
(40)
(497)
3,626
3,626
41
41
(59)
(59)
15,483
177
(382)
15,483
19,109
3,114
880
3,994
177
218
89
73
162
(382)
(441)
(79)
–
(79)
16,314
394
(35)
16,314
20,308
394
556
(35)
(114)
–
–
–
–
–
–
39,417
774
(555)
(1,062)
58,677
1,424
(1,201)
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 and fixed rate liabilities. The fair values of financial instruments are set out in note 48. The net
mark to market on fair value hedging derivatives, excluding accrual and risk adjustments at 31 December 2021 is positive € 26 million
(2020: negative € 252 million) and the net mark to market on the related hedged items at 31 December 2021 is negative € 27 million
(2020: positive € 248 million).
Netting financial assets and financial liabilities
Derivative financial instruments are shown on the statement of financial position at their fair value. Those with a positive fair value are
reported as assets and those with a negative fair value are reported as liabilities.
Details on offsetting financial assets and financial liabilities are set out in note 43.
AIB Group plc Annual Financial Report 2021
Financial Statements
285
19 Derivative financial instruments (continued)
Nominal values and average interest rates by residual maturity
At 31 December 2021 and 2020, the Group held the following hedging instruments of interest rate risk and foreign exchange rate risk in fair
value, cash flow and net investment hedges respectively:
Less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
5 years +
2021
Total
1
2
3
4
5
6
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)
Net investment hedges – Forward exchange contracts
Nominal principal amount (€ m)
Forward FX rate(4)
283
0.34
–
–
–
–
94
0.22
422
0.22
387
0.87
166
0.09
750
0.63
–
–
1,567
0.08
1,508
0.21
850
0.87
676
0.65
4,163
0.43
6,618
0.23
11,906
0.32
–
–
–
–
5,045
2.17
1,500
2.54
25
5.12
–
–
5,820
1.99
1,500
2.54
2,238
0.43
4,687
0.48
7,689
0.29
16,275
0.34
280
0.54
230
0.86
767
0.95
–
–
843
1.75
–
–
3,820
0.72
1,467
0.87
2020
Total
Less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
5 years +
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
(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.
(4) Being the forward FX rates on the hedging derivatives which are being used to hedge the Group’s net investment in foreign operations.
286
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
19 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 2021 and 2020:
Carrying amount(1)
Nominal
Assets Liabilities
(a) Hedging instruments
€ m
€ m
€ m
2021
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
11,906
5,820
1,500
139
117
–
(171) Derivative financial
instruments
(11) Derivative financial
instruments
(10) Derivative financial
instruments
401
(149)
22
4
–
–
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
12,264
9
Investment securities
Debt securities in issue
Subordinated debt
(5,828)
(1,527)
(9) Debt securities in issue
(27) Subordinated liabilities
and other capital
instruments
€ m
(397)
149
(22)
2021
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
–
–
–
2020
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
12,158
5,451
1,500
3
212
(441) Derivative financial
instruments
– Derivative financial
instruments
3
– Derivative financial
instruments
(81)
59
(4)
Carrying amount
of hedged items
recognised in
the SOFP*
Assets
€ m
Liabilities
€ m
(b) Hedged items
Investment securities – debt
12,822
Debt securities in issue
Subordinated debt
(5,602)
(1,504)
Accumulated amount
of fair value hedge
adjustments on the
hedged items included
in the carrying amount
of the hedged items
Liabilities
€ m
Assets
€ m
404
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
(152) Debt securities in issue
(4) Subordinated liabilities
and other capital
instruments
€ m
78
(59)
4
(3) Net trading
income
– Net trading
income
– Net trading
income
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
–
–
–
(1) The net mark to market on fair value hedging derivatives, excluding accruals of € 38 million is positive € 26 million (2020: € 29 million and negative
€ 252 million).
*Statement of financial position
AIB Group plc Annual Financial Report 2021
Financial Statements
287
e
h
t
n
i
m
e
t
i
e
n
L
i
t
a
h
t
s
t
n
u
o
m
A
r
o
f
s
t
n
u
o
m
A
e
m
o
c
n
i
n
e
e
b
e
v
a
h
e
g
d
e
h
h
c
i
h
w
t
n
e
m
e
t
a
t
s
d
e
r
r
e
f
s
n
a
r
t
d
a
h
g
n
i
t
n
u
o
c
c
a
n
i
m
e
t
i
e
n
L
i
e
m
o
c
n
i
e
h
t
t
n
e
m
e
t
a
t
s
n
o
i
t
a
c
i
f
i
s
s
a
l
c
e
r
m
e
t
i
d
e
g
d
e
h
d
e
g
d
e
h
e
h
t
h
c
i
h
w
e
g
d
e
h
e
h
t
y
b
d
e
t
c
e
f
f
a
e
h
t
e
s
u
a
c
e
b
r
o
f
t
u
b
d
e
s
u
n
e
e
b
s
e
d
u
l
c
n
i
t
a
h
t
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
e
g
d
e
H
n
i
d
e
s
i
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
I
d
e
t
c
e
f
f
a
s
a
h
s
w
o
l
f
h
s
a
c
e
r
u
t
u
f
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
s
t
n
e
m
u
r
t
s
n
i
g
n
i
t
a
l
u
c
l
a
c
r
o
f
e
u
l
a
v
r
i
a
f
n
i
e
g
n
a
h
C
i
g
n
g
d
e
h
f
o
r
i
a
f
n
i
e
g
n
a
h
C
i
g
n
g
d
e
h
f
o
e
u
l
a
v
d
e
s
u
s
t
n
e
m
u
r
t
s
n
i
d
e
s
i
n
g
o
c
e
r
e
g
d
e
h
n
i
I
C
O
n
i
r
a
e
y
e
h
t
r
a
e
y
e
h
t
n
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
*
P
F
O
S
e
h
t
i
g
n
g
d
e
h
e
r
e
h
w
s
t
n
e
m
u
r
t
s
n
i
d
e
d
u
l
c
n
i
e
r
a
n
i
m
e
t
i
e
n
L
i
s
e
i
t
i
l
i
b
a
i
L
s
t
e
s
s
A
i
l
a
n
m
o
N
t
n
u
o
m
a
t
a
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
d
e
t
a
e
r
l
e
h
t
h
t
i
w
r
e
h
t
e
g
o
t
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
f
o
s
e
g
d
e
h
w
o
l
f
h
s
a
c
n
i
s
m
e
t
i
d
e
g
d
e
h
e
h
t
)
b
(
d
n
a
s
t
n
e
m
u
r
t
s
n
i
i
g
n
g
d
e
h
s
a
d
e
t
a
n
g
s
e
d
i
s
m
e
t
i
)
a
(
o
t
g
n
i
t
l
a
e
r
s
t
n
u
o
m
a
e
h
t
t
u
o
l
t
e
s
w
o
e
b
s
e
b
a
t
l
e
h
T
1
2
0
2
w
o
l
f
h
s
a
c
m
o
r
f
d
e
i
f
i
s
s
a
l
c
e
r
s
t
n
u
o
m
A
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
o
t
s
e
v
r
e
s
e
r
g
n
g
d
e
h
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
H
t
n
u
o
m
a
g
n
i
y
r
r
a
C
:
0
2
0
2
d
n
a
1
2
0
2
r
e
b
m
e
c
e
D
1
3
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
9
1
e
t
a
r
t
s
e
r
e
t
n
i
f
o
s
e
g
d
e
h
w
o
l
f
h
s
a
C
e
s
n
e
p
x
e
r
a
l
i
m
i
s
e
m
o
c
n
i
r
a
l
i
m
i
s
d
n
a
t
s
e
r
e
t
n
I
1
6
1
d
n
a
t
s
e
r
e
t
n
I
)
9
1
(
m
€
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
–
–
m
€
r
e
g
n
o
l
o
n
e
r
a
r
u
c
c
o
o
t
d
e
t
c
e
p
x
e
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
–
–
)
4
1
5
(
)
6
0
6
(
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
9
0
2
(
s
t
n
e
m
u
r
t
s
n
i
6
6
7
6
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
6
5
(
s
t
n
e
m
u
r
t
s
n
i
3
5
1
5
1
5
7
2
,
6
1
0
2
8
,
3
)
1
(
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
I
s
t
e
s
s
a
e
v
i
t
a
v
i
r
e
D
s
e
i
t
i
l
i
b
a
i
l
e
v
i
t
a
v
i
r
e
D
m
€
m
€
m
€
m
€
m
€
m
€
s
t
n
e
m
u
r
t
s
n
I
i
g
n
g
d
e
H
)
a
(
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
g
n
g
d
e
h
e
r
a
h
c
h
w
i
f
o
h
t
o
b
,
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
y
c
n
e
r
r
u
c
s
s
o
r
c
d
n
a
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
h
t
o
b
e
d
u
c
n
l
i
e
s
e
h
T
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
g
n
g
d
e
H
)
1
(
1
2
3
4
5
6
.
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
n
i
i
d
e
s
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
y
n
a
h
t
i
w
e
m
o
c
n
i
i
e
v
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
n
i
i
d
e
s
n
g
o
c
e
r
s
i
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
t
n
i
e
g
n
a
h
c
e
h
t
y
b
t
e
s
f
f
o
s
i
t
a
h
t
n
o
i
t
r
o
p
e
h
T
n
o
i
t
i
s
o
p
l
i
a
c
n
a
n
i
f
f
o
t
n
e
m
e
t
t
a
S
*
.
e
g
d
e
h
e
h
t
f
o
n
o
i
t
p
e
c
n
i
m
o
r
f
m
e
t
i
d
e
g
d
e
h
e
h
t
f
o
)
e
u
a
v
l
t
n
e
s
e
r
p
(
e
u
a
v
l
r
i
a
f
n
i
e
g
n
a
h
c
l
e
v
i
t
a
u
m
u
c
e
h
t
r
o
s
s
o
l
i
r
o
n
a
g
e
v
i
t
a
u
m
u
c
l
e
h
t
r
e
h
t
i
e
f
o
r
e
w
o
l
e
h
t
o
t
d
e
t
s
u
d
a
j
e
r
a
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
T
)
1
(
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
i
g
n
g
d
e
h
1
2
0
2
s
t
n
u
o
m
A
s
t
n
u
o
m
A
e
h
t
n
i
i
g
n
n
i
a
m
e
r
e
h
t
n
i
i
g
n
n
i
a
m
e
r
n
i
s
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
m
€
3
9
1
–
m
€
1
2
2
–
x
a
t
t
s
o
p
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
e
g
d
e
h
h
c
i
h
w
i
r
o
f
p
h
s
n
o
i
t
a
l
e
r
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
x
a
t
e
r
p
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
e
g
d
e
h
h
c
i
h
w
i
r
o
f
p
h
s
n
o
i
t
a
l
e
r
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
)
1
1
(
m
€
)
3
3
(
x
a
t
t
s
o
p
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
r
o
f
s
e
v
r
e
s
e
r
n
i
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
x
a
t
e
r
p
i
g
n
g
d
e
h
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
r
o
f
s
e
v
r
e
s
e
r
r
a
e
y
e
h
t
r
o
f
r
i
a
f
n
i
e
g
n
a
h
C
r
o
f
d
e
s
u
s
m
e
t
i
d
e
g
d
e
h
f
o
e
u
l
a
v
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
g
n
i
t
a
l
u
c
l
a
c
d
e
d
u
l
c
n
i
s
i
m
e
t
i
d
e
g
d
e
h
h
c
i
h
w
n
i
*
P
F
O
S
n
i
m
e
t
i
e
n
L
i
)
3
1
(
m
€
)
8
3
(
m
€
6
0
6
)
7
6
(
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
m
e
t
i
d
e
g
d
e
H
)
b
(
288
Financial Statements
AIB Group plc Annual Financial Report 2021
n
o
i
t
a
c
i
f
i
s
s
a
c
e
r
l
e
h
t
m
e
t
i
d
e
g
d
e
h
e
h
t
n
i
m
e
t
i
e
n
L
i
t
a
h
t
s
t
n
u
o
m
A
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
n
e
e
b
e
v
a
h
d
e
r
r
e
f
s
n
a
r
t
y
b
d
e
t
c
e
f
f
a
e
h
t
e
s
u
a
c
e
b
r
o
f
s
t
n
u
o
m
A
e
g
d
e
h
h
c
h
w
i
d
a
h
g
n
i
t
n
u
o
c
c
a
r
o
f
t
u
b
d
e
s
u
n
e
e
b
d
e
g
d
e
h
e
h
t
h
c
h
w
i
e
g
d
e
h
n
i
m
e
t
i
e
n
L
i
e
m
o
c
n
i
e
h
t
t
n
e
m
e
t
a
t
s
s
e
d
u
c
n
l
i
t
a
h
t
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
e
g
d
e
H
n
i
i
d
e
s
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
I
d
e
t
c
e
f
f
a
s
a
h
s
w
o
l
f
h
s
a
c
e
r
u
t
u
f
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
u
a
v
l
r
i
a
f
n
i
e
g
n
a
h
C
i
g
n
g
d
e
h
f
o
s
t
n
e
m
u
r
t
s
n
i
i
d
e
s
n
g
o
c
e
r
n
i
I
C
O
n
i
r
a
e
y
e
h
t
r
i
a
f
n
i
e
g
n
a
h
C
i
g
n
g
d
e
h
f
o
e
u
a
v
l
d
e
s
u
s
t
n
e
m
u
r
t
s
n
i
l
g
n
i
t
a
u
c
a
c
l
r
o
f
e
g
d
e
h
r
a
e
y
e
h
t
n
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
r
e
h
w
*
P
F
O
S
s
t
n
e
m
u
r
t
s
n
i
d
e
d
u
c
n
l
i
e
r
a
i
g
n
g
d
e
h
e
h
t
n
i
m
e
t
i
e
n
L
i
s
e
i
t
i
l
i
b
a
L
i
s
t
e
s
s
A
l
i
a
n
m
o
N
t
n
u
o
m
a
0
2
0
2
w
o
l
f
h
s
a
c
m
o
r
f
d
e
i
f
i
s
s
a
c
e
r
l
s
t
n
u
o
m
A
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
o
t
s
e
v
r
e
s
e
r
g
n
g
d
e
h
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
H
t
n
u
o
m
a
i
g
n
y
r
r
a
C
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
9
1
)
d
e
u
n
i
t
n
o
c
(
e
t
a
r
t
s
e
r
e
t
n
i
f
o
s
e
g
d
e
h
w
o
l
f
h
s
a
C
e
s
n
e
p
x
e
r
a
l
i
m
s
i
e
m
o
c
n
i
r
a
l
i
m
s
i
d
n
a
t
s
e
r
e
t
n
I
5
4
1
d
n
a
t
s
e
r
e
t
n
I
)
4
2
(
m
€
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
–
–
m
€
r
e
g
n
o
l
o
n
e
r
a
r
u
c
c
o
o
t
d
e
t
c
e
p
x
e
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
–
–
3
9
)
2
1
(
2
8
)
5
(
l
i
a
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
6
(
s
t
n
e
m
u
r
t
s
n
i
s
t
n
e
m
u
r
t
s
n
i
l
i
a
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
8
0
1
(
–
m
€
m
€
m
€
m
€
m
€
6
5
5
m
€
s
t
n
e
m
u
r
t
s
n
I
i
g
n
g
d
e
H
)
a
(
7
3
9
,
5
1
1
7
3
,
4
)
1
(
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
I
s
t
e
s
s
a
e
v
i
t
a
v
i
r
e
D
s
e
i
t
i
l
i
b
a
i
l
e
v
i
t
a
v
i
r
e
D
e
h
t
n
i
i
i
g
n
n
a
m
e
r
e
h
t
n
i
i
i
g
n
n
a
m
e
r
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
0
2
0
2
s
t
n
u
o
m
A
s
t
n
u
o
m
A
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
r
o
f
p
h
s
n
o
i
t
a
e
r
l
i
r
o
f
p
h
s
n
o
i
t
a
e
r
l
m
€
0
8
1
–
m
€
5
0
2
–
x
a
t
t
s
o
p
e
g
d
e
h
h
c
h
w
i
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
x
a
t
e
r
p
e
g
d
e
h
i
h
c
h
w
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
i
g
n
g
d
e
h
e
r
a
h
c
h
w
i
f
o
h
t
o
b
,
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
y
c
n
e
r
r
u
c
s
s
o
r
c
d
n
a
s
p
a
w
s
e
t
a
r
t
s
e
r
e
t
n
i
h
t
o
b
e
d
u
c
n
l
i
e
s
e
h
T
.
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
i
i
g
n
g
d
e
H
)
1
(
m
€
1
5
4
)
1
9
(
n
i
s
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
i
g
n
g
d
e
h
r
o
f
s
e
v
r
e
s
e
r
x
a
t
t
s
o
p
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
m
€
5
1
5
)
4
0
1
(
n
i
t
n
u
o
m
A
w
o
l
f
h
s
a
c
e
h
t
i
g
n
g
d
e
h
r
o
f
s
e
v
r
e
s
e
r
x
a
t
e
r
p
)
1
(
s
e
g
d
e
h
i
g
n
u
n
i
t
n
o
c
r
i
a
f
n
i
e
g
n
a
h
C
r
o
f
d
e
s
u
s
m
e
t
i
d
e
g
d
e
h
f
o
e
u
a
v
l
e
g
d
e
h
g
n
l
i
t
a
u
c
a
c
l
m
€
)
2
8
(
5
r
a
e
y
e
h
t
r
o
f
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
d
e
d
u
c
n
l
i
s
i
m
e
t
i
d
e
g
d
e
h
i
h
c
h
w
n
i
*
P
F
O
S
n
i
m
e
t
i
e
n
L
i
s
r
e
m
o
t
s
u
c
o
t
s
e
c
n
a
v
d
a
d
n
a
s
n
a
o
L
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
t
n
u
o
c
c
a
r
e
m
o
t
s
u
C
k
s
i
r
e
t
a
r
t
s
e
r
e
t
n
I
s
m
e
t
i
d
e
g
d
e
H
)
b
(
.
e
g
d
e
h
e
h
t
f
o
n
o
i
t
p
e
c
n
i
m
o
r
f
m
e
t
i
d
e
g
d
e
h
e
h
t
f
o
)
e
u
a
v
l
t
n
e
s
e
r
p
(
e
u
a
v
l
r
i
a
f
n
i
e
g
n
a
h
c
l
e
v
i
t
a
u
m
u
c
e
h
t
r
o
s
s
o
l
r
o
n
a
g
i
l
e
v
i
t
a
u
m
u
c
e
h
t
r
e
h
t
i
e
f
o
r
e
w
o
l
e
h
t
o
t
d
e
t
s
u
d
a
j
e
r
a
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
T
)
1
(
.
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
n
i
i
d
e
s
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
y
n
a
h
t
i
w
e
m
o
c
n
i
i
e
v
s
n
e
h
e
r
p
m
o
c
r
e
h
t
o
n
i
i
d
e
s
n
g
o
c
e
r
s
i
s
e
v
r
e
s
e
r
i
g
n
g
d
e
h
w
o
l
f
h
s
a
c
e
h
t
n
i
e
g
n
a
h
c
e
h
t
y
b
t
e
s
f
f
o
s
i
t
a
h
t
n
o
i
t
r
o
p
e
h
T
n
o
i
t
i
s
o
p
l
i
a
c
n
a
n
i
f
f
o
t
n
e
m
e
t
t
a
S
*
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
289
19 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
62
50
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
52
24
125
28
102
21
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
2021
Total
€ m
341
123
2020
Total
€ m
39
226
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
62
118
Between 1
and 2 years
€ m
Between 2
and 5 years
€ m
More than
5 years
€ m
52
77
125
118
102
50
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
2021
Total
€ m
341
363
2020
Total
€ m
39
433
Ineffectiveness reflected in the income statement that arose from cash flow hedges at 31 December 2021 amounted to Nil (2020: 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 2021 was a loss of
€ 391 million (2020: a gain of € 71 million).
290
Financial Statements
AIB Group plc Annual Financial Report 2021
e
h
t
n
i
m
e
t
i
e
n
L
i
t
a
h
t
s
t
n
u
o
m
A
r
o
f
s
t
n
u
o
m
A
e
m
o
c
n
i
n
e
e
b
e
v
a
h
e
g
d
e
h
h
c
i
h
w
t
n
e
m
e
t
a
t
s
d
e
r
r
e
f
s
n
a
r
t
d
a
h
g
n
i
t
n
u
o
c
c
a
n
i
m
e
t
i
e
n
L
i
e
m
o
c
n
i
e
h
t
t
n
e
m
e
t
a
t
s
n
o
i
t
a
c
i
f
i
s
s
a
l
c
e
r
m
e
t
i
d
e
g
d
e
h
d
e
g
d
e
h
e
h
t
h
c
i
h
w
e
g
d
e
h
e
h
t
y
b
d
e
t
c
e
f
f
a
e
h
t
e
s
u
a
c
e
b
r
o
f
t
u
b
d
e
s
u
n
e
e
b
s
e
d
u
l
c
n
i
t
a
h
t
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
e
g
d
e
H
n
i
d
e
s
i
n
g
o
c
e
r
s
s
e
n
e
v
i
t
c
e
f
f
e
n
I
d
e
t
c
e
f
f
a
s
a
h
s
w
o
l
f
h
s
a
c
e
r
u
t
u
f
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
s
t
n
e
m
u
r
t
s
n
i
g
n
i
t
a
l
u
c
l
a
c
r
o
f
e
u
l
a
v
r
i
a
f
n
i
e
g
n
a
h
C
i
g
n
g
d
e
h
f
o
r
i
a
f
n
i
e
g
n
a
h
C
i
g
n
g
d
e
h
f
o
e
u
l
a
v
d
e
s
u
s
t
n
e
m
u
r
t
s
n
i
d
e
s
i
n
g
o
c
e
r
e
g
d
e
h
n
i
I
C
O
n
i
r
a
e
y
e
h
t
r
a
e
y
e
h
t
n
i
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
*
P
F
O
S
e
h
t
i
g
n
g
d
e
h
e
r
e
h
w
s
t
n
e
m
u
r
t
s
n
i
d
e
d
u
l
c
n
i
e
r
a
n
i
m
e
t
i
e
n
L
i
s
e
i
t
i
l
i
b
a
i
L
s
t
e
s
s
A
i
l
a
n
m
o
N
t
n
u
o
m
a
1
2
0
2
y
c
n
e
r
r
u
c
n
g
i
e
r
o
f
m
o
r
f
d
e
i
f
i
s
s
a
l
c
e
r
s
t
n
u
o
m
A
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
o
t
s
e
v
r
e
s
e
r
n
o
i
t
a
l
s
n
a
r
t
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
H
t
n
u
o
m
a
g
n
i
y
r
r
a
C
.
1
2
0
2
r
e
b
m
e
c
e
D
1
3
t
a
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
d
e
t
a
e
r
l
e
h
t
h
t
i
w
r
e
h
t
e
g
o
t
s
n
o
i
t
a
r
e
p
o
i
n
g
e
r
o
f
n
i
t
n
e
m
t
s
e
v
n
i
t
e
n
e
h
t
f
o
s
e
g
d
e
h
n
i
s
m
e
t
i
d
e
g
d
e
h
e
h
t
)
b
(
d
n
a
s
t
n
e
m
u
r
t
s
n
i
i
g
n
g
d
e
h
s
a
d
e
t
a
n
g
s
e
d
i
s
m
e
t
i
)
a
(
o
t
g
n
i
t
l
a
e
r
s
t
n
u
o
m
a
e
h
t
t
u
o
l
t
e
s
w
o
e
b
s
e
b
a
t
l
e
h
T
)
d
e
u
n
i
t
n
o
c
(
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
9
1
s
n
o
i
t
a
r
e
p
o
n
g
i
e
r
o
f
n
i
t
n
e
m
t
s
e
v
n
i
t
e
n
f
o
s
e
g
d
e
H
e
m
o
c
n
I
r
e
h
t
O
e
m
o
c
n
I
r
e
h
t
O
–
–
m
€
t
n
e
m
e
t
a
t
s
e
m
o
c
n
i
e
h
t
–
–
m
€
r
e
g
n
o
l
o
n
e
r
a
r
u
c
c
o
o
t
d
e
t
c
e
p
x
e
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
i
g
n
d
a
r
t
t
e
N
e
m
o
c
n
i
–
–
)
0
0
1
(
)
0
0
1
(
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
)
0
4
(
s
t
n
e
m
u
r
t
s
n
i
–
–
l
a
i
c
n
a
n
i
f
e
v
i
t
a
v
i
r
e
D
–
s
t
n
e
m
u
r
t
s
n
i
–
–
–
7
6
4
,
1
s
t
c
a
r
t
n
o
c
e
g
n
a
h
c
x
e
n
g
e
r
o
F
i
s
t
e
s
s
a
e
v
i
t
a
v
i
r
e
D
s
e
i
t
i
l
i
b
a
i
l
e
v
i
t
a
v
i
r
e
D
m
€
m
€
m
€
m
€
m
€
m
€
s
t
n
e
m
u
r
t
s
n
I
i
g
n
g
d
e
H
)
a
(
1
2
0
2
s
t
n
u
o
m
A
e
h
t
n
i
i
g
n
n
i
a
m
e
r
y
c
n
e
r
r
u
c
n
g
i
e
r
o
f
s
t
n
u
o
m
A
e
h
t
n
i
i
g
n
n
i
a
m
e
r
y
c
n
e
r
r
u
c
n
g
i
e
r
o
f
i
g
n
g
d
e
h
y
n
a
m
o
r
f
i
g
n
g
d
e
h
y
n
a
m
o
r
f
s
e
v
r
e
s
e
r
n
o
i
t
a
l
s
n
a
r
t
s
e
v
r
e
s
e
r
n
o
i
t
a
l
s
n
a
r
t
–
m
€
x
a
t
t
s
o
p
e
g
d
e
h
h
c
i
h
w
i
r
o
f
p
h
s
n
o
i
t
a
l
e
r
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
–
m
€
x
a
t
e
r
p
e
g
d
e
h
h
c
i
h
w
i
r
o
f
p
h
s
n
o
i
t
a
l
e
r
d
e
i
l
p
p
a
r
e
g
n
o
l
o
n
s
i
g
n
i
t
n
u
o
c
c
a
s
e
g
d
e
h
x
a
t
t
s
o
p
n
o
i
t
a
l
s
n
a
r
t
r
o
f
s
e
v
r
e
s
e
r
i
g
n
u
n
i
t
n
o
c
s
e
g
d
e
h
x
a
t
e
r
p
n
o
i
t
a
l
s
n
a
r
t
r
o
f
s
e
v
r
e
s
e
r
i
g
n
u
n
i
t
n
o
c
e
h
t
n
i
s
t
n
u
o
m
A
y
c
n
e
r
r
u
c
n
g
i
e
r
o
f
e
h
t
n
i
t
n
u
o
m
A
y
c
n
e
r
r
u
c
n
g
i
e
r
o
f
r
a
e
y
e
h
t
r
o
f
r
i
a
f
n
i
e
g
n
a
h
C
r
o
f
d
e
s
u
s
m
e
t
i
d
e
g
d
e
h
f
o
e
u
l
a
v
s
s
e
n
e
v
i
t
c
e
f
f
e
n
i
e
g
d
e
h
g
n
i
t
a
l
u
c
l
a
c
d
e
d
u
l
c
n
i
s
i
m
e
t
i
d
e
g
d
e
h
h
c
i
h
w
n
i
*
P
F
O
S
n
i
m
e
t
i
e
n
L
i
)
7
8
(
m
€
m
€
)
0
0
1
(
m
€
0
0
1
s
e
v
r
e
s
e
R
s
m
e
t
i
d
e
g
d
e
H
)
b
(
y
r
a
i
d
i
s
b
u
s
K
U
n
i
t
n
e
m
t
s
e
v
n
i
t
e
N
n
o
i
t
i
s
o
p
l
i
a
c
n
a
n
i
f
f
o
t
n
e
m
e
t
t
a
S
*
20 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
Loans and advances to banks by geographical area(1)
Ireland
United Kingdom
United States of America
AIB Group plc Annual Financial Report 2021
Financial Statements
291
1
2
3
4
5
6
2021
€ m
361
962
1,323
–
1,323
2021
€ m
814
505
4
1,323
2020
€ m
378
714
1,092
–
1,092
2020
€ m
569
521
2
1,092
(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 € 590 million (2020: € 445 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 36).
292
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
21 Loans and advances to customers
At amortised cost
Loans and advances to customers
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
Additional information:
Amounts which are repayable on demand or at short notice
Amounts due from associated undertakings(1)
2021
€ m
56,496
1,654
58,150
(1,885)
56,265
243
56,508
2020
€ m
57,684
1,592
59,276
(2,510)
56,766
75
56,841
2,225
3
2,829
1
(1)Undrawn commitments amount to € 81 million and are for less than one year (2020: € 117 million).
Loans and advances to customers include cash collateral amounting to € 12 million (2020: € 14 million) placed with derivative
counterparties.
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)
(1)Included in ECL allowance on financial assets (note 23).
2021
€ m
653
453
332
203
97
18
1,756
(116)
14
1,654
87
2020
€ m
618
431
320
200
101
20
1,690
(114)
16
1,592
81
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
293
22 Securities financing
Securities financing consists of (a) securities borrowing and lending and (b) sale and repurchase transactions.
Securities borrowing and securities lending transactions are generally entered into on a collateralised basis, with debt securities and
equities, usually advanced or received as collateral.
Sale and repurchase transactions involve purchases (or sales) of investments with agreements to resell (or repurchase) substantially
identical investments at a certain date in the future at a fixed price. These are referred to as reverse repurchase agreements and securities
sold under agreements to repurchase.
As set out in note 1(c), the Group has elected to voluntarily change its accounting policy for the presentation of financial instruments
relating to securities financing. Following a significant increase in securities borrowing and reverse repurchase agreements a decision was
taken to introduce this new line item ‘Securities financing’ for both assets and liabilities in the consolidated statement of financial position.
The comparatives for 2020 have been restated accordingly.
Assets
Reverse repurchase agreements
Securities borrowing transactions
Total
Liabilities
Securities sold under agreements to repurchase
Total
Banks Customers
€ m
€ m
1,463
1,506
2,969
45
45
–
921
921
–
–
2021
Total
€ m
1,463
2,427
3,890(1)
45
45
Banks
€ m
Customers
€ m
194
513
707
195
195
104
–
104
15
15
2020
Total
€ m
298
513
811
210
210
(1)Classified as ECL Stage 1 and have an ECL of € 1 million at 31 December 2021.
In accordance with the terms of the reverse repurchase agreements and securities borrowing 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 2021, the total fair value of
the collateral received was € 3,890 million (2020: € 811 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 and securities borrowing agreements.
Securities sold under agreements to repurchase mature within six months and are secured by debt securities and eligible assets.
At 31 December 2021, in relation to securities sold under agreements to repurchase, the Group had pledged collateral with a fair value
of € 45 million (2020: € 209 million). These transactions were conducted under the normal market agreements for standard repurchase
transactions.
294
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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 remeasurement of ECL allowance – investment securities-debt
Net remeasurement of ECL allowance – banks
Net remeasurement of ECL allowance – customers
Net remeasurement of ECL allowance – securities financing
Changes in ECL allowance due to write-offs
Changes in ECL allowance due to disposals
Acquisition of subsidiary – stockbroking client debtors
Other
At 31 December
Amount included in financial assets measured at amortised cost:
Investment securities – debt
Loans and advances to banks
Loans and advances to customers
Securities financing
Other assets – stockbroking client debtors
At 31 December
2021
€ m
2,511
30
–
–
(158)
1
(105)
(393)
1
1
2020
€ m
1,238
(17)
1
–
1,493
–
(151)
(57)
–
4
1,888
2,511
1
–
1
–
1,885
2,510
1
1
–
–
1,888
2,511
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
295
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 2021 and 2020.
Carrying
value
Unrealised
gross
gains
Unrealised
gross
losses
€ m
3,504
1,141
107
1,260
428
67
3,902
1,663
401
116
€ m
199
25
1
10
1
–
31
11
10
5
12,589
293
€ m
(4)
(1)
(1)
(18)
(2)
–
(15)
(5)
(1)
–
(47)
Net
unrealised
gains/
(losses)
€ m
195
24
–
(8)
(1)
–
16
6
9
5
246
Tax
effect
€ m
(24)
(3)
–
1
–
–
(2)
(1)
(1)
(1)
(31)
2021
Net
after
tax
€ m
171
21
–
(7)
(1)
–
14
5
8
4
215
2,400
90
55
208
1,101
87
130
38
4,109
–
274
274
16,972
–
133
133
–
(5)
(5)
–
128
128
–
(24)
(24)
–
104
104
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
Total debt securities at amortised cost
Equity securities
Equity investments at FVOCI
Equity investments at FVTPL
Total equity securities
Total investment securities
296
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
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
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)The carrying value includes € 1,804 million in Euro commercial paper issued by the Irish Government.
Credit impairment losses recognised in the income statement in 2021 amounted to Nil (2020: Nil). For further details see note 13.
AIB Group plc Annual Financial Report 2021
Financial Statements
297
24 Investment securities (continued)
The following table sets out an analysis of movements in investment securities:
At 1 January
Exchange translation adjustments
Purchases/acquisitions
Sales/disposals/redemptions
Maturities
Amortisation of discounts net of premiums
Net change in FVTPL
Movement in unrealised losses
At 31 December
Of which:
Listed
Unlisted
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
Debt
securities
at FVOCI
€ m
15,675
198
1,956
(1,329)
(3,548)
(43)
–
(320)
Debt
securities
at amortised
cost
€ m
3,603
18
515
–
(20)
(7)
–
–
12,589
4,109
12,589
–
12,589
4,109
–
4,109
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
Equity investments
measured at
FVOCI
FVTPL
274
16,972
Equity investments
measured at
FVOCI
FVTPL
1
2
3
4
5
6
2021
Total
€ m
19,479
216
2,517
(1,360)
(3,568)
(50)
58
(320)
16,724
248
16,972
2020
Total
€ m
17,331
(178)
6,444
(37)
(1,802)
(2,272)
(66)
45
14
€ m
201
–
46
(31)
–
–
58
–
26
248
274
€ m
357
(1)
30
–
(230)
–
–
45
–
201
19,479
24
177
201
19,302
177
19,479
€ m
–
–
–
–
–
–
–
–
–
–
–
–
€ m
458
–
–
–
(437)
–
–
–
(21)
–
–
–
–
298
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
24 Investment securities (continued)
The following table distinguishes 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 at 31 December 2021 and 2020:
Investments
with
unrealised
losses of
less than
12 months
€ m
Fair value
Investments
with
unrealised
losses of
more than
12 months
€ m
3,074
2
3,076
151
42
193
Investments
with
unrealised
losses of
less than
12 months
€ m
Fair value
Investments
with
unrealised
losses of
more than
12 months
€ m
249
12
261
156
22
178
2021
Total
€ m
(47)
(5)
(52)
2020
Total
Unrealised
losses
of less
than
12 months
Unrealised losses
Unrealised
losses
of more
than
12 months
€ m
(45)
–
(45)
€ m
(2)
(5)
(7)
Unrealised losses
Unrealised
losses
of less
than
12 months
Unrealised
losses
of more
than
12 months
€ m
€ m
€ m
(1)
(2)
(3)
–
(5)
(5)
(1)
(7)
(8)
Total
€ m
3,225
44
3,269
Total
€ m
405
34
439
Debt securities at FVOCI
Equity securities at FVTPL
Total
Debt securities at FVOCI
Equity securities at FVTPL
Total
For details of the credit quality of the investment securities portfolio, see the ‘Risk management’ section of this report.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
299
25 Investments accounted for using the equity method
Included in the income statement is the contribution net of tax from investments accounted for using the equity method as follows:
Income statement
Share of equity accounted investments
– joint ventures
– associates
Share of net assets including goodwill
At 1 January
Investments in associated undertakings(2)
Investment in joint venture(3)
Income for the year
At 31 December(4)
Of which listed on a recognised stock exchange
2021
€ m
–
21
21(1)
2021
€ m
98
5
3
21
127
–
2020
€ m
–
15
15(1)
2020
€ m
83
–
–
15
98
–
(1)Includes AIB Merchant Services € 22 million (2020: € 15 million).
(2)In 2021, this includes an investment amounting to € 5 million in Synch Payments d.a.c.
(3)In 2021, this relates to an initial investment amounting to € 3 million in AIB JV Holdings Limited being the Group’s joint venture with Great-West LifeCo Inc.
(4)Comprises the Group’s investment in AIB Merchant Services, Fulfil Holdings Limited, Synch Payments d.a.c, Clearpay d.a.c and AIB JV Holdings Limited.
The following is the principal associate company of the Group at 31 December 2021 and 2020:
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
Proportion of ownership
interest and voting power
held by the Group
2020
%
2021
%
49.9
49.9
All associates and joint ventures are accounted for using the equity method in these consolidated financial statements.
Banking transactions between the Group and its associated undertakings/joint ventures are entered into in the normal course of business.
For further information see notes 21 and 33.
Disclosures relating to the Group’s potential exposure to chargeback risk in AIB Merchant Services are set out in note 44.
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 or joint ventures at 31 December 2021 or 2020.
Change in the Group’s ownership interest in associates
During 2020 and 2021, there was no change in the Group’s ownership interest in associates.
Significant restrictions
There is no significant restriction on the ability of associates or joint ventures to transfer funds to the Group in the form of cash or dividends,
or to repay loans or advances made by the Group.
300
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
26 Intangible assets and goodwill
Software
externally
purchased
€ m
Software
internally
generated
€ m
Software
under
construction
€ m
Goodwill
Other
2021
Total
€ m
1,908
204
51
–
(130)
4
2,037
971
197
1
(130)
2
1,041
996
2020
Total
292
10
–
–
(64)
–
238
274
9
–
(64)
–
219
19
1,334
99
1(1)
99
(65)
4
1,472
685
182
–
(65)
2
804
668
172
95
–
(99)
(1)
–
167
–
–
1
(1)
–
–
167
120
€ m
70
–
50(2)
–
–
–
120
–
–
–
–
–
–
€ m
40
–
–
–
–
–
40
12
6
–
–
–
18
22
Software
externally
purchased
€ m
Software
internally
generated
€ m
Software
under
construction
€ m
Goodwill(1)
Other
€ m
€ m
€ m
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
Cost
At 1 January
Additions
Acquisition of subsidiary
Transfers in/(out)
Amounts written-off(3)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(4)
Amounts written-off(3)
Exchange translation adjustments
At 31 December
Carrying value at 31 December
Cost
At 1 January
Additions
Transfers in/(out)
Amounts written-off(3)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(4)
Amounts written-off(3)
Exchange translation adjustments
At 31 December
Carrying value at 31 December
(1)Relates to intangible assets recognised on the acquisition of subsidiary (note 28).
(2) Relates to the acquisition of subsidiary (note 28). The goodwill was tested for impairment at 31 December 2021 and no impairment was identified.
(3)Relates to assets which are no longer in use with a Nil carrying value.
(4)Included in ‘Impairment and amortisation of intangible assets’ in the consolidated income statement.
Future capital expenditure in relation to both intangible assets and property, plant and equipment is set out in note 27.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
301
27 Property, plant and equipment
Owned assets
Property
Long
leasehold
€ m
Leasehold
under
50 years
€ m
43
128
–
–
–
–
–
2
1
1
–
–
(2)
(9)
–
41
14
1
–
(2)
–
–
13
28
1
124
46
11
5
(9)
–
–
53
71
Freehold
€ m
172
2
4
–
–
(4)
(1)
1
174
45
5
2
(1)
(1)
–
50
124
Equipment
Assets
under
construction
Leased assets
Right-of-use assets
Other
Property
2021
Total
€ m
397
1
23
2
–
–
(47)
1
377
308
24
4
(47)
–
1
290
87
€ m
€ m
€ m
€ m
8
(5)
3
–
–
–
(1)
–
5
–
–
1
(1)
–
–
–
5
491
–
5
5
(11)
–
(14)
3
479
103
44
30
(14)
–
1
164
315
3
–
1
–
–
–
(1)
–
3
1
2
–
(1)
–
–
2
1
1,242
–
37
8
(11)
(4)
(75)
6
1,203
517
87
42
(75)
(1)
2
572
631
Cost
At 1 January
Transfers in/(out)
Additions
Acquisition of subsidiary
(note 28)
Net remeasurements
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
(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.
302
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
27 Property, plant and equipment (continued)
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
Equipment
Assets
under
construction
Leased assets
Right-of-use assets
Other
Property
2020
Total
€ 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
Cost
At 1 January
Transfers in/(out)
Additions
Net remeasurements
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
(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 € 223 million (2020: € 238 million) in relation to owned assets
and € 305 million in relation to right-of-use assets (2020: € 388 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 (2020: Nil).
AIB Group plc Annual Financial Report 2021
Financial Statements
303
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
2021
€ m
1
18
2020
€ m
1
32
Leased assets
Property
The Group leases property for its offices and retail branch outlets. Lease terms are negotiated on an individual basis and contain a wide
range of different terms and conditions. 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 the right-of-use asset.
1
2
3
4
5
6
Other
The Group leases motor vehicles, ATM offsite locations and IT equipment.
Lease liabilities
A maturity analysis of lease liabilities is shown in note 35.
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)
2021
€ m
46
12
1
–
2021
€ m
55
2020
€ m
56
13
1
2
2020
€ m
63
(1) Includes amounts reported as interest expense on lease liabilities of € 12 million (2020: € 13 million) and amounts reported as principal repayments on lease
liabilities of € 43 million (2020: € 50 million).
304
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
28 Acquisition of subsidiary
The accounting policy for business combinations is set out in note 1(d) to the financial statements in ‘Basis of consolidation’.
On 31 August 2021, following receipt of all regulatory approvals, the Group acquired Goodbody, a leading Irish provider of wealth
management, corporate finance and capital markets services, by acquiring 100% of the voting shares of GANMAC Holdings (BVI) Limited
and its subsidiaries. AIB Group’s acquisition of Goodbody is a critical advancement in the Group’s strategy to provide enhanced customer
offerings, particularly in capital markets, corporate finance and wealth management. Under the terms of the agreement, AIB acquired the
entire share capital for a total consideration, including deferred contingent consideration, of € 139 million. The Group incurred acquisition-
related costs amounting to € 2 million on legal fees and due diligence costs which were incurred and expensed in 2020. These are included
in ‘General and administrative expenses’ (note 12).
Identifiable assets acquired and liabilities assumed
The fair values of the identifiable assets and liabilities of Goodbody at the date of acquisition were as follows:
Assets
Loans and advances to banks
Intangible assets
Property, plant and equipment
Trading portfolio financial assets
Other assets(1)
Prepayments
Total assets
Liabilities
Lease liabilities
Trading portfolio financial liabilities
Other liabilities(2)
Deposits by central banks and banks
Current tax liabilities
Accruals and deferred income
Total liabilities
Total identifiable net assets at fair value
Goodwill arising on acquisition
Total consideration
Consideration satisfied by:
Cash payments
Deferred contingent consideration
Total consideration
Net cash outflow arising on acquisition
Cash consideration
Less: cash and cash equivalents acquired
Total outflow in the Consolidated Statement of Cash Flows
(1)Includes stockbroking client debtors of € 81 million.
(2)Includes stockbroking client creditors of € 69 million.
2021
€ m
62
1
8
11
101
2
185
5
2
76
3
1
9
96
89
50
139
122
17
139
122
(62)
60
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
305
28 Acquisition of subsidiary (continued)
Measurement of fair values
The fair value of the trade receivables amounts to € 80 million. The gross amount of trade receivables is € 81 million and it is expected that
the full contractual amounts can be collected.
The principal factor contributing to the recognition of goodwill of € 50 million is the expected future earnings of Goodbody. This reflects,
in particular, the expected returns from AIB’s existing customer base. This is also enabled by skilled employees providing a differentiated
service offering. In addition, due to the fungibility of existing Goodbody customers and the nature of the industry in which Goodbody
operates no material separately identifiable intangible assets were identified or recognised by the Group. None of the goodwill recognised is
expected to be deductible for income tax purposes.
Deferred contingent consideration
Deferred contingent consideration amounting to € 17 million has been agreed with certain shareholders of Goodbody. This comprises
a payment of € 8 million on the first anniversary of the acquisition date and a payment of € 9 million on the second anniversary of the
acquisition date. The Group has recognised the full value of contingent consideration that could be paid under the agreement on the basis
that it expects to make those payments and any potential decreases, are not considered material.
Revenue and profit
For the four months to 31 December 2021, Goodbody contributed revenue amounting to € 24 million and a loss of € 2 million to the Group’s
results. If the acquisition had occurred on 1 January 2021, consolidated revenue would have been € 75 million, and consolidated profit for
the year would have been € 3 million.
Goodbody is reported in the Capital Markets operating segment for the four months to 31 December 2021.
29 Other assets
Proceeds due from disposal of loan portfolio(1)
Fair value of hedged asset positions(2)
Stockbroking client debtors
Items in transit
Other(3)
Total
(1)ECL – Nil.
(2)The fair value of the hedged asset positions only relates to when the hedged item is at amortised cost.
(3)Includes sundry debtors € 33 million (2020: € 84 million).
2021
€ m
302
(38)
35
97
87
483
2020
€ m
–
80
–
34
121
235
306
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
30 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
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
2021
€ m
15
14
13
15
2,840
7
2,904
(1)
–
(20)
(15)
(22)
(26)
(3)
(36)
(123)
2,781
2,834
(53)
2,781
For each of the years ended 31 December 2021 and 2020, 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 15)
At 31 December
2021
€ m
2,667
4
76
34
2,781
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
2020
€ m
2,557
(3)
12
101
2,667
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
307
30 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 263 and 264.
At 31 December 2021, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities, totalled
€ 2,781 million (2020: € 2,667 million). The most significant tax losses arise in the Irish tax jurisdiction and their utilisation is dependent on
future taxable profits.
The amount of recognised deferred tax assets arising from unused tax losses amounts to € 2,840 million (2020: € 2,763 million) of which
€ 2,645 million (2020: € 2,675 million) relates to Irish tax losses and € 195 million (2020: € 88 million) relates to UK tax losses.
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 2021 of € 2,738 million (2020: € 2,646 million) are expected to be recovered after more than
12 months.
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. Legislation has been enacted to increase the UK Corporation Tax rate from 19%
to 25% from 1 April 2023. This change has resulted in an increase of the Group’s UK deferred tax asset for unutilised losses by £ 22 million.
Furthermore, the expected profits for the 15 year period has increased reflecting the benefits of the revised UK strategy. The deferred tax
asset for unutilised tax losses in the UK subsidiary amounts to £ 164 million at 31 December 2021 (2020: £ 79 million).
For certain other subsidiaries and branches, the Group has concluded that it is more likely than not that there will be insufficient profits to
support full recognition of deferred tax assets.
The Group has not recognised deferred tax assets in respect of: Irish tax on unused tax losses at 31 December 2021 of € 161 million
(2020: € 161 million); overseas tax (UK and USA) on unused tax losses of € 3,142 million (2020: € 3,270 million); and foreign tax credits for
Irish tax purposes of € 12 million (2020: € 12 million). Of these tax losses totalling € 3,303 million for which no deferred tax is recognised:
€ 8 million expires in 2032; € 39 million in 2033; € 25 million in 2034; and € 5 million in 2035.
The Irish Government agreed to the statement on new international tax rules issued in October 2021 by the OECD/G20 Inclusive
Framework. This included the proposal for a new global minimum effective tax rate of 15% on multinationals from 2023. In December 2021,
the OECD published “model rules” for the minimum effective tax rate, and the European Commission published a draft Directive which is
broadly aligned with the model rules. It is expected that the Group will be within the scope of the new rules. During 2022 the Group will
review the expected guidance from the OECD, as well as any legislation introduced in Ireland. It is not possible at this time to estimate the
impact, if any, on the Group’s deferred tax assets and liabilities.
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 (2020: Nil).
Deferred tax recognised directly in equity amounted to Nil (2020: Nil).
308
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
30 Deferred taxation (continued)
Analysis of income tax relating to other comprehensive income
Profit for the year
Net change in foreign currency translation reserves
Net change in cash flow hedging reserves
Net change in fair value of investment securities at FVOCI
Remeasurement of defined benefit asset/(liability)
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Loss for the year
Net change in foreign currency translation reserves
Net change in cash flow hedging reserves
Net change in fair value of investment securities at FVOCI
Remeasurement of defined benefit asset/(liability)
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Gross
Tax
Net of tax
€ m
629
74
(448)
(62)
19
212
214
(2)
€ m
16
13
57
8
(2)
92
92
–
€ m
645
87
(391)
(54)
17
304
306
(2)
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
Non-
controlling
interests
net of tax
€ m
(2)
–
–
–
–
(2)
–
(2)
Non-
controlling
interests
net of tax
€ m
28
–
–
–
–
28
–
28
2021
Net amount
attributable
to equity
holders of
the parent
€ m
647
87
(391)
(54)
17
306
306
–
2020
Net amount
attributable
to equity
holders of
the parent
€ m
(769)
(70)
71
(73)
(38)
(879)
(879)
–
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
309
31 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 € 79 million (2020: € 78 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 15,792 members comprising 4,238 pensioners and 11,554 deferred members at 31 December 2021.
7,648 members have benefits accrued from 2007 to 2013 under a hybrid arrangement. In addition, there are 969 members comprising
133 pensioners and 836 deferred members at 31 December 2021 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 pages 160 and 161 of this report.
Valuations
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. The next actuarial valuation of the Irish scheme as at 30 June 2021 is ongoing and due to be completed by no
later than 31 March 2022. No deficit funding is anticipated at this time as the Irish scheme continues to meet 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 March 2022.
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 the majority 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. Since the initial de-risking
transaction in 2019, additional members (including deferred and subsequent retirees) have been added to the buy-in policy, with a partial
surrender of a portion of the APP to fund the cost.
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 in both 2022 and 2023,
with a final balancing payment, based on latest estimates of c. £ 60 million. This is subject to change prior to finalisation.
310
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
31 Retirement benefits (continued)
Contributions
Total contributions to all defined benefit pension schemes operated by the Group in 2021 amounted to € 22 million (2020: € 36 million).
There were no contributions made to the Irish Scheme in 2021 (2020: Nil). Contributions of £ 18.5 million were made to the UK scheme
(2020: £ 30.5 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 2022 are estimated to be
€ 22.5 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 2021 and 2020. 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
2021
%
0.65
1.38
2.00
3.30
1.80
3.30
2020
%
0.20
1.10
0.95
2.90
1.40
2.90
0.00 – 3.30
1.38 – 2.75
2.00 – 3.30
0.00 – 2.90
1.10 – 2.40
0.95 – 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
311
31 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
process, the Group decided in February 2021 and February 2022 that the funding of discretionary increases was not appropriate in either
year in relation to the Irish scheme.
Rate of increase of pensions in payment – Irish scheme
Notwithstanding a decision by the Board in February 2020 not to fund discretionary increases, the Trustee of the Irish scheme awarded a
1.1% increase to pensions eligible for discretionary pension increases with effect from 1 April 2020. This increase resulted in an actuarial
loss in 2020.
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 0.65% (31 December 2020: 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 adjusted the scheme liabilities by € 350 million at 31 December 2021 (31 December 2020:
€ 100 million).
Mortality assumptions
The life expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2021 and 2020 are shown
in the following table.
Retiring today age 63
Retiring in 10 years at age 63
Life expectancy – years
Irish scheme
2021
2020
UK scheme
2021
2020
24.9
26.7
25.5
27.5
25.3
27.2
26.1
28.2
25.0
26.8
25.4
27.8
25.0
26.8
25.4
27.7
Males
Females
Males
Females
The mortality assumptions for the Irish and UK schemes were updated in 2021 to reflect emerging market experience. The table shows
that a member of the Irish scheme retiring at age 63 on 31 December 2021 is assumed to live on average for 24.9 years for a male
(25.0 years for the UK scheme) and 26.7 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 2021 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.
312
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
31 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 2021 and 2020.
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
€ m
€ m
(6,226)
6,627
€ m
(440)
2021
Net
defined
benefit
(liabilities)
assets
€ m
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
€ m
€ m
(39)
(5,904)
6,474
At 1 January
Included in profit or loss
Past service cost
Interest (cost)/income
Administration costs
Included in other comprehensive income
Remeasurements 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
–
(72)
–
(72)
109
95
(288)
–
–
(82)
(166)
–
223
223
–
77
(3)
74
–
–
–
393
–
(5)
–
(5)
–
–
–
–
–
(290)
83
476
22
(223)
(201)
–
(290)
–
–
–
–
–
(3)
(3)
109
95
(288)
393
(290)
19(2)
1
20
22
–
22
–
2020
Net
defined
benefit
(liabilities)
assets
€ m
(21)
(1)
–
(4)
(5)
(11)
3
(502)
301
159
(50)(2)
1
(49)
36
–
36
(39)
€ m
(591)
–
(8)
–
(8)
–
–
–
–
–
98
(4)
94
–
–
–
301
–
159
(63)
238
36
(215)
(179)
–
159
–
–
–
(1)
(90)
–
(91)
(11)
3
(502)
–
–
64
(446)
–
215
215
At 31 December
(6,241)
6,976
(735)
(6,226)
6,627
(440)
31 December
2021
€ m
31 December
2020
€ 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
44
10
54
–
(31)
(23)
(54)
–
26
3
29
–
(43)
(25)
(68)
(39)
(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 € 17 million (2020: € 38 million), see page 230.
AIB Group plc Annual Financial Report 2021
Financial Statements
313
1
2
3
4
5
6
2021
€ m
138
71
114
168
91
235
189
155
305
121
49
1,498
–
1,498
874
1,557
2,431
295
7
23
284
10
266
125
42
470
16
–
1,236
1,236
214
1,157
6,976
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
31 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 investment
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 309.
314
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
31 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 2021. 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
(182)
65
113
202
(62)
(113)
(52)
51
49
53
(48)
(48)
Maturity of the defined benefit obligation
The weighted average duration of the Irish scheme at 31 December 2021 is 17 years and of the UK scheme at 31 December 2021 is
19 years.
Asset-liability matching strategies
The Irish scheme continued to de-risk in 2021, with further allocations to liability matching assets. As part of a strategy to increase the
holding in inflation linked assets, the allocation to the Liability Driven Investment (“LDI”) portfolio, which is used to hedge the scheme’s
liabilities against both interest rate and inflation risk, has increased. The LDI fund is comprised of a mixture of nominal bonds, inflation linked
bonds and inflation derivatives. Due to an increase in values from market movements, the scheme maintained a similar weighting in equities
in 2021 and continues to have 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
Other long term employee benefits include 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 2021, the Group contributed € 9 million (2020: € 9 million) towards insuring these benefits which are included in Operating expenses
(note 12).
32 Deposits by central banks and banks
Central Banks
Eurosystem refinancing operations
Borrowings – secured
– unsecured
Banks
Other borrowings – unsecured
AIB Group plc Annual Financial Report 2021
Financial Statements
315
1
2
3
4
5
6
2021
€ m
10,000
298
–
10,298
84
10,382
2020
€ m
4,000
278
–
4,278
217
4,495
Eurosystem refinancing operations are credit facilities from the Eurosystem secured by a fixed charge over securities and relates to
TLTRO III. The Group participated in TLTRO III for € 4 billion in September 2020 and a further € 6 billion in June 2021. For further details on
TLTRO III see notes 4 and 51.
Deposits by central banks and banks include cash collateral at 31 December 2021 of € 51 million (2020: € 204 million) received from
derivative counterparties in relation to net derivative positions and from repurchase agreement counterparties.
Financial assets pledged
Financial assets pledged 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
11,011
Banks
2021
Total
€ m
€ m
16
11,027
5,751
5,260
16
–
5,767
5,260
Central
banks
€ m
4,768
2,473
2,295
Banks
2020
Total
€ m
€ m
17
4,785
17
–
2,490
2,295
(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.
316
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
33 Customer accounts
Current accounts
Demand deposits
Time deposits
Other – non-controlling interests(1)
Of which:
Non-interest bearing current accounts
Interest bearing deposits, current accounts and short term borrowings
Amounts include:
Due to associated undertakings
(1) Relates to long term loans from minority shareholders in Augmentum Limited, see note 41.
2021
€ m
57,895
29,762
5,183
26
92,866
41,169
51,697
92,866
2020
€ m
49,013
20,426
12,493
25
81,957
39,310
42,647
81,957
280
277
Customer accounts include cash collateral of € 59 million (2020: € 81 million) received from derivative counterparties in relation to net
derivative positions.
At 31 December 2021, the Group’s five largest customer deposits amounted to 1% (2020: 1%) of total customer accounts.
34 Debt securities in issue
Issued by AIB Group plc
Euro Medium Term Note Programme
Global Medium Term Note Programme
Issued by subsidiaries
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
Exchange translation adjustments
At 31 December
2021
€ m
2,500
1,544
4,044
–
1,775
1,775
5,819
2021
€ m
5,450
750
(500)
119
5,819
2020
€ m
1,750
1,425
3,175
–
2,275
2,275
5,450
2020
€ m
6,831
–
(1,250)
(131)
5,450
In May 2021, AIB Group plc issued € 750 million Senior Unsecured 0.50% Notes maturing on 17 November 2027. The notes bear interest
on the outstanding nominal amount, payable annually in arrears on 17 November each year, commencing on 17 November 2021 up to and
including the maturity date.
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.
AIB Group plc Annual Financial Report 2021
Financial Statements
317
1
2
3
4
5
6
2021
€ m
346
52
169
185
406
2021
€ m
382
(55)
12
5
5
(1)
(3)
1
2020
€ m
382
53
182
240
475
2020
€ m
429
(63)
13
6
–
–
(1)
(2)
346
382
35 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
Acquisition of subsidiary
Disposals
Net remeasurements
Foreign exchange translation adjustments
At 31 December
(1)Repayment of principal portion of the lease liabilities amounted to € 43 million (2020: € 50 million), i.e. lease payments net of interest expense.
36 Other liabilities
Notes in circulation
Items in transit
Creditors
Fair value of hedged liability positions(1)
Stockbroking client creditors
Bank drafts
Items in course of collection
Other(2)
(1) The fair value of the hedged liability positions only relates to when the hedging item is at amortised cost.
(2) Includes invoice discounting credit balances on customer accounts € 103 million (2020: € 96 million).
2021
€ m
96
71
32
36
35
421
180
364
1,235
2020
€ m
145
81
42
156
–
193
11
327
955
318
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
37 Provisions for liabilities and commitments
Onerous
contracts
Legal
claims
ROU(1)
commit-
ments
Other
provisions
€ m
€ m
2
–
–
–
–
–
2
34
30(2)
(4)(2)
–
(29)
–
31
€ m
15
–
–
2
–
–
17
€ m
262
166(2)
(11)(2)
–
(47)
2
372
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
ECLs
on loan
commit-
ments
€ m
ECLs
on financial
guarantee
contracts
€ m
54
38(3)
(40)(3)
–
–
1
53
29
7(3)
(11)(3)
–
–
1
26
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
2021
Total
€ m
396
241
(66)
2
(76)
4
501(4)
2020
Total
€ m
503
–
159
(37)
(227)
(2)
396(4)
At 1 January 2021
Charged to income statement
Released to income statement
Dilapidation provisions
Provisions utilised
Exchange translation adjustments
At 31 December 2021
At 1 January 2020
Transfers in
Charged to income statement
Released to income statement
Provisions utilised
Exchange translation adjustments
At 31 December 2020
(1)Provisions for dilapidations included in measurement of right-of-use assets (‘ROU’).
(2)Included in note 12 ‘Operating expenses’.
(3) Included in ‘Net credit impairment writeback/(charge)’ (note 13). In 2020, a debit of € 3 million was also included in ‘Net gain 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 € 368 million (31 December 2020: € 228 million).
(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 2021 for customer redress and compensation and other related costs amounted to € 79 million
(31 December 2020: € 80 million) in respect of certain mortgage customers – the ‘06-09 Ts & Cs(1) who never had a tracker’ cohort.
In 2020, following a Financial Services and Pensions Ombudsman (‘FSPO’) decision in relation to a complaint by a customer from the
‘06-09 Ts & Cs who never had a tracker’ cohort, 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 decided to
accept the decision in full. Furthermore, the Group decided to apply the remedy to all other customers within this cohort, and payments to
customers were substantially completed by December 2020.
The Group continued to engage with stakeholders during 2020 and 2021 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 € 79 million, following utilisations of € 1 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
319
37 Provisions for liabilities and commitments (continued)
(a) Other provisions (continued)
Tracker Mortgage Examination: In respect of customer redress and compensation a provision of € 8 million is held at 31 December 2021
(31 December 2020: € 8 million) for the ongoing appeals process and any individual impacted accounts which may be identified under the
Tracker Mortgage Examination.
The provision at 31 December 2021 for ‘Other costs’ amounted to € 8 million (31 December 2020: € 8 million).
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 44: Contingent liabilities and
commitments, in the section ‘Legal Proceedings’.
UK restructuring provision
Provisions for restructuring costs arising from the implementation of the UK’s strategy increased by € 20 million in 2021. Following
utilisations of € 29 million, the closing provision at 31 December 2021 was € 19 million (2020: € 28 million) and this includes € 13 million for
the expected cost of termination benefits for staff who have yet to leave under the restructuring.
Regulatory provision
The Group conducted a review of certain technical matters relating to previous submissions to the Single Resolution Board which was the
basis of the annual fee to the Single Resolution Fund. Arising from this review, the Group has provided € 31 million (of which € 25 million
relates to prior periods) in relation to matters arising from this review. This is still subject to finalisation with the relevant regulatory
authorities.
(b) Belfry related provisions – legal claims/other provisions
During the period 2002 to 2006 the Group sold a series of investment property funds, known as Belfry, to c. 2,500 individual investors
(c. £ 214 million invested). Following losses in those funds, c. 270 investors (who had invested c. £ 30 million) served claims against the
Group which had been ongoing in the Courts since 2015. In July 2021 the Group agreed to settle those claims. As a result, a charge was
recorded under “legal claims” amounting to € 25 million, including amounts for all legal and settlement costs associated with these claims.
These were utilised in full by 31 December 2021.
The Group instigated a programme, which is ongoing, to review all investments in the Belfry funds on a case by case basis and to determine
if redress may be due in certain instances. The Group has recorded an additional provision of € 75 million under “other provisions” above for
the anticipated cost of redress and other related costs that may be payable under this programme.
While the programme principles and its approach are established, the redress strategy is currently being defined. As a result the anticipated
cost of redress is subject to uncertainty, with a range of possible outcomes, with the final outcome being higher or lower depending on
finalisation of such matters.
(c) 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 127 and 138 in
the ‘Risk management’ section of this report.
320
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
38 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
€ 500m Callable Step-up Floating Rate Notes due October 2017
– nominal value € 25.5 million (maturity extended to 2035 as a result of the SLO)
£ 368m 12.5% Subordinated Notes due June 2019
– nominal value £ 79 million (maturity extended to 2035 as a result of the SLO)
£ 500m Callable Fixed/Floating Rate Notes due March 2025
– nominal value £ 1 million (maturity extended to 2035 as a result of the SLO)
(a)
(b)
(c)
(c)
(c)
Maturity of dated loan capital
Dated loan capital outstanding is repayable as follows:
5 years or more
2021
€ m
500
1,000
12
43
1
56
1,556
2021
€ m
1,556
2020
€ m
500
1,000
11
38
1
50
1,550
2020
€ m
1,550
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.
(c) Other dated subordinated loan capital
Following liability management exercises and the Subordinated Liabilities Order (“SLO”) in 2011, residual balances remained on the dated
loan capital instruments above. The SLO, which was effective from 22 April 2011, changed the terms of all of those outstanding dated loan
capital instruments. The original liabilities were derecognised and new liabilities were recognised, with their initial measurement based on
the fair value at the SLO effective date. The contractual maturity date changed to 2035 as a result of the SLO, and payment of coupons
became optional at the discretion of the Group. The Board of Allied Irish Banks, p.l.c. has considered the matter and as at the date of this
report, the Group’s position is that coupons are not paid on these instruments. These instruments will amortise to their nominal value in the
period to their maturity in 2035.
AIB Group plc Annual Financial Report 2021
Financial Statements
321
31 December 2021
31 December 2020
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
1
2
3
4
5
6
39 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.
There were no movements in issued share capital during 2021 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.
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 38)
Total capital resources
31 December 2021
31 December 2020
Authorised
share
capital
%
Issued
share
capital
%
Authorised
share
capital
%
Issued
share
capital
%
100
100
100
100
31 December
2021
€ m
13,660
1,556
15,216
2020
€ m
13,421
1,550
14,971
322
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
40 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
2021
€ m
496
619
1,115
(a)
(b)
2020
€ m
496
619
1,115
Distributions amounting to € 65 million (2020: € 46 million) were paid in 2021 on the Additional Tier 1 Securities issued by AIB Group plc.
Other equity interests 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.
(b) In 2020, the Company issued € 625 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities
(‘AT1s’).
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.
AIB Group plc Annual Financial Report 2021
Financial Statements
323
41 Non-controlling interests in subsidiaries
At 1 January
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
2
3
4
5
6
2021
€ m
1
–
(2)
–
–
(1)
(1)
–
2020
€ m
495
2
28
(494)
(30)
1
1
–
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.
42 Capital reserves, merger reserve and capital redemption reserves
Capital
contribution
reserves
€ m
955 (1)
Other
capital
reserves
€ m
2021
Total
€ m
178
1,133
Capital
contribution
reserves
€ m
Other
capital
reserves
€ m
955(1)
178
2020
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
2021
€ m
2020
€ m
(3,622)
(3,622)
2021
€ m
14
2020
€ m
14
324
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
43 Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
–
–
are offset in the Group’s statement of financial position; or
are subject to enforceable master netting arrangements or similar agreements that 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 € 529 million at 31 December
2021 (2020: € 804 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 2021, € 570 million (2020: € 450 million) of CSAs are included within financial assets and
€ 100 million (2020: € 257 million) of CSAs are included within financial liabilities.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
325
43 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 2021 and 2020:
Related amounts not
offset in the statement
of financial position
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
Note
Financial
instruments
€ m
19
22
22
788
–
788
(529)
4,788
2,427
8,003
(3,325)
–
(3,325)
1,463
2,427
4,678
(1,463)
(2,427)
(4,419)
Financial
collateral
(including
cash
collateral)
received
€ m
(56)
(10)
–
(66)
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
2021
Net
amount
€ m
203
(10)
–
193
2021
Net
amount
€ m
22
19
3,370
1,049
4,419
(3,325)
–
(3,325)
45
1,049
1,094
(45)
(529)
(574)
(32)
(526)
(558)
(32)
(6)
(38)
Financial assets
Derivative financial instruments
Securities financing
Reverse repurchase agreements
Securities borrowings
Total
Financial liabilities
Securities financing
Securities sold under agreements
to repurchase
Derivative financial instruments
Total
326
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
43 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
1,244
–
1,244
(804)
(202)
3,116
513
4,873
(2,818)
–
298
513
(301)
(510)
(2,818)
2,055
(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
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
2020
Net
amount
€ m
238
(30)
3
211
2020
Net
amount
€ m
3,028
1,181
4,209
(2,818)
–
(2,818)
210
1,181
1,391
(209)
(804)
(1,013)
(8)
(394)
(402)
(7)
(17)
(24)
Note
19
22
22
Note
22
19
Financial assets
Derivative financial instruments
Securities financing
Reverse repurchase agreements
Securities borrowings
Total
Financial liabilities
Securities financing
Securities sold under agreements
to repurchase
Derivative financial instruments
Total
The gross amounts of financial assets and financial liabilities and their net amounts as presented in the statement of financial position that
are disclosed in the above tables are measured on the following bases:
–
–
derivative assets and liabilities – fair value; and
securities financing – amortised cost.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
327
43 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 2021 and 2020:
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
2021
Financial
assets not
in scope of
offsetting
disclosures
€ m
788
Derivative financial instruments
882
1,463
2,427
Securities financing
3,890
94
–
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
2021
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
Financial assets
Derivative financial instruments
Securities financing
Reverse repurchase agreements
Securities borrowing
Financial liabilities
Securities financing
Securities sold under agreement to repurchase
45
Securities financing
Derivative financial instruments
1,049
Derivative financial instruments
45
1,062
–
13
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
298
513
Securities financing
811
–
2020
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
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
Financial assets
Derivative financial instruments
Securities financing
Reverse repurchase agreements
Securities borrowing
Financial liabilities
Securities financing
Securities sold under agreement to repurchase
210
Securities financing
Derivative financial instruments
1,181
Derivative financial instruments
210
1,201
–
20
328
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
44 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
1 year and over
Contract amount
2021
€ m
775
44
819
129
9,135
4,463
13,727
14,546
2020
€ m
631
91
722
92
8,537
3,875
12,504
13,226
(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.
For details of the credit ratings and geographic concentration of contingent liabilities and commitments, see pages 127 and 138 in the ‘Risk
management’ section of this report.
Provisions for ECLs on loan commitments and financial guarantee contracts are set out in note 37.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
329
44 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 note 37.
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.
Chargeback risk
As outlined in note 25, the Group has a 49.9% equity interest in Zolter Services d.a.c. which owns a 100% subsidiary, 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, UK, Europe and a number of markets
globally.
As a merchant acquirer, FMPI processes payments for point of sale and ecommerce 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 loss.
The FMPI management team and Board of Directors regularly monitors and assesses the potential financial losses arising from chargebacks.
At 31 December 2021, 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. While the COVID-19 vaccine rollout has been successful to date and many of the business restrictions
previously in place have been removed there remains residual uncertainty in relation to potential chargeback loss due to the related concerns
affecting merchants and the sustainability of their business models. 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
losses.
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.
330
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
44 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
331
45 Subsidiaries and consolidated structured entities
The material Group subsidiary companies at 31 December 2021 and 2020 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 41). Practically all subsidiaries in the Group are involved in the
provision of financial services or ancillary services.
Significant restrictions
Each of the subsidiaries listed above which is a licensed bank is required by its respective financial regulator to maintain capital ratios
above a certain minimum level. These minimum ratios restrict the payment of dividend by the subsidiary and, where the ratios fall below the
minimum requirement, will require the parent company to inject capital to make up the shortfall.
Consolidated structured entities
The Group has acted as sponsor and invested in a number of special purpose entities (“SPEs”) in order to generate funding for the Group’s
lending activities (with the exception of AIB PFP Scottish Limited Partnership). The Group considers itself a sponsor of a structured entity
when it facilitates the establishment of the structured entity.
The following SPEs are consolidated by the Group:
– Burlington Mortgages No. 1 DAC;
– AIB PFP Scottish Limited Partnership.
Further details on these SPEs are set out in note 46.
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.
332
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
46 Off-balance sheet arrangements and transferred financial assets
Under IFRS, transactions and events are accounted for and presented in accordance with their substance and economic reality and not
merely their legal form. As a result, the substance of transactions with a special purpose entity (“SPE”) forms the basis for their treatment
in the Group’s financial statements. An SPE is consolidated in the financial statements when the substance of the relationship between
the Group and the SPE indicates that the SPE is controlled by the entity and meets the criteria set out in IFRS 10 Consolidated Financial
Statements. The 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 ‘Securities financing’ (note 22). 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 note 22. 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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
333
46 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 34). 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 € 9.5 billion, internal
Group companies hold € 7.8 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 34). 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 2021, the carrying amount of the transferred financial assets which the
Group continues to recognise is € 3.2 billion (2020: € 3.7 billion) (fair value is € 2.9 billion (2020: € 3.8 billion)) and the carrying amount of
the associated liabilities is Nil (2020: Nil).
Arising from the acquisition of EBS on 1 July 2011, the Group took 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.
The liquidation of this company was completed in February 2021.
Mespil 1 RMBS d.a.c.
The liquidation of this company was completed in February 2021.
334
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
46 Off-balance sheet arrangements and transferred financial assets (continued)
The following table summarises as at 31 December 2021 and 2020, 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
3,368(1)(2)
Carrying
amount of
associated
liabilities
€ m
Fair
value of
transferred
assets
€ m
Fair
value of
associated
liabilities
€ m
45(1)
3,371
45
2021
Net fair
value
position
€ m
3,326
2,820(3)
1,775(4)
2,693
1,799
894
Sale and repurchase agreements/similar products
3,039 (1)(2)
210 (1)
Carrying
amount of
transferred
assets
€ m
Carrying
amount of
associated
liabilities
€ m
Fair
value of
transferred
assets
€ m
3,039
Fair
value of
associated
liabilities
€ m
210
2020
Net fair
value
position
€ m
2,829
Covered bond programmes
Residential mortgage backed
3,184 (3)
2,275 (4)
3,314
2,327
987
(1)See note 22.
(2)Includes € 3,306 million of assets pledged in relation to securities lending arrangements (2020: € 2,813 million).
(3) The asset pools of € 15 billion (2020: € 15 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 € 2,820 million (2020: € 3,184 million) above refers to those assets apportioned to
external investors.
(4) Included in ‘Bonds and other medium term notes’ issued by subsidiaries (note 34).
AIB Group (UK) p.l.c. Pension Scheme interest in the AIB PFP Scottish Limited Partnership
In December 2013, the Group agreed with the Trustee of the AIB UK Defined Benefit Pension Scheme (“the UK scheme”) a restructure of
the funding of the deficit in the UK scheme.
The 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 31). Under this funding arrangement, the Group expects
to make payments of £ 18.5 million in both 2022 and 2023, with a final balancing payment, based on latest estimates of c £ 60 million.
This is subject to change prior to finalisation.
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
335
46 Off-balance sheet arrangements and transferred financial assets (continued)
(ii) Transferred financial assets derecognised in their entirety but the Group retains some continuing involvement
AIB has a continuing involvement in transferred financial assets where it retains any of the risks and rewards of ownership of the transferred
financial assets. Set out below are transactions in which AIB has a continuing involvement in assets transferred.
Pension scheme
On 31 July 2012, AIB entered into a Contribution Deed with the Trustee of the AIB Group Irish Pension Scheme (‘the Irish Scheme’),
whereby it agreed to make contributions to the scheme to enable the Trustee ensure that the regulatory Minimum Funding Standard position
of non-pensioner members of the pension scheme was not affected by the agreed early retirement scheme. These contributions amounting
to € 594 million were settled through the transfer to the Irish Scheme of interests in 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 2021, the Group recognised € 0.5 million (cumulative € 8.7 million)
(2020: € 0.6 million (cumulative € 8.2 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.
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 2021, the Group recognised € 2 million (cumulative € 98 million)
(2020: € 2 million (cumulative € 96 million)) in the income statement for the servicing of financial assets transferred to NAMA.
336
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
47 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 2021 and 2020.
At fair value through
profit or loss
At fair value through other
comprehensive income
At amortised
cost
Mandatorily
Debt
investments
Hedging
derivatives
2021
Total
Financial assets
Cash and balances at central banks
Items in course of collection
Trading portfolio financial assets
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and
other capital instruments
Other financial liabilities
€ m
–
–
8
714(2)
–
243
–
274
–
1,239
–
–
–
2
757(3)
–
–
–
759
€ m
–
–
–
–
–
–
–
12,589
–
12,589
–
–
–
–
–
–
–
–
–
€ m
–
–
–
168
–
–
–
–
–
€ m
€ m
42,654(1)
42,654
44
–
–
1,323
56,265
3,890
4,109
842
44
8
882
1,323
56,508
3,890
16,972
842
168
109,127
123,123
–
–
–
–
305
–
–
–
10,382
92,866
45
–
–
5,819
1,556
1,375
10,382
92,866
45
2
1,062
5,819
1,556
1,375
305
112,043
113,107
(1)Includes cash on hand € 545 million.
(2)Held for trading € 458 million and fair value hedges € 256 million.
(3)Held for trading € €565 million and fair value hedges € 192 million.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
337
47 Classification and measurement of financial assets and financial liabilities (continued)
At fair value through
profit or loss
At fair value through other
comprehensive income
At amortised
cost
2020
Total
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
Securities financing
Investment securities
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
Mandatorily
€ m
–
–
868(2)
–
75
–
201
–
1,144
–
–
–
Derivative financial instruments
1,087(3)
Debt securities in issue
Subordinated liabilities and
other capital instruments
Other financial liabilities
–
–
–
1,087
(1)Includes cash on hand € 618 million.
(2)Held for trading € 650 million and fair value hedges € 218 million.
(3)Held for trading € 646 million and fair value hedges € 441 million.
Debt
investments
€ m
–
–
–
–
–
–
15,675
–
15,675
–
–
–
–
–
–
–
–
Hedging
derivatives
€ m
–
–
556
–
–
–
–
–
556
–
–
–
114
–
–
–
114
€ m
€ m
25,550(1)
43
–
1,092
56,766
811
3,603
365
88,230
4,495
81,957
210
–
5,450
1,550
970
94,632
25,550
43
1,424
1,092
56,841
811
19,479
365
105,605
4,495
81,957
210
1,201
5,450
1,550
970
95,833
338
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
48 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 classified 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 2021.
The methods used for calculation of fair value in 2021 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 2020: 60%).
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
339
48 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.
Where XVA valuation adjustments have been applied to a derivative instrument, the entire instrument is classified as Level 3 in the fair value
hierarchy on the basis that a component of the XVA valuation is derived from unobservable inputs.
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 345. 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’.
340
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
48 Fair value of financial instruments (continued)
Securities financing
The fair value of securities financing assets and liabilities approximate their carrying amount as these balances are generally short-dated
and fully collateralised.
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 44. Fees for these instruments may be billed in advance or in arrears on an annual, quarterly or monthly basis. In addition, the fees
charged vary on the basis of instrument type and associated credit risk. As a result, it is not considered practicable to estimate the fair value
of these instruments because each customer relationship would have to be separately evaluated.
The 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 2021 and 2020:
AIB Group plc Annual Financial Report 2021
Financial Statements
341
48 Fair value of financial instruments (continued)
Carrying amount
Fair Value
Financial assets measured at fair value
Trading portfolio financial assets:
Equity securities
Derivative financial instruments:
Interest rate derivatives
Exchange rate 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 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(3)
Non-mortgages
Total loans and advances to customers
Securities financing:
Reverse repurchase agreements
Securities borrowing
Investment debt securities measured at amortised cost
Other financial assets
Financial liabilities measured at fair value
Trading portfolio financial liabilities:
Equity securities
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Credit derivatives
Financial liabilities not measured at fair value
Deposits by central banks and banks:
Other borrowings
Secured borrowings
Customer accounts:
Current accounts
Demand deposits
Time deposits
Securities financing:
Securities sold under agreements to repurchase
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
Fair value hierarchy
Level 2
€ m
Level 1
€ m
Level 3
€ m
8
–
–
–
4,752
1,260
456
5,565
517
26
12,584
545(2)
–
–
–
–
–
–
–
2,982
–
3,527
2
–
–
–
–
2
–
–
–
–
–
–
5,953
1,620
–
7,573
–
505
76
–
–
–
39
–
–
–
620
42,109
–
361
–
–
–
–
–
–
–
42,470
–
743
200
17
6
966
–
10,298
–
–
–
–
13
–
–
10,311
–
301(1)
–
243
–
–
–
–
–
248
792
–
44
962
27,509
27,245
54,754
1,463
2,427
1,138
842
61,630
–
96(1)
–
–
–
96
84
–
57,895
29,762
5,220
45
20
16
1,375
94,417
€ m
8
806
76
243
4,752
1,260
495
5,565
517
274
13,996
42,654
44
1,323
29,088
27,177
56,265
1,463
2,427
4,109
842
109,127
2
839
200
17
6
1,064
84
10,298
57,895
29,762
5,209
45
5,819
1,556
1,375
112,043
1
2
3
4
5
6
2021
Total
€ m
8
806
76
243
4,752
1,260
495
5,565
517
274
13,996
42,654
44
1,323
27,509
27,245
54,754
1,463
2,427
4,120
842
107,627
2
839
200
17
6
1,064
84
10,298
57,895
29,762
5,220
45
5,986
1,636
1,375
112,301
(1) Includes € 244 million derivative assets and € 38 million derivative liabilities categorised as level 3 on the basis that a component of the XVA valuation is
derived from unobservable inputs.
(2)Comprises cash on hand.
(3)Includes residential and commercial mortgages.
342
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
48 Fair value of financial instruments (continued)
Carrying amount
Fair Value
Fair value hierarchy
€ m
Level 1
€ m
Level 2
€ m
Level 3
€ m
Financial assets measured at fair value
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(3)
Non-mortgages
Total loans and advances to customers
Securities financing:
Reverse repurchase agreements
Securities borrowing
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 financing:
Securities sold under agreements to repurchase
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
1,353
70
1
75
6,793
1,180
419
6,793
490
–
201
17,375
25,550
43
1,092
29,901
26,865
56,766
298
513
3,603
365
88,230
1,145
46
1
9
1,201
217
4,278
49,013
20,426
12,518
210
5,450
1,550
970
94,632
–
–
–
–
6,793
1,180
344
6,793
490
–
24
15,624
618(2)
–
–
–
–
–
–
–
2,973
–
3,591
–
–
–
–
–
–
–
–
–
–
–
5,689
1,571
–
7,260
864
70
1
–
–
–
75
–
–
–
–
1,010
24,932
–
378
–
–
–
–
–
–
–
25,310
1,065
46
1
9
1,121
–
4,278
–
–
–
–
36
68
–
489(1)
–
–
75
–
–
–
–
–
–
177
741
–
43
714
30,459
26,983
57,442
298
513
796
365
60,171
80(1)
–
–
–
80
217
–
49,013
20,426
12,561
210
–
–
970
2020
Total
€ m
1,353
70
1
75
6,793
1,180
419
6,793
490
–
201
17,375
25,550
43
1,092
30,459
26,983
57,442
298
513
3,769
365
89,072
1,145
46
1
9
1,201
217
4,278
49,013
20,426
12,561
210
5,725
1,639
970
(1) Includes € 440 million derivative assets and € 36 million derivative liabilities categorised as level 3 on the basis that a component of the XVA valuation is
derived from unobservable inputs.
(2)Comprises cash on hand.
(3)Includes residential and commercial mortgages.
4,382
83,397
95,039
AIB Group plc Annual Financial Report 2021
Financial Statements
343
48 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 2021
and 2020.
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:
1
2
3
4
5
6
Financial assets
Loans and
advances
at FVTPL
Equities
at
FVTPL
2021
Financial liabilities
Total
Derivatives
Total
Derivatives
€ m
489
–
(188)
–
(188)
–
–
–
–
–
–
301
€ m
447
–
42
–
42
–
–
–
–
–
–
At 1 January 2021
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 2021
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
489
Investment
securities
Debt
€ m
Equities
at FVOCI
€ m
–
–
–
–
–
–
–
–
–
–
–
–
€ m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
€ m
458
–
–
–
–
(21)
–
(21)
–
(437)
–
–
€ m
75
–
–
21
21
–
–
–
181(2)
(1)
(33)
243
€ m
77
–
–
41
41
–
–
–
–
–
(43)
75
€ m
177
–
–
58
58
–
–
–
44
(31)
–
248
€ m
311
–
–
29
29
–
–
–
30
(193)
–
177
€ m
741
–
(188)
79
(109)
–
–
–
225
(32)
(33)
792
€ m
1,293
–
42
70
112
(21)
–
(21)
30
(630)
(43)
741
€ m
80
€ m
80
16
–
16
–
–
–
–
–
–
96
€ m
107
–
(27)
–
(27)
–
–
–
–
–
–
80
16
–
16
–
–
–
–
–
–
96
2020
€ m
107
–
(27)
–
(27)
–
–
–
–
–
–
80
(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
(2)Relates to the restructuring of loans measured at FVTPL, that were previously carried at amortised cost.
344
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
48 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 categorised as Level 3 in the fair value hierarchy held at 31 December 2021 and 2020:
Net trading income – (losses)/gains
Gains on equity investments at FVTPL
Losses on loans and advances at FVTPL
2021
€ m
(151)
51
(12)
(112)
2020
€ m
89
23
–
112
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
2021
€ m
2020
€ m
Valuation
technique
Asset
Liability
301
96
489 CVA
80
Range of estimates
Significant
unobservable
input
LGD
PD
31 December
2021
29% – 46%
(Base 38%)
0.5% – 2.6%
31 December
2020
58% – 74%
(Base 68%)
0.4% – 1.9%
(Base 1.2%, 1 year PD)
(Base 0.9%, 1 year PD)
FVA
Funding spreads
(0.2%) to 0.3%
Final
conversion rate
0% – 90%
(0.2%) to 0.3%
0% – 90%
Asset
50
Asset
243
31 Quoted market
price (to which
a discount has
been applied)
75 Discounted
cash flows*
Collateral
values
Discount on
market value
Collateral
changes
(1)% – 9%
(1)% – 5%
n/a
n/a
Financial
instrument
Uncollateralised
customer
derivatives
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
Interest rate derivatives (assets and liabilities) include negative XVA valuation adjustments amounting to net € 28 million (2020: € 41 million).
The sensitivity to unobservable inputs for this XVA valuation adjustment at 31 December 2021 ranges from (i) negative € 23 million to
positive € 12 million for CVA (2020: negative € 38 million to positive € 19 million) and (ii) negative € 5 million to positive € 3 million for FVA
(2020: negative € 7 million to positive € 3 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.
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
having occurred 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. 69% haircut (2020: 80%). 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 2021
Financial Statements
345
48 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 € 2 million to positive
€ 21 million at 31 December 2021 (2020: negative € 1 million to positive € 4 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 2021 and 2020:
1
2
3
4
5
6
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
2021
Effect on income
statement
Effect on other
comprehensive income
Favourable Unfavourable
€ m
€ m
Favourable Unfavourable
€ m
€ m
14
48(1)
21
83
–
–
(27)
(34)(1)
(2)
(63)
(1)
(1)
–
–
–
–
–
–
–
–
–
–
–
–
2020
Level 3
Effect on income
statement
Effect on other
comprehensive income
Favourable
€ m
Unfavourable
€ m
Favourable
€ m
Unfavourable
€ m
20
46 (1)
4
70
2
2
(43)
(15)(1)
(1)
(59)
(2)
(2)
–
–
–
–
–
–
–
–
–
–
–
–
(1) Relates to a significant equity investment, the carrying value of which was € 50 million at 31 December 2021 (2020: € 31 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.
346
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
49 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)
Securities financing(3)
Total
2021
€ m
42,654
903
–
2020
€ m
25,550
659
350
43,557
26,559
(1)Included in ‘Loans and advances to banks’ total of € 1,323 million (2020: € 1,092 million) set out in note 20.
(2)Includes € 4 million relating to restricted balances held in trust in respect of certain payables which are included in ‘Other liabilities’ (note 36).
(3)Certain securities financing transactions may meet the definition of cash equivalents. These amounted to Nil at 31 December 2021 (2020: € 350 million).
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
2021
€ m
35,222
6,555
331
545
2020
€ m
19,256
5,522
154
618
42,654
25,550
The Group is required to hold minimum reserve balances with the Central Bank of Ireland.
The Group is also required by law to maintain reserve balances with the Bank of England. At 31 December 2021, these amounted to
€ 361 million (2020: € 378 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 2021
Financial Statements
347
50 Statement of cash flows
Non-cash and other items included in profit before taxation
Non-cash items
Loss on disposal of property
Net gain on derecognition of financial assets measured at amortised cost
Dividends received from equity investments
Investments accounted for using the equity method
Net credit impairment writeback/(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 loss 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 trading portfolio assets
Change in derivative financial instruments
Change in loans and advances to banks
Change in loans and advances to customers
Change in securities financing
Change in other assets
Change in operating liabilities(1)
Change in deposits by central banks and banks
Change in customer accounts
Change in securities financing
Change in debt securities in issue
Change in notes in circulation
Change in other liabilities
1
2
3
4
5
6
2021
€ m
3
(1)
(3)
(21)
(163)
183
3
327
41
97
(18)
12
50
(58)
12
(81)
7
(101)
289
(22)
3
(19)
270
2021
€ m
(1)
3
(2)
45
1,022
(3,415)
36
(2,312)
2021
€ m
5,859
9,923
(165)
(500)
(49)
276
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)
(79)
1,799
(223)
484
1,982
2020
€ m
3,708
10,916
210
(1,250)
(68)
(212)
(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.
15,344
13,304
348
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
51 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 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 21 to the consolidated financial statements.
(c) Non-controlling interests
The Group has accepted a deposit from the non-controlling interests in a subsidiary which is detailed in note 33.
(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 46).
During 2012, AIB agreed to make certain contributions to the pension scheme which were settled through the transfer to the AIB Group Irish
Pension Scheme of interests in a special purpose 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 46).
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
349
51 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. As at 31 December 2021, the Group had 24 KMP (2020: 17 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
2021
€ m
5.7
0.8
–
6.5
2020
€ m
5.9
0.9
–
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
2021
€ m
1.56
–
(0.05)
1.51
2020
€ m
3.00
–
(1.44)
1.56
Total commitments outstanding refers to the total of any undrawn amounts on credit cards and/or overdraft facilities provided to KMP.
Total commitments outstanding as at 31 December 2021 were € 0.13 million (2020: € 0.13 million).
Deposit and other credit balances held by KMP and their close family members as at 31 December 2021 amounted to € 3.21 million
(2020: € 2.28 million).
350
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
51 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 16 Directors in office during the year, 6 of whom availed of credit facilities (2020: 6). Of the Directors who availed of credit
facilities, 3 had balances outstanding at 31 December 2021 (2020: 3 of 6).
Details of transactions with Directors for the year ended 31 December 2021 are as follows:
Tanya Horgan
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**
Balance at
31 December
2020
€ 000
Amounts
advanced
during 2021
€ 000
Amounts
repaid
during 2021
€ 000
Balance at
31 December
2021
€ 000
59
–
59
741
12
753
–
13
13
–
–
–
–
–
–
–
–
–
4
–
4
50
–
50
–
–
–
55
–
55
2
59
691
12
703
5
760
–
8
8
–
15
* 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 and Mr Fergal O’Dwyer held overdraft facilities which were not used during the year. Ms Ann O’Brien held a credit card
facility with the Group, which had a Nil opening and closing balance, and a maximum debit balance of less than € 100 in the period.
Ms Anik Chaumartin, Mr Donal Galvin, Mr Basil Geoghegan, Ms Sandy Kinney Pritchard, Mr Andy Maguire, Ms Elaine MacLean,
Mr Brendan McDonagh, Mr Jim Pettigrew, Mr Jan Sijbrand and Mr Raj Singh had no credit facilities with the Group in 2021.
All facilities are performing to their terms and conditions. An expected credit loss allowance is held for all loans and advances. Accordingly,
a total expected credit loss allowance of under € 500 was held on the above facilities at 31 December 2021.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
351
51 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 2020 are as follows:
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**
Balance at
31 December
2019
€ 000
Amounts
advanced
during 2020
€ 000
Amounts
repaid
during 2020
€ 000
Balance at
31 December
2020
€ 000
–
–
–
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.
352
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
51 Related party transactions (continued)
(f) Companies Act 2014 disclosures (continued)
(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 7 persons; 2020: 9 persons):
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2021
€ 000
Balance at
31 December
2020
€ 000
691
8
699
15
927
369
9
378
5
426
An expected credit loss allowance is held for all loans and advances. Accordingly, a total expected credit loss allowance of € 32,000 was
held on the above facilities at 31 December 2021.
* Amounts advanced and repaid are not shown for overdraft/credit card facilities as these are revolving in nature (i.e. they may be drawn,
repaid and redrawn up to their limit over the course of the year).
**The maximum debit balance is calculated by aggregating the maximum debit balance drawn on each facility during the year.
(iii) Aggregate balance of loans and guarantees held by Directors and their connected persons
The aggregate balance of loans and guarantees held by Directors and their connected persons as at 31 December 2021 represents c.
0.01% of the net assets of the Group (2020: c. 0.01%).
(g) Summary of relationship with the Irish Government
The Irish Government is recognised as a related party under IAS 24 Related Party Disclosures as it is in a position to exercise control
over AIB.
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 framework, the
authority and responsibility for strategy and commercial policies (including business plans and budgets) and conducting AIB’s day-to-day
operations rest with the Board and AIB’s management team, however, AIB remains subject to certain obligations which require advance
consultation with or approval by the State.
These obligations relate to, inter alia:
– The composition of the board;
– Declaration and payment of dividends;
– Restrictions on various types of remuneration;
– Buy-backs or redemptions by the Group of its shares; and
– Material acquisitions/disposals.
The relationship of the Irish Government with AIB is outlined under the following headings:
– Ordinary shares
At 31 December 2021, the Irish Government held 1,930,436,543 ordinary shares in AIB Group plc (71.12% of total), accordingly, AIB is
under the control of the Irish Government. Subsequent to the year end, the State’s shareholding in the Company reduced to 70.97% as
at 2 March 2022 as part of a pre-arranged trading plan that was previously announced.
–
Issue of warrants to the Minister for Finance
In 2017, AIB issued warrants to the Minister to subscribe for 271,166,685 ordinary shares of AIB representing 9.99% of the issued share
capital. For further details see note 39.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
353
51 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 2021, c. € 474 million is outstanding across the following individual schemes: Future Growth Loan Scheme;
Brexit/COVID-19 Working Capital Loan Schemes and the COVID-19 Credit Guarantee Scheme.
Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009
The Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 was one of various stabilisation measures implemented by the State
to support the Irish banking system including the Group. The Group no longer has any guaranteed liabilities under the scheme however,
certain of the covenants in the scheme continue to apply to the Group including reporting covenants, until the scheme is terminated by
the Minister for Finance.
– NAMA
The Group has provided NAMA with a series of indemnities relating to transferred assets. Any indemnity payment would result in an
outflow of economic benefit for the Group.
In early 2020, the NAMA subordinated bonds were fully redeemed.
– 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 and a further € 6 billion in June 2021. At 31 December 2021, the amounts
outstanding, totalling € 10 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. See notes 4 and 32 for further details in relation to the Group’s
participation in the TLTRO programme.
These facilities, together with other assets and liabilities with Irish Government entity counterparties, are set out below.
– Other transactions with the Irish Government and entities under its control
In addition to the above matters, AIB also enters into other normal banking transactions with the Irish Government, its agencies and
entities under its control. This includes transactions with (i) Government related entities, (ii) local government and commercial semi-
state bodies and (iii) financial institutions under Irish Government control/significant influence. Other transactions include the payment of
taxes, pay related social insurance, local authority rates, and the payment of regulatory fees, as appropriate.
(i)
Irish Government and related entities
The following table outlines the amounts outstanding at 31 December 2021 and 2020 with Irish Government and related entities which
are considered individually significant (excluding accrued interest). Related entities includes departments of the Irish Government
located in the State and embassies, consulates and other institutions of the Irish Government located outside the State. The Post Office
Savings Bank (“POSB”) and the National Treasury Management Agency (“NTMA”) are also included.
354
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
51 Related party transactions (continued)
(g) Summary of relationship with the Irish Government (continued)
Assets
Cash and balances at central banks(1)
Investment securities(2)
Liabilities
Deposits by central banks and banks(3)
Customer accounts(4)
2021
Balance
€ m
35,222
5,904
2020
Balance
€ m
19,256
7,715
10,000
165
4,000
293
(1) Cash and balances at the central bank represent the placements which the Group holds with the Central Bank.
(2) Investment securities at 31 December 2021 comprise € 5,904 million (2020: € 7,715 million) in Irish Government securities held in the normal course of
business.
(3) This relates to funding received from the ECB through the Central Bank which is detailed under ‘Funding Support’ above.
(4) Includes € 20 million (2020: € 130 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.
(ii) Local government(1) and Commercial semi-state bodies(2)
During 2021 and 2020, AIB entered into banking transactions in the normal course of business with local government bodies and
semi-state bodies. These transactions include the granting of loans and the acceptance of deposits, as well as derivative and clearing
transactions. There were no individually significant amounts outstanding in the period with local government or with semi-state bodies.
(1) This category includes local authorities, borough corporations, county borough councils, county councils, boards of town commissioners, urban district
councils, non-commercial public sector entities, public voluntary hospitals and schools.
(2) Semi-state bodies is the name given to organisations within the public sector operating with some autonomy. They include commercial organisations or
companies in which the State is the sole or main shareholder.
(iii) Financial institutions under Irish Government control/significant influence
The Irish Government has a controlling interest in Permanent tsb plc and also had significant influence over Bank of Ireland. Due to
AIB’s related party relationship with the Irish Government, balances between these financial institutions and AIB are considered related
party transactions in accordance with IAS 24.
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.
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 2021 and 2020:
Assets
Loans and advances to banks
Investment securities
2021
€ m
1
85
2020
€ m
–
117
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
355
51 Related party transactions (continued)
(g) Summary of relationship with the Irish Government (continued)
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.
Significant progress was made towards a conclusion and any residual matters are expected to close in 2022. AIB maintains its position that
no financial loss is expected to occur.
Irish bank levy
The bank levy is calculated based on each financial institution’s Deposit Interest Retention Tax (“DIRT”) payment in a base year with 2019
being the base year for 2021. The annual levy paid by the Group for 2021 and reflected in operating expenses (note 12) in the income
statement amounted to € 37 million (2020: € 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.
52 Employees
The following table shows the geographical analysis of average employees for 2021 and 2020:
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 2021 and 2020:
Retail Banking(1)
Capital Markets
AIB UK
Group(1)(2)
Total
2021
8,188
922
44
9,154
2021
4,376
766
844
3,168
9,154
2020
8,305
997
54
9,356
2020
4,251
667
920
3,518
9,356
(1) Following changes in the organisation structure during the year, there has been a net transfer of c. 350 FTEs from Group to Retail Banking.
(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 Technology, Operations, Finance, Risk, Legal,
Corporate Governance & Customer Care, Human Resources, Corporate Affairs, Strategy & Sustainability and Group Internal Audit.
The average number of employees for 2021 and 2020 set out above excludes employees on career breaks and other unpaid long
term leaves.
Actual full time equivalent numbers at 31 December 2021 were 8,916 (2020: 9,193).
356
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to the consolidated financial statements
53 Regulatory compliance
During the years ended 31 December 2021 and 2020, the Group and its regulated subsidiaries complied with their externally imposed
capital ratios.
54 Financial and other information
Operating ratios
Operating expenses/operating income
Other income/operating income
Rates of exchange
€/$*
Closing
Average
€/£*
Closing
Average
2021
%
84.3
24.6
2020
%
78.3
21.1
2021
2020
1.1326
1.1831
0.8403
0.8598
1.2271
1.1417
0.8990
0.8897
*Throughout this report, US dollar is denoted by $ and Pound sterling is denoted by £.
Currency Information
Euro
Other
Assets
Liabilities and equity
2021
€ m
103,920
23,955
127,875
2020
€ m
89,330
21,055
110,385
2021
€ m
105,495
22,380
127,875
2020
€ m
90,364
20,021
110,385
55 Dividends
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 final dividend on ordinary shares was paid in respect of the financial year ended 31 December 2020.
The Board is recommending that a final dividend of 4.5 cent per ordinary share, amounting in total to € 122 million, be paid on 13 May 2022.
The financial statements for the year ended 31 December 2021 do not reflect this dividend which will be accounted for in shareholders’
equity as an appropriation of distributable reserves in 2022.
AIB Group plc Annual Financial Report 2021
Financial Statements
357
56 Proposed acquisition
Ulster Bank loans
On 28 June 2021, the Group confirmed that Allied Irish Banks, p.l.c. had entered into a binding agreement with NatWest Holdings Limited
and Ulster Bank Ireland DAC for the acquisition of performing Ulster Bank corporate and commercial loans (portfolio of c. € 4.2 billion for a
total consideration of c. € 4.1 billion).
The exact size of the portfolio and consideration payable depends on movements in the portfolio up to completion which will occur on a
phased basis. The transaction remains subject to regulatory approval.
Based on information as at 31 December 2021, the eligible portfolio of loans, that are subject to the agreement, amounted to € 3.7 billion
reflecting repayments and new business drawdowns during the period. Additional movements are anticipated in the portfolio up to
completion.
1
2
3
4
5
6
57 Non-adjusting events after the reporting period
No significant non-adjusting events have taken place since 31 December 2021.
58 Approval of financial statements
The financial statements were approved by the Board of Directors on 2 March 2022.
358
Financial Statements
AIB Group plc Annual Financial Report 2021
AIB Group plc company statement of financial position
as at 31 December 2021
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
2021
€ m
5,547
10,194
–
53
15,794
4,044
1,500
68
5,612
1,696
2,364
4,997
9,057
1,125
10,182
15,794
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
12,214
The Company recorded a profit after taxation of € 2,769 million for the year ended 31 December 2021 (2020: loss € 3,088 million).
Jim Pettigrew
Chair
2 March 2022
Colin Hunt
Chief Executive Officer
AIB Group plc company statement of changes in equity
for the financial year ended 31 December 2021
AIB Group plc Annual Financial Report 2021
Financial Statements
359
Attributable to equity holders of the parent
At 1 January 2021
Total comprehensive income for the year
Profit after tax
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Distributions paid to other equity interests
(note 40 to the consolidated financial statements)
Transfer between merger and revenue reserves (note i)
Total contributions by and distribution to owners
Share
capital
€ m
1,696
Other
equity
interests
€ m
1,125
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2021
1,696
1,125
Merger
reserve
Revenue
reserves
€ m
–
–
–
–
–
2,364
2,364
2,364
€ m
4,657
2,769
–
2,769
(65)
(2,364)
(2,429)
4,997
Attributable to equity holders of the parent
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 40 to the consolidated financial statements)
Transfer between merger and revenue reserves (note i)
Total contributions by and distribution to owners
At 31 December 2020
1,696
Share
capital
€ m
1,696
Other
equity
interests
€ m
500
Merger
reserve
Revenue
reserves
–
–
–
–
–
–
–
–
–
–
–
–
625
–
–
625
1,125
€ m
2,791
–
–
–
–
–
–
(2,791)
(2,791)
–
€ m
5,000
–
(3,088)
(3,088)
–
–
(3,088)
(3,088)
–
(46)
2,791
2,745
4,657
625
(46)
–
579
7,478
1
2
3
4
5
6
2021
Total
€ m
7,478
2,769
–
2,769
(65)
–
(65)
10,182
2020
Total
€ m
9,987
–
360
Financial Statements
AIB Group plc Annual Financial Report 2021
AIB Group plc company statement of cash flows
for the financial year ended 31 December 2021
Cash flows from operating activities
Profit/(loss) before taxation for the year
Adjustments for:
– Non-cash and other items
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
Distributions received from Additional Tier 1 Securities issued by subsidiary
Investment in subsidiary undertaking (note e)
Net cash inflow/(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)
Proceeds on issue of debt securities – MREL (note f)
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
2021
€ m
2020
€ m
2,769
(3,088)
(67)
–
38
97
(11)
(3)
(2,707)
–
(2,653)
(750)
–
(634)
67
–
67
–
–
750
(65)
(97)
(28)
560
(7)
12
–
5
(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
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.
1
2
3
4
5
6
Notes to AIB Group plc company financial statements
AIB Group plc Annual Financial Report 2021
Financial Statements
361
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 236 to 262.
The parent company financial statements and related notes set out on pages 358 to 366 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 2021. 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 263
to 268.
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
2021
€ m
8
8
2020
€ m
6
6
c 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. No audit remuneration was paid/payable to the Group Auditor (Deloitte Ireland LLP) or to overseas
auditors (excluding Deloitte Ireland LLP) for services relating to the audit of the financial statements of AIB Group plc during the year to
31 December 2021.
d Loans and advances to banks
At amortised cost
Funds placed with subsidiary, Allied Irish Banks, p.l.c.
ECL allowance
2021
€ m
5,550
(3)
5,547
2020
€ m
4,689
(3)
4,686
In May 2021, AIB Group plc lent € 750 million to Allied Irish Banks, p.l.c. repayable on 17 November 2027 with an optional redemption date
of 17 November 2026 at a fixed interest rate of 0.625% up to the optional redemption date.
These borrowings by Allied Irish Banks, p.l.c. are unsecured and subordinated.
362
Financial Statements
AIB Group plc Annual Financial Report 2021
Notes to AIB Group plc company financial statements
e Investment in subsidiary undertaking
At 1 January
Additions – Additional Tier 1 Securities
Reversal of impairment/(impairment) of equity shares
At 31 December
2021
€ m
7,487
–
2,707
10,194
2020
€ m
9,996
625
(3,134)
7,487
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 and
has a carrying value at 31 December 2021 of € 9,069 million (2020: € 6,362 million). Separately, the Company invested € 1,125 million in
Additional Tier 1 Securities (AT1) issued by Allied Irish Banks, p.l.c. These investments follow the Company’s own issuance of AT1 securities
as detailed in note j.
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 41 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. Its principal subsidiary outside the Republic of Ireland, AIB Group
(UK) p.l.c., is regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
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 2021, the market capitalisation of AIB Group plc was € 5.8 billion. This was below the carrying amount of its equity
investment in the subsidiary of € 6,362 million. Accordingly, AIB Group plc tested its investment for impairment and reviewed the recoverable
amount as determined by a VIU calculation compared with the carrying amount.
The Company uses a discounted cash flow to equity model to derive a VIU, in line with industry practice. Under this approach, recoverable
value is determined by the present value of future distributable items which takes into consideration the requirement to retain earnings
in line with relevant target capital ratios and risk-weighted assets. Accordingly, the principal inputs to the model are (a) future profitability;
(b) risk-weighted asset levels; (c) the discount rate used; and (d) target capital ratios.
The VIU was determined at € 9,069 million which was higher than the carrying amount (i.e. € 6,362 million) and accordingly, the Company
recognised a reversal of an earlier impairment amounting to € 2,707 million in 2021. Accordingly, the VIU is higher than the market
capitalisation noted above. Amongst the main reasons for this are the low liquidity and limited free-float of the Group’s shares; uncertainties
relating to the potential longer term residual impacts of COVID–19 and Brexit; and the subdued market appetite for financial stocks.
At 31 December 2020, the VIU was calculated at € 6,362 million and an impairment loss amounting to € 3,134 million was recognised.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
363
e Investment in subsidiary undertaking (continued)
Basis used to calculate recoverable amount
In determining VIU, the Company used discounted cash flow projections attributable to equity shareholders. These projections were the
output arising from the recent three year Strategic Plan (2022 to 2024) 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 2024: 2%; and
Discount rate: 10%.
Future profitability and growth rates are dependent on several factors, including the economic environment both local and international,
which has been 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. However,
as a result of the better than expected performance of economies in 2021, the rapid roll-out of highly effective vaccines and additional
fiscal supports, growth forecasts for the global economy has been revised further upwards in recent months. Profitability and growth
were reassessed in the annual planning exercise covering the period 2022 to 2024 undertaken by the Group in the second half of 2021.
Profitability levels underpinning the plan have been revised upwards compared to last year 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 allowance/reversal in future periods.
The following table sets out the sensitivity of the VIU calculation to key input variables. The table reflects the impact of the variables
individually and not any interrelationships. It is possible that more than one favourable and/or unfavourable change will occur at the same
time.
Long term profit/risk-weighted assets growth rate
Discount rate
Favourable change
bps
Increase in VIU
€ m
100
(100)
154
1,242
31 December 2021
Unfavourable change
bps
Decrease in VIU
€ m
(100)
100
(177)
(977)
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. € 449 million/decrease by c. € 656 million.
Given the interrelationship of changes set out in the sensitivity table above, the Company estimates that the reasonable possible range of
estimates for VIU is € 8,092 million to € 10,311 million.
31 December 2020
The Company recognised an impairment loss provision amounting to € 3,134 million, as the VIU calculation at 31 December 2020 amounted
to € 6,362 million, which was lower than the carrying value of € 9,496 million.
364
Financial Statements
AIB Group plc Annual Financial Report 2021
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
2021
€ m
2,500
1,544
4,044
2021
€ m
3,175
750
119
4,044
For details of debt securities issued by the Company during 2021, refer to note 34 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
2021
€ m
500
1,000
1,500
2020
€ m
1,750
1,425
3,175
2020
€ m
3,306
–
(131)
3,175
2020
€ m
500
1,000
1,500
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 issuances, refer to note 38 to the consolidated financial statements.
h Share capital
The ordinary share capital of AIB Group plc is detailed in note 39 to the consolidated financial statements.
i Merger reserve
At 1 January
Transfer from revenue reserves
At 31 December
2021
€ m
–
2,364
2,364
2020
€ m
2,791
(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 profit or loss and subsequently transferred to the merger reserve in so far as a credit balance remains in the merger reserve.
In 2020, 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.
In 2021, the Company recognised an impairment reversal amounting to € 2,707 million which resulted in a transfer from revenue reserves
leaving a balance of € 2,364 million in merger reserves.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021
Financial Statements
365
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
2021
€ m
500
625
1,125
2020
€ m
500
625
1,125
Additional Tier 1 Perpetual Contingent Temporary Write-Down Securities
For further details in relation to AT1s issued by the Company, see note 40 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 2021 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
Distributions received from Additional Tier 1 Securities
Notes
b
2021
€ m
138
8
67
2020
€ m
121
6
47
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
2021
€ m
10,194
5,547
53
17
2020
€ m
7,487
4,686
41
21
The following financing transactions occurred between AIB Group plc and its subsidiary, Allied Irish Banks, p.l.c. during 2021.
(a) AIB Group plc lent € 750 million to Allied Irish Banks, p.l.c. (note d).
366
Financial Statements
AIB Group plc Annual Financial Report 2021
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 2021 and 2020:
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.
2021
Total
€ m
5,547
53
5,600
m Liquidity and funding 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 2021 and 2020:
On demand
€ m
5
–
5
–
–
68
68
On demand
€ m
13
–
13
–
–
61
61
<3 months
but not on
demand
€ m
–
53
53
–
–
–
–
<3 months
but not on
demand
€ m
–
41
41
–
–
–
–
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
–
–
–
–
–
–
–
3,295
–
3,295
2,250
–
2,250
5,550
53
5,603
3,295
750
4,045
–
–
3,295
1,500
–
2,250
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
1,500
61
4,736
2020
Total
€ m
4,686
41
4,727
2021
Total
1,500
68
5,613
2020
Total
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021 General Information
367
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.
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 1,926,309,424 ordinary shares representing 70.97% of the total voting rights attached to issued
share capital.
Financial calendar
Annual General Meeting: 5 May 2022, at 10 Molesworth Street, Dublin 2.
Interim results
The unaudited Half-Yearly Financial Report 2022 will be announced on 29 July 2022 and will be available on the Company’s website –
www.aib.ie.
368
General Information
AIB Group plc Annual Financial Report 2021
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 28 to 30 in the 2021 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 28 to 30 of the 2021
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.
1
2
3
4
5
6
Glossary of terms
AIB Group plc Annual Financial Report 2021 General Information
369
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.
370
General Information
AIB Group plc Annual Financial Report 2021
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021 General Information
371
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 interest rates that
affect the banking book positions.
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.
372
General Information
AIB Group plc Annual Financial Report 2021
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.
1
2
3
4
5
6
AIB Group plc Annual Financial Report 2021 General Information
373
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
Securities
financing
transactions
Securitisation
Single Resolution
Fund
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.
Securities financing transactions allow investors and firms to use assets, such as the shares or bonds they own, to secure funding for
their activities.
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.
The Single Resolution Fund (“SRF”) is an emergency fund that can be called upon in times of crisis.
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
This involves non-standard lending arrangements through the structuring of assets or debt issues in accordance with customer and/
or market requirements. The requirements may be concerned with funding, liquidity, risk transfer or other needs that cannot be met by
an existing off the shelf product or instrument. To meet this requirement, existing products and techniques must be engineered into a
tailor-made product or process.
Syndicated and
international
lending
Syndicated and international lending involves lending to entities by leveraging off their equity structures having considered the
cash generating capacity of the business and its capacity to repay any associated debt. Leveraging structures are typically used in
management and private equity buy-outs, mergers and acquisitions. Syndicated and international lending is extended typically to
non-investment grade borrowers and carries commensurate rates of return.
Tier 1 capital
A measure of a bank’s financial strength defined by the Basel Accord. It captures common equity tier 1 capital and other instruments in
issue that meet the criteria for inclusion as additional tier 1 capital. These are subject to certain regulatory deductions.
Tier 2 capital
Broadly includes qualifying subordinated debt and other tier 2 securities in issue. It is subject to adjustments relating to the excess of
expected loss on the IRBA portfolios over the accounting expected credit losses on the IRBA portfolios, securitisation positions and
material holdings in financial companies.
374
General Information
AIB Group plc Annual Financial Report 2021
Glossary of terms
Tracker mortgage
A mortgage with a variable interest rate which tracks the European Central Bank (“ECB”) rate, at an agreed margin above the ECB
rate and will increase or decrease within five days of an ECB rate movement.
Trade date and
settlement date
accounting
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 2021 General Information
375
Principal addresses
AIB Group plc
10 Molesworth Street,
Dublin 2.
AIB Group (UK) p.l.c.
92 Ann Street,
Belfast BT1 3HH.
Telephone: + 353 1 772 5861
Telephone: + 44 345 600 5925
Allied Irish Banks, p.l.c.
10 Molesworth Street,
Dublin 2.
Telephone: + 353 1 772 5861
AIB Mortgage Bank Unlimited Company
10 Molesworth Street,
Dublin 2.
Telephone: +353 1 772 5861
EBS d.a.c.
The EBS Building,
2 Burlington Road,
Dublin 4.
Telephone: + 353 1 665 9000
AIB (NI)
92 Ann Street,
Belfast BT1 3HH.
Telephone: + 44 345 600 5925
Allied Irish Bank (GB)
St Helen’s, 1 Undershaft,
London EC3A 8AB.
Telephone: + 44 20 7647 3300
1
2
3
4
5
6
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.
376
General Information
AIB Group plc Annual Financial Report 2021
Index
A
Accounting policies
Page
236
E
Earnings per share
Annual General Meeting
Approval of financial statements
Auditor’s remuneration
Average balance sheets and
interest rates
B
Board Audit Committee
Board Committees
Board and Executive Officers
Board Risk Committee
Business model risk
C
Capital
Capital adequacy risk
Capital contributions
Capital reserves
Capital redemption reserves
Chair’s statement
Chief Executive’s review
Company secretary
Conduct risk
Contingent liabilities and
commitments
Corporate Governance report
Credit impairment –
income statement
Credit ratings
Credit risk
Critical accounting judgements
and estimates
Currency information
Customer accounts
D
Debt securities in issue
Deferred taxation
Deposits by central banks
and banks
Derivative financial instruments
Directors
Directors’ interests
Directors’ remuneration report
Disposal groups and non-current
assets held for sale
Dividend income
Dividends
367
357
277
59
186
179
177
193
162
73
153
323
323
323
6
9
179
165
328
176
276
83
263
356
316
316
306
315
281
36
171
205
280
274
356
85 and 141
ECL
ECL allowance on financial assets
Employees
Equity risk
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
G
Gain on financial assets
Glossary
Going concern
Governance and oversight
I
Income statement
Independent auditor’s report
Intangible assets
Interest and similar income
Page
280
89
294
355
161
356
338
292
356
150
367
151
229
142
368
275
369
238
169
229
217
300
273
M
Market risk
Model risk
Page
154
168
N
Net fee and commission income
Net trading income/(loss)
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
Interest and similar expense
273
Interest rate risk in the banking book 154
Interest rate sensitivity
Internal Audit
Investments accounted for
using the equity method
Investment securities
156
190
299
295
Investments in Group undertakings 331
Irish Government
L
Lease liabilities
Liquidity and funding risk
Liquidity risk
Loans and advances to banks
352
317
145
145
291
Loans and advances to customers 292
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
274
274
196
357
235
332
324
58
276
163
322
317
275
160
167
375
301
262
318
73
356
164
348
170
309
80
80
78
80
77
211
AIB Group plc Annual Financial Report 2021 General Information
377
1
2
3
4
5
6
S
Schedule to the
Directors’ report
Securities financing
Segmental information
Share-based
compensation schemes
Share capital
Page
173
293
269
276
321
Statement of cash flows
234
Statement of comprehensive income 230
Statement of changes in equity
232
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
Sustainable Business
Advisory Committee
T
Taxation
Technology & Data Advisory
Committee
Transferred financial assets
V
Viability statement
W
Website
216
231
367
159
320
331
214
208
278
209
332
210
367
AIB Group plc
10 Molesworth Street, Dublin 2, D02 R126
+353 (1) 660 0311
aib.ie/investorrelations