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Allied Irish Banks, p.l.c. Annual Financial Report 2022
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
INSIDE THIS REPORT
ANNUAL REVIEW
1 AIB Description
1 Presentation of information
2 Business Performance
4 Business Model
6 Our Strategic Progress
7 Risk Summary
8 Principal Risks
11 Emerging Risks and Uncertainties
BUSINESS REVIEW
13 Operating and Financial Review
28 Capital
GOVERNANCE AND
OVERSIGHT REPORT
31 Directors' Report
34 Corporate Governance Report
39 Board of Directors
43 Executive Committee
45 Report of the Board Audit
51 Report of the Board Risk Committee
54 Report of the Nomination and
Corporate Governance Committee
56 Report of the Remuneration
Committee
59 Corporate Governance
Remuneration Statement
66 Internal Controls
RISK MANAGEMENT
70 Risk Management Approach
74 Individual Risk Types
FINANCIAL STATEMENTS
150 Statement of Directors’
Responsibilities
151 Independent Auditor’s Report
163 Consolidated Financial Statements
168 Notes to the Consolidated Financial
Statements
281 Notes to Allied Irish Banks, p.l.c.
company financial statements
GENERAL INFORMATION
342 Forward Looking Statement
343 Glossary of Terms
348 Principal Addresses
AIB description
AIB is a financial services group. Our main business activities are retail, business and corporate banking, as well as mobile payments
and card acquiring. The Group operates predominantly in Ireland and the United Kingdom. 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. Our three core segments are: Retail Banking, Capital Markets and AIB UK.
Presentation of information
The information contained in this Annual Financial Report is that of Allied Irish Banks, p.l.c. and its subsidiaries. In this Annual Financial
Report, and unless specified otherwise, the terms ‘Allied Irish Banks, p.l.c.’ or ‘the Company’ refer to the parent company, ‘the Group’ or
‘AIB’ refers to the parent company and its subsidiaries, ‘the holding company’ and ‘owner’ refers to AIB Group plc and ‘AIB Group’ refers
to AIB Group plc and its subsidiaries.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
1
BUSINESS PERFORMANCE
2022 RESULTS
FINANCIAL PERFORMANCE
NET INTEREST INCOME
€2,152m
NET CREDIT IMPAIRMENT
(CHARGE) / WRITEBACK
€(7)m
PROFIT BEFORE TAX
€881m
Interest income up 20%
Benefiting from the impact of a rising interest
rate environment and higher average customer
loan volumes
Small charge reflecting cautious approach
H2 charge of €316m to address emerging
headwinds and downside risks from inflation
and interest rates. H1 writeback of €309m which
reflected the economic environment in Ireland
with robust credit quality and repayments
Profit before tax up 39% to €881m
Operating profit1 up 56% to €1,082m (operating
income up 21% with operating expenses up 8%)
and income from equity accounted investments
of €37m partially offset by an impairment charge
of €7m and exceptional items of €231m
NEW LENDING
NET LOANS
NON-PERFORMING EXPOSURES2
€12.6bn
€59.6bn
€2.2bn
New lending up 22%
Strong growth in Irish mortgage lending (up
53%, market share 32%) and in property lending
partially offset by lower syndicated lending
Net loans increase by €3.1bn to €59.6bn
Net loans up €3.1bn driven by the Ulster Bank
portfolio acquisition and strong new lending
exceeding redemptions
3.5% of gross loans
Non-performing exposures (NPEs) decreased
by €0.9bn to €2.2bn. NPE ratio now 3.5% with
legacy2 NPEs of €0.2bn or 0.4% of gross loans
ABSOLUTE COST BASE3
RETURN ON TANGIBLE EQUITY
CET1 RATIO (FULLY LOADED)4
€1.66bn
9.6%
16.3%
Costs up 5% excluding Goodbody
Cost income ratio 57%
Return on Tangible Equity (RoTE) benefiting
from increased profitability
Strong capital position
Proposed dividend €166m and share
buyback €215m
1. Operating profit before impairment losses and exceptional items.
2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs)
and excludes €99m of off-balance sheet commitments. Legacy NPEs are
exposures that entered into default prior to 31 December 2018.
3. Before bank levies, regulatory fees and exceptional items. For exceptional
items see pages 17 and 26.
4. Excludes the impact of the proposed buyback of €215m, CET1 impact -0.4%.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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€2,152m€1,791m20222021 €(7)m €238m20222021€881m€634m20222021€12.6bn€10.4bn20222021€59.6bn€56.5bn20222021€2.2bn€3.1bn20222021€1.66bn€1.53bn202220219.6%8.2%2022202116.3%16.6%20222021 Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
NON-FINANCIAL PERFORMANCE
Our approach continues to evolve in line with ESG reporting frameworks, which may result in variations in methodologies
and reported outcomes over time.
GREEN FINANCE
DIGITALLY ACTIVE CUSTOMERS
CUSTOMER SATISFACTION
Amount of new lending per year for climate
action
Number of active customers on digital
channels
Transactional Net Promoter Score1
Measured after customer transactions for
key touch points
€3.3bn
2.10m
+39
Growth in green finance delivered by strong
performance in green mortgage products
and continued lending for green buildings
and renewable energy
A strong increase in digitally active customers
with increased mobile enablement
Customer First is a core pillar of AIB’s strategy
and we know that we have more to do. We have
taken on board our customers’ feedback and
are committed to enhancing their experience in
2023 and beyond
TARGET
€2bn per year
TARGET
>2.25m by 2023
TARGET
+53 by 2023
INCLUSION & DIVERSITY
Women as % of management
42%
REDUCTION IN OPERATIONAL
EMISSIONS
% reduction in Scope 1 & 2 GHG emissions
year-on-year
10%
1. Transactional Net Promoter Score (NPS) is an
aggregation of 20 customer journeys across
Homes, Personal, SME, Digital, Retail, Direct
and Day-to-Day Banking.
2. The Equileap annual Gender Equality Global
Report & Ranking equates 'gender balanced'
with between 40% and 60% women.
Continued progress on our gender diversity
target, maintaining gender balance across
Board, Executive Committee and
all managements
TARGET
Gender Balanced
(Ongoing)2
Our property strategy and energy efficiency
investments have been instrumental in reducing
our GHG emissions to date
TARGET
Net Zero by 2030
(Own Operations)
Allied Irish Banks, p.l.c. Annual Financial Report 2022
3
€3.3bn€2.0bn202220212.10m1.85m20222021+39+452022202142%42%2022202110%19%20222021 BUSINESS MODEL
HOW WE CREATE
SUSTAINABLE VALUE
OUR RESOURCES
OUR STRATEGY
GROWING CUSTOMER BASE
c. 3.2m
Customers of AIB Group
OUR PEOPLE
9,590
Employees across the Group
LARGEST BRANCH NETWORK
170
AIB branches in Ireland
TRUSTED SUPPLIERS
c. 4,000
Active suppliers
CUSTOMER
FIRST
SIMPLE &
EFFICIENT
RISK &
CAPITAL
TALENT &
CULTURE
SUSTAINABLE
COMMUNITIES
CREATING VALUE SUSTAINABLY
Underpinned by our strong commitment to our
sustainability strategy
CLIMATE & ENVIRONMENT
OUR VALUES
ELIMINATE COMPLEXITY
DRIVE PROGRESS
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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Governance Report
Risk Management
Financial Statements
General Information
HOW WE CREATE VALUE
Our ambition is to be at the heart of our customers’ financial lives
VALUE CREATED IN 2022
Market-Leading Franchise
Along with our Mobile App and Internet
and Phone Banking services, AIB
maintains the largest branch network in
Ireland, with market-leading positions
across multiple personal, SME and
corporate products and services.
Leading Mortgage Provider
With a dedicated team of mortgage
experts, AIB provides application options
in-branch, over the phone or online.
EBS is our mortgage-focused brand and
Haven is the Group’s broker channel.
AIB, EBS and Haven all offer competitive
Green Mortgage products.
Leading Sustainability Agenda
We are committed to supporting our
customers in the transition to a low-
carbon future while making progress on
our own Net Zero ambitions. Along with
personal and SME Green Loan products,
including mortgages, AIB works with
corporate clients on large-scale projects,
and has issued €4.25bn in ESG bonds
since 2020.
Corporate Focus
AIB supports corporates in their daily
banking and funding requirements. While
we offer relationship-driven supports to
all industry sectors in Ireland, we are
focused on mid to large corporates in
certain sectors in the UK. Our US team
is focused on syndications, with an
increasing focus on syndicated
renewables finance.
Bespoke Treasury Solutions
AIB provides a range of Treasury
services, including foreign exchange,
interest rate risk, trade finance and
corporate cash management solutions.
We regularly undertake and publish
economic research to keep our
customers and stakeholders informed on
the evolving macroeconomic
environment.
Wealth & Pensions Management
To support our customers to achieve
their financial goals we provide a range
of pensions, savings and investment
options and advice. With the recent
addition of Goodbody to AIB Group and
regulatory approval for AIB life, our joint
venture with Great-West Lifeco, we
expect further growth in this area.
€12.6bn
New Lending
€4.6bn
New Mortgage Drawdowns
c. 11k
Homes Under Development
c. 570
Social Homes Funded
€3.3bn
Green & Transition Lending
€10.7m
Community Investment
ECONOMIC & SOCIAL INCLUSION
FUTURE PROOF BUSINESS
OWN THE OUTCOME
SHOW RESPECT
BE ONE TEAM
Allied Irish Banks, p.l.c. Annual Financial Report 2022
5
OUR STRATEGIC PROGRESS
GROWTH &
TRANSFORMATION
In 2022, AIB made significant progress towards completion of a multi-year strategic
transformation programme, enabling the Group to deliver on our growth agenda.
2022 focus
Update
1
CUSTOMER
FIRST
DELIVERING
FOR CUSTOMER
NEEDS ACROSS
THE GROUP
• c.450,000 new accounts opened in 2022, a 76% increase on 2021
• €2.1bn of Ulster Bank corporate and commercial loans migrated to AIB; full loan book transfer
expected H1 2023
• Agreed acquisition of c. €5.7bn Ulster Bank performing mortgage portfolio with c. 47,000 customers;
CCPC clearance received in early January 2023
• Enhanced wealth management proposition: Goodbody integrated; regulatory approval for joint
venture with Great-West Lifeco received – available to AIB customer base later this year
2
SIMPLE &
EFFICIENT
3
RISK &
CAPITAL
4
TALENT &
CULTURE
5
SUSTAINABLE
COMMUNITIES
CUSTOMER &
CHANGE
DELIVERY,
RESILIENCE
FOCUS
• Delivered enhanced digital services for customers, including new digital account opening solutions; c.
70% of eligible customers chose to open their new account with AIB digitally
• Strategically investing in building our future workforce, including recruitment of over 300 digital, data
and change roles, strengthening in-house core capabilities and supporting the delivery of our
transformation agenda
• Ongoing progress on cyber enhancements and operational capabilities, ensuring our digital services
are secure for our customers
CAPITAL, CREDIT
AND LEGACY
ITEMS
• Revised medium-term RoTE and absolute cost targets with continued focus on enhancing
shareholder value and delivering sustainable returns
• Completed a Share Buyback Programme, repurchasing 40.9m ordinary shares for an aggregate of
€91m; resumption of capital distribution including payment of ordinary dividend of €122m (4.5c/share)
• State shareholding reduced from 71.12% to 56.89% in 2022, as a result of disposals as part of a pre-
arranged trading and two share placings in an accelerated book building process to institutional investors
• Progress made on legacy items; further reduction of NPEs; conclusion of Tracker Mortgage
Enforcement programme; review of Belfry investment funds
FACILITATING
FUTURE OF
WORK MODEL;
INCLUSION &
DIVERSITY
ENVIRONMENT
SOCIAL
GOVERNANCE
• Flexible hybrid working model implemented, enabled by clear principles, best-in-class technologies,
national property footprint and people policies
• I&D strategy embedded; ‘Investors in Diversity’ Gold accreditation
• Agreement with Financial Services Union on three-year pay deal and increase in minimum entry
salary, providing certainty on pay to March 2025
• Raised €1.5bn in two green bond issuances
• 26% of new lending in 2022 was green and transition
• Completed emissions reduction target-setting for Corporate loan portfolio; set Financed Emissions
Targets for 75% of our loan book
• Signed Corporate Power Purchase Agreement (CPPA) with NTR plc to provide 80% of AIB’s energy
requirements from solar farms
• Raised €1bn in the first social bond issuance by an Irish bank
• Supported social housing by providing funding of €91m in 2022, representing c. 570 homes
• Broadened our human rights due diligence across Corporate and Retail Banking, HR, Risk and
Procurement to identify potential ‘salient’ human rights impacts relevant to the Group for action
• Supported 70 local charities in Ireland and the UK through the AIB Community €1 Million Fund
• Contributed €500k to the Ukraine Emergency Appeal
• Three-year partnership with AsIAm, Ireland’s national autism charity
• AIB ranked in the top 5% of banks globally by Sustainalytics
• Maintained Low ESG Risk rating from Sustainalytics (and achieved their 2023 Industry and Region
Top Rated badges), AA Leader rating from MSCI and membership of the S&P Global Sustainability
Yearbook with a score of 69/100 in their 2022 Corporate Sustainability Assessment
• Goodbody now a member of Sustainable Trading, an ESG benchmark in financial markets trading
• New ESG Framework to integrate ESG into existing Committees
• Experienced and gender balanced Board with appropriate combination of independent skills
Key:
Digitalisation
Ways of working
Sustainability
Business model
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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Annual Review
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Governance Report
Risk Management
Financial Statements
General Information
RISK SUMMARY
OUR APPROACH
TO RISK
Our risk framework supports the Group in achieving
our strategic objectives, protects our customers and enables
us to identify opportunities to grow our business safely.
The Group’s risk management principles, included in the Group's Risk Management
Framework, are as set out below:
Strategy
1.
2.
The Board has ultimate responsibility for the governance of all risk taking
activity in the Group and risks assumed through our investments
in joint ventures.
The Group has adopted a three lines of defence (3LOD) model and risks are
managed in line with the model.
Identification and assessment
3.
4.
5.
6.
The Group identifies, assesses and reports all material risks through the
Material Risk Assessment process.
Risk management is embedded in the strategic planning, performance
management and strategic decision making processes of the Group.
The Group develops and uses models across a range of risks and activities to
inform key strategic business and financial decisions.
The Group accepts that certain additional measured risks may be taken across
the short to medium term to support environmental, social and governance
(ESG) initiatives for the benefit of all stakeholders over the long term.
Monitoring, escalating and reporting
7.
8.
9.
The Group operates and manages risks in line with the Group's Risk Appetite
Statement (RAS).
The Group understands, manages, measures, monitors and reports all risks it
takes or originates.
The Group aims to provide clarity in all communications which will help to
better inform business decisions.
Risk culture
10. The Group supports the delivery of a strong risk culture.
11. Risk management capabilities are valued, encouraged and developed.
Control environment
12. The Group has in place a system of internal control designed to mitigate rather
than eliminate risk.
13. A comprehensive, fit-for-purpose framework and policy architecture is in place
to support risk management and is reviewed regularly.
The Risk Management section, from pages 70 to 148 gives more detail on how risk
is managed within the Group.
The Group’s Risk Management Framework
(RMF) supports our business activities and
the delivery of our strategies by setting
out how we mitigate and manage risk.
It outlines how we identify, monitor and
escalate risk issues, and provides clarity
on the risk governance structures to
ensure accountability for each material risk
facing the Group.
In 2022, reflecting the importance of
sustainability, a new principle around ESG
initiatives (number six) was approved in
the RMF and is supported by the new
ESG Framework. The Group continues to
embed ESG considerations into its lending
and investment processes.
A key part of our RMF is the identification
of emerging risk drivers as part of the
Group’s material risk assessment, which
are described on page 11. Our emerging
risks continued to evolve at a fast pace
during 2022.
The Group’s view of the principal risks
it faces are described on page 8 to 10.
The RMF is subject to annual review and
approval by the Board, as recommended
by the Board Risk Committee (BRC).
Risk performance is measured against the
Group’s risk appetite on a monthly basis.
Risks to future performance are assessed
by conducting forward looking stress tests
and scenario analysis, the results of
which are considered regularly by both
Management and the Board. The Group's
consideration of viability and going
concern are set out on pages 31.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
7
PRINCIPAL RISKS
Principal risks are those risks that
could have a material adverse effect
on our customers or the financial or
operational outcomes or reputational
standing of the Group.
Principal risks and uncertainties are identified by the Group’s on-
going risk management practices as well as the Material Risk
Assessment (MRA) process. The Group considers risks that arise
from the impact of external market developments, geopolitical
events or other emerging risks which could potentially impact on
our customers, earnings, capital and liquidity, as well as on our
operations or reputation. Each of the principal risks is assigned
a first and second line accountable executive who regularly report
on, and manage, the risk.
ESG risks continue to be identified as key risk drivers
impacting all of the Group's principal risks, especially
Credit Risk.
A. BUSINESS
MODEL RISK
WHAT IS THE RISK?
The risk of not achieving the agreed strategy or approved business plan,
for example as a result of an inadequate implementation plan, or failure
to execute the implementation plan as a result of the inability to secure
the required investment. This also includes the risk of implementing an
unsuitable strategy or maintaining an obsolete business model in light
of known internal and external factors.
HOW WE RESPONDED IN 2022
The risk assessment of the potential acquisitions (i.e. Ulster Bank
portfolios) and their impact on the Group’s risk profile continued to be
a key focus in 2022. Risk introduced a new strategic investment policy to
formalise our approach to assessing strategic investment opportunities.
The impact of rising rates and inflation on the Group’s risk profile has
been central to our risk oversight and in our review and challenge of
the financial plan and associated stress tests. As interest rates rise,
we continued our focus on product pricing strategies and risk adjusted
returns on capital (RAROC).
KEY RISK INDICATORS
• Operating Profit (before exceptional charges)
• Risk Adjusted Return on Capital (RAROC)
à Read more: page 143
B. CREDIT
RISK
WHAT IS THE RISK?
The risk that the Group will incur losses as a result of a customer or
counterparty being unable or unwilling to meet contractual obligations
and associated credit exposure in respect of loans or other
financial transactions.
HOW WE RESPONDED IN 2022
Our credit portfolio continued to recover strongly as the economic threat
from COVID-19 receded during 2022. We are closely monitoring risk
arising from the macroeconomic environment, notably energy-driven
inflation, supply chain challenges, rising interest rates and further
weakening of the UK economy. Our credit risk management principles
provide the foundation for through-the-cycle credit management with
a number of credit approval metric updates to reflect the current
environment. Our Expected Credit Losses (ECLs) reflect our
comprehensive approach to assessing the credit environment, ensuring
the level of ECL stock remains appropriate. We remain proactive in
adapting credit risk management processes and policies to capture ESG
risks. Migration of the Ulster Bank portfolio of corporate and commercial
loans has progressed on a phased basis throughout the year and has
been subject to the appropriate credit review and grading processes.
Migration is expected to conclude by mid-2023.
KEY RISK INDICATORS
• Non-Performing Exposures (NPEs) outstanding as % of customer loans
• Migration to Stage 2 and Stage 3
à Read more: page 75 to 128
Link to strategy:
Customer first
Simple & efficient
Risk & capital
Talent & culture
Sustainable communities
Allied Irish Banks, p.l.c. Annual Financial Report 2022
8
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Risk Management
Financial Statements
General Information
C. OPERATIONAL
RISK
E. REGULATORY
COMPLIANCE RISK
WHAT IS THE RISK?
The risk arising from inadequate or failed internal processes, people and
systems, or from external events. This includes legal risk, but excludes
strategic and reputational risk.
HOW WE RESPONDED IN 2022
2022 brought a heightened focus and challenge on key areas of
operational risk in the current environment, namely cyber and information
security risk, change risk, operational resilience, third party management
and technology-related risk. The key areas of focus included ongoing
oversight, review and challenge of the transformation agenda, a
refreshed operational risk assessment and risk-integrated cyber strategy
in response to the evolving external threats, prioritisation of sustainment
and operational resilience and enhanced oversight of third party service
providers to drive improved resilience. Progress has been made to
reinforce strong operational risk practices, through the provision of in-
house online courses and initiatives such as Risk in Conversation Week.
KEY RISK INDICATORS
• Cumulative operational risk losses
• Cyber security metric
à Read more: page 143 to 144
D. CONDUCT
RISK
WHAT IS THE RISK?
The risk of legal or regulatory sanctions, material financial loss, or loss to
reputation which the Group may suffer as a result of a failure to comply
with principal laws, regulations, rules, related self-regulatory codes and
related supervisory expectations which relate to the Group’s regulated
banking and financial service activities, i.e. those activities in which the
Group is licensed to conduct business.
HOW WE RESPONDED IN 2022
During 2022, the Compliance function provided risk oversight across
strategic growth and regulatory initiatives, including the integration of
Goodbody, the acquisition of the Ulster Bank corporate and commercial
loans, the new joint venture between the Group and Great-West Lifeco.
and the opening of accounts for new customers from KBC and Ulster
Bank. In respect of the overall management of regulatory compliance risk
within the Group, positive engagement with the business was evident on
the Group’s management of regulatory change, such as the EBA Loan
Origination and Monitoring programme making significant progress in
meeting regulatory obligations, and the mobilisation of major programmes
to implement Basel IV and Individual Accountability Framework. The
Group swiftly applied new sanction requirements as new sanction
regimes were rolled out in different jurisdictions.
KEY RISK INDICATORS
• Number of data protection incidents
• Number of suspicious transactions reported within 30 days
à Read more: page 145 to 146
F. PEOPLE AND
CULTURE RISK
WHAT IS THE RISK?
The risk that inappropriate actions or inactions by the Group cause poor
or unfair customer outcomes or negatively impact market integrity.
WHAT IS THE RISK?
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 our values and behaviours.
HOW WE RESPONDED IN 2022
In 2022, we focused on the progression of a number of strategic and
regulatory initiatives including the oversight of our new customers from
Ulster Bank and KBC and prioritising our supports available to vulnerable
customers due to the cost of living challenges and increased interest
rates. Conduct Risk continues to be a primary area of focus for the Group
and progress has been noted in terms of conduct risk management,
business engagement and meeting Central Bank's focus on the Group’s
operational resilience to ensure consumer protection is at the forefront of
decision making. During 2022, the Group progressed a series of conduct
milestones including the completion of the tracker mortgage examination,
the commencement of customer migration from Ulster Bank and KBC
and the redress for customers resulting from the Belfry programme.
HOW WE RESPONDED IN 2022
The Group has a number of defined strategic initiatives and programmes
of work underway, such as wellbeing and engagement, retention and
attractiveness strategies, and our workforce planning support to adapt
to new ways of working. There has also been significant investment in
terms of developing capabilities across the Group, including running
a number of Leadership Development programmes during the year.
Several progressive family leave policies have been introduced such as
surrogacy, fertility treatment and pregnancy loss to support our people
through difficult times. We continue on our culture development journey
and much progress has been made including significant enhancements
to our wellbeing, engagement and inclusion and diversity (I&D) strategies
and reinforcement of our Speak Up process.
KEY RISK INDICATORS
• Number of complaints and time taken to resolve
• Number of overdue product reviews
à Read more: page 144 to 145
KEY RISK INDICATORS
• Attrition of top performers
• Completion of mandatory courses
à Read more: page 146 to 147
Link to strategy:
Customer first
Simple & efficient
Risk & capital
Talent & culture
Sustainable communities
Allied Irish Banks, p.l.c. Annual Financial Report 2022
9
PRINCIPAL RISKS CONTINUED
G. CAPITAL
ADEQUACY RISK
I.
LIQUIDITY AND
FUNDING RISK
WHAT IS THE RISK?
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.
HOW WE RESPONDED IN 2022
Our ongoing stress-testing activity in 2022 continued to demonstrate the
robustness of the Group’s capital position. A range of scenarios and risks
were considered including Covid-19 and the withdrawal of government
supports, the impact of the Ukraine crisis, supply chain challenges, rising
energy costs, potential gas supply shortages and cost of living impacts
from rising inflation and higher interest rates. Our Internal Capital
Adequacy Assessment Process (ICAAP) continues to be used in the
assessment of acquisitions, in addition to the assessment of proposed
dividends and buybacks, to ensure that they are sustainable from
a capital perspective. Our approach to climate stress testing continues to
develop and we participated in the inaugural ECB Climate Stress Tests in
2022. We continue to review our capital risk appetite considering changes
to regulatory capital requirements, outcomes from our stress testing and
internal capital models and our assessment of the prevailing risk.
WHAT IS THE RISK?
The risk that the Group will not be able to fund our assets and meet
our obligations as they come 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 liquidity cannot be obtained at an acceptable cost.
HOW WE RESPONDED IN 2022
Customer deposits have continued to grow, reflecting inflows from former
Ulster Bank and KBC customers transferring to the Group and from
higher income and employment levels in the Irish economy generally.
There has also been an increase in precautionary saving due to the
heightened economic uncertainty and increasing inflationary pressures.
This has contributed to high volumes of excess liquidity held with the
Central Bank of Ireland (CBI). The higher interest rate environment,
facilitated the introduction of a new one-year interest bearing fixed term
deposit. In addition, we reduced our central bank funding accumulated
via the third series of targeted longer-term refinancing operations
(TLTRO III), the Group repaid €10bn in December 2022.
KEY RISK INDICATORS
• Fully Loaded CET1 ratio
• Fully Loaded Total Capital Ratio
• Fully Loaded Internal Capital Buffer
à Read more: page 147
H. MODEL
RISK
KEY RISK INDICATORS
• Liquidity Coverage Ratio (LCR)
• Survival Period
• Net Stable Funding Ratio (NSFR)
à Read more: page 129 to 135
J. FINANCIAL
RISK
WHAT IS THE RISK?
The potential loss the Group may incur, as a consequence of decisions
that could be principally based on the output of models, due to errors in
the development, implementation or use of such models.
WHAT IS THE 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.
HOW WE RESPONDED IN 2022
Improvements in the control environment and model monitoring along
with approved expansion of monitoring standards and the migration of the
model inventory to a more robust platform were key delivery items across
Model Risk in the last year. In the second half of the year, an enhanced
Internal Rating Based (IRB) rollout plan was approved by the Board. The
plan incorporates an acceleration of the rollout of IRB models to material
portfolios which aims to deliver broad benefits, spanning regulatory
compliance, capital management, enhanced business decision making
and operational benefits through streamlining and automation
opportunities. The IRB Mortgage and SME models have been submitted
to the regulator and formal approval is awaited prior to implementation.
KEY RISK INDICATORS
• Quarterly risk assessment of approved models in use
à Read more: page 148
Link to strategy:
HOW WE RESPONDED IN 2022
Rising inflation led to sharp interest rate hikes and increased market
volatility as the period of low-to-negative interest rates and central bank
stimulus programmes came to an end. The Group responded by adapting
our interest rate hedging strategy to stabilise our exposure to market
volatility, in particular as it related to net interest income (NII).
KEY RISK INDICATORS
• Earnings Sensitivity
• Interest Rate Capital at Risk (CaR)
à Read more: page 136 to 142
Customer first
Simple & efficient
Risk & capital
Talent & culture
Sustainable communities
Allied Irish Banks, p.l.c. Annual Financial Report 2022
10
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
EMERGING RISKS AND UNCERTAINTIES
The Group identifies emerging risks that have the potential to increase in significance which could have a material impact on
the Group’s strategy, operations and on our customers over the medium to long term. The below sets out the top emerging
risks identified as part of the Group's Material Risk Assessment which continued to evolve during the year.
Links
to principal
risks on pages
8 to 10
Trend
2022
Increasing
Increasing
Increasing
Stable
Emerging risk
How we respond
Environmental, Social and
Governance (ESG) Risks:
The risk of any negative
financial or non-financial
(e.g. reputational) impact
on the Group stemming
from current or prospective
impacts of ESG factors on its
lending or invested assets.
Cost of Living and
Inflationary Pressures:
The risk of increases in the
price of goods and services,
arising from energy costs,
supply chain constraints or
other sources that have
a negative impact on our
customers' ability to meet
their loan obligation.
• The Board approved a new Environmental, Social & Governance Framework
in December 2022 to strengthen the accountability for ESG at all levels of
the Group, supporting the sustainability agenda for our customers, society
and communities.
• The Group’s Risk Management Framework incorporates ESG requirements
and climate risk has been identified as a key risk driver for each material risk.
• During 2022, the Board approved a new climate risk exposure metric within
the Group’s Risk Appetite Statement.
• Updated qualitative statements for climate risk have been approved to guide our
green and climate lending to customers. We will continue to refine and enhance
these statements in line with evolving best practice and data analysis.
• We raised €1bn through the issuance of a social bond and €1.5bn through the
issuance of two green bonds in 2022; we have raised a total of €3.25bn in
green bonds to date.
• The Group participated in the ECB’s first European-wide Climate Stress Test
in 2022.
• The Group’s credit risk principles govern a series of risk management
activities across the first and second line to ensure timely, appropriate and
customer-focused actions.
• The Group’s underwriting criteria for new lending was amended where
appropriate, based on the risk insights of the portfolio assessments along with
analysis of prevailing economic conditions.
• A series of assessments across the portfolios was undertaken to identify the
sectors impacted by the higher energy costs, supply chain challenges, labour
costs, inflationary pressures and rising interest rates.
• We use a system of Early Warning Indicators (EWIs) to appropriately manage
higher risk sectors through the Sector Risk Assessment Forum.
• We support our customers on a case-by-case basis through affordable, fair
and sustainable solutions.
Unexpected
Macroeconomic
Changes and
Geopolitical Risks:
The risk that a
macroeconomic downturn,
such as a market shock
and geopolitical risks, could
negatively impact the
Group’s revenues, ability
to raise capital, or result in
other financial impacts.
• The Group commenced and maintained a Risk Working Group through 2022
to ensure that any potential issues from the Ukraine conflict were closely
reviewed and managed.
• We updated the Group’s credit application guidelines to assess any direct or
indirect impacts of the Ukraine crisis.
• The Group’s capital adequacy and liquidity are reviewed regularly through the
governance committees ensuring compliance with risk appetite and regulatory
requirements.
• The Group applied new sanction requirements as these were implemented in
various jurisdictions.
• The Group identifies economic headwinds and geopolitical risks on at least
a quarterly basis, through financial planning and ongoing stress testing
activity. These risks are considered under a range of alternate scenarios.
This ensures that the approved financial plan is supported by a robust capital
plan and assessment of the risks, and is aligned with our risk appetite.
Cyber Attacks:
The risk of diminished
operational capability of the
Group’s systems and
customer data risk exposures.
In addition, the potential for
legal liability or loss of
reputation with our customers
due to an evolving cyber
threat landscape and
heightened threats associated
with cyber criminals and
rogue nation states.
• The Group ensures that our proactive threat intelligence capability, including
active engagement with law enforcement agencies, coupled with an industry-
leading practice cyber risk programme, continually drives a defence in-depth
approach to the protection of confidential data and the availability of vital
business services.
• A Group user awareness programme is in place including mandatory cyber
training for all employees, education communications on potential internal and
external threats, frequent phishing testing and reporting facilities for
suspicious activities.
• The Board receives quarterly cyber updates, annual cyber training, and has
been involved in cyber attack simulations to help identify vulnerabilities and
inform an understanding of the overall resilience of the cyber ecosystem.
• Cyber risk is governed, challenged and reviewed on an ongoing basis,
through senior organisational risk forums.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
11
BUSINESS REVIEW
Operating and financial review
Capital
Page
13
28
Allied Irish Banks, p.l.c. Annual Financial Report 2022
12
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 26. These measures should be considered in conjunction with IFRS measures as set out in the consolidated financial
statements from page 163. A reconciliation between the IFRS and management performance summary income statements is set out on
page 27.
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 (charge)/writeback
Operating profit before exceptional items(1)
Income from equity accounted investments
Profit before exceptional items(1)
Restitution costs
Restructuring costs
Inorganic transaction costs
Gain/(loss) on disposal of loan portfolios
Other
Total exceptional items(1)
Profit before taxation
Income tax (charge)/credit
Profit for the year
2022
€ m
2,152
744
2,896
(779)
(575)
(305)
(1,659)
(155)
1,082
(7)
1,075
37
1,112
(94)
(93)
(53)
36
(27)
(231)
881
(115)
766
2021
€ m
1,791
598
2,389
(738)
(512)
(284)
(1,534)
(162)
693
238
931
21
952
(173)
(132)
(21)
(5)
13
(318)
634
16
650
%
change
20
25
21
6
12
7
8
-5
56
—
16
76
17
39
—
19
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
13
BUSINESS REVIEW CONTINUED
Net interest income
Net interest income
€2,152m
Net interest income
Interest income(1)
Interest expense(1)
Net interest income
2022
€ m
2021
€ m
%
change
2,332
1,797
(180)
(6)
2,152
1,791
30
—
20
10
Average interest earning assets
124,210
113,401
Net interest margin (NIM)
1.73
1.58
0.16
%
%
Change
Net interest income
€2,152m
compared to 2021.
Net interest income of € 2,152 million
increased by € 361 million or 20%
Interest income
Interest income of € 2,332 million in 2022 increased by
€ 535 million compared to 2021 primarily due to:
Interest expense
Interest expense of € 180 million in 2022 increased by
€ 174 million compared to 2021. The increase in funding
costs was primarily due to:
• Higher subordinated liabilities and other debt issued funding
costs.
• Deposits by banks which reflects the impact of TLTRO III
funding including an additional income benefit of € 26 million
recognised in 2022 (2021: € 66 million additional income benefit
following the achievement of relevant lending targets).(2)
Customer accounts interest includes the impact of the negative
pricing strategy which was discontinued in the second half
of 2022.
Net interest margin
1.73%
NIM increased by 15 bps to 1.73%
in 2022 compared to 1.58% in 2021
due to:
• Higher interest income primarily due to the impact of higher
• Increased asset yields driven by the higher euro, sterling
interest rate environment c. +42bps partly offset by;
and US dollar interest rates.
• Higher average customer loan volumes reflecting the acquisition
of performing Ulster Bank corporate and commercial loans and as
new lending exceeded redemptions and disposals.
In the second half of 2022 the ECB increased euro interest rates
by 250 basis points. During 2022 the Bank of England increased
the base rate by 325 basis points and the Federal Reserve
increased the federal funds rate by 425 basis points.
• Increase in interest expense c. -11 bps;
• Higher average interest earning assets c. -16 bps.
Average interest earning assets of € 124.2 billion in 2022
increased by € 10.8 billion from 2021. This was due to an
increase in excess liquidity placed with central banks driven
by higher non-interest bearing customer account balances
and a € 6 billion TLTRO III funding drawdown in June 2021.
Year ended
31 December 2022
Average
Average balance sheet
Assets
Loans and advances to customers
Investment securities
Loans and advances to banks
Average interest earning assets
Non-interest earning assets
Total average assets
Liabilities & equity
Deposits by banks
Customer accounts
Other debt issued and subordinated liabilities
Lease liabilities
Average interest earning liabilities
Non-interest earning liabilities
Equity
Total average liabilities & equity
Net interest income
Average
balance
€m
58,681
16,456
49,073
124,210
7,754
131,964
11,108
48,419
7,660
315
67,502
51,443
13,019
131,964
Interest(1)
€ m
1,957
192
183
2,332
2,332
(11)
(11)
191
11
180
180
2,152
rate
%
3.33
1.17
0.37
(0.10)
3.35
Year ended
31 December 2021
Average
rate
%
3.20
0.37
(0.30)
1.58
(1.32)
(0.01)
1.38
3.28
0.01
Interest(1)
€ m
1,846
65
(114)
1,797
1,797
(102)
(3)
99
12
6
6
Average
balance
€m
57,697
17,676
38,028
113,401
6,294
119,695
7,722
48,439
7,140
364
63,665
42,518
13,512
119,695
1.73
1,791
1.58
(1) Negative interest income on assets amounting to € 96 million in 2022 (2021: € 129 million) is offset against interest income. Negative interest expense on
liabilities amounting to € 83 million in 2022 (2021: € 158 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 and Deposits by banks include Securities financing.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
14
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
Other income
Other income(1)
€744m
Other income(1)
Net fee and commission income
Net gain on equity investments (FVTPL)
Net trading income/(loss)
- Loan acquisition forward contract
- Other
Net gain on loans on advances to customers (FVTPL)
Other operating income
Dividend income
Other income
Other income(1)
€744m
Other income of € 744 million
increased by € 146 million or
24% compared to 2021. This reflects the full year impact of
Goodbody following acquisition in the second half of 2021 and an
underlying increase of € 107 million or 19%.
Net fee and commission income
2022
€ m
2021
%
€ m change
Customer accounts
Card income
Customer related foreign exchange
Lending related fees
Other fees and commissions
Payzone
Goodbody
226 208
112
83
50
45
17
78
67
50
46
15
533 464
63
24
Net fee and commission income
596 488
9
45
24
1
-2
1
15
—
22
Net fee and commission income of € 596 million in 2022
increased by € 108 million compared to 2021 reflecting the full
year impact from Goodbody and an increase in underlying net fee
and commission income of € 69 million or 15%.
The increase in underlying net fee and commission income
primarily reflected higher transaction volumes driven by
a recovery in economic activity and the onboarding of customers
from the banks exiting the Irish market as well as higher card
interchange fees.
2022
€ m
596
88
36
62
(26)
13
9
2
744
2021
€ m
488
58
15
—
15
20
14
3
598
%
change
22
51
—
-33
-38
-25
24
Goodbody fee income of € 63 million reflects a full year end
impact following acquisition in the second half of 2021 (2021:
€ 24 million for four months) and is comprised of stockbroking
client fees and commissions as well as asset management and
advisory fees. Fee income in 2022 was negatively impacted by
challenging external market conditions.
Net gain on equity investments of € 88 million in 2022 (2021:
€ 58 million) included a gain of € 61 million following the partial
conversion and disposal of Visa Inc Series B Preferred Stock.
Net trading loss (excluding the loan acquisition forward contract)
of € 26 million in 2022 decreased by € 41 million compared to
a net trading income of € 15 million in 2021 mainly due to
unfavourable movements on non-customer foreign
exchange contracts.
A gain of € 62 million was recognised in 2022 in respect of a
forward contract to acquire corporate and commercial loans from
Ulster Bank(2).
Net gain on loans and advances to customers (FVTPL) of
€ 13 million in 2022 (2021: € 20 million) represents income
recognised on previously restructured loans carried at fair value
through profit or loss.
Other operating income of € 9 million in 2022 includes a € 7 million
gain on disposal of investment securities (2021: € 7 million gain).
IFRS basis
On an IFRS basis other income, including a net gain of € 18 million
on exceptional items(1), was € 762 million in 2022 compared to
€ 590 million in 2021.
(1) Other income before exceptional items. A net gain of € 18 million on exceptional items in 2022 comprises a € 18 million net gain on disposal of loan portfolios
(2021: Net loss on disposal of loan portfolios € 5 million).
(2) For further information see note 43 Fair value of financial instruments in the consolidated financial statements.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
15
BUSINESS REVIEW CONTINUED
Operating expenses
Total operating expenses(1)(2)
€1,659m
Operating expenses(1)(2)
Personnel expenses
General and administrative
expenses
Depreciation, impairment and
amortisation
Total operating expenses
2021
2020
%
€ m
779
€ m
change
738
6
Cost income ratio(1)(2)
57%
Costs of € 1,659 million and income
of € 2,896 million resulted in a cost
income ratio of 57% in 2022 compared to 64% in 2021.
575
512
12
305
284
1,659
1,534
Staff numbers at period end(3)
Average staff numbers(3)
9,590
9,221
8,916
9,154
Total operating expenses(1)(2)
€1,659m
Total operating expenses of
€ 1,659 million increased by
7
8
8
1
Bank levies and regulatory fees
€155m
Bank levies and regulatory fees
Irish bank levy
Deposit Guarantee Scheme
Single Resolution Fund
Other regulatory levies and charges
2022
€ m
37
55
38
25
2021
€ m
37
48
53
24
€ 125 million compared to 2021. This reflects the full year impact
of Goodbody following acquisition in the second half 2021 and
an underlying increase of € 75 million or 5%.
Personnel expenses
Personnel expenses increased by € 41 million compared to 2021
primarily due to the full year impact of Goodbody of € 30 million.
Personnel expenses excluding Goodbody increased € 11 million
due to salary inflation partially offset by lower average
staff numbers.
Staff numbers at 31 December 2022 were 8% higher than
31 December 2021 reflecting an increase in staff numbers to
support higher business volumes, insourcing and an initial transfer
of staff from Ulster Bank as part of the acquisition of the corporate
and commercial loan portfolio.
General and administrative expenses
General and administrative expenses increased by € 63 million
compared to 2021 driven by the full year impact of Goodbody,
the cost of onboarding customers from banks exiting the Irish
market, inflationary pressures and an increase in customer fraud
related costs.
Depreciation, impairment and amortisation
Depreciation, impairment and amortisation increased by
€ 21 million compared to 2021.
Bank levies and regulatory fees
155
162
Bank levies and regulatory fees of € 155 million decreased by
€ 7 million compared to 2021 primarily due to lower Single
Resolution Fund (SRF) fees offset by higher Deposit Guarantee
Scheme fees.
The SRF fee for 2022 reflected an industry wide increase in the
target funding rate by the Single Resolution Board. The SRF
fee in 2021 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 € 155 million and the cost of exceptional items(3) of
€ 249 million, were € 2,063 million in 2022 compared to
€ 2,006 million in 2021. This results in a cost income ratio
(IFRS basis) of 71% in 2022, compared to 84% in 2021.
(1) Before bank levies and regulatory fees and exceptional items.
(2) Staff numbers are on a full time equivalent (“FTE”) basis.
(3) The cost of exceptional items of € 249 million in 2022 (2021: € 310 million) comprised: Personnel expenses € 17 million (2021: € 58 million),
General and administrative expenses € 195 million (2021: € 209 million) and Depreciation, impairment and amortisation € 37 million (2021: € 43 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
16
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
Net credit impairment charge
€7m
Total exceptional items
€231m
There was a net credit impairment charge of € 7 million in 2022
comprising:
• a € 316 million charge in the second half of the year which
incorporates post model adjustments to address emerging
headwinds and downside risks from inflation and interest rate
impacts on credit quality.
• a € 309 million writeback in the first half of the year reflecting the
economic environment in Ireland with robust credit quality &
repayments, updated macroeconomic assumptions as well as
some release of post-model adjustments.
The net credit impairment charge of € 7 million in 2022 reflected a
€ 5 million charge on loans and advances to customers (net
remeasurement of expected credit loss ("ECL") allowance charge
of € 50 million and recoveries of amounts previously written-off of
€ 45 million) and a € 2 million charge on investment securities.
There was a net credit impairment writeback of € 238 million in
2021 comprising a € 233 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.
For further information see pages 75 to 128 in the Risk
Management section.
Income tax charge
€115m
The income tax charge was €115 million in 2022, representing an
effective tax rate of 13%, compared to a tax credit of € 16 million
in 2021. The tax credit in 2021 reflected an increase in the
carrying value of deferred tax assets in respect of losses
recognised in the UK in earlier years.
For further information see note 14 Taxation and note 26 Deferred
taxation of the consolidated financial statements.
Total exceptional items
Restitution costs
Restructuring costs:
- Termination benefits
- Property transformation
- Loss on UK portfolio sale
- Other restructuring
Inorganic transaction costs
Gain/(loss) on disposal of loan portfolios
Other
2022
€ m
(94)
(93)
(7)
(44)
(18)
(24)
(53)
36
(27)
2021
€ m
(173)
(132)
(51)
(58)
(10)
(13)
(21)
(5)
13
Total exceptional items
(231)
(318)
These gains/costs were viewed as exceptional by management.
Restitution costs include a charge of €101 million related to a
series of investment property funds (known as Belfry) which were
sold to individual investors during the period 2002 to 2006,
reflecting an increased provision for customer redress of € 82
million and associated costs of €19 million (2021 charge of € 100
million including € 25 million for legal and settlement costs). It also
includes the writeback of customer redress provisions recognised
in prior periods and costs relating to the tracker mortgage
examination.
Restructuring costs reflect the implementation of the Group’s
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.
In December 2020 the Group announced 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 € 259 million have been incurred by the end
of 2022.
Inorganic transaction costs includes costs associated with the
acquisition of a portfolio of performing Ulster Bank corporate and
commercial loans and the acquisition of a portfolio of performing
Ulster Bank tracker (and linked) mortgages.
Gain/(loss) on disposal of loan portfolios relates to the disposals
of non-performing loan portfolios.
Other in 2022 reflects a charge of € 27 million relating to the
conclusion of the Central Bank of Ireland enforcement
investigation in respect of tracker mortgages at AIB and EBS
under which the Group agreed to pay a fine of € 96.7 million,
with a provision of € 70 million having been recognised in prior
years. In 2021 it reflected the writeback of a provision for
regulatory fines.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
17
BUSINESS REVIEW CONTINUED
Assets
Net loans to customers
New lending
€59.6bn
€12.6bn
Assets
Gross loans to customers
ECL allowance
Net loans to customers
Investment securities
Loans and advances to banks
Securities financing
Other assets
Total assets
61.2
(1.6)
59.6
16.3
39.7
6.3
7.9
58.4
(1.9)
56.5
16.9
44.0
3.9
6.6
129.8
127.9
5
-14
5
-4
-10
62
21
2
Net loans to customers
€59.6bn
Net loans, excluding the negative
impact of foreign exchange
movements of € 0.3 billion, increased by € 3.1 billion compared
to 31 December 2021 driven by the acquisition of loans from
Ulster Bank and new lending exceeding redemptions partially
offset by the disposal of non-performing and UK SME loans.
The Group has completed the acquisition of €2.1 billion of
performing Ulster Bank corporate and commercial loans by 31
December 2022. The migration of the remaining eligible loans
of €1.2 billion is expected to be largely complete by June 2023.
New lending
€12.6bn
New lending of € 12.6 billion in 2022
was € 2.2 billion or 22% higher than in 2021.
Mortgage lending of € 4.6 billion was 48% higher driven by
strong Irish mortgage lending of € 4.5 billion, up 53%,
representing a market share of 32%. Property related lending
was up 50% to € 2.7 billion. Non-property lending of € 4.3 billion
was 5% lower as higher renewable energy & infrastructure and
corporate lending in Ireland was more than offset by lower
syndicated and UK lending. Personal lending was up 10% to €
1.0 billion.
31 Dec
2022
€ bn
31 Dec
2021
%
€ bn
change
New lending comprises € 10.8 billion term lending in 2022
(€ 9.1 billion in 2021) and € 1.8 billion transaction lending
(€ 1.3 billion in 2021).
Non-performing loans
€2.2bn
Non-performing loans ratio
3.5%
Non-performing loans decreased by € 0.9 billion or 31% to
€ 2.2 billion at 31 December 2022 primarily reflecting the
disposal of loan portfolios of € 0.5 billion and redemptions of €
0.6 billion partially offset by net flow to non-performing of € 0.3
billion.
Legacy NPEs (exposures that entered into default prior to
31 December 2018) amount to € 0.2 billion or 0.4% of total
loans at 31 December 2022.
Non-performing loans ratio
Non-performing loans as a percentage of gross loans to
customers was 3.5% at 31 December 2022 compared to 5.4%
at 31 December 2021.
ECL allowance
€1.6bn
Non-performing loans cover
35%
The ECL allowance on loans (at amortised cost) of € 1.6 billion
at 31 December 2022 decreased from € 1.9 billion at 31
December 2021 primarily reflecting the disposal of non-
performing loans in 2022.
Non-performing loans cover
The ECL allowance cover rate on non-performing loans has
increased to 35% at 31 December 2022 compared to 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 2022 to 31 December 2022.
Loans to customers
Gross loans (opening balance 1 January 2022)
New lending
Redemptions of existing loans
Portfolio acquisition
Portfolio disposals
Write-offs and restructures
Net movement to non-performing
Foreign exchange movements
Other movements
Gross loans (closing balance 31 December 2022)
ECL allowance
Net loans (closing balance 31 December 2022)
Performing
loans
Non-performing
loans
Loans to
customers
€ bn
55.3
12.6
(10.3)
2.1
(0.3)
—
(0.3)
(0.3)
0.2
59.0
(0.9)
58.1
€ bn
3.1
—
(0.6)
—
(0.5)
(0.1)
0.3
—
—
2.2
(0.7)
1.5
€ bn
58.4
12.6
(10.9)
2.1
(0.8)
(0.1)
—
(0.3)
0.2
61.2
(1.6)
59.6
Allied Irish Banks, p.l.c. Annual Financial Report 2022
18
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 on pages 75 to 128
in the Risk management section.
At amortised cost
At FVTPL(1)
Loan portfolio profile
31 December 2022
Gross loans to customers
Of which: Stage 2
Non-performing loans
Total ECL allowance
Residential
Other
Property and
Non-
property
mortgages
personal
construction
business
€ bn
30.3
1.1
0.6
0.3
€ bn
2.7
0.3
0.2
0.2
€ bn
8.6
1.4
0.4
0.3
€ bn
19.4
3.2
0.8
0.8
Total
€ bn
61.0
6.0
2.0
1.6
Total ECL allowance cover (%)
ECL allowance cover Stage 2 (%)
ECL allowance cover non-performing (%)
0.9 %
3.3 %
31.2 %
6.5 %
13.7 %
64.4 %
3.7 %
8.4 %
4.3 %
2.7 %
14.1 %
10.7 %
29.3 %
34.7 %
35.1 %
31 December 2021
Gross loans to customers
Of which: Stage 2
Non-performing loans
Total ECL allowance
€ bn
29.4
1.5
1.0
0.4
€ bn
2.7
0.2
0.2
0.2
€ bn
7.4
1.4
0.6
0.3
€ bn
18.7
3.7
1.1
1.0
€ bn
58.2
6.8
2.9
1.9
Total ECL allowance cover (%)
ECL allowance cover Stage 2 (%)
ECL allowance cover non-performing (%)
1.3 %
2.8 %
30.1 %
8.2 %
15.5 %
64.4 %
4.3 %
6.6 %
5.2 %
3.2 %
14.4 %
10.4 %
27.5 %
28.6 %
31.9 %
Total
€ bn
0.2
0.2
€ bn
0.2
0.2
Total
€ bn
61.2
6.0
2.2
1.6
€ bn
58.4
6.8
3.1
1.9
Investment securities
Investment securities of € 16.3 billion, primarily held for liquidity
purposes, have decreased by € 0.6 billion from 31 December
2021 due to the impact of negative fair value movements whilst
purchases exceeded maturities and disposals during the year.
Loans and advances to banks
Loans and advances to banks of € 39.7 billion, including
€ 32.6 billion of cash and balances at central banks, were
€ 4.3 billion lower than 31 December 2021. The reduced
placement with banks was primarily due to the repayment
of TLTRO funding, loan book growth and increased securities
financing partly offset by higher customer account balances
and proceeds from the issuance of debt.
Securities financing
Securities financing of € 6.3 billion has increased by € 2.4 billion
from 31 December 2021.
Other assets
Other assets of € 7.9 billion comprised:
• Deferred tax assets of € 3.0 billion(2), € 0.2 billion increase from
31 December 2021.
• Derivative financial instruments of € 2.5 billion, € 1.6 billion
increase from 31 December 2021 primarily reflecting interest
rate movements in the period.
• Remaining assets of € 2.4 billion, decreased by € 0.5 billion
from 31 December 2021.
(1) Total loans at FVTPL relate predominantly 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
19
BUSINESS REVIEW CONTINUED
Liabilities & equity
Customer accounts
Equity
€102.4bn €12.3bn
Liabilities & equity
Customer accounts
Deposits by banks
Debt securities in issue
Subordinated liabilities
Other liabilities
Total liabilities
31 Dec
2022
€ bn
102.4
0.5
1.0
7.6
6.0
31 Dec
2021
€ bn
92.9
10.4
1.9
5.6
3.4
117.5
114.2
Equity
12.3
13.7
Total liabilities & equity
129.8
127.9
%
change
10
-95
-46
36
77
3
-10
1
Subordinated liabilities
Subordinated liabilities of € 7.6 billion have increased by € 2 billion
from December 2021.
Other liabilities
Other liabilities of € 6.0 billion comprised:
• Derivative financial instruments of € 3.0 billion, € 1.9 billion
increase from 31 December 2021 primarily reflecting interest
rate movements in the period.
• Securities financing € 0.9 billion, € 0.9 billion increase from
31 December 2021
• Remaining liabilities of € 2.1 billion, € 0.2 billion reduction from
31 December 2021.
Loan to deposit ratio
Customer accounts
€102.4bn
%
58
%
Change
61
-3
Customer accounts, excluding the
negative impact of currency
Equity
€12.3bn
Equity decreased by € 1.4 billion to
€ 12.3 billion compared to
movements of € 0.5 billion, increased by € 10.0 billion compared
to 31 December 2021 driven by an increase in Retail Banking and
Capital Markets, which includes inflows from banks exiting the
Irish market, offset by the expected reduction in balances in AIB
UK due to the exit from the SME market in Great Britain.
Loan to deposit ratio
The loan to deposit ratio decreased to 58% at 31 December 2022
compared to 61% at 31 December 2021 as growth in customer
accounts outpaced the growth in loans to customers during
the year.
Deposits by banks
Deposits by banks of € 0.5 billion decreased by € 9.9 billion
compared to 31 December 2021 driven by the repayment of
TLTRO funding of € 10.0 billion in December 2022.
Debt securities in issue
Debt securities of € 1.0 billion decreased by € 0.9 billion from
31 December 2021.
€ 13.7 billion at 31 December 2021
The table below sets out the movements to 31 December 2022.
Equity
Opening balance (1 January 2022)
Profit for the year
Distributions paid
Other comprehensive income:
Cashflow hedging reserves
Investment securities reserves
Foreign currency translation reserve
Closing balance (31 December 2022)
€ bn
13.7
0.8
(0.3)
(1.9)
(1.6)
(0.2)
(0.1)
12.3
The decrease in the cash flow hedging reserves during the year
primarily reflected fair value movements on receive fixed interest
rate swaps driven by an increase in euro and sterling interest
rates and additional hedging activity.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
20
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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
Our leading Irish retail franchise provides a comprehensive range of products and services to over 2.9 million customers delivered
through our branch, digital and phone banking channels; with an expanded reach into the retail customer base via EBS, Haven, AIB
Merchant Services, Payzone, Nifti and AIB Life.
• Homes & Consumer are responsible for meeting the homes and everyday banking needs of customers in Ireland by delivering
innovative products, propositions and services and for growing our market leading positions. Our aim is to achieve a seamless and
transparent customer experience across all our products and services including mortgages, current accounts, personal lending,
payments and credit cards, deposits, insurance and wealth.
• SME serves our micro and small SME customers through our sector-led strategy and local expertise with an extensive product and
services offering. Our aim is to help our customers create and build sustainable businesses in their communities.
• FSG is our dedicated centre of excellence for the management of the vast majority of the Group’s non-performing exposures (NPEs),
with the objective of supporting our customers in difficulty and 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 and equity investments, 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 mid to large corporates focused on renewables, infrastructure, housing, commercial real
estate, health and manufacturing/industrial businesses across both Great Britain and Northern Ireland, where the Bank has
recognised expertise. Services include lending, treasury, trade facilities, asset finance and invoice discounting.
• a full service retail bank in Northern Ireland (“AIB (NI)”) to personal and business customers with a focus on mortgage and business
lending.
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 in the
period included Technology, Operations, Finance, Risk, Legal, Corporate Governance & Customer Care, Human Resources,
Sustainability and Corporate Affairs, Enterprise Development and Group Internal Audit.
Segment allocations
In 2022 the Group made changes to the methodologies used to allocate cost and income across operating segments in order to
enhance the management of standalone segment performance. Under the Group’s revised cost allocation methodology, substantially all
of the costs of the Group’s control, support and Treasury functions are now allocated to Retail Banking, Capital Markets and AIB UK
whereas the previous methodology resulted in overheads which were managed centrally being reported in the Group segment. In
addition, certain Bank levies and regulatory fees, such as the Irish bank levy, which were previously reported in Group segment are now
allocated to the Retail Banking and Capital Market segments. Figures for the prior year have been restated on a comparative basis.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
21
BUSINESS REVIEW CONTINUED
Retail Banking
Retail Banking
contribution statement
2022
€ m
2021
€ m
%
change
Net interest income
Other income
Total operating income
Total operating expenses
1,186 1,042
418 367
1,604 1,409
(1,151) (1,082)
Bank levies and regulatory fees
(50)
(49)
Operating contribution before
impairments and exceptional items
Net credit impairment writeback
403 278
86
144
14
14
14
6
2
45
67
Operating contribution before
exceptional items
Income from equity accounted
investments
Contribution before exceptional items
554 380
547 364
50
7
16
-56
46
Net interest income
€1,186m Net interest income has increased by € 144 million
compared to 2021 driven by the favourable impact
of a rising interest rate environment partly offset
by higher funding costs.
Other income
€418m
Other income increased by € 51 million compared
to 2021 mainly due to an increase in net fee and
commission income reflecting higher transaction
volumes driven by a recovery in economic activity
and the onboarding of customers from the banks
exiting the Irish market as well as higher card
interchange fees.
Total operating expenses
€1,151m Total operating expenses increased by € 69 million
in 2022 reflecting salary inflation, the costs to on-
board customers from banks exiting the Irish market
and higher customer fraud related costs.
Net credit impairment writeback
€144m
There was a net credit impairment writeback of
€ 144 million on loans and advances to customers
(net remeasurement of ECL allowance writeback
of € 101 million and recoveries of amounts
previously written-off of € 38 million) and
a € 5 million writeback for off-balance sheet
exposures. There was a net credit impairment
writeback of € 86 million in 2021.
Retail Banking
balance sheet metrics
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
31 Dec
31 Dec
2022
€ bn
2021
%
€ bn
change
4.5
1.0
0.1
0.9
6.5
2.9
0.9
0.1
0.9
4.8
34
28.7
27.7
2.6
0.5
3.0
2.6
0.6
3.2
34.8
34.1
(0.7)
(1.0)
34.1
33.1
45.4
30.4
75.8
37.9
27.3
65.2
2
-30
3
20
11
16
New lending
€6.5bn
New lending was 34% higher at € 6.5 billion due to
a strong increase in mortgage lending of € 1.6 billion
or 53% and higher personal lending.
Net loans
€34.1bn Net loans increased by € 1.0 billion primarily due to
growth in performing loans as new lending exceeded
redemptions partly offset by the disposal of non
performing loans.
ECL allowance
€0.7bn
The ECL allowance of € 0.7 billion in 2022 decreased
by € 0.3 billion from € 1.0 billion at 31 December 2021
primarily reflecting disposal of non-performing loan
portfolios.
Customer accounts
€75.8bn Customer accounts increased by € 10.6 billion
compared to 31 December 2021 driven by higher
personal balances and includes inflows from banks
exiting the Irish market.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
22
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
Capital Markets
Capital Markets
contribution statement
2022
2021
%
€ m
€ m change
Capital Markets
balance sheet metrics
31 Dec
31 Dec
2022
€ bn
2021
€ bn
%
change
Net interest income
Other income
Total operating income
Total operating expenses
Bank levies and regulatory fees
Operating contribution before
565 479
233 137
798 616
(325)
(256)
(12)
(11)
impairments and exceptional items
461 349
Net credit impairment (charge)/writeback
(102) 137
18
70
30
27
9
32
—
Mortgages
Personal
Property
Non-property business
New lending
Mortgages
Personal
Property
Operating contribution before
exceptional items
Income from equity accounted
investments
Contribution before exceptional items
384 487
359 486
-26
Non-property business
25
1
—
-21
Gross loans
ECL allowance
Net loans
0.1
—
2
2.6
4.7
0.5
0.1
6.4
12.2
19.2
—
—
1.3
2.8
4.1
0.5
—
5.1
10.4
16
(0.7)
(0.6)
18.5
15.4
Net interest income
€565m Net interest income increased by € 86 million compared
to 2021 primarily due to an increase in average loan and
investment securities volumes as well as the favourable
impact of a rising interest rate environment partly offset
by higher funding costs.
Other income
€233m Other income increased by € 96 million compared to
2021. This reflects the full year impact of Goodbody
following acquisition in the second half of 2021 and an
underlying increase of € 58m million driven by a gain in
respect of a loan acquisition forward contract to acquire
corporate and commercial loans from Ulster Bank. There
was also an increase in net fee and commission income
which was offset by lower income from equity
investments.
Total operating expenses
€325m Total operating expenses increased by € 69 million
compared to 2021 primarily due to the full year impact of
Goodbody and higher personnel expenses.
Net credit impairment charge
€102m There was a net credit impairment charge of
€ 102 million in 2022 comprising of a net remeasurement
of ECL allowance charge of € 97 million and an € 8
million charge for off-balance sheet exposures offset by
recoveries of amounts previously written off of € 3 million.
There was a net credit impairment writeback of
€ 137 million in 2021.
Income from equity accounted investments
€25m Income from equity accounted investments increased by
€24m reflecting the profit on disposal of an investment in
an associate entity.
Investment securities
2.2
1.5
Current accounts
Deposits
Customer accounts
12.4
3.8
16.2
11.1
3.4
14.5
New lending
€4.7bn New lending of € 4.7 billion increased by
€ 0.6 billion compared to 2021 with strong new lending in
property, and to a lesser extent in renewable energy &
infrastructure and corporate lending, partially offset by
lower syndicated lending.
Net loans
€18.5bn Net loans of € 18.5 billion at 31 December 2022
increased by € 3.1 billion compared to 2021 driven by the
acquisition of € 2.1 billion of Ulster Bank corporate and
commercial loans and new lending exceeding
redemptions.
ECL allowance
€0.7bn The ECL allowance of € 0.7 billion as at December 2022
increased by € 0.1 billion from 31 December 2021 driven
by the net credit impairment charge recognised in 2022.
Investment securities
€2.2bn Investment securities of € 2.2 billion were € 0.7 billion
higher than 31 December 2021.
Customer accounts
€16.2bn Customer accounts increased by € 1.7 billion
compared to 31 December 2021 and includes inflows
from banks exiting the Irish market.
15
20
17
20
47
12
12
12
Allied Irish Banks, p.l.c. Annual Financial Report 2022
23
BUSINESS REVIEW CONTINUED
AIB UK
AIB UK contribution statement
£ m
£ m change
AIB UK balance sheet metrics
2022
2021
%
Net interest income
Other income
Total operating income
Total operating expenses
Bank levies and regulatory fees
Operating contribution before
250 195
48 46
298 241
(147) (160)
(1)
(1)
impairments and exceptional items
150 80
Net credit impairment (charge)/writeback
(42) 13
Operating contribution before
exceptional items
Income from equity accounted investments
Contribution before exceptional items
108 93
4
3
112 96
Contribution before exceptional items € m
133 112
28
5
24
-8
-1
87
—
16
24
16
19
AIB GB
AIB NI
New lending
AIB GB
AIB NI
Gross loans
ECL allowance
Net loans
Current accounts
Deposits
Customer accounts
31 Dec
31 Dec
2022
£ bn
1.1
0.2
1.3
5.2
1.2
6.4
(0.2)
6.2
5.2
2.9
8.1
2021
%
£ bn
change
0.9
0.4
1.3
4.9
2
6.9
(0.2)
6.7
6.9
3.0
9.9
26
-55
1
5
-39
-7
4
-8
-25
-4
-19
Net interest income
£250m Net interest income increased by £ 55 million compared
to 2021 driven by rising UK interest rates partly offset by
lower average loan volumes primarily due to the exit from
the SME market in Great Britain.
Other income
£48m Other income of £ 48 million in 2022 was broadly in line
with 2021.
Total operating expenses
£147m Total operating expenses decreased by £ 13 million
compared to 2021 driven by a reduction in personnel
expenses.
New lending
£1.3bn New lending of £ 1.3 billion in 2022 was in line with 2021
as an increase in corporate lending was offset by a
reduction in mortgage and SME lending in Great Britain.
Net loans
£6.2bn Net loans of £ 6.2 billion decreased £ 0.5 billion
compared to 31 December 2021 primarily driven by the
disposal of loans of £0.3 billion following the Group’s
decision to exit the SME market in Great Britain.
ECL allowance
£0.2bn The ECL allowance of £ 0.2 billion at 31 December 2022
was in line with 31 December 2021.
Net credit impairment charge
£42m There was a net credit impairment charge of
£ 42 million in 2022 which reflected the deteriorating
macroeconomic outlook in the UK. There was a net credit
impairment writeback of £ 13 million in 2021.
Customer accounts
£8.1bn Customer accounts of £ 8.1 billion at 31 December 2022
were £ 1.8 billion lower primarily due to the Group's
decision to exit the SME market in Great Britain and an
increase in spending activity due to higher costs of living.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
24
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 change
Group balance sheet metrics
2022
€ m
107
37
144
43
41
84
(11)
(10)
(92)
(101)
41
(27)
Investment securities
Securities financing
Customer accounts
—
-10
71
10
42
—
31 Dec
31 Dec
2022
2021
%
€ bn
14.1
6.3
1.2
€ bn
change
15.5
3.9
1.3
-9
62
-8
Net interest income
€107m Net interest income of € 107 million increased by
€ 64 million compared to 2021 reflecting the impact of a
rising interest rate environment.
Investment securities
€14.1bn Investment securities of € 14.1 billion, primarily held for
liquidity purposes, decreased by € 1.4 billion from 31
December 2021 primarily due to the impact of negative
fair value movements during the year.
Other income
€37m Other income decreased by € 4 million compared
to 2021 mainly due to unfavourable movements on non-
customer foreign exchange contracts which were largely
offset by higher income from equity investments.
Total operating expenses
€11m Total operating expenses of € 11 million are in line with
2021.
Bank levies and regulatory fees
€92m Bank levies and regulatory fees decreased by € 9 million
compared to 2021 primarily due to lower Single
Resolution Fund fees partially offset by higher Deposit
Guarantee Scheme fees.
Securities financing
€6.3bn Securities financing of € 6.3 billion has increased by €2.4
billion from 31 December 2021.
Customer accounts
€1.2bn Customer accounts were € 1.2 billion at 31 December
2022 compared to € 1.3 billion at 31 December 2021.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
25
BUSINESS REVIEW CONTINUED
Alternative performance measures
The following is a list, together with a description, of APMs used in analysing the Group’s performance, provided in accordance with
the European Securities and Markets Authority (“ESMA”) guidelines.
Average rate
Average balance
Absolute cost base
Cost income ratio
Interest income/expense for balance sheet categories divided by the corresponding
average balance.
Average balances for interest-earning assets are based on daily balances for all categories with
the exception of loans and advances to banks, which are based on a combination of daily/monthly
balances. Average balances for interest-earning liabilities are based on a combination of daily/
monthly balances, with the exception of customer accounts which are based on daily balances.
Total operating expenses excluding exceptional items, bank levies and regulatory fees.
Total operating expenses excluding exceptional items, bank levies and regulatory fees divided by
total operating income excluding exceptional items.
Cost income ratio (IFRS basis)
Total operating expenses divided by total operating income.
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 27. Exceptional
items include:
• Restitution costs includes a charge related to a series of investment property funds (known as
Belfry) which were sold to individual investors during the period 2002 to 2006. It also includes
customer redress compensation and associated costs.
• Restructuring costs reflect the implementation of the Group’s 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.
• Inorganic transaction costs includes costs associated with the acquisition of a portfolio of
performing Ulster Bank corporate and commercial loans and the acquisition of a portfolio of
performing Ulster Bank tracker (and linked) mortgages. In 2021 it also included costs associated
with the creation of a joint venture with Great-West Lifeco Inc.
• Gain/(loss) on disposal of loan portfolios relates to the disposals of non-performing loan portfolios.
• Other in 2022 reflects a charge in respect of the Central Bank of Ireland enforcement investigation
in respect of tracker mortgages at AIB and EBS. In 2021 it included a writeback of a provision for
regulatory fines.
Loan to deposit ratio
Net interest margin
Non-performing exposures
Non-performing loans cover
Net loans and advances to customers divided by customer accounts.
Net interest income divided by average interest-earning assets.
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.
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 CET1 capital on a fully loaded basis.
Details of the Group’s RoTE is set out in the Capital Section on page 30.
Management performance –
summary income statement
The following line items in the management performance summary income statement are
considered APMs:
• Other income
• Total operating income
• Personnel expenses
• General and administrative expenses
• Depreciation, impairment and amortisation
• Total operating expenses
• Bank levies and regulatory fees
• Operating profit before impairment losses and
exceptional items
• Operating profit before exceptional items
• Profit before exceptional items
• Total exceptional items
Allied Irish Banks, p.l.c. Annual Financial Report 2022
26
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
Reconciliation between IFRS and management performance summary income statements
Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting
comparability of performance period on period. The adjusted performance measure is considered an APM. A reconciliation of
management performance measures to the directly related IFRS measures, providing their impact in respect of specific line items and
the overall summary income statement, is set out below.
IFRS - summary income statement
Net interest income
Other income
Total operating income
Total operating expenses
Operating profit before impairment losses
Net credit impairment (charge)/writeback
Operating profit
Income from equity accounted investments
Profit before taxation
Income tax (charge)/credit
Profit for the year
2022
€ m
2,152
762
2,914
(2,063)
851
(7)
844
37
881
(115)
766
2021
€ m
1,791
590
2,384
(2,006)
378
238
616
21
634
16
650
Adjustments - between IFRS and management performance
Other income
of which: exceptional items
(Gain)/loss on disposal of loan portfolios
Other
(18)
—
6
(18)
2
8
Total operating expenses
of which: bank levies and regulatory fees
155
162
of which: exceptional items
Restitution costs
Restructuring costs
Inorganic transaction costs
Other
94
75
53
27
173
122
21
(6)
249
310
Management performance - summary income statement
Net interest income
Other income(1)
Total operating income(1)
Total operating expenses(1)
Bank levies and regulatory fees(1)
Operating profit before impairment losses and exceptional items(1)
Net credit impairment (charge)/writeback
Operating profit before exceptional items(1)
Income from equity accounted investments
Profit before exceptional items(1)
Total exceptional items(1)
Profit before taxation
Income tax (charge)/credit
Profit for the year
2,152
744
2,896
(1,659)
(155)
1,082
(7)
1,075
37
1,112
(231)
881
(115)
766
1,791
598
2,389
(1,534)
(162)
693
238
931
21
952
(318)
634
16
650
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
27
BUSINESS REVIEW – 2. CAPITAL
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 2.9’ on page 147.
Regulatory capital and capital ratios(1)
Transitional basis
Fully loaded basis
31 December
2022
31 December
2021
31 December
2022
31 December
2021
Equity
Less: Additional tier 1 Securities
Proposed ordinary dividend
Regulatory adjustments:
Intangible assets and goodwill
Cash flow hedging reserves
IFRS 9 CET 1 transitional add-back
Pension
Deferred tax
Calendar provisioning (3)
Other (2)
Total common equity tier 1 capital
Additional tier 1 capital
Additional tier 1 issuance
Other
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
Other
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
€ m
12,266
(1,115)
(166)
(537)
1,470
411
(12)
(2,192)
(115)
(65)
(1,040)
9,945
1,115
(3)
1,112
11,057
1,500
27
135
(135)
(3)
1,524
12,581
50,886
291
4,302
79
55,558
%
17.9
19.9
22.6
€ m
13,664
(1,115)
(122)
(552)
(149)
565
(39)
(1,977)
(136)
(37)
(2,325)
10,102
1,115
—
1,115
11,217
1,500
24
133
(133)
—
1,524
12,741
47,646
446
4,435
110
52,637
%
19.2
21.3
24.2
€ m
12,266
(1,115)
(166)
(537)
1,470
—
(12)
(2,724)
(115)
(65)
(1,983)
9,002
1,115
(3)
1,112
10,114
€ m
13,664
(1,115)
(122)
(552)
(149)
—
(39)
(2,801)
(136)
(37)
(3,714)
8,713
1,115
—
1,115
9,828
1,500
1,500
29
135
—
(3)
1,661
11,775
50,661
291
4,302
79
55,333
%
16.3
18.3
21.3
28
133
—
—
1,661
11,489
47,367
446
4,435
110
52,358
%
16.6
18.8
21.9
(1) Prepared under the regulatory scope of consolidation.
(2) Other includes prudent valuation adjustment which has increased with the addition of the Ulster Bank forward contract.
(3) Calendar provisioning is a Supervisory Review and Evaluation Process ("SREP") recommendation to ensure minimum coverage levels on long term NPE
exposures. The difference between the SREP recommended coverage levels and the IFRS 9 ECL coverage is taken as a CET1 deduction.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
28
Annual Review
Business Review
Governance Report
Risk Management
Financial
Statements
General Information
Key Points
• The Group is reporting a fully loaded CET1 ratio of 16.3% at
31 December 2022.
• Including the impact of the proposed share buyback, the fully
loaded CET1 ratio is 15.9%, against a requirement of 10.23%.
• The impact of the acquisition of the Ulster Bank tracker
mortgage portfolio is expected to be c. -0.6%.
Capital requirements
The table below sets out the capital requirements at 31 December
2022 and the pro forma requirements for 31 December 2023 and
31 December 2024.
Regulatory Capital
Requirements
CET1 Requirements
Actual
31 Dec
2022
Pro Forma
31 Dec
2023
31 Dec
2024
Pillar 1
4.50 %
4.50 %
4.50 %
Pillar 2 requirement (P2R)
1.55 %
1.55 %
1.55 %
Capital Conservation Buffer
(CCB)
2.50 %
2.50 %
2.50 %
Other Systemically Important
Institutions Buffer (O-SII)
Countercyclical buffer (CCYB)
Impact
1.50 %
1.50 %
1.50 %
0.18 %
1.05 %
1.45 %
CET1 Requirement
10.23 % 11.10 % 11.50 %
AT1
Tier 2
2.02 %
2.02 %
2.02 %
2.69 %
2.69 %
2.69 %
Total Capital Requirement
14.94 % 15.80 % 16.20 %
In addition, under Article 104a any shortfall in AT1 and Tier 2 must
be held in CET1(1). The table does not include Pillar 2 Guidance
(“P2G”) which is not publicly disclosed.
The Bank of England (“BOE”) has reintroduced the UK
Countercyclical capital buffer (“CCyB”) at 1% in December 2022,
increasing to 2% in July 2023. The Central Bank of Ireland (“CBI”)
is also reintroducing the CCyB for Irish exposures at 0.5% in June
2023, increasing to 1.0% in November 2023 and potentially to
1.5% in 2024.
Capital ratios at 31 December 2022
Fully Loaded Ratio
The fully loaded CET1 ratio decreased to 16.3% at 31 December
2022 from 16.6% at 31 December 2021.
Profit for the year attributable to equity holders of the parent less
proposed ordinary dividend (+1.2%) is offset by increased Risk
Weighted Assets (“RWAs”) (-0.9%), a reduction in the investment
securities reserve (-0.4%) and a share buyback programme
completed in May 2022 (-0.2%).
The increase in RWA is mainly as a result of the acquisition of the
Ulster Bank corporate and commercial loan book.
The fully loaded total capital ratio decreased to 21.3% from 21.9%
at 31 December 2021. The decrease in the ratio was primarily
driven by the CET1 ratio movements outlined above.
Transitional Ratio
The transitional CET1 ratio decreased to 17.9% at 31 December
2022 from 19.2% at 31 December 2021. This decrease is driven
by the fully loaded CET1 ratio movements detailed above and an
additional year’s phasing of the deferred tax asset deduction and
the IFRS 9 transitional addback.
At 31 December 2022 the transitional total capital ratio decreased
to 22.6% from 24.2% at 31 December 2021.
Acquisition of Ulster Bank tracker mortgage portfolio
The Group estimates that had the Ulster Bank tracker transaction
completed on 31 December 2022 the increase in the Group’s
RWAs would have led to a reduction in the CET1 ratio of c.-0.6%.
As CCPC approval had not yet been received at 31 December
2022, the impact is not reflected in the capital position. CCPC
approval was received in January 2023 and therefore the impact
will be recognised by way of an Article 3 adjustment in the first
quarter of the year.
Model Redevelopment
The regulatory review of the Group’s previously submitted
mortgage model is near completion. The current estimated capital
impact is a reduction of c. 30 basis points on the CET1 ratio. The
impact will be included in the Group’s capital position following
receipt of regulatory approval expected to be in the first six
months of 2023.
Further headwinds may be faced as SME and corporate models
are redeveloped and submitted for regulatory approval.
Distributions
Proposed Dividend
The Board proposes to pay an ordinary dividend of 6.2 cent per
share from 2022 profits (totalling € 166 million based on the total
number of ordinary shares currently outstanding). This is subject
to shareholder approval at the Annual General Meeting in
May 2023.
Proposed buyback of ordinary shares
The Group has received regulatory approval from the European
Central Bank to undertake a buyback of its ordinary shares in an
aggregate consideration amount of up to € 215 million.
Discussions with the Department of Finance in relation to a
potential directed buyback of ordinary shares by the Minister for
Finance are currently underway. Any buyback of ordinary shares
would be subject to the approvals of the Board and the Minister
for Finance.
The combined proposed ordinary dividend and buyback
represents c. 50% of 2022 distributable profits. In determining
distributable profits, the Group considers profit after tax adjusted
for the deferred tax asset utilisation, less AT1 coupons paid.
The pro forma capital impact of the proposed share buyback at
31 December 2022 is c.40 basis points which would reduce the
fully loaded CET1 ratio to 15.9% from the reported 16.3%.
(1) The AT1 shortfall at 31 December 2022 is 1bp and accordingly increases the CET1 requirement to 10.24%.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
29
BUSINESS REVIEW – 2. CAPITAL CONTINUED
Leverage ratio
The fully loaded leverage ratio is 7.6% at 31 December 2022
(7.6% at 31 December 2021).
As part of a wider review of AIB’s rating agency requirements,
AIB are no longer soliciting a rating from Fitch. Prior to withdrawal,
on 20 January 2023 Fitch affirmed the BBB / Stable rating.
Leverage Ratio Metrics
2022
€m
2021
€m
Long term Ratings
Total Exposure (Transitional)
133,971
130,894
Long term
Outlook
Investment grade
Long term Ratings
Long term
Outlook
31 December 2022
Moody’s
A3
Stable
√
S&P
BBB-
Positive
√
31 December 2021
Moody’s
Baa1
S&P
BBB-
Fitch
BBB
Stable
Negative
Stable
Investment grade
√
√
√
Allied Irish Banks, p.l.c.
As part of a wider review of AIB’s rating agency requirements,
AIB are no longer soliciting a rating from Fitch. Prior to withdrawal,
on 20 January 2023 Fitch affirmed the BBB+ / Stable rating.
Total Exposure (Fully Loaded)
132,968
129,373
Tier 1 Capital (Transitional Basis)
Tier 1 Capital (Fully Loaded)
Leverage Ratio (Transitional basis)
Leverage Ratio (Fully Loaded)
11,057
11,217
10,115
9,828
8.3 %
7.6 %
8.6 %
7.6 %
Finalisation of Basel III
As the Basel III implementation nears completion, the Group
continues to closely monitor regulatory developments to ensure
that the Group maintains a strong capital position.
Initial assessments signal some upward pressure on RWAs,
mostly in relation to operational risk. In relation to RWA floors,
the Group’s high RWA density makes it less likely to be severely
impacted by their introduction.
The Single Resolution Board (“SRB”) set the Group’s binding
intermediate MREL target under the BRRD II legislative
framework to be complied with by 1 January 2023 at 28.5% of
RWAs including the 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 2023 and
there is currently sufficient loss absorption and re-capitalisation
capability.
Minimum Requirement for Own Funds and Eligible Liabilities
(“MREL”)
At 31 December 2022 the Group has a MREL ratio of 33.7% of
RWAs (31.9% at 31 December 2021).
Long-term Ratings
Long term
Outlook
Investment grade
31 December 2022
Moody’s
A1
S&P
A-
Stable
Positive
√
√
Long term Ratings
Long term
Outlook
Investment grade
31 December 2021
Moody’s
A2
S&P
A-
Stable
Negative
√
√
Fitch
BBB+
Stable
√
Return on Tangible Equity ("RoTE")*
The RoTE for 2022 is 9.6% (2021: 8.2%).
Return on Tangible Equity (RoTE)
2022
€m
765
(65)
700
2021
€m
645
(65)
579
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.
Profit after tax
AT1 coupons paid
Attributable earnings
Ratings
AIB Group plc and Allied Irish Banks, p.l.c. are rated at investment
grade with Moody’s and Standard & Poor’s (S&P).
AIB Group plc
On 13 May 2022, Moody’s upgraded the credit rating by one notch
to A3 following an upgrade of Ireland’s sovereign debt rating and
an improvement in the operating environment. The Stable outlook
was reaffirmed.
On 16 May 2022, S&P revised the outlook to Stable from
Negative and reaffirmed the ratings. This reflects S&P’s view that
profitability pressure for AIB is easing.
On 22 December 2022, S&P further revised the outlook to
Positive from Stable and reaffirmed the ratings. This reflects
S&P’s view that asset quality and profitability are improving
for AIB.
Average RWA
RWA * 13.5% CET1 target
53,846
52,469
7,269
7,083
Return on Tangible Equity
9.6 %
8.2 %
The Group’s RoTE target of greater than 9% was revised in
December 2022 to a target of greater than 13% in 2024.
Return on Assets
The Return on Assets (RoA) at 31 December 2022 is 0.5%
(2021: 0.5%).
* RoTE is considered an Alternative Performance Measurement.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
30
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
DIRECTORS’ REPORT
for the financial year ended 31 December 2022
assessment used by the Directors is 12 months from the date of
approval of these annual financial statements.
In making their assessment, the Directors considered a wide
range of information relating to present and future conditions.
These included financial plans covering the period 2023 to 2025,
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 8 to 11.
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 is set
out in note 35 of 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 operating and financial review on pages 13 to 27 contains 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 2022, 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 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.
The Directors of Allied Irish Banks, p.l.c. (‘the Company’) present
their report and the audited financial statements for the financial
year ended 31 December 2022. The Statement of Directors’
Responsibilities is shown on page 150. For the purposes of this
report, ‘the Group’ comprises the Company and its subsidiaries in
the financial year ended 31 December 2022.
Results
The Group’s profit attributable to the ordinary shareholders of AIB
Group plc amounted to € 768 million and was arrived at as shown
in the consolidated income statement on page 163.
Dividend
On 2 March 2022, the Board approved an interim dividend of
€20m and recommended for approval by the Company’s sole
shareholder, AIB Group plc, a final dividend of €122m for the year
ended 31 December 2021. The interim dividend was paid by the
Company to AIB Group plc on 14 March 2022. The final dividend
was approved by the Company’s sole shareholder AIB Group plc
on 5 May 2022 and paid by the Company to AIB Group plc on 13
May 2022.
Buyback of ordinary shares
At the Annual General Meeting (“AGM”) of AIB Group plc, the
Board (of AIB Group plc) normally seeks, and has received, a
renewal of its authority from shareholders to undertake on-market
purchases of up to 10% of its ordinary shares. At the AGM on 5
May 2022, the authority of the Group to make off-market
purchases of its ordinary shares from the Minister was renewed.
At the 2021 AGM, approval had been sought and was received to
enter into a Directed Buyback Contract (the “DBB Contract”) with
the Minister for Finance, the terms of which would permit the AIB
Group plc to make off-market purchases of shares from the
Minister of up to 4.99% of the AIB Group plc’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. Shareholder authority to make such off-market
purchase was renewed at the 2022 AGM.
An on-market share buyback programme, to be undertaken in
conjunction with the off-market purchases from the Minister
pursuant to the DBB Contract, was announced by AIB Group plc
on 5 May 2022. The Company completed a share buy back
programme in parallel with AIB Group plc's buyback programme
which resulted in the repurchase of 40,952,764 ordinary shares by
the Company from AIB Group plc for an aggregate consideration
of €91m. These shares were subsequently cancelled and the
nominal amount of €25m was transferred from share capital to
capital redemption reserves.
AIB Group plc and the Company has each received regulatory
approval from the European Central Bank to undertake a buyback
of its ordinary shares in an aggregate consideration amount of up
to €215 million. Discussions with the Department of Finance in
relation to a potential directed buyback of ordinary shares by AIB
Group plc from the Minister for Finance are currently underway
and it is anticipated that the Company will undertake a
corresponding buyback of its shares from AIB Group plc. Any
buyback of ordinary shares would be subject to the approvals of
the Boards of AIB Group plc and the Company and the Minister
for Finance.
Going concern
The financial statements for the financial year ended 31
December 2022 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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
31
DIRECTORS’ REPORT CONTINUED
Since the last Directors’ Report was issued, the following Board
changes occurred with effect from the dates shown:
• Ms Carolan Lennon resigned as Independent Non-Executive
Director of the Board on 30 June 2022.
• Helen Normoyle was appointed Senior Independent Non-
Executive Director on 1 July 2022 taking over this responsibility
from Ms Lennon. Ms Normoyle has served as an Independent
Non-Executive Director since December 2015.
Biographical details for Ms Normoyle is provided on page 41.
The appointment and replacement of Directors, and their powers,
are governed by law and the Constitution of the Company.
Directors’ and Secretary’s Interests in Shares
The beneficial interests of the Directors and the Company
Secretary in office at 31 December 2022, and of their spouses
and minor children, in AIB Group plc’s ordinary shares as the
parent company of Allied Irish Banks, p.l.c. are as follows:
Ordinary shares
Directors:
Anik Chaumartin
Donal Galvin
Basil Geoghegan
Tanya Horgan
Colin Hunt
Sandy Kinney Pritchard
Andy Maguire
Brendan McDonagh
Helen Normoyle
Ann O’Brien
Fergal O’Dwyer
Jim Pettigrew
Jan Sijbrand
Raj Singh
Company Secretary:
Conor Gouldson
* Or date of appointment if later.
31 December
2022
1 January
2022*
—
—
—
—
9,835
9,835
—
60,000
10,000
—
—
40,000
10,000
—
20,000
20,000
2,000
2,000
—
—
10,000
10,000
25,000
—
—
—
—
—
50,210
15,210
There is no requirement for Directors, or the Company Secretary,
to hold shares in the parent company AIB Group plc.
There were no changes in the interests of the Directors and the
Company Secretary shown above between 31 December 2022
and 6 March 2023.
Directors’ Remuneration
The Group’s policy with respect to Directors’ remuneration is
included in the Corporate Governance Remuneration Statement
on pages 59 to 65. Details of the total remuneration of the
Directors in office during 2022 and 2021 are shown in the
Corporate Governance Remuneration Statement on page 64.
Non-Financial Statement
Regulations on non-financial information, which were transposed
into Irish law by the European Union (disclosure of Non-Financial
and Diversity Information by certain large undertakings and
groups) Regulations 2017 as amended by Statutory Instrument
No. 410 of 2018, require that the Group reports on specific topics
such as: environmental matters; social and employee matters;
respect for human rights; and bribery and corruption (‘key non-
financial matters’). The Group is committed to maintaining
sustainable and ethically responsible corporate and social
practices in every aspect of its business. The table included on
pages 44 to 47 of the AIB Group plc 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 our business model is included on pages 14 and 15
of the AIB Group plc Annual Financial Report 2022 and the table on
pages 22 to 26 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 129 to 133 of the
AIB Group plc Annual Financial Report 2022.
Substantial interests in the share capital
At 31 December 2022, the Company had 2,673,428,474 Ordinary
Shares of 0.625 each in issue. AIB Group plc is the sole
shareholder, holding 100% of the issued share capital of the
Company.
There was 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 2022 to 6 March 2023.
Corporate governance
The Corporate Governance report is set out on pages 34 to 38
and forms part of this report.
Political donations
The Directors of the Company have satisfied themselves that
there were no political contributions that require disclosure under
the Electoral Act 1997.
Accounting records
The measures taken by the Directors to secure compliance with
the Company’s obligation to keep adequate accounting records
include the use of appropriate systems and procedures,
incorporating those set out within ‘Internal controls’ in the
Corporate Governance report on pages 66 and 67, and the
employment of competent persons. The accounting records are
kept at the Company’s Registered Office at 10 Molesworth Street,
Dublin 2, Ireland and at the principal addresses outlined on page
349.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
32
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
Other information
Other information relevant to the Directors’ Report may be found
in the following pages of the report:
2022 Results – Financial Performance
Risk management
Non-adjusting events after the reporting period
Page
2
69
280
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.
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 8 to 11.
Branches outside the State
The Company has previously established branches, within the
meaning of EU Council Directive 89/666/EEC (implemented in
Ireland by the European Communities (Branch Disclosures)
Regulation 1993, in the United Kingdom and the United States of
America.
Auditor
Deloitte Ireland LLP (“Deloitte”) were appointed as the Group’s
auditor on 20 June 2013 following shareholder approval at the
2013 Annual General Meeting (“AGM”) on that date. Their
continued appointment as Auditor of the Group was approved at
the last AGM held on 5 May 2022 and they shall continue to hold
office until the conclusion of the AGM of the Group on 4 May
2023, pursuant to section 383(2) of the Companies Act 2014.
A formal external audit tender process was completed by the Audit
Committee on behalf of the Board in 2021 and
PricewaterhouseCoopers (“PwC”) have been selected by the
Board as the proposed new Statutory Auditors in respect of the
financial year ending 31 December 2023. A shareholder resolution
at the AGM to be held on 4 May 2023 is required for the
appointment of the new Statutory Auditors and the Board is
recommending that PwC be appointed.
Subject to shareholder approval of PwC as the Group’s new
Statutory Auditor, Deloitte, having served as the Group’s Statutory
Auditor for the maximum legally permitted unbroken tenure in
office of 10 years, intend to resign upon conclusion of the 2022
financial year end process. Deloitte have confirmed, in
accordance with Section 400 of the Companies Act, that there are
no circumstances connected with their resignation which should
be brought to the attention of the members or Creditors of the
Company.
The Directors’ Report for the financial year ended 31 December 2022 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
07 March 2023
Colin Hunt
Chief Executive Officer
Allied Irish Banks, p.l.c. Annual Financial Report 2022
33
CORPORATE GOVERNANCE REPORT
purposes of the CRD (which is publicly available on
www.irishstatutebook.ie).
During 2022, Allied Irish Banks, p.l.c. was materially compliant
with all of the 2015 Requirements and with the corporate
governance aspects of CRD.
UK Corporate Governance Code and Irish Corporate
Governance Annex
Allied Irish Banks, p.l.c. is not directly subject to the UK Corporate
Governance Code 2018 (the “Code”) which is publicly available on
www.frc.org.uk or the Irish Corporate Governance Annex (the
“Irish Annex”). AIB Group plc, the holding company, by virtue of its
listing on the London Stock Exchange and on the Euronext Dublin
Stock Exchange, is subject to the provisions of the Code and of
the Irish Annex. The governance arrangements for AIB Group plc
and the Company are mirrored. Additional details on compliance
by AIB Group plc with the Code are available in the AIB Group plc
Annual Financial Report 2022.
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 ("ExCo"), being the most
senior management committee of the Group. The Executive
Committee has primary responsibility for the day-to-day operations
of, and the development of strategy for, the Group.
The Board supports, and strives to operate in accordance with,
the Group’s purpose and values at all times and challenges
Management as to whether the purpose, values and strategic
direction of the Group align with its desired culture, or if they do
not, whether there are options to mitigate negative stakeholder
impacts.
The Board ensures a clear division of responsibilities between the
Chair, who is responsible for the overall leadership of the Board
and for ensuring its effectiveness, and the CEO, who manages
and leads the business. The governance framework
and organisational structure are sufficient to ensure that no one
individual has unfettered powers of decision or exercises
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 executing its duties by a number of Board and
Advisory Committees.
Whilst arrangements have been made by the Directors for the
delegation of the management, organisation and administration of
the Group’s affairs, certain matters are reserved specifically for
decision by the Board which are reviewed at least annually to
ensure they remain relevant and are available on the Group’s
website (www.aib.ie/investorrelations).
Board Focus
Information on the focus of the Board during 2022 is outlined on
page 85 of the AIB Group plc Annual Financial Report 2022 which
is available on the Group’s website (www.aib.ie/investorrelations).
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 45
to 58.
Dear Shareholder,
On behalf of the Board, I am pleased to introduce the Corporate
Governance Report for 2022.
This report, which is aligned to the requirements of the UK
Corporate Governance Code 2018 documents the Company's
approach to compliance with that Code. Further information on
governance practices in place in the Company are available on
the AIB Group plc website at www.aib.ie/investorrelations.
The Board is committed to ensuring that the highest standards of
corporate governance are in place and see it as critical to
achieving our strategy and enhancing our culture.
We recognise that a robust governance structure with an effective
risk management framework is integral to delivering sustainable
growth and shareholder returns.
Jim Pettigrew
Chair
Corporate Governance Framework
Statements of Compliance
For the purposes of this report, which discusses corporate
governance arrangements, ‘the Group’ comprises Allied Irish
Banks, p.l.c. and its subsidiaries. This report, in conjunction with
the Statement of Directors’ Responsibilities, Corporate
Governance Remuneration Statement, Risk Governance section
of the Risk Management Framework report and the Statement on
Internal Control sets out the Group’s approach to governance in
practice, the work of the Board and its Committees and explains
how the Group applied the principles of the Central Bank of
Ireland’s Corporate Governance Requirements for Credit
Institutions 2015 (the “2015 Requirements”), European Union
(Capital Requirements) Regulations 2014 (S.I. 158/2014) (“CRD”)
and UK Corporate Governance Code 2018 (the “Code”) during
2022.
Central Bank of Ireland’s Corporate Governance
Requirements for Credit Institutions 2015 and European
Union (Capital Requirements) Regulations 2014
Allied Irish Banks, p.l.c., which is 100% owned by AIB Group plc,
is a credit institution and is subject to the 2015 Requirements,
including compliance with requirements specifically relating to
‘high impact institutions’ and additional corporate governance
obligations on credit institutions deemed significant for the
Allied Irish Banks, p.l.c. Annual Financial Report 2022
34
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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. In terms of our investors, since
Allied Irish Banks, p.l.c. and AIB Group plc have common
Directors and concurrent Board meetings, this ensures that the
Board of Allied Irish Banks, p.l.c. is aware of shareholder issues
and concerns, as they arise.
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.
Further details on the Group’s stakeholder engagement can be
found on pages 93 and 94 of the AIB Group plc Annual Financial
Report 2022 which is available on the Group’s website
(www.aib.ie/investorrelations).
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 held 55.93% of the issued ordinary
shares of AIB Group plc as at 7 March 2023.
The relationship between the Group and the State is governed
by a Relationship Framework which is available on the Group’s
website (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.
Board Meetings
The Board met on 16 occasions during 2022. 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 discussed or
decided at the preceding Committee meeting.
Attendance at the Board and Board Committee meetings is
outlined below. The Non-Executive Directors also met throughout
the year in the absence of Executive Directors or other members
of Management.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
35
CORPORATE GOVERNANCE REPORT CONTINUED
Board
Board Audit
Committee
Board Risk
Committee
Nomination and
Corporate
Governance
Committee
Remuneration
Committee
Eligible
to attend Attended
15
16
Eligible
to attend Attended
14
14
Eligible
to attend Attended
Eligible
to attend Attended
Eligible to
attend
Attended
16
16
16
16
16
10
16
16
16
16
16
16
16
16
16
15
13
15
16
16
10
14
15
16
16
15
16
16
14
15
14
14
14
14
14
14
13
14
13
13
13
13
13
13
13
12
13
12
13
13
12
12
6
10
10
10
5
10
8
10
10
10
8
8
8
8
8
8
7
8
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
The composition of the Board and Board Committees of AIB Group plc and Allied Irish Banks, p.l.c. are mirrored and meetings are held
concurrently.
Professional Development and Continuous Education
Programme
The Board’s professional development and continuous education
programme continued throughout 2022 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 Data Protection,
Sustainability Regulatory Training, Cryptocurrency, Model Risk
Training, Cyber/Operational Resilience, Anti-Bribery and
Corruption, and the Future of Banking from a technology
perspective. Directors also have access to an online Corporate
Governance Library and a suite of 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.
Access to Advice
There is a procedure in place to enable the Directors to take
independent professional advice, at the Group’s expense,
on matters concerning their role as Directors. The Group holds
insurance cover to protect Directors and Officers against liability
arising from legal actions brought against them in the course of
their duties.
Composition, Succession and Evaluation
Board Composition
At 31 December 2022, the Board consisted of the Chair, who was
deemed independent on appointment, twelve Independent Non-
Executive Directors and two Executive Directors, being the Chief
Executive Officer and the Chief Financial Officer.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
36
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
In addressing appointments to the Board, a role profile for the
proposed new Director is prepared by the Group Company
Secretary on the basis of the criteria laid down by the Nomination
and Corporate Governance Committee, taking into account the
existing skills and expertise of the Board and the anticipated time
commitment required. The services of experienced third party
professional search firms are retained for Non-Executive Director
appointments where required and deemed necessary by the
Nomination and Corporate Governance Committee. In all Director
recruitment activity, the Group ensures a formal and rigorous
process 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
Group 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.
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 is
subject to annual review and approval by the Board. In
accordance with practice in recent years and the provisions of the
Code, all Directors submit themselves for re-election at each
Annual General Meeting. Details on the length of tenure of each
Director is available from their appointment dates included in their
biographies on pages 39 to 42.
Letters of appointment, as well as dealing with terms of
appointment and appointees’ responsibilities, stipulate that a
specific time commitment is required from Directors. Copies of
Directors’ letters of appointment are available to shareholders for
inspection at the Annual General Meeting and at the Registered
Office during business hours 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 terms of
appointment is 30 to 60 days per annum including attendance at
Committee meetings.
Before being appointed, Directors disclose details of their other
significant commitments along with a broad indication of the time
absorbed by such commitments. Before accepting any additional
external commitments, including other directorships that might
impact on the time available to devote to their role, the agreement
of the Chair and the 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. There is
also 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.
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 2022,
namely Ms Anik Chaumartin, Mr Basil Geoghegan, Ms Tanya
Horgan, 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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
37
CORPORATE GOVERNANCE REPORT CONTINUED
At 31 December 2022, the percentage of females on the Board
stood at 40% and one Director was from a minority ethnic group,
thereby meeting its Board Diversity Policy targets as well as
regulatory requirements on gender diversity and best practice
guidelines on ethnicity. Additionally, and in line with the UK Listing
rule requirement which will become effective for years
commencing 1 April 2023, one female Director held a senior board
position.
Board Effectiveness
The effectiveness of the Board and that of the Board committees
is reviewed annually, with the 2022 review being externally
facilitated by Praesta Ireland Limited (“Praesta Ireland”). With
significant membership changes during 2020, the Board chose to
undertake the external review after just two years instead of
awaiting the Code requirement of every three years as the Board
sees the review as a way to reflect, examine and find ways
to improve.
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. A full overview of the
2022 effectiveness evaluation and its results are outlined on page
91 of the AIB Group plc Annual Financial Report 2022 which is
available on the Group’s website at https://aib.ie/investorrelations.
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 2022 can be found in their respective
reports on pages 45 to 53.
Remuneration
The Board has delegated responsibility for the consideration and
approval of the remuneration arrangements of the Chair,
Executive Directors, Executive Committee members, the Group
Company Secretary and certain other senior executives to the
Remuneration Committee. A group of senior management is
responsible for recommending to the Board the fees to be paid to
Non-Executive Directors within the limits set by shareholders in
accordance with the Articles of Association.
Information on the activities of the Remuneration Committee in
2022 can be found in the Report of the Remuneration Committee
on pages 56 to 58.
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 2022 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.
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.
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. The Boards target, as set out in its
Diversity Policy, is that it shall maintain at least 40% female
representation and at least one Board member shall be from a
minority ethnic group.
The Board recognises that diversity in its widest sense is
important, is inclusive of all individuals and is focused on ensuring
a truly diverse board. The Board embraces the benefits of
diversity among its members and through its succession planning,
is committed to achieving the most appropriate blend and balance
of diversity possible over time.
In terms of implementation of the Board Diversity Policy, the
Committee reviews and assesses the Group Board composition
and has responsibility for leading the process for identifying and
nominating, for approval by the Board, candidates for appointment
as Directors. In reviewing the Board composition, balance and
appointments, the Committee considers candidates on merit
against objective criteria and with due regard for the benefits of
diversity, in order to maintain an appropriate range and balance of
skills, experience and background on the Board and in
consideration of the Group’s future strategic plans. Where
external search firms are engaged to assist in a candidate search,
they are requested to aim for a fair representation of both genders
to be included in the initial list of potential candidates so the
Committee have a balanced list from which to select candidates
for interview.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
38
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
BOARD OF DIRECTORS
JIM PETTIGREW
Chair
Non-Executive Director
DATE OF APPOINTMENT
28 October 2021
NATIONALITY
British
ANIK CHAUMARTIN
Independent
Non-Executive Director
DATE OF APPOINTMENT
1 July 2021
NATIONALITY
French
BASIL GEOGHEGAN
Independent
Non-Executive Director
DATE OF APPOINTMENT
4 September 2019
NATIONALITY
Irish
TANYA HORGAN
Independent
Non-Executive Director
DATE OF APPOINTMENT
14 September 2021
NATIONALITY
Irish
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
1y 1y
1.5y
3y
1.5y 1.5y
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Extensive financial services
experience, retail banking, customer
and conduct, governance, strategy
and culture development.
Background & Experience:
Jim has over 35 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.
He also served as Co-Chair of
Scotland’s Financial Services
Advisory Board and is a former
President of the Institute of
Chartered Accountants of Scotland.
He retired as Chair of Virgin Money
and CYBG plc in 2020. He has built
considerable non-executive
experience over the past 12 years
across retail, wholesale and
investment banking, asset and
wealth management and the
insurance sectors. Jim is a
Chartered Accountant and Fellow of
the Association of Corporate
Treasurers. He has a LLB from
Aberdeen University and a DipACC
from Glasgow University.
KEY EXTERNAL
APPOINTMENTS
Chair of BlueBay Asset
Management
Chair of Scottish Ballet
Chair of Dundee Industrial
Heritage Trust
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Deep technical accountancy and
audit expertise in financial services,
talent and culture development, and
stakeholder management.
Background & Experience:
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 has acted in the
roles of Global Client Relationship
Partner and Lead Audit Partner for
a number of major banking and
financial services organisations.
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
In-depth knowledge of international
finance, corporate banking, strategy
and risk management.
Background & Experience:
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 is
a Patron of The Ireland Fund of
Great Britain. He holds an LLB
from Trinity College, Dublin and
an LLM from the European
University Institute.
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Extensive risk management,
compliance, finance, accounting
and audit, customer and conduct,
and technology skills.
Background & Experience:
Tanya is a Chartered Accountant
with extensive industry-based
experience in the areas of
compliance, internal audit and risk
management and has over twenty
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. Tanya
currently serves as the Chief Risk
Officer of Primark. She has
a B.Comm in Accounting from
University College Cork.
KEY EXTERNAL
APPOINTMENTS
Non-Executive Director of
ALD Automotive
Non-Executive Director of
La Banque Postale
Non-Executive Director of
Saol Assurance dac
KEY EXTERNAL
APPOINTMENTS
Chair of daa plc
Patron of The Ireland Fund of
Great Britain
Partner at PJT Partners
KEY EXTERNAL
APPOINTMENTS
Chief Risk Officer of Primark
BOARD COMMITTEES
Remuneration
Nomination
& Corporate
Governance
Board Audit
Board Risk
Sustainable
Business
Advisory
Technology
& Data
Advisory
Committee chair
Allied Irish Banks, p.l.c. Annual Financial Report 2022
39
BOARD OF DIRECTORS CONTINUED
AIB DIRECTORS
BOARD
SANDY KINNEY
PRITCHARD
Independent
Non-Executive Director
DATE OF APPOINTMENT
22 March 2019
NATIONALITY
Irish
ELAINE MACLEAN
Independent
Non-Executive Director
ANDY MAGUIRE
Independent
Non-Executive Director
DATE OF APPOINTMENT
4 September 2019
NATIONALITY
British
DATE OF APPOINTMENT
15 March 2021
NATIONALITY
Irish
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
3.5y 3.5y
3y 2y
2y 2y
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.
Background & Experience:
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 TSB plc,
Skipton Building Society, the FSCS,
TSB Bank plc and MBNA Ltd.
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Significant experience in
remuneration and governance,
organisational structures, and
people and culture development.
Background & Experience:
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.
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Extensive retail banking, technology
and digital, transformation, and risk
management skills.
Background & Experience:
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.
GENDER
AGE
TENURE
NATIONALITIES
KEY EXTERNAL
APPOINTMENTS
Non-Executive Director and Chair
of the Audit Committee and the
Remuneration Committee of Credit
Suisse (UK) Ltd
KEY EXTERNAL
APPOINTMENTS
None
KEY EXTERNAL
APPOINTMENTS
Chair of Napier
Technologies Limited
Chair of Thought Machine Group
Chair of CX Holdings
(Cennox Group)
BOARD COMMITTEES
Remuneration
Nomination
& Corporate
Governance
Board Audit
Board Risk
Sustainable
Business
Advisory
Technology
& Data
Advisory
Committee chair
Allied Irish Banks, p.l.c. Annual Financial Report 2022
40
Exec: 2 - 13%NED: 13 - 87%Female: 6 - 40%Male: 9 - 60%46-55: 5 - 33%56-64: 9 - 60%65-70: 1 - 7%0-3 yrs: 7 - 47%3-6 yrs: 6 - 40%6-9 yrs: 2 - 13%Irish: 10 - 66%British: 2 - 13%French: 1 - 7%Dutch: 1 - 7%USA: 1 - 7%
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
BRENDAN MCDONAGH
Independent Non-Executive
Director and Deputy Chair
HELEN NORMOYLE
Senior Independent
Non-Executive Director
ANN O’BRIEN
Independent
Non-Executive Director
DATE OF APPOINTMENT
27 October 2016
NATIONALITY
Irish
DATE OF APPOINTMENT
17 December 2015
NATIONALITY
Irish
DATE OF APPOINTMENT
25 April 2019
NATIONALITY
Irish
FERGAL O’DWYER
Independent
Non-Executive Director
DATE OF APPOINTMENT
22 January 2021
NATIONALITY
Irish
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
4y 3y 4.5y 6y
6.5y 2.5y 2y
2.5y 3.5y 2y
2y
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Deep knowledge and experience of
sustainability, customer and conduct,
digital, stakeholder management, and
culture development.
Background & Experience:
Helen is a highly experienced
marketeer with 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. 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. Helen was appointed
Senior Independent Director with
effect from 1 July 2022.
KEY EXTERNAL
APPOINTMENTS
Co-founder and Executive Director
of My Menopause Centre
Non-Executive Director of Thame
and London Ltd
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Significant global financial services
experience in retail and commercial
banking, strategy, governance,
regulation, and risk management.
Background & Experience:
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 plc, 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 Chair of Bank of N.T.
Butterfield & Son Limited. Brendan
was appointed Deputy Chair with
effect from 24 October 2019.
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 Trinity Business School
Advisory Board
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Significant technology and digital
expertise, and highly-skilled in the
areas of sustainability, strategy
and leadership.
Background & Experience:
Ann has over 30 years’ experience
in the financial services industry.
A graduate of UCD 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.
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Extensive experience in finance and
accounting, treasury and liquidity
management, strategy, and
capital markets.
Background & Experience:
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 joining
DCC, Fergal worked in PwC
and KPMG.
KEY EXTERNAL
APPOINTMENTS
Non-Executive Director of Royal
London Asset Management Limited
Independent Non-Executive
Director of Euroclear UK &
International
KEY EXTERNAL
APPOINTMENTS
Non-Executive Director of ABP Food
Group Unlimited
Board member of Focus Ireland and
Focus Housing Association
Director of Blackrock Healthcare
Group Unlimited
BOARD COMMITTEES
Remuneration
Nomination
& Corporate
Governance
Board Audit
Board Risk
Sustainable
Business
Advisory
Technology
& Data
Advisory
Committee chair
Allied Irish Banks, p.l.c. Annual Financial Report 2022
41
BOARD OF DIRECTORS CONTINUED
JAN SIJBRAND
Independent
Non-Executive Director
DATE OF APPOINTMENT
14 September 2021
NATIONALITY
Dutch
RAJ SINGH
Independent
Non-Executive Director
DATE OF APPOINTMENT
25 April 2019
NATIONALITY
United States
COLIN HUNT
Chief Executive Officer &
Executive Director
DONAL GALVIN
Chief Financial Officer &
Executive Director
DATE OF APPOINTMENT
8 March 2019
NATIONALITY
Irish
DATE OF APPOINTMENT
28 May 2021
NATIONALITY
Irish
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
COMMITTEE MEMBERSHIP
AND TENURE
1y 6m
3.5y 3.5y
4y
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Highly skilled in the areas of risk
management, retail and commercial
banking, governance, financial
regulation and oversight.
Background & Experience:
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 Chair for
Supervision at De Nederlandsche
Bank N.V. (the central bank of the
Netherlands). Jan is currently
a member of the Supervisory Board
and Chair of the Public Interest
Committee of PwC Nederland and
served on the Global Board of PwC
up until June 2022. Jan has an MSc
in Applied Mathematics and a PhD
in Mathematics, both from the
University of Utrecht.
KEY EXTERNAL
APPOINTMENTS
Non-Executive Director of
PwC Nederland
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Significant international experience
in risk management, governance,
retail and corporate banking,
insurance, wealth and asset
management and sustainability.
Background & Experience:
Raj has 36 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 Minister for
Finance and AIB Group.
KEY EXTERNAL
APPOINTMENTS
Non-Executive Director of
The Co-operative Bank plc
Non-Executive Director of Vanguard
Ireland Limited
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Strategic leadership, extensive
executive experience covering risk,
treasury, research, capital markets,
customer focus and sustainability.
Background & Experience:
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 Stockbrokers, Head of
Trading Research at Bank of Ireland
Group Treasury and a country risk
analyst at NatWest. He has a PhD
in Economics from Trinity College,
Dublin and BComm and MEconSc
degrees from University
College Cork.
SKILLS, EXPERTISE
AND EXPERIENCE
Key Skills:
Significant international retail and
wholesale banking, capital, liquidity,
treasury, investor relations, and risk
management skills
Background & Experience:
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 Global
Head of Asian Fixed Income &
Equities at Mizuho Securities in
Hong Kong and a number of senior
Global Financial Market Roles
across Europe and Asia Pacific for
Rabobank. He serves as a Non-
Executive Director of Goodbody.
KEY EXTERNAL
APPOINTMENTS
Serves on the Board of The Ireland
Funds, Ireland Chapter
Ibec clg Board Member
KEY EXTERNAL
APPOINTMENTS
None
BOARD COMMITTEES
Remuneration
Nomination
& Corporate
Governance
Board Audit
Board Risk
Sustainable
Business
Advisory
Technology
& Data
Advisory
Committee chair
Allied Irish Banks, p.l.c. Annual Financial Report 2022
42
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
OUR EXECUTIVE COMMITTEE
CJ
BERRY
Chief Enterprise Development
Officer
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 and brings with him a wealth of experience across
Irish, UK, US and European markets. Over his 20 year career in AIB, he
has driven significant transformative change and business development
in the Group’s corporate and retail businesses. CJ served as Chief
Operating Officer Designate from December 2020 until taking up his
current role in July 2022. As Chief Enterprise Development Officer, CJ
oversees the bank’s corporate development and strategy formulation.
CJ is an Economics & Philosophy Graduate from 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, is 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 bear 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 was appointed 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
43
OUR EXECUTIVE COMMITTEE CONTINUED
HILARY
GORMLEY
Managing Director
of AIB Group (UK) plc
MICHAEL
FRAWLEY
Chief Risk Officer
ANDREW
MCFARLANE
Chief Operating Officer
JIM
O’KEEFFE
Managing Director
of Retail Banking
MARY
WHITELAW
Chief Sustainability
& Corporate Affairs
Officer
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.
Michael joined AIB as Chief Risk Officer in July 2022. A senior risk
professional with a 25 year banking career spanning retail, commercial,
wholesale, asset management, trade finance, strategy implementation
and risk management experience, he also has extensive international
experience from his previous roles at HSBC in the UK, Asia and the
Americas. His most recent role prior to AIB was as Chief Risk Officer of
Permanent TSB. Michael holds an MBA from Columbia Business School,
New York and a B.Comm from University College, Cork.
Andrew joined AIB in July 2022 and has over 25 years’ experience
working primarily in the financial services sector, in banks and
management consulting firms. His international career has spanned
Canada, Australia, England and Ireland and he has held posts such as
Managing Director, Accenture Financial Services, Canada and more
recently Executive Director of Modernisation & Corporate Strategy, and
Chief External Relations Officer at Payments Canada. Andrew holds a
Bachelor of Business (Banking & Finance) and a Graduate Diploma in
Applied Finance and Investment.
Jim has held key roles in transforming AIB’s retail customer relationships,
overseeing the bank’s digital services, branch banking and Group
mortgages. He also worked at a senior level for AIB’s former operations in
Poland. In 2015, he joined AIB’s Executive Committee as Head of
Financial Solutions Group reducing the bank’s Non-Performing Exposures
(NPEs) while supporting thousands of customers in difficulty. In 2018, he
became Chief Customer & Strategic Affairs Officer and since January
2020 has overseen AIB’s retail customer franchise, leading c. 4,500
colleagues who serve over 2.8m customers. Jim is also responsible for a
number of Group entities and joint ventures including AIB Mortgage Bank,
EBS, Haven, AIBMS, Payzone, Nifti and AIB’s planned new joint venture
with Great West Lifeco. Most recently, Jim was appointed President of
Banking & Payments Federation Ireland in January 2023.
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 Charted Accountant and Chartered Tax Advisor with PwC. She is a
graduate of University College Dublin. Mary is also a Non-Executive
Director of Goodbody.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
44
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
REPORT OF THE BOARD AUDIT COMMITTEE
Q&A
Q. What have been the challenges the Committee has
faced this year?
A. Working closely with the Board Risk Committee, the Committee
has spent a considerable amount of time assessing the potential
impact of the prevailing macro-economic environment on the IFRS 9
Expected Credit Loss ("ECL") allowance for the Group. This
assessment was completed through the detailed review and
challenge of the macroeconomic scenarios, and the appropriate
weighting of those scenarios, with the need for a nuanced approach
to the various jurisdictions in which the Group operates, as well as
the application of management judgement and related adjustments
as required. The Committee is satisfied that the outcome of a total
ECL allowance of €1,618 million is stage appropriate and reflective
of the outcome of those considerations.
Q. What do you see as one of the Committee’s key
priorities in the coming year?
A. Along with the standing work programme for the year ahead, and
critical to the successful discharge of the Committee’s responsibilities
over 2023 will be the oversight of a seamless and effective transition
of the External Auditor role, ensuring continued focus on the integrity
of the financial statements and associated control environment.
Additionally, the Committee will prioritise the evolution of internal
reporting capabilities and disclosure requirements relating to ESG
reporting as the Group strives to deliver against increasing external
reporting requirements and standards.
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. Effective 1 January 2023, one Member of the Committee
will also sit on the Sustainable Business Advisory Committee
to ensure alignment and shared oversight of Non Financial
Disclosure requirements in relation to ESG matters. A number of
joint meetings of the Committee and the Board Risk Committee
were also held during the year to allow discussion on matters
of common interest. The biographies of Committee Members are
set out on pages 39 to 42, with details of the Committee’s
Membership and attendance at meetings outlined on page 34.
The Chief Financial Officer, Group Chief Risk Officer, Group Head
of Internal Audit and the Lead Audit Partner from Deloitte normally
attend all Committee meetings and have also been joined in more
recent times by the incoming Lead Audit Partner from PwC.
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.
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 disclosures made by
Management, and the judgements, 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 those deliberations.
SANDY KINNEY PRITCHARD,
Committee Chair
“The Committee has focussed on quantifying
the impacts of economic volatility on the
financial statements, with attention to the
integrity of the related financial disclosures
and the supporting internal control
environment.”
On behalf of the Board Audit Committee (the ‘Committee’),
I am pleased to report on the Committee’s primary areas of focus
and how it has discharged its responsibilities for the year ended
31 December 2022.
In line with its Terms of Reference, which can be found on the
Group’s website at www.aib.ie/investorrelations, the objective
of the Committee is to monitor the Group’s financial and non-
financial 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 are in place and
advising the Board on the appointment and independence of the
Group’s External Auditor. The Committee reports to the Board on
how it discharges its responsibilities on an ongoing basis and
makes recommendations to the Board during the year. Over the
course of 2022, the Committee continued to provide oversight of
minor enhancements to an already robust and effective control
environment, which is considered a critical enabler for the Group
in delivering on its strategic ambitions.
As reported last year, Deloitte will complete their maximum
allowable term of 10 years in office as statutory Auditor when they
report in 2023 on this financial year. Following the approval by the
Board of the appointment of PwC as incumbent Auditor, this will
be presented to the shareholders for approval at the Annual
General Meeting on 4 May 2023. The effective transition of the
audit has been a matter of focus for the Committee over the year,
with the incoming Auditor fully engaged in the established
governance processes since the end of 2022.
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. With no changes to Committee
membership, Members have had the opportunity to further
enhance its deliberations during the year, with particular strength
in the areas of finance, accounting, audit and technology.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
45
AUDIT COMMITTEE CONTINUED
Towards the end of 2022, the Committee invested significant time
in specific education sessions on ESG matters, which focussed on
an overview of external expectations and requirements on non
financial sustainability disclosures and related regulations,
emerging industry practises on disclosures, and potential industry
challenges with data quality and limitations. These education
sessions were undertaken in advance of the Committee taking
on responsibility for the review of the detailed Non Financial
Disclosures set out in the Sustainability chapter of this
Annual Report, and enabled the Committee to develop their
understanding of the disclosure requirements and underlying
processes in place. In addition to discharging its assigned duties
and responsibilities, I expect this work of the Committee to
continue into 2023, with further development of the control
environment to support ESG related disclosures anticipated.
The Committee will continue to work closely with the Sustainable
Business Advisory Committee in this regard, with a view to
ensuring that the impact of climate change on the financial
statements is well understood, and disclosed appropriately by the
Group.
I would like to take this opportunity to sincerely thank the outgoing
Audit Partner, John McCarroll, and the wider Deloitte team for
their professionalism, expertise and engagement with the
Committee over the past ten years.
I would also like to thank my fellow Committee Members for their
unwavering support and dedication during 2022.
Sandy Kinney Pritchard
Committee Chair
Allied Irish Banks, p.l.c. Annual Financial Report 2022
46
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
Financial reporting
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 the External Auditor. A summary of these judgements is
set out below, and are disclosed in detail within note 2 “Critical accounting judgements and estimates”.
COMMITTEE CONCLUSION
In light of the evidence presented by
Management, the Committee provided
their continued support of the recognition
policy in place for deferred tax assets.
The Committee also agreed that the
Management judgements applied were
appropriately supported by the Group’s
long term financial and strategic plans.
Following detailed assessment of the
conclusions made by Management, and
the approval of the underlying scenarios
therein, the Committee is satisfied that
the judgements and assumptions utilised
in determining the total ECL provision
stock of €1,618 million, and year end
charge of €7 million, are appropriate.
ACTIVITIES FOR THE YEAR
KEY ISSUES
COMMITTEE CONSIDERATIONS
DEFERRED
TAXATION
The Group has recognised deferred tax assets for unutilised losses of
€2,742 million (€2,840 million in 2021).
IFRS 9 AND
THE IMPAIRMENT
OF FINANCIAL
ASSETS
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. In assessing the recognition of the deferred tax assets, significant
judgements are made as to the projection of long term future profitability of
the Group, given the period over which recovery extends.
Through its deliberations, the Committee considered a range of positive
and negative evidence presented by Management, which is further
detailed on page 195. Based on the Group’s three year financial plan and
the application of a profit growth rate of 2% from 2026, the Committee
noted that it will take less than 15 years for the Irish Deferred Tax Asset
to be utilised. The Committee further noted that c.65% of the Deferred Tax
Asset will be utilised within 10 years.
In considering the utilisation period, the Committee noted that there are
inherent uncertainties in the long term financial assumptions and
projections applied, given the range of macroeconomic 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 process for undertaking the assessment of the appropriateness of
ECL requires use of a number of accounting judgements and estimates,
some of which are highly subjective and very sensitive to risk factors,
including:
• Changes to macroeconomic conditions;
• The determination of the criteria for a significant increase in credit risk;
• The application of the definition of default policy for classifying financial
instruments as credit impaired;
• The efficacy of IFRS 9 models in use; and
• The estimation and methodology for post-model adjustments (“PMAs”).
In assessing these key judgements and estimates, the Committee received
and reviewed regular reports from Management on the ECL position,
as well as reports from the Risk function on the outcome of assurance
processes relating to ECL levels and the strength of the underlying
governance in place to support the ECL calculation.
The Committee met in joint session with the Board Risk Committee on
a number of occasions in order to review, challenge and subsequently
recommend the proposed changes to the macroeconomic scenarios in use
in the ECL models to the Board for approval. Consideration and approval
of the weightings applied to these scenarios was also granted by
the Committee.
PMAs, whereby modelled outcomes are adjusted for management
judgements, totalling €608 million were also approved. These PMAs were
considered appropriate in the context of the execution of the Group’s Non
Performing Exposure resolution strategy and emerging headwinds arising
from the macro environment, including cost of living challenges. They also
incorporate a specific assessment of the potential impact of a more
challenging UK macro economic environment outlook.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
47
AUDIT COMMITTEE CONTINUED
ACTIVITIES FOR THE YEAR
KEY ISSUES
COMMITTEE CONSIDERATIONS
PROVISIONS
FOR LIABILITIES
AND
COMMITMENTS
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. A degree of judgement is applied based on a range of
information available at the time.
COMMITTEE CONCLUSION
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.
Further details of the Group’s overall provision for liabilities and
commitments of €262 million are shown in note 33 to the financial
statements. This note includes further detail in relation to the FSPO
decision regarding tracker mortgage customers. A number of separate
provisions are not considered to have a significant risk of material
adjustment in the next financial year.
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 2022 reflects
Management’s best estimate of provision amounts based on the available
information.
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 for the AIB Group Irish pension scheme.
RETIREMENT
BENEFIT
OBLIGATIONS
GOING
CONCERN
The Directors are required to make an assessment and confirm whether they
have a reasonable expectation that the Group will be able to continue to
operate and meet its liabilities as they fall due for a specified period.
In considering the assessment of the Group as a going concern, the
Committee considered a range of factors, including the Group’s detailed
financial planning 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 also assessed a number of activities undertaken over the
course of the year relating to the risk profile, capital, liquidity and funding
positions, and recovery and resolution planning.
Based on the work performed, the
Committee is satisfied that the
assumptions supporting the retirement
benefit obligations are reasonable.
In the absence of any material
uncertainties or doubts as to the Group’s
ability to continue as a going concern, the
Committee recommended to the Board
that the financial statements be prepared
on a going concern basis.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
48
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
KEY AREAS OF FOCUS
Financial Reporting
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 2022. The Committee
concluded that it could recommend to the Board for approval on the basis that the annual report and accounts, taken as a whole, is
fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position and
performance, business model and strategy.
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, an Executive level Committee which is tasked with providing oversight
of material Group disclosures, in advance of making any recommendations to the Board. Periodic Pillar 3 reporting is also subject to
robust governance and review processes, and the Committee reviewed and approved the year end 2021 and Half-Yearly 2022 Pillar
3 disclosures.
Internal Audit
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 and
timeliness 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.
Following significant engagement with and due consideration by the Committee Chair and wider Committee, a revised Target
Operating Model for Group Internal Audit (“GIA”) was considered, with implementation of that operating model tracked by the
Committee. Increased resourcing has been focussed on specific skillsets such as Credit Risk and Data Analytics, with a view to
ensuring that the Internal Audit function is well positioned to protect the Group and our Customers into the future. In addition, the
Committee has also worked with the Group Head of Internal Audit to implement a number of enhancements over the period,
including revised reporting processes.
Following approval of the annual audit plan, the Committee receives updates on a regular basis regarding audit plan delivery, and
any revisions to the annual plan, which are considered with due regard for the overall risk profile of the Group. 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.
The Group Head of Internal Audit provides the Committee with regular assessments of the skills and resources required to deliver
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. 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 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 GIA’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.
The Group Head of Internal Audit has unrestricted access to the Chair of the Board Audit Committee.
External Audit
The Committee has primary responsibility for overseeing the relationship with, and performance of, the Group’s external 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 2022 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 carefully
considered the half-year review report and audit plan as presented by Deloitte to the Committee. 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 13.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
49
AUDIT COMMITTEE CONTINUED
KEY AREAS OF FOCUS
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. Following the approval by the Board of the
appointment of PwC 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 on 4 May 2023. The Committee will remain focussed
on the smooth transition of the external audit from Deloitte to PwC over the coming months.
Speak Up and Code of Conduct
The Group is committed to providing a safe, respectful and inclusive environment for all staff. 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,
and also participated in a panel discussion with employees as part of the “Speak Your Mind” week.
The Group has a Speak Up Policy, which allows workers to report concerns safely and confidentially about suspected wrongdoing
related to the Group through designated channels, including through a dedicated Speak Up channel and to nominated senior
leaders. Annual training on the Speak Up policy is available for employees, with 94% of the workforce undertaking this training
in 2022.
The Committee also undertook their annual review of the Code of Conduct Framework, with no enhancements to the existing
framework identified at this time. 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.
• Received updates from the Director of Sustainability and Customer Affairs regarding the testing, operation and effectiveness of the
controls in place to support mandatory Non-Financial Disclosures.
• 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 Group Chief Risk Officer regarding the credit control environment.
• Received updates regarding the approach to aligned assurance across the three lines of defence, with progress updates on
delivery of the aligned assurance plan provided over the course of the year.
The Committee, having assessed the above information over the year, is satisfied that the internal control and risk management
framework is operating effectively.
Subsidiary Oversight
Over the course of the year, the Committee Chair met with a number of 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 or concern for the individual subsidiaries. In his role as Chair of the Goodbody Audit Committee, Committee Member
Fergal O’Dwyer also provides a strong link from the Committee to that entity. 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., AIB Mortgage Bank u.c., and Goodbody and also regularly reviewed the
minutes of those audit committees to ensure effective oversight and awareness of any issues and discussion themes.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
50
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
REPORT OF THE BOARD RISK COMMITTEE
Q&A
How is the Board Risk Committee addressing
Environmental, Social and Governance (“ESG”)
risk and the risks associated with climate change?
A.Sustainability is a key pillar of the Group’s Strategy and
continues to be a key area of focus. In terms of its oversight role,
the Committee received updates on climate risk during the year and
reviewed in detail, and recommended to the Board for approval, the
Group ESG Framework. The purpose of the ESG Framework is to
ensure the overall approach to the management of key components
of the ESG agenda are clearly defined and well understood
across the Group and to enable the achievement of the Group’s
strategic objectives in line with our risk management framework
while delivering on regulatory requirements and the commitments
made to our stakeholders.
How is the Committee considering the risks associated
with the cost-of-living and energy crisis?
A. The Committee considered in detail the risks associated with the
economic environment and assessing the impact of the cost of living
and energy crisis on our customers and the Group, leveraging the
frameworks adopted during Brexit and COVID-19 pandemic. The
Committee also reviewed actions taken by the Group to manage
credit risk in light of these challenges maintaining a strong focus on
the Group’s credit risk profile and its trajectory during the year.
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 the membership of each of the Committees and attendance
at meetings are outlined on page 36.
The Group Chief Risk Officer has unrestricted access to the
Committee and attends all Committee meetings. The Chief
Financial Officer, Group Head of Internal Audit, the lead External
Audit partner and the Chair of AIB Group (UK) p.l.c. are also
invited to attend all Committee meetings.
Looking ahead to 2023, the Committee’s focus will continue to
be on the management of emerging risks, ensuring appropriate
oversight of the Group’s risk appetite, risk management structure,
frameworks and policies to ensure the Group delivers on its
Strategy in an appropriate risk controlled regulatory compliant
manner. Aligned to the emerging risk profile and the external
operating environment, there will also be continued emphasis on
the Environmental, Social and Governance risk agenda and on
the threats posed from the external cyber risk landscape as well
as focus on macroeconomic risk issues such as inflationary
pressures, the impact of the cost of living and energy crisis and
geo-political risks. Such risk areas, will continue to be monitored
through the ongoing reporting provided to the Committee. The
oversight of the delivery of the Group’s IRB rollout Plan will also
be a key focus area of the Committee during 2023.
In what has been another busy year for the Committee, I would like
to thank my fellow Committee Members and Executive colleagues
for their significant contributions over the past twelve months.
On behalf of the Committee, I would also like to take this
opportunity to welcome Mr Michael Frawley who was appointed
as Group Chief Risk Officer in July 2022. We look forward to
working with Michael in the coming years.
Brendan McDonagh
Committee Chair
BRENDAN MCDONAGH
Committee Chair
“The Committee maintained risk oversight
of the implementation of the Strategy with
an enhanced focus on Change Risk and
Operational Capacity. It also considered the
risks arising from the deteriorating economic
environment, including geo-political risk,
inflationary pressures and the cost-of-living
and energy crisis.”
Chair Overview
On behalf of the Board Risk Committee (‘the Committee’), I am
pleased to report on the Committee’s activities and how it has
discharged its duties during 2022. The purpose of this report is
to provide an insight into the workings of, and the key matters
considered by, the Committee over the course of the year.
The primary purpose of the Committee is to assist and advise the
Board in fulfilling its risk governance and oversight role. In addition
to fulfilling its comprehensive responsibilities as set out in the
Committee’s Terms of Reference, detailed consideration was
given to a broad range of existing and emerging risks, such as
the continued uncertainty posed by the changing economic
environment including rising interest rates, inflation, the cost-of-
living and energy crisis and the war in Ukraine, along with the
impact of these events on the Group’s risk profile and the Group's
customers. The Committee provided oversight and challenge from
a risk perspective on the integration of Goodbody Stockbrokers
into the Group as well as on the acquisition of the Ulster Bank
portfolios. Consideration was given to the impact of these
acquisitions on the Bank’s risk profile as well the application of
the Group’s suite of risk frameworks and policies to Goodbody
and the Ulster Bank portfolios. The Committee also provided risk
oversight of the implementation of the Group Strategy with a
particular focus on Change Risk and Operational Capacity.
A summary of the key areas of focus for the Committee
throughout 2022 is set out overleaf for your information.
Committee Membership
The Committee currently consists of seven Non-Executive
Directors, all considered by the Board to be independent.
To ensure co-ordination between the work of the Committee and
that of the Board Audit Committee, Ms Sandy Kinney Pritchard,
Chair of the Board Audit Committee, and I are members of both
Committees. This approach assists with providing effective
oversight of risk and audit and finance matters. To ensure co-
ordination between the work of the Committee with that of the
Sustainable Business Advisory Committee, Mr Raj Singh and
Mr Jan Sijbrand are members of both of these Committees.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
51
BOARD RISK COMMITTEE CONTINUED
KEY AREAS OF FOCUS
PRINCIPLE RISK CONSIDERATIONS
Operational Risk & People and Culture Risk
The Committee reviewed the ongoing operational risk profile throughout 2022, and considered deep dives on areas such as Fraud
and the Transformation and Change programmes. Given the pace and level of change in the Group, the Committee were very much
focused on Execution Risk, People Risk and organisational capacity, recognising the challenges faced with respect to delivering the
additional business demands arising from the delivery of key change initiatives including regulatory programmes, responding to
changes in the Irish banking market, the Group's inorganic growth strategy as well as the business as usual agenda in a customer
focussed, safe and controlled manner. The Committee also focused on ensuring that an effective framework for managing
operational risk was in place, including detailed consideration of the Operational Resilience Framework, which was subsequently
recommended to the Board for approval. Updates were received with respect to third party risk management, providing oversight of
key outsourcing and critical arrangements across the Group. The Committee also reviewed in detail and provided feedback on a
proposed Group Outsourcing Strategy. Work on the Outsourcing Strategy will continue into 2023 to ensure an appropriate
framework is in place so that outsourcing decisions are made in a risk-controlled manner and in line with the Group’s Business
Strategy.
Throughout 2022, the Committee received regular updates on Cyber Security covering the main internal and external cyber threats
facing the Group and including updates on the findings from cyber simulation exercises run during the year. Additionally, cyber and
operational resilience training was provided to the Board as a collective as part of its continuous education programme. Cyber
capability and IT resilience continues to be a key focus area for the Group, with a refresh of the current Group Cyber Strategy
planned for 2023.
Credit Risk
During 2022, the Committee regularly considered the overall asset quality and credit risk profile of the Group with a particular focus
on credit performance and trends given the uncertain economic environment and cost of living crisis. The Credit Risk profile was
reported to the Committee as remaining stable during 2022 and the Committee remained alert to any potential emerging signs of
stress through regular monitoring of the credit risk profile and overall business performance. There was also continued focus on the
Group’s credit control environment. The Committee remained cognisant of the external pressures on customers arising from inflation
and the impact of the cost of living and energy crisis, as well as any residual long-term impact of COVID-19 and this was reflected in
an update to the Group’s overall credit risk appetite in quarter four 2022. The Committee also considered and challenged, in
conjunction with the Board Audit Committee, the macroeconomic scenarios and appropriate weighting of those scenarios, for use in
the Group’s Expected Credit Loss models.
Regulatory Compliance Risk Management
Oversight of the Group’s adherence to and delivery of regulatory compliance commitments continued to be a key focus for the
Committee. Throughout the year, the Committee received regular updates from the Group Chief Risk Officer and the Group Chief
Compliance Officer regarding the status of the regulatory compliance risk profile including updates on prudential regulation, conduct
of business regulation, Financial Crime and Data Protection, at each of its scheduled meetings. The Committee also received
updates regarding the delivery of specific regulatory change programmes, including the European Banking Authority Loan
Origination and Monitoring programme, the Strong Customer Authentication eCommerce programme and delivery against
implementation of the 5th Anti-Money Laundering Directive.
Financial Crime risk was considered throughout the year, through ongoing reporting as well as standalone updates provided by the
Money Laundering Reporting Officer. The Committee received reports regarding the outcome of the 2022 Group Financial Crime
Business Risk Assessment, which reviewed the Anti-Money Laundering/Counter Terrorist Financing and Financial Sanctions control
environment across the Group. Given the enhanced level of Financial Sanction activity arising from Russia’s invasion of Ukraine, this
was also a key focus area for the Committee. The Committee also received updates in relation to the embedding of an enhanced
Financial Crime Operating Model in the Group.
Financial and Market Risks
The Committee received regular updates with respect to financial and market risk throughout 2022 including the impact of financial
market volatility on the Group’s overall risk profile as a result of the war in Ukraine, inflation, interest rate rises and credit spread
volatility. The Committee also considered financial risk deep-dives on Interest Rate Risk in the Banking Book and Funds Transfer
pricing within the context of liquidity risk management.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
52
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
KEY AREAS OF FOCUS
Conduct Risk
The management of Conduct Risk and delivering fair outcomes for customers continued to be a core objective for the Group.
In addition to the regular reporting received throughout the year regarding the status of the Conduct Risk profile, including
updates on current trends, the status of restitution programme and customer complaints metrics, the Committee considered how
Management was taking a holistic customer focused approach to respond to the changing macroeconomic environment including
actions taken by the Group to manage credit risk during the current cost-of-living challenges.
Capital, Funding and Liquidity
Throughout 2022 the Committee assessed reports from Management to ensure that the Group had appropriate buffers in place in
excess of the Group’s own minimum Capital & Liquidity targets, as well as regulatory Capital & Liquidity requirements. To this end,
the Committee reviewed and recommended capital, funding and liquidity planning, including consideration of Group ICAAP and
ILAAP reports, with particular reference to the contingent capital and the related Group wide stress test scenarios. Following an in-
depth review with the Board Audit Committee, the Committee recommended macroeconomic scenarios for use within the ICAAP to
the Board for approval. The Committee are satisfied that the capital and liquidity adequacy of the Group has been well demonstrated
in a range of scenarios. The Committee also welcomed the ICAAP and ILAAP assessments that were undertaken as part of the
analysis and due diligence of potential strategic acquisitions.
Business Model Risk
The Committee focussed on Business Model Risk throughout 2022, receiving regular reports regarding the status of this risk in the
context of delivery of the Financial Plan and medium-term targets. The Committee focussed on strategic execution risk and the
potential risks arising from the delivery of the Group’s inorganic growth initiatives, both in terms of the business model risk profile
and the operational risk profile. In providing oversight of the risks associated with these key change initiatives, the Committee
received updates on the onboarding of the entities and portfolios and the manner in which these would be integrated into the overall
risk management framework of the Group. The Committee remains cognisant of the potential risks arising from further deterioration
of the economic environment, and how this might impact Business Model Risk and so this will remain an area of continued focus
in 2023.
Model Risk
The Committee continued to receive regular reports on model capabilities across the Group, as well as progress against key
regulatory deliverables. The Committee considered regular IRB model updates as well as looking in detail at a revised IRB Rollout
plan, which was subsequently recommended to the Board for approval. Additionally, regular Model Risk Reports for all model types –
IRB and IFRS 9 – were considered, with an assessment of model risk improvements and progress against deadlines undertaken.
The status of the quality and adequacy of models were assessed through independent validation, the outcome of which was also
reported to the Committee.
OTHER RISK CONSIDERATIONS
Climate Risk
Climate Risk continues to be recognised as a key risk driver with significant impact across the Group’s material risks. During the
year, the Committee considered and recommended to the Board for approval a new quantitative risk statement and a review of the
existing qualitative appetite statements related to climate risk to reflect the Group’s Strategy and external commitments within the
Group’s RAS. The Committee also received updates on climate risk quantification and considered in detail the ESG Framework
which ensures that the overall approach to the management of key components of the ESG agenda are clearly defined and well
understood across the Group. In addition, the Committee approved amendments to its Terms of Reference to enhance the
governance arrangements supporting the oversight and decision making undertaken by the Board and Board Committees in relation
to ESG matters, including co-ordination with the work of the Sustainable Business Advisory Committee and Board Audit Committee
in this area.
Regulatory Engagement
Throughout the year, the Committee considered regular updates regarding the status of Risk Mitigation Programme action plans, as
well as the upstream regulatory horizon. The Committee also considered and recommended, as appropriate, Management action
plans put in place to address findings identified as part of regulatory inspections. Consideration was also given to any relevant
regulatory correspondence which required the Committee’s attention. The Chair of the Committee met with the Joint Supervisory
Team on two occasions in his role as Chair of the Committee, which were helpful and instructive engagements in furthering the
Committee’s understanding of the key areas of focus of the JST.
Risk Appetite, Risk Profile and Risk Strategy
The Committee reviewed and recommended the 2023 Group Risk Appetite Statement (“RAS”) to the Board for approval during
the year and also exercised oversight of performance against the 2022 Group RAS, making recommendations to the Board as
appropriate. Oversight was achieved through the ongoing monitoring of the risk profile against agreed Group RAS metrics, as well
as consideration of an updated risk posture in light of the changing macroeconomic environment, whilst ensuring alignment to the
Group’s strategic objectives. The Committee reviewed regular reports from the Chief Risk Officer which provided an overview of the
status, profile and trajectory of the Group’s key material risks. The Committee also considered and recommended the assessment
of the material risks facing the Group to the Board for approval.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
53
REPORT OF THE NOMINATION AND CORPORATE
GOVERNANCE COMMITTEE
ELAINE MACLEAN
Committee Chair
“Central to succession considerations
are diversity, gender balance and the
tailored development of core competencies
that reflect a changing business and
regulatory environment.”
Q&A
Q. Following the appointments to the Board in 2021,
has there been a change in the Committee’s
assessment of the size and composition of the Board?
A. At 31 December 2022, the Board consisted of the Chair, who was
deemed independent on appointment, twelve Independent Non-
Executive Directors and two Executive Directors, being the Chief
Executive Officer and the Chief Financial Officer. There were
significant changes to the size and composition of the Board during
2021 following the appointment of six independent Non-Executive
Directors and one Executive Director. The increased size and
breadth of skills on the Board have enhanced its capacity to manage
future succession needs as and when they arise. Ensuring that
there is continuity of leadership and oversight is central to the
Committee’s ongoing assessment of the suitability of the size and
composition of the Board. These needs and related risks are also
assessed from the standpoint of the Committees of the Board.
Q. How does the Committee oversee the rollout and
application of consistent standards of governance
across the Group?
A. The Committee annually reviews the governance and
organisation framework for the Group and the framework supporting
the oversight of its subsidiary companies, including associates and
joint ventures. Any necessary changes to the frameworks require
the approval of the Group Board. In 2022, the frameworks were
updated to reflect new and evolving regulatory requirements and to
respond to changes in the Group’s organisational structure,
including the integration of Goodbody following its acquisition in
2021. Central to the Committee’s considerations is the need to
ensure the continued and efficient alignment between the
frameworks of the Group and its subsidiary companies.
Chair Overview
This report provides an overview of the Committee’s key areas
of focus for the year ended 31 December 2022 and its priorities
for the year ahead. Following the changes to the composition and
size of the Board in 2021, the focus of the Committee in 2022 has
been on assessing and planning for the Board’s future succession
needs which is supported by the Board Skills Matrix.
The Committee oversees the onboarding and induction of the
new Executive and Non-Executive Directors and the Committee
continued to oversee appointments to the Goodbody Board
during 2022.
In 2022, the Committee completed its annual assessment of the
independence of the Non-Executive Directors, which confirmed
the continued independence of the Non-Executive Directors.
On the recommendation of the Committee, the Board appointed
Ms Helen Normoyle as Senior Independent Director (following
the retirement of Ms Carolan Lennon on 30 June 2022).
The Committee has also continued its focus on the development
of the succession plans and processes for the members of the
Group’s Executive Committee and Heads of Control Functions as
they are critical to the delivery of the Group’s strategy. Central to
such considerations are diversity, gender balance and the tailored
development of core competencies that reflect a changing
business and regulatory environment.
In addition to its review of the Corporate Governance
Frameworks, the Committee also reviewed the schedule of
Matters Reserved for the Board and the Group’s Conflict
of Interest Policy and there were no material changes.
Committee Membership
The Committee consists of four members: three Independent
Non-Executive Directors, namely Ms Elaine MacLean, Committee
Chair, Mr Brendan McDonagh and Ms Helen Normoyle, Senior
Independent Director, and the Chair of the Board, Mr Jim
Pettigrew. 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
set out on pages 39 to 42 and page 36.
Meeting Participation
The Chief Executive Officer and Chief People Officer attended
Committee meetings except where the business of the meeting
related to their successors. The Committee also regularly met with
no Management present during 2022.
A summary of the other key areas of focus for the Committee
throughout 2022 is set out below.
I would like to thank my fellow Committee Members for their
continued commitment through another busy year.
Elaine MacLean
Committee
Allied Irish Banks, p.l.c. Annual Financial Report 2022
54
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
KEY AREAS OF FOCUS
Board Succession Planning, Renewals and Board Committee Composition
The Committee recognises that having the right balance of skills, experience and diversity of background on the Board is key to
supporting the continued delivery of the Group’s strategy. The size, structure, composition and succession plan of the Board, Board
Committees and Corporate Officers was a standing item on the agenda of scheduled Committee meetings in 2022. During the year
the Committee identified deputies or successors to the Chairs of the Board's main Committees to ensure that succession
arrangements are clear and that leadership of the Committees is secured.
Chair Reappointment
In line with the CBI Corporate Governance Requirements for Credit Institutions 2015, the Board having considered the Committee’s
recommendation approved the reappointment of Mr Jim Pettigrew as Chair of the Board.
Executive Succession Planning & Appointments
Review of the Executive Committee composition and 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 Heads
of Control Function and Executive Committee member appointments. The Committee approved the appointment of preferred
candidates for the roles of the Chief Operating Officer and Chief Enterprise Development Officer. The Committee remains focussed
on the succession arrangements for the Executive Directors and has instructed a refresh of these succession plans.
Diversity
The Committee reviewed the Board Diversity Policy and recommended the inclusion of an ethnic diversity target of at least one
Board member from an ethnic minority background, which reflects the Group’s commitment to diversity. Our gender diversity
statistics for the Board can be found on page 40. Senior management, which for this purpose is considered to be the Executive
Committee, was 42% female and 58% male, and of their direct reports was 37% female and 63% male.
Board Evaluation
In accordance with the CBI Governance Requirements and the UK Code the Board is required to complete an annual self-
evaluation, which should be externally facilitated at least every three years. While the next external evaluation was not due until
2023, the Board agreed with the Committee’s recommendation that there was merit in commissioning an externally facilitated
evaluation in 2022 as the Board Chair and the most recently appointed Directors were more than a year in office. Following a tender
process, the Committee recommended the appointment of Praesta Ireland to carry out the Board effectiveness evaluation. The key
findings of Praesta Ireland's review are described on page 38.
Corporate Governance
The Committee oversees and monitors corporate governance arrangements and makes recommendations to the Board to ensure
that the standards and arrangements across the Group are consistent with existing corporate governance standards and emerging
best practice. 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 governance framework for the Group and its subsidiaries;
• 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 targets;
• 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 external Board Effectiveness Evaluation 2022; 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.
Subsidiary Board and Committee Composition
The Committee considered a number of executive and non-executive appointments to the Group’s material subsidiary Boards and
the respective Board Committee membership, 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 and
Executive Director 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
55
REPORT OF THE REMUNERATION COMMITTEE
ELAINE MACLEAN
Committee Chair
“The Department of Finance Retail Banking
Review published in November 2022 is
expected to form a central feature of the
Committee’s work programme in 2023, as
the current remuneration restrictions are
partially eased.”
Q&A
Q. How do the Group’s remuneration policies and
practices support the Group’s Strategy and Values,
and promote long-term sustainable success?
A. The Group’s Remuneration Policy is aligned with the culture of
the Group and its five strategic pillars, and support employees to
consistently perform at the highest level and in the interests of
customers. The Group’s Remuneration Policy is designed to attract,
motivate, engage and retain employees to grow and sustain the
Group’s business. The performance management process, Aspire,
also provides a clear link between performance and remuneration.
The Group’s remuneration model and structure also promotes
a strong risk management culture and risk-taking that is consistent
with the Group’s Risk Appetite Statement.
Q. What have been the key risks and challenges in
implementing a competitive, performance-based
remuneration model across the Group?
A. The operation of the Group’s Remuneration Policy has been
constrained by the remuneration restrictions contained in the State
Agreements following the recapitalisation of the Group in 2010 and
2011 and, consequently, the Group has been unable to implement
a performance related, competitive market-driven compensation and
benefit structure to retain and incentivise senior talent. This has
been a key risk to the future stability and performance of the Group
as the loss of senior talent could have a significant, negative impact
on the Group’s strategic ambition and direction. Following the
publication of the Retail Banking Review in November 2022, which
confirmed the easing of the remuneration restrictions, Management
has engaged with the Committee in relation to potential changes to
the Group’s remuneration model and structure, including variable
remuneration and employee benefits.
Q. Are risk considerations central to the business
of the Committee?
A. Yes, firstly the Group Chief Risk Officer is a permanent attendee
of the meetings of the Committee and each material proposal for
decision is accompanied by a Risk View paper. Furthermore, the
Group Risk function annually reviews the Group’s Remuneration
Policy (including any changes considered by Management); oversees
the setting of the risk adjustment process for variable remuneration
(for Goodbody); and assesses the appropriateness of the process for
identification of Material Risk Takers. The Chair of the Board Risk
Committee is also a member of the Committee, which supports
coordination between the two Committees.
Chair Overview
This report provides an overview of the Committee’s key areas of
focus for the year ended 31 December 2022 and its priorities for
the year ahead.
In 2022, the Committee maintained its focus on the governance and
oversight of the remuneration structures in place across the Group,
including oversight of the variable remuneration arrangements for
Goodbody employees, which remains a separately regulated legal
entity within the Group and operates a variable remuneration
structure for its employees. The Committee believes that such
activity will assist it during 2023 in its consideration of any changes
to the Group’s remuneration model and structure following the
easing of the remuneration restrictions. The Committee also
considered Gender Pay, including the publication of the Group’s
Gender Pay figures in the UK and Ireland.
Priority for 2023
A key area of focus for the Committee in 2023 will be its
consideration of the governance of the Group’s evolved
remuneration model and structure, including the introduction of
variable remuneration and employee benefits across the Group.
The Committee will engage with Management to ensure that
such changes meet regulatory requirements and best practice
guidance, and will be in the best interests of employees,
shareholders and other stakeholders, in particular, customers,
by supporting and promoting the long-term, sustainable success
of the Group. The retention by the Government of the salary
cap means that the Group is not able to remunerate senior
management on an equal footing with its competitors and the
Committee will continue to monitor the impact of the cap on the
recruitment and retention of senior talent.
Further detail on the Group’s Remuneration Policy and the
oversight of the Committee is available in the Corporate
Governance Remuneration Statement which follows this report.
Other key areas of focus for the Committee during 2022 are set
out below.
I would like to thank my fellow Committee members for the
commitment they have shown throughout 2022.
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General Information
Committee Membership
The Committee consists of four members: three Independent
Non-Executive Directors, namely Ms Elaine MacLean, Chair,
Mr Brendan McDonagh and Ms Ann O’Brien, and the Chair of the
Board, Mr Jim Pettigrew, who 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 39 to 42 and 36.
Meeting Participation
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
relevant meetings. 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.
Support for Committee
The Committee was supported in its work by the Group Reward
team and by PricewaterhouseCoopers LLP (PwC UK) as the
external remuneration consultants appointed by the Committee in
2019. Following a review of potential advisers and the services
provided, Korn Ferry were appointed as the external remuneration
consultants, effective October 2022, replacing PwC UK, whose
appointment term ended at that time. Both Korn Ferry and PwC
UK are signatories to the voluntary code of conduct in relation to
remuneration consulting in the UK.
Aside from their work supporting the Committee, during 2022
PwC UK and its network firms provided professional services in
the ordinary course of business including advisory, regulatory and
taxation related services to AIB which ended on 30 September
2022, and, from time to time, provide services to individual
Directors as part of directorships or executive roles held outside of
the Group. The Committee is satisfied that the advice received is
independent and objective.
Elaine MacLean
Committee Chair
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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REMUNERATION COMMITTEE CONTINUED
KEY AREAS OF FOCUS
Remuneration Policy
The Committee conducted its annual review of the Group’s Remuneration Policy and noted that while the Policy has been
significantly constrained by the terms of the State Agreements following the recapitalisation of the Group in 2010 and 2011, it is
operating effectively and as intended, and within its prescribed principles and parameters. The Group’s Remuneration Policy was
also confirmed to be Gender neutral. The annual review of the Policy was undertaken by Group Reward with input from Group Risk.
Apart from the updates to the Policy in relation to Goodbody (for variable remuneration), there have been no material changes to the
Group’s Remuneration Policy, practices or structure in 2022. The Group’s Chief Risk Officer presented to the Committee on the Risk
function’s annual review of the Remuneration Policy and there were no significant regulatory compliance issues. Group Internal Audit
also completed an annual audit of remuneration compliance with EBA Guidelines, Capital Requirements Directive and the State
Agreements, including the process for the identification of Material Risk Takers and no material actions were identified.
The Committee also considered how executive remuneration aligned to wider employee remuneration and confirmed that as the
Group's Remuneration Policy applies to all employees and executives, all remuneration is based on the same policy and principles.
For the vast majority of Group employees, the current remuneration structure predominantly consists of fixed pay elements,
including base salary, employer pension contributions and non-financial benefits. Increases in remuneration are performance based,
determined by performance against objectives that reflect the Group’s strategy, goals and values and such assessments typically
occur as part of the annual pay review process. Increases may also arise through progression and promotion and, in exceptional
cases only, through out-of-course salary increases to retain key talent and skills. The Committee confirmed that these processes
continued to be closely managed and monitored in line with financial performance and budgetary parameters.
The Committee also confirmed that the Group’s remuneration policies and practices were transparent to the wider employee
population; the Group’s Remuneration Policy was published on the external website and the internal intranet; and pay related
policies such as the Progression Reward Policy are also available to employees on the internal intranet.
Further details on the Group’s Remuneration Policy are available in the Corporate Governance Remuneration Statement which
follows this report.
Goodbody Stockbrokers Remuneration Governance – Variable Remuneration
During 2022, the Committee continued its oversight of remuneration matters within Goodbody and the engagement and
communication mechanism between the Goodbody Board and the Group Board on remuneration matters. The Committee
considered and approved the identification of a number of Goodbody roles as Material Risk Takers of the Group.
Remuneration of Individuals
The Committee considered a number of individual remuneration proposals at Executive Committee and Head of Control Function
level in line with its terms of reference.
Subsidiary Chair and Non-Executive Director Fees
The Committee considered proposals to revise the fee structure in place for the Non-Executive Directors of its material subsidiary,
AIB Group (UK) p.l.c. These changes were recommended to the Board for approval with a view to ensuring market alignment in the
fees offered.
Gender Pay Gap Reporting
The Committee received updates on analysis and benchmarking undertaken with regard to the Group’s inaugural public reporting of
Gender Pay in Ireland and the UK. The Committee, supporting the Board, will continue to oversee Management’s progress to narrow
Gender Pay gaps.
Compliance and Annual Reviews
The Committee conducted its programme of annual reviews including a review of the process for identifying Material Risk Takers
and the limited variable commission schemes in operation across the Group. Each review was accompanied by a view from Group
Risk to support the Committee in its oversight of same. Further details on the identification of Material Risk Takers are available in
the Corporate Governance Remuneration Statement which follows this report.
Directors’ Remuneration
Details of the total remuneration of the Directors in office during 2022 and 2021 are provided in the Corporate Governance
Remuneration Statement on pages 59 to 65.
External Directorships held by Executive Directors
Dr Colin Hunt is a Non-Executive Director of The Ireland Funds, Irish Chapter. He was a Non-Executive Director and President for
2021/2022 of the Institute of Bankers in Ireland. During 2022, Dr Hunt was appointed as a board member of Ibec, the Irish Business
and Employers Confederation. He received no remuneration for any of these roles.
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.
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CORPORATE GOVERNANCE
REMUNERATION STATEMENT
Remuneration Constraints
The Group has been required to comply with executive pay and compensation restrictions following the Group’s re-capitalisation by the
Irish Government in 2010 and 2011. AIB’s inability to implement market aligned remuneration practices and, in particular, the inability to
offer senior management remuneration on an equal footing with competitors for talent in the market represents a key risk to the Group.
The Remuneration Committee (the ‘Committee’) monitors and endeavours to address this risk on an ongoing basis.
In December 2022, the Irish Government eased most remuneration restrictions impacting the Group, while retaining the cap on base
salaries of €500,000 and a limit on variable remuneration of €20,000 per employee in each twelve-month period. The Government’s
consent is required for payments above these amounts and the Excess Bank Remuneration Charge continues to apply. Consequently,
to better align with industry practice and following on from the Government’s easing of remuneration restrictions, AIB has updated its
Remuneration Policy as described below.
As part of the acquisition of Goodbody in 2021 (it was agreed with the Department of Finance that the remuneration restrictions that
apply to AIB would not apply to Goodbody employees, and that they could continue to remain eligible for variable remuneration.
Remuneration Policy and Governance
The Group Remuneration Policy (the '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 focussed culture;
• Create long term sustainable value for our customers and shareholders;
• Attract, develop and retain the best people; and
• Safeguard the bank’s capital, liquidity and risk positions.
Both the Committee and the Board recognise that the long-term success of the Group is dependent on the talent of employees,
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 success and growth. The Group is committed to a simple, transparent and
affordable reward structure, which is fair, performance based, and both externally 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 individual subsidiaries, entities and branches, including all employees of the Group at consolidated and sub-consolidated levels.
The Remuneration Policy is governed by the Committee on behalf of the Board. The Committee is responsible for determining the
Remuneration Policy and for overseeing its implementation. The Committee oversees the operation and effectiveness of the
Remuneration Policy, as well as the process for the identification of Material Risk Takers ('MRTs').
The Committee further ensures that the Remuneration Policy and practices are reviewed at least annually, taking into account the
alignment of remuneration to the Group’s culture, and market and regulatory developments. The annual review is informed by input
from the Group’s risk and internal audit functions to ensure that remuneration policies and practices are operating as intended, are
consistently applied across the Group and are compliant with regulatory requirements.
The Committee’s governance role in this respect is outlined in its Terms of Reference, which are published on the AIB website at
committee-terms-of-reference and the Remuneration Policy is also published on the AIB website.
The Group continues to comply with the applicable requirements of the UK Corporate Governance Code (the “Code”) and uses the
Code to inform the Group’s decision making and disclosures. The Group also complies with the Shareholder Rights Directive II (“SRD
II”) in Ireland to the extent applicable. Due to the historic constraints on variable remuneration, certain requirements of the Code and
SRD II were not applicable to the Group for 2022 and prior years. The Group will continue to review applicable Code requirements
following the easing of the restrictions on variable remuneration by the Irish Government.
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CORPORATE GOVERNANCE REMUNERATION STATEMENT CONTINUED
Regarding provision 40 of the Code, the Remuneration Policy sets the framework which underpins remuneration policies and practices
for executive directors. In particular:
• Clarity – Remuneration arrangements have defined parameters which are clearly outlined in the Remuneration Policy.
• Simplicity – The Group is committed to a simple reward structure as outlined in the Remuneration Policy.
• Risk – The Group’s existing fixed remuneration arrangements have operated under strict Government remuneration constraints.
The design of the new and any future variable remuneration schemes will have a robust link between pay and performance with
safeguards in place to ensure outcomes are appropriate, including risk adjustment. The Committee will be able to adjust formulaic
outcomes for Executive Directors and members of the Executive Committee (the 'ExCo') to ensure alignment with performance and
risk-based considerations.
• Predictability – When a variable scheme is introduced in the future specific details, including maximum opportunity levels,
performance targets and worked examples, of directors’ future remuneration will be included in any new proposed remuneration
policy.
• Proportionality – The Group’s existing remuneration structure only provided for the awarding of limited individual awards in certain
circumstances in 2022. In future years, where variable remuneration can be awarded, the Committee will have the ability to adjust
formulaic outcomes where they are not proportionate to the financial or non-financial performance of the Group.
• Alignment to Culture – The Remuneration Policy is aligned to the Group’s culture and values. Performance measures used to
determine the outcome of variable remuneration arrangements will reflect the culture and values of the Group, including its
commitment to ESG.
In relation to provision 41 of the Code:
• Executive Director remuneration is governed by the Remuneration Policy and determined by the Committee.
• Career levels have been established with market related pay ranges for each level. All employees are mapped to a career level and
associated pay range based on their level of accountability.
• The Report of the Committee describes the operation of the Remuneration Policy.
• As a result of the announcement by the Irish Government in December 2022 to ease certain remuneration restrictions, we have
updated the Remuneration Policy (as summarised below). Given the limited nature of these changes and the fact that the previous
remuneration restrictions generally remained in place during 2022, shareholder engagement was not required in this area during
2022.
• The Corporate Governance report references engagement with the workforce.
• Given the general absence of variable remuneration during 2022 discretion has not been a material factor.
It should be noted that some of the provisions of the Code (notably Principle R, provisions 36 and 37) were not entirely applicable to AIB
in 2022, as the Group did not operate variable incentive arrangements for the Executive Directors during the year or in previous years
due to Government restrictions.
Summary of Changes
The Remuneration Policy has been updated to provide for:
• The introduction of a short-term variable remuneration scheme for all employees, including Executive Directors and ExCo members,
not exceeding €20,000 per employee per year based on company performance (as summarised in the Remuneration Elements table
below). Employees will be offered the choice of taking any award in cash or, where feasible, in shares or a combination of both.
• The provision of healthcare benefits to all employees.
• The satisfaction of regulatory requirements that had previously not been applicable due to the Government’s remuneration
restrictions.
Following the introduction of the short-term variable remuneration scheme, the Group will explore the potential to use vehicles such as
An Approved Profit Share Scheme (“APSS”) in the Republic of Ireland and a Share Incentive Plan (“SIP”) in the UK. The Group is also
considering the introduction of an SAYE (Save As You Earn) scheme for all employees. Details regarding the final design of the short-
term variable remuneration scheme will be disclosed in AIB’s 2023 Annual Financial Report.
In respect of Executive Directors, proposed remuneration structures will be as detailed in the Remuneration Elements table below.
In the event of the removal of the salary cap, AIB will consider the impact of such change.
Compliance with Relevant Regulatory Requirements
Remuneration policies, procedures and practices reflect the provisions, where applicable, of national and EU legislation, continuing Irish
Government remuneration restrictions, the Capital Requirements Directive (“CRD”), the Investment Firms Directive (“IFD”), corporate
governance requirements issued by the Central Bank of Ireland, and relevant guidelines issued by the European Banking Authority
(“EBA”) and other regulatory authorities. The provisions of the EBA Guidelines on sound remuneration will be applied to AIB’s proposed
new variable remuneration scheme. In particular, the Remuneration Policy incorporates the provisions of the EBA Guidelines in relation
to the ongoing design, implementation and governance of remuneration.
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Pillar 3 and Other Remuneration Disclosures
The Group publishes additional remuneration disclosures in the annual Group Pillar 3 Report. These disclosures provide further
information about the Group’s remuneration policies and practices and, more specifically, qualitative information about:
• The bodies that oversee remuneration; the design and structure of the remuneration system for those individuals who have been
identified as MRTs.
• The ways in which current and future risks are taken into account in the remuneration processes.
• The ratios between fixed and variable remuneration set in accordance with the regulatory requirements.
• The ways in which the Group seeks to link performance and remuneration.
• The ways in which the Group seeks to adjust remuneration to take account of long-term performance.
• The main parameters and rationale for the variable remuneration scheme for which MRTs are eligible and the use of derogations in
Article 94(3) of the CRD.
These disclosures also include quantitative information, in aggregate form, about the amounts and structure of the remuneration of
MRTs.
The Group’s Pillar 3 Report is available on the Group website.
EBA remuneration benchmarking requirements require the Group to disclose remuneration data in respect of all staff, MRTs and high
earners (those earning above €1 million) to the Central Bank of Ireland. The Group continued to comply with these reporting
requirements during 2022. There were no employees whose total remuneration exceeded € 1 million during 2022.
During 2022, the Group published its Gender Pay Gap Report for 2021 in relation to its UK based employees. The disclosures are
available on the AIB (GB) website, www.aibgb.co.uk. With the introduction of gender pay gap legislation in Ireland, AIB also published
its Irish Gender Pay Gap Report in 2022 in respect of its employees based in the Republic of Ireland. The disclosures are available on
the AIB website, www.aib.ie.
Material Risk Takers and Risk Oversight
The Group is required to maintain a list of employees whose professional activities have the potential to have a material impact on the
Group’s risk profile. The list of MRTs is prepared using a combination of qualitative and quantitative criteria in accordance with the
relevant EU regulations and guidelines together with additional criteria specific to the Group’s structure, business activities and risk
profile. The list is prepared at Group and subsidiary levels.
The Group’s risk function provides an assessment of the risks impacting the Group and performance against the Group’s Risk Appetite
Statement to ensure that the Remuneration Policy is aligned with the Group’s risk profile. The Group’s Chief Risk Officer reviews the list
of MRTs in conjunction with Group Reward and provides the Committee with an annual assessment of the risks facing the Group to
ensure that policies and practices are consistent with and promote sound and effective risk management.
Reward Structure and Operation in 2022
During 2022, remuneration across the Group continued to be principally comprised of fixed pay elements encompassing base salary,
allowances, employer pension contributions and non-financial benefits. Base salary is the principal component of fixed remuneration
and is designed to be fair and competitive and set according to appropriate salary ranges which reflect the size and level of
responsibilities attached to each role.
Allowances mainly consist of non-pensionable cash allowances which are payable to eligible senior employees to recognise equivalent
benefits and allowances available in the market. AIB places considerable emphasis on the need for employees to plan for an
appropriate standard of living in retirement and a pension scheme is available to all employees for that purpose. All of the Group’s
defined benefit pension schemes were closed to future accrual by 31 December 2013 and all Group employees accrue pension benefits
on a defined contribution basis from 1 January 2014. Further details in respect of the Group’s fixed pay elements are provided in the
table below.
Increases to salary in 2022 were awarded following the annual pay review process, through promotion, progression and, in exceptional
cases, through out-of-course increases to retain key talent and skills.
In 2022, the Group agreed to a 3 year pay deal which provides pay certainty for our employees at Career Levels 1-3. Employees at
Career Levels 4-6 received pay increases which were linked to their performance.
The Group operates “Appreciate”, a non-cash staff recognition programme for employees. In 2022, following approval from the
Department of Finance, a cost-of-living award to the value of €1,000 was made to all AIB employees (in Career Levels 1-5 in the
Republic of Ireland, UK and US).
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CORPORATE GOVERNANCE REMUNERATION STATEMENT CONTINUED
The remuneration of Executive Directors and members of ExCo was determined and approved by the Committee. All remuneration to
directors and employees was compliant with the relevant remuneration constraints in place during 2022.
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 (and no Executive Director
participates in these schemes), sustainability risk is considered as part of the determination of final award outcomes. The maximum
amount payable to any individual per year is €20,000. There is also a separate EBS Tied Agency Remuneration scheme, for which the
required monitoring is performed by the EBS d.a.c. senior management team. This ensures that payments made do not provide any
incentive for excessive risk taking or the mis-selling of products. Details of the EBS Tied Agency Remuneration Scheme are reported to
the Board of EBS d.a.c.
As stated earlier, a separate reward structure applies to employees of Goodbody, which was not subject to the remuneration restrictions
in place for AIB Group during 2022, as agreed with the Department of Finance. The remuneration structures at Goodbody comply with
all applicable remuneration regulatory requirements.
Remuneration of Executive Directors and Executive Committee Members
The remuneration of Executive Directors and members of the ExCo is determined by the Committee on appointment by reference to
external benchmarks to provide an appropriate level of competitive remuneration, within the parameters of remuneration restrictions,
commensurate with the size and functional responsibilities attaching to their roles. No Director nor employee is involved in the decision-
making process around their own remuneration.
In line with remuneration restrictions on variable pay and a cap on individual salaries and allowances of €500,000, which were in place
during 2022, remuneration during 2022 principally consisted of base salary, allowances and pension contributions. Allowances
consisted of non-pensionable cash allowances of up to €30,000, subject to salary and allowances remaining within the current
€500,000 cap, while employer pension contributions of 20% of base salary were payable to Executive Directors and ExCo members.
Following a review of compliance with the Code, the pension arrangements of Executive Directors and ExCo members were considered
by the Committee and deemed to be appropriate, and in line with the remuneration restrictions in place during 2022. This is an area that
will be kept under review.
The Chief Executive Officer and the Chief Financial Officer were Executive Directors of the Group during 2022. In line with the cap on
salaries and allowances imposed by existing remuneration restrictions during 2022, 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 received a base salary of €485,000, with a non-pensionable allowance of €15,000 and an employer pension
contribution of 20% (€97,000) to a defined contribution scheme.
There were no bonuses, shares or other incentive schemes paid or awarded to Executive Directors or ExCo members in 2022. The
Committee undertakes a periodic review of the remuneration of Executive Directors and ExCo members against external benchmark
data.
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Remuneration Elements
The principal remuneration design elements are outlined below:
Pay
Element
Rationale and
alignment to Strategy
Base Salary To attract, motivate and
retain the right calibre of
individuals to support the
Group’s future success
and growth.
Design and Operation
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 Committee on
behalf of the Board.
Allowances
To provide a contribution
to market aligned benefits
and allowances generally
available in the market.
Non-pensionable cash allowances are provided to
eligible employees according to their career level.
Short Term
Incentive
Plans
The introduction of
variable remuneration will
help support the
performance culture
within the Group. All
variable remuneration
arrangements will be
designed in a way that
promotes the interests of
our stakeholders and fully
complies with applicable
regulatory requirements.
Pension
To enable employees
plan for an appropriate
standard of living in
retirement.
Other
Benefits
To provide affordable
benefits in accordance
with general market
practice.
Variable remuneration schemes for all employees
based on company performance.
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.
Benefits include medical insurance, income
protection, death-in-service cover and free banking
services.
Relocation costs, including tax advice,
accommodation and flight allowances, may be
provided in line with market practice.
The Committee retains the right to provide
additional benefits subject to continuing
remuneration restrictions. AIB is also considering
the introduction of an SAYE (Save As You Earn)
scheme for employees.
Performance Assessment and
Maximum Potential Value
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 continuing
remuneration restrictions.
The annual base salary for each Executive Director is
set out in the Directors Remuneration Report. In the
event of the removal of the salary cap, AIB would
consider the impact of this, including the introduction
of shareholding requirements as recommended under
the Code.
Non-pensionable allowances for senior career levels
range from €10,000 to €20,000 per annum (£8,300 to
£11,000 in the UK).
Allowances of up to €30,000 per annum (£14,000 in
the UK) are payable to ExCo members.
A limit of €20,000 per annum on any award or
combination of awards per employee will apply.
For Executive Directors, awards will be based on a
performance period of one financial year. Awards will
be assessed on a combination of financial and non-
financial performance. Awards will be payable in a
combination of cash and shares. AIB will ensure that
the form of awards will comply with regulatory
obligations around the nature and form of payments
under the plan. It will be possible to reduce the level
of the award to reflect risk adjustments. Awards will
be subject to the Group's policy on malus and
clawback (where applicable), including where
participants leave the Group during the year. AIB will
aim to establish vehicles such as an APSS in the
Republic of Ireland and a SIP in the UK.
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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
63
Remuneration
Executive Directors
Colin Hunt
Donal Galvin
(Appointed 28 May 2021)
Non-Executive Directors
Anik Chaumartin
Basil Geoghegan
Tanya Horgan
Sandy Kinney Pritchard
Elaine McLean
Andy Maguire
Brendan McDonagh
(Deputy Chair)
Helen Normoyle
Ann O'Brien
Fergal O'Dwyer
Jim Pettigrew
(Chair)
Jan Sijbrand
Raj Singh
Former Directors
Carolan Lennon
(Resigned 30 June 2022)
Anne Maher(4)
Tomás O’Midheach
CORPORATE GOVERNANCE REMUNERATION STATEMENT CONTINUED
Directors’ remuneration*
The following table details the total remuneration of the Directors in office during 2022 and 2021:
Directors’
fees
(1)
Salary
Pension
contri-
bution(2)
Annual
taxable
benefits(3)
€ 000
€ 000
€ 000
€ 000
2022
Total
€ 000
Directors’
fees
(1)
Salary
Pension
contri-
bution(2)
Annual
taxable
benefits(3)
€ 000
€ 000
€ 000
€ 000
2021
Total
€ 000
500
485
100
97
—
15
600
597
500
283
100
56
—
13
600
352
985
197
15
1,197
783
156
13
952
75
75
80
95
85
80
135
165
91
115
365
78
80
1,519
53
75
75
80
95
85
80
38
81
22
95
85
64
135
218
165
91
115
365
78
80
115
95
71
63
22
80
1,519
1,049
109
53
16
59
8
38
81
22
95
85
64
218
115
95
71
63
22
80
1,049
109
17
67
2,194
Total
1,507
2,785
1,158
(1) All 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 performing the role of Deputy Chair or Senior
Independent Director. Current or former Directors who serve on the board of any Group Irish subsidiary company are also paid a non-pensionable flat fee for
their services as a Director, chairmanship or membership of Board Committees. In that regard, Mr. Fergal O' Dwyer earned fees during 2022 of €55k in his role
as Director and Chair of the Audit Committee of Goodbody. 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 during 2022 of €65k (2021: €30k);
(2) “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;
(3) “Annual Taxable Benefit” represents a non-pensionable cash allowance in lieu of company car, medical insurance and other contractual benefits; and
(4) Ms Anne Maher is a former Non-Executive Director of Allied Irish Banks, p.l.c. who has, since her resignation, continued as a Director of the Corporate Trustee
of the AIB Irish Pension Scheme and of the AIB Defined Contribution Scheme, in respect of which she earned fees as quoted, during 2022.
*Forms an integral part of the audited financial statements
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Directors’ remuneration* continued
Interests in shares
The beneficial interests of the Directors and the Company Secretary in office at 31 December 2022, and of their spouses and minor
children, in the ordinary shares of AIB Group plc are set out in the Directors’ Report on page 32.
Share options
No share options were granted or exercised during 2022, and there were no options to subscribe for ordinary shares outstanding in
favour of the Executive Directors or Company Secretary at 31 December 2022.
Performance shares
There were no conditional grants of awards of ordinary shares outstanding to Executive Directors or the Company Secretary at
31 December 2022.
Apart from the interests set out in the Directors’ Report on page 32, the Directors and Company Secretary in office at 31 December
2022 and their spouses and minor children, have no other interests in the shares of AIB Group plc.
The year end closing price of the AIB Group plc's ordinary shares on the Main Market of the Euronext Dublin Stock Exchange was
€ 3.616 per share.
Service contracts
All Executive Directors have a service contract whereas all Non-Executive Directors have a letter of appointment.
In respect of Executive Directors, no service contract exists between the Company and any Director which provides for a notice period
from 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
65
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 financial statements, and which accords with the Central Bank
of Ireland’s Corporate Governance requirements for Credit
Institutions 2015 and the UK Corporate Governance Code.
Supporting this process, the Group’s system of internal controls is
based on the following:
Board governance and oversight
• The Board has ultimate responsibility for risk appetite and
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,
Sustainable 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. 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. BRC provides qualitative and
quantitative input to the Remuneration Committee on the
alignment of variable remuneration to risk performance for
material risk takers. The Committee further provides advice on
the ongoing viability of the Group, taking into account the
Group’s overall position and principal risks. The committee
is composed of Independent Non-Executive Directors and
operates under Board approved terms of reference.
• 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 BAC is composed of Independent Non-Executive
Directors and operates under a Board approved terms of
reference.
• 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, where appropriate.
• 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 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 Environmental, Social and Governance
activities, alignment with the United Nations Environmental
Programme Finance Initiative (“UNEPFI”) Principles for
Responsible Banking, UN Global Compact and the Group’s
Pledge to Do More.
• 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.
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General Information
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 independent challenge, 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. 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 70 to 73 of this report.
In the event that material failings or weaknesses in the systems of
risk management or internal control are identified, Management is
required to attend the relevant Board forum to provide an
explanation of the issue and to present a proposed remediation
plan. Agreed remediation plans are tracked to conclusion, with
regular status updates provided to the relevant Board forum.
Given the work of the Board, BRC, BAC and representations
made by the ExCo during the year, the Board is satisfied that the
necessary actions to address any material failings or weaknesses
identified through the operation of the Group’s risk management
and internal control framework have been taken, or are currently
being undertaken.
Taking this and all other information into consideration as outlined
above, the Board is satisfied that there has been an effective
system of control in place throughout the year.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
67
SUSTAINABILITY
AND CLIMATE
CHANGE
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.
Further disclosures on Sustainability in
AIB can be found on pages 27 to 54 of
the AIB Group plc Annual Financial
Report and within our Sustainability
Report 2022, which highlights the
progress we are making against our
strategy and commitments.
à Read more on aib.ie/sustainability
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RISK MANAGEMENT
1
Risk Management Approach
1.1 Risk strategy
1.2
Identification and assessment
1.3 Monitoring, escalating and reporting
1.4 Risk culture
1.5 Control environment
2
Individual risk types
2.1 Credit risk
2.2
2.3
Liquidity and funding risk
Financial risks
(a) Market risk
(b) Pension risk
(c) Equity risk
2.4
Business model risk
2.5 Operational risk
2.6 Conduct risk
2.7 Regulatory compliance risk
2.8
People and culture risk
2.9 Capital adequacy risk
2.10 Model risk
70
70
71
72
73
73
74
75
129
136
136
141
142
143
143
144
145
146
147
148
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RISK MANAGEMENT CONTINUED
1.RISK MANAGEMENT APPROACH
1. Introduction
The risk summary on pages 22 to 26 provides an overview of the
Group’s core risk management principles and the key areas of
focus during 2022. This full risk management section provides
a more in-depth picture of how risk is managed, supporting the
Group in achieving its strategic objectives, protecting customers
and enables us to identify opportunities to grow the Group
business safely. A full analysis of the principal risks categories
are set out on pages 23 to 26, the framework by which risks are
identified, managed, monitored and reported. Each principal risk
category is described using standard headings.
The Group uses a comprehensive risk management approach
across all risk types. This is outlined in the Group’s risk
management framework, including the key practices that are
implemented in managing risks, both financial and non-financial.
It is aligned to the Group’s purpose to back its customers to
achieve their dreams and ambitions and is designed to support
appropriate risk-taking. The 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.
The Group’s independent Risk function designs and maintains the
framework. The Risk function is led by the Chief Risk Officer who
provides oversight and monitoring of all risk management
activities. At the end of June 2022, Deirdre Hannigan retired as
Chief Risk Officer and was succeeded by Michael Frawley.
The landscape of the Irish retail banking market is changing with
the exit of Ulster Bank and KBC. In April, the Group received
Competition and Consumer Protection Commission (“CCPC”)
approval for the acquisition of the Ulster Bank corporate and
commercial loans, commencing the migration of loans on a phased
basis. In June, the Group entered into a binding agreement with
NatWest Group plc for the acquisition of a performing Ulster
tracker mortgage portfolio and subsequently received in January
2023 clearance from the CCPC. Risk remains committed to
maintaining the support we give to our existing and new customers
by assessing these transactions as part of the Group’s risk
management processes including the material risks assessment
and within its prudent risk appetite.
1.1 Risk strategy
Integration of key risk management processes
The following section sets out at a high level the Group and Risk
strategy setting applicable across the Group, its subsidiaries and
joint ventures.
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 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 29 to 54 for
more details on Sustainability in the Group.
Risk governance and oversight
The Group’s Governance and Organisation Framework
encompasses the leadership, direction and control of the Group,
reflecting policies, 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.
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, Sustainability Business
Advisory, Technology and Data Advisory Committee and the
Nominations and Corporate Governance Committee are all set out
in the Governance and Oversight – Corporate Governance report
on pages 75 to 128.
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, such as the new ESG Risk
Management Framework, Risk Appetite Statements, risk
policies and limits to manage the risk profile of the Group;
• Monitoring and reviewing the Group’s risk profile
(enterprise wide);
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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• 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 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.
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 manages the funding
and liquidity, capital, market and equity/investments risk and
balance sheet pricing in line with the relevant risk frameworks
and policies in accordance with risk appetite.
Three lines of defence model
The Group operates a three lines of defence model which defines
clear responsibilities and accountabilities, ensures effective
independent oversight and assurance activities take place
covering key decisions. The first line of defence lies with the
business line managers who are required to have effective
governance and control frameworks in place for their business
and to act within the risk appetite parameters set out. The second
line of defence comprises the Risk function, 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 and its Sub Committees, 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.
1.2 Identification and assessment
Risk is identified and assessed in the Group through a
combination of on-going risk management practices and the
following:
• Material risk assessment;
• Risk and control assessment;
• Annual Financial Plan;
• Internal Capital Adequacy Assessment Process (“ICAAP”);
• Internal Liquidity Adequacy Assessment Process (“ILAAP”);
• Stress testing;
• Recovery planning; and
• Resolution planning.
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 and the identification of emerging and evolving
risks. This assessment makes use of horizon scanning and 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.
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.
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 over a three year time horizon. This assessment forms
the basis for consideration of business model risk and internal
capital adequacy.
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71
RISK MANAGEMENT CONTINUED
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.
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 participated in the ECB’s
inaugural European-wide Climate Stress Test in 2022.
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 liquid 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.
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 of 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.
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.
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 a 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).
1.3 Monitoring, escalating and reporting
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.
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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.
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.
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.
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. A material breach of
a Risk Appetite Statement limit is reported to the Board and the
Group’s regulator when appropriate.
1.4 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.
1.5 Control environment
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
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RISK MANAGEMENT CONTINUED
2.INDIVIDUAL RISK TYPES
2.1 Credit Risk
Definition
Credit risk organisation and structure
Measurement, methodologies and judgements
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
Credit ratings
Forbearance
75
75
76
80
94
100
100
105
107
109
118
125
126
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2.1 Credit risk
Key Developments in 2022:
• The migration of the Ulster Bank portfolio of corporate and commercial loans has progressed on a phased basis throughout the
year and has been subject to the appropriate credit review and grading processes.
• In June 2022, the Group entered into a binding agreement with NatWest Group plc for the acquisition of a performing tracker
mortgage portfolio from Ulster Bank. Work has commenced from a credit management perspective in preparation for the migration
of this loan portfolio.
• The credit quality of the portfolio has remained relatively stable during the year, however the Group is closely monitoring risk
arising from the macroeconomic environment notably energy-driven inflation, rising interest rates and further weakening of the
UK economy.
• The ongoing conflict between Russia and Ukraine has contributed to the uncertain economic backdrop.
• The Group remains focused on its sustainability agenda, including the impact of climate risk which continues to be incorporated
and embedded within the credit assessment process.
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 and associated bank credit exposure in
respect of loans or other financial transactions.
Based on the annual risk identification and materiality
assessment, credit risk is grouped into the following three 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 and the resulting credit default risk / risk of loss
leading to a risk to capital;
ii. 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
iii. 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.
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. The credit
risk metrics cover the three sub risks identified as part of the
AIB Group material risk assessment process – counterparty risk,
concentration risk and country risk, and include concentration
limits on quantum of new lending, balance sheet exposure and
credit quality. 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 management
The activities which govern the management of credit risk within
the Group are as follows:
• 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;
• Formulate and implement a comprehensive credit risk strategy
that is viable through various economic cycles, supported by
a suite of credit policies, is aligned to the Group’s approved Risk
Appetite Statement and generates appropriate returns on capital
within acceptable levels of credit quality;
• Operate within a sound and well defined credit granting process,
within which risks for new and existing lending exposures,
including connected exposures, are consistently identified,
assessed, measured, managed, monitored and reported in line
with risk appetite and the credit risk policies;
• 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;
• 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 and limits are monitored
and reported in a timely manner for review and action;
• Ensure a sound methodology exists and credit policies are in
place to proactively assess credit risk, to identify deteriorating
credit quality and take remedial action to minimise losses,
provide customers with affordable and sustainable solutions and
maximise recovery for the Group. This includes consideration of,
and the granting of, forbearance measures;
• Utilise quality management information and risk data of
appropriate quality, to ensure an effective credit risk
management and 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;
• Mitigate potential credit risk arising from new or amended
products or activities, including the identification and analysis
of existing and potential risks inherent in any credit product or
activity; and
• Develop and continuously reinforce a strong, credit 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
credit risks that cannot be adequately measured.
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.
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RISK MANAGEMENT CONTINUED
2.1 Credit risk
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.
Credit risk organisation and structure
The Group’s credit risk management systems operate through
a hierarchy of lending authorities. All customer loan requests are
subject to a credit assessment process. The role of the Credit
Risk function is to provide direction, independent oversight of and
challenge to credit risk-taking.
*Forms an integral part of the audited financial statements
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. 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 through the cycle (TTC) 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. 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 98 and 99 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 80 to 91.
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.
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2.1 Credit risk
Internal credit ratings* continued
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 loans measured at fair value through profit and
loss, and 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.
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 using key risk
indicators and early warning indicators which are 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.
*Forms an integral part of the audited financial statements
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
list, the exposure is carefully monitored and where appropriate,
exposure reductions are effected.
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 in Stage 2 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 126, 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’.
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 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.
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RISK MANAGEMENT CONTINUED
2.1 Credit risk
Credit risk mitigants* continued
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.
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 the expected
credit loss ("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 are subject to
an annual review.
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.
The value of property collateral is assessed at loan origination
and at certain stages throughout the credit lifecycle in accordance
with the Group Property Valuation Policy e.g. at annual review
where required.
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:
*Forms an integral part of the audited financial statements
a. 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.
c.
b. 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 in the second line of
defence. The assets being valued by this means must have an
independent professional external valuation completed within
the past 3 years.
Internal valuations are completed by first line of defence case
managers pursuant to the rules in the Property Valuation Policy
and in line with the Property Valuation Guidance, which
provides appropriate valuation methodology guidance. These
include the following valuation methodologies:
I.
Index valuation approach – used for residential property;
II. Comparable valuation approach – a basic level of valuation
methodology used to value agricultural land or as a sense
check for the valuation of residential, commercial or
development land;
III. Commercial investment valuation approach – used for the
valuation of commercial property using the Group’s
commercial investment yield matrices;
IV. Residual valuation approach – used for the valuation of
development land or land with development potential; and
V. Profits valuation approach – used for the valuation of
trading assets i.e. hotels, licensed, convenience stores etc.
using the Group’s stabilized EBITDA matrices.
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 ECL 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.
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2.1 Credit risk
Credit risk mitigants* continued
Summary of risk mitigants by selected portfolios
Set out below are details of risk mitigants used by the Group in relation to financial assets detailed in the maximum exposure to credit
risk table on page 92.
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 2022
and 2021:
Stage 1 Stage 2
€ m
€ m
Stage 3
€ m
2022
At amortised cost
Total
€ m
POCI
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
2021
At amortised cost
Total
POCI
€ m
€ m
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%
50% – 70%
71% – 80%
81% – 90%
91% – 100%
15,109
691
9,340
375
2,288
1,452
123
56
15
6
375
176
40
12
11
45 16,220
13,192
31 9,922
5 2,389
1 1,480
—
140
8,657
3,843
1,040
102
703
486
158
54
19
447
237
86
51
51
35
39
13
8
1
14,377
9,419
4,100
1,153
173
28,312 1,143
614
82 30,151
26,834
1,420
872
96
29,222
Partially collateralised
Collateral value relating to loans over
100% loan-to-value
43
9
12
—
64
61
18
Total collateral value
28,355 1,152
626
82 30,215
26,895
1,438
28
900
1
97
108
29,330
Gross residential mortgages
28,396 1,158
638
87 30,279
26,937
1,446
ECL allowance
(40)
(38)
(196)
(9)
(283)
(34)
(41)
Net residential mortgages
28,356 1,120
442
78 29,996
26,903
1,405
921
(276)
645
103
(31)
29,407
(382)
72
29,025
(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 2022 and 2021 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 & Northern Ireland) to these values to take account of price
movements in the interim.
Securities financing
In addition to the credit risk mitigants outlined on the previous
pages, the Group, from time to time, enters securities financing
transactions. Securities financing consists of securities borrowing,
securities lending, sale agreements and repurchase agreements.
At 31 December 2022, the total fair value of the collateral received
was € 6,282 (2021: € 3,890 million) in relation to repurchase
agreements, reverse repurchase agreements and securities
borrowing agreements (note 22).
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 2022 amounted to
€ 2,511 million (2021: € 882 million) and those with a negative fair
value are reported as liabilities which at 31 December 2022
amounted to € 2,982 million (2021 2,220 million at 31 December
2022 (2021: € 529 million). The Group also has Credit Support
Annexes (“CSAs”) in place which provide collateral for derivative
contracts. At 31 December 2022, € 795 million (2021: € 570
million) of CSAs are included within financial assets as collateral
for derivative liabilities and € 245 million (2021: € 100 million) of
CSAs are included within financial liabilities as collateral for
derivative assets (note 39 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 2022, government guaranteed senior bank debt
which amounted to € 259 million (2021: € 317 million) was held
within the investment securities portfolio.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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RISK MANAGEMENT CONTINUED
2.1 Credit risk
Measurement, methodologies and judgements*
Introduction
The Group has set out the methodologies used and judgements
exercised in determining its expected credit loss (“ECL”)
allowance for the year to 31 December 2022.
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.
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.
ECLs are defined in the standard as the weighted average of
credit losses across multiple macroeconomic scenarios, with
weights assigned based on the probability of each scenario
occurring and are an estimate of credit losses over the life of
a financial instrument.
The ECL model applies to financial instruments measured at
amortised cost or at fair value through other comprehensive
income. In addition, the ECL approach applies to lease
receivables, loan commitments and financial guarantee contracts
that are not measured at fair value through profit or loss.
A key principle of the ECL model is to reflect any relative
deterioration or improvement in the credit quality of financial
instruments occurring (e.g. change in the risk of a default).
The ECL amount recognised as a loss allowance or provision
depends on the extent of credit deterioration since initial
recognition together with the impact on credit risk parameters.
Bases of measurement
Under the standard, there are two measurement bases:
1. 12-month ECL (Stage 1), which applies to all financial
instruments from initial recognition as long as there has been
no significant increase in credit risk; and
2. Lifetime ECL (Stages 2 and 3 and POCI), which applies when
a significant increase in credit risk has been identified on an
account (Stage 2), an account has been identified as being
credit-impaired (Stage 3) or when an account meets the POCI
criteria.
Staging
Financial assets are allocated to stages dependent on credit
quality relative to when assets were originated.
*Forms an integral part of the audited financial statements
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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General Information
2.1 Credit risk
Measurement, methodologies and judgements* continued
Qualitative measure: This measure reflects the assessment of
the change in credit risk based on the Group’s credit management
and the individual characteristics of the financial asset. This is not
model driven and seeks to capture any change in credit quality
that may not be already captured by the quantitative criteria. The
qualitative assessment reflects pro-active credit management
including monitoring of account activity on an individual or portfolio
level, knowledge of client behaviour, and cognisance of industry
and economic trends.
The criteria for this 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 have been further
enhanced and embedded in the year. 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 and that have a
discount to 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 82 and 83).
ii. Simplified approach: For portfolios not on the standard
approach, the Group has followed a simplified approach. This
approach consists of applying portfolio level ECL averages,
drawn from similar portfolios, where it is not possible to
estimate individual parameters. These generally relate to
portfolios where specific IFRS 9 models have not been
developed due to immateriality, low volumes or where there are
no underlying grading models. As granular PDs are not
available for these portfolios, a non-standard approach to
staging is required with reliance on the qualitative criteria
(along with the 30 days past due back-stop)
iii. Discounted cash-flows (“DCFs”): Assets are grouped together
and modelled based on asset classification and sector with the
exception of those Stage 3 assets where a DCF is used. DCFs
are used as an input to the ECL calculation for Stage 3 credit
impaired exposures where gross credit exposure is ≥ € 1
million (Republic of Ireland) or ≥ £ 500,000 (UK). Multiple DCFs
are captured where gross credit exposure is ≥ € 5 million
(Republic of Ireland) or ≥ £ 5 million (UK) or cases in scope for
the Group Leveraged Lending Policy, 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 DCFs these are
probability weighted to produce the final ECL. An adjustment is
made for cases with very low final ECL to ensure a minimum
level of ECL is maintained, this is derived through reference to
ECL model outputs.
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 2022 year
end ECL estimates are outlined on pages 90 and 91.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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RISK MANAGEMENT CONTINUED
2.1 Credit risk
Measurement, methodologies and judgements* continued
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.
IFRS 9 ECL Credit Risk models
The IFRS 9 ECL models provide the risk parameters which are
the inputs into the model driven estimate of ECL which is used
across all Stage 1 and Stage 2 portfolios plus all non-DCF Stage
3 exposures.
*Forms an integral part of the audited financial statements
IFRS 9 Portfolio Delineation
The IFRS 9 models are delineated into retail and non-retail
portfolios. The retail IFRS 9 portfolios provide exposure level risk
parameter estimates which take into account borrower level
characteristics and metrics where appropriate, whilst the non-retail
portfolios provide metrics which are either borrower or connection
level estimates.
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, for each year of the expected contractual
lifetime of the exposure. The PD is a point in time estimate which
is reflective of the current and expected economic conditions.
In order to capture the appropriate risk dynamics across the
lifetime of the exposure the development process considers:
• Macroeconomic effects captured through factors such as
unemployment rate and GDP;
• Cross-sectional risk discriminators in particular the internal
rating model outputs plus other factors such as forbearance and
days past due; and
• Seasoning factors such as product type, delinquency and
forbearance status.
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 for the retail and non-
retail 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. Where appropriate, this may then be
adjusted to reflect economic conditions.
For secured loans the following may be considered:
• 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 plus associated costs) in
order to calculate the future recovery amount;
• The potential for the exposure to be deleveraged through a
portfolio sale taking into account the costs associated with
same; and
• Paths for returning to the performing portfolios such as
forbearance and self-cure.
– 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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General Information
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 117 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.
2.1 Credit risk
Measurement, methodologies and judgements* continued
Exposure at default
Exposure at default (“EAD”) is defined as the exposure amount
that will be owed by a customer at the time of default. This will
comprise changes in the exposure amount between the reporting
date and the date that the customer defaults. This may be due to
repayments, interest and fees charged and additional drawdowns
by the customer.
Prepayments
For term credit products, prepayment occurs where a customer
fully prepays an account prior to the end of its contractual term.
For revolving credit products, ‘prepayment’ is defined as the
cessation of use and withdrawal of the facility provided that the
account was not in default prior to closure.
Prepayment is used in the lifetime ECL calculation for Stage 2
loans to account for the proportion of the facilities/customers that
prepay each year.
Determining the period over which to measure ECL
Both the origination date and the expected maturity of a facility
must be determined for ECL purposes. The origination date is
used to measure credit risk at origination.
The expected maturity is used for assets in Stage 2, where the
ECL must be estimated over the remaining life of the facility.
The expected maturity approach is:
• Term credit products: the contractual maturity date, with
exposure and survival probability adjusted to reflect behaviour
i.e. amortisation and prepayment;
• Revolving credit products: the period may extend beyond the
contractual period over which the Group is exposed to credit
risk, e.g. overdrafts and credit cards. The Group’s approach for
these is to assume an appropriate remaining term based on the
characteristics of the portfolio.
Forward looking indicators in 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’ section for more detail on the process for generating
scenarios and associated key macroeconomic factors relevant for
the models. In circumstances where there is a risk that the
modelled output fails to capture the appropriate response to
changes in the macroeconomic environment such as inflation and
interest rate changes, these risks are captured through the use of
post model adjustments.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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RISK MANAGEMENT CONTINUED
2.1 Credit risk
Measurement, methodologies and judgements* continued
Critical Judgements during the year:
• ECL allowance stock relating to post model adjustments (PMAs) has increased by € 54 million in the year to € 608 million. ECL
allowance stock relating to PMAs as a percentage of total ECL stock is 37% (2021: 29%). New PMAs in the year seek to capture
potential impacts due to inflationary and interest rate pressures including elevated probability of default in performing commercial
real estate exposures and an increase in ECL stock relating to non-legacy NPE exposures reflecting the economic uncertainty.
Further details are outlined in the management judgements section on pages 90 and 91.
• Despite recovering strongly following the COVID-19 recession, the Irish economy has been impacted through the course of 2022
by a number of headwinds affecting the global economy which are likely to weigh on the outlook (Base scenario) in 2023 and
2024. These include higher inflation and interest rates, tight labour markets, supply chain bottlenecks, a less supportive fiscal
stance and further, albeit less severe, waves of COVID-19 infections. Against this backdrop, the economies in which the Group
operates are projected to grow at more modest rates over the next two years (the UK is an exception as a mild recession is
expected in 2023 and 2024) with a gradual rise in unemployment rates in prospect. Inflationary pressures in these markets should
dissipate somewhat in 2023 but are unlikely to revert toward the 2% target rate set by central banks until 2025 onwards.
• The Group is of the view that risks to the economic outlook are firmly tilted to the downside and, for the purposes of IFRS 9 ECL
reporting, has applied the following weightings for year-end 2022 with Base 45% (change -5% compared to year-end 2021),
Moderate Upside 10% (change -10%), Moderate Downside 30% (change +5%) and Severe 15% (change +10%). Further details
are outlined in the macroeconomic scenarios and weightings section below.
• The Group’s sensitivity analysis to the macroeconomic scenario weightings are outlined on page 89. Under the 100% downside
‘Energy shock and persistently high inflation’ scenario, this would result in a 15% increase compared to the reported ECL
allowance stock.
AIB have used four scenarios in the ECL calculation consisting of
a base scenario, along with three alternative scenarios. These
consist of one upside; a mild downside scenario entailing
disruptions to energy supplies and a re-emergence of the
COVID-19 virus; while a more severe downside considers a cut-
off of Russian gas supplies to Europe with persistently high
inflation which necessitates a hike in official interest rates. Non-
linear effects are captured in the development of risk parameters
as well as through the inclusion of both the single upside and two
downside scenarios.
The Group’s Economic Research Unit (“ERU”) provide the
scenario forecasts over five years. These are then independently
reviewed and challenged, on both a quantitative and qualitative
basis, by the Group Risk function. The Base case is benchmarked
against the outlook available from official sources (e.g. 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.
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 2021 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
2022 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:
Following the Russian invasion of Ukraine in February 2022,
global energy and food commodity prices surged. This intensified
pre-existing inflationary pressures caused by supply bottlenecks in
many economies as they recovered following the lifting of
COVID-19 restrictions. Against this background, the greatest risk
to the outlook (Base scenario) is for persistently elevated inflation
coupled with higher interest rates which depress economic
activity. A range of possible scenarios has been considered in
formulating the ECL calculation, as at the financial reporting date.
These entail credible risks and uncertainties to the economic
outlook including inter alia possible energy supply rationing, a
deterioration in financial conditions, renewed short waves of
COVID-19 infections, as well as a prolonged period of elevated
inflation – all possible triggers of a future economic downturn.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
84
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
The combination of weakening activity and positive base effects,
should see Irish inflation fall back to circa 2% by end 2024.
Although a similar trajectory is expected in the major economies,
with inflation still running above levels they are comfortable with,
Central Banks are expected to continue to hike interest rates
aggressively into 2023, hitting 3.5% in the Euro Area and 4.75% in
the UK.
Downside 1 (‘Lower growth in 2023’): In the AIB Moderate
Downside scenario, risks to growth prove to have a more negative
impact on activity than provided for in the Base scenario. For
Ireland these are primarily driven by global conditions. In
particular, the war in Ukraine has a more significant impact on
growth than expected, with ongoing disruptions of gas supplies to
Europe from Russia. There are continuing short waves of
COVID-19 infections necessitating some restrictions on activity,
most notably in China.
As a result, the major economies all experience a significant
recession in 2023, with the downturn continuing in the UK in 2024.
This is followed by a sluggish recovery in activity. In Ireland’s
case, GDP growth slows sharply to 2.5% in 2023 and 2024. There
is a marked rise in unemployment everywhere, climbing to circa
7.5% in both the UK and Ireland during 2025.
There are significant falls in property prices. House prices in
Ireland & the UK decline by circa 9% and 15%, respectively, over
the 2023-2024 period. There are even bigger falls in commercial
property prices of circa 16% in both markets in 2023-24.
Interest rates peak at the end of 2022, with central banks
implementing rate cuts in 2023-24 on the view that leaving policy
unchanged would see inflation fall to 2% by end 2024 onwards.
Rates are cut to 0.5% in the Euro Area/UK and circa 0.63% in
the US.
2.1 Credit risk
Measurement, methodologies and judgements* continued
Macroeconomic scenarios and weightings continued
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 participated in the ECB Climate
Stress Tests in early 2022; it was evident that the scale of the
economic shocks applied was 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: A combination of a very sharp acceleration in inflation,
partly owing to the war in Ukraine, and marked tightening of
monetary policy & financial conditions has seen a pronounced
slowdown in global growth in 2022, which is expected to extend
well into 2023. The economic backdrop has become far more
challenging as we move into a period of weak growth, elevated
inflation and rising interest rates. As a result, global growth
forecasts for 2022-23 have been scaled back significantly from
earlier in the year.
The Base scenario assumes very weak GDP growth in the US
and Euro Area of 0.7% and 0.5% respectively in 2023, with the
latter seeing a technical recession. The UK economy is expected
to contract by 1.0% in 2023. As a small open economy, in line with
this global trend, Ireland is expected to see growth moderating
albeit remaining relatively strong given a continued favourable
product mix in its large multi-national sector. Overall Irish GDP
growth of 4% is projected, which is somewhat below most official
forecasts reflecting a higher inflation projection by AIB.
A moderate pick-up in global growth is anticipated from 2024
onwards (boosted by real household incomes and easing financial
conditions) which will mean a continued solid expansion for the
Irish economy where average GDP growth of close to 4% is
assumed for 2024 and 2025. The UK market will remain weak
however (contraction in both 2023 and 2024) with the economy
recovery delayed until 2025.
House price growth in Ireland is expected to moderate
significantly over the forecast period but remain positive due to the
ongoing supply shortfall, high savings and a relatively strong
labour market. By comparison the UK housing market is expected
to contract as the sharp increase in interest rates and reduction in
disposable incomes take hold. Given the challenges it faces, most
especially from remote working, both Irish and UK Commercial
property prices are forecast to contract sharply in 2023 (by 9%
and 8% respectively).
Unemployment is expected to rise only moderately over the period
2023 to 2025, as most labour markets are characterised by a
shortage of workers and high job vacancies. For Ireland the
unemployment rate is expected to remain in a low range of
4.5-5.0% over the period 2022-27.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
85
RISK MANAGEMENT CONTINUED
2.1 Credit risk continued
Measurement, methodologies and judgements* continued
Macroeconomic scenarios and weightings continued
Downside 2 (‘Energy shock and persistently high inflation’):
Under the second downside scenario, the war in Ukraine has a
much more severe impact on global economic activity than
anticipated. Inflation stays very high in 2023-2024 with ongoing
interruptions in European gas imports from Russia, continuing
disruptions to global supply chains, greater second round price
effects and wage inflation picking up. Central banks are forced
into a very sharp tightening of monetary policy. Conditions in
financial markets tighten further, with a surge in bond yields, blow
out in credit spreads and more sharp falls on stock markets.
Emerging markets come under severe pressure in particular.
The combination of energy and financial market shocks as well as
the very sharp tightening of monetary policy triggers a severe
global recession in 2023-24. The main economies see GDP
decline by circa 2% in 2023 and 2.0-2.5% in 2024. Irish GDP
growth slows to 1.0-1.5% in 2023-24 and is 6.3% lower by 2025
than in Base scenario. There is a moderate pick up in global
activity from 2025.
Unemployment rates rise to very high levels in the main
economies with Irish unemployment increasing sharply to 10% by
end 2025 and remaining high in 2026-2027. In line with the global
trend, Irish inflation remains high in the initial period (8% in 2023 V
5.2% in base) before graduating to 2.0% in 2026 due to the
slowdown in economic activity led by the tighter financial
conditions.
The sharp fall in economic activity and confidence levels imply
very large property price falls in Ireland and the UK. Irish and UK
residential property prices fall by 24% and 29%, respectively,
between 2023 and early 2025 and are circa 26-28% lower versus
the Base scenario by 2025. CRE prices in Ireland and the UK fall
by circa 35-36% in the period 2023-25.
Central banks raise rates to 5.25-5.38% in the UK and US and
4.0% in the Euro Area in the first half of 2024. Inflation falls back
in the second half of 2024 allowing central banks to lower rates
aggressively. Rates do not return to previous lows as inflation
settles around its 2% target in 2025-26. Thus, rates come down to
1% in the Euro Area/UK and circa 1.13% in the US, some 250 to
300 basis points below the levels assumed in the Base scenario.
Upside (‘Quick economic recovery’): In the upside scenario, the
key assumptions consist of a combination of a relatively quick
cessation of hostilities in Ukraine in early 2023 coupled with an
accelerated deployment of vaccines globally which brings about a
quicker than expected suppression of the coronavirus. In addition,
a strong rebound in business and consumer confidence facilitates
a rundown of personal and corporate savings. The confluence of
these developments helps boost global growth and consequently
this feeds into the Irish economy.
In this scenario, GDP is some 3.2% higher in most economies
than in the base case by 2025. Irish GDP growth averages 5%
over the period 2023-2025 before returning to more moderate
rates of growth (3-4%) over 2026-27. As a result, unemployment
falls further reaching 3.6% on 2026-27 (5.0% in base). With a
stronger economy, inflation goes even higher and is slower to
decline than in the base case, only getting back to 2% in 2027.
With the stronger growth in economic activity, Irish and UK
property prices perform much better than in the base case
scenario. Irish house price rise by 4-5% per annum over 2023-25,
with UK prices up 2-3%. Meanwhile, Commercial property prices
rise by circa 3% per annum over 2023-2025 in both countries.
Central banks hike rates at a quicker pace than in the base. Rates
rise to circa 5.13%% in the US, 5% in the UK and 3.75% in the
Euro Area.
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 2022 (average over 2023-2027) and at 31 December
2021 (average over 2022-2026).
December 2022
5 year (2023-2027) average forecast
December 2021
5 year (2022-2026) average forecast
Downside 1
(‘Lower
growth in
2023’)
Downside 2
(‘Energy
shock and
persistently
high inflation’)
Upside
(‘Quick
economic
recovery’)
Base
Downside 1
(‘Lower
growth in
2022’)
Downside 2
(‘Persistent
high inflation’)
Upside
(‘Quick
economic
recovery’)
Base
3.6
2.5
5.0
1.0
1.6
5.1
2.7
0.4
0.2
5.1
0.2
3.3
3.4
0.2
6.8
(1.6)
1.1
4.3
2.7
0.3
(1.6)
6.8
(2.2)
3.3
2.6
(4.3)
8.5
(6.6)
0.2
3.4
3.9
(0.3)
(5.7)
8.3
(6.9)
4.4
4.3
3.8
3.9
2.7
1.9
6.0
3.5
1.5
2.2
3.7
2.6
4.2
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
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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
86
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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, at 31 December 2022.
Estimate
2022
%
2023
%
2024
%
2025
%
2026
%
Macroeconomic factor
Republic of Ireland
GDP growth
Residential property price growth
Unemployment rate
8.0
5.0
4.6
4.0
2.5
4.8
Commercial property price growth
(3.5)
(9.0)
Employment growth
Average disposable income growth
Inflation
United Kingdom
GDP growth
Residential property price growth
Unemployment rate
Commercial property price growth
Inflation
6.0
3.5
8.3
4.3
4.5
3.9
(3.5)
9.2
1.5
6.5
5.2
(1.0)
(3.0)
4.6
(8.0)
7.5
3.7
2.5
5.0
5.0
1.5
5.3
2.5
(0.5)
(1.0)
5.2
(2.0)
3.0
4.0
2.5
5.0
3.0
1.7
4.7
2.0
0.6
1.0
5.5
3.0
2.0
3.5
2.5
5.0
3.0
1.6
4.6
2.0
1.3
2.0
5.3
4.0
2.0
Base
2027
%
3.0
2.5
5.0
3.0
1.5
4.5
2.0
1.5
2.0
5.0
4.0
2.0
Downside 1
(‘Lower growth in 2023’)
2023
%
2024
%
2025
%
2026
%
2027
%
2.5
(7.0)
5.6
(12.5)
0.6
5.0
5.2
(1.5)
(11.0)
5.5
(12.5)
7.5
2.5
(2.5)
6.8
(4.5)
0.4
4.0
2.5
(1.2)
(4.5)
6.7
(4.0)
3.0
3.5
5.0
7.4
3.0
0.9
4.0
2.0
0.8
1.5
7.5
1.5
2.0
4.0
3.0
7.5
3.0
1.4
4.0
2.0
1.5
3.0
7.5
2.0
2.0
4.5
2.5
7.0
3.0
2.0
4.5
2.0
1.7
3.0
7.0
2.0
2.0
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
Downside 2
(‘Energy shock and persistently high inflation’)
(‘Quick economic recovery’)
Upside
2023
%
2024
%
2025
%
2026
%
2027
%
2023
%
2024
%
2025
%
2026
%
2027
%
1.0
1.5
(8.0)
(15.0)
6.0
7.8
(17.0)
(18.5)
(0.1)
(0.9)
4.0
8.0
3.0
5.0
(2.3)
(2.5)
(14.0)
(16.0)
6.0
7.8
(17.0)
(18.5)
9.0
6.0
2.5
(1.0)
9.3
(4.0)
(0.6)
3.0
2.5
—
(1.0)
9.0
(5.5)
3.0
3.5
1.0
10.0
2.5
0.6
3.0
2.0
1.5
1.0
9.5
2.5
2.0
4.5
1.5
9.5
4.0
2.0
3.8
2.0
2.0
1.5
9.0
4.0
2.0
5.5
5.0
4.3
4.0
2.3
8.0
6.0
1.0
3.0
3.8
3.5
8.0
4.5
4.5
4.1
3.0
2.1
6.5
4.0
1.5
2.0
3.7
3.0
5.0
5.0
4.0
3.8
2.5
2.0
5.5
3.0
2.0
2.0
3.6
2.5
3.7
3.7
3.0
3.6
2.0
1.7
5.2
2.5
1.7
2.0
3.7
2.0
2.5
3.0
2.5
3.6
2.0
1.5
5.0
2.0
1.4
2.0
3.8
2.0
2.0
The key changes to the scenario forecasts in the reporting period
have been driven by the outbreak of war in Ukraine, following the
Russian invasion, in addition to mounting inflationary pressures
and monetary policy tightening by global central banks. The wider
economic impact of the war in Ukraine has generated elevated
uncertainty with respect to the economic outlook largely due to
concerns over energy security and a surge in pre-existing
inflationary pressures largely driven by much higher commodity
prices (in particular gas and raw foodstuffs). These developments
feed directly into the Irish economy and have resulted in
a significant re-assessment of the outlook and balance of risks
during 2022.
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.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
87
RISK MANAGEMENT CONTINUED
2.1 Credit risk
Measurement, methodologies and judgements* continued
Macroeconomic scenarios and weightings continued
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 (‘cliff edge’ effect on economic activity), 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 in determining the
selection of weightings at the reporting date.
These weightings are reviewed regularly by Group ALCo and
adjusted where required. The key drivers of the weightings are:
• The Base scenario assumptions were regularly benchmarked
against consensus projections which were subject to downward
revision in light of the weak global backdrop and downside risks
facing the macroeconomic outlook.
• Forecasts released in the closing months of 2022 from the IMF,
OECD, ECB, ESRI, Central Bank of Ireland and the Department
The weightings that have been applied as at the reporting date are:
of Finance were close to the AIB projections. The AIB forecasts
remain on the conservative side of most recent external
benchmarks, especially in relation to Ireland. Most releases of
Irish economic data, have been trending stronger than our
forecasts. This includes variables such as GDP, Modified Final
Domestic Demand, unemployment and house prices.
• The balance of risks to the forecasts is still heavily skewed to
the downside with revisions to consensus forecasts for growth in
2023-2024 trending firmly downwards. Forecasters also
highlight that the balance of risks to their latest projections
remain tilted to the downside, with real concerns that the world
economy could be hit by recession in 2023 – the AIB moderate
downside and severe scenarios entail significant recessions in
the major economies and a significant departure from its trend
growth rate in the case of Ireland.
• The risk that inflation will prove slow to fall back remains a real
concern, which would pose a downside risk to Irish growth
prospects in 2023-24 in terms of an ongoing hit to real
disposable incomes and consumer spending. The war in
Ukraine has added to downside risks, especially in relation to
the flow of European gas supplies in 2023-24.
Scenario
Base
Downside 1 (‘Lower growth in 2023’)
Downside 2 (‘Energy shock and persistently high
inflation’)
Upside (‘Quick economic recovery’)
Weighting
December
2022
45 %
30 %
15 %
10 %
Base
Downside 1 (‘Lower growth in 2022’)
Downside 2 (‘Persistent high inflation’)
Upside (‘Quick economic recovery’)
Weighting
December
2021
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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
88
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 indication of ECL movements that include changes in
model parameters, quantitative ‘significant increase in credit
risk’ (“SICR”) staging assignments with post model adjustments
sensitivity predominantly reflected only where scenario specific
features form an integral part of the adjustment. Further details on
post model adjustments are outlined on pages 90 and 91.
Relative to the base scenario, in the 100% downside ‘Lower
growth in 2023’ and ‘Energy shock and persistently high inflation’
scenarios, the ECL allowance increases by 9% and 21%
respectively. In the 100% upside scenario, the ECL allowance
declines by 7%, showing that the ECL impact of the two downside
scenarios is greater than that of the upside scenario. For
31 December 2022, a 100% downside ‘Lower growth in 2023’ and
‘Energy shock and persistently high inflation’ scenario sees a
higher ECL allowance sensitivity of € 142 million and € 342 million
respectively compared to base (€ 56 million and € 256 million
respectively compared to reported).
Higher relative impacts are observed for the AIB UK portfolio
partly due to a scenario specific post model adjustment being
applied to reflect greater impact within the downside scenarios
than that currently observed, based on the deployed
macroeconomic scenarios.
Reported
100% Base
Total
€ m
283
177
320
838
1,618
59
19
1,696
245
Total
€ m
275
175
298
790
1,538
55
17
1,610
214
ECL allowance at 31 December 2022
100% Downside
Scenario
(‘Lower growth
in 2023’)
Total
€ m
100% Downside
Scenario
(‘Energy shock and
persistently high
Total
€ m
100% Upside
Scenario
(‘Quick economic
recovery’)
Total
€ m
284
179
331
878
1,672
60
20
1,752
259
318
185
385
977
1,865
65
22
1,952
336
271
173
282
711
1,437
53
13
1,503
196
Reported
100% Base
100% Downside
Scenario (‘Lower
growth in 2022’)
ECL allowance at 31 December 2021
100% Downside
Scenario
(‘Persistent high
inflation’)
100% Upside
Scenario (‘Quick
economic
recovery’)
Total
€ m
382
222
313
968
1,885
53
26
1,964
268
Total
€ m
376
216
284
921
1,797
49
24
1,870
266
Total
€ m
392
237
378
1,074
2,081
63
30
2,174
277
Total
€ m
434
257
473
1,236
2,400
80
35
2,515
321
Total
€ m
370
213
266
895
1,744
45
22
1,811
253
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
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
89
RISK MANAGEMENT CONTINUED
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
ECL provision and to address known model limitations and/or
emerging trends not captured in the models. All PMAs are
approved under the ECL governance process through which the
appropriateness of PMAs are considered against the backdrop of
the risk profile of the loan book, recent loss history or changes in
underlying resolution strategies not captured in the models and
Managements view of emerging trends.
The PMAs approved for 31 December 2022 (and 2021
comparison, where applicable), are set out below and categorised
as follows:
• NPE resolution – ECL adjustments where the current model
does not take into account alternative resolution strategies such
as portfolio sales and to ensure that downside risks are
appropriately incorporated into the final loss estimate.
• Emerging headwinds – ECL adjustments required where the
modelled outcomes are not sensitive to the uncertainties
associated with the impact of current emerging economic
headwinds.
• Macroeconomic factors – ECL adjustments reflecting a greater
impact from downside scenarios / timing of certain
macroeconomic factors.
• Other – ECL adjustments where it was judged that an
amendment to the modelled ECL was required
Management Judgements
NPE resolution
Emerging headwinds
Macroeconomic factors
Other
PMA Total
Management Judgements
NPE resolution
Uncertainty due to the impact of COVID-19
Macroeconomic factors
Other
PMA Total
Residential
mortgages
Other personal
Property and
construction
Non-property
business
€ m
140
43
20
—
203
€ m
—
11
—
—
11
€ m
37
69
10
—
116
€ m
73
124
20
61
278
Residential
mortgages
Other personal
Property and
construction
Non-property
business
€ m
207
18
29
1
255
€ m
5
9
—
—
14
€ m
26
5
—
1
32
€ m
28
153
—
72
253
2022
Total
€ m
250
247
50
61
608
2021
Total
€ m
266
185
29
74
554
NPE resolution
At 31 December 2022, the Retail Banking PMA mainly related to
mortgages which have been classified as non-performing for a
considerable length of time has been retained to reflect expected
outcomes from alternative strategies which may be adopted, such
as portfolio sales. LGD models are based on empirical internal
data assuming business as usual resolution and given that the
models do not account for alternative strategies, post model
adjustments have been applied to reflect the potential outcomes,
pending model redevelopment.
The completion of a non-performing portfolio sale in the year has
resulted in a reduction in this PMA, particularly within residential
mortgages where the ECL PMA stock has reduced from
€ 207 million at 31 December 2021 to € 140 million at
31 December 2022.
A new post model adjustment was introduced for year end 2022
in order to increase the ECL cover for non-performing exposures
classified as non legacy (defaulted subsequent to December
2018). This adjustment reflects management judgement that the
downside scenario for these cases may be more severe than
currently reflected through the modelled process.
The impact of potential reductions in future cash flows and
security values, particularly within commercial real estate and
small and medium enterprise exposures, have been considered
as part of the governance process.
*Forms an integral part of the audited financial statements
This PMA primarily impacts the Retail Banking and Capital
Markets property (€ 29 million) and non-property business
(€ 51 million) portfolios.
Similarly in AIB UK, a post model adjustment of £ 26 million
includes the impact of the above non-performing PMA and also
reflects the impact of alternative strategies such as portfolio sales.
Emerging headwinds
Particular focus from management was on assessing portfolios
impacted by the combined effects of cost of living challenges,
persistent inflationary pressures and rising interest rates on
customers' ability to repay. The ultimate impact of these effects is
highly uncertain, however should they lead to a reduction in
customers' ability to meet their loan repayment obligations, there
could be an increase in credit risk which could have a negative
impact on the asset quality of the Group’s loan portfolios.
Within the Retail Banking portfolio, a PMA of € 72 million has been
introduced to reflect the increased probability of default due to
rising interest rates and increased cost of living. The PMA has
been applied within the performing portion of the residential
mortgage portfolio, € 43 million, personal portfolio, € 11 million,
and non-property business portfolio, € 18 million.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
90
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
For ECL governance, the Group’s senior management employ
expert judgement in assessing the adequacy of the ECL
allowance. This is 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 the 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.
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. Throughout 2022, the Group has
remained focused in embedding the following key initiatives:
• Continued use of heat mapping exercises in order to scale
individual sub-sector exposures to levels of climate change and
environment risks.
• Relevant Business Credit Application Guidelines/Procedures
and Credit Sanctioning policies requirements in respect of the
assessment of certain borrowers' 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 are continuing to embed.
• The ESG questionnaire was implemented in our credit risk
management process in 2021 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 environmental risks. In 2022 work
commenced to further enhance and refine this tool, broadening
the scope of coverage at both counterparty and sector level.
• The property valuation process continues to obtain BER/EPC
ratings where applicable, which are captured in collateral
valuations and recorded on the Group’s systems.
• A Sustainable Lending Framework was introduced in 2021 and
continues to categorise and identify 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 at 31 December 2022 and it
was deemed that insufficient evidence of the likely loss impacts
from climate events is available to adjust ECLs. The impact of
climate risk will continue to be monitored in 2023 to ensure
ECLs appropriately reflect latent risk from potentially emerging
climate risks.
2.1 Credit risk
Measurement, methodologies and judgements* continued
Within Capital Markets a PMA of € 163 million represents the
potential impacts on the non-property business (€ 99 million) and
property (€ 64 million) portfolios due to the potential impact of
inflation (including higher energy costs) and higher interest rates
on non-property business and property exposures resulting in an
increase in borrower forbearance arrangements. This has been an
area of particular focus for management.
Within AIB UK, a new PMA of £ 10 million (£ 7 million non-
property business and £ 3 million property) also reflects the
impact of higher interest rates and a slowdown within CRE.
While COVID-19 specific PMAs have now been significantly
released, those affected borrowers whose recovery may be
impacted by emerging headwinds are incorporated within this
PMA.
Macroeconomic factors
In Retail Banking, an ECL adjustment continues to be applied to
reflect limitations within the mortgage model relating to the house
price index (HPI) 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 thereby 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 could become credit
impaired.
This adjustment amounted to € 20 million (Stage 1: € 5 million,
Stage 2: € 5 million and Stage 3: € 10 million).
In addition, in AIB UK, an ECL adjustment of £ 27 million (Stage 1:
£ 11 million and Stage 2: £ 16 million) has been applied
predominately in the non-property business (£ 18 million) and
property (£ 9 million) portfolios to reflect a greater impact within
the downside scenarios than that currently observed, based on
the deployed macroeconomic scenarios at 31 December 2022.
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 € 61 million at 31 December 2022
(Stage 1: € 17 million and Stage 2: € 44 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 2022 were:
• Model Risk Committee;
• Asset and Liability Committee;
• Business level ECL Committees;
• Group Credit Committee; and
• Board Audit Committee
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
91
RISK MANAGEMENT CONTINUED
2.1 Credit risk - Credit exposure overview
Key Credit Profile Metrics in 2022:
• There was a € 7 million net credit impairment charge in the year (2021: € 238 million writeback). This comprised of a € 316 million
charge in the second half of the year which incorporates post model adjustments to address emerging headwinds and downside
risks from inflation and interest rate impacts on credit quality; and a € 309 million writeback in the first half of the year reflecting the
economic environment in Ireland with robust credit quality & repayments, updated macroeconomic assumptions as well as some
release of post model adjustments.
• Total gross loans and advances to customers have increased from € 58.4 billion to € 61.2 billion in the year which was due to new
lending and the ongoing Ulster Bank corporate and commercial portfolio acquisition. ECL stock of € 1.6 billion represents 2.7%
ECL cover (2021: € 1.9 billion, 3.2%).
• Total new lending in the year was € 12.6 billion which reflects an increase of € 2.2 billion versus last year (2021: € 10.4 billion). The
increase in new lending was primarily driven by mortgage lending in Retail Banking and real estate finance in Capital Markets.
• The credit quality composition of the portfolio has remained relatively stable during the year. Non-Performing loans at € 2.2 billion,
have decreased by € 0.9 billion or 31% in the year and now represent 3.5% of total gross loans (2021: 5.4%).
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 2022 and 2021
Maximum exposure to credit risk
Balances at central banks(3)
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities(4)
Included elsewhere:
Trade receivables
Items in course of collection
Accrued interest
Loan commitments and other credit
related commitments
Financial guarantees
Total
Amortised
cost(1)
Fair
value(2)
€ m
€ m
2022
Total
€ m
Amortised
cost(1)
Fair
value(2)
€ m
€ m
2021
Total
€ m
37,565
— 37,565
42,109
— 42,109
2,511
1,502
—
1,323
59,613
56,265
—
2,511
1,502
59,364
6,282
4,131
99
51
281
—
249
—
6,282
11,837
15,968
—
—
—
99
51
281
882
—
243
—
882
1,323
56,508
3,890
12,589
16,660
—
—
—
372
44
307
3,890
4,071
372
44
307
109,275
14,597
123,872
108,381
13,714
122,095
15,060
802
15,862
— 15,060
13,727
—
802
819
— 15,862
14,546
— 13,727
—
819
— 14,546
125,137
14,597
139,734
122,927
13,714
136,641
(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 € 38,138 million (2021: €42,654 million).
(4) Excluding equity shares of € 302 million (2021: € 274 million).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
92
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021:
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
€ m
38,138
1,502
€ m
—
—
€ m
38,138
1,502
60,982
(1,618)
59,364
249
—
61,231
(1,618)
6,283
15,971
36
51
15,060
802
(1)
(3)
(1)
—
(59)
(19)
249
59,613
6,282
15,968
35
51
(59)
(19)
2022*
Income
statement
Net credit
impairment
writeback/
(charge)
€ m
—
—
(5)
—
(5)
—
(2)
—
—
(7)
7
(7)
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
€ m
42,654
1,323
€ m
—
—
€ m
42,654
1,323
58,150
(1,885)
56,265
243
—
58,393
(1,885)
3,891
16,661
36
44
13,727
819
(1)
(1)
(1)
—
(53)
(26)
243
56,508
3,890
16,660
35
44
(53)
(26)
2021*
Income
statement
Net credit
impairment
(charge)/
writeback
€ m
—
—
233
—
233
(1)
—
—
—
2
4
238
Cash and balances at central banks
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
– Items in course of collection
Loan commitments
Financial guarantee contracts
Total(2)
(1) ECL allowance amounting to € 3 million (2021: € 3 million) included in carrying amount of investment securities at FVOCI.
(2) The total net credit impairment charge of € 7 million includes the impact of the Ulster Bank portfolio acquired during the year which resulted in a net charge of €
45 million, of which € 39 million related to loans and advances to customers at amortised cost and € 6 million relating to loan commitments.
There was a € 7 million net credit impairment charge in the year (2021: € 238 million writeback). This comprised of a € 5 million charge
on loans and advances to customers (net remeasurement of ECL allowance charge of € 50 million and recoveries of amounts
previously written-off of € 45 million) and a € 2 million charge on investment debt securities. A € 7 million charge on loan commitments
was offset by a € 7 million writeback on financial guarantees (2021: € 233 million writeback (net remeasurement writeback of € 158
million and recoveries 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).
Further details on the net credit impairment charge in the year to 31 December 2022 are set out on pages 97 and 206.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
93
RISK MANAGEMENT CONTINUED
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 2022 and 2021:
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
Capital
Markets
€ m
28,764
2,600
€ m
528
49
452
6,166
3,026 12,177
34,842 18,920
24,294 12,813
7,654
4,023
31,948 16,836
1,241
431
1,672
1,222
496
1,178
1,674
410
AIB UK
Group
2022
Total
Retail
Banking
Capital
Markets
€ m
987
74
1,999
4,145
7,205
4,763
1,448
6,211
203
405
608
386
€ m
€ m
€ m
— 30,279
27,744
— 2,723
2,550
€ m
548
63
— 8,617
636
4,800
15 19,363
3,225 10,351
15 60,982
34,155 15,762
— 41,870
23,406
15 13,140
6,888
9,578
4,010
15 55,010
30,294 13,588
— 1,940
— 2,014
— 3,954
— 2,018
1,389
567
1,956
1,905
449
1,309
1,758
416
AIB
UK
€ m
1,115
91
1,924
5,090
8,220
4,436
2,335
6,771
296
518
814
635
Group
2021
Total
€ m
€ m
— 29,407
— 2,704
— 7,360
13 18,679
13 58,150
— 37,420
13 13,246
13 50,666
— 2,134
— 2,394
— 4,528
— 2,956
Gross carrying amount
34,842 18,920
7,205
15 60,982
34,155 15,762
8,220
13 58,150
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
31,805 15,317
1,749
1,201
87
3,193
410
—
5,725
1,094
386
—
15 52,862
30,135
11,985
— 6,036
— 1,997
—
87
2,083
1,834
103
3,361
416
—
6,261
1,324
635
—
13 48,394
— 6,768
— 2,885
—
103
34,842 18,920
7,205
15 60,982
34,155 15,762
8,220
13 58,150
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
88
112
468
9
677
%
0.3
6.4
39.0
10.7
132
440
133
—
705
%
0.9
13.8
32.4
—
43
94
99
—
236
%
0.8
8.6
25.6
—
Income statement
€ m
€ m
€ m
€ m
Net remeasurement of ECL allowance
Recoveries of amounts previously written-off
Net credit impairment (writeback)/charge
(101)
(38)
(139)
%
96
(3)
93
%
55
(4)
51
%
Net credit impairment (writeback)/charge
on average loans
(0.41)
0.54
0.67
—
—
—
%
—
(1) Further analysis of internal credit grade profile by ECL staging is set out on pages 98 and 99.
—
—
—
—
263
646
700
9
120
138
722
31
— 1,618
1,011
%
—
—
—
—
%
0.5
10.7
35.1
10.7
€ m
50
(45)
5
%
79
465
75
—
619
%
0.7
13.8
18.2
—
37
97
121
—
255
%
0.6
7.4
19.0
—
—
—
—
—
236
700
918
31
— 1,885
%
—
—
—
—
%
0.5
10.3
31.8
29.9
%
0.4
6.6
39.4
29.9
€ m
€ m
€ m
€ m
€ m
(15)
(69)
(84)
(131)
(2)
(133)
%
%
(12)
(4)
(16)
%
— (158)
—
(75)
— (233)
%
%
0.01
(0.24)
(0.87)
(0.19)
— (0.40)
Allied Irish Banks, p.l.c. Annual Financial Report 2022
94
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and
2021:
FVTPL
Carrying amount
Property and construction
Non-property business
Total
Analysed by internal credit ratings
Strong
Satisfactory
Total strong/satisfactory
Total criticised
Non-performing
Total
Retail
Banking
Capital
Markets
AIB UK
Group
€ m
—
—
—
—
—
—
—
—
—
€ m
226
23
249
96
—
96
—
153
249
€ m
€ m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2022
Total
€ m
226
23
249
—
96
—
96
—
153
249
Retail
Banking
Capital
Markets
AIB UK
Group
€ m
—
—
—
—
—
—
—
—
—
€ m
243
—
243
—
74
74
—
169
243
€ m
€ m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2021
Total
€ m
243
—
243
—
74
74
—
169
243
Gross loans and advances to customers
Total gross loans and advances to customers increased by
€ 2.8 billion in the year to 31 December 2022. Of the total portfolio
of € 61.2 billion, € 61.0 billion is measured at amortised cost with
the remaining € 0.2 billion being measured at fair value through
profit or loss. The increase in the year was influenced by the
acquisition of the Ulster Bank corporate and commercial loan
portfolio, of which € 2.1 billion has been acquired at 31 December
2022. New lending activity also compares favourably to last year
increasing by € 2.2 billion or 22% to € 12.6 billion (2021: € 10.4
billion). New lending in Retail Banking accounted for € 6.5 billion
and largely related to new mortgage lending (€ 4.5 billion) while
Capital Markets accounted for € 4.7 billion which predominately
related to real estate finance and corporate lending. Overall, from
a segment perspective, Capital Markets increased by € 3.2 billion,
predominately in the non-property business and property and
construction asset classes due to the Ulster Bank portfolio
acquisition. Retail Banking increased by € 0.6 billion due to strong
mortgage lending, however these increases in Retail Banking and
Capital Markets were offset by a € 1.0 billion reduction in AIB UK
due to deleveraging activity following the Group’s decision to exit
the SME market in Great Britain.
Of the total loans to customers of € 61.2 billion, € 55.1 billion or
90% are rated as either ‘strong’ or ‘satisfactory’ which is an
increase of € 4.3 billion (2021: € 50.8 billion or 87%). This
increase was evident across all asset classes as a result of new
lending but was also influenced by the Ulster Bank portfolio
acquisition. The ‘criticised’ classification includes ‘criticised watch’
of € 1.9 billion and ‘criticised recovery’ of € 2.0 billion, the total of
which has decreased by € 0.6 billion in the year. The ‘criticised
recovery’ portfolio decreased by € 0.4 billion and the ‘criticised
watch’ portfolio decreased by € 0.2 billion. The total performing
book has increased by € 3.8 billion to € 59.1 billion or 96% of
gross loans and advances to customers (2021: € 55.3 billion or
95%).
The credit quality of the portfolio has remained stable during the
year.
Stage 2 loans have decreased by € 0.8 billion to € 6.0 billion as
Stage 1 loans increased by € 4.5 billion to € 52.9 billion. The
reduction in Stage 2 loans was driven by redemptions/repayments
as the non-property portfolio and the mortgage portfolio, both
decreased by € 0.5 billion and € 0.3 billion respectively.
Stage 3 loans have decreased by € 0.9 billion to € 2.0 billion. The
decrease was primarily due to the sales of non-performing loan
portfolios completed during the year which accounted for
€ 0.5 billion. Net transfers to Stage 3 accounted for € 0.4 billion
and were offset by redemptions/repayments net of interest
credited of € 0.6 billion. Transfers to Stage 3 in the year
predominately related to cases in the non-property portfolio
(€ 0.3 billion).
The characteristics of each stage including the Group’s approach
to identifying significant increase in credit risk are outlined on
pages 80 and 81. 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
95
RISK MANAGEMENT CONTINUED
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 2022 and 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 to customers
ECL allowance as a % of non-performing loans and
advances to customers at amortised cost
Split of non-performing loans and advances by time
in default
Legacy/Pre 31 December 2018
Non Legacy/Post 31 December 2018
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 to
customers
ECL allowance as a % of non-performing loans and
advances to customers at amortised cost
Split of non-performing loans and advances by time
in default
Legacy/Pre 31 December 2018
Non Legacy/Post 31 December 2018
Residential
mortgages
€ m
657
—
657
Other personal
€ m
180
—
180
Property and
construction
€ m
Non-property
business
€ m
406
153
559
775
—
775
2022
Total
€ m
2,018
153
2,171
2.2 %
6.6 %
6.3 %
4.0 %
3.5 %
31 %
64 %
29 %
35 %
35 %
155
502
657
11
169
180
38
521
559
36
739
775
Residential
mortgages
€ m
991
—
991
Other personal
€ m
247
—
247
Property and
construction
€ m
Non-property
business
€ m
628
169
797
1,090
—
1,090
240
1,931
2,171
2021
Total
€ m
2,956
169
3,125
3.4 %
9.1 %
10.5 %
5.8 %
5.4 %
30 %
64 %
28 %
29 %
32 %
499
492
991
71
176
247
161
636
797
151
939
1,090
882
2,243
3,125
Total Group non-performing loans have decreased by € 0.9 billion
or 31% to € 2.2 billion in the year (2021: € 3.1 billion). The
decrease reflects the € 0.5 billion sale of non-performing loan
portfolios completed during the year and other net underlying
decreases of € 0.4 billion to non-performing loans. The total
Group non-performing loans portfolio consists of € 2.0 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 increased to 35% in the year (2021: 32%). The increase
predominately relates to the non-legacy property and non-property
business exposures reflecting the uncertain economic backdrop.
Non-performing loans as a percentage of total loans and
advances to customers is 3.5% compared to 5.4% at 31
December 2021.
Exposures that entered into default prior to 31 December 2018
amount to € 0.2 billion or 0.4% of total loans and advances to
customers (2021: € 0.9 billion or 1.5%) and are classified as
legacy. The reduction in the year is due to the non-performing
loan portfolio sales and cures. The remaining balances relate to
exposures which may form part of alternative recovery strategies.
Exposures that have defaulted after 31 December 2018 amount to
€ 1.9 billion or 3.1% of total loans and advances to customers
(2021: € 2.2 billion or 3.8%) and are classified as non-legacy.
These exposures were largely impacted by COVID-19 and spread
across all asset classes, however as economic conditions
improved, this has led to a € 0.3 billion reduction in the year. The
non-property business portfolio (€ 0.7 billion) continues to be the
largest impacted sector within this cohort.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
96
2021
Total
€ m
79
(234)
62
(68)
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.1 Credit risk – Credit profile of the loan portfolio
ECL allowance
The ECL allowance on loans and advances to customers has decreased by € 0.3 billion to € 1.6 billion in the year. The decrease was
predominately in Stage 3 which reduced by € 0.2 billion due to the sales of non-performing loan portfolios completed throughout the
year. The total ECL cover rate has decreased from 3.2% at 31 December 2021 to 2.7% at 31 December 2022.
Income statement
The table below analyses the key components of the income statement for loans and advances to customers at 31 December 2022 and
2021:
Amortised cost
Residential
mortgages
Other
personal
Property and
construction
2022
Total
Non-
property
business
Residential
mortgages
Other
personal
Property
and
construction
Non-
property
business
Income Statement
Net stage transfers
Net remeasurement
New loans originated/
topups
Redemptions/repayments
Impact of credit or
economic risk parameters
Impact of model and
overlay changes
Total net
remeasurement of ECL
Recoveries of amounts
previously written-off
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
(14)
10
3
(4)
5
(5)
(5)
40
—
11
(3)
(8)
(18)
22
24
(25)
23
(22)
(13)
9
29
(64)
37
(6)
66
(93)
10
(48)
3
(5)
23
(18)
12
(4)
2
(45)
29
(24)
44
(123)
18
(35)
(28)
—
(31)
(59)
(7)
(35)
(31)
(132)
78
50
22
(17)
77
50
44
(55)
4
10
20
(53)
67
(60)
135
(158)
Net Credit impairment
charge / (writeback)
(1) The total net remeasurement of ECL allowance charge of € 50 million includes the impact of the Ulster Bank portfolio acquired during the year which resulted in a
(12)
38
(13)
(30)
(45)
5
(25)
(80)
(15)
(5)
(19)
(72)
(16)
(76)
(75)
(233)
(15)
(20)
(5)
17
net charge of € 39 million.
There was a € 5 million net credit impairment charge in the year to
31 December 2022 which comprised a net remeasurement of ECL
allowance charge of € 50 million and recoveries of amounts
previously written-off of € 45 million (2021: € 233 million writeback
comprising a net remeasurement writeback of € 158 million and
€ 75 million of recoveries).
• Within the IFRS 9 models, € 31 million ECL writeback has been
observed due to macroeconomic factors. This is predominantly
due to improvements in the ROI unemployment rate (versus
previously forecasted). Further details on the macroeconomic
scenarios and weightings are outlined on page 84 to 88.
• However, to reflect the current uncertain economic environment
The key drivers of the net remeasurement of ECL allowance
charge of € 50 million consist of the following components and
activity:
• Credit quality remained relatively stable during the year with a €
37 million charge due to net stage movements predominantly
within the other personal and property and construction sectors.
Redemption and repayment activity continues to occur across
all stages but predominantly within Stage 2 with a € 93 million
writeback driven by loans that fully repaid. New loans originated
have resulted in a € 66 million charge. Further details on the
ECL allowance movements are outlined on pages 118 to 124.
and insensitivity within the IFRS 9 models to certain
macroeconomic scenarios such as inflation and interest rate
changes, additional ECLs have been taken to address these
increased risks through the use of post model adjustments
resulting in a net charge of € 77 million during the year. Further
details on post model adjustments are outlined on pages 90 and
91.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
97
RISK MANAGEMENT CONTINUED
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 2022
and 2021:
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
POCI
€ m
2022*
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
Amortised cost
Total
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
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
40,708
11,365
52,073
668
119
787
2
52,862
(263)
52,599
23,104
4,950
28,054
340
2
342
—
28,396
(40)
28,356
1,245
941
2,186
87
—
87
1
2,274
(24)
2,250
5,404
1,341
6,745
56
19
75
—
6,820
(84)
6,736
1,159
1,772
2,931
—
—
—
1,271
1,834
3,105
6,036
(646)
5,390
—
—
—
— 1,997
1,997
(700)
1,297
206
136
342
570
246
816
—
1,158
(38)
1,120
66
110
176
79
15
94
—
270
(37)
233
721
374
1,095
56
240
296
—
1,391
(117)
1,274
—
—
—
—
—
—
638
638
(196)
442
—
—
—
—
—
—
179
179
(116)
63
—
—
—
—
—
—
406
406
(119)
287
3
3
6
1
61
62
19
87
(9)
78
3
3
6
1
61
62
19
87
(9)
78
41,870
13,140
55,010
1,940
2,014
3,954
2,018
60,982
(1,618)
59,364
23,313
5,089
28,402
911
309
1,220
657
30,279
(283)
29,996
— 1,311
— 1,051
— 2,362
166
—
15
—
181
—
—
180
— 2,723
— (177)
— 2,546
— 6,125
— 1,715
— 7,840
112
—
259
—
371
—
—
406
— 8,617
— (320)
— 8,297
36,521
11,023
47,544
755
93
848
2
48,394
(236)
48,158
22,071
4,464
26,535
395
6
401
1
26,937
(34)
26,903
1,259
913
2,172
65
1
66
—
2,238
(30)
2,208
3,948
1,261
5,209
58
79
137
—
5,346
(50)
5,296
895
2,220
3,115
—
—
—
1,377
2,276
3,653
6,768
(700)
6,068
—
—
—
— 2,885
2,885
(918)
1,967
306
192
498
549
399
948
—
1,446
(41)
1,405
34
89
123
74
22
96
—
219
(33)
186
413
613
1,026
143
217
360
—
1,386
(91)
1,295
—
—
—
—
—
—
921
921
(276)
645
—
—
—
—
—
—
247
247
(159)
88
—
—
—
—
—
—
628
628
(172)
456
2021*
Total
€ m
37,420
13,246
50,666
2,134
2,394
4,528
2,956
58,150
(1,885)
56,265
22,381
4,659
27,040
946
430
1,376
991
29,407
(382)
29,025
4
3
7
2
25
27
69
103
(31)
72
4
3
7
2
25
27
69
103
(31)
72
— 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
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
98
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.1 Credit risk – Credit profile of the loan portfolio
Internal credit grade profile by ECL staging continued
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
POCI
€ m
Total
Stage 1
Stage 2
Stage 3
€ m
€ m
€ m
€ m
POCI
€ m
2022*
2021*
Total
€ m
Non-property business
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
ECL allowance
Carrying amount
10,955
4,133
15,088
185
98
283
1
15,372
(115)
15,257
166
1,152
1,318
566
1,333
1,899
—
3,217
(454)
2,763
—
—
—
—
—
—
774
774
(269)
505
— 11,121
— 5,285
— 16,406
—
751
— 1,431
— 2,182
775
—
— 19,363
— (838)
— 18,525
9,243
4,385
13,628
237
7
244
1
13,873
(122)
13,751
142
1,326
1,468
—
—
—
611
1,638
2,249
3,717
(535)
3,182
—
—
—
— 1,089
1,089
(311)
778
— 9,385
— 5,711
— 15,096
—
848
— 1,645
— 2,493
— 1,090
— 18,679
— (968)
— 17,711
Credit exposure by midpoint PD grade
The below table represents the credit risk profile for loans and advances to customers at amortised cost via the mapping of credit risk
management midpoint PD grades at 31 December 2022 and 2021. The ‘internal credit grading profile by ECL staging’ table above
includes qualitative factors such as financial distress and arrears (in addition to PD to prioritise credit risk management activity) which
the midpoint PD table below does not reflect.
Quality
Code
1 - 3
4 - 7
8 - 10
11
Lower
Bound PD
Upper
Bound PD
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2022
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2021
Total
€ m
0.00%
1.23%
6.94%
1.23% 44,907
1,623
6.94% 7,375
1,424
99.99%
578
2,989
—
—
—
39 46,569
40,838
1,340
7
8,806
6,951
1,929
22
3,589
603
3,499
—
—
—
18 42,196
5 8,885
11 4,113
100.00% 100.00%
2
—
1,997
19
2,018
2
—
2,885
69 2,956
Gross carrying amount
52,862
6,036
1,997
87 60,982
48,394
6,768
2,885
103 58,150
At 31 December 2022, 91% of the portfolio is in quality codes 1 to 7 which are typically strong/satisfactory (2021: 88%), 6% of the
portfolio is in quality codes 8 to 10 which are typically criticised (2021: 7%) and the final 3% in quality code 11 is in default (2021: 5%).
IFRS 9 Stage 1 and Stage 2 classification is not dependent solely on the absolute probability of default but includes perceived
significant increase in credit risk (SICR), including relative movement in IFRS 9 probability of default since initial recognition. There is
therefore no direct relationship between internal PD grades and IFRS 9 stage classification.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
99
RISK MANAGEMENT CONTINUED
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Asset class summary – key points:
• The residential mortgage portfolio has increased by € 0.9 billion in the year to € 30.3 billion driven by strong new lending. The
staging composition has improved in the year as ECL stock reduced from € 0.4 billion to € 0.3 billion resulting in ECL cover of 0.9%
(2021: 1.3%). There was a € 20 million net credit impairment writeback in the year (2021: € 80 million writeback).
• The other personal portfolio has remained unchanged in the year at € 2.7 billion. New lending activity throughout the year was
offset against repayments. Stage composition has improved slightly in the year and total ECL cover reduced to 6.5% (2021: 8.2%).
There was a net credit impairment charge of € 17 million for the year (2021: € 5 million writeback).
• The property and construction portfolio has increased by € 1.2 billion in the year to € 8.8 billion, due to new lending and the Ulster
Bank portfolio acquisition. The staging composition of the portfolio has improved in the year with the increase in Stage 1 also due
to the Ulster Bank portfolio acquisition. Total ECL cover has reduced by 0.6% to 3.7% (2021: 4.3%). There was a € 38 million net
credit impairment charge in the year (2021: € 72 million writeback).
• The non-property portfolio has increased by € 0.7 billion in the year to € 19.4 billion, due to new lending and the Ulster Bank
portfolio acquisition, however this was slightly offset by deleveraging activity following the Group’s decision to exit the SME market
in Great Britain. The staging composition of the portfolio has improved in the year as Stage 2 and Stage 3 loans have reduced by €
0.5 and € 0.3 billion respectively. Total ECL cover has reduced by 0.9% to 4.3% (2021: 5.2%). There was a € 30 million net credit
impairment writeback in the year (2021: € 76 million writeback).
Loans and advances to customers – Residential mortgages
Residential mortgages amounted to € 30.3 billion at 31 December
2022, with the majority (97%) relating to residential mortgages in
the Republic of Ireland and the remainder relating to the United
Kingdom. This compares to € 29.4 billion at 31 December 2021, of
which 96% related to residential mortgages in the Republic of
Ireland. The split of the residential mortgage portfolio was owner-
occupier € 28.9 billion and buy-to-let € 1.4 billion ( 2021: owner-
occupier € 27.6 billion and buy-to-let € 1.8 billion).
Income statement
There was a € 20 million net credit impairment writeback in the
year to 31 December 2022 compared to a € 80 million writeback
in 2021. This comprises a net remeasurement of ECL allowance
writeback of € 5 million and recoveries of previously written-off
loans of € 15 million.
in a € 43 million charge during the year. However, this charge
was offset by a € 22 million writeback relating to the NPE
resolution post model adjustment following the portfolio sale
which occurred during year and a further € 18 million writeback
was due to COVID-19 post model adjustment releases. Further
details on post model adjustments are outlined on pages 90 and
91.
At 31 December 2022, the ECL allowance for the Group’s
residential mortgage portfolio is 0.9% (2021: 1.3%). For the Stage
3 element of the Group’s residential mortgage portfolio, € 0.2
billion of ECLs are held providing cover of 31% (2021: € 0.3 billion
and 30% respectively).
Residential mortgages – page 101
• Residential mortgage portfolio at amortised cost by segment,
internal credit ratings and ECL staging
The key drivers of the net remeasurement of ECL allowance
writeback of € 5 million consist of the following components and
activity:
Republic of Ireland residential mortgages – pages 102 to 104
• By ECL staging
• An age profile of the Republic of Ireland residential mortgage
• € 5 million writeback driven by net migration from Stage 2 to
Stage 1 reflecting the underlying improved credit quality.
• € 5 million charge as a result of the updated macroeconomic
scenarios and weightings reflecting the higher downside risk.
• Post model adjustments resulted in a € 5 million writeback. In
order to reflect the current uncertain economic environment,
additional ECLs have been taken to address these increased
risks through the use of post model adjustments which resulted
portfolio by ECL 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
100
— 27,648
— 1,759
— 29,407
— 22,381
— 4,659
— 27,040
—
—
946
430
— 1,376
—
991
— 29,407
— 26,937
— 1,446
—
—
921
103
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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
31 December 2022 and 2021:
Retail
Banking
Capital
Markets
AIB UK
Group
2022*
Total
Retail
Banking
Capital
Markets
AIB UK
Group
Total
2021*
€ m
€ m
€ m
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
€ m
27,526
1,238
28,764
22,151
4,832
26,983
865
303
1,168
613
€ m
429
99
528
343
168
511
9
2
11
6
€ m
928
59
987
819
89
908
37
4
41
38
€ m
€ m
€ m
— 28,883
26,181
—
1,396
1,563
— 30,279
27,744
— 23,313
21,337
—
5,089
4,165
— 28,402
25,502
—
—
—
—
911
309
1,220
657
889
415
1,304
938
€ m
429
119
548
352
175
527
12
5
17
4
1,038
77
1,115
692
319
1,011
45
10
55
49
Gross carrying amount
28,764
528
987
— 30,279
27,744
548
1,115
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
26,976
1,107
594
87
496
924
— 28,396
25,393
511
1,033
26
6
—
25
38
—
—
—
—
1,158
1,380
638
87
868
103
33
4
—
33
49
—
28,764
528
987
— 30,279
27,744
548
1,115
— 29,407
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
40
37
191
9
277
%
0.1
3.3
32.3
10.6
€ m
(4)
(14)
(18)
%
—
—
1
—
1
%
—
—
12.8
—
€ m
—
—
—
%
—
1
4
—
5
%
—
0.9
10.1
—
€ m
(1)
(1)
(2)
%
—
—
—
—
—
%
—
—
—
—
€ m
—
—
—
%
40
38
196
9
283
%
0.1
3.2
30.8
10.6
€ m
(5)
(15)
(20)
34
40
270
31
375
%
0.1
2.9
31.1
29.9
€ m
(42)
(24)
(66)
—
1
—
—
1
%
—
1.8
—
—
€ m
(5)
—
(5)
—
—
6
—
6
%
—
—
10.9
—
€ m
(8)
(1)
(9)
%
%
%
%
—
—
—
—
—
%
—
—
—
—
€ m
—
—
—
%
34
41
276
31
382
%
0.1
2.8
29.9
29.9
€ m
(55)
(25)
(80)
%
Net credit impairment (writeback)/charge
on average loans
(0.07)
0.07
(0.18)
— (0.07)
(0.24)
(0.96)
(0.76)
— (0.27)
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
101
RISK MANAGEMENT CONTINUED
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
2022 and 2021:
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
Owner-
occupier
Buy-to-let
2022*
Total
€ m
€ m
€ m
Owner-
occupier
€ m
Buy-to-let
2021*
Total
€ m
€ m
27,955
1,337
29,292
26,610
1,682
28,292
26,321
1,024
526
84
1,151
27,472
109
74
3
1,133
600
87
24,572
1,226
714
98
1,332
187
158
5
25,904
1,413
872
103
27,955
1,337
29,292
26,610
1,682
28,292
39
35
172
8
254
1
2
20
1
24
40
37
192
9
278
32
35
203
28
298
2
6
67
3
78
34
41
270
31
376
Republic of Ireland residential mortgages at amortised cost
27,701
1,313
29,014
26,312
1,604
27,916
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
%
0.1
3.5
32.7
9.9
€ m
26
(10)
16
%
%
0.1
1.7
27.9
38.4
€ m
(30)
(4)
(34)
%
%
0.1
3.3
32.1
10.6
€ m
(4)
(14)
(18)
%
Net credit impairment (writeback)/charge on average loans
0.06
(2.25)
(0.06)
%
0.1
2.8
28.4
28.8
€ m
(37)
(16)
(53)
%
—
%
0.1
3.2
42.6
51.7
€ m
(10)
(8)
(18)
%
(0.01)
%
0.1
2.9
30.9
29.9
€ m
(47)
(24)
(71)
%
—
Residential mortgages in Ireland amounted to € 29.3 billion at
31 December 2022 compared to € 28.3 billion at 31 December
2021. The portfolio has increased by € 1.0 billion in the year. Total
drawdowns during the year were € 4.5 billion (2021: € 3.0 billion),
of which 99% were to owner-occupiers. The weighted average
indexed loan-to-value of the stock of residential mortgages at
31 December 2022 was 48% (2021: 50%) and Stage 3 residential
mortgages was 46% (2021: 54%).
The split of the Irish residential mortgage portfolio is 95% owner-
occupier and 5% buy-to-let and comprises € 17.6 billion (60%) on
fixed rate, € 6.8 billion (23%) on variable rate and € 4.9 billion
(17%) on tracker rate mortgages. (2021: € 11.3 billion (40%) on
fixed rate, € 10.9 billion (38%) on variable rate and € 6.1 billion
(22%) tracker rate mortgages).
Non-performing loans decreased from € 0.9 billion at
31 December 2021 to € 0.6 billion at 31 December 2022, primarily
due to the sale of a non-performing loan portfolio in long term
default which was completed during the year.
Forms an integral part of the audited financial statements
Residential mortgage arrears
Total loans in arrears (including non-performing loans) by value
decreased by 24% during the year, a decrease of 16% in the
owner-occupier portfolio and a decrease of 58% in the buy-to-let
portfolio. This was primarily due to the sale of a non-performing
loan portfolio. The number of loans in arrears (based on number
of accounts) greater than 90 days were 1.2% at 31 December
2022 and remains below the industry average of 5.0%(1). For the
owner-occupier portfolio, the number of loans in arrears greater
than 90 days at 1.1% were below the industry average of 4.3%(1).
For the buy-to-let portfolio, loans in arrears greater than 90 days
at 2.2% were below the industry average of 11.4%(1).
(1) Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and
Repossessions Statistics published 16 December 2022 based on number of
accounts as at 30 September 2022.
Forbearance
Irish residential mortgages subject to forbearance measures
decreased by € 0.5 billion from € 1.2 billion at 31 December 2021
to € 0.7 billion at 31 December 2022. The decrease in the
forbearance portfolio was also partially due to the sale of a non-
performing loan portfolio. Details of forbearance measures are set
out on pages 126 to 128.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
102
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis
Loans and advances to customers – Republic of Ireland residential mortgages continued
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 at 31 December
2022 and 2021:
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
Stage 1
€ m
25,889
1,527
22
31
Stage 2
€ m
1,100
20
6
6
27,469
1,132
3
1
27,472
1,133
24,760
1,514
20
25
995
18
5
5
26,319
1,023
2
1
26,321
1,024
565
21
6
4
596
4
600
504
13
6
2
525
1
526
81
1
—
—
82
5
87
80
1
—
—
81
3
84
2022*
At amortised cost
Overall
total
€ m
POCI
€ m
Stage 3
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
27,635
24,771
1,322
739
1,569
1,058
34
41
28
42
68
9
13
29,279
25,899
1,412
13
5
1
29,292
25,904
1,413
97
19
12
867
5
872
2021*
At amortised cost
Overall
total
€ m
POCI
€ m
86
10
—
—
96
7
26,918
1,233
56
67
28,274
18
103
28,292
26,339
23,460
1,158
632
1,546
1,052
31
32
24
35
56
4
8
27,948
24,571
1,226
7
1
—
27,955
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
The weighted average indexed loan-to-value of the stock of residential mortgages at 31 December 2022 was 48% (2021: 50%), new
residential mortgages issued during the year was 64% (2021: 67%) and Stage 3 residential mortgages was 46% (2021: 54%).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
103
RISK MANAGEMENT CONTINUED
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
2022 and 2021:
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
2022
At amortised cost
Total
€ m
POCI
€ m
Stage 3
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
Stage 1
€ m
27,464
Stage 2
€ m
1,075
8
—
—
—
—
—
37
12
9
—
—
—
292
14
6
9
30
56
193
27,472
1,133
(40)
(37)
27,432
1,096
600
(192)
408
26,315
974
6
—
—
—
—
—
32
10
8
—
—
—
26,321
1,024
248
12
6
8
29
53
170
526
79
1
—
—
1
2
4
87
(9)
78
77
1
—
—
1
1
4
28,910
25,897
1,363
440
60
18
18
31
58
197
7
—
—
—
—
—
27
18
5
—
—
—
29,292
25,904
1,413
(278)
(34)
(41)
29,014
25,870
1,372
10
13
7
36
65
301
872
(270)
602
27,614
24,568
1,182
365
51
16
16
30
54
174
4
—
—
—
—
—
22
17
5
—
—
—
84
27,955
24,572
1,226
9
12
7
34
56
231
714
2021
At amortised cost
Total
POCI
€ m
€ m
92
—
1
1
2
2
5
27,792
44
32
13
38
67
306
103
(31)
28,292
(376)
72
27,916
89
—
1
1
2
1
4
26,204
35
30
13
36
57
235
98
26,610
Allied Irish Banks, p.l.c. Annual Financial Report 2022
104
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021:
Retail
Banking
Capital
Markets
AIB UK
Group
2022*
Total
Retail
Banking
Capital
Markets
AIB UK
Group
€ m
6
57
63
€ m
24
67
91
€ m
0
0
0
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
Gross carrying amount
Analysed by ECL staging
Stage 1
Stage 2
Stage 3
POCI
Total
€ m
644
1,956
2,600
1,232
1,015
2,247
163
14
177
176
2,600
2,171
254
175
€ m
8
41
49
17
29
46
1
—
1
2
49
42
5
2
€ m
23
51
74
€ m
€ m
—
675
—
2,048
—
2,723
62
7
69
2
1
3
2
— 1,311
— 1,051
— 2,362
—
—
—
—
166
15
181
180
€ m
590
1,960
2,550
1,208
944
2,152
135
23
158
240
74
— 2,723
2,550
—
2,274
2,102
61
11
—
270
2
—
179
—
—
—
—
—
2,600
49
74
—
2,723
2,550
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
24
37
114
—
175
%
1.1
14.4
65.2
—
€ m
22
(5)
17
%
—
—
1
—
1
%
—
—
—
—
1
—
1
%
—
—
24.9
—
52.5
—
—
—
—
—
—
%
—
—
—
—
€ m
€ m
€ m
—
—
—
%
—
—
—
%
—
—
—
%
—
24
37
116
—
177
%
1.1
13.6
64.6
—
€ m
22
(5)
17
%
Net credit impairment (writeback)/charge
on average loans
0.68
(1.16)
0.60
*Forms an integral part of the audited financial statements
69
16
85
2
—
2
4
91
82
5
4
0
91
—
—
2
—
2
%
—
—
42.1
—
16
42
58
2
—
2
3
63
54
6
3
0
63
—
—
1
—
1
%
—
—
21.7
—
€ m
(2)
—
(2)
208
240
0
30
33
156
—
219
%
1.4
16.0
65.1
—
€ m
12
(15)
(3)
€ m
€ m
—
—
—
%
—
—
—
%
%
%
0.65
(0.10)
(3.13)
(0.16)
— (0.16)
2021*
Total
€ m
620
2,084
2,704
— 1,293
— 1,002
— 2,295
—
—
—
—
139
23
162
247
— 2,704
0
0
0
0
0
—
—
—
—
—
%
—
—
—
—
2,238
219
247
0
2,704
30
33
159
—
222
%
1.3
15.4
64.2
—
€ m
10
(15)
(5)
%
Allied Irish Banks, p.l.c. Annual Financial Report 2022
105
RISK MANAGEMENT CONTINUED
2.1 Credit risk – Credit profile of the loan portfolio –
Asset class analysis
Loans and advances to customers – Other personal
continued
At 31 December 2022, the other personal lending portfolio of € 2.7
billion comprises € 2.0 billion in loans and overdrafts and € 0.7
billion in credit card facilities (2021: € 2.7 billion, € 2.1 billion and
€ 0.6 billion respectively). Credit quality of the portfolio improved
slightly throughout the year, with 13% categorised as less than
satisfactory, of which defaulted loans amounted to € 0.2 billion
(2021: 15% and € 0.2 billion).
New lending totalled € 1.0 billion for the year to 31 December
2022 (2021: € 0.9 billion), however this was largely offset by
redemptions/repayments.
Stage 3 loans, predominately in Retail Banking decreased by € 68
million in the year. At 31 December 2022, the ECL allowance
cover was 7% with Stage 3 cover at 65% (2021: 8% and 64%
respectively).
Income statement
There was a net credit impairment charge of € 17 million to the
income statement for the year to 31 December 2022 compared to
a € 5 million net credit impairment writeback in 2021. This
comprises a net remeasurement of ECL allowance charge of € 22
million and recoveries of previously written-off loans of € 5 million.
The key drivers of the net remeasurement of ECL allowance
charge of € 22 million consist of the following components and
activity:
• There was a € 48 million charge driven predominately by
€ 40 million downward net stage migration.
• The impact of the updated macroeconomic scenarios and
weightings resulted in a € 8 million writeback.
• Post model adjustments resulted in a € 18 million writeback. In
order to reflect the current uncertain economic environment,
additional ECLs have been taken to address these increased
risks through the use of post model adjustments which resulted
in a € 11 million charge during the year. However, this charge
was offset by a € 21 million writeback relating to the NPE
resolution post model adjustment following the portfolio sale
which occurred during year and a further € 9 million writeback
was due to COVID-19 post model adjustment releases. Further
details on post model adjustments are outlined on pages 90 to
91.
The ECL allowance for the portfolio totalled € 0.2 billion providing
ECL allowance cover of 7%. For the Stage 3 portfolio, the ECL
allowance cover is 65%. (2021: € 0.2 billion, 8% and 64%
respectively).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
106
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021:
Retail
Banking
Capital
Markets
AIB UK
Group
2022*
Total
Retail
Banking
Capital
Markets
AIB UK
Group
2021*
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Gross carrying amount
Investment:
Commercial investment
Residential investment
Total investment
Land and development:
Commercial development
Residential development
Total land and 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
184
46
230
56
26
82
140
—
452
117
180
297
33
30
63
92
452
284
76
92
—
452
1
6
30
—
37
%
0.4
7.5
32.7
—
3,375
1,775
5,150
209
586
795
88
133
6,166
4,866
816
5,682
57
196
253
231
6,166
4,828
1,107
231
—
6,166
65
103
60
—
228
%
1.3
9.3
26.1
—
653
679
1,332
53
147
200
51
416
1,999
1,142
719
1,861
22
33
55
83
1,999
1,708
208
83
—
1,999
18
8
29
—
55
%
1.0
4.1
35.2
—
Income statement
Net remeasurement of ECL allowance
Recoveries of amounts previously written-off
€ m
(53)
(10)
€ m
77
€ m
€ m
26
—
(2) —
—
Net credit impairment (writeback)/charge
(63)
75
26
—
Net credit impairment (writeback)/charge
on average loans
(11.42)
1.37
1.31
%
%
%
%
—
*Forms an integral part of the audited financial statements
— 4,212
— 2,500
— 6,712
318
—
—
759
— 1,077
279
—
—
549
— 8,617
— 6,125
— 1,715
— 7,840
112
—
259
—
371
—
—
406
— 8,617
— 6,820
— 1,391
406
—
—
—
— 8,617
—
—
—
—
—
%
—
—
—
—
84
117
119
—
320
%
1.2
8.5
29.4
—
€ m
50
(12)
38
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
3,631
377
606
983
78
108
4,800
3,187
994
4,181
98
246
344
275
4,800
3,358
1,167
275
—
4,800
33
77
39
—
149
%
1.0
6.6
14.4
—
€ m
(52)
0
(52)
614
676
1,290
34
124
158
115
361
1,924
1,061
667
1,728
45
25
70
126
1,924
1,676
122
126
—
1,924
12
4
26
—
42
%
0.7
3.8
20.7
—
€ m
(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
—
—
—
—
—
%
—
—
—
—
€ m
0
0
0
%
50
91
172
—
313
%
0.9
6.6
27.5
—
€ m
(53)
(19)
(72)
%
%
%
%
%
0.48
(2.31)
(1.14)
(0.27)
— (1.00)
Allied Irish Banks, p.l.c. Annual Financial Report 2022
107
RISK MANAGEMENT CONTINUED
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 € 8.6 billion in
loans and advances to customers measured at amortised cost
together with € 0.2 billion of loans measured at FVTPL (total €
8.8 billion).
The portfolio measured at amortised cost amounted to 14% of
loans and advances to customers and comprised of 78%
investment loans (€ 6.7 billion), 12% land and development loans
(€ 1.1 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 72% and 23%
respectively.
The portfolio measured at amortised cost increased by
€ 1.2 billion in the year as new lending of € 2.7 billion (2021:
€ 1.8 billion) was partially offset by redemptions/repayments net of
interest credited of € 1.9 billion and disposals of € 0.2 billion.
Increase in new lending was predominately in the Capital Markets
segment which increased by € 0.7 billion in the year. A further
€ 0.9 billion increase was due to the Ulster Bank portfolio
acquisition. At 31 December 2022, € 7.8 billion of the portfolio was
in a strong/satisfactory grade, which is an increase of € 1.6 billion
in the year. The level of non-performing loans have reduced by
€ 0.2 billion in the year to € 0.4 billion.
Property and construction loans measured at FVTPL remained
stable at € 226 million (2021: € 243 million).
Income statement
There was a net credit impairment charge of € 38 million to the
income statement in the year to 31 December 2022 compared to
a € 72 million writeback in 2021. This comprises a net
remeasurement of ECL allowance charge of € 50 million and
recoveries of previously written-off loans of € 12 million.
The key drivers of the net remeasurement of ECL allowance
charge of € 50 million consist of the following components and
activity:
• Credit quality remained relatively stable during the year as a
€ 24 million charge due to net stage movements was offset by a
€ 25 million writeback due to net remeasurements within stage.
New loans originating resulted in a € 23 million charge, however
this was also offset by a € 22 million writeback on loans fully
repaid.
• Post model adjustments resulted in a € 78 million charge. In
order to reflect the current uncertain economic environment,
additional ECLs have been taken to address these increased
risks through the use of post model adjustments which resulted
in a € 64 million charge during the year. In AIB UK, there was
also an additional € 20 million charge through the use of post
model adjustments driven by the macro economic adjustment to
reflect a greater impact within the downside scenarios than that
currently observed and to align the ECL outcome to alternative
NPE resolution strategies. Further details on post model
adjustments are outlined on pages 90 and 91.
• The impact of the updated macroeconomic scenarios and
weightings resulted in a € 28 million writeback.
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 29% (2021: € 0.3 billion, 4% and 28%
respectively).
Investment
Investment property loans amounted to € 6.7 billion at 31
December 2022 (2021: € 5.3 billion) of which € 4.2 billion related
to commercial investment. The geographic profile of the
investment property portfolio is predominately in the Republic of
Ireland (€ 4.8 billion) and the United Kingdom (€ 1.4 billion).
Commercial Investment in the retail sector, including shopping
centres, were adversely impacted by COVID-19 and recovery has
been slow due to inflationary pressures on costs, with 44% of the
Group’s € 1.0 billion exposure to this sector now designated Stage
1. Other commercial investment loans have a stronger asset
quality profile with 77% of the Group’s € 3.2 billion exposure in
Stage 1.
At 31 December 2022, there was a net credit impairment charge
of € 57 million to the income statement on the investment property
element of the property and construction portfolio (2021: € 78
million writeback).
Land and development
Land and development loans amounted to € 1.1 billion at 31
December 2022 (2021: € 1.3 billion) of which € 0.8 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.
Lending activity in 2022 was aligned to market trends with private
rented sector, office and social housing sub sectors accounting for
the majority of new lending. Property development exposures
remained focused on the residential sector where the imbalance
between supply and demand persists. The outlook for the property
and construction portfolio is challenging with inflationary
pressures, interest rate movements and geopolitical events
impacting on market activity and confirming the need for additional
vigilance in monitoring at both a portfolio and individual
transaction level.
The income statement net credit impairment writeback for the year
was € 18 million (2021: € 5 million charge).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
108
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021:
Retail
Banking
Capital
Markets
AIB UK
Group
2022*
Total
AIB UK
Group
2021*
Total
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
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
Net credit impairment (writeback)/
charge on average loans
*Forms an integral part of the audited financial statements
€ m
1,191
21
166
€ m
398
1,395
2,509
109
134
431
89
763
197
10
678
1,164
116
1,185
190
2,655
1,885
356
2,979
3,026 12,177
7,587
794
1,627
3,010
2,421 10,597
429
980
1,409
171
3,026 12,177
180
84
264
341
2,374
312
340
—
9,951
2,055
171
—
3,026 12,177
23
32
133
—
188
%
1.0
10.3
39.1
—
€ m
(66)
(9)
(75)
67
337
71
—
475
%
0.7
16.4
41.5
—
€ m
19
(1)
18
€ m
67
1,398
189
431
43
160
86
720
550
96
1,125
4,145
2,740
633
3,373
142
367
509
263
4,145
3,032
850
263
—
4,145
25
85
65
—
175
%
0.8
10.0
24.7
—
€ m
30
(3)
27
%
%
%
Retail
Banking
Capital
Markets
€ m
1,232
21
185
€ m
351
996
2,109
146
179
474
93
892
212
14
669
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
3,225 10,351
€ m
€ m
— 1,656
— 2,814
— 2,864
— 1,704
—
293
— 1,776
—
365
— 4,138
— 2,632
15
477
— 4,782
15 19,363
— 11,121
15
5,285
15 16,406
—
751
— 1,431
— 2,182
—
775
15 19,363
15 15,372
— 3,217
774
—
—
—
15 19,363
2,328
398
499
—
8,062
2,155
134
—
3,225 10,351
115
454
269
—
838
%
0.7
14.1
34.8
—
€ m
(17)
(13)
(30)
51
55
189
—
295
%
2.2
13.9
37.9
—
€ m
12
(12)
—
46
387
35
—
468
%
0.6
18.0
26.2
—
€ m
(72)
(2)
(74)
—
—
—
—
—
%
—
—
—
—
€ m
—
—
—
%
€ 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
5,090
3,470
1,164
456
—
5,090
25
93
87
—
205
%
0.7
7.9
19.2
—
€ m
—
(2)
(2)
€ m
€ m
— 1,677
— 2,214
— 2,542
— 2,088
—
422
— 1,747
—
428
— 4,685
— 2,209
13
521
— 4,831
13 18,679
— 9,385
13
5,711
13 15,096
—
848
— 1,645
— 2,493
— 1,090
13 18,679
13 13,873
— 3,717
— 1,089
—
—
13 18,679
—
—
—
—
—
%
—
—
—
—
€ m
—
—
—
%
122
535
311
—
968
%
0.9
14.4
28.6
—
€ m
(60)
(16)
(76)
%
(2.42)
0.16
0.58
— (0.16)
— (0.72)
(0.04)
— (0.40)
%
%
%
%
Allied Irish Banks, p.l.c. Annual Financial Report 2022
109
RISK MANAGEMENT CONTINUED
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 (52%) with the UK (26%) and USA (11%) being the
other main geographic concentrations.
The portfolio increased by € 0.7 billion to € 19.4 billion in the year
to 31 December 2022 (2021: € 18.7 billion). New lending
accounted for € 4.3 billion (2021: € 4.5 billion) with a further
€ 1.2 billion increase due to the Ulster Bank portfolio acquisition
which is spread across the majority of sub-sectors. Redemptions/
repayments net of interest credited accounted for € 4.3 billion and
portfolio disposals resulted in a further reduction of € 0.4 billion.
The non-property business portfolio amounted to 32% of total
Group loans and advances to customers in the year (2021: 32%).
The impact of COVID-19 on the asset quality of the portfolio has
eased with the timing of recovery dependent on sector specific
dynamics focused around inflationary pressure on costs. Loans
graded as strong/satisfactory improved in the year to 31
December 2022 at 85% (2021: 81%). The value of loans graded
less than satisfactory (including defaulted loans) decreased from
€ 3.6 billion at 31 December 2021 to € 3.0 billion at 31 December
2022. The performing forborne portfolio, seen in the criticised
recovery category, decreased by € 0.2 billion to € 1.4 billion in the
year (2021: € 1.6 billion).
Additional disclosures on the non-property business portfolio are
outlined on page 112.
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. Overall, the sector has benefited from rising
commodity prices. Strong output prices have offset rising feed/
fertiliser/fuel costs in most sub-sectors and farm input costs are
expected to remain elevated in 2023. This, together with
sustainability and associated emissions reduction targets will be
key challenges facing the sector in 2023;
• The energy sub-sector comprises 14% of the portfolio at
€ 2.8 billion. This sub-sector continues to be a strong focus of
growth for the Group which reflects the increase of € 0.6 billion
in the year. This was driven by new lending to renewable energy
initiatives (wind and solar). The sector has proven resilient,
benefiting from higher prices and inflation adjustment
mechanisms;
• The manufacturing sub-sector comprises 15% of the portfolio at
€ 2.9 billion. Performance was stable as many operators
successfully passed through cost increases or mitigated
inflationary pressures through operational efficiencies. However
business conditions have weakened in the sector as growth and
new business have slowed down in the last quarter of 2022;
• The hotels sub-sector comprises 9% of the portfolio at
€ 1.7 billion. The sector performed strongly on a ‘Revenue per
Available Room’ basis owing to the release of pent-up demand,
a strong events calendar, pass-through of rising costs and
reduced supply as rooms are utilised for emergency refugee
accommodation. The outlook is however challenging owing to
ongoing operational cost inflation (energy, staffing, food and
beverage), potential recessionary impact on disposable income
and staff availability. Long-term industry dynamics, including
return of corporate travel, are uncertain;
• The licensed premises sub-sector comprises 1% of the portfolio
at € 0.3 billion. Already in decline, this sector was severely
negatively impacted by Government measures to contain
COVID-19. Trade has recovered albeit not to the same extent
as accommodation and regional differences are evident (e.g.
urban versus rural) while facing similar challenges in the hotels
sub-sector (inflation, staffing, consumer sentiment);
• The retail/wholesale sub-sector comprises 9% of the portfolio at
€ 1.8 billion. Grocery retail/wholesalers continue to trade well
with many businesses experiencing increases in profitability
despite increased costs which are being passed through.
Outlook is more challenging for cyclical high discretionary retail
which faces challenges including inflation and associated
interest rate increases/impact on disposable incomes and
continued shift in industry dynamics including the transition of
‘bricks and mortar’ to online;
• The transport sub-sector comprises 14% of the portfolio at
€ 2.6 billion and consists primarily of logistic, storage and travel
businesses. Cost challenges remain due to border/custom
delays, fuel costs, labour (cost and availability) and upgrading to
greener fleets. Larger haulage operators benefit from fuel
surcharge agreements allowing the efficient pass through of
price increases. Demand for logistics and warehousing remains
strong following increased online retail purchasing during
COVID-19 albeit light and heat cost is a key consideration. The
travel sector has rebounded but challenges remain due to
inflation and potential recessionary impacts on disposable
income;
• The financial sub-sector comprises 2% of the portfolio at
€ 0.5 billion. This sub-sector is proving resilient; and
• The other services sub-sector comprises 25% of the portfolio
a € 4.8 billion, which includes businesses such as solicitors,
accounting, audit, tax, computer services, research and
development, consultancy, hospitals and nursing homes.
Overall, performance within this sub-sector will have been more
adversely affected by inflationary pressures.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
110
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 € 30 million to the
income statement in the year to 31 December 2022 compared to
a € 76 million writeback in 2021. This comprises a net
remeasurement of ECL allowance writeback of € 17 million and
recoveries of previously written-off loans of € 13 million.
The key drivers of the net remeasurement of ECL allowance
writeback of € 17 million consist of the following components and
activity:
• Credit quality remained stable as a € 39 million writeback was
largely due to full repayments of € 64 million which was partially
offset by an ECL charge of € 29 million on new loans.
• Post model adjustments resulted in a € 22 million charge. In
order to reflect the current uncertain economic environment,
additional ECLs have been taken to address these increased
risks through the use of post model adjustments which resulted
in a € 42 million charge during the year. This was offset by an
€ 82 million writeback due to the release of COVID-19 post
model adjustments. There was also a € 13 million charge
relating to the NPE resolution post model adjustment. In AIB UK,
there was a further € 56 million charge relating to post model
adjustments driven by the macro economic adjustment to reflect
a greater impact within the downside scenarios than that
currently observed and to align the ECL outcome to alternative
NPE resolution strategies. Further details on post model
adjustments are outlined on pages 90 and 91.
The ECL allowance for the portfolio totalled € 0.8 billion providing
ECL allowance cover of 4%. For the Stage 3 portfolio, the ECL
allowance cover is 35% (2021: € 1.0 billion, 5% and 29%
respectively).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
111
RISK MANAGEMENT CONTINUED
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 2022 and 2021. 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
Gross
carrying
amount
Analysed by ECL stage profile
Stage 1
Stage 2
Stage 3
2022
ECL
allowance
€ m
1,355
2,626
1,839
263
86
1,284
188
1,821
1,814
220
3,279
12,954
2,418
15,372
€ m
228
144
134
1,137
114
213
23
1,487
235
3
437
2,668
549
3,217
€ m
67
29
67
221
93
77
15
406
28
1
140
738
36
774
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
10,969
2,904
13,873
€ m
188
139
264
1,524
199
184
40
1,947
271
14
497
3,320
397
3,717
€ m
87
2
56
362
140
146
25
673
43
4
210
1,075
14
1,089
€ m
1,650
2,799
2,040
1,621
293
1,574
226
3,714
2,077
224
3,856
16,360
3,003
19,363
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
3,315
18,679
€ m
10
14
12
14
1
10
1
26
8
2
24
96
19
115
€ m
18
19
16
158
22
24
3
207
22
—
45
327
127
454
€ m
24
23
24
40
31
33
7
111
19
—
55
256
13
269
€ m
52
56
52
212
54
67
11
344
49
2
124
679
159
838
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
122
€ 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
The Syndicated & International Finance (“SIF”) business unit,
which is a specialised lending unit within Capital Markets, is
involved in participating in the provision of finance to US and
European corporations for mergers, acquisitions, buy-outs and
general corporate purposes. The SIF non-property portfolio has
reduced by € 0.3 billion to € 3.0 billion at 31 December 2022
(2021: € 3.3 billion).
borrowers with EBITDA > € 250 million. Exposures are well
diversified by name and sector with the top 20 borrowers
accounting for 28% of total exposure. 62% of the borrowers in this
portfolio are domiciled in the USA, 4% in the UK, and 34% in the
Rest of the World (primarily Europe) (2021: 63% in the USA, 3%
in the UK and 34% in the Rest of the World (primarily Europe)
respectively).
At 31 December 2022, 94% of the SIF lending portfolio is in a
strong/satisfactory grade (2021: 94%). 86% of the SIF portfolio is
rated by S&P, with 66% rated B+ or above, 16% rated B and 4%
rated B- or below. The majority of the loans (74%) are to large
The SIF portfolio had a net credit impairment charge to the
income statement in 2022 of € 32 million (2021: € 12 million
writeback).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
112
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021:
Gross exposures to customers
Gross carrying amount
Analysed by stage profile
2022
At amortised cost At FVTPL
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.
Loans and
advances
to
customers
Loan
commitments
and financial
guarantees
issued
Total
Stage 1 Stage 2 Stage 3
POCI
Total
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
1,656
2,814
2,864
4,138
2,632
477
4,782
8,617
30,279
2,723
60,982
48,061
8,087
2,116
2,718
60,982
2,324
668
4,482
1,668
4,803
1,939
5,718
1,580
3,546
914
1,049
572
2,103
6,885
2,384 11,001
1,168 31,447
5,589
2,866
15,862 76,844
11,971 60,032
2,976 11,063
2,491
3,258
375
540
1,975
4,240
4,318
3,378
3,196
972
6,049
9,056
29,553
4,810
67,547
53,343
9,322
2,158
2,724
15,862 76,844
67,547
270
213
397
1,908
310
76
679
1,509
1,161
591
7,114
5,125
1,339
312
338
7,114
79
29
88
432
40
1
157
436
646
188
2,096
1,477
402
21
196
2,096
— 2,324
— 4,482
— 4,803
— 5,718
— 3,546
— 1,049
— 6,885
— 11,001
87 31,447
— 5,589
87 76,844
87 60,032
— 11,063
— 2,491
— 3,258
87 76,844
—
9
—
14
—
—
—
226
—
—
249
249
—
—
—
249
Gross carrying amount
2022
At amortised cost
Analysed by stage profile
Loans and
advances
to
customers
Loan
commitments
and financial
guarantees
issued
Total
Stage 1 Stage 2 Stage 3
POCI
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
54
56
89
398
65
31
145
320
283
177
1,618
1,159
250
64
145
1,618
3
8
11
14
1
—
10
23
—
8
78
64
11
3
—
78
57
64
100
412
66
31
155
343
283
185
1,696
1,223
261
67
145
1,696
11
16
23
30
12
3
33
90
40
26
284
204
51
13
16
284
20
25
49
269
30
28
63
121
37
43
685
442
111
47
85
685
26
23
28
113
24
—
59
132
197
116
718
568
99
7
44
718
—
—
—
—
—
—
—
—
9
—
9
9
—
—
—
9
57
64
100
412
66
31
155
343
283
185
1,696
1,223
261
67
145
1,696
Allied Irish Banks, p.l.c. Annual Financial Report 2022
113
RISK MANAGEMENT CONTINUED
2.1 Credit risk – Credit profile of the loan portfolio
Gross exposures to customers
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.
Gross carrying amount
At amortised cost
Analysed by stage profile
2021
At FVTPL
Loans and
advances
to
customers
Loan
commitments
and financial
guarantees
issued
Total
Stage 1 Stage 2 Stage 3
POCI
Total
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ 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
58,150
2,291
614
3,314
1,100
4,275
1,733
5,993
1,308
2,841
632
1,025
504
7,020
2,189
2,365
9,725
1,245 30,652
5,560
2,856
14,546 72,696
11,306 55,889
11,177
2,572
2,414
182
3,216
486
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
14,546 72,696
61,961
223
146
387
2,404
347
65
686
1,483
1,452
393
7,586
5,556
1,486
206
338
7,586
98
38
67
709
46
3
226
671
930
258
3,046
2,141
698
12
195
3,046
— 2,291
— 3,314
— 4,275
— 5,993
— 2,841
— 1,025
— 7,020
— 9,725
103 30,652
— 5,560
103 72,696
103 55,889
— 11,177
— 2,414
— 3,216
103 72,696
—
—
—
—
—
—
—
243
—
—
243
243
—
—
—
243
Gross carrying amount
2021
At amortised cost
Analysed by stage profile
Loans and
advances
to
customers
Loan
commitments
and financial
guarantees
issued
Total
Stage 1 Stage 2 Stage 3
POCI
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
59
32
53
557
67
25
175
313
382
222
1,885
1,471
266
50
98
1,885
4
1
9
20
3
2
13
20
—
7
79
62
13
3
1
79
63
33
62
577
70
27
188
333
382
229
1,964
1,533
279
53
99
1,964
10
13
17
40
11
5
41
53
35
32
257
182
44
19
12
257
15
18
27
388
34
20
62
93
41
38
736
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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
114
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Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021.
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
61-90 days
€ m
91-180 days 181-365 days
€ m
€ m
> 365 days
€ m
9
18
8
61
1
—
14
64
67
39
281
85
128
67
1
281
129
13
139
—
281
3
—
2
6
—
—
4
14
19
12
60
—
39
21
—
60
39
2
19
—
60
1
—
1
2
—
—
3
18
20
7
52
—
19
33
—
52
35
—
17
—
52
2
—
1
13
—
—
7
19
33
21
96
—
—
96
—
96
72
18
6
—
96
4
1
3
40
3
—
12
45
60
30
198
—
—
197
1
198
144
9
45
—
198
15
—
6
60
6
1
28
53
209
88
466
—
—
461
5
466
408
21
37
—
466
As a percentage of total gross
loans at amortised cost
%
0.46
%
0.10
%
0.09
%
0.16
%
0.32
%
0.76
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 2022 and 2021.
2022
Total
€ m
34
19
21
182
10
1
68
213
408
197
1,15
3
85
186
875
7
1,15
3
827
63
263
—
1,15
3
%
1.89
Allied Irish Banks, p.l.c. Annual Financial Report 2022
115
RISK MANAGEMENT CONTINUED
2.1 Credit risk – Credit profile of the loan portfolio
Aged analysis of contractually past due loans and advances to customers continued
At amortised cost
Industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total gross carrying amount
ECL staging
Stage 1
Stage 2
Stage 3
POCI
Segment
Retail Banking
AIB Capital Markets
AIB UK
Group
1-30 days
31-60 days
61-90 days
91-180 days
181-365 days
> 365 days
€ m
€ m
€ m
€ m
€ m
€ 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
1
—
—
13
1
—
1
4
14
9
43
—
15
27
1
43
35
—
8
—
43
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
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
As a percentage of total gross
loans at amortised cost
%
0.35
%
0.15
%
0.07
At 31 December 2022, total loans past due reduced by € 0.3
billion to € 1.2 billion or 1.9% of total loans and advances to
customers (2021: € 1.5 billion or 2.6%).
The reduction in the total loans past due portfolio was in the >365
days category and predominately in the non-property business
and residential mortgage portfolios as both reduced by € 0.1
billion as a result of non-performing portfolio sales completed
during the year.
Residential Mortgage loans past due at 31 December 2022
represent the largest concentration amounting to € 0.4 billion or
35% of total loans past due (2021: € 0.5 billion or 35%).
Non-property business loans which were past due represent 29%
or € 0.4 billion (2021: 31% or € 0.5 billion), with property and
construction at 19% or € 0.2 billion (2021: 18% or € 0.3 billion),
and other personal at 17% or € 0.2 billion (2021: 16% or € 0.2
billion).
All loans past due by 90 days or more on any material obligation
are considered non-performing/defaulted.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
116
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Risk Management
Financial Statements
General Information
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 2022 and 2021:
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
—
—
0.1
3.6
3.0
0.1
16.1
19.2
19.7
32.1
93.9
73.5
20.4
—
93.9
2022
Recoveries of
amounts previously
written-off
€ m
1.5
—
1.1
6.0
0.4
0.1
3.9
12.2
14.6
5.0
44.8
39.7
4.1
1.0
44.8
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
The contractual amount outstanding of loans written-off during the year that are subject to enforcement activity amounted to € 8 million
(2021: € 5 million) which includes both full and partial write-offs. Total cumulative non-contracted loans written-off at 31 December 2022
has reduced to € 261 million following the non-performing loan portfolio sales completed during the year (2021: € 1,082 million).*
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
117
RISK MANAGEMENT CONTINUED
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 2022 and 31 December 2022 and the corresponding movements between 1 January 2021 and 31
December 2021.
Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed
on pages 80 and 81) 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
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 (2)
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
Stage 1
€ m
48,394
(3,599)
2,317
(91)
39
14,594
(10,071)
1,566
—
(151)
(212)
—
76
Stage 2
€ m
6,768
3,599
(2,317)
(623)
301
—
(1,768)
202
—
(109)
(69)
—
52
Stage 3
€ m
2,885
—
—
714
(340)
—
(657)
71
(94)
(541)
(25)
—
(16)
52,862
6,036
1,997
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
48,394
6,768
Stage 3
€ m
4,075
—
—
1,028
(390)
—
(751)
69
(104)
(988)
45
—
(99)
2,885
POCI
€ m
103
—
—
—
—
—
2022*
Total
€ m
58,150
—
—
—
—
14,594
(12)
(12,508)
2
—
(6)
—
—
—
87
POCI
€ m
184
—
—
—
—
—
(16)
4
(1)
(72)
—
—
4
1,841
(94)
(807)
(306)
—
112
60,982
2021*
Total
€ m
59,276
—
—
—
—
10,460
(12,481)
1,676
(105)
(1,493)
856
—
(39)
103
58,150
(1) Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.
(2) Includes € 2.1 billion of loans acquired from Ulster Bank.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
118
Annual Review
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Risk Management
Financial Statements
General Information
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(1)
Write-offs
Derecognised due to disposals
Exchange translation adjustments
Other movements
At 31 December
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
236
(40)
30
(3)
3
31
66
(26)
21
(59)
23
—
(1)
(1)
6
263
700
146
(102)
(71)
39
(16)
—
(67)
20
22
(29)
—
(7)
(5)
(13)
646
918
—
—
126
(91)
(16)
—
—
48
6
73
(94)
(202)
(7)
12
700
31
—
—
—
—
(5)
—
—
(12)
—
(17)
—
—
—
(5)
9
2022*
Total
€ m
1,885
106
(72)
52
(49)
(6)
66
(93)
77
(31)
50
(94)
(210)
(13)
—
1,618
(1) Net credit impairment charge of € 50 million includes the impact of the Ulster Bank portfolio acquired during the year which resulted in a net charge of € 39
million.
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
Other movements
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
—
—
213
(73)
(153)
—
—
99
(33)
53
(104)
(357)
11
—
918
POCI
€ m
69
—
—
—
—
—
—
—
(13)
—
(13)
(1)
(24)
—
—
31
2021*
Total
€ m
2,510
143
(107)
81
(38)
(234)
62
(68)
135
(132)
(158)
(105)
(393)
31
—
1,885
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
119
RISK MANAGEMENT CONTINUED
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans and ECL movements continued
Total exposures to which an ECL applies increased during the
year by € 2.8 billion from € 58.2 billion at 1 January 2022 to € 61.0
billion at 31 December 2022.
Model and overlay changes resulted in an ECL charge of € 77
million and further detail on the changes is outlined within the
management judgements section on pages 90 and 91. These
ensure exposures subject to risk, which are not adequately
reflected in the modelled outcomes retain an appropriate ECL.
The updated macroeconomic scenarios and weightings resulted in
a release of € 31 million. This ECL movement is presented
separately within ‘Impact of credit or economic risk parameters’.
This release was most significant within the property and
construction portfolio accounting for a release of € 28 million
within the portfolio. This was driven by an improvement in
macroeconomic forecasts in particular lower forecast
unemployment and is offset by an ECL charge resulting from
overlay changes.
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 charge of € 4 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 gross loan transfers from Stage 1 to Stage 2 of € 3.6 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. 47% 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) with 4% caused
solely by the backstop of 30 days past due. Of the € 3.6 billion
which transferred from Stage 1 to Stage 2 in the year
approximately € 2.3 billion is reported as Stage 2 at 31 December
2022.
Where a movement to Stage 2 is triggered by multiple drivers
simultaneously these are reported in the following order:
quantitative; qualitative; backstop.
Similarly, transfers from Stage 2 to Stage 1 of € 2.3 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 € 0.6 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 € 0.2 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 € 4.5 billion in the year to € 52.9 billion
with an ECL of € 0.3 billion and resulting cover of 0.5% (2021:
0.5%).
Stage 2 loans decreased by € 0.8 billion in the year to € 6.0 billion
with an ECL of € 0.6 billion and resulting cover of 10.7% (2021:
10.3%). This was primarily driven by repayments of loans during
the year.
Stage 3 exposures decreased by € 0.9 billion in the year to € 2.0
billion with the ECL cover increasing from 31.8% to 35.1%. The
decrease was primarily due to the sales of non-performing loan
portfolios completed during the year.
Further details on stage movements by asset class are set out in
the following tables:
Allied Irish Banks, p.l.c. Annual Financial Report 2022
120
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans(1) and ECL movements continued
The following tables set out the movements in the gross carrying amount and ECL allowance for loans and advances to customers by asset class and ECL staging for the year to
31 December 2022 and 2021:
Gross carrying amount movements – Asset class
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
Stage 1
€ m
26,937
(1,120)
1,195
(33)
12
4,660
(3,917)
674
—
(1)
(52)
—
41
28,396
Stage 2
€ m
1,446
1,120
(1,195)
(197)
181
—
(225)
27
—
(8)
(2)
—
11
1,158
Residential mortgages
Total
POCI
€ m
€ m
29,407
103
—
—
—
—
—
—
—
—
4,660
—
(4,287)
(12)
721
2
—
(20)
(194)
(6)
(56)
—
—
—
—
48
30,279
87
Stage 3
€ m
921
—
—
230
(193)
—
(133)
18
(20)
(179)
(2)
—
(4)
638
Stage 1
€ m
2,238
(377)
173
(12)
1
974
(915)
152
—
(2)
(4)
—
46
2,274
Stage 2
€ m
219
377
(173)
(87)
17
—
(98)
23
—
—
(1)
—
(7)
270
Other personal
Total
€ m
2,704
—
—
—
—
974
(1,068)
183
(32)
(75)
(5)
—
42
2,723
Stage 3
€ m
247
—
—
99
(18)
—
(55)
8
(32)
(73)
—
—
3
179
Stage 1
€ m
5,346
(680)
311
(7)
10
3,409
(1,653)
211
—
(37)
(91)
—
1
6,820
Stage 2
€ m
1,386
680
(311)
(76)
30
—
(376)
38
—
(10)
(10)
—
40
1,391
Property and construction
Stage 1
Total
POCI
€ m
€ m
€ m
13,873
— 7,360
— (1,422)
—
638
—
—
(39)
—
—
16
—
—
5,551
— 3,409
(3,586)
— (2,193)
529
265
—
—
(19)
—
(111)
(143)
—
(65)
(106)
—
—
—
—
(12)
—
44
15,372
— 8,617
Stage 3
€ m
628
—
—
83
(40)
—
(164)
16
(19)
(96)
(5)
—
3
406
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
Stage 1
€ m
26,535
(1,173)
1,493
(34)
11
3,136
(3,749)
655
—
—
67
(1)
(3)
26,937
Stage 2
€ m
1,950
1,173
(1,493)
(191)
170
—
(233)
32
—
(3)
3
1
37
1,446
Residential mortgages
Total
€ m
30,649
—
—
—
—
3,136
(4,167)
710
(44)
(1,000)
76
—
47
29,407
POCI
€ m
184
—
—
—
—
—
(16)
4
(1)
(72)
—
—
4
103
Stage 3
€ m
1,980
—
—
225
(181)
—
(169)
19
(43)
(925)
6
—
9
921
Stage 1
€ m
2,201
(252)
211
(13)
3
859
(961)
193
—
(19)
6
(1)
11
2,238
Stage 2
€ m
332
252
(211)
(80)
18
—
(111)
25
—
(1)
1
1
(7)
219
Other personal
Total
€ m
2,766
—
—
—
—
859
(1,128)
223
(21)
(23)
7
—
21
2,704
Stage 3
€ m
233
—
—
93
(21)
—
(56)
5
(21)
(3)
—
—
17
247
Stage 1
€ m
4,319
(677)
581
(25)
15
1,842
(902)
145
—
(116)
110
(19)
73
5,346
Stage 2
€ m
2,076
677
(581)
(106)
29
—
(783)
47
—
(20)
18
19
10
1,386
Property and construction
Stage 1
Total
POCI
€ m
€ m
€ m
12,554
— 7,260
— (1,715)
—
1,727
—
—
(44)
—
—
26
—
—
4,623
— 1,842
(3,712)
— (1,843)
370
207
—
—
(25)
—
(160)
(149)
—
458
140
—
(188)
—
—
(66)
(72)
—
13,873
— 7,360
Stage 3
€ m
865
—
—
131
(44)
—
(158)
15
(25)
(13)
12
—
(155)
628
(1) Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
121
2022
Non-property business
Total
Stage 3
€ m
€ m
18,679
1,089
—
—
—
—
—
302
—
(89)
— 5,551
(4,960)
672
(23)
(395)
(139)
—
(22)
19,363
Stage 2
€ m
3,717
1,422
(638)
(263)
73
—
(1,069)
114
—
(91)
(56)
—
8
3,217
(305)
29
(23)
(193)
(18)
—
(18)
774
Stage 3
€ m
997
—
—
579
(144)
2021
Non-property business
Total
€ m
18,601
—
—
—
—
— 4,623
(5,343)
536
(15)
(321)
633
—
(35)
18,679
(368)
30
(15)
(47)
27
—
30
1,089
Stage 2
€ m
5,050
1,715
(1,727)
(535)
118
—
(1,263)
136
—
(114)
148
188
1
3,717
RISK MANAGEMENT CONTINUED
2.1 Credit risk – Credit profile of the loan portfolio
Gross loans and ECL movements continued
ECL allowance movements – Asset class
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
Net re-measurement
New loans originated/top-ups
Redemptions/repayments
Impact of model and overlay changes
Impact of credit or economic risk parameters
Net credit impairment (writeback)/charge
Write-offs
Derecognised due to disposals
Exchange translation adjustments
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 re-measurement
New loans originated/top-ups
Redemptions/repayments
Impact of model and overlay changes
Impact of credit or economic risk parameters
Net credit impairment (writeback)/charge
Write-offs
Derecognised due to disposals
Exchange translation adjustments
Other movements
At 31 December
Stage 1
€ m
34
(2)
9
—
1
4
3
(1)
(3)
—
Stage 2
€ m
41
20
(22)
(7)
24
8
—
(3)
(21)
1
Stage 3
€ m
276
Residential mortgages
Total
POCI
€ m
€ m
382
31
18
(13)
7
(26)
10
3
(4)
(5)
5
14
(51)
3
—
—
31
4
(5)
—
—
(12)
—
Stage 1
€ m
30
(8)
4
—
—
(8)
11
(2)
1
(8)
Stage 2
€ m
33
58
(25)
(30)
4
(2)
—
(1)
(2)
1
Stage 3
€ m
159
Other personal
Total
€ m
222
50
(21)
17
(6)
—
11
(3)
(18)
(8)
47
(10)
10
—
—
(17)
(1)
Stage 1
€ m
50
(14)
3
—
—
2
23
(14)
40
(17)
Stage 2
€ m
91
41
(8)
(9)
4
(19)
—
(8)
33
(14)
POCI
€ m
—
Property and construction
Total
Stage 3
€ m
€ m
313
172
27
(5)
10
(8)
(25)
23
(22)
78
(28)
19
(12)
(8)
—
—
5
3
—
—
—
—
—
11
—
—
—
(5)
40
—
—
(3)
—
—
38
1
(20)
(68)
—
7
196
(17)
—
—
—
(5)
9
(5)
(20)
(71)
—
(3)
283
(10)
—
—
—
4
24
3
—
—
—
1
37
29
(32)
(35)
—
(5)
116
22
(32)
(35)
—
—
177
23
—
—
(1)
12
84
20
—
—
—
6
117
7
(19)
(34)
(2)
(5)
119
—
—
—
—
—
—
50
(19)
(34)
(3)
13
320
Stage 1
€ m
39
(5)
12
—
1
(7)
3
(2)
11
(18)
Stage 2
€ m
73
27
(28)
(14)
12
(3)
—
(3)
(7)
(15)
Residential mortgages
Total
€ m
843
22
(16)
16
(12)
(48)
3
(5)
44
(59)
POCI
€ m
69
—
—
—
—
—
—
—
(13)
—
Stage 3
€ m
662
—
—
30
(25)
(38)
—
—
53
(26)
(5)
—
—
—
—
34
(31)
—
—
—
(1)
41
(6)
(43)
(339)
2
—
276
(13)
(1)
(24)
—
—
31
(55)
(44)
(363)
2
(1)
382
Stage 1
€ m
41
(10)
8
(1)
—
(17)
12
(3)
6
(5)
Stage 2
€ m
51
49
(30)
(31)
4
(4)
—
(1)
(3)
(2)
(10)
—
—
—
(1)
30
(18)
—
—
—
—
33
Other personal
Total
€ m
234
39
(22)
14
(8)
(18)
12
(4)
4
(7)
Stage 3
€ m
142
—
—
46
(12)
3
—
—
1
—
38
(21)
(1)
—
1
159
10
(21)
(1)
—
—
222
Stage 1
€ m
75
(10)
11
(2)
—
(23)
29
(8)
(3)
(22)
Stage 2
€ m
133
18
(19)
(9)
2
(7)
—
(16)
(2)
(9)
(28)
—
(1)
1
3
50
(42)
—
—
1
(1)
91
Property and construction
Total
POCI
€ m
€ m
396
—
8
—
(8)
—
5
—
—
(3)
(45)
—
—
29
(24)
—
—
20
(35)
—
Stage 3
€ m
188
—
—
16
(5)
(15)
—
—
25
(4)
17
(25)
(6)
3
(5)
172
—
—
—
—
—
—
(53)
(25)
(7)
5
(3)
313
Allied Irish Banks, p.l.c. Annual Financial Report 2022
122
Stage 3
€ m
311
2022
Non-property business
Total
€ m
968
11
(33)
18
(9)
9
29
(64)
22
—
Stage 2
€ m
535
27
(47)
(25)
7
(3)
—
(55)
10
34
46
(18)
(21)
—
—
29
—
(52)
—
(4)
(5)
(20)
454
36
(23)
(65)
(5)
15
269
(17)
(23)
(70)
(10)
(10)
838
2021
Non-property business
Total
€ m
1,037
74
(61)
46
(15)
(123)
18
(35)
67
(31)
Stage 3
€ m
323
—
—
121
(31)
(103)
—
—
20
(3)
Stage 2
€ m
588
110
(117)
(71)
14
(24)
—
(23)
65
(15)
(61)
—
(8)
14
2
535
4
(15)
(11)
6
4
311
(60)
(15)
(22)
24
4
968
Stage 1
€ m
122
(16)
14
(3)
2
33
29
(9)
(17)
(34)
(1)
—
(1)
—
(5)
115
Stage 1
€ m
126
(36)
56
(4)
2
4
18
(12)
(18)
(13)
(3)
—
(3)
4
(2)
122
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021:
2022*
Stage 1
€ m
Financial guarantee contracts
Total
Stage 3
€ m
€ m
Stage 2
€ m
743
(35)
31
—
1
(2)
738
Stage 1
€ m
544
(17)
101
(1)
1
115
743
50
35
(31)
(1)
—
(8)
45
26
—
—
1
(1)
(7)
19
819
—
—
—
—
(17)
802
2021*
Financial guarantee contracts
Total
€ m
Stage 3
€ m
Stage 2
€ m
147
17
(101)
(1)
1
(13)
50
31
—
—
2
(2)
(5)
26
722
—
—
—
—
97
819
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
Stage 1
€ m
12,824
(470)
297
(10)
14
1,292
13,947
Stage 1
€ m
11,259
(266)
814
(17)
11
1,023
12,824
Stage 2
€ m
768
470
(297)
(10)
4
98
1,033
Stage 2
€ m
1,113
266
(814)
(7)
5
205
768
Loan commitments
Total
Stage 3
€ m
€ m
135
13,727
—
—
20
(18)
(57)
80
—
—
—
—
1,333
15,060
Loan commitments
Total
€ m
Stage 3
€ m
132
12,504
—
—
24
(16)
(5)
135
—
—
—
—
1,223
13,727
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
123
RISK MANAGEMENT CONTINUED
2.1 Credit risk – Credit profile of the loan portfolio
Movements in off-balance sheet exposures continued
ECL allowance movements
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
Loan commitments
Total
€ m
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
Net re-measurement
Net income statement (credit)/charge(1)
Other movements
At 31 December
16
(2)
6
—
—
(1)
3
—
19
29
16
(15)
(1)
—
6
6
—
35
8
—
—
2
(1)
(3)
(2)
(1)
5
53
14
(9)
1
(1)
2
7
(1)
59
5
(4)
1
(1)
1
—
(3)
—
2
7
3
(3)
—
—
(3)
(3)
—
4
14
—
—
1
(1)
(1)
(1)
—
13
2022*
contracts
Total
€ m
26
(1)
(2)
—
—
(4)
(7)
—
19
(1) Net income statement charge of € 7 million for loan commitments includes € 6 million of loan commitments acquired as part of the Ulster Bank portfolio
acquisition.
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
Loan commitments
Total
€ m
2021*
Financial guarantee contracts
Total
€ m
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
Net re-measurement
Net income statement (credit)/charge
Other movements
At 31 December
20
(4)
7
—
—
(7)
(4)
—
16
30
15
(18)
(1)
—
3
(1)
—
29
4
—
—
2
—
1
3
1
8
54
11
(11)
1
—
(3)
(2)
1
53
3
(1)
3
—
1
(2)
1
1
5
8
4
(9)
—
—
3
(2)
1
7
18
—
—
—
(1)
(2)
(3)
(1)
14
The internal credit grade profile of loan commitments and financial guarantees is set out in the following table:
29
3
(6)
—
—
(1)
(4)
1
26
2021*
€ m
9,564
4,399
327
95
161
2022*
€ m
10,844
4,528
257
134
99
15,862
14,546
Strong
Satisfactory
Criticised watch
Criticised recovery
Default
Total
Non-performing off-balance sheet commitments
Total non-performing off-balance sheet commitments amounted to € 99 million (2021: € 161 million).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
124
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 2022 and 2021.
These include loans and advances to banks of € 1,502 million (2021: € 1,323 million), securities financing of € 6,282 million
(2021: € 3,890 million), and investment debt securities at amortised cost of € 4,131 million (2021: € 4,071 million) and at FVOCI of
€ 11,837 million (2021: € 12,589 million). Information on the credit ratings for loans and advances to customers where an external credit
rating is available is disclosed on page 112.
Bank Corporate Sovereign
Bank Corporate Sovereign
Other
€ m
440
6,442
10
—
2
6,894
€ m
—
962
9
92
112
1,175
At amortised cost
Other
€ m
€ m
2,171
1,405
15
32
—
—
2,218
195
5
—
23
1,628 (1)
Total
€ m
4,016
7,614
56
92
137
€ m
4,008
1,408
347
—
—
11,915
5,763
At FVOCI
Total
€ m
2022
Total
€ m
8,619
12,635
€ m
453
— 1,837
— 1,381
—
—
—
—
9,451
1,437
92
137
453
11,837
23,752
€ m
110
216
173
—
—
499
€ m
4,048
213
861
—
—
5,122 (2)
6,894
1,167
2,218
1,628
11,907
5,763
499
5,122
453
11,837
23,744
—
—
8
—
—
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
At amortised cost
Bank Corporate Sovereign
€ m
€ m
€ m
595
3,756
25
1
—
—
919
2
105
62
289
2,391
37
—
—
4,377
1,088
2,717
Other
€ m
896
201
5
—
—
1,102 (1)
Total
€ m
1,780
7,267
69
106
62
3,883
1,283
399
—
—
9,284
5,565
Bank Corporate Sovereign
€ m
€ m
€ m
4,377
1,088
2,717
1,102
9,284
5,565
—
—
—
—
—
—
—
—
—
—
—
—
6,012
495
12,558
21,842
—
—
—
—
31
—
31
—
8
—
2021
Total
€ m
At FVOCI
Total
€ m
Other
€ m
495
1,182
3,721
1,109
—
—
6,012 (2)
5,632
7,412
— 5,252
12,519
— 1,705
1,774
—
—
—
—
106
62
495
12,589
21,873
72
248
197
—
—
517
486
31
—
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which:
Stage 1
Stage 2
Stage 3
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which:
Stage 1
Stage 2
Stage 3
(1) Relates to asset backed securities.
(2) Includes supranational banks and government agencies.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
125
RISK MANAGEMENT CONTINUED
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 and
Medium Enterprises (“SMEs”), and providing support to enable
customers to 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
(minimum 24 months).
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 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 and Buy-To-Let mortgages (BTLs)
who are in financial difficulty.
This approach is based on customer affordability and
sustainability by 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
126
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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
2022 and 2021:
2022
At amortised cost
Residential
mortgages
Other
personal
Property
and
constructio
Non-
property
business
Total
€ m
1,309 (1)
1,948 (2)
3,257
—
—
—
—
2,014
2,014
1,243
3,257
119
1,834
1,224
80
€ m
842
1,044
1,886
—
—
—
—
1,431
1,431
455
1,886
98
1,333
455
—
€ m
74
479
553
—
—
—
—
259
259
294
553
19
240
294
—
553
1,886
3,257
146
424
753
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
€ m
374
378
752
—
—
—
—
309
309
443
752
2
246
424
80
752
151
€ m
19
47
66
—
—
—
—
15
15
51
66
—
15
51
—
66
32
Allied Irish Banks, p.l.c. Annual Financial Report 2022
127
RISK MANAGEMENT CONTINUED
2.1 Credit risk
Additional credit quality and forbearance disclosures on loans and advances to customers
Forbearance
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
2021
At amortised cost
Residential
mortgages
Other
personal
Property
and
construction
Non-
property
business
Total
€ m
629
564
1,193
—
—
—
—
430
430
763
€ m
37
77
114
—
—
—
—
23
23
91
1,193
114
6
399
694
94
1
22
91
—
1,193
114
€ m
169
348
517
—
—
—
—
296
296
221
517
79
217
221
—
517
€ m
€ m
1,039
1,293
2,332
—
—
—
—
1,645
1,645
687
2,332
7
1,638
687
—
1,874 (1)
2,282 (2)
4,156
—
—
—
—
2,394
2,394
1,762
4,156
93
2,276
1,693
94
2,332
4,156
ECL allowance
272
61
139
537
1,009
(1) Of which: interest only € 715 million, payment moratorium € 401 million, reduced payment € 107 million (2021: of which: interest only € 1,161 million, payment
moratorium € 521 million, reduced payment € 164 million).
(2) Of which: arrears capitalisation and term extension € 728 million, amendment to or non-enforcement of financial covenant € 596 million, restructure € 409 million
(2021: of which: arrears capitalisation and term extension € 864 million, amendment to or non-enforcement of financial covenant € 416 million, restructure € 255
million).
The Group continues to support its existing customers ensuring they are provided with the appropriate forbearance measures,
particularly in the current environment by providing support to customers previously impacted by COVID-19 and may require
forbearance measures following the withdrawal of Government supports. This has been a key area of focus for management
particularly given the potential for further forbearance requests following the increasing rate of inflation and subsequent affordability
issues as the costs of household goods and services rise, including mortgage repayments as a result of rising interest rates.
The total forbearance portfolio has decreased by € 0.9 billion to € 3.3 billion in the year (2021: € 4.2 billion).The decrease was partially
due to the sale of a non-performing loan portfolio in long term default which resulted in non-performing loans in forbearance decreasing
by € 0.5 billion in the year. The performing forborne element of the portfolio in criticised recovery also decreased by € 0.4 billion, due to
lower inflows and customers exiting forbearance due to repayments or completion of probation criteria.
The overall reduction in the year was in the residential mortgages and non-property business portfolios as both decreased by € 0.4
billion.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
128
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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 and ensuring that liquidity considerations are factored
into all 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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
129
RISK MANAGEMENT CONTINUED
2.2 Liquidity and funding risk
Management of the Group liquidity pool
The Group manages the liquidity pool on a centralised basis and
is primarily comprised of government guaranteed bonds, balances
with central banks and internal and external covered bonds. The
composition of the liquidity pool is subject to limits recommended
by the Risk function and approved by the Board
At 31 December 2022, the Group held € 61,077 million
(2021: € 67,240 million) in qualifying liquid assets “QLA”(1) of which
€ 7,845 million (2021: € 17,366 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 2022, the Group liquidity pool was
€ 53,232 million (2021: € 49,874 million). During 2022, the liquidity
pool ranged from € 48,105 million to € 54,295 million
(2021: € 43,602 million to € 50,932 million) and the average
balance was € 50,242 million (2021: € 47,196 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 2022 by € 3,358 million
which was predominantly due to an increase in customer deposits
in Ireland, senior debt issuance, offset by an increase in customer
loans, 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 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. 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. Actions
and strategies available to mitigate the impacts of the stress
scenarios are evaluated as to their appropriateness. 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
2022
%
192
164
2021
%
203
160
The Group monitors and reports its liquidity positions against
Capital Requirements Regulation (CRR2) and other related
liquidity regulations (LCR Delegated Act). It has fully complied with
the minimum LCR and NSFR requirements of 100% during 2022
with ratios well in excess of this level.
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
2022
€ m
2021
€ m
102,362
92,870
89,820
10,478
1,924
140
77,133
13,200
2,347
190
Customer accounts increased by € 9,492 million in 2022 driven by
higher personal balances and inflows from banks exiting the Irish
market. This was reflected in Euro current and demand deposit
accounts offset by a reduction across all other Group significant
currencies (GBP and USD). The decrease in GBP deposits was
primarily due to the exit from the SME market in the UK. There
was an underlying decrease in GBP and USD deposits of € 2,675
million on a constant currency basis coupled with a € 582 million
decrease in the value of GBP offset by a € 112 million increase in
the value of USD deposits due to currency movements.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
130
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.2 Liquidity and funding risk
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 2022, total wholesale funding outstanding was € 10,021 million (2021: € 17,839 million) of
which € 2,507 million is due to mature in less than one year (2021: € 879 million).
Deposits by central banks and banks
Securities financing
ACS
Subordinated liabilities and
other capital instruments
Subordinated loans - AIB Group plc
Total 31 December
Of which:
Secured
Unsecured
Deposits by central banks and banks
Securities financing
ACS
Subordinated liabilities and
other capital instruments
Subordinated loans- AIB Group PLC
Total 31 December
Of which:
Secured
Unsecured
< 1
month
€ m
1–3
months
€ m
3–6
months
6–12
months
€ m
€ m
Total
< 1 year
€ m
1–3
years
€ m
22
798
—
—
—
210
100
999
—
252
820
1,561
798
22
820
1,099
462
1,561
—
—
—
—
—
—
—
—
—
—
—
—
—
126
126
—
126
126
232
898
999
—
378
2,507
1,897
610
2,507
96
—
—
—
2,085
2,181
96
2,085
2,181
< 1 month
€ m
1–3
months
€ m
3–6
months
€ m
6–12
months
€ m
Total
< 1 year
€ m
1–3
years
€ m
33
28
—
—
—
61
28
33
61
51
17
750
—
—
818
767
51
818
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
84
45
10,000
—
750
1,014
—
—
—
1,939
879
12,953
795
84
879
11,014
1,939
12,953
3–5
years
€ m
186
—
—
—
2,073
2,259
186
2,073
2,259
3–5
years
€ m
298
—
—
—
1,416
1,714
298
1,416
1,714
2022
Total
€ m
514
898
1,024
57
7,528
10,021
2,204
7,817
10,021
2021
Total
€ m
> 5
years
€ m
—
—
25
57
2,992
3,074
25
3,049
3,074
> 5
years
€ m
— 10,382
—
25
56
2,212
2,293
45
1,789
56
5,567
17,839
25
12,132
2,268
2,293
5,707
17,839
(1) The maturity analysis has been prepared using the residual contractual maturity of the liabilities.
Deposits by central banks and banks decreased by € 9,868 million
to € 514 million as a result of the € 10 billion repayment of TLTRO
III borrowings in December 2022. For further details, see note 28
'Deposits by central banks and banks' to the consolidated financial
statements. Securities Financing increased € 853 million to € 898
million reflective of an increase in USD Collateralised Mortgage
Obligations "CMO's" and standard bilateral bank repo activity -
see currency split in 'Currency composition of wholesale funding'
table overleaf.
During 2022, subordinated liabilities (via AIB Group plc) increased
€ 1,961 million primarily reflecting € 3,231 million in new loan
agreements with AIB Group plc offset by € 847 million in loan
redemptions and the remainder in fair value hedge and USD
foreign currency translation adjustments. Over the twelve months
to 31 December 2022, outstanding asset covered securities
("ACS") decreased € 765 million to € 1,024 million due to a
contractual maturity. For further details, see note 30 'Debt
securities in issue' to the consolidated financial statements.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
131
RISK MANAGEMENT CONTINUED
2.2 Liquidity and funding risk
Currency composition of wholesale funding
At 31 December 2022, 75% (2021: 89%) 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.
EUR GBP
€ m € m
USD
€ m
Other
€ m
2022
Total
€ m
EUR
€ m
GBP
€ m
USD
€ m
Other
€ m
2021
Total
€ m
Deposits by central banks and banks
Securities financing
Senior debt
ACS
Subordinated liabilities and other capital
instruments
Subordinated liabilities and
other capital instruments - AIB Group PLC
220 290
4
401 — 497
— — —
—
—
—
514
10,083
298
898
—
15
—
1,024 — —
— 1,024
1,789
—
30
—
—
1 10,382
—
—
45
—
— 1,789
—
—
—
12 45 —
—
57
12
44
—
—
56
5,798 — 1,730
— 7,528
4,022
— 1,545
— 5,567
Total wholesale funding
7,455 335 2,231
— 10,021
15,921
342 1,575
1 17,839
% of wholesale funding
%
75
%
3
%
22
%
—
%
100
%
89
%
2
%
9
%
0
%
100
Encumbrance
An asset is defined as encumbered if it has been pledged as
collateral, and as a result is no longer available to the Group to
secure funding, satisfy collateral needs or to be sold. 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 decreased to 7% at
31 December 2022 (2021: 15%) with € 8,811 million of the
Group’s assets encumbered (2021: € 19,841 million). The
decrease in encumbered assets was mainly due to the € 10 billion
TLTRO III early repayment in December 2022. The encumbrance
level is based on the amount of assets that are required in order
to meet regulatory and contractual commitments.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
132
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.2 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 2022 and 2021(1):
Financial assets(2)
Cash and balances at central banks
Derivative financial instruments(3)
Loans and advances to banks(4)
Loans and advances to customers(4)
Loans and advances -AIB Group plc
Securities financing
Investment securities(5)
Other financial assets
Financial liabilities(6)(7)
Deposits by central banks and banks
Customer accounts
Customer accounts - AIB Group plc
Securities financing
Derivative financial instruments(3)
Debt securities in issue
Subordinated liabilities and other capital instruments
- Externally issued
Subordinated liabilities and other capital instruments
- AIB Group plc
Other financial liabilities
Financial assets(2)
Cash and balances at central banks
Derivative financial instruments(3)
Loans and advances to banks(4)
Loans and advances to customers(4)
Loans and advances -AIB Group plc
Securities financing
Investment securities(5)
Other financial assets
Financial liabilities(6)(7)
Deposits by central banks and banks
Customer accounts
Customer accounts - AIB Group plc
Securities financing
Derivative financial instruments(3)
Debt securities in issue
Subordinated liabilities and other capital instruments
- Externally issued
Subordinated liabilities and other capital instruments
- AIB Group plc
Other financial liabilities
On demand
€ m
38,138
—
470
1,954
—
—
—
—
40,562
22
96,897
3
—
—
—
—
—
1,383
98,305
On demand
€ m
42,654
—
619
2,213
15
—
—
—
45,501
27
87,575
4
—
—
—
—
—
1,375
88,981
<3 months
but not on
demand
€ m
3 months to
1 year
1–5 years
Over 5
years
2022
Total
€ m
€ m
€ m
€ m
—
114
1,032
1,297
—
849
1,461
592
5,345
210
4,294
—
898
72
999
—
252
—
—
93
—
2,568
—
1,943
576
—
5,180
—
988
—
—
150
—
—
126
—
6,725
1,264
—
624
—
18,262
—
3,490
5,781
—
28,157
282
151
—
—
923
—
—
4,158
—
5,514
—
1,680
—
37,150
—
—
8,150
—
46,980
—
29
—
—
1,837
25
38,138
2,511
1,502
61,231
—
6,282
15,968
592
126,224
514
102,359
3
898
2,982
1,024
57
57
2,992
—
4,940
7,528
1,383
116,748
<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
703
1,501
—
853
522
886
4,523
57
4,220
—
45
116
750
—
—
—
—
28
1
1,993
—
1,324
1,111
—
4,457
—
851
—
—
104
—
—
—
—
—
211
—
16,776
—
1,713
6,286
—
24,986
10,298
192
—
—
170
1,014
—
3,355
—
5,188
955
15,029
—
585
—
35,910
—
—
8,741
—
45,236
—
28
—
—
672
25
56
42,654
882
1,323
58,393
15
3,890
16,660
886
124,703
10,382
92,866
4
45
1,062
1,789
56
2,212
—
2,993
5,567
1,375
113,146
(1) The Group has changed its classification of cash collateral placed with/received from derivative counterparties. This has resulted in the 2021 comparative period
being restated with € 602 million in financial assets and € 110 million in financial liabilities moving from on demand to the 0-3 month maturity time-bucket.
(2) Excludes trading portfolio financial assets € 8 million (2021: € 8 million).
(3) Shown by maturity date of contract.
(4) Shown gross of expected credit losses.
(5) Excluding equity shares.
(6) A maturity of lease liabilities is disclosed in note 31.
(7) Excludes trading portfolio financial liabilities € 4 million (2021: € 2 million).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
133
RISK MANAGEMENT CONTINUED
2.2 Liquidity and funding risk
Financial liabilities by undiscounted contractual maturity*
The balances in the table below include the undiscounted cash
flows relating to principal and interest on financial liabilities and as
such will not agree directly with the balances on the consolidated
statement of financial position. All derivative financial instruments
have been analysed based on their contractual maturity
undiscounted cash flows.
Financial liabilities(2)(3)
Deposits by central banks and banks
Customer accounts
Customer accounts - AIB Group plc
Securities financing
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
– Externally issued
Subordinated liabilities and other capital instruments
– AIB Group plc
Other financial liabilities
Financial liabilities(2)(3)
Deposits by central banks and banks
Customer accounts
Customer accounts - AIB Group
Securities financing
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments
– Externally issued
Subordinated liabilities and other capital instruments
– AIB Group plc
Other financial liabilities
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 2022
and 2021(1):
On
demand
€ m
22
96,897
3
—
—
—
—
—
1,375
98,297
<3 months
but not on
demand
€ m
3 months
to 1 year
1–5 years
Over 5
years
2022
Total
€ m
€ m
€ m
€ m
210
4,296
—
903
245
1,009
—
262
—
—
999
—
—
703
—
—
342
—
320
158
—
—
1,652
5
—
—
49
—
—
688
28
123
4,861
3,650
—
—
552
102,399
3
903
3,288
1,042
123
9,115
1,375
6,925
2,044
6,996
4,538
118,800
On demand
€ m
27
87,575
4
—
—
—
—
—
1,375
88,981
<3 months
but not on
demand
€ m
57
4,219
—
45
140
783
—
31
—
3 months to
1 year
1–5 years
Over 5
years
2021
Total
€ m
—
853
—
—
152
5
62
87
—
€ m
€ m
€ m
10,124
194
—
—
391
1,065
13
3,757
—
—
32
—
—
355
32
127
2,224
—
10,208
92,873
4
45
1,038
1,885
202
6,099
1,375
5,275
1,159
15,544
2,770
113,729
(1) The Group has changed its classification of cash collateral placed with/received from derivative counterparties. This has resulted in the 2021 comparative period
being restated with € 110 million in financial liabilities moving from on demand to the 0-3 month maturity time-bucket.
(2) Excludes trading portfolio financial liabilities € 4 million (2021: € 2 million).
(3) A maturity of lease liabilities is disclosed in note 31.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
134
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.2 Liquidity and funding risk
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 39
'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
2022 and 2021:
Contingent liabilities
Commitments
Contingent liabilities
Commitments
On demand
<3 months
but not on
demand
3 months to
1 year
1–5 years
Over 5
years
€ m
802
15,060
15,862
€ m
—
—
—
€ m
—
—
—
€ m
—
—
—
€ m
—
—
—
On demand
<3 months
but not on
demand
3 months to
1 year
1–5 years
Over 5
years
€ m
819
13,727
14,546
€ m
—
—
—
€ m
—
—
—
€ m
—
—
—
€ m
—
—
—
2022
Total
€ m
802
15,060
15,862
2021
Total
€ m
819
13,727
14,546
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
135
• 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 nominal, 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. 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.
RISK MANAGEMENT CONTINUED
2.3 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.
• 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;
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
136
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.3 Financial risks
(a) Market risk continued
The following table sets out financial assets and financial liabilities at 31 December 2022 and 2021 subject to market risk analysed
between trading and non-trading portfolios, showing the principal market risks to which the assets and liabilities are exposed:
2022
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
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital
instruments
- Externally issued
Subordinated liabilities and other capital
instruments
- AIB Group plc
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
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital
instruments
- Externally issued
Subordinated liabilities and other capital
instruments
- AIB Group plc
Market risk measures
Carrying
amount
Trading
portfolios
Non-trading
portfolios
€ m
€ m
€ m Risk factors
38,138
8
2,511
1,502
59,613
6,282
16,270
—
8
646
—
—
—
—
38,138
—
1,865
1,502
59,613
6,282
16,270
Interest rate, foreign exchange
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
514
102,359
898
—
514
— 102,359
898
—
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate, credit spreads, foreign exchange
4
2,982
4
599
—
2,383
Interest rate, foreign exchange, equity
Interest rate, foreign exchange, credit spreads, equity,
inflation swap rates
1,024
57
—
—
1,024
57
Interest rate, credit spreads, foreign exchange
Interest rate, credit spreads
7,528
—
7,528
Interest rate, credit spreads
Market risk measures
Carrying
amount
€ m
Trading
portfolios
€ m
Non-trading
portfolios
€ m Risk factors
2021
42,654
8
882
1,323
56,508
3,890
16,934
10,382
92,866
45
2
1,062
—
8
458
—
—
—
—
—
—
—
2
565
42,654
—
424
1,323
56,508
3,890
16,934
10,382
92,866
45
—
497
1,789
56
—
—
1,789
56
Interest rate, foreign exchange
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
Interest rate, foreign exchange
Interest rate, foreign exchange
Interest rate, credit spreads, foreign exchange
Interest rate, foreign exchange, equity
Interest rate, foreign exchange, credit spreads, equity,
inflation swap rates
Interest rate, credit spreads
interest rate, credit spreads, foreign exchange
5,567
—
5,567
Interest rate, credit spreads, foreign exchange
Allied Irish Banks, p.l.c. Annual Financial Report 2022
137
RISK MANAGEMENT CONTINUED
2.3 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.
December 2022
Euro
Sterling
Other (mainly US $)
Total
€ m
- 100bps
€ m
+25bps
€ m
+50bps
€ m
+ 100bps December 2021
€ m
- 100 bps
€ m
+25bps
€ m
+50bps
€ m
+ 100bps
(324)
(45)
(18)
(387)
72
11
5
88
146
22
9
177
288 Euro
45 Sterling
18 Other (mainly US $)
351 Total
(193)
(59)
(20)
(272)
13
14
5
32
33
29
10
72
195
57
20
272
The above sensitivity table is computed under the assumption of
an unchanged balance sheet and that all market rates (Risk Free
Rates/Euribors/Swaps) move upwards or downwards in parallel.
Interest rate sensitivity increased during the year due to a
significant increase in market interest rates and also to an
increase in net floating assets on the balance sheet. These factors
outweighed the increased use of interest rate derivatives for
hedging purposes. Regarding the static balance sheet
assumption, it is acknowledged that in a higher rate environment it
may be more likely that balances would migrate from interest free
current accounts to rate paying deposit accounts which would
have the impact of reducing NII sensitivity.
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 2022 and at 31 December 2022, interest rate VaR
stood at € 13.87 million, foreign exchange rate VaR at € 0.14
million and equity VaR at € 0.12 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 2022
and 2021 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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
138
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
2.3 Financial risks (a) Market risk – Interest rate sensitivity* continued
Assets
Trading portfolio financial assets
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities
Other assets
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
Trading portfolio financial liabilities
Debt securities in issue
Subordinated liabilities and other capital instruments(1)
Other liabilities
Equity
Total liabilities and equity
Derivatives affecting interest rate sensitivity
Interest sensitivity gap
Cumulative interest sensitivity gap
(Euro currency amounts)
Interest sensitivity gap
Cumulative interest sensitivity gap
($ in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
(£ in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
(Other currencies in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
0<1
Month
€ m
1<3
Months
€ m
3<12
Months
€ m
—
1,355
31,041
6,282
2,078
37,564
78,320
514
41,619
798
—
—
—
—
—
42,931
19,910
15,479
15,479
—
—
7,337
—
1,783
—
9,120
—
384
100
—
1,000
253
—
—
1,737
1,295
6,088
21,567
—
—
3,435
—
842
—
4,277
—
919
—
—
—
128
—
—
1,047
(7,057)
10,287
31,854
1<2
Years
€ m
—
—
3,778
—
1,202
—
4,980
—
143
—
—
—
2,188
—
—
2,331
(8,521)
11,170
43,024
2<3
Years
€ m
—
—
4,449
—
999
—
5,448
—
2
—
—
—
1,953
—
—
1,955
(2,600)
6,093
49,117
3<4
Years
€ m
—
—
5,137
—
1,671
—
6,808
—
—
—
—
—
1,750
—
—
1,750
(718)
5,776
54,893
4<5
Years
€ m
5 years + Non-interest
bearing
€ m
€ m
Trading
2022*
Total
€ m
€ m
—
—
4,949
—
2,117
—
7,066
—
—
—
—
—
1,000
—
—
1,000
678
5,388
60,281
—
—
1,105
—
6,736
—
7,841
—
26
—
—
25
865
—
—
916
(2,987)
9,912
70,193
—
147
(1,618)
—
(1,158)
7,867
5,238
—
59,266
—
—
(1)
(552)
4,531
12,247
75,491
—
(70,253)
(60)
8
1,502
59,613
6,282
16,270
46,077
129,752
514
102,359
898
4
1,024
7,585
5,121
12,247
129,752
8
—
—
—
—
646
654
—
—
—
4
—
—
590
—
594
—
60
—
13,432
13,432
5,902
19,334
7,475
26,809
10,322
37,131
5,596
42,727
4,906
47,633
5,036
52,669
8,206
60,875
(62,510)
(1,635)
461
(1,174)
1,688
1,688
140
1,828
477
2,305
61
2,366
1
2,367
103
2,470
2
2,472
25
2,497
(1,115)
1,382
411
411
(52)
(52)
(38)
373
2,335
2,708
787
3,495
496
3,991
767
4,758
350
5,108
1,681
6,789
(6,541)
248
84
32
—
32
—
32
—
32
—
32
—
32
—
32
(87)
(55)
(424)
958
23
271
—
(55)
(1) Includes subordinated loans - AIB Group plc (€ 7,528 million).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
139
RISK MANAGEMENT CONTINUED
2.3 Financial risks (a) Market risk – Interest rate sensitivity* continued
Assets
Trading portfolio financial assets
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities
Other assets
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
Trading portfolio financial liabilities
Debt securities in issue
Subordinated liabilities and other capital instruments(1)
Other liabilities
Equity
Total liabilities and equity
Derivatives affecting interest rate sensitivity
Interest sensitivity gap
Cumulative interest sensitivity gap
(Euro currency amounts)
Interest sensitivity gap
Cumulative interest sensitivity gap
($ in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
(£ in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
(Other currencies in euro equivalents)
Interest sensitivity gap
Cumulative interest sensitivity gap
0<1 Month
1<3 Months
€ m
€ m
—
1,047
35,168
3,890
1,929
42,109
84,143
10,382
50,274
28
—
—
—
—
—
60,684
10,359
13,100
13,100
—
—
7,191
—
783
—
7,974
—
385
17
—
750
—
—
—
1,152
(2,319)
9,141
22,241
3<12
Months
€ m
—
1
3,498
—
1,071
—
4,570
—
850
—
—
—
—
—
—
850
(1,803)
5,523
27,764
1<2 Years
2<3 Years
3<4 Years
4<5 Years
5 years + Non-interest
bearing
Trading
2021*
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
—
—
2,996
—
1,989
—
4,985
—
162
—
—
1,000
1,162
—
—
2,324
(2,199)
4,860
32,624
—
—
3,454
—
1,222
—
4,676
—
—
—
—
—
2,133
—
—
2,133
(1,966)
4,509
37,133
—
—
2,757
—
918
—
3,675
—
—
—
—
—
500
—
—
500
(228)
3,403
40,536
—
—
2,759
—
1,459
—
4,218
—
—
—
—
—
1,750
—
—
1,750
(1,434)
3,902
44,438
—
—
682
—
6,716
—
7,398
—
26
—
—
25
121
—
—
172
(410)
7,636
52,074
—
275
(1,997)
—
847
6,660
5,785
—
41,169
—
—
14
(43)
2,951
13,667
57,758
—
(51,973)
101
8
1,323
56,508
3,890
16,934
49,227
127,890
10,382
92,866
45
2
1,789
5,623
3,516
13,667
127,890
8
—
—
—
—
458
466
—
—
—
2
—
—
565
—
567
—
(101)
—
13,834
13,834
4,863
18,697
3,100
21,797
4,104
25,901
4,151
30,052
3,003
33,055
2,972
36,027
5,870
41,897
(43,232)
(1,335)
(103)
(1,438)
1,596
1,596
586
2,182
56
2,238
(20)
2,218
(32)
2,186
30
2,216
150
2,366
59
2,425
(1,316)
1,109
(18)
1,091
(2,210)
(2,210)
3,633
1,423
2,367
3,790
776
4,566
390
4,956
370
5,326
770
6,096
1,707
7,803
(7,362)
441
(120)
(120)
59
(61)
—
(61)
—
(61)
—
(61)
—
(61)
10
(51)
—
(51)
(63)
(114)
19
460
1
(113)
(1) Includes subordinated loans - AIB Group plc (€ 5,567 million).
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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(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, funding positions and funding plans,
taking into account the nature of their liabilities.
2.3 Financial risks
(a) Market risk continued
Interest rate benchmark reform
Authorities and regulators have substantively facilitated the
market’s transition from interbank offered rates, referred to as
“IBOR” benchmark rates (e.g. LIBOR), to alternative Risk Free
Rates (“RFRs”). 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 Group established a bank-wide Interest Rate Benchmark
Reform Transition Programme with sponsorship from the Chief
Financial Officer to manage the effort. The Programme was
substantively completed by early 2022, having overseen the
successful execution of related business readiness, technology
enhancements, contract re-papering, customer communication
and conduct activities.
Residual IBOR transition activities are now being undertaken by
the relevant business and support functions under established
procedures. The 2022 agenda has been focussed on completing
the transition of residual Treasury GBP and USD LIBOR
transactions (c. € 700 million across derivative and funding
activities, including the reduction of outstanding GBP synthetic
LIBOR derivatives c. £ 360 million), and managing the transition of
$ 2.3 billion USD LIBOR facilities associated with our Corporate
Banking business as at 31 December 2022.
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 CET 1 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
2022
2021
(0.18) % (0.18) %
0.20 %
0.18 %
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.
*Forms an integral part of the audited financial statements
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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(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 reviews and
comments on all proposals and recommends 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 is used to assess the impact of severe but
plausible shocks to underlying risk factors on the capital
requirements for the business. 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.
Monitoring, escalating and reporting
The Equity Capital team reviews risk exposure levels on an on-
going 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 & 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.
RISK MANAGEMENT CONTINUED
2.3 Financial risks
(b) Pension risk continued
As part of a strategy to increase the holding in inflation linked
assets, an allocation to a Liability Driven Investment (“LDI”)
portfolio is used. The LDI fund is comprised of a mixture of
nominal bonds, inflation linked bonds and inflation derivatives.
Inflation linked bond holdings are relatively stable, accounting for
30% of assets (31% at 31st December 2021). The scheme
maintained a similar weighting in equities in 2022 and has
removed the equity protection strategy that previously was
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
2021 and reported the scheme to be in surplus. The next actuarial
valuation of the Irish scheme will be 30 June 2024. This actuarial
valuation report is provided at least every 3 years to the trustees
in order to set out the Target Funding level of the scheme along
with a contribution recommendation if one is required. 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 2020. The next actuarial valuation of the UK
scheme will be 31 December 2023. 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 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 2022. Under this funding arrangement,
the Group also expects to make payments of £ 18.5 million in
2023, with a final balancing payment, based on latest estimates of
c. £27 million. This is subject to change prior to finalisation.
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 & 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.
*Forms an integral part of the audited financial statements
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General Information
2.4 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. 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 inflationary pressures, macroeconomic uncertainty 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 prior to approval by the Board.
The impact of inorganic initiatives such as the acquisitions of
Goodbody and the Ulster Bank commercial loan book, the
acquisition of the Ulster Bank performing tracker mortgage
portfolio and the Great West Life Co. joint venture on the Group’s
financial outcomes and on the 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 monthly 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. 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 timeframe, when appropriate.
2.5 Operational risk
Operational risk is the risk arising from inadequate or failed
internal processes, people and systems, or from external events.
This includes legal risk but excludes strategic and reputational
risk.
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 following nine material operational sub risks: cyber risk
(information security), 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 potential for loss arising from the uncertainty of legal
proceedings and potential legal proceedings). 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 operational risks are proactively identified, evaluated,
monitored and reported, and that appropriate action is taken. Self-
assessment of risks is completed at business unit level and 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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RISK MANAGEMENT CONTINUED
2.5 Operational risk continued
The potential impact of the identified risks are then assessed
through the ICAAP and stress testing processes where scenarios
relating to operational risk such as internal/external fraud, systems
failure, property damage, third party technical issues and
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, operational risk is partially hedged through an
insurance programme 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, employers 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.
2.6 Conduct risk
Conduct risk is defined as the risk that inappropriate actions or
inactions by the Group cause poor or unfair customer outcomes
or negatively impact on 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 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 a number of 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:
• Monitoring trends of customer complaints on a regular basis;
• 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;
• Potential of unintended consequences arising from the scale
and pace of inorganic and strategic change;
• Understanding the implications of the evolving global, European
and Irish economic landscape on short to medium term interest
rate environment;
• Increased competition in terms of resources, skills, industry
participants remuneration practices and customer bases;
• Negative macroeconomic environment can result in unexpected
bank and/or employee behaviour and potential increased
market instability could result in market conduct risk; and
• Environmental, Social and Governance risks (''ESG'') may result
in poor customer outcomes such as incorrect risk preferences or
failing to identify climate impacts on product offerings
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, identifies
upstream conduct risk and communicate to the relevant
business areas.
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General Information
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.
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 which the
Group may suffer as a result of its failure to comply with principal
laws, regulations, rules, related self-regulatory codes and related
supervisory expectations which relate to the Group’s regulated
banking and financial service activities i.e., those activities which
the Group is licenced to conduct business.
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 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 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:
• 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;
• 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;
• CBI Consumer Protection Outlook report and Dear CEO letters;
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.
2.6 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
This Policy includes the approach to vulnerable customers, which
is defined as recognising in customers when they are in need of
additional care, support or protection. The Vulnerable Customer
team are in place to ensure governance structures are in place for
the oversight of the Vulnerable Customer Programme, developing
and ensuring execution of the Group Vulnerable Customer Action
Plan Developing and delivering group level training for staff on
Customer Vulnerability issues.
Conduct risk measurement should be considered qualitatively
under normal and stressed conditions. Any new material business
development or change in strategy would also warrant an
independent assessment of conduct risks and potential impact
on reputation.
The Group Head of Conduct and team provides independent
oversight and governance of conduct risk across the Group (and
is a mandatory approver of product / propositions proposals),
including training and awareness building.
An approved Group Conduct Strategy, aligned with the Group’s
Purpose, Strategy and Values, is supported by annual Business
Conduct Action plans, delivering against key strategic objectives,
ensuring continued progress on embedding conduct and meeting
evolving regulatory expectations.
The Conduct Risk RAS is recommended by the Compliance
Function and consists of qualitative statements and key risk
indicator (''KRI'') metrics. The KRIs establish specific limits,
ceilings and floors that relate to the qualitative RAS. Risk, through
the Compliance & 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.
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.
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RISK MANAGEMENT CONTINUED
2.7 Regulatory compliance risk continued
The Group Regulatory Compliance Risk Management Framework
and the regulatory compliance risk management lifecycle
commences with upstream regulation risk management. The
Regulatory Change Team (''RCT'') reside within the Regulatory
Compliance Team, Compliance & Assurance and provide
oversight and support in respect of regulatory change risk
management. The approach to regulatory change has been
designed to ensure regulatory requirements are clearly
understood from the outset with end-to-end traceability monitored
by the Regulatory Forum as part of Group Programme Board
('‘GPB'’). It involves an up-front partnership between the
Regulatory Change Team and Change Operations to ensure
business stakeholders are identified with roles and
accountabilities assigned. The process provides a platform for
clear monitoring, communication, effective oversight, robust
challenge and the pursuit of regulatory compliance in a
collaborative manner across both first and second line of defence.
The regulatory compliance risk management lifecycle is reviewed
on an annual basis by the various teams within Compliance. In
order to produce a comprehensive holistic view of regulatory
compliance risks across the Group, detailed risk assessments are
completed based on the premise of identifying the regulatory
compliance risks which pose the most significant threat to the
Group. Risk identification and assessment is carried out through a
combined top-down and bottom-up approach. The output of this
risk assessment process is to produce the Compliance & Risk
Assurance Plan.
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.
Regulatory Compliance 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, Regulatory Compliance
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 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
the Group’s 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
resource capacity, wellbeing and engagement risk, retention risk,
talent sourcing and culture risk and the emerging risk drivers
including changing workforce demographics, 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 2022 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
The People and Culture Framework sets out the principles,
supporting policies, roles and responsibilities, governance
arrangements and processes for people risk management across
the Group. The Framework 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;
• 2022 has seen an acceleration in the competition for talent in a
buoyant labour market. 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 through learning and development
plans;
• 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;
• The introduction of several progressive family leave policies in
2022 such as surrogacy, fertility treatment and pregnancy loss.
• 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;
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General Information
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 via the CRO report
produced independently by the second line of defence. 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, where appropriate, 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.
2.8 People and culture risk continued
• Further re-iteration of the Group’s ‘Speak up’ policy through the
“Speak Your Mind” week held in 2022 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;
• A number of positive ExCo initiatives are underway to address
the ongoing quantum and pace of the transformation and
change agenda across the Group, impacting on resource
retention and capacity, together with the accelerated pace of
recruitment across the external market in certain highly skilled
and specialised areas;
• 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; and
• 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.
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.
2.9 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.
*Forms an integral part of the audited financial statements
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RISK MANAGEMENT CONTINUED
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. 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; and
• 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. Model materiality is defined in the Group
Model Risk Management Policy. The outcomes of validation and
other reviews are brought to the appropriate committee(s) 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 committee(s)
quarterly to ensure the models are 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.
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FINANCIAL STATEMENTS
1.
2.
3.
4.
5.
6.
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Consolidated financial statements
Notes to the consolidated financial statements
Allied Irish Banks, p.l.c. company financial
statements
Notes to Allied Irish Banks, company financial
statements
Page
150
151
163
169
282
286
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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 39 to 42 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 2022 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 2022;
• 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
7 March 2023
Colin Hunt
Chief Executive Officer
Donal Galvin
Chief Financial Officer
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INDEPENDENT AUDITOR’S REPORT
Independent auditor’s report to the members of Allied Irish Banks, p.l.c.
Report on the audit of the European Single Electronic Format financial statements (the “financial statements”)
Opinion on the financial statements of Allied Irish Banks, p.l.c. (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 2022 and of the
profit of the Group for the financial year then ended; and
• have been properly prepared in accordance with the relevant financial reporting framework and, in particular, with the requirements of
the Companies Act 2014 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The financial statements we have audited comprise:
The Group financial statements:
• the Consolidated Income Statement;
• the Consolidated Statement of Comprehensive Income;
• the Consolidated Statement of Financial Position;
• the Consolidated Statement of Changes in Equity;
• the Consolidated Statement of Cash Flows; and
• the related notes 1 to 52, 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 ai, 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; and
• IT systems and controls.
Within this report, any new key audit matters are identified with
and any key audit matters which
Materiality
We determined materiality for:
are the same as the prior year identified with
.
Scoping
Significant changes in
our approach
– the Group to be € 54 million which is 0.4% of Total Equity of the Group; and
– the Company to be € 54 million which is 0.5% of Total Equity of the Company.
We focused the scope of our Group audit primarily on the audit work in Allied Irish Banks, p.l.c. and
three 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 91% of the Group’s total operating income.
There were no significant changes in our approach which we feel require disclosure.
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INDEPENDENT AUDITOR’S REPORT CONTINUED
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
inflationary pressures and geopolitical uncertainty on the economy; and
• impact on regulatory capital requirements in the event of an economic slowdown or recession.
As these were risks that could potentially cast significant doubt on the Group’s and the Company’s ability to continue as a going
concern, our evaluation of the directors’ assessment included:
• understanding the Group and Company’s Capital and Liquidity process, including under stressed scenarios;
• evaluating the design and determining the implementation of key controls over the preparation of financial plans and budgets;
• obtaining the updated financial planning exercise covering the period 2023 to 2025 undertaken by the Group in the second half of
2022;
• assessing whether the level of forecasted profits in the updated financial plan were appropriate by challenging the growth, profitability
and economic assumptions within;
• evaluating 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.
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.
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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 € 1,618 million at 31 December 2022
(2021: € 1,885 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 inflationary pressures and
geopolitical uncertainty. This results in a wide range of possible outcomes.
Please also refer to page 45 (Report of the Board Audit Committee), page 187 (Accounting Policy (s) – Impairment
of financial assets), Note 2 – Critical accounting judgements and estimates, Note 12 – Net credit impairment
(charge)/writeback and Note 20 – 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 inflationary pressures and geopolitical uncertainty on the economy.
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.
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INDEPENDENT AUDITOR’S REPORT CONTINUED
Expected credit losses on loans and advances to customers
continued
How the scope
of our audit
responded
to the key
audit matter
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 € 2,742 million (2021: € 2,840 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
impacts of inflationary pressures and geopolitical uncertainty on the economy. The Group has reassessed
profitability and growth forecasts for the period 2023 to 2025. 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 45 (Report of the Board Audit Committee), page 179 (Accounting Policy (k) – Income tax,
including deferred income tax), Note 2 – Critical accounting judgements and estimates and Note 26 –
Deferred taxation.
We have evaluated the design and determined the implementation of key controls over the preparation of financial
plans and budgets.
We assessed whether the level of forecasted profits were appropriate by challenging the growth, profitability and
economic assumptions. We evaluated the accuracy of Management’s forecasting process by reviewing previous
forecasts and comparing to actual results.
How the scope
of our audit
responded
to the key
audit matter
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.
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Defined benefit obligations
Key audit
matter
description
The key audit matter is that the recognition and measurement of defined benefit obligations of € 4,850 million
(2021: € 6,241 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 45 (Report of the Board Audit Committee), page 178 (Accounting Policy (j) – Employee
benefits), and Note 2 – Critical accounting judgements and estimates and Note 27 – 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.
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INDEPENDENT AUDITOR’S REPORT CONTINUED
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 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 and related redress costs. 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 33 - Provisions for liabilities and commitments, the Group has recorded a provision of € 60 million
(2021: € 79 million) in regard to the FSPO Decision. The Group has recorded a provision of € 79 million (2021: € 75
million) for the anticipated cost of redress and other related costs that may be payable under the Belfry programme.
Please refer to page 45 (Report of the Board Audit Committee), page 191 (Accounting Policy (z) – Non-credit risk
provisions), Note 2 – Critical accounting judgements and estimates, Note 33 - Provisions for liabilities and
commitments, and Note 39 – 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 customer redress and related matters. 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.
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 customer redress and related matters are within a range we consider to be reasonable.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
156
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
IT systems and controls
Key audit
matter
description
The Group’s financial reporting processes are reliant on processes, controls and data managed by IT systems.
The IT environment is complex and pervasive to the operations of the Group due to the large volume of
transactions processed daily and the reliance on automated and IT dependent manual controls. This risk is also
impacted by dependency on third parties and outsourced arrangements.
How the scope
of our audit
responded
to the key
audit matter
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.
We examined the design of the governance framework associated with the Group’s IT architecture. We gained an
understanding of 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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
157
INDEPENDENT AUDITOR’S REPORT CONTINUED
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions
of a reasonably knowledgeable person 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.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Materiality
€54 million (2021: €54 million)
€54 million (2021: €54 million)
Group financial statements
Company financial statements
Basis for determining
materiality
Rationale for the
benchmark applied
0.4% of Total Equity.
0.5% of 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 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. However, given the size of the entity's
statement of financial position, we have capped
materiality at the Group's materiality.
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Group financial statements
Company financial statements
Performance materiality
70% of Group materiality
70% of Company materiality
Basis and rationale
for determining
performance materiality
In determining performance materiality, we considered the following factors:
a. The quality of the control environment and our ability to rely on controls;
b. Degree of centralisation and commonality of controls and processes;
c. The uncertain economic environment arising from inflationary pressures and geopolitical uncertainty;
d. The nature, volume and size of uncorrected misstatements arising in the previous audit; and
e. The nature, volume and size of uncorrected misstatements that remain uncorrected in the current
year.
We agreed with the Board Audit Committee that we would report to the Committee all audit differences in excess of €2.75 million (2021:
€2.75 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to
the Board Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
158
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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, and 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 Allied Irish Banks, p.l.c. and the three legal entities as disclosed in Note
40 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 91% 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.
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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
159
INDEPENDENT AUDITOR’S REPORT CONTINUED
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 or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on IAASA’s website at: https://iaasa.ie/publications/
description-of-the-auditors-responsibilities-for-the-audit-of-the-financial-statements/. This description forms part of our auditor’s report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the impact of the Group’s remuneration
policies;
• results of our enquiries of management, in-house legal counsel, internal audit and the Board Audit Committee about their own
identification and assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-
compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
– the matters discussed among the audit engagement team including significant component audit teams and relevant internal
specialists, including tax, valuations, pensions and IT regarding how and where fraud might occur in the financial statements and
any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following areas: 'Expected credit losses on loans and advances to customers',
'Recognition of deferred tax assets', 'Defined benefit obligations', 'Provisions for liabilities and commitments' and 'Revenue recognition'.
In common with all audits under ISAs (Ireland), we are also required to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group and Company operate in, focusing on
provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the
financial statements. The key laws and regulations we considered in this context included the Irish Companies Act, pensions legislation
and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but
compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the
regulation and supervisory requirements of the European Central Bank and the Central Bank of Ireland.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
160
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
Audit response to risks identified
As a result of performing the above, we identified 'Expected credit losses on loans and advances to customers', 'Recognition of
deferred tax assets', 'Defined benefit obligations' and 'Provisions for liabilities and commitments' as key audit matters related to the
potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific
procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the Board Audit Committee and in-house legal counsel concerning actual and potential litigation and
claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement
due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with
regulators;
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business; and
• in addressing the risk of fraud in Revenue Recognition, assessing the design and determined the implementation of the key controls
over the recognition of non-standard revenue items and manual adjustments; and selected a sample of these items recorded within
revenue during the financial year for substantive procedures.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including
internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
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 31 to 68 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
161
C
INDEPENDENT AUDITOR’S REPORT CONTINUED
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 2022. 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.
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 10 years, covering the years ending 2013 to
2022.
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.
15 March 2023
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
162
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
CONSOLIDATED INCOME STATEMENT
for the financial year ended 31 December 2022
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
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 (charge)/writeback
Operating profit
Income from equity accounted investments
Profit before taxation
Income tax (charge)/credit
Profit for the year
Attributable to:
– Equity holders of the parent
– Non-controlling interests
Profit for the year
Notes
4
4
4
5
6
6
7
8
9
10
11
23
24
12
22
14
40
2022
€ m
2,432
80
2,512
(360)
2,152
2
773
(177)
36
102
18
8
762
2,914
2021
€ m
2,003
81
2,084
(293)
1,791
3
648
(160)
15
78
1
5
590
2,381
(1,722)
(1,679)
(228)
(113)
(198)
(129)
(2,063)
(2,006)
851
(7)
844
37
881
(115)
766
768
(2)
766
375
238
613
21
634
16
650
652
(2)
650
Allied Irish Banks, p.l.c. Annual Financial Report 2022
163
CONSOLIDATED STATEMENT
OF COMPREHENSIVE INCOME
for the financial year ended 31 December 2022
Profit 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
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 owners of the parent
Attributable to:
– Equity holders of the parent
– Non-controlling interests
Total comprehensive income for the year
Notes
2022
€ m
766
2021
€ m
650
14
14
14
14
(8)
(8)
17
17
(71)
87
(1,619)
(391)
(188)
(54)
(1,878)
(1,886)
(1,120)
(358)
(341)
309
(1,118)
311
(2)
(2)
(1,120)
309
Allied Irish Banks, p.l.c. Annual Financial Report 2022
164
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
as at 31 December 2022
Assets
Cash and balances at central banks
Trading portfolio financial assets
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Loans and advances - AIB Group plc
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
Customer accounts - AIB Group plc
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 - Externally issued
Subordinated liabilities and other capital instruments - AIB Group plc
Total liabilities
Equity
Share capital
Share premium
Reserves
Total shareholders' equity
Other equity interests - AIB Group plc
Non-controlling interests
Total equity
Total liabilities and equity
Notes
2022
€ m
2021
€ m
44 38,138
42,654
15
16
17
8
2,511
1,502
8
882
1,323
18 59,613
56,508
—
15
19
6,282
3,890
21 16,270
16,934
22
23
24
25
173
940
536
296
15
127
996
631
573
37
26
3,032
2,834
423
13
424
54
27
129,752
127,890
28
514
10,382
29 102,359
92,866
3
898
4
2,982
1,024
257
1
30
16
4
45
2
1,062
1,789
346
10
53
54
1,106
1,199
386
340
57
287
501
56
7,528
5,567
19
15
16
30
31
26
27
32
33
34
34
117,505
114,223
35
35
1,671
1,386
8,078
1,696
1,386
9,471
11,135
12,553
36
1,115
1,115
(3)
(1)
12,247
13,667
129,752
127,890
Jim Pettigrew
Chair
Colin Hunt
Chief Executive Officer
Donal Galvin
Chief Financial Officer
Conor Gouldson
Group Company Secretary
Allied Irish Banks, p.l.c. Annual Financial Report 2022
165
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the financial year ended 31 December 2022
Attributable to equity holders of parent
Share
capital
Share
premium
Other
equity
interests
Capital
reserves
Capital
redemp-
tion
reserves
Reval-
uation
reserves
Investment
securities
reserves
Cash flow
hedging
reserves
Revenue
reserves
Foreign
currency
translation
reserves
Total
Non-
controlling
interests
Total
equity
€ m
1,696
€ m
€ m
1,386
1,115
€ m
1,133
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
14
13
152
149
8,522
(512)
13,668
(1) 13,667
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(188)
(1,619)
768
(8)
—
768
(2)
766
(71)
(1,886)
—
(1,886)
(188)
(1,619)
760
(71)
(1,118)
(2)
(1,120)
At 1 January 2022
Total comprehensive income for the year
Profit for the year
Other comprehensive income (note 14)
Total comprehensive income for the year
Transactions with owners, recorded directly in
equity
Contributions by and distributions to owners of the
Group
Dividends paid on ordinary shares (note 50)
—
—
—
—
—
—
—
—
(142)
—
(142)
—
(142)
Distributions paid to other equity interests
(note 36)
Buyback on ordinary shares
Total contributions by and distributions to
owners of the Group
At 31 December 2022
—
(25)
—
—
—
—
—
—
(25)
—
—
—
1,671
1,386
1,115
1,133
—
25
25
39
—
—
—
13
—
—
—
—
(67)
(91)
—
—
(67)
(91)
—
—
(67)
(91)
—
—
(300)
—
(300)
—
(300)
(36)
(1,470)
8,982
(583)
12,250
(3) 12,247
Allied Irish Banks, p.l.c. Annual Financial Report 2022
166
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the financial year ended 31 December 2021
Share
capital
Share
premium
Other
equity
interests
Capital
reserves
Capital
redemp-
tion
reserves
Reval-
uation
reserves
Investment
securities
reserves
Cash flow
hedging
reserves
Revenue
reserves
Foreign
currency
translation
reserves
Total
Non-
controlling
interests
Total
equity
Attributable to equity holders of parent
At 1 January 2021
Total comprehensive income for the year
Profit for the year
Other comprehensive income (note 14)
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 36)
Other movements
Total contributions by and distributions
to owners of the Group
€ m
1,696
€ m
€ m
1,386
1115
€ m
1,133
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
At 31 December 2021
1,696
1,386
1,115
1,133
€ m
14
—
—
—
—
—
—
14
€ m
14
—
—
—
—
(1)
(1)
13
€ m
€ m
€ m
€ m
€ m
€ m
€ m
206
540
7,919
(599)
13,424
1 13,425
—
(54)
(54)
—
(391)
(391)
652
17
—
87
652
(341)
669
87
311
(2)
—
(2)
650
(341)
309
—
—
—
152
—
—
(67)
1
—
—
(67)
—
—
—
(67)
—
—
149
(66)
—
(67)
—
(67)
8,522
(512)
13,668
(1) 13,667
Allied Irish Banks, p.l.c. Annual Financial Report 2022
167
CONSOLIDATED STATEMENT OF CASH FLOWS
for the financial year ended 31 December 2022
Cash flows from operating activities
Profit before taxation for the year
Adjustments for:
– Non-cash and other items
– Change in operating assets
– Change in operating liabilities
– Taxation refund
Net cash (outflow)/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
Disposal of associated undertakings
Net cash (outflow)/inflow from investing activities
Cash flows from financing activities
Notes
2022
€ m
2021
€ m
881
634
45
341
272
45
(5,623)
(2,312)
45
3
15,344
(19)
13
(4,417) 13,951
21
(3,823)
(2,517)
21
24
2,696
4,928
(32)
10
(31)
10
23
(174)
(204)
—
22
(45)
36
(60)
(8)
—
(1,332)
2,118
Net proceeds on issue of subordinated liabilities and other capital instruments - AIB Group plc
37
3,231
750
Redemption of subordinated loans - AIB Group plc
Dividends paid on ordinary shares
Buyback of ordinary shares
Distributions paid to other equity interests
Repayment of lease liabilities
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
(844)
(142)
(91)
(67)
(89)
—
—
—
(67)
(43)
(154)
(130)
1,844
510
36
24
(3,905) 16,579
43,557
26,559
(336)
419
44 39,316
43,557
Allied Irish Banks, p.l.c. Annual Financial Report 2022
168
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Note
Accounting policies
Critical accounting judgements and
estimates
Segmental information
Interest and similar income
Interest and similar expense
1
2
3
4
5
6 Net fee and commission income
7 Net trading income
8
9
Net gain on other financial assets measured
at FVTPL
Net gain on derecognition of financial assets
measured at amortised cost
10 Other operating income
11 Operating expenses
12 Net credit impairment (charge)/writeback
13 Auditor's remuneration
14 Taxation
15 Trading portfolio
16 Derivative financial instruments
17 Loans and advances to banks
18 Loans and advances to customers
19 Securities financing
20 ECL allowance on financial assets
21 Investment securities
22
Investments accounted for using the equity
method
23 Intangible assets and goodwill
24 Property, plant and equipment
25 Other assets
26 Deferred taxation
27 Retirement benefits
Page
Note
Page
170
195
199
203
204
204
205
205
205
205
206
206
207
208
209
210
222
223
224
224
225
226
227
228
230
231
234
28 Deposits by central banks and banks
29 Customer accounts
30 Debt securities in issue
31 Lease liabilities
32 Other liabilities
33 Provisions for liabilities and commitments
34
Subordinated liabilities and
other capital instruments
35 Share capital
36 Other equity interests
37
38
Capital reserves and capital redemption
reserves
Offsetting financial assets and
financial liabilities
39 Contingent liabilities and commitments
40
41
42
Subsidiaries and consolidated structured
entities
Off-balance sheet arrangements and
transferred financial assets
Classification and measurement of
financial assets and financial liabilities
43 Fair value of financial instruments
44 Cash and cash equivalents
45 Statement of cash flows
46 Related party transactions
47 Employees
48 Regulatory compliance
49 Financial and other information
50 Dividends
51 Non-adjusting events after the reporting period
52 Approval of financial statements
240
240
241
241
241
242
244
246
247
248
248
252
254
255
258
260
270
271
272
279
279
279
280
280
280
Allied Irish Banks, p.l.c. Annual Financial Report 2022
169
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies
Index
(a)
Reporting entity
(b)
(c)
(d)
Statement of compliance
Basis of preparation
Basis of consolidation
(e)
Foreign currency translation
(f)
(g)
(h)
(i)
(j)
(k)
(l)
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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
170
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
1 Accounting policies
The significant accounting policies that the Group applied in the preparation of the financial statements are set out in this section.
(a) Reporting entity
Allied Irish Banks, p.l.c. (‘the parent company’ or ‘the Company’) is a company domiciled in Ireland and registered under the Company’s
Act 2014 as a public limited company under company number 24173. The address of the Company’s registered office is 10 Molesworth
Street, Dublin 2, Ireland.
The consolidated financial statements include the financial statements of Allied Irish Banks, p.l.c. and its subsidiary undertakings,
collectively referred to as the ‘Group’, where appropriate, including certain special purpose entities and 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.
The Company is a wholly owned subsidiary of AIB Group plc, being the ultimate parent of AIB Group.
(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 2022. 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 carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at amortised
cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.
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.
Change in presentation of certain items in the primary statements
The Group has changed the presentation of certain line items in the consolidated statement of financial position and the consolidated
income statement to a more appropriate presentation as those line items are no longer material. ‘Items in course of collection’ and
‘disposal groups and non-current assets held for sale’ are reported within ‘other assets’ in 2022. The comparatives for 2021 of € 44
million and € 8 million respectively have been restated accordingly. In the consolidated income statement ‘loss on disposal of property’,
previously presented outside of operating profit, is now reported within ‘other operating income’ in 2022. The comparative for 2021 of
a loss of € 3 million has been restated accordingly.
For fair value hedges where the hedged financial assets and liabilities are measured at amortised cost, the Group has changed the
presentation of the fair value adjustments that is attributable to the hedged risk. The Group has adjusted the carrying amount of
impacted financial assets and liabilities presented within ‘investment securities’, ‘debt securities in issue’ and ‘subordinated liabilities
and other capital instruments’ for the gain or loss that is attributable to the hedged risk in 2022 and the related comparatives for 2021
have been restated by (€ 38 million), € 62 million and (€ 26 million) respectively. The Group historically presented those amounts in
a single separate line item within other assets and other liabilities as those amounts were not material.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
171
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
(c) Basis of preparation continued
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 consolidated 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;
retirement benefit obligations; and provisions for liabilities and commitments. A description of these judgements and estimates is set out
in note 2.
Consideration of climate change
In preparing the financial statements, the Directors have considered the impact of climate change. There has been no material impact
identified on the financial reporting judgements and estimates of the Group. In particular, the Directors considered the impact of climate
change in respect of the following areas:
• Credit risk: The impact of climate risk on the management, escalating and reporting of credit risk was considered by the Group.
It was deemed that insufficient evidence of the likely loss impacts from climate events is available to adjust expected credit losses
(“ECL”) materially but that the Group’s approach to individual counterparty risk assessment adequately captures climate risk where
appropriate. This is set out in further detail on page 91.
• Going concern and viability: The assessment of the group’s going concern and viability over the next three years did not identify
material climate-related risks, both in terms of commitment to being Net Zero on its own operations on Scope 1 and Scope 2
emissions by 2030 and the physical risks from climate change.
• Provisions and contingent liabilities: The Group’s publicly announced commitment to being Net Zero on its own operations on
Scope 1 and Scope 2 emissions by 2030 is not considered a constructive obligation or a contingent liability. The timeframe to 2030
allows opportunities for the Group to evolve its plans for how the Net Zero commitment will be met and therefore it would not be
appropriate for the Group to recognise a provision or a contingent liability in relation to its net zero commitment (i.e. as the Group
does not have an obligation as a result of a past event). IAS 37 Provisions, Contingent Liabilities and Contingent Assets sets out that
it is only those obligations arising from past events existing independently of an entity's future actions that are recognised as
provisions or disclosed as contingent liabilities.
• Impairment of non-financial assets: The Group applies the requirements of IAS 36 Impairment of Assets in assessing whether
impacted assets are impaired at a reporting date. The Group has a robust process to identify assets which may be impaired which
requires the identification of all material potential impairment triggers including identification of climate related impairment triggers.
In addition, the Group’s published commitment to be net zero in its own operations does not impact the useful lives of the Group’s
impacted assets as the Group proposes to replace impacted assets as their useful lives expire.
Whilst there is currently no short or medium-term impact expected from climate change, the Directors are aware of the ever-changing
risks attached to climate change and will assess these risks against judgements and estimates made in preparation of the Group’s
financial statements.
Going concern
The financial statements for the year ended 31 December 2022 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 impacts of persistent inflation, disruptions to energy
supplies, increased interest rates and significant impacts on unemployment and property prices. The period of assessment used by the
Directors is at least 12 months from the date of approval of these annual financial statements.
Adoption of new accounting standards/amendments to standards
The were no new accounting standards/amendments to standards effective for annual periods beginning 1 January 2022 apart from
minor amendments to IFRSs through both standalone amendments and through the Annual Improvements to IFRS Standards 2018 –
2020 cycle. None of these had a significant impact on reported results or disclosures.
The Group has not early adopted any other standard or amendment that has been issued but is not yet effective.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
172
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
1 Accounting policies continued
(d) Basis of consolidation
Subsidiary undertakings
A subsidiary undertaking is an investee controlled by the Group. The Group controls an investee when it has power over the investee,
is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its
power over the investee. Subsidiaries are consolidated in the Group’s financial statements from the date on which control commences
until the date that control ceases.
The Group reassesses whether it controls a subsidiary when facts and circumstances indicate that there are changes to one or more
elements of control.
Loss of control
If the Group loses control of a subsidiary, the Group:
(i) Derecognises the assets (including any goodwill) and liabilities of the former subsidiary at their carrying amounts at the date control
is lost;
(ii) Derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date control is lost (including any
attributable amounts in other comprehensive income);
(iii) Derecognises the fair value of any consideration received and any distribution of shares of the subsidiary;
(iv) Derecognises any investment retained in the former subsidiary at its fair value at the date when control is lost;
(v) Reclassifies to profit or loss, or transfers 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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
173
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
(d) Basis of consolidation continued
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)). 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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
174
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
1 Accounting policies continued
(d) Basis of consolidation continued
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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
175
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
(f) Interest income and expense recognition continued
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.
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.
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(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.
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.
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(j) Employee benefits
Retirement benefit obligations
The Group provides employees with post-retirement benefits mainly in the form of pensions.
The Group provides a number of retirement benefit schemes including defined benefit and defined contribution as well as a hybrid
scheme that has both defined benefit and defined contribution elements. In addition, the Group contributes, according to local law in the
various countries in which it operates, to governmental and other schemes which have the characteristics of defined contribution
schemes. The majority of the defined benefit schemes are funded.
Full actuarial valuations of defined benefit schemes are undertaken every three years and are updated to reflect current conditions at
each year end reporting date.
Scheme assets are measured at fair value determined by using current bid prices, except for insurance policies acquired as part of a
buy in. If the policies are qualifying policies under IAS 19 Employee Benefits and if the timing and amount of payments under the
policies exactly match some or all of the benefits payable under the scheme, then the present value of the related obligation is
determined and is deemed to be the fair value of the insurance policies to be included in plan assets.
Scheme liabilities are measured on an actuarial basis by estimating the amount of future benefit that employees have earned for their
service in current and prior periods and discounting that benefit at the market yield on a high quality corporate bond of equivalent term
and currency to the liability. The calculation is performed by a qualified actuary using the projected unit credit method. The difference
between the fair value of the scheme assets and the present value of the defined benefit obligation at the year end reporting date is
recognised in the statement of financial position. Schemes in surplus are shown as assets and schemes in deficit, together with
unfunded schemes, are shown as liabilities. A surplus is only recognised as an asset to the extent that it is recoverable through a refund
from the scheme or through reduced contributions in the future. Actuarial gains and losses are recognised immediately in other
comprehensive income.
The cost of providing defined benefit pension schemes to employees, comprising the net interest on the net defined benefit liability/
(asset), calculated by applying the discount rate to the net defined benefit liability/(asset) at the start of the annual reporting period,
taking into account contributions and benefit payments during the period, is charged to the income statement within personnel
expenses.
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. Accordingly, a decision by the Board to fund a pension increase does not constitute a
constructive obligation to fund future pension in payment increases.
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.
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(j) Employee benefits continued
Termination benefits
Termination benefits are recognised as an expense at the earlier of when the Group can no longer withdraw the offer of those benefits
and when the Group recognises costs for a restructuring under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which
includes the payment of termination benefits.
For termination benefits payable as a result of an employee’s decision to accept an offer of voluntary redundancy, which is not within
the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the Group recognises the expense at the earlier of when
the employee accepts the offer and when a restriction on the Group’s ability to withdraw the offer takes effect.
(k) Income tax, including deferred income tax
Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to
items recognised in other comprehensive income, in which case it is recognised in other comprehensive income. Income tax relating to
items in equity is recognised directly in equity. However, the income tax consequences of payments on financial instruments that are
classified as equity but treated as liabilities for tax purposes are recognised in profit or loss if those payments are distributions of profits
previously recognised in profit or loss.
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the
reporting date and any adjustment to tax payable in respect of previous years.
Deferred income tax is provided, using the balance sheet liability method, on temporary differences between the tax bases of assets
and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax is determined using tax rates based on
legislation enacted or substantively enacted at the reporting date and expected to apply when the deferred tax asset is realised or the
deferred tax liability is settled. Deferred income tax assets are recognised when it is probable that future taxable profits will be available
against which the temporary differences will be utilised. The deferred tax asset is reviewed at the end of each reporting period and the
carrying amount will reflect the extent that 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.
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(l) Financial assets continued
Classification and subsequent measurement
On initial recognition, a financial asset is classified and subsequently measured at amortised cost, FVOCI or FVTPL.
The classification and subsequent measurement of financial assets depend on:
• The Group's business model for managing the asset; and
• The cash flow characteristics of the asset (for assets in a ‘hold-to-collect’ or ‘hold-to-collect-and-sell’ business model).
Based on these factors, the Group classifies its financial assets into one of the following categories:
– Amortised cost
Assets that have not been designated as at FVTPL, and are held within a ‘hold-to-collect’ business model whose objective is to hold
assets to collect contractual cash flows; and whose contractual terms give rise on specified dates to cash flows that are solely
payments of principal and interest. The carrying amount of these assets is calculated using the effective interest 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 Financial Instruments,
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.
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(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.
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(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) 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.
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(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.
(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.
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1 Accounting policies continued
(o) Determination of fair value of financial instruments continued
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.
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.
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General Information
1 Accounting policies continued
(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.
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 Financial Instruments: Recognition and
Measurement, the Group designates certain derivatives as either:
• Hedges of the fair value of recognised assets or liabilities or firm commitments (‘fair value hedge’); or
• Hedges of the exposure to variability of cash flows attributable to a recognised asset or liability, or a highly probable forecasted
Transaction (‘cash flow hedge’); or
• Hedges of a net investment in a foreign operation.
When a financial instrument is designated as a hedge, the Group formally documents the relationship between the hedging instrument
and hedged item as well as its risk management objectives and its strategy for undertaking the various hedging transactions. The
Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.
The Group discontinues hedge accounting when:
a) it is determined that a derivative is not, or has ceased to be, highly effective as a hedge;
b) the derivative expires, or is sold, terminated, or exercised;
c) the hedged item matures or is sold or repaid; or
d) a forecast transaction is no longer deemed highly probable.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
(q) Derivatives and hedge accounting continued
Hedging continued
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.
Some of the Group cash flow and fair value hedge relationships were affected by the interest rate benchmark reform. All the affected
hedged items and hedging instruments were either transitioned to risk free rates or will be in line with regulatory deadlines which will
change the basis for determining the interest cash flows from the relevant term rate to the relevant risk free rate at an agreed point in
time. The hedge documentation has been amended accordingly.
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.
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1 Accounting policies continued
(r) Derecognition continued
Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in profit
or loss on derecognition of such securities. However, the amount held in investment securities reserves is transferred to revenue
reserves on derecognition. Any interest in transferred financial assets that qualify for derecognition, that is created or retained by the
Group, is recognised as a separate asset or liability.
The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or
substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not
derecognised. Examples of such transactions are securities lending and sale-and-repurchase transactions.
In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial
asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement,
determined by the extent to which it is exposed to changes in the value of the transferred asset.
In certain transactions, the Group retains the obligation to service the transferred financial asset for a fee. The transferred asset is
derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract if the servicing fee is more
than adequate or is less than adequate for performing the servicing.
The write-off of a financial asset constitutes a derecognition event. Where a financial asset is partially written-off, and the portion
written-off comprises specifically identified cash flows, this will constitute a derecognition event for that part written-off.
(s) Impairment of financial assets
The Group recognises loss allowances for expected credit losses at each balance sheet date for the following financial instruments that
are not measured at FVTPL:
• Financial assets at amortised cost;
• Financial assets at FVOCI (except for equity instruments);
• Lease receivables;
• Financial guarantee contracts issued; and
• Loan commitments issued.
Investments in equity instruments are recognised at fair value and accordingly, expected credit losses (“ECLs”) are not recognised
separately for equity instruments.
ECLs are the weighted average of credit losses. 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”).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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 that have a discount to 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 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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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1 Accounting policies continued
(s) Impairment of financial assets continued
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.
(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.
The origination date for financial guarantees and loan commitment 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.
Financial guarantees and loan commitments are initially recognised in the financial statements at fair value on the date that the
guarantee is given. Subsequent to initial recognition, the Group applies the impairment provisions of IFRS 9 Financial Instruments and
calculates an ECL allowance for financial guarantees and loan commitment contracts (i.e. those that are not measured at FVTPL).
The ECL allowance calculated on financial guarantees and loan commitment contracts is reported within Provisions for liabilities and
commitments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
(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
Short leasehold property
Costs of adaptation of freehold and leasehold property
Branch properties
Office properties
Computers and similar equipment
Fixtures and fittings and other equipment
50 years
life of lease, up to 50 years
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.
(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.
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1 Accounting policies continued
(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 Financial Instruments 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 within other
assets and other liabilities on the statement of financial position.
(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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
(aa) Equity continued
Share issue costs
Incremental costs directly attributable to the issue of new shares or options are charged, net of tax, to equity.
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 50.
Other equity interests
Other equity interests include:
• Additional Tier 1 Perpetual Contingent Temporary Write-down Securities (AT1s) (note 36); 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 46). These contributions comprise both financial and non-financial net assets. The contributions are classified as equity and may
be either distributable or non-distributable. Capital contributions are distributable if the assets received are in the form of cash or
another asset that is readily convertible to cash, otherwise, they are treated as non-distributable. Capital contributions 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 initially 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 cancelled ordinary shares is also transferred from the share capital to the capital redemption
reserve account.
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.
Revenue reserves
Revenue reserves include the following:
• Retained earnings of the parent company, subsidiaries and associated undertakings;
• Amounts transferred from issued share capital, share premium and capital redemption reserves following Irish High Court approval;
• Remeasurements of defined benefit pension schemes; and
• Transactions with owners including distributions and buybacks.
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1 Accounting policies continued
(aa) Equity continued
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.
Non-controlling interests
Non-controlling interests comprise equity interests which relate to the interests of outside shareholders in 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.
(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.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts
covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts
as issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless
of the type of entities that issues them, as well as certain guarantees and financial instruments with discretionary participation features.
A few scope exceptions will apply.
IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. The Group has
completed an initial assessment of the impacts of adopting IFRS 17 and it has concluded that it does not expect any material impact on
its financial statements from the adoption of the new standard in 2023.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies
The amendments to IAS 1 Presentation of Financial Statements 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. These amendments will not have a material impact on
the Group.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1 Accounting policies continued
(ad) Prospective accounting changes continued
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates
The amendments to IAS 8 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. These amendments will not have a material impact on
the Group.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
The amendments to IAS 12 Income Taxes 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. These amendments will not have a material impact on
the Group.
Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback
In September 2022, the IASB issued amendments to IFRS 16 Leases that require a seller-lessee to subsequently measure lease
liabilities arising from a leaseback in a way that it does not recognise any amount of the gain or loss that relates to the right of use it
retains.
The new requirements do not prevent a seller-lessee from recognising in profit or loss any gain or loss relating to the partial or full
termination of a lease.
Effective date: Annual reporting periods beginning on or after 1 January 2024.
Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current
In January 2020, July 2020 and October 2022, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial
Statements 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;
• 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; and
• That covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the
reporting date. Instead, information about these covenants should be disclosed in the notes to the financial statements.
Effective date: Annual reporting periods beginning on or after 1 January 2024.
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.
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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 set out
below.
Significant judgements
The significant judgements made by the Group in applying its accounting policies are as follows:
• Deferred taxation;
• Impairment of financial assets; and
• Provisions for liabilities and commitments.
The application of certain of these judgements also necessarily involves estimations which are discussed separately.
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 26.
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 as KBC and Ulster Bank exit the Irish market as evidenced by the acquisition of certain
Ulster Bank loans by the Group;
• The strong performance of the Irish economy in 2022 with growth forecasts being revised higher during the year;
• A positive interest rate environment with Central Banks increasing Euro, Sterling and Dollar interest rates during 2022;
• The recent inorganic activity of the Group including the completed acquisition of Goodbody in 2021 and the Group’s investment in AIB
JV Holdings Limited being the Group’s joint venture with Great-West Lifeco Inc.;
• The turnaround evident in the financial performance over the years 2021-2022;
• External economic forecasts for Ireland in the medium term, with forecasted growth in 2023 of 4%, outperforming the global economy;
• 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.
The Board considered negative evidence and the inherent uncertainties in any long term financial assumptions and projections,
including:
• The absolute level of deferred tax assets compared to the Group’s equity;
• The quantum of profits required to be earned and the extended period over which it is projected that the tax losses will be utilised;
• The challenge of forecasting over a long period, taking account of the level of competition, market dynamics (including the interest
rate environment) and resultant margin and funding pressures;
• Any potential longer term residual impacts of COVID-19 and post-Brexit EU/UK trade deal on the Irish economy;
• Potential instability arising from macroeconomic headwinds and geopolitical issues over an extended period; and
• Taxation changes (including Organisation for Economic Co-operation and Development (“OECD”) tax reform) and the likelihood of
future developments and their impact on profitability and utilisation.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Critical accounting judgements and estimates continued
Deferred taxation continued
Profitability and growth were reassessed in the annual planning exercise covering the period 2023 to 2025 undertaken by the Group in
the second half of 2022. Profitability levels underpinning the plan have been revised upwards compared to last year given the changing
banking landscape and evolving operating environment.
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 2023 to 2025 as a base and a profit growth
rate of 2% from 2026, it was assessed that it will take less than 15 years for the Irish deferred tax asset (€ 2.5 billion) to be utilised.
Furthermore, under this scenario, it is expected that c. 65% will be utilised within 10 years. If the growth rate assumption was decreased
by 1%, then the utilisation period increases by a further c.1 year. The Group’s analysis of this and other scenarios examined would not
alter the basis of recognition or the current carrying value. In 2021, the Group reported that it expected that it would take in excess of 20
years for the deferred tax asset to be utilised with 92% being utilised within 20 years and 64% within 15 years.
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 € 2,741 million (2021: € 2,840 million) of
which € 2,546 million (2021: € 2,645 million) relates to Irish tax losses and € 196 million (2021: € 195 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 ECL
allowance are set out in note 20.
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; and
• Determining the need for and an appropriate methodology for post-model adjustments.
The significant management judgements and the governance process, relating to ECL, are set out on page 90 and 91 in the Risk
Management section.
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 33.
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.
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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; 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 26.
The most significant source of estimation uncertainty in relation to deferred tax is the forecast profit over the 15 year period that is
used to determine the deferred tax asset for unutilised losses in the Group's principal UK subsidiary, which is based on the Group’s
annual plan.
The deferred tax asset for unutilised tax losses in the Group’s principal UK subsidiary amounts to £ 165 million at 31 December 2022
(31 December 2021: £ 164 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.
Forecast profits for the 15 year period 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.
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 20.
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 2022 amounted to € 1,618 million (2021: € 1,885 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:
• Inputs into 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 for modelled
ECL); and
• The estimation of post model adjustments where required.
Discounted cash flows ("DCFs") are the most significant input to the ECL calculation for Stage 3 credit impaired borrowers where the
gross credit exposure is ≥ € 1 million for Ireland or ≥ £ 500,000 for the UK. Collateral valuations and the estimated time to realisation of
collateral is a key component of the DCF model. The DCF assessment produces a base case ECL which is then adjusted to incorporate
the impact of multiple scenarios on the base ECL. The size of the adjustment must consider all relevant and supportable information,
including but not limited to, historical data analysis, predictive modelling and management judgement.
The macroeconomic variables used in models to calculate ECL allowance are based on assumptions, forecasts and estimates against
a backdrop of the residual impact 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 pages 84 to 89 of the Risk Management section of this report.
Certain of these estimates may have a significant risk of material adjustment to carrying amounts of assets within the next financial
year.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2 Critical accounting judgements and estimates continued
Impairment of financial assets continued
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. 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 90 and 91.
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 91.
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 27
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.
The Trustee of the Irish Scheme has awarded an increase, in certain years, in respect of pensions eligible for discretionary pension in
payment increases notwithstanding a decision by the Group not to fund such increases. 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.
Taking these decisions by the Trustee into consideration, the long term assumption for future increases in pension in payment reflects
an assessment of the Trustee’s ability to grant further increases without any funding from the Group, capped at a long-term inflation
assumption.
Having taken actuarial advice the Group has adopted a rate of 2.6%, being a long term inflation assumption, and which has increased
the scheme liabilities by € 886 million at 31 December 2022 (31 December 2021: 0.65%, € 350 million respectively).
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 27 to the financial statements. A sensitivity analysis for the principal assumptions used to measure the schemes’ liabilities is
set out in note 27 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 33.
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 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 € 262 million includes € 60 million in respect of the FSPO decision relating to tracker mortgage
customers and a number of separate provisions, the majority of which are not individually significant and which 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.
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2 Critical accounting judgements and estimates continued
Provisions for liabilities and commitments continued
Note 33 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 payments to customers have effectively concluded 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
reassessed at € 60 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.
3 Segmental information
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
Our leading Irish retail franchise provides a comprehensive range of products and services to over 2.9m customers delivered through
our branch, digital and phone banking channels; with an expanded reach into the retail customer base via EBS, Haven, AIB Merchant
Services, Payzone, Nifti and AIB Life.
• Homes & Consumer are responsible for meeting the homes and everyday banking needs of customers in Ireland by delivering
innovative products, propositions and services and for growing our market leading positions. Our aim is to achieve a
seamless and transparent customer experience across all our products and services including mortgages, current accounts, personal
lending, payments and credit cards, deposits, insurance and wealth.
• SME serves our micro and small SME customers through our sector-led strategy and local expertise with an extensive product and
services offering. Our aim is to help our customers create and build sustainable businesses in their communities.
• FSG is our dedicated centre of excellence for the management of the vast majority of the Group’s non-performing exposures (NPEs),
with the objective of supporting our customers in difficulty and 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 and equity investments, 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 mid to large corporates focused on renewables, infrastructure, housing, commercial real
estate, health and manufacturing/industrial businesses across both Great Britain and Northern Ireland, where the Bank has
recognised expertise. Services include lending, treasury, trade facilities, asset finance and invoice discounting.
• a full service retail bank in Northern Ireland (“AIB (NI)”) to personal and business customers with a focus on mortgage and business
lending.
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 in the
period included Technology, Operations, Finance, Risk, Legal, Corporate Governance & Customer Care, Human Resources,
Sustainability and Corporate Affairs, Enterprise Development and Group Internal Audit.
Segment allocations
In 2022 the Group made changes to the methodologies used to allocate cost and income across operating segments in order to
enhance the management of standalone segment performance. Under the Group’s revised cost allocation methodology substantially all
of the costs of the Group’s control, support and Treasury functions are now allocated to Retail Banking, Capital Markets and AIB UK
whereas the previous methodology resulted in overheads which were managed centrally being reported in the Group segment. In
addition certain Bank levies and regulatory fees, such as the Irish bank levy, which were previously reported in Group segment, are now
allocated to the Retail Banking and Capital Market segments. Figures for the prior year have been restated on a comparative basis.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
199
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
3 Segmental information continued
Operations by business segment
Net interest income
Net fee and commission income*
Other
Other income
Total operating income
Other operating expenses
Of which: Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
Retail
Banking
Capital
Markets
AIB UK
Group
Total
Exceptional
items(1)
2022
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
1,186
387
31
418
1,604
565
149
84
233
798
294
107
2,152
—
2,152
46
10
56
13
24
37
595
149
744
1 (7)
17 (2)(5)
18
596
166
762
350
144
2,896
18
2,914
(1,151)
(325)
(172)
(11) (1,659)
(249)
(1,908)
(502)
(196)
(414)
(235)
(87)
(42)
(80)
(67)
(25)
(2)
(7)
(2)
(780)
(575)
(304)
(17) (3)-(5)
(195) (4)-(7)
(37) (5)
(797)
(770)
(341)
Bank levies and regulatory fees
Total operating expenses
(50)
(12)
(1)
(92)
(155) —
(155)
(1,201)
(337)
(173)
(103) (1,814)
(249)
(2,063)
Operating profit/(loss) before impairment losses
Net credit impairment writeback/(charge)
Operating profit/(loss)
Income from equity accounted investments
Profit/(loss) before taxation
403
144
547
7
554
461
177
(102)
(49)
359
128
25
384
5
133
41
—
41
—
41
1,082
(231)
(7) —
1,075
(231)
37
—
1,112
(231)
851
(7)
844
37
881
(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) Gain on disposal of loan portfolios; (5) Restructuring costs;
(3) Termination benefits; (6) Inorganic transaction costs; and
(4) Restitution costs; (7) Other.
For further information on these items see page 13.
*Analysis of net fee and commission income
Customer accounts
Card income
Foreign exchange fees
Credit related fees
Specialised payment services fees
Stockbroking client fees and commissions
Asset management and advisory fees
Other fees and commissions
Fees received for services provided to AIB Group plc
Fee and commission income
Specialised payment services expenses
Card expenses
Other fee and commission expenses
Fee and commission expense
Retail
Banking
Capital
Markets
AIB UK
Group
€ m
176
134
44
7
137
—
—
51
—
549
(120)
(37)
(5)
(162)
387
€ m
€ m
€ m
18
9
30
29
—
47
12
11
—
156
—
(2)
(5)
(7)
149
14
13
10
14
—
—
—
2
—
53
—
(5)
(1)
(6)
47 (2)
18
—
2
—
—
—
—
(13) (1)
8
15
—
—
(2)
(2)
13
2022
Total
€ m
226
156
86
50
137
47
12
51
8
773
(120)
(44)
(13)
(177)
596
(1) Reflects the allocation of the Group’s segment fee and commission income to Retail Banking and Capital Markets segments.
(2) Includes € 1 million reported under exceptional items.
Further information on ‘Net fee and commission income’ is set out in note 6.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
200
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
3 Segmental information continued
Operations by business segment
Net interest income
Net fee and commission income*
Other
Other income
Total operating income
Retail
Banking
Capital
Markets
AIB UK
Group
Total
Exceptional
items(1)
€ m
€ m
€ m
€ m
€ m
€ m
2021
Total
€ m
1,042
333
34
367
1,409
479
106
31
137
616
227
45
8
53
280
43
1,791
—
1,791
4
37
41
84
488
110
598
—
(8) (4)(6)
(8)
488
102
590
2,389
(8)
2,381
Other operating expenses
(1,082)
(256)
(186)
(10) (1,534)
(310)
(1,844)
of which: Personnel expenses
General and administrative expenses
Depreciation, impairment and amortisation
(478)
(382)
(222)
(155)
(69)
(100)
(58)
(32)
(28)
(5)
(3)
(2)
(738)
(512)
(284)
(58) (2)-(4)
(209) (3)-(6)
(43) (4)(6)
(796)
(721)
(327)
Bank levies and regulatory fees
Total operating expenses
(49)
(11)
(1)
(101)
(162)
—
(162)
(1,131)
(267)
(187)
(111) (1,696)
(310)
(2,006)
Operating profit/(loss) before impairment losses
Net credit impairment writeback
Operating profit/(loss)
Income from equity accounted investments
Profit/(loss) before taxation
278
86
364
16
380
349
137
486
1
487
93
15
108
4
112
(27)
—
(27)
—
693
238
931
21
(318)
—
(318)
—
(27)
952
(318)
375
238
613
21
634
(1) Exceptional items are shown separately above. These are items that Management view as distorting comparability of performance year-on-year. Exceptional
items include:
(3 (2) Termination benefits; (5) Restructuring costs;
(3) Restitution costs; (6) Inorganic transaction costs; and
(4) Restructuring costs; (7) Other.
For further information on these items see page 13.
*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
Fees received for services provided to AIB Group plc
Stockbroking client fees and commissions
Asset management and advisory fees
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
—
11
—
18
6
109
—
(1)
(2)
(3)
106
15
11
8
14
—
1
—
49
—
(4)
—
(4)
45
18
—
(4)
—
—
(15) (1)
8
7
—
—
(3)
(3)
4
2021
Total
€ m
208
111
67
50
133
47
8
18
6
648
(118)
(33)
(9)
(160)
488
(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 6.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
201
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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
(1) Includes AIB Group plc - Nil (2021: € 15 million).
(2) Includes AIB Group plc - € 3 million (2021: € 4 million).
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
Capital
Markets
31 December 2022
AIB UK
Group
Total
€ m
€ m
€ m
€ m
€ m
34,165 18,215 6,969
15 59,364
—
249
—
34,165 18,464 6,969
75,798 16,240 9,097
249
—
15 59,613 (1)
1,227 102,362 (2)
Retail
Banking
Capital
Markets
31 December 2021
AIB UK
Group
Total
€ m
€ m
€ m
€ m
€ m
33,144 15,143 7,965
28 56,280
—
243
—
33,144 15,386 7,965
65,227 14,470 11,831
243
—
28 56,523 (1)
1,342 92,870 (2)
Year to 31 December 2022
Ireland
United
Kingdom
Rest of the
World
€ m
64
292
356
€ m
(19)
24
5
Total
€ m
2,914
—
2,914
Year to 31 December 2021
United
Kingdom
Rest of the
World
€ m
180
100
280
€ m
2
5
7
Total
€ m
2,381
—
2,381
€ m
2,869
(316)
2,553
Ireland
€ m
2,199
(105)
2,094
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 10).
Geographic Information
Non-current assets(3)
Geographic Information
Non-current assets(3)
Ireland
€ m
1,426
Ireland
€ m
1,562
31 December 2022
United
Kingdom
Rest of the
World
€ m
48
€ m
2
Total
€ m
1,476
31 December 2021
United
Kingdom
Rest of the
World
€ m
62
€ m
3
Total
€ m
1,627
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
202
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
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
Securities financing 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
2022
€ m
2021
€ m
1,877
1,765
237
42
193
2,349
25
57
1
83
2,432
70
10
80
7
3
70
1,845
103
55
—
158
2,003
74
7
81
2,512
2,084
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 interest from the TLTRO III programme(1)(2). In 2022 negative interest expense of
€ 25 million was recognised. From 1 January 2022 to 23 June 2022 the negative interest expense was recognised using the Main
Refinancing Operations rate minus 50 bps. The interest rate that applied for the period from 24 June 2022 to 22 November 2022 was
the average interest rate on the Deposit Facility over the life of the respective TLTRO III funding up to 22 November. The interest rate
that applied from 23 November 2022 to the final repayment date in December 2022 was the average ECB deposit facility rate over that
period. In 2021 negative interest expense of € 102 million was recognised of which c. € 36 million was recognised using the Main
Refinancing Operations rate minus 50 bps and the Group recognised additional interest income of € 66 million when it was determined
that the Group had a reasonable expectation that the relevant lending targets would be met.
Interest income includes a credit of € 70 million (2021: a credit of € 161 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'.
(1) The Group participated in the TLTRO programme for € 4 billion in September 2020 and a further € 6 billion in June 2021. Following a decision by the European
Central Bank, in October 2022, to recalibrate the conditions of TLTRO III, the Group repaid its TLTRO borrowings in December 2022.
(2) 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).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
203
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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(1)
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 at amortised cost
Interest expense calculated using the effective interest rate method
(1) Includes interest expense of € 192 million (2021: € 138 million) on instruments with AIB Group plc.
2022
€ m
5
46
11
8
11
183
264
87
2
5
2
96
360
2021
€ m
1
53
—
3
12
95
164
115
3
6
5
129
293
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 credit of € 4 million (2021: a charge of € 19 million) transferred from other comprehensive income in respect
of cash flow hedges which is included in ‘Interest on customer accounts’.
6 Net fee and commission income
Customer accounts
Card income
Foreign exchange fees
Credit related fees
Specialised payment services fees(1)
Stockbroking client fees and commissions
Asset management and advisory fees
Other fees and commissions(2)
Fees received for services provided to AIB Group plc
Fee and commission income
Specialised payment services expenses(1)
Card expenses(3)
Other fee and commissions expenses
Fee and commission expense
2022
€ m
226
156
86
50
137
47
12
51
8
2021
€ m
208
111
67
50
133
18
6
47
8
773
648
(120)
(118)
(44)
(13)
(33)
(9)
(177)
(160)
596
488
(1) Specialised payment services: fee income and fee expenses in respect of services and prepaid credits for cellular phone and utilities sold to third parties.
(2) Other fees and commissions includes wealth commissions € 24 million (2021: € 23 million), insurance commissions € 12 million (2021: € 12 million) and other
commissions € 15 million (2021: € 12 million).
(3) Card expenses includes credit card commissions of € 42 million (2021: € 31 million), and ATM expenses of € 2 million (2021: € 2 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).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
204
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
7 Net trading income
Foreign exchange contracts
Interest rate contracts and debt securities(1)
Credit derivative contracts
Equity investments, index contracts and warrants
Other(2)
2022
€ m
(69)
35
3
5
62
36
2021
€ m
(16)
29
(3)
5
—
15
(1) Includes a gain of € 12 million (2021: gain of € 16 million) in relation to XVA adjustments. (XVA comprises counterparty valuation adjustments (“CVA”) and funding
valuation adjustments (“FVA”).
(2) Relates to the forward contract to acquire corporate and commercial loans from Ulster Bank. See note 43 for further information.
The total hedging ineffectiveness on cash flow hedges reflected in the consolidated income statement amounted to Nil in 2022 (2021:
Nil).
8 Net gain on other financial assets measured at FVTPL
Loans and advances to customers(1)
Investment securities – equity
(1) Excludes interest income (note 4).
9 Net gain on derecognition of financial assets measured at amortised cost
2022
€ m
14
88
102
2021
€ m
20
58
78
Loans and advances to customers
Loans and advances to customers
Carrying value of
derecognised financial
assets measured at
amortised cost
€ m
595
Carrying value of
derecognised financial
assets measured at
amortised cost
2022
Gain from
derecognition
€ m
18
2021
Gain from
derecognition
€ m
1,100
€ m
1
Derecognition relates to the sale of portfolios of non-performing loans, 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.
10 Other operating income
(Loss)/gain on disposal of investment securities at FVOCI – debt
Gain/(loss) on termination of hedging swaps(1)
Miscellaneous operating income/(expense)
2022
€ m
(7)
4
11
8
2021
€ m
18
(12)
(1)
5
(1) The majority of the gain/(loss) on termination of hedging swaps relates to the disposal of debt securities at FVOCI. In addition, it includes Nil (2021: € 1 million)
transferred from other comprehensive income in respect of cash flow hedges.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
205
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
11 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(6)
Restitution and associated costs(7)
Bank levies and regulatory fees
Operating expenses
2022
€ m
2021
€ m
620
597
7
93
69
30
819
(22)
797
676
94
770
155
51
91
67
15
821
(25)
796
548
173
721
162
1,722
1,679
(1) Relates to the voluntary severance programmes which includes a charge of £ 2 million (2021: £ 10 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 € 80 million (2021: a charge of € 79 million), a charge of € 4 million in relation to defined benefit expense (2021: a
charge of € 3 million), and a long term disability payments/death in service benefit charge of € 9 million (2021: a charge of € 9 million). For details of retirement
benefits, see note 27.
(3) Share-based payment charge of Nil (2021: Nil).
(4) Other personnel expenses include staff training, recruitment and various other staff costs.
(5) Staff costs capitalised relate to intangible assets.
(6) Includes € 27 million (2021: Nil) relating to the CBI Tracker Mortgage Examination fine. See note 33 for further information.
(7) Relates primarily to (a) Belfry provisions and associated costs and (b) the associated costs related to the Tracker Mortgage Examination.
The average number of employees for 2022 and 2021 is set out in note 47.
12 Net credit impairment (charge)/writeback
The following table analyses the income statement net credit impairment (charge)/writeback on financial instruments for the years to 31
December 2022 and 2021.
Credit impairment (charge)/writeback 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 (charge)/writeback
Recoveries of amounts previously written-off
Net credit impairment (charge)/writeback
Measured
at amortised
cost
Measured
at FVOCI
2022
Total
Measured
at amortised
cost
Measured
at FVOCI
2021
Total
€ m
€ m
€ m
€ m
€ m
€ m
—
(50)
—
(7)
7
(2)
(52)
45
(7)
—
—
—
—
—
—
—
—
—
—
(50)
—
(7)
7
(2)
(52)
45
(7)
—
158
(1)
2
4
—
163
75
238
—
—
—
—
—
—
—
—
—
—
158
(1)
2
4
—
163
75
238
Allied Irish Banks, p.l.c. Annual Financial Report 2022
206
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
13 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
2022
€ m
2021
€ m
3.0
0.9
0.2
—
4.1
2.7
0.8
0.1
—
3.6
All the above amounts are paid to the Group Auditor for services provided to the Group and its subsidiaries.
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)
2022
€ m
1.1
2021
€ m
1.2
Allied Irish Banks, p.l.c. Annual Financial Report 2022
207
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
14 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 for the year
Deferred tax
Origination and reversal of temporary differences
Adjustments in respect of prior years
Recognition of deferred tax assets in respect of current period losses
(Decrease)/increase in carrying value of deferred tax assets in respect of carried forward losses
Deferred tax (charge)/credit for the year
Total tax (charge)/credit for the year
Effective tax rate
2022
€ m
2021
€ m
(5)
(1)
(6)
(27)
—
(27)
(33)
(6)
—
—
(76)
(82)
(115)
(8)
3
(5)
(13)
—
(13)
(18)
(26)
7
4
49
34
16
13.1 %
(2.5) %
Factors affecting the effective tax rate
The following table sets out the difference between the tax charge that would result from applying the standard corporation tax rate in
Ireland of 12.5% and the actual tax charge for the year:
Profit before tax
2022
2021
€ m
881
%
€ m
634
%
Tax charge at standard corporation tax rate in Ireland of 12.5%
(110)
12.5
(79)
12.5
Effects of:
Foreign profits taxed at other rates
Expenses not deductible for tax purposes
Exempted income, income at reduced rates and tax credits
Share of results of investments accounted for using the equity method shown post
tax in the income statement
Income taxed at higher tax rates
Tax legislation on equity distributions
Reversal of amounts previously not recognised
Other tax adjustments
Change in tax rates
Adjustments to tax charge in respect of prior years
Tax (charge)/credit
(12)
(17)
1
2
(11)
8
16
10
(1)
(1)
(115)
1.4
1.9
(0.1)
(0.2)
1.3
(0.9)
(1.8)
(1.2)
0.1
0.1
13.1
(9)
(12)
2
2
(11)
8
82
1
22
10
16
1.4
1.9
(0.3)
(0.3)
1.7
(1.3)
(13.0)
—
(3.5)
(1.6)
(2.5)
Allied Irish Banks, p.l.c. Annual Financial Report 2022
208
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Business Review
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Risk Management
Financial Statements
General Information
14 Taxation continued
Analysis of selected other comprehensive income
Retirement benefit schemes
Remeasurement of defined benefit asset
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 gains/(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
Gross
€ m
Tax
€ m
2022
Net
€ m
Gross
€ m
Tax
€ m
2021
Net
€ m
(20)
(20)
12
12
(8)
(8)
19
19
(2)
(2)
17
17
—
—
—
—
—
—
—
—
—
—
—
—
79
(10)
69
(100)
(140)
—
(140)
174
(61)
(10)
(71)
74
13
—
13
(87)
174
87
—
—
—
—
—
—
(74)
9
(65)
(141)
18
39
57
(123)
(268)
(391)
Hedging (losses) recognised in other comprehensive income
(1,833)
279 (1,554)
(307)
Total
(1,907)
288 (1,619)
(448)
Investment debt securities at FVOCI reserves
Fair value losses(gains) transferred to income statement
Fair value (losses) recognised in other comprehensive income
Total
7
(216)
(209)
(1)
22
21
6
(194)
(188)
(18)
(44)
(62)
2
6
8
(16)
(38)
(54)
15 Trading portfolio
Equity securities
Trading portfolio
financial assets
Trading portfolio
financial liabilities
2022
€ m
8
2021
€ m
8
2022
€ m
4
2021
€ m
2
Allied Irish Banks, p.l.c. Annual Financial Report 2022
209
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 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 2022 and 2021:
2022
2021
Notional
principal
amount
Fair Values
Assets
Liabilities
Derivative financial instrument(1)
Interest rate contracts
Exchange rate contracts
Equity contracts
Credit derivatives
Other(2)
Total
€ m
65,213
7,449
83
43
1,232
74,020
€ m
2,343
164
4
—
—
2,511
€ m
(2,900)
(72)
—
(1)
(9)
(2,982)
63,320
Notional
principal
amount
€ m
51,694
11,277
174
175
—
Fair Values
Assets
Liabilities
€ m
806
76
—
—
—
882
€ m
(839)
(200)
(17)
(6)
—
(1,062)
(1) Interest rate, exchange rate, equity and credit derivative contracts are entered into for both hedging and trading purposes.
(2) Relates to a forward contract to acquire corporate and commercial loans from Ulster Bank. See notes 43 and 51 for further information.
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.
The increase in interest rate contracts reflects the Group’s hedging of net interest income in response to the sharp interest rate
increases and market volatility in the period.
The following table analyses the notional principal amount of derivative financial instruments by residual maturity together with the
positive fair value attaching to these contracts where relevant:
Residual maturity
Notional principal amount
Positive fair value
Less than 1
year
1 to 5 years
5 years +
2022
Total
Less than 1
year
1 to 5 years
5 years+
2021
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
22,230
28,326
23,464
74,020
22,480
20,804
20,036
63,320
207
624
1,680
2,511
86
211
585
882
Allied Irish Banks, p.l.c. Annual Financial Report 2022
210
Annual Review
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Risk Management
Financial Statements
General Information
16 Derivative financial instruments continued
The Group has the following concentration of exposures in respect of notional principal amount and positive fair value of derivative
financial instruments. The concentrations are based primarily on the location of the office recording the transaction.
Ireland
United Kingdom
United States of America
Notional principal amount
Positive fair value
2022
€ m
2021
€ m
2022
€ m
71,328
59,897
2,411
2,572
120
3,304
119
96
4
74,020
63,320
2,511
2021
€ m
576
295
11
882
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 change in fair value 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, 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.
Ulster Bank forward contract
The Group entered into a binding agreement in 2021 to acquire performing Ulster Bank corporate and commercial loans which was
subject to regulatory approval. This transaction is an asset acquisition as the Group concluded that it did not meet the definition of a
business combination. Following the receipt of competition clearance in 2022, the contract to acquire the loans (which is not a regular
way transaction) was recognised as a forward contract that is measured at FVTPL. The initial notional value of the forward contract
represented the principal amount of the performing loans to be acquired by the Group from Ulster Bank. The notional value of the
forward contract at 31 December 2022 represents the principal amount of performing loans to be acquired by the Group in 2023. Fair
value gains/losses on the forward contract are reported within net trading income.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
211
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 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 2022 and 2021. A description of how the fair values of derivatives are determined is set out in note 43.
Derivatives held for trading
Interest rate derivatives – over the counter ("OTC")
Interest rate swaps
Cross-currency interest rate swaps
Interest rate options bought and sold
Total interest rate derivatives – OTC
Interest rates derivatives – OTC – central clearing
Interest rate swaps
Total interest rate derivatives – OTC –
central clearing
Interest rate derivatives – exchange traded
Interest rate futures bought and sold
Total interest rate derivatives – exchange traded
2022
2021
Notional
principal
amount
Fair values
Assets
Liabilities
Notional
principal
amount
Fair values
Assets
Liabilities
€ m
€ m
€ m
€ m
€ m
€ m
5,067
421
2,305
7,793
114
(454)
5,286
334
(353)
—
28
(5)
—
(29)
1,776
—
4
—
(3)
142
(488)
7,062
338
(356)
4,417
379
(29)
5,311
44
(26)
4,417
379
(29)
5,311
44
(26)
79
79
—
—
—
—
—
—
—
—
—
—
Total interest rate derivatives
12,289
521
(517)
12,373
382
(382)
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
Other
Forward contract(1)
Total
5,985
5
5,990
121
—
121
(72)
9,809
—
1
(72)
9,810
5
78
83
43
43
1,232
1,232
—
4
4
—
—
—
—
—
—
—
12
162
174
(1)
(1)
175
175
(9)
(9)
—
—
76
—
76
—
—
—
—
—
—
—
(160)
—
(160)
—
(17)
(17)
(6)
(6)
—
—
Total derivatives held for trading
19,637
646
(599)
22,532
458
(565)
(1) Relates to a forward contract to acquire corporate and commercial loans from Ulster Bank. See notes 43 and 51 for further information.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
212
Annual Review
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Risk Management
Financial Statements
General Information
16 Derivative financial instruments continued
2022
Fair values
Assets
Liabilities
Notional
Principal
amount
2021
Fair Values
Assets
Liabilities
Notional
Principal
amount
€ m
€ m
€ m
€ m
€ m
€ m
Derivatives held for hedging
Derivatives designated as fair value hedges – OTC
Interest rate swaps
Total derivatives designated as fair value hedges – OTC
1,653
1,653
21
21
—
—
2,324
2,324
22
22
(28)
(28)
Derivatives designated as fair value hedges – OTC –
central clearing
Interest rate swaps
20,458
1,656
(433)
16,902
234
(164)
Total interest rate fair value hedges – OTC
– central clearing
20,458
1,656
(433)
16,902
Total derivatives designated as fair value hedges
22,111
1,677
(433)
19,226
234
256
(164)
(192)
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
840
—
840
1
—
1
(17)
1,940
—
82
(17)
2,022
35
—
35
(53)
(6)
(59)
Interest rate swaps
29,973
144
(1,933)
18,073
133
(206)
Total interest rate cash flow hedges – OTC – central
clearing
Total derivatives designated as cash flow hedges
Derivatives designated as net investment hedges – OTC
29,973
30,813
144
145
(1,933)
18,073
(1,950)
20,095
133
168
(206)
(265)
Forward exchange contracts
Total derivatives designated as net investment hedges –
OTC
1,459
43
1,459
43
—
—
1,467
—
(40)
Total derivatives held for hedging
Total derivative financial instruments
54,383
74,020
1,865
(2,383)
40,788
1,467
—
424
(40)
(497)
2,511
(2,982)
63,320
882
(1,062)
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
43. The net mark to market on fair value hedging derivatives, excluding accrual and risk adjustments at 31 December 2022 is positive
€1,168 million (2021: positive € 26 million) and the net mark to market on the related hedged items at 31 December 2022 is negative €
1,154 million (2021: negative € 27 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 38.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
213
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 Derivative financial instruments continued
Nominal values and average interest rates by residual maturity
At 31 December 2022 and 2021, 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 +
2022
Total
Fair value hedges – Interest rate swaps
Assets
Hedges of investment securities – debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Hedges of loans and advances to customers
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)
420
5,461
6,863
13,049
0.87
0.66
0.56
0.6
15
2.6
—
—
15
2.6
92
0.84
213
0.02
—
—
—
—
—
—
1,000
0.88
—
—
—
—
—
0
25
1,025
5.12
0.98
—
—
253
1.5
128
6,891
750
8,022
4.75
2.98
5.75
3.22
131
0.86
151
7,570
11,026
10,040
28,918
0.88
1.48
1.33
0.97
1.24
—
0
55
0.21
52
1.14
861
1.41
927
1,895
1.8
1.56
Net investment hedges - Forward exchange contracts
Nominal principal amount (€ m)
Forward FX rate(4)
386
977
96
0.86
0.87
0.85
—
—
—
—
1,459
0.86
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
214
Annual Review
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Governance Report
Risk Management
Financial Statements
General Information
16 Derivative financial instruments continued
Nominal values and average interest rates by residual maturity continued
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)
Less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
5 years +
2021
Total
283
0.34
166
0.09
676
0.65
4,163
6,618
11,906
0.43
0.23
0.32
—
—
—
—
750
0.63
—
—
1,000
25
1,775
0.88
5.12
0.83
—
—
—
—
5,545
2.51
—
—
5,545
2.51
94
1,567
2,238
4,687
7,689
16,275
0.22
0.08
0.43
0.48
0.29
0.34
422
0.22
1,508
0.21
280
0.54
767
0.95
843
1.75
3,820
0.72
Net investment hedges - Forward exchange contracts
Nominal principal amount (€ m)
Forward FX rate(4)
387
0.87
850
0.87
230
0.86
—
—
—
—
1,467
0.87
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
215
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 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 2022 and 2021:
Nominal
Carrying amount(1)
Assets Liabilities
2022
Line item in
SOFP* where
the hedging
instrument is
included
Change in fair
value used for
calculating hedge
ineffectiveness for
the year
Hedge
ineffectiveness
recognised in
the income
statement
Line item in
the income
statement that
includes hedge
ineffectiveness
(a) Hedging instruments
€ m
€ m
€ m
€ m
€ m
Interest rate swaps hedging:
Investment securities – debt
13,049
1,669
Debt securities in issue
Subordinated debt
1,025
8,022
(1)
—
6
2
(432)
Derivative financial
instruments
Derivative financial
instruments
Derivative financial
instruments
1,679
(14)
(520)
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
Assets Liabilities
Assets
Liabilities
€ m
11,652
€ m
€ m
€ m
(1,649)
Investment securities
(1,024)
(7,526)
1
494
Debt securities in issue
Subordinated liabilities
and other capital
instruments
€ m
(1,661)
14
519
(b) Hedged items
Investment securities – debt
Debt securities in issue
Subordinated debt
18 Net trading
income
— Net trading
income
(2) Net trading
income
2022
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
—
—
—
2021
Nominal
Carrying amount(1)
Liabilities
Assets
Line item in
SOFP* where
the hedging
instrument is
included
Change in fair
value used for
calculating hedge
ineffectiveness for
the year
Hedge
ineffectiveness
recognised in the
income
statement
Line item in
the income
statement that
includes hedge
ineffectiveness
(a) Hedging Instruments
€ m
€ m
€ m
€ m
€ m
Interest rate swaps hedging:
Investment securities – debt
11,906
139
Debt securities in issue
Subordinated debt
1,775
5,545
27
90
(171) Derivative financial
instruments
— Derivative financial
instruments
(21) Derivative financial
instruments
401
(16)
(111)
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
Assets
Liabilities
Assets
Liabilities
(b) Hedged items
Investment securities – debt
Debt securities in issue
Subordinated debt
€ m
12,226
€ m
—
—
(1,789)
(5,566)
€ m
9
—
—
€ m
Investment securities
(14) Debt securities in issue
(22) Subordinated liabilities and
other capital instruments
€ m
(397)
16
111
4 Net trading
income
— Net trading
income
— Net trading
income
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
—
—
—
(1) The mark to market on fair value hedging derivatives, excluding accruals of € 76 million, is positive € 1,168 million (2021: € 38 million and positive
€ 26 million).
*Statement of financial position
Allied Irish Banks, p.l.c. Annual Financial Report 2022
216
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Governance Report
Risk Management
Financial Statements
General Information
16 Derivative financial instruments continued
Cash flow hedges of interest rate
The tables below set out the amounts relating to (a) items designated as hedging instruments and (b) the hedged items in cash flow hedges of interest rate risk together with the related hedge
ineffectiveness at 31 December 2022 and 2021:
2022
Nominal
amount
Assets Liabilities
Carrying amount
Hedge ineffectiveness
Line item in
the SOFP*
where
hedging
instruments
are included
Change in fair
value of hedging
instruments used
for calculating
hedge
ineffectiveness
in the year
Change in
fair value of
hedging
instruments
recognised
in OCI in
the year
Hedge
Ineffectiveness
recognised in
the income
statement
Line item in the
income
statement
that includes
hedge
ineffectiveness
Amounts reclassified from cash flow
hedging reserves to the income statement
Line item in the
income
statement
affected by the
reclassification
Amounts for
which hedge
accounting had
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
(a) Hedging Instruments
Interest rate swaps(1)
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Derivative assets
28,918
7
(1,941) Derivative financial
instruments
(1,879)
(1,998)
Derivative liabilities
1,895
138
(9) Derivative financial
165
165
instruments
— Net trading
income
— Net trading
income
—
—
70
4
Interest and
similar income
Interest and
similar expense
(1) Hedging interest rate risk. These include both interest rate swaps and cross currency interest rate swaps, both of which are hedging interest rate risk.
Line item
in SOFP* in
which hedged
item is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Amounts in
the cash flow
hedging
reserves for
continuing
hedges(1)
pre tax
Amounts in
the cash flow
hedging
reserves for
continuing
hedges(1)
post tax
Amounts
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
pre tax
(b) Hedged items
Interest rate risk Loans and advances to
customers
Interest rate risk Customer accounts
€ m
1,879
(165)
€ m
(1,913)
127
€ m
(1,623)
111
€ m
47
—
2022
Amounts
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
post tax
€ m
41
—
(1) The cash flow hedging reserves are adjusted to the lower of either the cumulative gain or loss or the cumulative change in fair value (present value) of the hedged item from inception of the hedge.
The portion that is offset by the change in the cash flow hedging reserves is recognised in other comprehensive income with any hedge ineffectiveness recognised in the income statement.
*Statement of financial position
Allied Irish Banks, p.l.c. Annual Financial Report 2022
217
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 Derivative financial instruments continued
Cash flow hedges of interest rate continued
Nominal
amount
Assets
Liabilities
Carrying amount
Hedge ineffectiveness
Line item in
the SOFP*
where
hedging
instruments
are included
Change in fair
value of hedging
instruments used
for calculating
hedge
ineffectiveness
in the year
Change in
fair value of
the hedging
instruments
recognised
in OCI in
the year
Hedge
Ineffectiveness
recognised in the
income
statement
Line item in the
income
statement that
includes
hedge
ineffectiveness
2021
Amounts reclassified from cash flow
hedging reserves to the income statement
Amounts for
which hedge
accounting had
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
Line item in the
income
statement affected
by the
reclassification
instruments
Interest rate swaps(1)
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Derivative assets
16,275
153
Derivative liabilities
3,820
15
(209) Derivative financial
instruments
(56) Derivative financial
instruments
(606)
(514)
67
66
— Net trading
income
— Net trading
income
—
161
Interest and
similar income
—
(19)
Interest and
similar expense
(1) Hedging interest rate risk. These include both interest rate swaps and cross currency interest rate swaps, both of which are hedging interest rate risk.
Line item
in SOFP* in
which hedged
item is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Amounts in
the cash flow
hedging
reserves for
continuing
hedges(1)
pre tax
Amounts in
the cash flow
hedging
reserves for
continuing
hedges(1)
post tax
Amounts
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
pre tax
(b) Hedged items
Interest rate risk
Interest rate risk
Loans and advances to
customers
Customer accounts
€ m
606
(67)
€ m
(13)
(38)
€ m
(11)
(33)
€ m
221
—
(1) The cash flow hedging reserves are adjusted to the lower of either the cumulative gain or loss or the cumulative change in fair value (present value) of the hedged item from inception of the hedge.
The portion that is offset by the change in the cash flow hedging reserves is recognised in other comprehensive income with any hedge ineffectiveness recognised in the income statement.
* Statement of financial position
2021
Amounts*
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
post tax
€ m
193
—
Allied Irish Banks, p.l.c. Annual Financial Report 2022
218
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
16 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
Between 1 and
2 years
Between 2 and
5 years
More than
5 years
€ m
940
67
€ m
610
55
€ m
1,038
106
€ m
810
66
Within 1 year
Between 1
and 2 years
Between 2
and 5 years
More than
5 years
€ m
62
50
€ m
52
24
€ m
125
28
€ m
102
21
2022
Total
€ m
3,398
294
2021
Total
€ m
341
123
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
Between 1 and
2 years
Between 2 and
5 years
More than 5
years
€ m
940
99
€ m
610
74
€ m
1,038
109
€ m
810
60
Within 1 year
Between 1
and 2 years
Between 2
and 5 years
More than
5 years
€ m
62
118
€ m
52
77
€ m
125
118
€ m
102
50
2022
Total
€ m
3,398
342
2021
Total
€ m
341
363
Ineffectiveness reflected in the income statement that arose from cash flow hedges in 2022 amounted to Nil (2021: 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 in 2022 was a loss of € 1,619
million (2021: a loss of € 391 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
219
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
16 Derivative financial instruments continued
Hedges of net investment in foreign operations
The tables below set out the amounts relating to (a) items designated as hedging instruments and (b) the hedged items in hedges of the net investment in foreign operations together with the related
hedge ineffectiveness at 31 December 2022.
Nominal
amount
Assets Liabilities
Carrying amount
Hedge ineffectiveness
Line item in
the SOFP*
where
hedging
instruments
are included
Change in fair
value of hedging
instruments used
for calculating
hedge
ineffectiveness
in the year
Change in
fair value of
hedging
instruments
recognised
in OCI in
the year
Hedge
Ineffectiveness
recognised in
the income
statement
Line item in
the income
statement
that includes
hedge
ineffectiveness
Amounts reclassified from foreign currency
translation reserves to the income statement
2022
Amounts for
which hedge
accounting had
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
Line item in the
income
statement
affected by the
reclassification
(a) Hedging Instruments
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Foreign exchange
contracts
Derivative assets
Derivative liabilities
1,459
—
43
—
—
—
Derivative Financial
Instruments
Derivative Financial
Instruments
79
—
79
—
—
—
Net trading
income
Net trading
income
—
—
—
—
Other Income
Other Income
Line item
in SOFP* in
which hedged
item is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Amount in the
foreign currency
translation
reserves for
continuing
hedges
pre tax
Amounts in the
foreign currency
translation
reserves for
continuing
hedges
post tax
Amounts
remaining in the
foreign currency
translation reserves
from any hedging
relationship for
which hedge
accounting is no
longer applied
pre tax
2022
Amounts
remaining in the
foreign currency
translation reserves
from any hedging
relationship for
which hedge
accounting is no
longer applied
post tax
Reserves
€ m
(79)
€ m
(22)
€ m
(19)
€ m
—
€ m
—
(b) Hedged items
Net investment in UK subsidiary
*Statement of financial position
Allied Irish Banks, p.l.c. Annual Financial Report 2022
220
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
16 Derivative financial instruments continued
Hedges of net investment in foreign operations
Nominal
amount
Assets
Liabilities
Carrying amount
Hedge ineffectiveness
Line item in
the SOFP*
where
hedging
instruments
are included
Change in fair
value of hedging
instruments used
for calculating
hedge
ineffectiveness
in the year
Change in fair
value of
hedging
instruments
recognised
in OCI in
the year
Hedge
Ineffectiveness
recognised in
the income
statement
Line item in
the income
statement
that includes
hedge
ineffectiveness
Amounts reclassified from foreign currency
translation reserves to the income statement
2021
Amounts for
which hedge
accounting had
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
Line item in the
income
statement
affected by the
reclassification
(a) Hedging Instruments
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Foreign exchange
contracts
Derivative assets
1,467
—
(40)
Derivative Financial
Instruments
(100)
(100)
Derivative liabilities
—
—
— Derivative Financial
—
—
Instruments
—
—
Net trading
income
Net trading
income
—
—
—
—
Other Income
Other Income
(b) Hedged items
Net investment in UK subsidiary
*Statement of financial position
Line item
in SOFP* in
which hedged
item is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Amount in the
foreign currency
translation
reserves for
continuing
hedges
pre tax
Amounts in the
foreign currency
translation
reserves for
continuing
hedges
post tax
Amounts
remaining in the
foreign currency
translation reserves
from any hedging
relationship for
which hedge
accounting is no
longer applied
pre tax
2021
Amounts
remaining in the
foreign currency
translation reserves
from any hedging
relationship for
which hedge
accounting is no
longer applied
post tax
Reserves
€ m
100
€ m
(100)
€ m
(87)
€ m
—
€ m
—
Allied Irish Banks, p.l.c. Annual Financial Report 2022
221
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
17 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
2022
€ m
2021
€ m
262
1,240
1,502
—
361
962
1,323
—
1,502
1,323
2022
€ m
1,100
398
4
2021
€ m
814
505
4
1,502
1,323
(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 € 963 million (2021: € 590 million) placed with derivative counterparties in
relation to net derivative positions and placed with repurchase agreement counterparties. In addition, these include € 5 million
(2021: € 4 million) relating to restricted balances held in trust in respect of certain payables which are included in 'other liabilities' (note
32).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
222
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
18 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)
(1) Undrawn commitments amount to € 133 million and are less than one year (2021: € 81 million).
2022
€ m
2021
€ m
59,397
56,496
1,585
1,654
60,982
58,150
(1,618)
(1,885)
59,364
56,265
249
243
59,613
56,508
1,954
2,213
18
3
Loans and advances to customers include cash collateral amounting to € 15 million (2021: € 12 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 of 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 5 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 20).
2022
€ m
638
443
320
191
89
17
2021
€ m
653
453
332
203
97
18
1,698
1,756
(121)
8
(116)
14
1,585
1,654
63
87
Allied Irish Banks, p.l.c. Annual Financial Report 2022
223
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
19 Securities financing
Securities financing consists of (a) securities borrowing and lending and (b) sale and repurchase transactions.
Reverse repurchase agreements involve purchases of securities with an agreement to resell substantially identical investments at a
fixed price on a certain future date. 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. Securities sold under agreements to
repurchase involves sales of securities with agreements to repurchase substantially identical investments at a fixed price on a certain
future date.
Assets
Reverse repurchase agreements
Securities borrowing transactions
Total(1)
Liabilities
Banks
Customers
€ m
€ m
2022
Total
€ m
Banks
Customers
€ m
€ m
2021
Total
€ m
2,888
2,431
5,319
29
2,917
934
3,365
963
6,282
1,463
1,506
2,969
—
1,463
921
2,427
921
3,890
Securities sold under agreements to repurchase
Total
898
898
—
—
898
898
45
45
—
—
45
45
(1) Classified as ECL Stage 1 and have an ECL of € 1 million at 31 December 2022 (31 December 2021: € 1 million).
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 2022, the total fair value
of the collateral received was € 6,282 million (2021: € 3,890 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 2022, in relation to securities sold under agreements to repurchase, the Group had pledged collateral with a fair value of €
898 million (2021: € 45 million). These transactions were conducted under the normal market agreements for standard repurchase
transactions.
20 ECL allowance on financial assets
The following table shows the movements on the ECL allowance on financial assets. Further information is disclosed in the 'Risk
management' section of this report.
At 1 January
Exchange translation adjustments
Net re-measurement of ECL allowance – investment securities-debt
Net re-measurement of ECL allowance – banks
Net re-measurement of ECL allowance – customers
Net re-measurement 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
Allied Irish Banks, p.l.c. Annual Financial Report 2022
224
2022
€ m
2021
€ m
1,888
2,511
(13)
2
—
50
—
(94)
(210)
—
—
30
—
—
(158)
1
(105)
(393)
1
1
1,623
1,888
3
—
1
—
1,618
1,885
1
1
1
1
1,623
1,888
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
21 Investment securities
The following table analyses the carrying value of investment securities by major classification at 31 December 2022 and 2021.
Debt securities at FVOCI
Government securities
Supranational banks and government agencies securities
Asset backed securities
Bank securities
Corporate securities
Total debt securities at FVOCI
Debt securities at amortised cost
Government securities
Supranational banks and government agencies securities
Asset backed securities
Bank securities
Corporate securities
Total debt securities at amortised cost
Total debt securities
Equity securities
Equity investments at FVTPL
Total equity securities
Total investment securities
The following table analyses total debt securities by ECL stage:
Gross amount
Stage 1
Stage 2
Total debt securities
ECL(1)
Carrying value
(1) Relates to debt securities at amortised cost.
2022
€ m
2021
€ m
3,824
1,298
453
5,763
499
4,752
1,260
495
5,565
517
11,837
12,589
2,052
166
1,628
73
212
4,131
2,514
203
1,102
85
167
4,071
15,968
16,660
302
302
274
274
16,270
16,934
15,961
16,661
10
—
15,971
16,661
(3)
(1)
15,968
16,660
Allied Irish Banks, p.l.c. Annual Financial Report 2022
225
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
22 Investments accounted for using the equity method
Share of net assets including goodwill
At 1 January
Investment in associated undertakings
Investment in joint venture
Disposal of investment in associated undertaking
Share of results of equity accounted investments (after tax)
At 31 December
Of which:
Associates
Joint ventures
2022
€ m
127
21
24
(11)
12
173
159
14
2021
€ m
98
5
3
—
21
127
124
3
Investments in associated undertakings comprises the Group’s investment in AIB Merchant Services, Synch Payments d.a.c, Clearpay
d.a.c., First Home Scheme DAC and Autolease Fleet Management.
Investments in joint ventures comprises the Group's investment in AIB JV Holdings Limited being the Group's joint venture with Great-
West Lifeco Inc.
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 results of equity accounted investments (after tax)
Associates(1)
Joint ventures
Profit on disposal of investment in associated undertaking
Income from equity accounted investments
(1) Includes AIB Merchant Services € 27 million (2021: € 22 million).
The following is the principal associate company of the Group at 31 December 2022 and 2021:
Name of associate
Zolter Services d.a.c. (holds 100% of
First Merchant Processing Ireland d.a.c,
trading as AIB Merchant Services)
Principal activity
Provider of merchant
payment solutions
Place of incorporation
and operation
Registered Office: Unit 6,
Belfield Business Park,
Clonskeagh, Dublin 4
Ireland
2022
€ m
2021
€ m
25
(13)
12
25
37
21
—
21
—
21
Proportion of ownership interest
and voting power held by the
Group
2022
%
49.9
2021
%
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 18 and 29.
In accordance with Sections 316 and 348 of the Companies Act 2014 and the European Communities (Credit Institutions: Financial
Statements) Regulations 2015, Allied Irish Banks, p.l.c. will annex a full listing of associated undertakings to its annual return to the
Companies Registration Office.
There was no unrecognised share of losses of associates or joint ventures at 31 December 2022 or 2021.
Change in the Group’s ownership interest in associates
The Group’s interests in Fulfil Holdings Limited were disposed of in 2022.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
226
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
23 Intangible assets and goodwill
Cost
At 1 January
Additions
Transfers in/(out)
Amounts written-off(2)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(3)
Amounts written-off(2)
Exchange translation adjustments
At 31 December
Carrying value at 31 December
Cost
At 1 January
Additions
Acquisition of subsidiary
Transfers in/(out)
Amounts written-off(2)
Exchange translation adjustments
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(3)
Amounts written-off(2)
Exchange translation adjustments
At 31 December
Carrying value at 31 December
Software
externally
purchased
Software
internally
generated
Software
under
construction
Goodwill(1)
Other
2022
Total
€ m
€ m
€ m
€ m
€ m
€ m
238
11
—
(6)
—
243
219
8
—
(6)
—
221
22
1,472
71
102
(4)
(3)
1,638
804
204
2
(4)
(1)
1,005
633
167
92
(102)
(8)
—
149
—
—
8
(8)
—
—
120
—
—
—
—
120
—
—
—
—
—
—
149
120
40
—
—
—
—
40
18
6
—
—
—
24
16
Software
externally
purchased
Software
internally
generated
Software under
construction
Goodwill(1)
Other
2,037
174
—
(18)
(3)
2,190
1,041
218
10
(18)
(1)
1,250
940
2021
Total
€ m
€ m
€ m
€ m
€ m
€ m
292
1,334
10
—
—
99
1
99
(64)
(65)
—
238
4
1,472
274
9
—
(64)
—
219
19
685
182
—
(65)
2
804
668
172
95
—
(99)
(1)
—
167
—
—
1
(1)
—
—
70
—
50
—
—
—
120
—
—
—
—
—
—
167
120
40
—
—
—
—
—
40
12
6
—
—
—
18
22
1,908
204
51
—
(130)
4
2,037
971
197
1
(130)
2
1,041
996
(1) Relates to Goodwill recognised on the acquisition of subsidiaries.
(2) Relates to assets which are no longer in use with a Nil carrying value.
(3) Included in ‘Impairment and amortisation of intangible assets’ in the consolidated income statement.
Future capital expenditure in relation to both intangible assets and property, plant and equipment is set out in note 24.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
227
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24 Property, plant and equipment
Freehold
Long
leasehold
Property
Leasehold
under
50 years
Owned assets
Leased assets
Equipment Assets under
construction
Right-of-use assets
Total
Property
Other
2022
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
174
1
7
—
(12)
—
(1)
(1)
168
50
5
1
—
(1)
(5)
—
50
118
41
—
—
—
(3)
—
—
—
38
13
1
—
—
—
(1)
—
13
25
124
1
1
—
(1)
—
(18)
—
107
53
10
9
—
377
1
17
—
(1)
—
(15)
(1)
378
290
23
2
—
(18)
(15)
(1)
—
53
54
(1)
(1)
298
80
5
(3)
7
—
—
—
—
—
9
—
—
—
—
—
—
—
—
9
479
—
7
(11)
—
(97)
—
(1)
377
164
37
24
(97)
—
—
—
128
249
3
—
1
—
—
—
—
—
4
2
1
—
—
—
—
—
3
1
1,203
—
40
(11)
(17)
(97)
(34)
(3)
1,081
572
77
36
(97)
(34)
(8)
(1)
545
536
Cost
1 January
Transfers in/(out)
Additions
Net remeasurements
Transfers (to)/from
held for sale
Early termination/maturities
Amounts written off(1)
Exchange translation adjustments
At 31 December
Depreciation/impairment
1 January
Depreciation charge for the year
Impairment charge for the year(2)
Early termination/maturities
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
228
Annual Review
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Governance Report
Risk Management
Financial Statements
General Information
24 Property, plant and equipment continued
Property
Equipment
Freehold
Long
leasehold
Leasehold
under
50 years
Owned assets
Leased assets
Assets under
construction
Right-of-use assets
Total
Property
Other
2021
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
172
2
—
4
—
(4)
(1)
1
174
45
5
2
(1)
(1)
—
50
124
43
—
—
—
—
—
(2)
—
41
14
1
—
(2)
—
—
13
28
128
397
2
1
1
—
—
1
2
23
—
—
8
(5)
—
3
—
—
(9)
(47)
(1)
1
124
46
11
5
1
377
308
24
4
—
5
—
—
1
(9)
(47)
(1)
—
—
53
71
—
1
290
87
—
—
—
5
491
—
5
5
(11)
—
(14)
3
479
103
44
30
(14)
—
1
164
315
3
—
—
1
—
—
(1)
—
3
1
2
—
1,242
—
8
37
(11)
(4)
(75)
6
1,203
517
87
42
(1)
(75)
—
—
2
1
(1)
2
572
631
Cost
At 1 January
Transfers in/(out)
Acquisition of subsidiary
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 € 189 million (2021: € 223 million) in relation to owned
assets and € 249 million in relation to right-of-use assets (2021: € 305 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 € 8 million (2021: Nil).
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
2022
€ m
6
22
2021
€ m
1
18
Allied Irish Banks, p.l.c. Annual Financial Report 2022
229
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
24 Property, plant and equipment continued
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.
Other
The Group leases motor vehicles, ATM offsite locations and IT equipment.
Lease liabilities
A maturity analysis of lease liabilities is shown in note 31.
Amounts recognised in income statement
Depreciation expense on right-of-use assets
Interest on lease liabilities (note 5)
Expense relating to short term leases
Amounts recognised in statement of cash flows
Total cash outflow for leases during the year(1)
2022
€ m
38
11
—
2022
€ m
55
2021
€ m
46
12
1
2021
€ m
55
(1) Includes amounts reported as interest expense on lease liabilities of € 11 million (2021: € 12 million) and amounts reported as principal repayments on lease
liabilities of € 44 million (2021: € 43 million). Refer to note 31.
25 Other assets
Proceeds due from disposal of loan portfolio(1)
Stockbroking client debtors
Items in transit
Items in course of collection
Other(2)
Total
(1) ECL - Nil.
(2) Includes sundry debtors € 41 million (2021: € 33 million).
2022
€ m
41
17
84
51
103
296
2021
€ m
302
35
97
44
95
573
Allied Irish Banks, p.l.c. Annual Financial Report 2022
230
Annual Review
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Governance Report
Risk Management
Financial Statements
General Information
26 Deferred taxation
Deferred tax assets:
Unutilised tax losses
Cash flow hedges
Transition to IFRS 9
Assets used in the business
Retirement benefits
Assets leased to customers
Other
Total gross deferred tax assets
Deferred tax liabilities:
Cash flow hedges
Retirement benefits
Assets used in the business
Investment securities
Acquisition of subsidiary
Transition to IFRS 9
Other
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the statement of financial position:
Deferred tax assets
Deferred tax liabilities
2022
€ m
2021
€ m
2,742
311
4
15
6
15
3
2,840
—
15
14
13
15
7
3,096
2,904
(43)
(1)
(22)
(5)
(2)
—
(21)
(94)
(20)
(15)
(22)
(26)
(3)
(1)
(36)
(123)
3,002
2,781
3,032
2,834
(30)
(53)
3,002
2,781
For each of the years ended 31 December 2022 and 2021, 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 (note 14)
Income statement (note 14)
At 31 December
2022
€ m
2021
€ m
2,781
2,667
(8)
311
(82)
4
76
34
3,002
2,781
At 31 December 2022, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled € 3,002 million (2021: € 2,781 million).
With regard to the Group’s deferred tax asset for unutilised losses, during 2022 the Group recognised a charge to the income statement
of € 76 million, a charge to other comprehensive income of € 10 million and exchange translations and other adjustments of
€ 12 million. As a result, the amount of recognised deferred tax assets arising from unutilised tax losses amounted to € 2,742 million
(2021: € 2,840 million) of which € 2,546 million (2021: € 2,645 million) relates to Irish tax losses and € 196 million (2021: € 195 million)
relates to UK tax losses (of which € 187 million (2021: € 195 million) relates to the Group’s principal UK subsidiary).
Additional commentary on the basis of recognition of deferred tax assets on unused tax losses are included in note 2.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
231
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
26 Deferred taxation continued
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 2022 of € 2,873 million (2021: € 2,738 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. The deferred tax asset for unutilised tax losses in the principal UK
subsidiary amounts to £ 166 million at 31 December 2022 (2021: £ 164 million). The carrying value of the UK deferred tax asset for
unutilised losses has been based on legislation enacted in 2021 to increase the UK Corporation Tax rate from 19% to 25% from 1 April
2023.
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 2022 of € 161 million
(2021: € 161 million); overseas tax (UK and USA) on unused tax losses of € 2,996 million (2021: € 3,142 million); and foreign tax credits
for Irish tax purposes of € 13 million (2021: € 12 million). Of these tax losses totalling € 3,157 million for which no deferred tax is
recognised: € 7 million expires in 2032; € 41 million in 2033; € 27 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 rate and in December 2022 the EU adopted a directive setting out
how these “model rules” should be applied within the EU from 31 December 2023. During 2023 the Group will review the directive, any
legislation introduced in Ireland, related guidance, and any associated amendments to IFRS. 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 (2021: Nil).
Deferred tax recognised directly in equity amounted to Nil (2021: Nil).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
232
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
26 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
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
Gross
Tax
Net of tax
2022
Non-
controlling
interests net
of tax
Net amount
attributable to
equity holders
of the parent
€ m
881
(61)
(1,907)
(209)
(20)
(1,316)
(1,314)
(2)
€ m
(115)
(10)
288
21
12
196
€ m
766
(71)
(1,619)
(188)
(8)
(1,120)
196
—
(1,118)
(2)
€ m
(2)
—
—
—
—
(2)
—
(2)
€ m
768
(71)
(1,619)
(188)
(8)
(1,118)
(1,118)
—
Gross
Tax
Net of tax Non-controlling
interests net of
tax
2021
Net amount
attributable to
equity holders
of the parent
€ m
634
74
(448)
(62)
19
217
219
(2)
€ m
16
13
57
8
(2)
92
92
—
€ m
650
87
(391)
(54)
17
309
311
(2)
€ m
(2)
—
—
—
—
(2)
—
(2)
€ m
652
87
(391)
(54)
17
311
311
—
Allied Irish Banks, p.l.c. Annual Financial Report 2022
233
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 Retirement benefits
The Group operates a number of defined contribution and defined benefit schemes for employees. All defined benefit schemes are
closed to future accrual.
Defined contribution schemes
From 1 January 2014, all Group staff accrue future pension benefits on a defined contribution (“DC”) basis with a standard employer
contribution of 10%. An additional matched employer contribution, subject to limits based on age bands of 2%, 5% or 8% is also paid
into the schemes.
The amount included in operating expenses in respect of DC schemes is € 80 million (2021: € 79 million) (note 11).
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 15,360 members comprising 4,351 pensioners and 11,009 deferred members at 31 December
2022. 7,550 members have benefits accrued from 2007 to 2013 under a hybrid arrangement. In addition, there are 953 members
comprising 140 pensioners and 813 deferred members at 31 December 2022 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 141 and 142 of this report.
Valuations
Independent actuarial valuations for the AIB Group Irish Pension Scheme (‘Irish scheme’) and the AIB Group UK Pension Scheme (‘UK
scheme’) are carried out on a triennial basis by the Schemes’ actuary, Mercer. The most recent valuation of the Irish scheme was
carried out at 30 June 2021 and reported the scheme to be in surplus. The next actuarial valuation of the Irish scheme will be 30 June
2024. No deficit funding is required 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 2020. The next actuarial valuation of the UK scheme will be 31 December
2023.
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 2023
with a final balancing payment, based on latest estimates from LGAS of c. £ 27 million. This payment and any related costs are subject
to change prior to finalisation.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
234
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
27 Retirement benefits continued
Contributions
Total contributions to all defined benefit pension schemes operated by the Group in 2022 amounted to € 24 million (2021: € 22 million).
There were no contributions made to the Irish Scheme in 2022 (2021: Nil). Contributions of £ 18.5 million were made to the UK scheme
(2021: £ 18.5 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 2023 are estimated to be
€ 22 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 2022 and 2021. 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)
2022
%
2.60
4.20
2.85
3.10
5.00
3.10
2021
%
0.65
1.38
2.00
3.30
1.80
3.30
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
235
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 Retirement benefits continued
Funding of increases in pensions in payment for the Irish defined benefit schemes
The Board previously 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 was 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. As a result of this process, the Group’s judgement is that a constructive obligation to fund future pension in payment
increases does not exist.
The Group decided in February 2022 and March 2023 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 the decisions by the Board not to fund discretionary increases, the Trustee of the Irish scheme awarded an increase of
4.5% in 2022. Taking this decision by the Trustee into consideration and the financial position of the scheme, the long term assumption
for future discretionary increases in pensions in payment continues to reflect an assessment of the Trustee’s ability to grant further
discretionary increases without funding from the Group, capped at a long-term inflation assumption. Having taken actuarial advice the
Group has adopted a rate of 2.6%, being a long term inflation assumption, and which has increased the scheme liabilities by € 886
million at 31 December 2022 (31 December 2021: 0.65%, € 350 million respectively).
Mortality assumptions
The life expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2022 and 2021 are
shown in the following table.
Retiring today age 63
Males
Females
Retiring in 10 years at age 63
Males
Females
Life expectancy - years
Irish scheme
UK scheme
2022
2021
25.0
26.8
25.6
27.6
24.9
26.7
25.5
27.5
2022
25.0
26.8
25.3
27.8
2021
25.0
26.8
25.4
27.8
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 2022 is assumed to live on average for 25.0 years for a male
(25.0 years for the UK scheme) and 26.8 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 2022 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
236
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
27 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 2022 and 2021.
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
Net defined
benefit
(liabilities)
assets
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
Net defined
benefit
(liabilities)
assets
2022
2021
At 1 January
Included in profit or loss
Past service cost
Interest (cost)/income
Administration costs
€ m
€ m
€ m
(6,241)
6,976
(735)
(1)
(90)
—
(91)
—
101
(4)
97
—
(10)
—
(10)
€ m
—
(1)
1
(4)
(4)
€ m
€ m
€ m
(6,226)
6,627
(440)
—
(72)
—
(72)
—
77
(3)
74
—
(5)
—
(5)
€ m
(39)
—
—
(3)
(3)
Included in other comprehensive income
Remeasurements (loss)/gain:
– 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
(217)
—
—
(217)
109
—
—
109
18
—
—
18
95
—
—
95
1,390
—
—
1,390
(288)
—
—
(288)
—
(1,349)
—
(1,349)
—
393
—
393
—
—
138
138
—
—
(290)
(290)
42
(45)
1,233
(1,394)
—
138
—
249
249
24
(249)
(225)
—
—
—
(20) (2)
(3)
(23)
24
—
24
(82)
(166)
83
476
—
(290)
—
223
223
22
(223)
(201)
—
—
—
19 (2)
1
20
22
—
22
—
At 31 December
(4,850)
5,454
(607)
(3)
(6,241)
6,976
(735)
31 December
2022
€ m
31 December
2021
€ 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
3
10
13
—
—
(16)
(16)
(3)
44
10
54
—
(31)
(23)
(54)
—
(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 € 8 million (2021: € 17 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
237
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
27 Retirement benefits continued
Scheme assets
The following table sets out an analysis of the scheme assets:
2022
€ m
146
2021
€ m
138
61
104
111
105
200
174
130
207
79
46
71
114
168
91
235
189
155
305
121
49
1,217
1,498
—
—
1,217
1,498
682
1,001
1,683
874
1,557
2,431
344
17
16
—
3
190
110
46
810
12
—
1,187
1,187
177
683
5,454
295
7
23
284
10
266
125
42
470
16
—
1,236
1,236
214
1,157
6,976
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) Further details on these contracts are set out in the section "De-risking of the UK Scheme" within this note.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
238
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
27 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 2022. A
sensitivity analysis for the rate of increase of pensions in payment is not provided, as this rate is dependent on the surplus available to
the Trustee to distribute and the advice of the actuary. See page 236.
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
Decrease
Increase
Decrease
€ m
(102)
43
100
€ m
105
(41)
(100)
€ m
(22)
22
22
€ m
23
(21)
(22)
Maturity of the defined benefit obligation
The weighted average duration of the Irish scheme at 31 December 2022 is 14 years and of the UK scheme at 31 December 2022 is 13
years.
Asset-liability matching strategies
The Irish scheme continued to de-risk in 2022, with further allocations to liability matching assets. As part of a strategy to increase the
scheme’s level of interest rate and inflation hedging, the allocation to the Liability Driven Investment (“LDI”) portfolio has increased
further. The LDI fund is comprised of a mixture of nominal bonds, inflation linked bonds and interest rate and inflation derivatives. The
scheme’s exposure to equities was reduced during 2022 due to a combination of asset sales and market movements.
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 2022, the Group contributed € 9 million (2021: € 9 million) towards insuring these benefits which are included in 'Operating
expenses' (note 11).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
239
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
28 Deposits by central banks and banks
Central Banks
Eurosystem refinancing operations
Borrowings – secured
– unsecured
Banks
Other borrowings – unsecured
2022
€ m
2021
€ m
—
10,000
282
—
298
—
282
10,298
232
84
514
10,382
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 the TLTRO programme for € 4 billion in September 2020 and a further € 6 billion in June 2021
which was repaid in December 2022.
Deposits by central banks and banks include cash collateral at 31 December 2022 of € 210 million (2021: € 51 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
8,749
540
8,209
Banks
€ m
15
15
—
2022
Total
€ m
Central
banks
€ m
Banks
2021
Total
€ m
€ m
8,764
11,011
16
11,027
555
8,209
5,751
5,260
16
—
5,767
5,260
(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.
29 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 40.
2022
€ m
2021
€ m
64,402
57,895
32,595
29,762
5,335
5,183
27
26
102,359
92,866
59,266
41,169
43,093
51,697
102,359
92,866
271
280
Customer accounts include cash collateral of € 71 million (2021: € 59 million) received from derivative counterparties in relation to net
derivative positions.
At 31 December 2022, the Group’s five largest customer deposits amounted to 1% (2021: 1%) of total customer accounts.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
240
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Risk Management
Financial Statements
General Information
30 Debt securities in issue
Issued by subsidiaries
Bonds and medium term notes:
Euro Medium Term Note Programme
Bonds and other medium term notes
Analysis of movements in debt securities in issue
At 1 January
Issued during the year
Matured
Other(1)
At 31 December
(1) Includes a negative fair value hedge adjustment of € 15 million (2021: positive € 14 million).
31 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
Early terminations
Net remeasurements
Foreign exchange translation adjustments
At 31 December
(1) Repayment of principal portion of the lease liabilities amounted to € 44 million (2021: € 43 million) i.e. lease payments net of interest expense.
32 Other liabilities
Notes in circulation
Items in transit
Creditors
Stockbroking client creditors
Bank drafts
Items in course of collection
Other(1)
2022
€ m
40
105
37
13
298
261
352
(1) Includes invoice discounting credit balances on customer accounts € 55 million (2021: € 103 million).
1,106
1,199
Allied Irish Banks, p.l.c. Annual Financial Report 2022
241
2022
€ m
2021
€ m
—
1,024
1,024
—
1,789
1,789
2022
€ m
2021
€ m
1,789
2,275
—
—
(750)
(500)
(15)
14
1,024
1,789
2022
€ m
257
39
125
154
318
2022
€ m
346
(55)
11
8
—
(40)
(12)
(1)
257
2021
€ m
346
52
169
185
406
2021
€ m
382
(55)
12
5
5
(1)
(3)
1
346
2021
€ m
96
71
32
35
421
180
364
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
33 Provisions for liabilities and commitments
The Group has presented legal claims, Belfry related provisions, FSPO decision, restructuring costs and other provisions as separate
classes of provisions in 2022. Onerous contracts and ROU commitments, which were previously presented separately, are now
included within other provisions. The related comparatives for 2021 have been restated.
Legal claims
Belfry related
provisions
FSPO
decision
Restructuring
costs
Other
provisions
2022
Total
€ m
€ m
€ m
€ m
€ m
€ m
Provisions (excluding loan commitments and
financial guarantee contracts)
At 1 January 2022
Charged to income statement
Released to income statement
Provisions utilised
Exchange translation adjustments
At 31 December 2022
Loan commitments and financial guarantees
contracts
At 1 January 2022
Net charge to income statement
Disposals
Exchange translation adjustments
At 31 December 2022
Total provisions for liabilities and
commitments
Provisions (excluding loan commitments and
financial guarantee contracts)
At 1 January 2021
Charged to income statement
Released to income statement
Dilapidation provisions
Provisions utilised
Exchange translation adjustments
At 31 December 2021
Loan commitments and financial guarantees
contracts
At 1 January 2021
Net (writeback) to income statement
Exchange translation adjustments
At 31 December 2021
31
6
(3)
(5)
—
29
75
94
—
(90)
—
79
79
—
(16)
(3)
—
60
27
4
(4)
(18)
(1)
8
210
36
(30)
(130)
—
86
Legal claims
Belfry related
provisions
FSPO
decision
Restructuring
costs
Other
provisions
422
140 (1)
(53) (1)
(246)
(1)
262 (2)
79
— (3)
(1)
—
78
340
2021
Total
€ m
€ m
€ m
€ m
€ m
€ m
34
30
(4)
—
(29)
—
31
—
75
—
—
—
—
75
80
—
(1)
—
—
—
79
29
26
(1)
—
(28)
1
27
170
65
(9)
2
(19)
1
210
313
196 (1)
(15) (1)
2
(76)
2
422 (2)
83
(6) (3)
2
79
501
Total provisions for liabilities and commitments
(1) Included in note 11.
(2) Amounts expected to be settled within one year amount to € 190 million (31 December 2021: € 368 million).
(3) Included in note 12.
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 Financial Instruments) 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 113 and 124 in the ‘Risk management’
section of this report.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
242
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
33 Provisions for liabilities and commitments continued
(a) Belfry related provisions
During the period 2002 to 2006 the Group sold a series of investment property funds, known as Belfry, which subsequently incurred
losses to c. 2,500 individual investors (c. £ 214 million invested). The Group settled claims from certain of those investors in 2021 which
resulted in a € 25 million charge including amounts for legal and settlement costs (reported in Legal claims in 2021). Following this, the
Group instigated a programme to review the suitability of advice outcomes for individual investors to determine if redress may be due in
certain instances. Based on an initial assessment, a provision was also recorded for € 75 million in 2021.
Following the approval by the Board during 2022 of the customer treatment methodology and the close out of the individual case
assessments, the provision for the cost of redress was reassessed and increased by € 82 million. Payments to impacted customers are
ongoing with the Group making payments of € 85 million in 2022.
Furthermore associated costs, required to conclude the redress programme, of € 12 million were separately provided for of which
€ 5 million was utilised during the period.
While the provision of € 79 million at 31 December 2022 represents the Group’s best estimate, the final cost is subject to uncertainty as
individual investors will have the right to appeal the outcome of their case assessment to an independent appeals panel.
(b) FSPO decision
The provision at 31 December 2022 for customer redress and compensation and other related costs amounted to € 60 million (31
December 2021: € 79 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 on that basis
have effectively concluded.
The Group has continued to engage with stakeholders over the intervening period and a number of related issues continue to exist that
have yet to be resolved, including tax liabilities arising that the Group will be required to discharge on behalf of impacted customers.
Following utilisations of € 3 million in the year the level of provision required for these other costs has been reassessed at € 60 million at
31 December 2022.
These issues remain 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
(c) Restructuring costs
This mainly relates to the UK restructuring with other amounts relating to the property transformation strategy.
UK restructuring provision
A provision for restructuring costs in relation to the implementation of the revised UK strategy of € 19 million was held at 31 December
2021. Following utilisations of € 16 million, and a charge of € 3 million, the closing provision at 31 December 2022 was € 6 million.
(d) Other provisions
Other provisions includes provisions for the Tracker Mortgage Examination CBI Fine, other regulatory provisions, other customer
redress and related matters, ROU commitments, onerous contracts and other miscellaneous provisions.
Tracker Mortgage Examination – CBI fine:
At 31 December 2021, the Group held a provision of € 70 million for the impact of monetary penalties that were expected to be imposed
on the Group by the Central Bank of Ireland (CBI) as part of an administrative sanctions procedure in connection with the Tracker
Mortgage Examination. The CBI concluded its Enforcement Investigation in June 2022 and the Group agreed to pay a fine of € 96.7
million. Accordingly, this provision was increased by € 26.7 million and the fine was settled. This brought the CBI’s investigation into
tracker mortgages at the Group to a close.
Regulatory provision
The Group previously 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. At 31 December 2021, the Group provided € 31 million in relation
to matters arising from this review. The provision has been retained at 31 December 2022 as it is still subject to finalisation with the
relevant regulatory authorities.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
243
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
34 Subordinated liabilities and other capital instruments
Dated loan capital – European Medium Term Note Programmes:
€ 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 SLO)
£ 500m Callable Fixed/Floating Rate Notes due March 2025
– nominal value £ 1 million (maturity extended to 2035 as a result of the SLO)
Subordinated tier 2 loans - AIB Group plc
€ 500 million subordinated tier 2 loan due November 2029, Callable 2024
€ 1 billion subordinated tier 2 loan due May 2031, Callable 2026
Subordinated loans - AIB Group plc
€ 500 million subordinated loan due March 2023
$ 750 million subordinated loan due October 2023
€ 750 million subordinated loan due May 2024
$ 1 billion subordinated loan due April 2025
€ 500 million subordinated loan due July 2025
€ 750 million subordinated loan due November 2027
€ 750 million unsubordinated loan due July 2026
$ 750 million subordinated loan due October 2026
€ 750 million subordinated loan due February 2029
€ 1 billion subordinated loan due April 2028
Maturity of dated loan capital
Dated loan capital outstanding is repayable as follows:
5 years or more
Subordinated loans outstanding are repayable as follows:
Less than 5 years
5 years or more
(a)
(a)
(a)
(b)
(b)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
(c)
2022
€ m
2021
€ m
12
44
1
57
466
881
252
126
714
906
465
656
718
699
736
909
12
43
1
56
496
978
504
687
749
908
507
738
—
—
—
—
6,181
7,585
4,093
5,623
2022
€ m
2021
€ m
57
56
4,536
2,992
3,355
2,212
Dated loan capital
The dated loan capital in this section is subordinated in right of payment to the senior creditors, including depositors, of the respective
issuing entities.
(a) Dated subordinated loan capital
Following the liability management exercises in 2011 and the Subordinated Liabilities Order (“SLO”) in April 2011, residual balances
remained on the dated loan capital instruments above. The SLO, which was effective from 22 April 2011, changed the terms of all of
those outstanding dated loan 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.
Under the EU (Bank Recovery and Resolution) Regulations 2015, these notes are loss absorbing at the point of non-viability.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
244
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
34 Subordinated liabilities and other capital instruments continued
(b) Subordinated tier 2 loans - AIB Group plc
In November 2019, AIB Group plc lent € 500 million to Allied Irish Banks, p.l.c. This loan is subordinated and ranks as tier 2 capital. The
loan matures on 19 November 2029 but may be prepaid in whole, but not in part, at the option of Allied Irish Banks, p.l.c. on the call
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 loan bears interest on the outstanding principal amount at a fixed rate of
2.0% 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 a margin of 2.275% per annum. The loans are junior in right of payment to all senior obligations of the borrower and pari
passu with all other subordinated claims against the borrower. Under the EU (Bank Recovery and Resolution) Regulations 2015, this
loan is loss absorbing at the point of non-viability.
In September 2020, AIB Group plc lent € 1 billion to Allied Irish Banks, p.l.c. This loan is subordinated and ranks as tier 2 capital. The
loan matures on 30 May 2031 but may be prepaid in whole, but not in part, at the option of Allied Irish Banks, p.l.c. on the call 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 loan bears interest on the outstanding principal amount at a fixed rate of 3.0% payable
annually in arrears on 19 November each year. The interest rate will be reset on 30 May 2026 to Eur 5 year Mid Swap rate plus a
margin of 3.425% per annum. The loans are junior in right of payment to all senior obligations of the borrower and pari passu with all
other subordinated claims against the borrower. Under the EU (Bank Recovery and Resolution) Regulations 2015, this loan is loss
absorbing at the point of non-viability.
(c) Subordinated loans - AIB Group plc
During 2022, AIB Group plc as the lender entered into loan agreements as described below with Allied Irish Banks, p.l.c. as the
borrower, whereby the obligations were unsecured and subordinated. The partial redemption of existing loan agreements also occurred
during 2022 and are also described below.
• In March 2022, there was a partial redemption of a € 500 million loan issued by AIB Group plc in March 2018, maturing in 2023, at an
interest rate of 1.625%, leaving a residual of € 253 million.
• In October 2022 there was a partial redemption of a $ 750 million loan issued by AIB Group plc in October 2018, maturing in 2023, at
an interest rate of 4.875%, leaving a residual of $ 136 million.
• In July 2022, AIB Group plc lent € 750 million to Allied Irish Banks, p.l.c. at (a) a fixed rate of 3.75% per annum in respect of the period
from, and including, the drawdown date 4 July 2022 and to, but excluding, the call date 4 July 2025, and (b) thereafter, the rate equal
to the Single Mid-Swap Rate plus 2.125% per annum. Interest is payable annually in arrears on 4 July commencing on 4 July 2023 up
to and including the maturity date. The loan is due to be repaid in full on maturity date, 4 July 2026, unless previously prepaid.
• In October 2022, AIB Group plc lent $ 750 million to Allied Irish Banks, p.l.c. at (a) a fixed rate of 7.708% per annum in respect of the
period from, and including, the drawdown date 14 October 2022 and to, but excluding, the call date 14 October 2025, and
(b) thereafter, the Secured Overnight Financing Rate plus 3.581% per annum. Interest is payable semi-annually in arrears on 14 April
and 14 October commencing on 14 April 2023 up to and including the maturity date. The loan is due to be repaid in full on maturity
date, 14 October 2026, unless previously prepaid.
• In November 2022, AIB Group plc lent € 750 million to Allied Irish Banks, p.l.c. at (a) a fixed rate of 5.875% per annum in respect of
the period from, and including, the drawdown date 16 November 2022 and to, but excluding, the call date 16 February 2028, and (b)
thereafter, the rate equal to the Single Mid-Swap Rate plus 2.975% per annum. Interest is payable annually in arrears on 16 February
commencing on 16 February 2023 up to and including the maturity date. The loan is due to be repaid in full on maturity date, 16
February 2029, unless previously prepaid.
• In April 2022, AIB Group plc lent € 1 billion to Allied Irish Banks, p.l.c. at (a) a fixed rate of 2.375% per annum in respect of the period
from, and including, the drawdown date 4 April 2022 and to, but excluding, the call date 4 April 2027, and (b) thereafter, the rate equal
to the Single Mid-Swap Rate plus 1.425% per annum. Interest is payable annually in arrears on 4 April commencing on 4 April 2023
up to and including the maturity date. The loan is due to be repaid in full on maturity date, 4 April 2028, unless previously prepaid.
The Company may, at its option, prepay the loans on the call date (if any), or as a result of certain changes in tax law, or if a loss absorption
disqualification event has occurred which relates to the Company or to its regulatory group (i.e. the consolidated entities of Allied Irish Banks,
p.l.c. for regulatory purposes). Repayment of any such loan prior to the contractual maturity date is subject to the approval of the relevant
regulator.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
245
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
34 Subordinated liabilities and other capital instruments continued
The loans may be subject to the exercise of Irish Statutory loss absorption powers by the relevant resolution authority.
In the event of a winding-up of Allied Irish Banks, p.l.c., its obligations under the loans shall rank as senior non-preferred claims and as
such AIB Group plc’s claims in respect of the principal, interest and any other amount in respect of the individual loans shall rank:
(a) junior in right of payment to all senior claims (excluding senior non-preferred claims);
(b) pari passu with all other senior non-preferred claims; and
(c) in priority to all Own Funds claims and all other subordinated claims against Allied Irish Banks, p.l.c. other than senior non-preferred
claims.
35 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
Share premium
At beginning and end of period:
31 December 2022
31 December 2021
Number of shares
m
Number of shares
m
€ m
€ m
4,000.0
2,500
4,000.0
2,500
2,673.4
1,671
2,714.4
1,696
2022
€ m
2021
€ m
1,386
1,386
Movements in share capital
In May 2022, the Company completed a share buyback programme. The share buyback programme resulted in the repurchase by the Company
of 40,952,764 ordinary shares from AIB Group plc, for an aggregate consideration of € 91 million. These shares were subsequently cancelled
and the nominal amount of € 25 million was transferred from share capital to capital redemption reserves. The number of ordinary shares in
issue at 31 December 2022 was 2,673,428,474 (31 December 2021: 2,714,381,238).
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 34)
Total capital resources
31 December 2022
31 December 2021
Authorised
share capital
%
Issued share
capital
%
Authorised
share capital
%
Issued share
capital
%
100
100
100
100
31 December
2022
€ m
2021
€ m
12,247
13,667
1,404
1,530
13,651
15,197
Allied Irish Banks, p.l.c. Annual Financial Report 2022
246
Annual Review
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Risk Management
Financial Statements
General Information
36 Other equity interests
Issued by Allied Irish Banks, p.l.c.
Issued to 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
2022
€ m
2021
€ m
(a)
(b)
496
619
496
619
1,115
1,115
Distributions amounting to € 67 million (2021: € 67 million) were paid on the Additional Tier 1 Securities issued to 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’) to AIB Group plc. The transaction costs incurred were € 4 million.
Interest on the securities, at a fixed rate of 5.375% 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 sum of the relevant reset reference rate and the margin of 5.827%. 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 constitute direct, unsecured, unguaranteed and subordinated obligations of the issuer and rank pari passu and without
any preference among themselves.
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 issuer or of the Group at any time falls below 7%, subject to certain conditions, the Company
shall write down the prevailing principal amount of the AT1 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.
(b) In June 2020, the Company issued € 625 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write-Dow
Securities (‘AT1s’) to AIB Group plc. The transaction costs incurred were € 6 million.
Interest on the securities, at a fixed rate of 6.375% 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 sum of the relevant reset reference rate and the margin of 6.754%. 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 issuer or of the Group at any time falls below 7%, subject to certain conditions, the Company
shall write down the prevailing principal amount of the AT1 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
247
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
37 Capital reserves and capital redemption reserves
Capital reserves
At beginning and end of year
(1) Relates to the acquisition of EBS d.a.c.
Capital
contribution
reserves
Other
capital
reserves
2022
Total
€ m
955 (1)
€ m
€ m
178
1,133
Capital
contribution
reserves
€ m
955 (1)
Other
capital
reserves
€ m
2021
Total
€ m
178
1,133
For details regarding the capital contribution reserves, refer to accounting policy (aa) in note 1.
Capital redemption reserves
At 1 January
Transfer from ordinary share capital (note 35)
At 31 December
2022
€ m
14
25
39
2021
€ m
14
—
14
38 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 € 2,220
million at 31 December 2022 (2021: € 529 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 2022, € 795 million (2021: € 570 million) of CSAs are included within
financial assets and € 245 million (2021: € 100 million) of CSAs are included within financial liabilities.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
248
Annual Review
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Financial Statements
General Information
38 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 2022 and 2021:
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
Gross
amounts of
recognised
financial
liabilities
offset in the
statement
of financial
position
Net
amounts of
financial
assets
presented
in the
statement
of financial
position
Related amounts not
offset in the statement of
financial position
Financial
collateral
(including
cash
collateral)
received
Financial
instruments
€ m
2,501
2,917
3,365
8,783
(2,220)
(200)
(2,899)
(3,365)
(8,484)
(18)
—
(218)
Gross
amounts of
recognised financial
assets
Note
€ m
16
2,501
€ m
—
19
19
8,222
3,365
(5,305)
—
14,088
(5,305)
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
2022
Net
amount
€ m
81
—
—
81
2022
Net
amount
€ m
19
16
6,203
(5,305)
2,932
—
9,135
(5,305)
898
2,932
3,830
(879)
(19)
(2,220)
(3,099)
(749)
(768)
—
(37)
(37)
Allied Irish Banks, p.l.c. Annual Financial Report 2022
249
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
38 Offsetting financial assets and financial liabilities continued
Gross
amounts of
recognised
financial
liabilities
offset in the
statement
of financial
position
€ m
—
Gross
amounts of
recognised financial
assets
Note
16
€ m
788
19
19
4,788
2,427
8,003
(3,325)
—
(3,325)
Net
amounts of
financial
assets
presented
in the
statement
of financial
position
€ m
788
1,463
2,427
4,678
2021
Related amounts not offset
in the statement of financial
position
Financial
collateral
(including
cash
collateral)
received
Net
amount
Financial
instruments
€ m
(529)
€ m
(56)
€ m
203
(1,463)
(2,427)
(4,419)
(10)
—
(66)
(10)
—
193
Gross
amounts of
recognised
financial
assets
offset in the
statement of
financial
position
Net
amounts of
financial
liabilities
presented
in the
statement of
financial
position
Related amounts not offset
in the statement of financial
position
Financial
collateral
(including
cash
collateral
received)
Financial
instruments
Gross
amounts of
recognised financial
liabilities
Note
€ m
€ m
€ m
€ m
€ m
2021
Net
amount
€ m
19
16
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
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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Risk Management
Financial Statements
General Information
38 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 2022 and
2021:
Financial assets
Derivative financial instruments
Securities financing
Net amounts of
financial assets
presented in the
statement of financial
position
€ m
Line item in
statement of
financial position
2,501 Derivative financial instruments
Carrying
amount in
statement
of financial
position
€ m
2,511
Reverse repurchase agreements
2,917
Securities borrowing
3,365 Securities financing
6,282
2022
Financial
assets not
in scope of
offsetting
disclosures
€ m
10
—
2022
Financial liabilities
Securities financing
Net amounts of
financial liabilities
presented in the
statement of financial
position
€ m
Line item in
statement of
financial position
Securities sold under agreement to repurchase
898 Securities financing
Derivative financial instruments
2,932 Derivative financial instruments
Net amounts of financial
assets presented in the
statement of financial
position
Line item in
statement of
financial position
€ m
788 Derivative financial instruments
Financial assets
Derivative financial instruments
Securities financing
Carrying
amount in
statement
of financial
position
Financial
liabilities not in
scope of
offsetting
disclosures
€ m
898
2,982
Carrying
amount in
statement
of financial
position
€ m
882
€ m
—
50
2021
Financial
assets not
in scope of
offsetting
disclosures
€ m
94
Reverse repurchase agreements
1,463
Securities borrowing
2,427 Securities financing
3,890
—
Net amounts of financial
liabilities presented in the
statement of financial
position
Line item in
statement of
financial position
€ m
Financial liabilities
Securities financing
Securities sold under agreement to repurchase
45 Securities financing
Derivative financial instruments
1,049 Derivative financial instruments
Carrying
amount in
statement
of financial
position
€ m
45
1,062
2021
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
—
13
Allied Irish Banks, p.l.c. Annual Financial Report 2022
251
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
39 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
2022
€ m
2021
€ m
764
38
802
775
44
819
121
129
9,173
5,766
9,135
4,463
15,060
13,727
15,862
14,546
(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 113 and 124 in the
‘Risk management’ section of this report.
Provisions for ECLs on loan commitments and financial guarantee contracts are set out in note 33.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
252
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Risk Management
Financial Statements
General Information
39 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.
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.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
253
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
40 Subsidiaries and consolidated structured entities
The following sets out details of the parent company in the Group and its material subsidiary companies at 31 December 2022 and
2021:
Name of company
Principal activity
Place of
incorporation
Registered
Office
Allied Irish Banks, p.l.c.
AIB Mortgage Bank Unlimited Company
EBS d.a.c.
AIB Group (UK) p.l.c. trading as
Allied Irish Bank(GB) in Great Britain
and AIB (NI) in Northern Ireland
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
Issue of mortgage covered
securities
– a licensed bank
Mortgages and savings
– a licensed bank
Ireland
Ireland
Ireland
10 Molesworth Street,
Dublin 2,
Ireland.
10 Molesworth Street,
Dublin 2,
Ireland.
10 Molesworth Street,
Dublin 2,
Ireland.
Banking and financial services
– a licensed bank
Northern
Ireland
92 Ann Street,
Belfast BT1 3HH.
All subsidiaries of Allied Irish Banks, p.l.c. are wholly owned apart from Augmentum Limited in which there are non-controlling interests.
Practically all subsidiaries in the Group are involved in the provision of financial services or ancillary services.
Acquisition of subsidiary
On 31 August 2021 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. Under the terms of
the agreement, the Group acquired the entire share capital for a total consideration, including deferred contingent consideration, of
€ 139 million. The acquisition gave rise to the recognition of goodwill of € 50 million.
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 42.
There are no contractual arrangements that could require Allied Irish Banks, p.l.c. or its subsidiaries to provide financial support to the
consolidated structured entities listed above. During the year, neither Allied Irish Banks, p.l.c. nor any of its subsidiaries provided
financial support to a consolidated structured entity and there is no current intention to provide financial support.
Unconsolidated structured entities
The Group acts as a fund or investment manager for a number of unconsolidated structured entities for which it receives investment or
fund management fees. The Group acts as sponsor of these entities. The Group has no units within these funds. Therefore the carrying
amount of assets and liabilities in relation to these entities in the Group’s statement of financial position is Nil (2021: Nil).
The Group’s maximum exposure to loss is equal to the value of outstanding fees owed from these entities of € 2 million at 31 December
2022 (31 December 2021: € 2 million). These entities are financed by investors in the entities. During the year the Group has not
provided any non-contractual financial or other support to these entities and has no current intention of providing any financial or other
support.
Non-controlling interests in subsidiary undertaking
On 31 October 2019, Augmentum Limited (‘Augmentum’), of which 75% is owned by the Group and 25% by a non-controlling interest,
First Data Global Services Limited (part of First Data Corporation which is owned by Fiserv Inc.), acquired 96.77% of the equity share
capital and voting rights of Semeral Limited (‘Semeral’), the holding company for Payzone Ireland Limited (‘Payzone’).
Semeral/Payzone place of business: 4 Heather Road, Sandyford Industrial Estate, Dublin 18
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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Financial Statements
General Information
41 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 19). 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 19. 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
255
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
41 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. 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 30). 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 € 8.3 billion, internal Group companies hold € 7.3 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 30). 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 2022, the carrying amount of the transferred
financial assets which the Group continues to recognise is € 2.8 billion (2021: € 3.2 billion) (fair value is € 2.6 billion (2021: € 2.9 billion))
and the carrying amount of the associated liabilities is Nil (2021: Nil).
The following table summarises as at 31 December 2022 and 2021, 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
Sale and repurchase
agreements/similar products
Covered bond programmes
Residential mortgage backed
Carrying
amount of
transferred
assets
€ m
Carrying
amount of
associated
liabilities
€ m
Fair
value of
transferred
assets
Fair
value of
associated
liabilities
2022
Net fair
value
position
€ m
€ m
€ m
5,945 (1)(2)
898 (1)
5,949
898
5,051
1,845 (3)
1,024 (4)
1,756
1,026
730
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
Fair
value of
transferred
assets
Fair
value of
associated
liabilities
2021
Net fair
value
position
€ m
€ m
€ m
€ m
€ m
3,368 (1)(2)
45 (1)
3,371
45
3,326
2,820 (3)
1,789 (4)
2,693
1,799
894
(1) See note 19.
(2) Includes € 5,030 million of assets pledged in relation to securities lending arrangements (2021: € 3,306 million).
(3) The asset pools of € 15 billion (2021: € 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 € 1,845 million (2021: € 2,820 million) above refers to those assets apportioned to
external investors.
(4) Included in 'Bonds and other medium term notes' issued by subsidiaries (note 30).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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41 Off-balance sheet arrangements and transferred financial assets continued
AIB Group (UK) p.l.c. Pension Scheme interest in the AIB PFP Scottish Limited Partnership
In December 2013, the Group agreed with the Trustee of the AIB UK Defined Benefit Pension Scheme (“the UK scheme”) a restructure
of the funding of the deficit in the UK scheme.
The Group established a pension funding partnership, AIB PFP Scottish Limited Partnership (“SLP”) under which a portfolio of loans
were transferred to the SLP from another Group entity, AIB UK Loan Management Limited (“UKLM”) for the purpose of ring-fencing the
repayments on these loans to fund future deficit payments of the UK scheme.
Assets ring–fenced for this purpose entitled the UK Scheme to expected annual payments in the range of £ 15 million to £ 35 million per
annum from 2016 until 2032, with a potential termination payment in 2032 of up to £ 60 million. Following the approval of the 2017
triennial valuation in May 2019, the annual payments were set at £ 15 million per annum, commencing 1 January 2019. However, this
funding plan was replaced in December 2019, as part of the de-risking of the UK scheme (note 30 ). Under this funding arrangement,
the Group expects to make payments of £ 18.5 million in 2023 with a final balancing payment, based on latest estimates from LGAS of
c. £ 27 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.
(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 2022, the Group recognised €0.5million
(cumulative € 8.7 million) (2021: € 0.5 million (cumulative € 8.7 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 2022, the Group recognised € 2 million (cumulative € 100 million)
(2021: € 2 million (cumulative € 98 million)) in the income statement for the servicing of financial assets transferred to NAMA.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
257
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
42 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 2022 and 2021:
At fair value
through profit or
loss
Mandatorily
At fair value through other
comprehensive income
At amortised
cost
Debt
investments
Hedging
derivatives
2022
Total
€ m
—
8
2,323 (2)
—
249
—
302
—
€ m
€ m
€ m
€ m
—
—
—
—
—
—
11,837
—
—
—
188
—
—
—
—
—
38,138 (1)
38,138
—
—
1,502
59,364
6,282
4,131
592
8
2,511
1,502
59,613
6,282
16,270
592
2,882
11,837
188
110,009
124,916
—
—
—
4
1,032 (5)
—
—
—
1,036
—
—
—
—
—
—
—
—
—
—
—
—
—
1,950
—
—
—
514
514
102,362
102,362
898
—
—
1,024
7,585
1,383
898
4
2,982
1,024
7,585
1,383
1,950
113,766
116,752
Financial assets
Cash and balances at central banks
Trading portfolio financial assets
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers(3)
Securities financing
Investment securities
Other financial assets
Financial liabilities
Deposits by central banks and banks
Customer accounts(4)
Securities financing
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and
other capital instruments(6)
Other financial liabilities
(1) Includes cash on hand € 573 million.
(2) Held for trading € 646 million and fair value hedges € 1,677 million.
(3) Includes loans and advances to AIB Group plc of Nil.
(4) Includes customer accounts due to AIB Group plc of € 3 million.
(5) Held for trading € 599 million and fair value hedges € 433 million.
(6) Includes subordinated loans – AIB Group plc of € 7,528 million.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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General Information
42 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
2021
Total
Mandatorily
€ m
Debt
investments
Hedging
derivatives
€ m
€ m
€ m
€ m
Financial assets
Cash and balances at central banks
Trading portfolio financial assets
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers(3)
Securities financing
Investment Securities
Other financial assets
Financial Liabilities
Deposits by central banks and banks
Customer accounts(4)
Securities financing
Trading portfolio financial liabilities
Derivative financial instruments
Debt securities in issue
Subordinated liabilities and other capital instruments(6)
Other financial liabilities
(1) Includes cash on hand € 545 million.
(2) Held for trading € 458 million and fair value hedges € 256 million.
(3) Includes loans and advances to AIB Group plc of € 15 million.
(4) Includes customer accounts due to AIB Group plc of € 4 million.
(5) Held for trading € 565 million and fair value hedges € 192 million.
(6) Includes subordinated loans – AIB Group plc of € 5,567 million.
—
8
714 (2)
—
243
—
274
—
—
—
—
—
—
—
12,589
—
—
—
168
—
—
—
—
—
42,654 (1)
42,654
—
—
1,323
56,280
3,890
4,071
886
8
882
1,323
56,523
3,890
16,934
886
1,239
12,589
168
109,104
123,100
—
—
—
2
757 (5)
—
—
—
759
—
—
—
—
—
—
—
—
—
—
—
—
—
305
—
—
—
305
10,382
92,870
45
—
—
1,789
5,623
1,375
112,084
10,382
92,870
45
2
1,062
1,789
5,623
1,375
113,148
Allied Irish Banks, p.l.c. Annual Financial Report 2022
259
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
43 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 2022.
The methods used for calculation of fair value in 2022 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
(2021: 60%).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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43 Fair value of financial instruments continued
FVA is calculated as: Expected exposure (“EE”) multiplied by funding spread (“FS”) 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.
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. See 'Sensitivity of Level 3 measurements' within this note. 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’.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
261
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
43 Fair value of financial instruments continued
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 39. 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 2022 and 2021:
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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43 Fair value of financial instruments continued
Carrying amount
Financial assets measured at fair value
Trading portfolio financial assets
Equity securities
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
Equity 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 FVTPL
Financial assets not measured at fair value
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers:
Mortgages(3)
Non-mortgages
Total loans and advances to customers
Loans and advances - AIB Group plc
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
Other
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
Customer accounts - AIB Group plc
Securities financing:
Securities sold under agreements to repurchase
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
2022
Fair Value
Fair value hierarchy
Level 1
€ m
Level 2
€ m
Level 3
€ m
Total
€ m
—
—
8
14,907
11,848
2,438
(2)
573
—
37,565
262
€ m
8
2,343
164
4
—
249
3,824
1,298
453
5,763
499
302
38,138
1,502
30,031
29,333
59,364
—
2,917
3,365
4,131
592
110,009
4
2,900
72
—
1
9 (4)
2,986
232
282
64,402
32,595
5,362
3
898
1,024
7,585
1,383
8
—
—
—
—
—
3,824
1,298
438
5,763
499
18
—
—
—
—
—
—
2,413
—
2,986
4
—
—
—
—
—
4
—
—
—
—
—
—
—
999
49
—
2,255
164
4
—
—
—
—
15
—
—
—
—
—
—
—
—
—
—
—
2,477
72
—
1
—
2,550
—
282
—
—
—
—
—
11
7,592
—
7,885
88 (1)
—
—
—
249
—
—
—
—
—
284
621
—
1,240
28,625
29,253
57,878
—
2,917
3,365
1,739
592
2,343
164
4
—
249
3,824
1,298
453
5,763
499
302
14,907
38,138
1,502
28,625
29,253
57,878
—
2,917
3,365
4,152
592
4
2,900
72
—
1
9
2,986
232
282
64,402
32,595
5,348
3
898
1,026
7,654
1,383
423 (1)
—
—
—
9
432
232
—
64,402
32,595
5,348
3
898
16
13
1,383
37,827
67,731
108,544
—
—
113,766
1,048
104,890
113,823
(1) Includes € 40 million derivative assets and € 372 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) Relates to the forward contract to acquire corporate and commercial loans from Ulster Bank. See note 51 for further information.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
263
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
43 Fair value of financial instruments continued
Financial assets measured at fair value
Trading portfolio financial assets:
Equity securities
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
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 FVTPL
Financial assets not measured at fair value
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers:
Mortgages(3)
Non-mortgages
Total loans and advances to customers
Loans and advances - AIB Group plc
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
Customer accounts - AIB Group plc
Debt securities in issue
Subordinated liabilities and other capital instruments
Other financial liabilities
Fair value hierarchy
Level 1
€ m
Level 2
€ m
Level 3
€ m
8
—
—
—
—
4,752
1,260
456
5,565
517
26
—
505
76
0
—
—
—
39
—
—
—
545 (2)
—
42,109
361
—
301 (1)
—
—
243
—
—
—
—
—
248
792
—
962
13,996
12,584
620
2021
Fair Value
Total
€ m
8
806
76
—
243
4,752
1,260
495
5,565
517
274
13,996
42,654
1,323
27,509
27,245
54,754
15
1,463
2,427
4,120
886
—
—
—
—
—
—
2,982
—
3,527
2
—
—
—
—
2
—
—
—
—
—
—
—
1,766
58
—
1,824
—
—
—
—
—
—
—
—
27,509
27,245
54,754
15
1,463
2,427
1,138
886
42,470
61,645
107,642
—
743
200
17
6
966
—
10,298
—
—
—
—
—
13
5,765
—
—
96 (1)
—
—
—
96
84
—
57,895
29,762
5,220
45
4
20
16
1,375
2
839
200
17
6
1,064
84
10,298
57,895
29,762
5,220
45
4
1,799
5,839
1,375
16,076
94,421
112,321
Carrying amount
€ m
8
806
76
—
243
4,752
1,260
495
5,565
517
274
42,654
1,323
29,088
27,177
56,265
15
1,463
2,427
4,071
886
109,104
2
839
200
17
6
1,064
84
10,298
57,895
29,762
5,209
45
4
1,789
5,623
1,375
112,084
(1) Includes € 40 million derivative assets and € 372 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
264
Annual Review
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Risk Management
Financial Statements
General Information
43 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 2022 and 2021.
Reconciliation of balances in Level 3 of the fair value hierarchy
The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of
the fair value hierarchy:
Financial assets
Loans and
advances at
FVTPL
Equities
at FVTPL
Investment
securities
Debt Equities
at FVOCI
€ m
€ m
Derivatives
€ m
301
—
—
—
—
—
€ m
243
€ m
248
—
—
€ m
792
—
€ m
96
€ m
96
—
—
2022
Financial liabilities
Total
Derivatives
Total
(213)
—
—
—
(213)
—
—
—
—
—
—
(213)
14
14
89
89
103
(110)
336
—
336
336
—
336
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
88
—
—
—
—
—
—
—
—
—
25
(1)
(32)
249
—
—
72
—
—
97
(125)
(126)
—
—
—
—
—
—
—
—
—
(32)
284
621
—
432
—
432
At 1 January 2022
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 2022
(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
265
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
43 Fair value of financial instruments continued
Derivatives
€ m
489
—
Investment
securities
Equities
at FVOCI
€ m
—
—
Debt
€ m
—
—
Financial assets
Total
Equities at
FVTPL
Loans and
advances at
FVTPL
2021
Financial liabilities
Total
Derivatives
€ m
75
€ m
177
—
—
€ m
741
—
€ m
80
€ m
80
—
—
(188)
—
(188)
—
—
—
—
—
—
—
—
(188)
16
16
21
21
58
58
79
(109)
—
—
16
16
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
—
—
—
—
—
—
—
—
—
—
—
—
—
301
—
—
—
—
—
—
—
—
—
—
—
—
181
(1)
44
(31)
—
—
225
(32)
—
—
—
—
—
—
—
—
—
—
—
—
(33)
—
(33)
—
—
243
248
792
96
96
(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.
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 2022 and 2021:
Net trading income – (losses)
Gains on equity investments at FVTPL
Losses on loans and advances at FVTPL
2022
€ m
2021
€ m
(281)
(151)
13
(16)
(284)
51
(12)
(112)
Allied Irish Banks, p.l.c. Annual Financial Report 2022
266
Financial
instrument
Uncollateralised
customer
derivatives
Ulster Bank
forward contract
Visa inc.
Series B
Preferred
Stock
Loans and
advances to
customers
measured at
FVTPL
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
43 Fair value of financial instruments continued
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
2022
€ m
2021
€ m
Valuation
technique
Significant
unobservable
input
Range of estimates
31 December 2022
Asset
Liability
88
423
301 CVA
96
LGD
PD
Liability
9
n/a Discounted
FVA
Funding spreads
PD
Expected
Future Cash
flows
26% - 43%
(Base 34%)
0.8% - 4.6%
(Base 2.1% 1year
PD)
(0.1%) to 0.2%
(0.5%) to 0.5%
Discount Yield
(0.5%) to 0.5%
31 December
2021
29% - 46%
(Base 38%)
0.5% - 2.6%
(Base 1.2%, 1year PD)
(0.2%) to 0.3%
n/a
n/a
Asset
22
50
Final conversion
rate
0% - 90%
0% - 90%
Quoted market
price (to which
a discount has
been applied)
Asset
249
243 Discounted
cash flows*
Discount on
market value
(4%) - 3%
(1)% - 9%
Collateral
values
Collateral
changes
n/a
n/a
*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 € 18 million (2021:
€ 28 million). The sensitivity to unobservable inputs for this XVA valuation adjustment at 31 December 2022 ranges from (i) negative
€ 12 million to positive € 6 million for CVA (2021: negative € 23 million to positive € 12 million) and (ii) negative € 2 million to positive
€ 1 million for FVA (2021: negative € 5 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
Ulster Bank forward contract
The Group entered into a binding agreement in 2021 to acquire performing Ulster Bank corporate and commercial loans which was
subject to regulatory approval. This transaction is an asset acquisition as the Group concluded that it did not meet the definition of a
business combination. Following the receipt of regulatory authority approval, the contract to acquire the loans (which is not considered a
regular way transaction) is a forward contract which recognises the change in fair value from the agreement date to the earlier of the
reporting date or the acquisition date for a loan. The notional value of the forward contract at 31 December 2022 represents the
principal amount of performing loans to be acquired by the Group in 2023. Refer to note 16.
The following are key considerations in determining the fair value of the forward contract at 31 December 2022:
– Valuation technique: The loans are valued by discounting the expected future cash flows, allowing for interest and principal
payments to date and fees/charges. Key drivers of the valuation include PDs which determine potential reductions in expected cash
flows due to changes in credit quality, and the discount yield which is used to calculate a present value of the expected future cash
flows. The updated value for the loans is then compared with the agreed transaction price to determine the change in fair value.
– Unobservable input: The PDs used for generation of the underlying expected cash flows are unobservable as the loans are not
publicly quoted, and the discount yield is also unobservable due to lack of publicly available information for transactions of this type.
– Range of estimates: The range of estimates is based on the application of favourable/adverse scenarios for customer PDs and
discounting yields, based on the trend of previous movements in these rates.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
267
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
43 Fair value of financial instruments continued
The fair value sensitivity to unobservable inputs ranges from negative € 3.1 million to positive € 2.9 million for PDs at 31 December
2022, and negative € 8.7 million to a positive of € 8.9 million for discount yield.
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 partial
conversions having occurred in 2020 and 2022. 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. 71% haircut (2021: 69%). 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.
Loans and advances to customers measured at FVTPL
The fair value measurement sensitivity to unobservable collateral values and interest rates ranges from negative €9 million to positive
€ 8 million at 31 December 2022 (2021: negative € 2 million to positive € 21 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 2022 and 2021:
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
2022
Level 3
Effect on income
statement
Effect on other
comprehensive income
Favourable
Unfavourable
Favourable
Unfavourable
€ m
€ m
€ m
€ m
6
24 (1)
8
38
1
1
(11)
(15) (1)
(9)
(35)
(2)
(2)
—
—
—
—
—
—
—
—
—
—
—
—
Allied Irish Banks, p.l.c. Annual Financial Report 2022
268
Annual Review
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Risk Management
Financial Statements
General Information
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
2021
Level 3
Effect on income
statement
Effect on other
comprehensive income
Favourable
Unfavourable
Favourable
Unfavourable
€ m
€ m
€ m
€ m
14
48 (1)
21
83
—
—
(27)
(34) (1)
(2)
(63)
(1)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
(1) Relates to a significant equity investment, the carrying value of which was € 22 million at 31 December 2022 (2021: € 50 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
269
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
44 Cash and cash equivalents
For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than three
months maturity from the date of acquisition:
Cash and balances at central banks
Loans and advances to banks(1)(2)
Total
2022
€ m
2021
€ m
38,138
42,654
1,178
903
39,316
43,557
(1) Included in ‘Loans and advances to banks’ total of € 1,502 million (2021: € 1,323 million) set out in note 17.
(2) Includes € 5 million relating to restricted balances held in trust in respect of certain payables which are included in 'Other liabilities' (note 32).
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
2022
€ m
2021
€ m
32,573
35,223
4,584
6,555
408
573
331
545
38,138
42,654
The Group is required to hold minimum reserve balances with the Central Bank of Ireland.
The Group is required by law to maintain reserve balances with the Bank of England. At 31 December 2022, these amounted to € 261
million (31 December 2021: € 361 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
270
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
45 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
Change in other provisions
Retirement benefits - defined benefit expense
Depreciation, amortisation and impairment
Interest on subordinated liabilities and other capital instruments
Loss/(gain) on disposal of investment securities
(Gain)/Loss on termination of hedging swaps
Amortisation of premiums and discounts
Net gain on equity investments measured 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 trading portfolio financial assets
Change in derivative financial instruments
Change in loans and advances to banks
Change in loans and advances to customers
Change in 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 trading portfolio liabilities
Change in debt securities in issue
Change in notes in circulation
Change in other liabilities
2022
€ m
1
(18)
(2)
(37)
52
87
4
341
195
7
(4)
50
(88)
16
(1)
58
2021
€ m
3
(1)
(3)
(21)
(163)
183
3
327
141
(18)
12
50
(58)
12
(81)
6
(298)
(101)
363
(24)
2
(22)
341
2022
€ m
—
(149)
69
291
(22)
3
(19)
272
2021
€ m
3
(2)
45
(3,221)
1,022
(2,343)
(3,415)
21
35
(5,623)
(2,312)
2022
€ m
2021
€ m
(9,852)
5,859
10,045
9,923
851
2
(165)
—
(750)
(500)
(56)
(237)
(49)
276
3
15,344
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
271
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
46 Related party transactions
Allied Irish Banks, p.l.c. is the parent company of the Group. Related parties include its owner, 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 the Group.
(a) Transactions with owner and with subsidiary and associated undertakings and joint arrangements
(i) Transactions with AIB Group plc
The following were the principal transactions during 2022 between AIB Group plc (the owner) and Allied Irish Banks, p.l.c.
(the subsidiary company):
• 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 6);
• Allied Irish Banks, p.l.c. issued subordinated debt to AIB Group plc amounting to € 2.5 billion and $ 750 million (note 34);
• Allied Irish Banks, p.l.c. partially redeemed a € 500 million loan and $ 750 million loan issued by AIB Group plc (note 34); and
• Interest expense on subordinated debt from the parent company, AIB Group plc, amounted to € 192 million (note 5).
(ii) Transactions with subsidiary undertakings
Banking transactions between Allied Irish Banks, p.l.c. and its subsidiaries are entered into in the normal course of business.
These include loans, deposits, provisions of derivative contracts, foreign currency contracts and the provision of guarantees on an
‘arm’s length basis’. Furthermore, pricing arrangements between Allied Irish Banks, p.l.c. and certain Irish subsidiaries, and between
certain Irish subsidiaries 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. Balances between Allied Irish Banks, p.l.c. and its subsidiaries are
detailed in notes c, d, e, f. h, i, o, p and y to the parent 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 18 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 29.
(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 41).
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 41).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
272
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
46 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 ("IAS 24"). 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 2022, the Group had 25 KMP (2021: 24 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 64 and 65.
Short term compensation(1)
Post-employment benefits(2)
Termination benefits
Total
2022
2021
€ m
7.1
0.9
—
8.0
€ m
5.7
0.8
—
6.5
(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
2022
€ m
1.51
—
2021
€ m
1.56
—
0.05
(0.05)
1.56
1.51
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 2022 were € 0.13 million (2021: € 0.13 million).
Deposit and other credit balances held by KMP and their close family members as at 31 December 2022 amounted to € 2.48 million
(2021: € 3.21 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
273
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
46 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 (2021: 6). Of the Directors who availed of credit
facilities, 3 had balances outstanding at 31 December 2021 (2021: 3 of 6).
Details of transactions with Directors for the year ended 31 December 2022 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
2021
Amounts
advanced
during 2022
Amounts repaid
during 2022
Balance at
31 December
2022
€ 000
€ 000
€ 000
€ 000
55
—
55
691
12
703
—
8
8
—
—
—
—
—
—
—
—
—
8
—
8
49
—
49
—
—
—
47
—
47
2
55
642
16
658
8
714
—
10
10
—
16
* 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 € 1,000 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 2022.
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 € 1,000 was held on the above facilities at 31 December 2022.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
274
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Risk Management
Financial Statements
General Information
46 Related party transactions continued
(f) Companies Act 2014 disclosures
(i) Loans to Directors continued
Details of transactions with Directors for the year ended 31 December 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
Amounts
advanced
during 2021
Amounts repaid
during 2021
Balance at
31 December
2021
€ 000
€ 000
€ 000
€ 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
275
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
46 Related party transactions continued
(f) Companies Act 2014 disclosures
(ii) Connected persons
The aggregate of loans to connected persons of Directors, in office during the year, at 31 December, as defined in Section 220 of the
Companies Act 2014, are as follows (aggregate of 9 persons; 2021: 7 persons):
Loans
Overdraft/credit card*
Total
Interest charged during the year
Maximum debit balance during the year**
Balance at
31 December
2022
Balance at
31 December
2021
€ 000
649
8
657
13
594
€ 000
691
8
699
15
927
An expected credit loss allowance is held for all loans and advances. Accordingly, a total expected credit loss allowance of less than
€ 500 was held on the above facilities at 31 December 2022.
* 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 2022 represents c.
0.01% of the net assets of the Group (2021: 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 2022, the State’s shareholding in the Company has reduced to 1,520,799,849 ordinary shares (56.89%) following a
directed buyback and disposals as part of a pre-arranged trading plan. At 31 December 2021, the State held 1,930,436,543 ordinary
shares (71.12%).
– Issue of warrants to the Minister for Finance
In 2017, AIB issued warrants to the Minister to subscribe for 271,166,685 ordinary shares. Following the reduction in issued share
capital during the year, these warrants now represent 10.14% of the issued share capital. For further details see note 35.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
276
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
46 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 a Government guarantee against losses on qualifying finance agreements on amounts advanced under the Schemes.
At 31 December 2022, c € 552 million is outstanding across individual schemes of which the Future Growth Loan Scheme; Brexit/
COVID-19 Working Capital Loan Schemes and the COVID-19 Credit Guarantee Scheme benefit from an 80% Government
guarantee.
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.
– Funding support
The Group availed of Targeted Long Term Refinancing Operation III (“TLTRO III”) funding from the ECB, through the Central Bank and
which was repaid in full in December 2022. See notes 4 and 29 for further details in relation to the Group's participation 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 2022 and 2021 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
277
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
46 Related party transactions continued
(g) Summary of relationship with the Irish Government continued
Cash and balances at central banks(1)
Investment securities(2)
Deposits by central banks and banks(3)
Customer accounts(4)
Assets
Liabilities
2022
2021
Balance
Balance
€ m
€ m
32,573
35,222
4,860
5,875
—
10,000
340
165
(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 2022 comprise € 4,860 million (2021: € 5,875 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 Nil (2021: € 20 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 2022 and 2021, 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 2022 and 2021:
Assets
Loans and advances to banks
Investment securities
2022
€ m
2021
€ m
1
35
1
85
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 2022. The annual levy paid by the Group for 2022 and reflected in operating expenses (note 11) in the
income statement amounted to € 37 million (2021: € 37 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
278
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
47 Employees
The following table shows the geographical analysis of average employees for 2022 and 2021:
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 2022 and 2021:
Retail Banking
Capital Markets
AIB UK
Group(1)
Total
2022
2021
8,517
8,188
672
32
922
44
9,221
9,154
2022
2021
4,194
4,376
1,016
605
3,406
9,221
766
844
3,168
9,154
(1) Group comprises wholesale treasury activities and Group control and support functions. Treasury manages the Group’s liquidity and funding positions and
provides customer treasury services and economic research. The Group control and support functions in the period included Technology, Operations, Finance,
Risk, Legal, Corporate Governance & Customer Care, Human Resources, Sustainability and Corporate Affairs, Enterprise Development and Group Internal
Audit.
The average number of employees for 2022 and 2021 set out above excludes employees on career breaks and other unpaid long
term leaves.
Actual full time equivalent numbers at 31 December 2022 were 9,590 (2021: 8,916).
48 Regulatory compliance
During the years ended 31 December 2022 and 2021, the Group and its regulated subsidiaries complied with their externally imposed
capital ratios.
49 Financial and other information
Operating ratios
Operating expenses/operating income
Other income/operating income
Rates of exchange
€/$*
Closing
Average
€/£*
Closing
Average
*Throughout this report, US dollar is denoted by $ and Pound sterling is denoted by £.
Currency Information
Euro
Other
2022
%
70.8
26.1
2021
%
84.3
24.8
2022
2021
1.0666
1.0531
1.1326
1.1831
0.8869
0.8527
0.8403
0.8598
Assets
Liabilities and equity
2022
€ m
2021
€ m
2022
€ m
2021
€ m
108,236
103,935
109,514
105,510
21,516
23,955
20,238
22,380
129,752
127,890
129,752
127,890
Allied Irish Banks, p.l.c. Annual Financial Report 2022
279
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
50 Dividends
On 2 March 2022, the Board approved an interim dividend of € 20 million and recommended for approval by the Company’s sole
shareholder, AIB plc Group plc, a final dividend for the year ended 31 December 2021 of € 122 million. The interim dividend was paid by
the Company to AIB Group plc on 14 March 2022. The final dividend was approved by AIB Group plc on 5 May 2022 and paid by the
Company to AIB Group plc and 13 May 2022.
51 Non-adjusting events after the reporting period
Ulster Bank tracker mortgage portfolio
On 1 June 2022, the Group confirmed that Allied Irish Banks, p.l.c had entered into a binding agreement with NatWest Group plc and
Ulster Bank Ireland DAC for the acquisition of a performing Ulster Bank tracker (and linked) mortgage portfolio of c.€ 5.7 billion for a
consideration of c. € 5.4 billion. Under the agreement, the Group acquires an economic interest in the mortgage portfolio from 1
September 2022. The agreement received CCPC approval in January 2023 with formal completion expected in 2023.
The final consideration payable depends on movements in the portfolio up to completion. As at 31 December 2022 the eligible portfolio
of loans that are subject to the agreement amounted to € 5.4 billion. Additional movements are anticipated in the portfolio up to
completion.
As the Group committed to purchase these loans under a contract, which is not considered a regular-way transaction, the loans are not
recognised until the acquisition contract is settled. Having received CCPC approval, the agreement to purchase the loans becomes
unconditional and therefore in 2023 the Group will recognise a forward contract measured at fair value which will reflect changes in
valuation parameters since the original transaction pricing as well as the Group’s economic interest in the acquired portfolio from 1
September 2022 to completion.
Ulster Bank corporate and commercial loans
Subsequent to the year end, the Group has acquired performing loans of € 0.2 billion with a further € 1.0 billion of eligible loans
expected to be acquired on a phased basis in 2023. Additional movements are anticipated in the portfolio up to completion.
52 Approval of financial Statements
The financial statements were approved by the Board of Directors on 7 March 2023.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
280
ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS AND NOTES
Allied Irish Banks, p.l.c. company statement of financial position
Allied Irish Banks, p.l.c. company statement of changes in equity
Allied Irish Banks, p.l.c. company statement of cash flows
Note
a
b
c
d
e
f
g
h
i
j
k
l
Accounting policies
Operating expenses
Auditor's remuneration
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Securities financing
ECL allowance on financial assets
Investment securities
Investments in Group undertakings
Intangible assets
Property, plant and equipment
m Other assets
n
o
p
q
r
s
t
u
v
w
x
y
z
Deferred taxation
Retirement benefits
Deposits by central banks and banks
Customer accounts
Lease liabilities
Other liabilities
Provisions for liabilities and commitments
Subordinated liabilities and other capital instruments
Share capital
Other equity interests
Capital reserves and capital redemption reserves
Offsetting financial assets and financial liabilities
Contingent liabilities and commitments
aa
Transferred financial assets
ab Classification and measurement of financial assets and financial liabilities
ac
Fair value of financial instruments
ad Cash and cash equivalents
ae Statement of cash flows
af
Related party transactions
ag Credit risk information
ah
Liquidity and funding risk information
ai Market risk information
Page
282
283
285
286
286
286
287
295
296
297
298
299
300
303
304
305
306
307
309
309
310
310
311
312
312
312
312
313
316
317
318
320
326
326
327
328
340
341
Allied Irish Banks, p.l.c. Annual Financial Report 2022
281
ALLIED IRISH BANKS, P.L.C.
COMPANY STATEMENT OF FINANCIAL POSITION
as at 31 December 2022
Notes
2022
€ m
2021
€ m
Assets
Cash and balances at central banks
Derivative financial instruments
Loans and advances to banks
Loans and advances to customers
Securities financing
Investment securities
Investments accounted for using the equity method
Investments in Group undertakings
Intangible assets
Property, plant and equipment
Other assets
Current taxation
Deferred tax assets
Prepayments and accrued income
Total assets
Liabilities
Deposits by central banks and banks
Customer accounts
Securities financing
Derivative financial instruments
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 - Externally issued
Subordinated liabilities and other capital instruments - AIB Group plc
Total liabilities
Equity
Share capital
Share premium
Reserves
Total shareholders' equity
Other equity interests - Externally issued
Other equity interests - AIB Group plc
Total equity
Total liabilities and equity
ad
d
e
f
g
i
j
k
l
m
n
p
q
d
r
n
o
s
t
u
u
v
v
w
w
33,628
35,893
2,891
14,967
25,423
8,230
951
9,220
23,405
6,269
23,303
24,520
62
4,808
755
468
173
4
2,618
354
26
4,670
791
541
177
3
2,431
362
117,684
109,259
4,401
88,482
11,281
77,112
1,270
4,117
238
1
10
16
746
315
313
57
376
1,174
292
1
14
22
688
219
388
56
7,528
5,567
107,494
97,190
1,671
1,386
6,018
9,075
—
1,115
10,190
117,684
1,696
1,386
7,872
10,954
—
1,115
12,069
109,259
The parent company recorded a profit after taxation of € 425 million for the year ended 31 December 2022 (2021: Profit after taxation
€ 233 million).
Jim Pettigrew
Chair
Colin Hunt
Chief Executive Officer
Donal Galvin
Chief Financial Officer
Conor Gouldson
Group Company Secretary
Allied Irish Banks, p.l.c. Annual Financial Report 2022
282
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ALLIED IRISH BANKS, P.L.C.
COMPANY STATEMENT OF CHANGES IN EQUITY
for the financial year ended 31 December 2022
Share
capital
Share
premium
Other
equity
interests
Capital
reserves
Capital
redemption
reserves
Revaluation
reserves
Investment
securities
reserves
Cash flow
hedging
reserves
Revenue
reserves
Total
equity
Foreign
currency
translation
reserves
At 1 January 2022
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Dividends paid on ordinary shares
Distributions paid to other equity interests
Buyback of ordinary shares
Other movements
Total contributions by and distributions to owners
€ m
€ m
€ m
1,696
1,386
1,115
€ m
156
—
—
—
—
—
(25)
—
(25)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
At 31 December 2022
1,671
1,386
1,115
156
€ m
14
—
—
—
—
—
25
—
25
39
€ m
11
—
—
—
—
—
—
—
—
11
€ m
€ m
€ m
(30)
178
7,617
€ m
(74)
€ m
12,069
—
—
425
(303)
(1,707)
5
—
1
425
(2,004)
(303)
(1,707)
430
1
(1,579)
—
—
—
—
—
—
—
—
—
(142)
(67)
(91)
—
—
(300)
—
—
—
—
—
(142)
(67)
(91)
—
(300)
(333)
(1,529)
7,747
(73)
10,190
Allied Irish Banks, p.l.c. Annual Financial Report 2022
283
ALLIED IRISH BANKS, P.L.C.
COMPANY STATEMENT OF CHANGES IN EQUITY
for the financial year ended 31 December 2021
Share
capital
Share
premium
Other
equity
interests
Capital
reserves
Capital
redemption
reserves
Revaluation
reserves
Investment
securities
reserves
Cash flow
hedging
reserves
Revenue
reserves
Foreign
currency
translation
reserves
Total
equity
At 1 January 2021
Total comprehensive income for the year
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Distributions paid to other equity interests
Other movements
Total contributions by and distributions to owners
€ m
€ m
1,696
1,386
€ m
1,115
€ m
156
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
At 31 December 2021
1,696
1,386
1,115
156
€ m
14
—
—
—
—
—
—
14
€ m
9
—
—
—
—
2
2
11
€ m
€ m
€ m
64
515
7,449
€ m
(74)
€ m
12,330
—
(94)
(94)
—
233
(337)
(337)
4
237
—
—
233
(427)
—
(194)
—
—
—
—
—
—
(67)
(2)
(69)
—
—
—
(67)
—
(67)
(30)
178
7,617
(74)
12,069
Allied Irish Banks, p.l.c. Annual Financial Report 2022
284
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ALLIED IRISH BANKS, P.L.C.
COMPANY STATEMENT OF CASH FLOWS
for the financial year ended 31 December 2022
Cash flows from operating activities
Profit before taxation for the year
Adjustments for:
Non-cash and other items
Change in operating assets
Change in operating liabilities
Taxation refund
Notes
ae
ae
ae
2022
€ m
515
894
(9,401)
5,251
(2)
2021
€ m
254
649
(4,579)
15,866
6
Net cash inflow from operating activities
(2,743)
12,196
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
Disposal of associated undertakings
Repayment of capital
Investment in Group undertakings
Dividends received from subsidiary undertakings
Net cash inflow from investing activities
Cash flows from financing activities
Net proceeds on issue of subordinated liabilities and
other capital instruments – AIB Group plc
Redemption of capital instruments - issued externally
Dividends paid on ordinary shares
Buyback of ordinary shares
Distributions paid to other equity interests
Repayment of lease liabilities
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
i
i
l
k
k
j
j
u
ae
(3,808)
3,168
(26)
3
(164)
—
(45)
36
—
(376)
102
(1,110)
3,231
(844)
(142)
(91)
(67)
(55)
(154)
1878
(1,975)
36,617
—
34,642
(2,473)
5,529
(26)
1
(192)
—
(8)
0
57
(122)
14
2,780
750
—
—
—
(67)
(33)
(130)
520
15,496
21,061
60
36,617
Allied Irish Banks, p.l.c. Annual Financial Report 2022
285
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS
a Accounting policies
Where applicable, the accounting policies adopted by Allied Irish Banks, p.l.c. (‘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.
The parent company financial statements and related notes have been prepared in accordance with International Financial Reporting
Standards (collectively “IFRSs”) as adopted by the EU and applicable for the financial year ended 31 December 2022. They also
comply with those parts of the Companies Act 2014 applicable to companies reporting under IFRS and with the European Union (Credit
Institutions: Financial Statements) Regulations 2015.
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of certain assets, liabilities, revenues and expenses, and disclosures of contingent assets
and liabilities. The estimates and assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances. Since management judgement involves making estimates concerning the likelihood of future
events, the actual results could differ from those estimates.
A description of the critical accounting judgements and estimates is set out in note 2 to the consolidated financial statements.
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
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 (6)
Restitution and associated costs(7)
Bank levies and regulatory fees
Operating expenses
2022
€ m
2021
€ m
532
520
4
77
59
25
697
(21)
676
602
126
728
116
35
77
58
12
702
(24)
678
444
154
598
121
1,520
1,397
(1) Relates to the voluntary severance programmes.
(2) Comprises a defined contribution charge of € 69 million (2021: a charge of € 68 million), a credit of € 1 million in relation to defined benefit expense
(2021: a charge of € 1 million), and a long term disability payments/death in service benefit charge of € 9 million (2021: € 8 million) (note o).
(3) Share-based payment charge of Nil (2021: Nil).
(4) Other personnel expenses include staff training, recruitment and various other staff costs.
(5) Staff costs capitalised relate to intangible assets.
(6) Includes € 27 million relating to the CBI Tracker Mortgage Examination fine. See note s for further information (other than the CBI Tracker Mortgage Examination
fine). See note 33 in the Consolidated financial statements for further information on the CBI Tracker Mortgage Examination fine.
(7) Relates primarily to (a) Belfry provisions and associated costs and (b) the associated costs related to the Tracker Mortgage Examination.
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 the Company during the year to
31 December 2022 (2021: Nil).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
286
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Risk Management
Financial Statements
General Information
d Derivative financial instruments
Details of derivative transactions entered into and their purpose are described in note 16 to the consolidated financial statements.
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 2022 and 2021:
Derivative financial instrument(1)
Interest rate contracts
Exchange rate contracts
Equity contracts
Credit derivatives
Other(2)
Total
Notional
principal
amount
€ m
95,536
7,492
83
43
1,232
2022
Fair Values
Assets
Liabilities
€ m
€ m
2,723
(4,035)
164
4
—
—
(72)
—
(1)
(9)
Notional
principal
amount
€ m
81,844
11,238
174
175
—
104,386
2,891
(4,117)
93,431
2021
Fair Values
Assets
Liabilities
€ m
875
76
—
0
—
951
€ m
(951)
(200)
(17)
(6)
—
(1,174)
(1) Interest rate, exchange rate, equity and credit derivative contracts are entered into for both hedging and trading purposes.
(2) Relates to a forward contract to acquire corporate and commercial loans from Ulster Bank. See notes 43 and 51 to the consolidated financial statements for
further information.
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
Notional principal amount
Positive fair value
Less than
1 year
€ m
1 to 5
years
€ m
5 years+
2022
Total
Less than
1 year
€ m
€ m
€ m
5 years+
2021
Total
€ m
€ m
1 to 5
years
€ m
42,853
35,969
25,564 104,386
26,841
27,312
39,278
93,431
212
709
1,970
2,891
90
226
635
951
Allied Irish Banks, p.l.c. has the following concentration of exposures in respect of notional principal amount and positive fair value of
interest rate, exchange rate, equity and credit derivative contracts. The concentrations are based primarily on the location of the office
recording the transaction.
Ireland
United Kingdom
United States of America
Notional principal amount
Positive fair value
2022
€ m
2021
€ m
103,632
92,449
633
121
863
119
2022
€ m
2,806
81
4
104,386
93,431
2,891
2021
€ m
716
224
11
951
Allied Irish Banks, p.l.c. Annual Financial Report 2022
287
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
d 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 2022 and 2021. A description of how the fair values of derivatives are determined is set out in note 43 to the
consolidated financial statements.
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
Notional
principal
amount
2022
Fair Values
Assets
Liabilities
Notional
principal
amount
2021
Fair Values
Assets
Liabilities
€ m
€ m
€ m
€ m
€ m
€ m
25,028
421
2,400
122
—
28
(1,196)
(5)
(32)
25,513
361
(428)
—
1,951
—
4
—
(5)
Total interest rate derivatives - OTC
27,849
150
(1,233)
27,464
365
(433)
Interest rates derivatives – OTC – central clearing
Interest rate swaps
4,417
379
(29)
6,061
49
(26)
Total interest rate derivatives
- OTC - central clearing
4,417
379
(29)
6,061
49
(26)
Interest rate derivatives – exchange traded
Interest rate futures bought and sold
Total interest rate derivatives - exchange traded
79
79
—
—
—
—
—
—
—
—
—
—
Total interest rate derivatives
32,345
529
(1,262)
33,525
414
(459)
Foreign exchange derivatives – OTC
Foreign exchange contracts
Currency options bought and sold
Total foreign exchange derivatives
Equity derivatives – OTC
Equity index options bought and sold
Equity total return swaps
Total equity derivatives
Credit derivatives – OTC
Credit derivatives
Total credit derivatives
Other
Forward Contract(1)
Total
7,487
5
7,492
164
—
164
(72)
—
11,236
2
(72)
11,238
5
78
83
43
43
1,232
1,232
—
4
4
—
—
—
—
—
—
—
12
162
174
(1)
(1)
175
175
(9)
(9)
—
—
76
—
76
—
—
—
—
—
—
—
(200)
—
(200)
—
(17)
(17)
(6)
(6)
—
—
Total derivatives held for trading
41,195
697
(1,344)
45,112
490
(682)
1) Relates to a forward contract to acquire corporate and commercial loans from Ulster Bank. See notes 43 and 51 to the consolidated financial statements for
further information
Allied Irish Banks, p.l.c. Annual Financial Report 2022
288
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Risk Management
Financial Statements
General Information
d Derivative financial instruments continued
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
2022
2021
Notional
principal
amount
Fair Values
Assets
Liabilities
€ m
€ m
€ m
Notional
principal
amount
€ m
Fair Values
Assets
Liabilities
€ m
€ m
628
628
14
14
—
—
1,299
—
(28)
1,299
—
(28)
Interest rate swaps
20,458
1,656
(433)
16,152
229
(164)
Total interest rate fair value hedges – OTC – central
clearing
20,458
1,656
(433)
16,152
229
(164)
Total derivatives designated as fair value hedges
21,086
1,670
(433)
17,451
229
(192)
Derivatives designated as cash flow hedges – OTC
Interest rate swaps
Cross currency interest rate swaps
Total interest rate cash flow hedges – OTC
12,131
—
12,131
379
—
379
(407)
—
(407)
12,712
82
12,794
99
—
99
(88)
(6)
(94)
Derivatives designated as cash flow hedges – OTC
– central clearing
Interest rate swaps
29,974
145
(1,933)
18,074
133
(206)
Total interest rate cash flow hedges – OTC – central
clearing
Total derivatives designated as cash flow hedges
Total derivatives held for hedging
29,974
42,105
63,191
Total derivative financial instruments
104,386
(1) Includes exposure to subsidiary undertakings of € 394 million (2021: € 140 million).
145
524
(1,933)
(2,340)
2,194
1
)
2,891
(2,773)
(4,117) (2)
18,074
30,868
48,319
93,431
133
232
461
951
(206)
(300)
(492)
(1,174)
(2) Includes amounts due to subsidiary undertakings of € 1,311 million (2021: € 131 million).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
289
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
d Derivative financial instruments continued
Nominal values and average interest rates by residual maturity
At 31 December 2022 and 2021, the Company held the following hedging instruments of interest rate risk in fair value and cash flow
hedges respectively:
Less than
1 month
1 to 3
months
3 months
to 1 year
1 to 5
years
5 years +
2022
Total
Fair value hedges - Interest rate swaps
Assets
Hedges of investment securities – debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Hedges of loans and advances to customers
Nominal principal amount (€ m)
Average interest rate (%)(1)
Liabilities
Hedges of subordinated debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Cash flow hedges - Interest rate swaps(2)
Hedges of financial assets
Nominal principal amount (€ m)
Average interest rate (%)(3)
Hedges of financial liabilities
Nominal principal amount (€ m)
Average interest rate (%)(3)
Fair value hedges – Interest rate swaps
Assets
Hedges of investment securities – debt
Nominal principal amount (€ m)
Average interest rate (%)(1)
Liabilities
Hedges of 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)
92
0.84
213
0.02
420
5,461
6,863
13,049
0.87
0.66
0.56
—
—
—
—
—
—
—
—
15
2.6
0.6
15
2.6
—
—
253
—
128
4.75
6,891
2.98
750
5.75
8,022
3.22
131
0.86
300
0.25
8,260
17,393
1.34
1.19
10,438
1.02
36,522
1.16
49
0.82
173
0.84
559
2.55
1,991
1.39
2,811
1.24
5,583
1.41
Less than 1
month
1 to 3
months
3 months to
1 year
1 to 5 years
5 years +
2021
Total
283
0.34
166
0.09
676
4,163
0.65
0.43
6,618
0.23
11,906
0.32
—
—
—
—
—
—
5,545
2.51
—
—
5,545
2.51
602
0.21
2,869
3,001
9,094
0.15
0.29
0.17
7,832
0.30
23,398
0.22
511
1,676
801
1,843
2,639
7,470
0.22
0.21
0.31
0.93
0.96
0.66
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
290
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Business Review
Governance Report
Risk Management
Financial Statements
General Information
d 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 2022 and 2021:
Carrying amount(1)
Nominal
Assets Liabilities Line item in
SOFP* where
the hedging
instrument is
included
2022
Change in fair
value used for
calculating hedge
ineffectiveness for
the year
Hedge
ineffectiveness
recognised in
the income
statement
Line item in the
income
statement that
includes hedge
ineffectiveness
(a) Hedging instruments
Interest rate swaps hedging:
€ m
€ m
€ m
€ m
€ m
Investment securities - debt
13,049
1,669
(1) Derivative financial
1,679
Debt securities in issue
—
—
— Derivative financial
instruments
Subordinated debt
8,022
1
instruments
(432) Derivative financial
instruments
—
(520)
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 item
Line item in
SOFP* where
hedged item
is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Assets Liabilities
Assets
Liabilities
(b) Hedged items
Investment securities – debt
Debt securities in issue
Subordinated debt
€ m
11,652
—
—
€ m
—
—
(7,526)
€ m
—
—
494
€ m
(1,649)
Investment securities
— Debt securities in issue
— Subordinated liabilities
and other capital
instruments
€ m
(1,661)
—
519
18 Net trading
income
— Net trading
income
(2) Net trading
income
2022
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
—
—
—
2021
Carrying amount(1)
Nominal
Assets
Liabilities
(a) Hedging Instruments
Interest rate swaps hedging:
€ 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
Investment securities – debt
11,906
139
(171) Derivative financial
instruments
Debt securities in issue
—
—
— Derivative financial
Subordinated debt
5,545
90
instruments
(21) Derivative financial
instruments
401
—
(111)
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 item
Line item in
SOFP* where
hedged item
is included
Change in
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
(b) Hedged items
Assets
€ m
Liabilities
€ m
Assets
€ m
Liabilities
€ m
Investment securities – debt
12,226
Debt securities in issue
Subordinated debt
—
—
—
—
(5,566)
9
—
—
Investment securities
— Debt securities in issue
(22) Subordinated liabilities
and other capital
instruments
€ m
(397)
—
111
4 Net trading
income
— Net trading
income
— Net trading
income
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
—
—
—
(1) The mark to market on fair value hedging derivatives, excluding accruals of € 68 million, is positive €1,169 million (2021: € 24 million and positive € 13 million).
*Statement of financial position
Allied Irish Banks, p.l.c. Annual Financial Report 2022
291
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
d Derivative financial instruments continued
Cash flow hedges of interest rate
The tables below set out the amounts relating to (a) items designated as hedging instruments and (b) the hedged items in cash flow hedges of interest rate risk together with the related hedge
ineffectiveness at 31 December 2022 and 2021:
2022
Nominal
amount
Assets Liabilities
Carrying amount
Hedge ineffectiveness
Line item in
the SOFP*
where
hedging
instruments
are included
Change in fair
value of hedging
instruments used
for calculating
hedge
ineffectiveness
in the year
Change in
fair value of
hedging
instruments
recognised
in OCI in
the year
Hedge
Ineffectiveness
recognised in
the income
statement
Line item in the
income
statement
that includes
hedge
ineffectiveness
Amounts reclassified from cash flow
hedging reserves to the income statement
Amounts for
which hedge
accounting had
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
€ m
Line item in the
income
statement
affected by the
reclassification
(a) Hedging Instruments
Interest rate swaps(1)
€ m
€ m
€ m
€ m
€ m
€ m
Derivative assets
36,522
9
Derivative liabilities
5,583
515
(2,329) Derivative financial
instruments
(12) Derivative financial
instruments
(2,258)
(2,306)
492
492
— Net trading
income
— Net trading
income
(1) Hedging interest rate risk. These include both interest rate swaps and cross currency interest rate swaps, both of which are hedging interest rate risk.
€ m
—
—
57
24
Interest and
similar income
Interest and
similar expense
Line item
in SOFP* in
which hedged
item is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Amounts in
the cash flow
hedging
reserves for
continuing
hedges(1) pre tax
Amounts in
the cash flow
hedging
reserves for
continuing
hedges(1) post tax
Amounts
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
pre tax
(b) Hedged items
Interest rate risk
Interest rate risk
Loans and advances to
customers
Customer accounts
€ m
2,258
(492)
€ m
(2,300)
504
€ m
(2,011)
441
€ m
48
—
(1) The cash flow hedging reserves are adjusted to the lower of either the cumulative gain or loss or the cumulative change in fair value (present value) of the hedged item from inception of the hedge.
The portion that is offset by the change in the cash flow hedging reserves is recognised in other comprehensive income with any hedge ineffectiveness recognised in the income statement.
*Statement of financial position
2022
Amounts
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
post tax
€ m
42
—
Allied Irish Banks, p.l.c. Annual Financial Report 2022
292
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Risk Management
Financial Statements
General Information
d Derivative financial instruments continued
Cash flow hedges of interest rate continued
2021
Nominal
amount
Assets
Liabilities
Carrying amount
Hedge ineffectiveness
Line item in
the SOFP*
where
hedging
instruments
are included
Change in fair
value of hedging
instruments used
for calculating
hedge
ineffectiveness
in the year
Change in
fair value of
hedging
instruments
recognised
in OCI in
the year
Hedge
Ineffectiveness
recognised in the
income
statement
Line item in the
income
statement that
includes
hedge
ineffectiveness
Amounts reclassified from cash flow
hedging reserves to the income statement
Line item in the
income
statement affected
by the
reclassification
Amounts for
which hedge
accounting had
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
(a) Hedging instruments
Interest rate swaps(1)
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Derivative assets
23,398
162
Derivative liabilities
7,470
70
(238) Derivative financial
instruments
(62) Derivative financial
instruments
(656)
(561)
178
176
— Net trading
income
— Net trading
income
—
—
175
(36)
Interest and
similar income
Interest and
similar expense
(1) Hedging interest rate risk. These include both interest rate swaps and cross currency interest rate swaps, both of which are hedging interest rate risk.
Line item
in SOFP* in
which hedged
item is included
Change in fair
value of hedged
items used for
calculating hedge
ineffectiveness
for the year
Amounts in
the cash flow
hedging
reserves for
continuing hedges(1)
pre tax
Amounts in
the cash flow
hedging
reserves for
continuing hedges(1)
post tax
Amounts
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
pre tax
(b) Hedged items
Interest rate risk
Interest rate risk
Loans and advances
to customers
Customer accounts
€ m
656
(178)
€ m
(30)
12
€ m
(26)
10
€ m
222
—
(1)The cash flow hedging reserves are adjusted to the lower of either the cumulative gain or loss or the cumulative change in fair value (present value) of the hedged item from inception of the hedge.
The portion that is offset by the change in the cash flow hedging reserves is recognised in other comprehensive income with any hedge ineffectiveness recognised in the income statement.
*Statement of financial position
2021
Amounts*
remaining in the
cash flow hedging
reserves from
any hedging
relationship for
which hedge
accounting is no
longer applied
post tax
€ m
194
—
Allied Irish Banks, p.l.c. Annual Financial Report 2022
293
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
d 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
Between 1 and
2 years
Between 2 and
5 years
More than
5 years
€ m
1,169
218
€ m
820
172
€ m
1,291
327
€ m
828
193
Within 1 year
Between 1
and 2 years
Between 2
and 5 years
More than
5 years
€ m
69
100
€ m
59
64
€ m
136
89
€ m
103
53
2022
Total
€ m
4,108
910
2021
Total
€ m
367
306
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
Between 1 and
2 years
Between 2 and
5 years
More than 5
years
€ m
1,169
250
€ m
820
191
€ m
1,291
330
€ m
828
187
Within 1 year
Between 1
and 2 years
Between 2
and 5 years
More than
5 years
€ m
69
168
€ m
59
117
€ m
136
179
€ m
103
82
2022
Total
€ m
4,108
958
2021
Total
€ m
367
546
Allied Irish Banks, p.l.c. Annual Financial Report 2022
294
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Risk Management
Financial Statements
General Information
e Loans and advances to banks
At amortised cost
Funds placed with other banks - third parties
Funds placed with other banks - subsidiary undertakings
Total gross loans and advances to banks
ECL allowance
Third parties
Subsidiary undertakings
Total ECL allowance
Total loans and advances to banks
Loans and advances to banks by geographical area(1)
Ireland
United Kingdom
United States of America
2022
€ m
2021
€ m
1,016
13,951
14,967
727
8,493
9,220
—
—
—
—
—
—
14,967
9,220
2022
€ m
2021
€ m
14,878
9,129
88
1
90
1
14,967
9,220
(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 € 1,513 million (2021: € 654 million) placed with derivative counterparties in
relation to net derivative positions and placed with repurchase agreement counterparties.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
295
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
f Loans and advances to customers
At amortised cost
Loans and advances to customers
Amounts receivable under finance leases and hire purchase contracts
ECL allowance (note h)
Mandatorily at fair value through profit or loss
Loans and advances to customers
Total loans and advances to customers
Of which:
Due from third parties - gross
- ECL allowance
- at FVTPL
Due from owner and subsidiary undertakings - gross
- ECL allowance
Of which repayable on demand or at short notice
Amounts include:
Due from associated undertakings(1)
(1) Undrawn commitments amount to € 133 million and are for less than one year (2021: € 81 million).
2022
€ m
2021
€ m
25,194
23,359
991
1,027
26,185
24,386
(1,011)
(1,224)
25,174
23,162
249
243
25,423
23,405
22,279
19,505
(1,011)
(1,224)
21,268
18,281
249
243
21,517
18,524
3,906
4,881
—
—
3,906
4,881
25,423
23,405
4,784
6,014
18
3
Loans and advances to customers include cash collateral amounting to € 15 million (2021: € 12 million) placed with derivative
counterparties.
For details of credit quality of loans and advances to customers, refer to note af 'Credit risk information'.
Amounts receivable under finance leases and hire purchase contracts
The following balances principally comprise of hire purchase agreements of 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 h).
2022
€ m
399
283
206
119
55
10
2021
€ m
393
288
214
136
62
12
1,072
1,105
(90)
9
991
44
(91)
13
1,027
54
Allied Irish Banks, p.l.c. Annual Financial Report 2022
296
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
g Securities financing
Securities financing consists of (a) securities borrowing and lending and (b) sale and repurchase transactions.
Reverse repurchase agreements involve purchases of securities with an agreement to resell substantially identical investments at a
fixed price on a certain future date. 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. Securities sold under agreements to
repurchase involves sales of securities with agreements to repurchase substantially identical investments at a fixed price on a certain
future date.
Assets
Reverse repurchase agreements
Securities borrowing transactions
Total(1)(2)
Liabilities
Securities sold under agreements to repurchase
Total(3)
Banks
Customers
€ m
€ m
2022
Total
€ m
Banks
Customers
€ m
€ m
2021
Total
€ m
4,842
2,425
7,267
29
4,871
934
3,359
963
8,230
3,845
1,503
5,348
—
3,845
921
2,424
921
6,269
1,270
1,270
—
—
1,270
1,270
45
45
331
331
376
376
(1) Includes amounts due from subsidiary undertakings of € 1,954 million (2021: € 2,382 million).
(2) Classified as ECL Stage 1 and have an ECL of € 1 million at December 2022 (31 December 2021: € 1 million).
(3) Includes amounts due to subsidiary undertakings of € 372 million (2021: € 331 million).
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 2022, the total fair value
of the collateral received was € 8,230 million (2021: € 6,269 million), of which € 1,691 million (2021: € 1,861 million) has been resold or
re-pledged. 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 2022 in relation to securities sold under agreements to repurchase, the Group had pledged collateral with a fair value of
€ 1,270 million (2021: € 376 million). These transactions were conducted under the normal market agreements for standard repurchase
transactions.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
297
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
h ECL allowance on financial assets
The following table shows the movements on the ECL allowance on financial assets. Further information is disclosed in note af 'Credit
risk information'.
Customers
Inter-
group
Residential
mortgages
Other
personal
Property and
construction
Non-
property
business
2022
Investment
securities
Securities
financing
Total
Total
Total
€ m
—
—
—
€ m
62
—
—
€ m
220
—
—
€ m
253
€ m
€ m
689 1,224
—
—
(1)
—
(1)
—
—
(13)
21
27
(76)
(41)
—
(10)
(31)
(13)
(8)
(62)
—
—
—
(23)
—
16
(35)
1
176
(26)
16
257
(25)
(17)
(109)
—
562 1,011
€ m
1
—
—
2
—
—
—
3
€ m
1
—
—
—
—
—
—
1
Customers
Inter-
group
Residential
mortgages
Other
personal
Property and
construction
Non-
property
business
Investment
securities
2021
Securities
financing
Total
Total
Total
€ m
—
€ m
68
€ m
231
€ m
319
€ m
€ m
733 1,351
—
—
—
1
6
7
—
19
9
(51)
(42)
(65)
—
(22)
(19)
(14)
(4)
(59)
—
—
—
(3)
—
62
(1)
—
220
(2)
—
(5)
1
(11)
1
253
689 1,224
€ m
—
—
1
—
—
—
1
€ m
—
—
1
—
—
—
1
Banks
Total
€ m
—
—
—
—
—
—
—
—
Banks
Total
€ m
—
—
—
—
—
—
—
At 1 January
Exchange translation
adjustments
Transfer in
Net re-measurement of
ECL allowance
Changes in ECL allowance
due to write-offs
Changes in ECL allowance
due to disposals
Other
At 31 December
At 1 January
Exchange translation
adjustments
Net re-measurement of
ECL allowance
Changes in ECL allowance
due to write-offs
Changes in ECL allowance
due to disposals
Other
At 31 December
Allied Irish Banks, p.l.c. Annual Financial Report 2022
298
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
i Investment securities
The following table analyses the carrying value of investment securities by major classification at 31 December 2022 and 2021.
Debt securities at FVOCI
Government securities
Supranational banks and government agencies securities
Asset backed securities
Bank securities
Corporate securities
Total debt securities at FVOCI(1)
Debt securities at amortised cost
Government securities
Supranational banks and government agencies securities
Asset backed securities
Bank securities
Corporate securities
Total debt securities at amortised cost
Total debt securities
Equity securities
Equity investments at FVTPL
Total equity securities
Total investment securities
The following table analyses total debt securities by ECL stage:
Gross amount
Stage 1
Stage 2
Total debt securities
ECL(2)
Carrying value
(1) Includes € 7,066 million (2021: € 7,748 million) in respect of subsidiary undertakings.
(2) Relates to debt securities at amortised cost.
2022
€ m
2021
€ m
3,824
1,298
453
4,752
1,260
495
12,829
13,313
499
517
18,903
20,337
2,052
166
1,628
73
212
2,514
203
1,102
85
167
4,131
4,071
23,034
24,408
269
269
112
112
23,303
24,520
23,027 24,409
—
10
23,037 24,409
(1)
(3)
23,034 24,408
Allied Irish Banks, p.l.c. Annual Financial Report 2022
299
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
j Investments in Group undertakings
Equity
At 1 January
Disposals/return of capital
Additions
Impairment provision charge(1)
At 31 December
Subordinated debt
At 1 January and 31 December
Total
Of which:
Credit institutions
Other
Total - all unquoted
2022
€ m
2021
€ m
4,370
4,288
—
376
(238)
(57)
139
—
4,508
4,370
300
4,808
300
4,670
3,948
860
4,808
3,948
722
4,670
(1) In 2022, this relates to Sanditon and AIB UK Loan Management. Refer to the 'Impairment losses in group undertakings' section in this note.
The investments in Group undertakings are included in the financial statements on an historical cost basis.
Additions
A group reorganisation took place on 16 December 2022 whereby the Company acquired the entire share capital of AIB Debt
Management Limited, a provider of financing to corporates in the USA, from a fellow group subsidiary, Sanditon Limited for a total
consideration of € 88 million. As part of this group reorganisation the Company made a capital contribution to Sanditon Limited of
€ 288 million.
On 31 August 2021 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. The Group acquired
the entire share capital for a total consideration, including deferred contingent consideration, of € 139 million.
Impairment losses in Group undertakings
The Company's investments in Group undertakings are reviewed for impairment at the end of each reporting period if there are
indications that impairment may have occurred. In addition, an assessment is carried out where there are indications that impairment
losses recognised in prior periods may no longer exist or may have decreased.
The testing for possible impairment involves comparing the recoverable amount of the individual investments with their carrying amount.
Where the recoverable amount is less than the carrying amount, the difference is recognised as an impairment charge in the parent
company’s financial statements.
For previously impaired investments, where the assessment indicates an increase in the recoverable amount, the impairment loss
recognised in earlier periods is reversed. However, the carrying amount will only be increased up to the amount that it would have been
had the original impairment not been recognised.
In 2022, the investment in subsidiary undertakings Sanditon Limited and AIB UK Loan Management Limited were reviewed for
impairment/reversal of impairment.
Following the group reorganisation, including the capital contribution noted above, the investment in subsidiary undertaking Sanditon
Limited was reviewed for impairment and an impairment of € 288 million was recognised.
The investment by the Company in AIB UK Loan Management Limited was significantly impaired in the past. The carrying amount of
the investment, prior to the impairment reversal review, at 31 December 2022 was € 290 million. At 31 December 2022, € 50 million of
the previous impairment was reversed following an assessment of the recoverable amount of the investment based on its value in use.
In 2021, there was no impairment charge or reversals recognised in the year.
Transactions between subsidiary undertakings
Banking transactions between Allied Irish Banks, p.l.c. and its subsidiaries are entered into in the normal course of business.
These include loans, deposits, provisions of derivative contracts, foreign currency contracts and the provision of guarantees on an
‘arm’s length basis’. Furthermore, pricing arrangements between Allied Irish Banks, p.l.c. and certain Irish subsidiaries, and between
certain Irish subsidiaries 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
300
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
j Investments in Group undertakings continued
Principal subsidiary undertakings incorporated in the Republic of Ireland
AIB Mortgage Bank Unlimited Company*
EBS d.a.c.*
*Group interest is held directly by Allied Irish Banks, p.l.c.
Nature of business
Issue of Mortgage Covered Securities
Mortgages and savings
The above subsidiary undertakings are incorporated in the Republic of Ireland and are wholly-owned unless otherwise stated.
The issued share capital of each undertaking is denominated in ordinary shares.
All regulated banking entities are subject to regulations which require them to maintain capital ratios at agreed levels and they are
unable to make distributions to the parent when to do so would result in such ratios being breached.
AIB Mortgage Bank Unlimited Company ("AIB Mortgage Bank u.c.")
AIB Mortgage Bank u.c. is a wholly owned subsidiary of Allied Irish Banks, p.l.c. regulated by the Central Bank of Ireland/Single
Supervisory Mechanism. AIB Mortgage Bank u.c. is a designated mortgage credit institution for the purposes of the Asset Covered
Securities Acts 2001 and 2007 (as amended) and holds a banking authorisation. Its principal purpose is to issue mortgage covered
securities for the purpose of financing loans secured on residential property in accordance with the Asset Covered Securities Acts 2001
and 2007.
On 13 February 2006, Allied Irish Banks, p.l.c. transferred to AIB Mortgage Bank u.c. its Irish branch originated residential mortgage
business, amounting to € 13.6 billion in mortgage loans. In March 2006, AIB Mortgage Bank u.c. launched a € 15 billion Mortgage
Covered Securities Programme. The Programme was increased to € 20 billion in 2009.
On 25 February 2011, Allied Irish Banks, p.l.c. transferred substantially all of its mortgage intermediary originated Irish residential loans,
related security and related business of approximately € 4.2 billion to AIB Mortgage Bank u.c. The transfer was effected pursuant to the
statutory transfer mechanism provided for in the Asset Covered Securities Acts.
Under an Outsourcing and Agency Agreement dated 8 February 2006, Allied Irish Banks, p.l.c., as Service Agent for AIB Mortgage
Bank u.c., originates residential mortgage loans through its retail branch network and intermediary channels in the Republic of Ireland,
services the mortgage loans and provides treasury services in connection with financing, as well as a range of other support services.
At 31 December 2022, the total amount of principal outstanding in respect of mortgage covered securities issued by AIB Mortgage Bank
u.c. was € 8.3 billion (2021: € 9.5 billion) of which € 1 billion was held by external debt investors (2021: € 1.8 billion) and € 7.3 billion by
Allied Irish Banks, p.l.c. (2021: € 7.7 billion). At 31 December 2022, the total amount of principal outstanding on mortgage loans
(mortgage credit assets) and cash included in AIB Mortgage Bank u.c.’s cover assets pool was € 15.3 billion (2021: € 15.5 billion).
EBS d.a.c. (“EBS”)
EBS which is regulated by the Central Bank of Ireland/Single Supervisory Mechanism, became a wholly owned subsidiary of Allied Irish
Banks, p.l.c. on 1 July 2011. The Group operates EBS as a standalone, separately branded subsidiary with its own distribution network
which offers mortgage and savings products.
EBS had consolidated total assets of € 15 billion at 31 December 2022 (2021: € 12 billion). EBS operates in the Republic of Ireland and
has a countrywide network of 66 (2021: 68) offices and the EBS Direct call Centre facility. EBS offers residential mortgages and savings
products, together with life and property insurance on an agency basis.
EBS also distributes mortgages through Haven Mortgages Limited (‘Haven’), a wholly owned subsidiary, to independent mortgage
intermediaries. Haven is authorised by the Central Bank of Ireland as a retail credit firm under Part V of the Central Bank Act 1997 (as
amended). Haven has its own board of directors and a mandate to grow and establish its business around the needs of its customer
(the intermediary).
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”. For
further details on these SPEs, see notes 40 and 41 to the consolidated financial statements.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
301
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
j Investments in Group undertakings continued
Principal subsidiary undertaking incorporated outside the Republic of Ireland
AIB Group (UK) p.l.c.
trading as AIB (NI) in Northern Ireland
trading as Allied Irish Bank (GB) in Great Britain
Registered office: 92 Ann Street, Belfast BT1 3HH
Nature of business
Banking and financial services
The above undertaking is now directly held as a wholly-owned subsidiary of Allied Irish Banks, p.l.c following a corporate restructure on
31 December 2020. The registered office is located in the principal country of operation. The issued share capital is denominated in
ordinary shares.
AIB Group (UK) p.l.c., a bank registered in the UK and regulated by the Financial Conduct Authority and the Prudential Regulation
Authority had consolidated total assets of £ 10.9 billion at 31 December 2022 (2021: £ 12.7 billion). It operates in two distinct markets,
Great Britain (GB) and Northern Ireland (NI), each with different economies and operating environments. It is the primary legal entity
within the segment AIB UK.
Great Britain (GB)
In this market, the segment operates as Allied Irish Bank (GB) (“AIB GB”) out of 3 locations. AIB GB took the strategic decision to exit
the SME market so going forward will be a focussed corporate bank operating across Great Britain, striving to be recognised experts in
its chosen sectors, targeting mid-tier corporates who value a high-touch relationship model. Key banking services including lending,
treasury services, trade facilities, asset finance, invoice discounting and deposit management.
Northern Ireland (NI)
In this market, the segment operates as AIB (NI) out of a head office location and 7 branches across Northern Ireland (including
business centres co-located in branches and one centre for small and micro businesses). AIB is a long established bank in Northern
Ireland, offering personal products which include mortgages, personal loans, credit cards, current accounts and savings. Customers
can engage with the bank through mobile, online, post office or traditional channels. Business banking services include finance and
loans, business current accounts, credit cards, payment solutions and savings.
Letters of financial support given to subsidiaries by Allied Irish Banks, p.l.c.
The Company has provided letters of financial support to the Board of Directors of the following subsidiaries:
AIB Corporate Leasing Limited
AIB Debt Management Limited
AIB Group (UK) p.l.c.
AIB Holdings (N.I.) Limited
AIB Insurance Services Limited
AIB Investment Management Limited
AIB Mortgage Bank Unlimited Company
AIB UK Loan Management Limited
EBS d.a.c.
Eyke Limited
Haven Mortgages Limited
Sanditon Limited
Allied Irish Banks, p.l.c. Annual Financial Report 2022
302
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
k Intangible assets
Cost
At 1 January
Additions
Transfers in/(out)
Amounts written-off(1)
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(2)
Amounts written-off(1)
At 31 December
Carrying value at 31 December
Cost
At 1 January
Additions
Transfers in/(out)
Amounts written-off(1)
At 31 December
Amortisation/impairment
At 1 January
Amortisation for the year
Impairment for the year(2)
Amounts written-off(1)
At 31 December
Carrying value at 31 December
Software
externally
purchased
Software
internally
generated
Software
under
construction
Other
2022
Total
€ m
€ m
€ m
€ m
€ m
235
1,362
10
—
(5)
66
100
(2)
240
1,526
216
8
—
(5)
219
21
748
183
1
(2)
930
596
158
88
(100)
(8)
138
—
—
8
(8)
—
138
3
—
—
—
3
3
—
—
—
3
—
1,758
164
—
(15)
1,907
967
191
9
(15)
1,152
755
Software
externally
purchased
Software
internally
generated
Software under
construction
Other
2021
Total
€ m
€ m
€ m
€ m
€ m
287
10
—
(62)
235
269
9
—
(62)
216
19
1,208
92
98
(36)
1,362
622
162
—
(36)
748
614
167
90
(98)
(1)
158
—
—
1
(1)
—
158
3
—
—
—
3
3
—
—
—
3
—
1,665
192
—
(99)
1,758
894
171
1
(99)
967
791
(1) Relates to assets which are no longer in use with a Nil carrying value.
(2) Included in 'Impairment and amortisation of intangible assets' in the income statement.
Future capital expenditure in relation to both intangible assets and property, plant and equipment is set out in note l.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
303
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
l Property, plant and equipment
Owned assets
Leased assets
2022
Property
Equipment Assets under
construction
Right-of-use assets
Total
Freehold
Long
leasehold
Leasehold
under
50 years
Property
Other
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
125
1
3
—
(8)
(1)
—
120
38
4
—
(1)
(2)
39
81
36
—
—
—
(3)
—
—
33
12
—
—
—
(1)
11
22
110
1
1
—
—
350
1
15
—
—
(16)
(6)
—
96
44
8
8
—
360
272
22
2
(16)
(6)
—
44
52
—
290
70
4
(3)
7
—
—
—
—
8
—
—
—
—
—
—
8
395
3
1,023
6
(10)
—
(49)
—
342
115
30
13
(49)
—
109
233
1
—
—
—
4
1
1
—
—
2
2
—
33
(10)
(11)
(72)
—
963
482
65
23
(72)
(3)
495
468
2021
Owned assets
Leased assets
Property
Equipment
Assets under
construction
Right-of-use assets
Total
Freehold
Long
leasehold
Leasehold
under
50 years
Property
Other
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
127
—
1
—
(3)
—
—
125
33
4
1
—
—
38
87
37
—
—
—
—
(1)
—
36
12
1
—
(1)
—
12
24
114
1
1
—
—
371
—
21
—
—
(6)
(42)
—
110
38
9
3
(6)
—
44
66
—
350
290
21
3
(42)
—
272
78
2
(1)
3
—
—
—
—
4
—
—
—
—
—
—
4
413
—
—
(6)
—
(12)
—
395
78
37
12
(12)
—
115
280
3
—
1
—
—
(1)
—
3
1
1
—
(1)
—
1
2
1,067
—
27
(6)
(3)
(62)
—
1,023
452
73
19
(62)
—
482
541
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
At 31 December
Carrying value at 31 December
Cost
At 1 January
Transfers in/(out)
Additions
Net remeasurements
Transferred (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(2) for the year
Amounts written off(1)
Transferred (to)/from held for sale
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 income statement.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
304
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
l Property, plant and equipment continued
The carrying value of property occupied by Allied Irish Banks, p.l.c. for its own activities was € 155 million (2021: € 177 million) in
relation to owned assets and € 233 million in relation to right-of-use assets (2021: € 280 million), excluding those held as disposal
groups and non-current assets held for sale. Property leased to others by the Company had a carrying value of Nil (2021: Nil).
Future capital expenditure
This table shows future capital expenditure in relation to both property, plant and equipment and intangible assets (excluding right-of-
use assets).
Capital expenditure
Estimated outstanding commitments for capital expenditure not provided for in the financial statements
Capital expenditure authorised but not yet contracted for
2022
€ m
6
21
2021
€ m
1
16
Leased assets
Property leases
The Company 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 Company is likely to exercise these options, this has been taken
into account in determining the lease liability and likewise, the right-of-use asset.
Other
The Group leases motor vehicles and IT equipment.
Lease liabilities
A maturity analysis of lease liabilities is shown in note r.
Amounts recognised in income statement
Depreciation expense on right-of-use assets
Interest on lease liabilities
Amounts recognised in statement of cash flows
Total cash outflow for leases during the period(1)
2022
€ m
31
9
2022
€ m
42
2021
€ m
38
10
2021
€ m
43
(1) Includes amounts reported as interest expense on lease liabilities of € 9 million (2021: € 10 million) and amounts reported as principal repayments on lease
liabilities of € 33 million (2021: € 33 million).
m Other assets
Proceeds due on disposal of loan portfolio(1)
Items in transit
Items in course of collection
Other(2)
Total
(1) ECL - Nil.
(2) Includes sundry debtors € 15 million (2021: € 9 million) and impersonal accounts € 9 million (2021: € 25 million).
2022
€ m
—
59
47
67
2021
€ m
2
76
40
59
173
177
Allied Irish Banks, p.l.c. Annual Financial Report 2022
305
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
n Deferred taxation
Deferred tax assets:
Unutilised tax losses
Cash flow hedges
Transition to IFRS 9
Assets used in the business
Retirement benefits
Investment securities
Other
Total gross deferred tax assets
Deferred tax liabilities:
Cash flow hedges
Assets used in the business
Investment securities
Other
Total gross deferred tax liabilities
Net deferred tax assets
Represented on the statement of financial position:
Deferred tax assets
Deferred tax liabilities
2022
€ m
2021
€ m
2,352
220
2,435
—
—
10
6
39
2
7
9
8
1
4
2,629
2,464
—
(21)
—
—
(26)
(21)
—
—
(21)
(47)
2,608
2,417
2,618
2,431
(10)
(14)
2,608
2,417
For each of the years ended 31 December 2022 and 2021, full provision has been made for capital allowances and other temporary
differences.
Analysis of movements in deferred taxation
At 1 January
Exchange translation and other adjustments
Deferred tax through other comprehensive income
Income statement
At 31 December
2022
€ m
2021
€ m
2,417
2,377
(1)
281
—
61
(89)
(21)
2,608
2,417
Additional commentary on the basis of recognition of deferred tax assets on unused tax losses are included in note 2 to the
consolidated financial statements ‘Critical accounting judgements and estimates’.
At 31 December 2022, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities,
totalled to € 2,608 million (2021: € 2,417 million). The most significant tax losses arise in the Irish tax jurisdiction and their utilisation is
dependent on future taxable profits.
Temporary differences recognised in other comprehensive income consist of deferred tax on financial assets at FVOCI, cash flow
hedges and actuarial gains/losses on retirement benefit schemes. Temporary differences recognised in the income statement consist of
provisions for expected credit losses on financial instruments, amortised income, assets leased to customers, and assets used in the
course of the business.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
306
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Financial Statements
General Information
o Retirement benefits
Allied Irish Banks, p.l.c. operates a number of defined contribution and defined benefit schemes for employees. All defined benefit
schemes are closed to future accrual.
Defined contribution schemes
Allied Irish Banks, p.l.c. operates a defined contribution (“DC”) scheme, further details of which are provided in the Group’s retirement
benefits note (note 27 to the consolidated financial statements). The amount included in operating expenses in respect of the DC
scheme is € 69 million (2021: € 68 million) (note b).
Defined benefit schemes
The most significant defined benefit scheme operated by Allied Irish Banks, p.l.c. is the AIB Group Irish Pension Scheme (‘the Irish
scheme’), further details of which are provided in the Group’s retirement benefits note (note 27 to the consolidated financial
statements).
Financial and mortality assumptions
The financial and mortality assumptions adopted in the preparation of these financial statements are the same as those adopted in the
preparation of the Group’s financial statements. See note 27 to the consolidated financial statements for further details.
Sensitivity analysis for principal assumptions used to measure scheme liabilities
There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the Allied Irish
Banks, p.l.c. pension schemes. A sensitivity analysis of the key assumptions for the Irish scheme is set out in the Group’s retirement
benefits note (note 27 to the consolidated financial statements).
Movement in defined benefit obligation and scheme assets
The following table sets out the movement in the defined benefit obligation and scheme assets during 2022 and 2021:
Defined
benefit
obligation
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
€ m
€ m
€ m
(4,870)
5,576
(728)
—
(66)
—
(66)
—
77
—
77
—
(10)
—
(10)
2022
Net defined
benefit
(liabilities)
assets
Defined benefit
obligation
2021
Fair
value of
scheme
assets
Asset
ceiling/
minimum
funding(1)
Net defined
benefit
(liabilities)
assets
€ m
(22)
—
1
—
1
€ m
€ m
€ m
(4,887)
5,296
(434)
—
(53)
—
(53)
—
58
(1)
57
—
(5)
—
(5)
€ m
(25)
—
—
(1)
(1)
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
(121)
—
—
(121)
110
—
—
110
—
—
—
—
87
—
—
87
863
—
—
863
(289)
—
—
(289)
—
(880)
—
(880)
—
385
—
385
—
—
146
(4)
738
—
196
196
1
(879)
—
(196)
(196)
—
146
—
—
—
146
8
(3)
5
—
—
—
—
—
(289)
(289)
(3)
(95)
—
165
165
3
—
388
(289)
—
(165)
(165)
—
—
—
4
—
4
—
—
—
At 31 December
(4,002)
4,578
(592)
(16)
(4,870)
5,576
(728)
(22)
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
307
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
o 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:
Bonds
Cash
Equity
Fixed interest
Forestry
Liability driven investment
Multi-asset
Total quoted investment funds
Total investment funds
Mortgage backed securities(2)
Fair value of scheme assets at 31 December
(1) Located in Europe.
(2) A quoted market price in an active market is not available.
2022
€ m
141
2021
€ m
127
61
104
111
105
200
174
130
207
79
46
71
114
168
91
235
189
155
305
121
49
1,217
1,498
—
—
1,217
1,498
682
1,001
1,683
874
1,557
2,431
344
17
295
7
—
—
132
11
46
810
—
999
999
284
—
195
13
42
470
—
1,004
1,004
177
214
4,578
5,576
Other long term employee benefits
Other long term employee benefits includes additional benefits which the Company 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 Company has in place insurance policies to cover
the additional financial costs to the Company under the terms of the defined benefit/defined contribution schemes.
In 2022, the Company contributed € 9 million (2021: € 8 million) towards insuring these benefits which are included in Operating
expenses (note b).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
308
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Risk Management
Financial Statements
General Information
p Deposits by central banks and banks
Central Banks
Eurosystem refinancing operations
Borrowings – unsecured
Banks
Other borrowings – unsecured
Of which:
Due to third parties
Due to subsidiary undertakings
2022
€ m
2021
€ m
—
—
—
10,000
—
10,000
4,401
1,281
4,401
11,281
227
10,078
4,174
1,203
4,401
11,281
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 the TLTRO programme for € 4 billion in September 2020 and a further € 6 billion in June 2021
which was repaid in December 2022.
Deposits by central banks and banks include cash collateral of € 357 million at 31 December 2022 (2021: €144 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
q Customer accounts
Current accounts
Demand deposits
Time deposits
of which:
Non-interest bearing current accounts
Interest bearing deposits, current accounts and short term borrowings
Of which:
Due to third parties
Due to subsidiary undertakings
Amounts include:
Due to associated undertakings
Central
banks
€ m
8,374
540
7,834
Banks
€ m
15
15
—
2022
Total
€ m
Central
banks
€ m
Banks
2021
Total
€ m
€ m
8,389
10,567
16
10,583
555
7,834
5,751
4,816
16
—
5,767
4,816
2022
€ m
2021
€ m
57,462
48,760
26,194
23,099
4,826
5,253
88,482
77,112
57,181
38,295
31,301
38,817
88,482
77,112
87,129
75,288
1,353
1,824
88,482
77,112
268
272
Customer accounts include cash collateral of €71 million (2021: € 59 million) received from derivative counterparties in relation to net
derivative positions.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
309
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
r Lease liabilities
Not later than one year
Later than one year and not later than five years
Later than five years
Maturity analysis – contractual undiscounted cash flows:
At 31 December
Total undiscounted lease liabilities at 31 December
Analysis of movements in lease liabilities
At 1 January
Lease payments(1)
Interest expense(1)
Additions
Early terminations
Net remeasurements
At 31 December
(1) Repayment of principal portion of lease liabilities amounted to € 33 million (2021: € 33 million), i.e. lease payments net of interest expense.
s Other liabilities
Bank drafts
Items in course of collection
Other
Creditors
2022
€ m
238
33
114
151
298
2022
€ m
292
2021
€ m
292
46
158
180
384
2021
€ m
328
(42)
(43)
9
6
(16)
(11)
238
10
—
—
(3)
292
2022
€ m
6
271
251
218
746
2021
€ m
4
389
170
125
688
Allied Irish Banks, p.l.c. Annual Financial Report 2022
310
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Risk Management
Financial Statements
General Information
t Provisions for liabilities and commitments
The Group has presented legal claims, Belfry related provisions, FSPO decision, restructuring costs and other provisions as separate
classes of provisions in 2022. Onerous contracts and ROU commitments, which were previously presented separately, are now
included within other provisions. The related comparatives for 2021 have been restated.
Legal Claims
Belfry related
provisions
FSPO
Decision
Restructuring
Costs
Other
Provisions
€ m
€ m
€ m
€ m
€ m
24
4
(1)
(3)
—
24
75
94
—
(90)
—
79
11
—
—
—
—
11
1
1
—
(1)
—
1
213
31
(8)
(100)
(4)
132
Provisions (excluding loan commitments
and financial guarantee contracts)
At 1 January 2022
Charged to income statement
Released to income statement
Provisions utilised
Exchange translation adjustments
At 31 December 2022
Loan commitments and financial
guarantees contracts
At 1 January 2022
Net charge to income statement
Disposals
Exchange translation adjustments
At 31 December 2022
Total provisions for liabilities and commitments
Legal Claims
Belfry related
provisions
FSPO
Decision
Restructuring
Costs
Other
Provisions
€ m
€ m
€ m
€ m
€ m
25
29
(2)
—
(28)
—
24
—
75
—
—
—
—
75
12
—
(1)
—
—
—
11
—
1
—
—
—
—
1
174
42
(4)
2
(6)
5
213
Provisions (excluding loan commitments
and financial guarantee contracts)
At 1 January 2021
Charged to income statement
Released to income statement
Dilapidation provisions
Provisions utilised
Exchange translation adjustments
At 31 December 2021
Loan commitments and financial
guarantees contracts
At 1 January 2021
Net (writeback) to income statement
Disposals
Exchange translation adjustments
At 31 December 2021
Total provisions for liabilities and commitments
(1) Included in note b.
(2) Amounts expected to be settled within one year amount to € 122 million (31 December 2021: € 227 million).
(3) Included in ‘Net credit impairment writeback/(charge)’.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
311
2022
Total
€ m
324
130
(9)
(194)
(1)
(1)
(4)
247 (2)
64
3 (3)
(1)
—
66
313
2021
Total
€ m
211
147 (1)
(1)
(7)
2
(34)
5
324 (2)
69
(5) (3)
—
—
64
388
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
u Subordinated liabilities and other capital instruments
All outstanding subordinated liabilities and other capital instruments of the Group are issued by Allied Irish Banks, p.l.c. and are detailed
in note 34 to the consolidated financial statements. These include both externally and internally issued instruments.
v Share capital
The share capital and share premium of Allied Irish Banks, p.l.c. are detailed in note 35 to the consolidated financial statements, all of
which relates to Allied Irish Banks, p.l.c.
w Other equity interests
Other equity interests comprise Additional Tier 1 Securities which are detailed in note 36 to the consolidated financial statements.
At 31 December 2022 these were comprised of internally issued instruments only.
x Capital reserves and capital redemption reserves
At 1 January
Transfer from ordinary share capital (note v)
At 31 December
Capital
reserves
2022
Capital
redemption
reserves
€ m
156
—
156
€ m
14
25
39
Capital
reserves
€ m
156
—
156
2021
Capital
redemption
reserves
€ m
14
—
14
Allied Irish Banks, p.l.c. Annual Financial Report 2022
312
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
y Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
• are offset in the Company'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.
Details of these transactions are set out in note 38 to the consolidated financial statements and apply equally to Allied Irish Banks, p.l.c.
The following table shows financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and
similar agreements at 31 December 2022 and 2021. The effects of over-collateralisation have not been taken into account in the table
below.
Gross
amounts of
recognised
financial
liabilities
offset in the
statement
of financial
position
Net
amounts of
financial
assets
presented
in the
statement
of financial
position
Gross
amounts of
recognised
financial
assets
2022
Related amounts not
offset in the statement of
financial position
Financial
instruments
Cash
collateral
Net
amount
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
Note
€ m
d
2,883
€ m
—
€ m
2,883
€ m
€ m
(2,251)
(347)
g
g
10,176
3,359
16,418
(5,305)
—
4,871
3,359
(4,853)
(3,359)
(18)
—
(5,305)
11,113
(10,463)
(365)
285
€ m
285
—
—
Gross
amounts of
recognised
financial
assets offset
in the
statement of
financial
position
Net amounts
of financial
liabilities
presented in
the statement
of financial
position
Gross
amounts of
recognised
financial
liabilities
Related amounts not
offset in the statement of
financial position
2022
Financial
instruments
Cash
collateral
Net
amount
Note
€ m
€ m
€ m
€ m
€ m
€ m
g
d
6,575
4,081
(5,305)
—
10,656
(5,305)
1,270
4,081
5,351
(1,251)
(19)
(2,251)
(1,299)
(3,502)
(1,318)
—
531
531
Allied Irish Banks, p.l.c. Annual Financial Report 2022
313
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
y Offsetting financial assets and financial liabilities continued
Gross
amounts of
recognised
financial
liabilities
offset in the
statement
of financial
position
Net
amounts of
financial
assets
presented
in the
statement
of financial
position
Gross
amounts of
recognised
financial
assets
2021
Related amounts not offset
in the statement of financial
position
Financial
instruments
Cash
collateral
Net
amount
Financial assets
Derivative financial instruments
Securities financing
Reverse repurchase agreements
Securities borrowing
Total
Note
d
g
g
€ m
911
€ m
—
7,170
2,424
(3,325)
—
10,505
(3,325)
€ m
911
3,845
2,424
7,180
€ m
€ m
(557)
(149)
(3,845)
(2,424)
(6,826)
(10)
—
(159)
€ m
205
(10)
—
195
2021
Gross
amounts of
recognised
financial
assets
offset in the
statement of
financial
position
Net
amounts of
financial
liabilities
presented
in the
statement of
financial
position
Gross
amounts of
recognised
financial
liabilities
Related amounts not offset
in the statement of financial
position
Financial
instruments
Cash
collateral
Net
amount
Note
€ m
€ m
€ m
€ m
€ m
€ m
g
d
3,701
1,164
4,865
(3,325)
—
(3,325)
376
1,164
1,540
(376)
(557)
(933)
(32)
(590)
(622)
(32)
17
(15)
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
314
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Risk Management
Financial Statements
General Information
y 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 2022 and
2021:
Net amounts of
financial assets
presented in the
statement of financial
position
€ m
Line item in
statement of
financial position
2,883
Derivative financial instruments
Carrying
amount in
statement
of financial
position
€ m
2,891
2022
Financial
assets not
in scope of
offsetting
disclosures
€ m
8
4,871
3,359
Securities financing
8,230
—
Financial assets
Derivative financial instruments
Securities financing
Reverse repurchase agreements
Securities borrowings
Financial liabilities
Securities financing
Securities sold under agreement to
repurchase
Derivative financial instruments
€ m
1,270
4,081
Securities
financing
Derivative financial instruments
1,270
4,117
—
36
Net amounts of
financial liabilities
presented in the
statement of financial
position
Line item in
statement of
financial position
Net amounts of financial
assets presented in the
statement of financial
position
Line item in
statement of
financial position
Carrying
amount in
statement
of financial
position
2022
Financial
liabilities not in
scope of
offsetting
disclosures
€ m
€ m
Carrying
amount in
statement
of financial
position
€ m
951
2021
Financial
assets not
in scope of
offsetting
disclosures
€ m
40
Financial assets
Derivative financial instruments
Securities financing
Reverse repurchase agreements
Securities borrowings
€ m
911
3,845
2,424
Derivative financial instruments
Securities financing
6,269
—
Net amounts of financial
liabilities presented in the
statement of financial
position
€ m
Line item in
statement of
financial position
Financial liabilities
Securities financing
Securities sold under agreement to repurchase
376
Securities financing
Derivative financial instruments
1,164
Derivative financial instruments
Carrying
amount in
statement
of financial
position
€ m
376
1,174
2021
Financial
liabilities not
in scope of
offsetting
disclosures
€ m
—
10
Allied Irish Banks, p.l.c. Annual Financial Report 2022
315
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
z Contingent liabilities and commitments
Allied Irish Banks, p.l.c. has given guarantees to the satisfaction of the relevant regulatory authorities for the protection of the depositors
of certain of its banking subsidiaries in the various jurisdictions in which such subsidiaries operate.
The commentary on Legal proceedings and Participation in TARGET 2 – Ireland, as set out in note 39 to the consolidated financial
statements, applies also to Allied Irish Banks, p.l.c.
The following table gives the nominal or contract amounts of contingent liabilities and commitments for Allied Irish Banks, p.l.c.:
Contingent liabilities(1) – credit related
Guarantees and assets pledged as collateral security:
Guarantees and irrevocable letters of credit
Other contingent liabilities
Commitments(2)
Documentary credits and short term trade-related transactions
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year
1 year and over
Contract amount
2022
€ m
2021
€ m
730
36
766
1,036
43
1,079
82
81
6,604
3,896
7,311
2,876
10,582
10,268
3
11,348
) 11,347 (3)
(1) Contingent liabilities are off-balance sheet products and include guarantees, irrevocable letters of credit and other contingent liability products such as
performance bonds.
(2) A commitment is an off-balance sheet product, where there is an agreement to provide an undrawn credit facility. The contract may or may not be cancelled
unconditionally at any time without notice depending on the terms of the contract.
(3) Included in exposures are amounts relating to Group subsidiaries of € 1,472 million (2021: € 1,231 million).
For details of the internal credit ratings and geographic concentration of contingent liabilities and commitments, see pages 332 and 335
in note ag 'Credit risk information'.
Provisions for ECLs on loan commitments and financial guarantee contracts are set out in 'Provisions for liabilities and
commitments' (note t).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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Financial Statements
General Information
aa Transferred financial assets
Allied Irish Banks, p.l.c. enters into transactions in the normal course of business in which it transfers previously recognised financial
assets. Transferred financial assets may, in accordance with IFRS 9 Financial Instruments:
(i) Continue to be recognised in their entirety; or
(ii) Be derecognised in their entirety but Allied Irish Banks, p.l.c. retains some continuing involvement.
The most common transactions where the transferred assets are not derecognised in their entirety are sale and repurchase agreements
and securitisations. Details of these transactions are set out in note 41 to the consolidated financial statements and apply equally to
Allied Irish Banks, p.l.c.
(i) Transferred financial assets not derecognised in their entirety
The following table sets out the carrying value and fair value of financial assets which did not qualify for derecognition and their
associated financial liabilities at 31 December 2022 and 2021:
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities
held by third
parties
Carrying
amount of
associated
liabilities
held by
Group
companies
Fair
value of
transferred
assets
Fair
value of
associated
liabilities
held by third
parties
Fair
value of
associated
liabilities
held by
Group
companies
2022
Net fair
value
position
Sale and repurchase
agreements/similar products
6,332 (1)(2)
898 (1)
372
6,336
898
372
5,066
€ m
€ m
€ m
€ m
€ m
€ m
€ m
Carrying
amount of
transferred
assets
Carrying
amount of
associated
liabilities held
by third
parties
Carrying
amount of
associated
liabilities held
by Group
companies
Fair
value of
transferred
assets
Fair
value of
associated
liabilities held
by third
parties
Fair
value of
associated
liabilities held
by Group
companies
2021
Net fair value
position
Sale and repurchase
agreements/similar products
3,704 (1)(2)
45 (1)
331
3,707
45
331
3,331
€ m
€ m
€ m
€ m
€ m
€ m
€ m
(1) See 'Securities financing' (note g).
(2) Includes € 5,030 million of assets pledged in relation to securities lending arrangements (2021: € 3,306 million).
(ii) Transferred financial assets derecognised in their entirety but Allied Irish Banks, p.l.c. retains some continuing
involvement
Allied Irish Banks, p.l.c. has a continuing involvement in transferred financial assets where it retains any of the risks and rewards of
ownership of the transferred financial assets. Set out below are transactions in which Allied Irish Banks, p.l.c. has a continuing
involvement in assets transferred.
NAMA
Details in relation to the continuing involvement by Allied Irish Banks, p.l.c. in assets transferred to NAMA are set out in note 41 to the
consolidated financial statements. The carrying value of assets transferred during 2010 and 2011 amounted to € 13,483 million, all of
which were derecognised.
In 2022, Allied Irish Banks, p.l.c. recognised € 2 million (cumulative € 100 million) (2021: € 2 million (cumulative € 98 million)) in the
income statement for the servicing of financial assets transferred to NAMA.
AIB Mortgage Bank Unlimited Company ("AIB Mortgage Bank u.c.")
In 2011, Allied Irish Banks, p.l.c. transferred substantially all of its mortgage intermediary originated Irish residential loans, related
security and related business of approximately € 4.2 billion to AIB Mortgage Bank u.c.
Under an Outsourcing and Agency Agreement dated 8 February 2006, Allied Irish Banks, p.l.c., as Service Agent for AIB Mortgage
Bank u.c., originates residential mortgage loans through its retail branch network and intermediary channels in the Republic of Ireland,
services the mortgage loans and provides treasury services in connection with financing, as well as a range of other support services.
In 2022, Allied Irish Banks, p.l.c. recognised € 143 million (cumulative € 1,403 million) (2021: € 148 million (cumulative € 1,260 million))
in the income statement for the provision of services under this agreement.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
317
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ab 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 2022 and 2021.
Financial assets
Cash and balances at central banks
Derivative financial instruments(2)
Loans and advances to banks(3)
Loans and advances to customers(4)
Securities financing(5)
Investment securities(6)
Other financial assets
Financial liabilities
Deposits by central banks and banks(7)
Customer accounts(8)
Securities financing(9)
Derivative financial instruments(10)
Debt securities in issue
Subordinated liabilities and
other capital instruments(11)
Other financial liabilities
At fair value through
profit or loss
At fair value through other
comprehensive income
At amortised
cost
Mandatorily
Debt
investments
Hedging
derivatives
2022
Total
€ m
€ m
€ m
€ m
€ m
—
2,367
—
249
—
269
—
—
—
—
—
—
18,903
—
—
524
—
—
—
—
—
33,628 (1)
—
14,967
25,174
8,230
4,131
415
33,628
2,891
14,967
25,423
8,230
23,303
415
2,885
18,903
524
86,545
108,857
—
—
—
1,777
—
—
—
1,777
—
—
—
—
—
—
—
—
—
—
—
2,340
—
—
—
4,401
88,482
1,270
—
—
7,585
1,007
4,401
88,482
1,270
4,117
—
7,585
1,007
2,340
102,745
106,862
(1) Includes cash on hand € 517 million.
(2) Includes exposure to subsidiary undertakings of € 394 million.
(3) Includes exposure to subsidiary undertakings of € 13,951 million.
(4) Includes exposure to subsidiary undertakings of € 3,906 million.
(5) Includes exposure to subsidiary undertakings of € 1,954 million.
(6) Includes exposure to subsidiary undertakings of € 7,066 million.
(7) Includes amounts due to subsidiary undertakings of € 4,174 million.
(8) Includes amounts due to subsidiary undertakings of € 1,353 million.
(9) Includes amounts due to subsidiary undertakings of € 372 million.
(10) Includes amounts due to subsidiary undertakings of € 1,311 million.
(11) Includes amounts due to AIB Group plc (parent) of € 7,528 million.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
318
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ab Classification and measurement of financial assets and financial liabilities continued
Financial assets
Cash and balances at central banks
Derivative financial instruments(2)
Loans and advances to banks(3)
Loans and advances to customers(4)
Securities financing(5)
Investment securities(6)
Other financial assets
Financial Liabilities
Deposits by central banks and banks(7)
Customer accounts(8)
Securities financing(9)
Derivative financial instruments(10)
Debt securities in issue
Subordinated liabilities and other
capital instruments(11)
Other financial liabilities
At fair value through
profit or loss
Mandatorily
At fair value through other
comprehensive income
At amortised
cost
Debt
investments
Hedging
derivatives
2021
Total
€ m
—
719
—
243
—
112
—
€ m
€ m
€ m
€ m
—
—
—
—
—
20,337
—
—
232
—
—
—
—
—
35,893 (1)
35,893
—
9,220
23,162
6,269
4,071
448
951
9,220
23,405
6,269
24,520
448
1,074
20,337
232
79,063
100,706
—
—
—
874
—
—
—
874
—
—
—
—
—
—
—
—
—
—
—
300
—
—
—
300
11,281
77,112
376
—
—
5,623
851
95,243
11,281
77,112
376
1,174
—
5,623
851
96,417
(1) Includes cash on hand € 463 million.
(2) Includes exposure to subsidiary undertakings of € 140 million.
(3) Includes exposure to subsidiary undertakings of € 8,493 million.
(4) Includes exposure to subsidiary undertakings of € 4,881 million.
(5) Includes exposure to subsidiary undertakings of € 2,382 million.
(6) Includes exposure to subsidiary undertakings of € 7,748 million.
(7) Includes amounts due to subsidiary undertakings of € 1,203 million.
(8) Includes amounts due to subsidiary undertakings of € 1,824 million.
(9) Includes amounts due to subsidiary undertakings of € 331 million.
(10) Includes amounts due to subsidiary undertakings of € 131 million.
(11) Includes amounts due to AIB Group plc (parent) of € 5,567 million.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
319
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ac Fair value of financial instruments
The methods used by the Group in calculating the fair value of financial instruments are set out in note 43 to the consolidated financial
statements and apply equally to Allied Irish Banks, p.l.c.
The tables on the following pages set out the carrying amount in the statement of financial position of financial assets and financial
liabilities distinguishing between those measured at fair value and those measured at amortised cost. In addition, the fair value of all
financial assets and financial liabilities is shown setting out the fair value hierarchy as described below into which the fair value
measurement is categorised:
Level 1 – financial assets and liabilities measured using quoted market prices from an active market (unadjusted);
Level 2 – financial assets and liabilities measured using valuation techniques which use quoted market prices from an active market or
measured using quoted market prices unadjusted from an inactive market; and
Level 3 – financial assets and liabilities measured using valuation techniques which use unobservable market inputs.
Readers of these financial statements are advised to use caution when using the data in the following tables to evaluate the financial
position of Allied Irish Banks, p.l.c. or to make comparisons with other institutions. Fair value information is not provided for items that
do not meet the definition of a financial instrument. These items include intangible assets such as the value of the branch network and
the long term relationships with depositors, premises and equipment and shareholders’ equity. These items are material and
accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent, the underlying
value of the Company as a going concern at 31 December 2022.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
320
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ac Fair value of financial instruments continued
Carrying amount
Financial assets measured at fair value
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
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 FVTPL
Financial assets not measured at fair value
Cash and balances at central banks
Loans and advances to banks
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
Credit derivatives
Other
Financial liabilities not measured at fair value
Deposits by central banks and banks:
Other borrowings
Customer accounts:
Current accounts
Demand deposits
Time deposits
Securities financing
Securities sold under agreements to repurchase
Subordinated liabilities and other capital instruments
Other financial liabilities
(1) Comprises cash on hand.
€ m
2,723
164
4
—
249
3,824
1,298
453
12,829
499
269
22,312
33,628
14,967
25,174
4,871
3,359
4,131
415
86,545
4,035
72
1
9
4,117
4,401
57,462
26,194
4,826
1,270
7,585
1,007
102,745
Level 1
€ m
Fair value hierarchy
Level 2
€ m
Level 3
€ m
—
—
—
—
—
3,824
1,298
438
5,763
499
18
11,840
2,644
164
4
—
—
—
—
15
7,066
—
—
9,893
79
—
—
—
249
—
—
—
—
—
251
579
2022
Fair value
Total
€ m
2,723
164
4
—
249
3,824
1,298
453
12,829
499
269
22,312
517 (1)
—
—
33,111
—
—
—
14,967
25,106
33,628
14,967
25,106
—
—
2,413
—
2,930
—
—
—
—
33,111
4,871
3,359
1,739
415
50,457
4,871
3,359
4,152
415
86,498
—
—
—
—
—
—
—
—
—
—
49
—
49
3,788
72
1
—
3,861
—
—
—
—
247
—
—
9
256
4,035
72
1
9
4,117
4,401
4,401
57,462
26,194
4,825
57,462
26,194
4,825
—
7,592
—
7,592
1,270
13
1,007
95,172
1,270
7,654
1,007
102,813
Allied Irish Banks, p.l.c. Annual Financial Report 2022
321
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ac Fair value of financial instruments continued
Financial assets measured at fair value
Derivative financial instruments:
Interest rate derivatives
Exchange rate derivatives
Equity derivatives
Loans and advances to customers at FVTPL
Investment debt securities at FVOCI:
Government securities
Supranational banks and government agencies
Asset backed securities
Bank securities
Corporate securities
Equity investments at FVTPL
Financial assets not measured at fair value
Cash and balances at central banks
Loans and advances to banks
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) Comprises cash on hand.
Carrying amount
€ m
875
76
—
243
4,752
1,260
495
13,313
517
112
Level 1
€ m
—
—
—
—
4,752
1,260
456
5,565
517
26
Fair value hierarchy
Level 2
€ m
Level 3
€ m
640
76
—
—
—
—
39
7,748
—
—
235
—
—
243
—
—
—
—
—
86
2021
Fair value
Total
€ m
875
76
—
243
4,752
1,260
495
13,313
517
112
21,643
12,576
8,503
564
21,643
35,893
9,220
23,162
3,845
2,424
4,071
448
(1)
463
35,430
—
—
—
—
2,982
—
—
—
—
—
—
—
—
35,893
9,220
9,220
23,199
23,199
3,845
2,424
1,138
448
3,845
2,424
4,120
448
79,063
3,445
35,430
40,274
79,149
951
200
17
6
1,174
1,281
10,000
48,760
23,099
5,253
376
—
5,623
851
95,243
—
—
—
—
—
—
—
—
—
—
—
—
58
—
58
873
200
17
6
1,096
78
—
—
—
78
951
200
17
6
1,174
—
10,000
1,281
—
1,281
10,000
—
—
—
—
—
5,765
—
48,760
48,760
23,099
23,099
5,253
5,253
376
—
16
851
376
—
5,839
851
15,765
79,636
95,459
Allied Irish Banks, p.l.c. Annual Financial Report 2022
322
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ac Fair value of financial instruments continued
Significant transfers between Level 1 and Level 2 of the fair value hierarchy
There were no transfers between Level 1 and Level 2 of the fair value hierarchy for the years ended 31 December 2022 and 2021.
Reconciliation of balances in Level 3 of the fair value hierarchy
The following tables show a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of
the fair value hierarchy:
Derivatives
€ m
235
Investment
securities
Equities
at FVOCI
€ m
Debt
€ m
—
—
—
—
—
Financial assets
Financial liabilities
Equities
Total
Derivatives
Total
2022
at
FVTPL
Loans and
advances at
FVTPL
€ m
243
—
€ m
86
147
€ m
564
147
€ m
78
€ m
78
—
—
(156)
—
—
—
(156)
—
—
—
—
—
—
(156)
8
8
75
75
83
(73)
178
—
178
178
—
178
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25
(1)
—
—
57
—
—
82
(114)
(115)
—
—
—
—
—
79
—
—
—
—
(26)
—
(26)
—
249
251
579
256
—
—
—
—
—
256
2021
Derivatives
Investment
securities
Equities
at FVOCI
Debt
Loans and
advances at
FVTPL
Equities
at
FVTPL
Total
Derivatives
Total
Financial assets
Financial liabilities
€ m
358
—
€ m
€ m
—
—
—
—
€ m
75
€ m
64
—
—
€ m
497
—
€ m
80
€ m
80
—
—
(123)
—
—
—
(123)
—
—
—
—
—
—
(123)
(2)
(2)
13
13
22
22
35
(88)
—
—
(2)
(2)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
181 (2)
(1)
—
—
—
—
—
—
181
(1)
—
—
—
—
—
—
—
—
—
235
—
—
—
—
(25)
—
(25)
—
—
243
86
564
78
78
At 1 January 2022
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/redemptions
Cash received:
Principal
At 31 December 2022
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/redemptions
Cash received:
Principal
At 31 December 2021
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
323
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ac 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 2022 and 2021:
Net trading income – losses
Gains on equity investments at FVTPL
Losses on loans and advances at FVTPL
2022
€ m
(185)
15
(16)
(186)
2021
€ m
(87)
22
(12)
(77)
Significant unobservable inputs
The table below sets out information about significant unobservable inputs used for the years ended 31 December 2022 and 2021 in
measuring financial instruments categorised as Level 3 in the fair value hierarchy:
Fair value
Range of estimates
Financial
instrument
Uncollateralised
customer
derivatives
2022
€ m
79
247
2021
€ m
235 CVA
78
Asset
Liability
Valuation
technique
Significant
unobservable
input
LGD
PD
31 December
2022
26% - 43%
(Base 34%)
0.8% - 4.5%
31 December
2021
29% - 46%
(Base 37%)
0.5% - 2.5%
Ulster Bank
forward contract
Liability
9
FVA
n/a Discounted
Expected
Future Cash
flows
(Base 2.1% 1year
PD)
(Base 1.2%, 1year PD)
Funding spreads
PD
(0.1%) to 0.2%
(0.5%) to 0.5%
(0.2%) to 0.3%
n/a
Discount Yield
(0.5%) to 0.5%
n/a
Visa inc. Series B
Preferred Stock
Asset
22
50 Quoted market
price (to which
a discount has
been applied)
Final conversion
rate
Loans and
advances to
customers
measured at FVTPL
Asset
249
243 Discounted
cash flows*
Discount on
market value
Collateral
Values
Collateral
changes
0% - 90%
0% - 90%
(4%) - 3%
(1)% - 9%
n/a
n/a
*Expected cash flows discounted at market rates, taking into consideration the fair value of collateral where relevant.
Uncollateralised customer derivatives
The fair value measurement sensitivity to unobservable inputs at 31 December 2022 ranges from (i) negative € 10 million to positive
€ 6 million for CVA (2021: negative € 18 million to positive € 9 million) and (ii) negative € 1 million to Nil for FVA
(2021: negative € 4 million to positive € 2 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.
Other
Details on the Ulster Bank forward contract, Visa Inc. stock and loans and advances to customers at FVTPL are set out on in note 43 to
the consolidated financial statements and apply equally to the parent company, Allied Irish Banks, p.l.c.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
324
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ac Fair value of financial instruments continued
Sensitivity of Level 3 measurements
The implementation of valuation techniques involves a considerable degree of judgement. While the Company believes its estimates of
fair value are appropriate, the use of different measurements or assumptions could lead to different fair values. The following table sets
out the impact of using reasonably possible alternative assumptions in the valuation methodology at 31 December 2022 and 2021:
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
Effect on income
statement
Effect on other
comprehensive income
Favourable
Unfavourable
Favourable
Unfavourable
2022
Level 3
(1)
€ m
4
24
8
36
1
1
€ m
€ m
€ m
(10)
(15) (1)
(9)
(34)
(1)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
2021
Level 3
Effect on income
statement
Effect on other
comprehensive income
Favourable
Unfavourable
Favourable
Unfavourable
€ m
€ m
€ m
€ m
11
48 (1)
21
80
—
—
(21)
(34) (1)
(2)
(57)
(1)
(1)
—
—
—
—
—
—
—
—
—
—
—
—
(1) Relates to a significant equity investment, the carrying value of which was € 22 million at 31 December 2022 (2021: € 50 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 of financial instruments at initial recognition and the amount that was determined at that
date using a valuation technique incorporating significant unobservable data.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
325
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ad 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)
Total
(1) Included in ‘Loans and advances to banks’ total of € 14,967 million (2021: € 9,220 million) set out in note e.
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
ae Statement of cash flows
Non-cash and other items included in profit before taxation
Non-cash items
Net gain arising from the derecognition of financial assets measured at amortised cost
Dividends received from equity investments
Dividends received from subsidiary undertakings
Investments accounted for using the equity method
Subsidiary undertakings impairment
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
Gain on disposal of investment securities
(Gain)/loss on termination of hedging swaps
Amortisation of premiums and discounts
Net gain on equity investments measured 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 from equity investments
Total other items
2022
€ m
2021
€ m
33,628
35,893
1,014
724
34,642
36,617
2022
€ m
2021
€ m
32,485
34,780
218
408
517
319
331
463
33,628
35,893
2022
€ m
(20)
(2)
2021
€ m
(3)
(3)
(102)
(14)
(26)
238
(36)
121
(1)
288
195
7
(4)
—
(74)
16
7
55
230
892
—
2
2
—
—
(69)
142
1
264
141
(18)
11
102
(22)
12
(68)
22
148
646
—
3
3
Non-cash and other items for the year ended 31 December
894
649
(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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
326
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ae Statement of cash flows continued
Change in operating assets(1)
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 other liabilities
2022
€ m
(102)
2021
€ m
(65)
(5,471)
(1,487)
(1,928)
(274)
(1,911)
(2,717)
11
(36)
(9,401)
(4,579)
2022
€ m
2021
€ m
(6,876)
6,299
11,334
9,385
909
—
(116)
(131)
—
313
5,251
15,866
(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.
af Related party transactions
Related parties of Allied Irish Banks, p.l.c. (‘the Company’) include its owner, AIB Group plc, subsidiary undertakings, associate
undertakings and joint undertakings, post-employment benefits, Key Management Personnel and connected parties. The Irish
Government is also considered a related party by virtue of its effective control of the Company. Related party transactions are detailed
in note 46 to the consolidated financial statements.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
327
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ag Credit risk information
The following table sets out the maximum exposure to credit risk that arises within Allied Irish Banks, p.l.c. and distinguishes between
those assets that are carried in the statement of financial position at amortised cost and those carried at fair value at 31 December 2022
and 2021:
Maximum exposure to credit risk
Balances at central banks(3)
Derivative financial instruments(4)
Loans and advances to banks(5)
Loans and advances to customers(6)
Securities financing(7)
Investment securities(8)
Included elsewhere:
Trade receivables
Items in course of collection
Accrued interest(9)
Loan commitments and other credit
related commitments
Financial guarantees
Total
Amortised
cost(1)
Fair
value(2)
2022
Total
Amortised
cost(1)
Fair
value(2)
2021
Total
€ m
€ m
€ m
€ m
€ m
€ m
33,112
—
33,112
35,431
—
35,431
—
2,891
2,891
—
14,967
14,967
25,174
8,230
4,131
249
—
18,903
16
47
236
85,913
—
—
—
22,043
25,423
8,230
23,034
—
16
47
236
107,956
—
9,220
23,162
6,269
4,071
951
—
951
9,220
243
—
20,337
23,405
6,269
24,408
11
40
273
78,477
—
—
—
21,531
11
40
273
100,008
10,582
766
11,348
97,261
—
10,582
—
—
22,043
766
11,348 (10)
119,304
10,268
1,079
11,347
89,824
—
10,268
—
—
21,531
1,079
11,347 (10)
111,355
(1) All amortised cost items are loans and advances and investment securities which are in a ‘held-to-collect’ business model.
(2) All items measured at fair value except investment securities at FVOCI and cash flow hedging derivatives are classified as ‘fair value through profit or loss’.
(3) Included within cash and balances at central banks of € 33,628 million (2021: € 35,893 million).
(4) Exposures to subsidiary undertakings of € 394 million (2021: € 140 million) have been included.
(5) Exposures to subsidiary undertakings of € 13,951 million (2021: € 8,493 million) have been included.
(6) Exposures to owner and subsidiary undertakings of € 3,906 million (2021: € 4,881 million) have been included.
(7) Exposures to subsidiary undertakings of € 1,954 million (2021: € 2,382 million) have been included.
(8) Exposures to subsidiary undertakings of € 7,066 million (2021: € 7,748 million) have been included but equity shares amounting to € 269 million
(2021: € 112 million) have been excluded.
(9) Exposures to subsidiary undertakings of € 13 million (2021: € 4 million) have been included.
(10) Exposures to subsidiary undertakings of € 1,472 million (2021: € 1,231 million) have been included.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
328
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ag Credit risk information continued
Credit exposure
Credit risk exposure derives from standard on-balance sheet products such as mortgages, loans, overdrafts and credit cards. In
addition, credit risk arises from other products and activities including, but not limited to: “off-balance sheet” guarantees and
commitments; the trading portfolio (e.g. bonds and derivatives); investment securities; asset backed securities; and the failure/partial
failure of a trade in a settlement or payments system.
The following table summarises financial instruments in the statement of financial position at 31 December 2022 and 2021:
Statement
of financial
position
Carrying
amount
Exposure
ECL
allowance
€ m
33,628
14,967
€ m
—
—
€ m
33,628
14,967
2022
Income
statement
Net credit
impairment
(charge)
€ m
Statement
of financial
position
Exposure
ECL
allowance
Carrying
amount
2021
Income
statement
Net credit
impairment
(charge)
€ m
—
—
35,893
9,220
€ m
—
—
€ m
35,893
9,220
26,185
(1,011)
25,174
68
24,386
(1,224)
23,162
249
n/a
249
n/a
243
n/a
243
26,434
(1,011)
25,423
68
24,629
(1,224)
23,405
8,231
23,037
47
10,582
766
(1)
8,230
(3)
23,034
—
(49)
(17)
47
(49)
(17)
—
6,270
(2) 24,409
—
40
(9) 10,268
1,079
6
63
(1)
(1)
—
(40)
(24)
6,269
24,408
40
(40)
(24)
€ m
—
—
114
n/a
114
(1)
—
—
1
4
118
Cash and balances at central banks
Loans and advances to banks
Loans and advances to customers:
at amortised cost
at FVTPL
Securities financing
Investment debt securities(1)
Other – Items in course of collection
Loan commitments
Financial guarantee contracts
Total
(1) ECL allowance amounting to € 3 million (2021: € 3 million) included in carrying value.
Collateral
Allied Irish Banks, p.l.c. takes collateral as a secondary source of repayment in the event of a borrower’s default. The nature of
collateral taken is set out on page 78. The information contained in this note relates only to third party exposures arising within Allied
Irish Banks, p.l.c.
Collateral for the non-mortgage portfolio
For non-mortgage lending, where collateral is taken, it will typically include a charge over the business assets such as inventory and
accounts receivable. 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 relies on valuations or business appraisals from independent external professionals.
The value of collateral is assessed at origination of the loan and throughout the credit life cycle (including annual reviews where
required). When undertaking an ECL assessment 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 taken to realise any security is estimated. An ECL
allowance is raised for the difference between this present value and the carrying value of the loan. Therefore, for non-mortgage non-
performing loans, the net exposure after taking into consideration the ECL allowance would be indicative of the fair value.
Collateral for the residential mortgage portfolio
For residential mortgages, Allied Irish Banks, p.l.c. takes collateral in support of lending transactions for the purchase of residential
property. Collateral valuations are required at the time of origination of each residential mortgage. The value at 31 December 2022 is
estimated based on property values at origination or date of latest valuation and applying the CSO Residential Property Price Index
(Republic of Ireland) to these values to take account of price movements in the interim.
Summary of risk mitigants by selected portfolios
Set out below are details of risk mitigants used by Allied Irish Banks, p.l.c. in relation to financial assets detailed in the maximum
exposure to credit risk table on page 92.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
329
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ag Credit risk information continued
Collateral continued
Loans and advances to customers – residential mortgages
The following table shows the estimated fair value of collateral held for the residential mortgage portfolio at 31 December 2022 and
2021.
Stage 1 Stage 2
€ m
€ m
At amortised cost
Stage 3
€ m
2022
POCI
€ m
Total
€ m
Stage 1
€ m
At amortised cost
Stage 3
€ m
Stage 2
€ m
POCI
€ m
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%
50% - 70%
71% - 80%
81% - 90%
91% - 100%
Partially collateralised
Collateral value relating to
loans over 100% loan-to-value
Total collateral value
Gross residential mortgages
ECL allowance
Net residential mortgages
320
185
14
1
1
521
1
522
522
—
522
29
22
3
—
—
54
—
54
56
(1)
55
16
10
2
1
2
31
—
31
32
(15)
17
—
—
—
—
—
—
—
—
—
—
—
365
217
19
2
3
606
1
607
610
(16)
594
297
220
68
12
2
599
1
600
601
(1)
600
22
12
8
3
—
45
—
45
44
(1)
43
47
30
17
10
9
113
7
120
122
(60)
62
—
—
—
—
—
—
—
—
—
—
—
2021
Total
€ m
366
262
93
25
11
757
8
765
767
(62)
705
(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.
Securities financing
In addition to the credit risk mitigants outlined on the previous page, Allied Irish Banks, p.l.c., from time to time, enters securities
financing transactions. Securities financing consists of securities borrowing and lending and sale and repurchase agreements.
At 31 December 2022, reverse repurchase agreements and securities borrowings amounted to € 8,230 million (2021: € 6,269 million)
for which Allied Irish Banks, p.l.c. had accepted collateral with a fair value of € 8,230 million (2021: € 6,269 million).
Derivatives
Derivative financial instruments are shown on the statement of financial position at their fair value. Those with a positive fair value are
reported as assets which at 31 December 2022 amounted to € 2,891 million (2021: € 951 million) and those with negative fair value are
reported as liabilities which at 31 December 2022 amounted to € 4,117 (2021: € 1,174 million).
The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets
and liabilities by € 2,251 million at 31 December 2022 (2021: € 557 million). Allied Irish Banks, p.l.c. also has Credit Support Annexes
(“CSAs”) in place which provide collateral for derivative contracts. As at 31 December 2022, € 1,344 million (2021: € 633 million) of
CSAs are included within financial assets as collateral for derivative liabilities and € 393 million (2021: € 193 million) of CSAs are
included within financial liabilities as collateral for derivative assets (note x). Additionally, Allied Irish Banks, p.l.c. has agreements in
place which may allow it to net the termination values of cross currency swaps upon occurrence of an event of default.
Investment securities
At 31 December 2022, government guaranteed senior bank debt amounting to € 259 million (2021: € 317 million) was held within the
investment securities portfolio.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
330
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ag Credit risk information continued
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 2022
and 2021:
Amortised cost
Total
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
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
2021
Total
€ m
9,797
5,913
15,710
895
1,467
2,362
1,433
19,505
(1,224)
407
184
591
39
15
54
122
767
(62)
705
1,223
984
2,207
137
23
160
244
2,611
(220)
2,391
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
POCI
€ m
2022
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
12,316
5,093
17,409
319
117
436
1
17,846
787
919
1,706
538
1,216
1,754
—
3,460
(164)
(457)
—
—
—
—
—
—
—
—
—
—
—
—
973
—
—
973
(390) —
583
13,103
6,012
19,115
857
1,333
2,190
974
22,279
(1,011)
9,321
4,568
13,889
302
87
389
2
14,280
476
1,345
1,821
593
1,380
1,973
—
3,794
(144)
(527)
14,136
3,267
—
—
—
—
—
—
—
—
—
1,431
1,431
—
—
—
—
—
(553) —
878
17,682
3,003
— 21,268 (1)
— 18,281 (1)
346
161
507
2
7
9
—
—
—
—
—
—
15
—
15
—
522
—
522
16
31
47
—
56
(1)
55
—
—
—
—
—
—
32
—
—
32
(15) —
—
17
348
168
516
31
31
62
32
610
(16)
594
3
7
10
—
—
—
—
—
—
19
15
34
—
44
(1)
43
—
—
—
—
—
—
122
—
—
122
(60) —
—
62
(1)
61
108
169
—
—
—
—
—
—
77
14
91
—
260
(37)
223
—
—
—
—
—
—
—
177
177
—
(114) —
—
63
1,249
1,043
2,292
164
14
178
177
2,647
(176)
2,471
32
87
119
—
—
—
—
—
—
73
22
95
—
214
(33)
181
—
—
—
—
—
—
—
244
244
—
(157) —
—
87
(25)
(30)
661
275
936
—
—
—
—
—
—
4,967
954
5,921
407
522
929
—
—
—
—
—
—
3,287
1,153
4,440
33
207
240
—
1,176
—
—
—
—
—
—
—
304
304
—
(83) —
—
221
82
226
308
304
6,533
(257)
6,276
(65)
(109)
4,988
1,067
116
190
306
—
1,235
—
—
—
—
—
—
—
473
473
—
(131) —
—
342
138
269
407
473
5,320
(253)
5,067
(38)
(84)
3,574
1,151
404
177
581
20
—
20
—
601
600
1,191
897
2,088
64
1
65
—
2,153
2,123
2,880
631
3,511
22
79
101
—
3,612
1,188
935
2,123
87
—
87
—
2,210
2,185
4,306
679
4,985
49
19
68
—
5,053
(1) Exposures to subsidiary undertakings of € 3,906 million (2021: € 4,881 million) are excluded.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
331
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ag Credit risk information continued
Internal credit grade profile by ECL staging continued
Stage 1 Stage 2 Stage 3
€ m
€ m
€ m
POCI
€ m
2022
Total
€ m
Stage 1
€ m
Stage 2
€ m
Stage 3
€ m
POCI
€ m
2021
Total
€ m
Non-property business
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Gross carrying amount
ECL allowance
Carrying amount
FVTPL
Strong
Satisfactory
Total strong/satisfactory
Criticised watch
Criticised recovery
Total criticised
Non-performing
Total
34
729
763
—
—
—
—
—
—
4,880
3,592
8,472
6,476
3,318
9,794
168
98
266
1
10,061
63
529
592
—
—
—
—
—
—
412
964
1,376
—
1,968
—
—
—
—
—
—
—
460
460
—
(178) —
—
282
(74)
(310)
6,539
3,847
10,386
580
1,062
1,642
461
12,489
4,846
2,863
7,709
196
7
203
2
7,914
(562)
(75)
(409)
11,927
7,839
1,892
385
1,153
1,538
—
2,301
—
—
—
—
—
—
—
592
592
—
(205) —
—
387
9,987
1,658
Property and
construction
€ m
73
—
73
—
—
—
153
226
Non
Property
Business
€ m
23
—
23
—
—
—
—
23
2022
Total
€ m
96
—
96
—
—
—
153
249
Property and
construction
Non Property
Business
€ m
—
74
74
—
—
—
169
243
€ m
—
—
—
—
—
—
—
—
581
1,160
1,741
594
10,807
(689)
10,118
2021
Total
€ m
—
74
74
—
—
—
169
243
The table below analyses the credit ratings of loan commitments and financial guarantee contracts at 31 December 2022 and 2021:
Strong
Satisfactory
Criticised watch
Criticised recovery
Non-performing
Total
2022
€ m
8,453
2,514
188
122
71
2021
€ m
7,442
3,515
227
66
97
11,348
11,347
Allied Irish Banks, p.l.c. Annual Financial Report 2022
332
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ag Credit risk information continued
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 2022 and 31 December 2022 and the corresponding movements between 1 January 2021 and
31 December 2021.
Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed
on pages 80 and 81) and that subsequently reverted within the period to their original stage, are excluded from ‘Transferred from Stage
1 to Stage 2' and ‘Transferred from Stage 2 to Stage 1’. The Company believes this presentation aids the understanding of the
underlying credit migration.
Gross carrying amount movements – total
At 1 January
Transferred from Stage 1 to Stage 2
Transferred from Stage 2 to Stage 1
Transferred to Stage 3
Transferred from Stage 3
New loans originated/top-ups
Redemptions/repayments
Interest credited
Write-offs
Derecognised due to disposals
Exchange translation adjustments
Impact of model, parameter and overlay changes
Other movements
Stage 1
€ m
14,280
(1,518)
864
(38)
20
8,107
Stage 2
€ m
3,794
1,518
(864)
(230)
108
—
(4,500)
(1,020)
624
—
3
(41)
—
45
120
—
(1)
(4)
—
39
Stage 3
€ m
1,431
—
—
268
(128)
—
(276)
35
(61)
(296)
—
—
—
At 31 December 2022 – third parties
17,846
3,460
973
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
Stage 1
€ m
11,693
(1,321)
Stage 2
€ m
5,629
1,321
1,796
(1,796)
(73)
32
5,267
(311)
145
—
(3,479)
(1,547)
497
—
(27)
64
(200)
31
150
—
(47)
45
200
5
At 31 December 2021 – third parties
14,280
3,794
Stage 3
€ m
1,747
—
—
384
(177)
—
(365)
35
(59)
(17)
5
—
(122)
1,431
(1) Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.
(2) Amounts due from subsidiary undertakings of € 3,906 million at 31 December 2022 are excluded (2021: € 4,881 million).
POCI
€ m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
POCI
€ m
1
—
—
—
—
—
(1)
—
—
—
—
—
—
—
2022
Total
€ m
19,505
—
—
—
—
8,107
(5,796)
779
(61)
(294)
(45)
—
84
22,279 (2)
2021
Total
€ m
19,070
—
—
—
—
5,267
(5,392)
682
(59)
(91)
114
—
(86)
19,505 (2)
Allied Irish Banks, p.l.c. Annual Financial Report 2022
333
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ag Credit risk information continued
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, parameter 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
Other movements
At 31 December 2022 – third parties
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, parameter 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 2021 – third parties
Stage 1
€ m
144
(29)
11
(2)
2
16
54
(20)
17
(44)
5
—
—
—
15
Stage 2
€ m
527
121
(66)
(51)
26
(21)
—
(43)
(20)
(6)
(60)
—
(2)
(1)
(7)
Stage 3
€ m
553
—
—
76
(43)
1
—
—
(22)
2
14
(62)
(107)
—
(8)
164
457
390
Stage 1
Stage 2
Stage 3
€ m
171
(38)
52
(7)
2
(73)
51
(15)
18
(22)
(32)
—
—
—
5
144
€ m
611
126
(126)
(79)
18
(91)
—
(31)
97
1
(85)
—
(5)
5
1
527
€ m
569
—
—
115
(39)
(77)
—
—
58
(5)
52
(59)
(6)
2
(5)
553
POCI
€ m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
POCI
€ m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2022
Total
€ m
1,224
92
(55)
23
(15)
(4)
54
(63)
(25)
(48)
(41)
(62)
(109)
(1)
—
1,011 (1)
2021
Total
€ m
1,351
88
(74)
29
(19)
(241)
51
(46)
173
(26)
(65)
(59)
(11)
7
1
1,224 (1)
(1) ECLs on amounts due from subsidiary undertakings of Nil at 31 December 2022 are excluded (2021: Nil).
The contractual amount outstanding of loans written-off during the year that are subject to enforcement activity amounted to € 4 million
(2021: € 3 million) which includes both full and partial write-offs.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
334
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ag Credit risk information continued
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 2022 and 2021:
Gross exposures to customers
Concentration by industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total – third parties
Subsidiary undertakings
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
Total
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 – third parties
Subsidiary undertakings
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
(1) Based on country of risk.
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2022
At FVTPL
Loans and
advances
to
customers
Loan
commitments
and financial
guarantees
issued
Total
Stage 1 Stage 2 Stage 3
POCI
Total
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
1,520
1,405
1,897
2,976
1,609
178
2,904
6,533
610
2,647
22,279
3,906
26,185
22,331
914
455
2,485
26,185
653
763
1,066
1,208
587
469
1,257
1,524
7
2,342
9,876
1,472
11,348
2,173
2,168
2,963
4,184
2,196
647
4,161
8,057
617
4,989
32,155
5,378
37,533
1,862
2,066
2,752
2,443
2,116
595
3,744
6,443
529
4,235
26,785
5,378
32,163
244
74
192
1,454
52
52
351
1,285
55
569
4,328
—
4,328
67
28
19
287
28
—
66
329
33
185
1,042
—
1,042
—
—
—
—
—
—
—
—
—
—
—
—
—
2,173
2,168
2,963
4,184
2,196
647
4,161
8,057
617
4,989
32,155
5,378
37,533
10,062
404
366
516
11,348
32,393
1,318
821
3,001
37,533
27,584
1,234
782
2,563
32,163
3,953
76
38
261
4,328
856
8
1
177
1,042
—
—
—
—
—
32,393
1,318
821
3,001
37,533
—
9
—
15
—
—
—
226
—
—
249
—
249
249
—
—
—
249
2022
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
Loans and
advances
to
customers
Loan
commitments
and financial
guarantees
issued
Total Stage 1 Stage 2 Stage 3
POCI
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
49
31
38
323
27
25
69
257
16
176
1,011
—
1,011
864
15
5
127
1,011
3
6
10
13
1
1
6
19
—
7
66
—
66
63
1
2
—
66
52
37
48
336
28
26
75
276
16
183
1,077
—
1,077
927
16
7
127
1,077
10
5
18
24
8
1
19
70
0
26
181
—
181
161
3
2
15
181
20
10
23
226
3
24
30
112
1
42
491
—
491
398
12
5
76
491
22
22
7
86
17
1
26
94
15
115
405
—
405
368
1
—
36
405
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
52
37
48
336
28
26
75
276
16
183
1,077
—
1,077
927
16
7
127
1,077
Allied Irish Banks, p.l.c. Annual Financial Report 2022
335
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ag Credit risk information continued
Gross exposures to customers
Concentration by industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total – third parties
Subsidiary undertakings
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 – third parties
Subsidiary undertakings
Total
Concentration by location(1)
Republic of Ireland
United Kingdom
North America
Rest of the World
(1) Based on country of risk.
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
2021
At FVTPL
Total
Stage 1 Stage 2 Stage 3
POCI
Total
Total
Loans and
advances
to
customers
Loan
commitments
and financial
guarantees
issued
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
1,519
1,006
1,551
2,957
1,244
195
2,335
5,320
767
2,611
19,505
4,881
24,386
21,132
562
369
2,323
24,386
592
757
1,223
1,035
472
243
1,530
1,578
8
2,678
10,116
1,231
11,347
2,111
1,763
2,774
3,992
1,716
438
3,865
6,898
775
5,289
29,621
6,112
35,733
1,821
1,721
2,482
1,909
1,565
384
3,439
5,077
607
4,651
23,656
6,112
29,768
201
40
269
1,689
111
52
333
1,313
45
384
4,437
—
4,437
89
2
23
394
40
2
93
508
122
254
1,527
—
1,527
—
—
—
—
—
—
—
—
1
—
1
—
1
2,111
1,763
2,774
3,992
1,716
438
3,865
6,898
775
5,289
29,621
6,112
35,733
10,413
299
175
460
11,347
31,545
861
544
2,783
35,733
26,150
771
517
2,330
29,768
4,067
69
26
275
4,437
1,327
22
—
178
1,527
1
—
—
—
1
31,545
862
543
2,783
35,733
—
—
—
—
—
—
—
243
—
—
243
—
243
243
—
—
—
243
2021
Gross carrying amount
Analysed by ECL stage profile
At amortised cost
Loans and
advances to
customers
Loan
commitments
and financial
guarantees
issued
Total
Stage 1 Stage 2 Stage 3
POCI
Total
€ m
€ m
€ m
€ m
€ m
€ m
€ m
€ m
55
10
31
450
33
21
89
253
62
220
1,224
—
1,224
1,113
14
6
91
1,224
3
—
7
18
2
1
9
17
—
7
64
—
64
61
—
2
1
64
58
10
38
468
35
22
98
270
62
227
1,288
—
1,288
1,174
14
8
92
1,288
9
4
9
31
6
2
24
40
1
32
158
—
158
14
5
21
335
8
18
32
86
1
38
558
—
558
35
1
8
102
21
2
42
144
60
157
572
—
572
—
—
—
—
—
—
—
—
—
—
—
—
—
58
10
38
468
35
22
98
270
62
227
1,288
—
1,288
142
3
4
9
158
471
7
4
76
558
561
4
—
7
572
—
—
—
—
—
1,174
14
8
92
1,288
Allied Irish Banks, p.l.c. Annual Financial Report 2022
336
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ag Credit risk information continued
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 at 31 December 2022 and 2021. The aged analysis of the contractually past due loans have been prepared under the EBA
DPD counter which reflects changes to materiality threshold and count methodology.
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
As a percentage of total gross
loans at amortised cost
At FVTPL
Industry sector
Property and construction
Total at FVTPL
As a percentage of
total gross loans at FVTPL
1-30 days
31-60 days
61-90 days
91-180 days 181-365 days > 365 days
€ m
€ m
€ m
€ m
€ m
€ m
8
—
6
10
1
—
6
9
1
37
78
34
32
12
—
78
3
—
1
3
—
—
1
2
1
12
23
—
13
10
—
23
1
—
—
3
—
—
4
2
—
7
17
—
9
8
—
17
2
—
1
12
—
—
3
17
1
21
57
—
—
57
—
57
4
1
2
32
2
—
4
14
2
30
91
—
—
91
—
91
14
—
4
56
5
—
24
35
9
87
234
—
—
234
—
234
2022
Total
€ m
32
1
14
116
8
—
42
79
14
194
500
34
54
412
—
500
%
%
%
%
%
%
%
0.35 % 0.10 %
0.08 %
0.26 %
0.41 %
1.05 % 2.24 %
€ m
—
—
%
—
€ m
€ m
€ m
€ m
€ m
€ m
—
—
—
—
—
—
—
—
—
—
—
—
%
—
%
—
%
—
%
—
%
—
%
—
The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
337
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ag Credit risk information continued
Aged analysis of contractually past due loans and advances to customers continued
At amortised cost
Industry sector
Non-property business:
Agriculture
Energy
Manufacturing
Distribution
Transport
Financial
Other services
Property and construction
Residential mortgages
Other personal
Total gross carrying amount
ECL staging
Stage 1
Stage 2
Stage 3
POCI
As a percentage of total gross
loans at amortised cost
At FVTPL
Industry sector
Property and construction
Total at FVTPL
As a percentage of
total gross loans at FVTPL
1-30 days 31-60 days
61-90 days
91-180 days
181-365 days
> 365 days
€ m
€ m
€ m
€ m
€ m
€ m
2021
Total
€ m
13
—
2
10
5
4
—
1
7
1
1
—
—
8
1
—
—
—
9
11
5
39
94
36
37
21
—
94
7
9
—
10
39
—
21
18
—
39
1
1
1
9
22
—
8
14
—
22
5
—
—
32
13
—
2
10
1
21
84
—
—
84
—
84
4
—
3
59
1
—
7
26
1
28
129
—
—
129
—
129
20
47
1
5
77
6
2
33
132
54
138
468
—
—
468
—
468
1
11
193
27
2
59
189
62
245
836
36
66
734
—
836
%
%
%
%
%
%
%
0.48 %
0.20 %
0.11 %
0.43 %
0.66 %
2.40 % 4.29 %
€ m
€ m
€ m
€ m
€ m
€ m
€ m
—
—
—
—
—
—
—
—
—
—
—
—
—
—
%
—
%
—
%
—
%
—
%
—
%
%
—
—
The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
338
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ag Credit risk information continued
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 2022 and 2021. These
include loans and advances to banks, securities financing, investment debt securities and trading portfolio financial assets.
At amortised cost
At FVOCI
2022
Total
Bank Corporate Sovereign
Other
Total
Bank Corporate Sovereign
Other
Total
€ m
€ m
€ m
€ m
€ m
€ m
101
6,295
6
—
—
—
2,171 1,405
3,677
4,008
963
9
92
111
15
32
—
—
195
7,468
1,408
5
—
23
52
92
347
—
134
—
€ m
110
216
173
—
—
6,402
1,175
2,218 1,628 (2)
11,423
5,763
499
€ m
4,048
213
861
—
—
5,122 (4)
€ m
453
€ m
€ m
8,619
12,296
— 1,837
9,305
— 1,381
1,433
—
—
—
—
92
134
453 11,837
23,260
6,402
1,167
2,218 1,628
11,415
5,763
499
5,122
453 11,837
23,252
—
—
8
—
—
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
8
—
2021
Total
€ m
Total
€ m
At amortised cost
At FVOCI
Bank Corporate Sovereign
Other
Total
Bank Corporate
Sovereign
Other
€ m
131
3,627
19
1
1
€ m
—
€ m
289
920
2,390
2
104
62
37
—
—
€ m
896
201
5
—
—
€ m
€ m
1,316
3,884
7,138
1,282
63
399
105
—
63
—
€ m
72
248
197
—
—
€ m
1,182
3,721
1,109
€ m
495
5,633
6,949
— 5,251
12,389
— 1,705
1,768
—
—
—
—
—
—
105
63
3,779
1,088
2,716 1,102
8,685
5,565
517
6,012
495 12,589
21,274
3,779
1,088
2,716 1,102
8,685
5,565
486
6,012
495 12,558
21,243
—
—
—
—
—
—
—
—
—
—
—
—
31
—
—
—
—
—
31
—
31
—
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which:
Stage 1
Stage 2
Stage 3
AAA/AA
A/A-
BBB+/BBB/BBB-
Sub investment
Unrated
Total
Of which:
Stage 1
Stage 2
Stage 3
(1) Excludes balances with subsidiary undertakings of €13,951 million (2021: €8,493 million).
(2) Relates to asset backed securities.
(3) Excludes balances with subsidiary undertakings of € 7,066 million (2021: € 7,748 million).
(4) Includes supranational banks and government agencies.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
339
NOTES TO ALLIED IRISH BANKS, P.L.C.
COMPANY FINANCIAL STATEMENTS CONTINUED
ah Liquidity and funding risk information
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 2022 and 2021(1):
Financial assets
Cash and balances at central banks
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
Cash and balances at central banks
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(5)
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
33,628
—
13,838
4,784
1,953
—
—
<3 months
but not on
demand
€ m
3 months to
1 year
1–5 years
Over
5 years
2022
Total
€ m
€ m
€ m
€ m
—
114
1,129
1,119
843
1,461
415
—
98
—
—
709
—
—
33,628
1,970
2,891
—
14,967
1,992
12,245
6,294
26,434
1,943
1,307
—
3,491
—
8,230
9,427
10,839
23,034
—
—
415
54,203
5,081
5,340
25,872
19,103 109,599
4,025
376
84,839
3,477
372
—
—
—
1,007
898
811
—
252
—
90,243
5,814
—
166
—
169
—
126
—
461
—
—
—
—
—
—
1,278
1,859
—
—
4,157
3,050
—
—
4,401
88,482
1,270
4,117
—
7,585
1,007
5,435
4,909 106,862
On demand
€ m
35,893
—
8,472
6,014
2,382
—
—
<3 months
but not on
demand
€ m
3 months
to 1 year
1–5 years
Over
5 years
2021
Total
€ m
€ m
€ m
€ m
—
59
747
1,297
850
522
448
—
31
1
1,363
1,324
—
226
—
10,232
1,713
—
35,893
635
—
5,723
951
9,220
24,629
—
6,269
1,593
10,487
11,806
24,408
—
—
—
448
52,761
3,923
4,312
22,658
18,164 101,818
1,137
290
73,608
3,409
331
—
—
—
851
45
121
—
—
—
—
58
—
106
—
—
—
9,854
36
—
214
—
—
1
—
733
—
11,281
77,112
376
1,174
—
3,355
2,268
5,623
—
—
851
75,927
3,865
164
13,459
3,002
96,417
(1) The Company has changed its classification of cash collateral placed with/received from derivative counterparties. This has resulted in the 2021 comparative
period being restated with € 759 million in financial assets and € 203 million in financial liabilities moving from on demand to the 0-3 month maturity time-bucket.
(2) Shown by maturity date of contract.
(3) Shown gross of expected credit losses.
(4) Excluding equity shares.
(5) A maturity analysis of lease liabilities is disclosed in note r
.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
340
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
ai Market risk information
Market risk profile
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 2022 and at 31
December 2022, interest rate VaR stood at € 13.87 million, foreign exchange rate VaR at € 0.14 million and equity VaR at € 0.12 million.
The Company 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
341
FORWARD LOOKING STATEMENT
This document contains certain forward looking statements with
respect to the financial condition, results of operations and
business of Allied Irish Banks, p.l.c. and its subsidiaries ('the
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 23 to 25 in the
2022 Annual Financial Report. In addition to matters relating to the
Group’s business, future performance will be impacted by the
Group's ability along with governments and other stakeholders to
measure, manage and mitigate the impacts of climate change
effectively, the impact of higher inflation on customer sentiment
and by Irish, UK and wider European and global economic and
financial market considerations. Future performance will further be
impacted by the direct and indirect consequences of the Russia-
Ukraine War on European and global macroeconomic conditions
and any enduring effects of the COVID-19 pandemic. 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 23 to 25 of the 2022 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
342
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Financial Statements
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GLOSSARY OF TERMS
Additional Tier 1
Capital
Additional Tier 1 Capital (“AT1”) are securities issued by AIB and included in its capital base as fully CRD IV
compliant additional tier 1 capital on a fully loaded basis.
Arrears
Arrears relates to interest or principal on a loan which was due for payment, but where payment has not been received.
Customers are said to be in arrears when they are behind in fulfilling their obligations with the result that an
outstanding loan is unpaid or overdue.
Bank Recovery and
Resolution Directive
The Bank Recovery and Resolution Directive (“BRRD”) is a European legislative package issued by the European
Commission and adopted by EU Member States. The BRRD introduces a common EU framework for how
authorities should intervene to address banks which are failing or are likely to fail. The framework includes early
intervention and measures designed to prevent failure and in the event of bank failure for authorities to ensure an
orderly resolution.
Banking book
Basel III
Basel IV
Basis point
Basis risk
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.
The third of the Basel Accords, an international business standard that requires financial institutions to maintain
enough cash reserves to cover risks incurred by operations.
The fourth of the Basel Accords, an international business standard that requires financial institutions to maintain
enough cash reserves to cover risks incurred by operations.
One hundredth of a per cent (0.01%), so 100 basis points is 1%. Used in quoting movements in interest rates or
yields on securities.
A type of market risk that refers to the possibility that the change in the price of an instrument (e.g. asset, liability,
derivative) may not match the change in price of the associated hedge, resulting in losses arising in the Group’s
portfolio of financial instruments.
Buy-to-let mortgage
A residential mortgage loan approved for the purpose of purchasing a residential investment property.
Capital Requirements
Directive
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
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
Commercial paper
Commercial property
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 is similar to a deposit and is a relatively low-risk, short term, unsecured promissory note traded
on money markets and issued by companies or other entities to finance their short-term expenses. In the USA,
commercial paper matures within 270 days maximum, while in Europe, it may have a maturity period of up to 365
days; although maturity is commonly 30 days in the USA and 90 days in Europe.
Commercial property lending focuses primarily on the following property segments:
a) Apartment complexes;
b) Office projects;
c) Retail projects;
d) Hotels; and
e) Selective mixed-use projects and special purpose properties.
Common equity tier 1
capital (“CET 1”)
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
343
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
The period when a scheduled payment is due and payable in accordance with the terms of a financial instrument.
Contractual residual
maturity
The time remaining until the expiration or repayment of a financial instrument in accordance with its contractual
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
Techniques used by lenders to reduce the credit risk associated with an exposure by the application of credit risk
mitigants. Examples include: collateral; guarantee; and credit protection.
Credit spread
Credit spread can be defined as the difference in yield between a given security and a comparable benchmark
government security, or the difference in value of two securities with comparable maturity and yield but different
credit qualities. It gives an indication of the issuer’s or borrower’s credit quality.
Credit support annex
Credit support annex (“CSA”) provides credit protection by setting out the rules governing the mutual posting of
collateral. CSAs are used in documenting collateral arrangements between two parties that trade over-the-counter
derivative securities. The trade is documented under a standard contract called a master agreement, developed by
the International Swaps and Derivatives Association (“ISDA”). The two parties must sign the ISDA master agreement
and execute a credit support annex before they trade derivatives with each other.
Credit valuation
adjustment
Credit valuation adjustment (“CVA”) is an adjustment to the valuation of OTC derivative contracts to reflect the
creditworthiness of derivative counterparties.
Criticised
Accounts of lower quality and considered as less than satisfactory are referred to as criticised and include
the following:
Criticised watch:
The credit is exhibiting weakness and is deteriorating in terms of credit quality and may need additional attention.
Criticised recovery:
Includes forborne cases that are classified as performing having transitioned from default, but still requires additional
management attention to monitor for re-default and continuing improvement in terms of credit quality.
Customer accounts
A liability of the Group where the counterparty to the financial contract is typically a personal customer, a corporation
(other than a financial institution) or the government. This caption includes various types of deposits and credit
current accounts, all of which are unsecured.
Debt restructuring
This is the process whereby customers in arrears, facing cash flow or financial distress, renegotiate the terms of
their loan agreements in order to improve the likelihood of repayment. Restructuring may involve altering the terms
of a loan agreement including a partial write down of the balance. In certain circumstances, the loan balance may be
swapped for an equity stake in the counterparty.
Debt securities
Assets on the Group’s balance sheet representing certificates of indebtedness of credit institutions, public bodies
and other undertakings.
Debt securities in
issue
Liabilities of the Group which are represented by transferable certificates of indebtedness of the Group to the bearer
of the certificates.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
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Financial Statements
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GLOSSARY OF TERMS CONTINUED
Default
When a customer breaches a term and/or condition of a loan agreement, a loan is deemed to be in default for case
management purposes. Depending on the materiality of the default, if left unmanaged it can lead to loan impairment.
Default is also used in a CRD IV context when a loan is greater than 90 days past due and/or the borrower is
unlikely to pay his credit obligations. This may require additional capital to be set aside.
Derecognition
The removal of a previously recognised financial asset or financial liability from the Group’s statement of financial
position.
ECB refinancing rate
The main refinancing rate or minimum bid rate is the interest rate which banks have to pay when they borrow from
the ECB under its main refinancing operations.
ECLs
Eurozone
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.
Exposure at default
The expected or actual amount of exposure to the borrower at the time of default.
Exposure value
Forbearance
Funding value
adjustment
GDP
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 (“FVA”) is an adjustment to the valuation of OTC derivative contracts due to a bank’s
funding rate exceeding the risk-free rate.
Gross Domestic Product (''GDP'') is a monetary measure of the value of all final goods and services produced in a
period of time (quarterly or yearly). GDP estimates are commonly used to determine the economic performance and
standard of living of a whole country or region, and to make international comparisons.
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
345
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. CRD IV requires that this ratio exceeds 100% on 1 January 2018.
Liquidity risk
The risk that Group does not have sufficient financial resources to meet its obligations as they fall due, or will have
to do so at an excessive cost. This risk arises from mismatches in the timing of cash flows.
Loan to deposit ratio
This is the ratio of loans and advances expressed as a percentage of customer accounts, as presented in the
statement of financial position.
Loan to value
Loans past due
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.
When a borrower fails to make a contractually due payment, a loan is deemed to be past due. ‘Past due days’ is a
term used to describe the cumulative number of days that a missed payment is overdue. Past due days commence
from the close of business on the day on which a payment is due but not received. In the case of overdrafts, past
due days are counted once a borrower:
• has breached an advised limit;
• has been advised of a limit lower than the then current amount outstanding; or
• has drawn credit without authorisation.
When a borrower is past due, the entire exposure is reported as past due, rather than the amount of any excess or
arrears.
Loss Given Default
Loss Given Default (“LGD”) is the expected or actual loss in the event of default, expressed as a percentage of
‘exposure at default’.
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
requirements for own
funds and eligible
liabilities (MREL)
National Asset
Management Agency
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.
Net interest income
The amount of interest received or receivable on assets net of interest paid or payable on liabilities.
Net interest margin
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
Net Stable Funding Ratio (“NSFR”): The ratio of available stable funding to required stable funding over a 1 year
time horizon.
New transaction
lendings
Non-performing
exposures
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
346
Annual Review
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Financial Statements
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GLOSSARY OF TERMS CONTINUED
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.
Principal components
analysis
Principal components analysis (“PCA”) is a tool used to analyse the behaviour of correlated random variables. It is
especially useful in explaining the behaviour of yield curves. Principal components are linear combinations of the
original random variables, chosen so that they explain the behaviour of the original random variables, and so that
they are independent of each other. Principal components can, therefore, be thought of as just unobservable
random variables. For yield curve analysis, it is usual to perform PCA on arithmetic or logarithmic changes in
interest rates. Often the data is “demeaned”; adjusted by subtracting the mean to produce a series of zero mean
random variables. When PCA is applied to yield curves, it is usually the case that the majority (> 95%) of yield curve
movements can be explained using just three principal components (i.e. a parallel shift, twist and bow). PCA is a
very useful tool in reducing the dimensionality of a yield curve analysis problem and, in particular, in projecting
stressed rate scenarios.
Private equity
investments
Equity securities in operating companies not quoted on a public exchange, often involving the investment of capital
in private companies.
Probability of Default
Probability of Default (“PD”) is the likelihood that a borrower will default on an obligation to repay.
Regulatory capital
Regulatory capital is determined in accordance with rules established by the SSM/ECB for the consolidated Group
and by local regulators for individual Group companies.
Re-pricing risk
Repurchase
agreement
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 (“Repo”) is a short-term funding agreement that allows a borrower to create a collateralised
loan by selling a financial asset to a lender. As part of the agreement, the borrower commits to repurchase the
security at a date in the future repaying the proceeds of the loan. For the counterparty to the transaction, it is termed
a reverse repurchase agreement or a reverse repo.
Residential mortgage-
backed securities
Residential mortgage-backed securities (“RMBS”) are debt obligations that represent claims to the cash flows from
pools of mortgage loans, most commonly on residential property.
Risk weighted assets
Risk weighted assets (“RWAs”) are a measure of assets (including off-balance sheet items converted into asset
equivalents e.g.credit lines) which are weighted in accordance with prescribed rules and formulas as defined in the
Basel Accord to reflect the risks inherent in those assets.
Securities financing
transactions
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
Securitisation is the process of aggregation and repackaging of non-tradable financial instruments such as loans and
advances, or company cash flows into securities that can be issued and traded in the capital markets.
Single Resolution
Fund
Single Supervisory
Mechanism
The Single Resolution Fund (SRF) is an emergency fund that can be called upon in times of crisis.
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).
Allied Irish Banks, p.l.c. Annual Financial Report 2022
347
Stage allocation:
Under IFRS 9, loans and advances to customers are classified into one of three stages:
Stage 1
Stage 2
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.
Stage 3
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.
Subordinated
liabilities
Liabilities which, in the event of insolvency or liquidation of the issuer, are subordinated to the claims of depositors
and other creditors of the issuer.
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
Tier 2 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.
Broadly includes qualifying subordinated debt and other tier 2 securities in issue. It is subject to adjustments relating
to the excess of expected loss on the IRBA portfolios over the accounting expected credit losses on the IRBA
portfolios, securitisation positions and material holdings in financial companies.
Tracker mortgage
A mortgage with a variable interest rate which tracks the European Central Bank (“ECB”) rate, at an agreed margin
above the ECB rate and will increase or decrease within five days of an ECB rate movement.
Trade date and
settlement date
accounting
Value at Risk
1. 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).
2. 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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
348
Annual Review
Business Review
Governance Report
Risk Management
Financial Statements
General Information
PRINCIPAL ADDRESSES
AIB Group plc
10 Molesworth Street,
Dublin 2 D02 R126.
Telephone: + 353 1 660 0311
Allied Irish Banks, p.l.c.
10 Molesworth Street,
Dublin 2 D02 R126.
Telephone: + 353 1 660 0311
AIB Group (UK) p.l.c.
92 Ann Street,
Belfast BT1 3HH.
Telephone: + 44 345 600 5925
AIB (NI)
92 Ann Street,
Belfast BT1 3HH.
Telephone: + 44 345 600 5925
AIB Mortgage Bank Unlimited Company
10 Molesworth Street,
Dublin 2 D02 R126.
Telephone: +353 1 660 0311
Allied Irish Bank (UK)
St Helen's, 1 Undershaft,
London EC3A 8AB.
Telephone: + 44 207 647 3300
EBS d.a.c.
10 Molesworth Street,
Dublin 2 D02 R126.
Telephone: + 353 1 665 9000
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.
Allied Irish Banks, p.l.c. Annual Financial Report 2022
349