TIDMAIBG
RNS Number : 2595R
AIB Group PLC
05 March 2021
EMBARGO 07:00 5 March 2021
AIB Group plc ("AIB") announces 2020 Annual Financial
Results
"Today we announce full year results that have been shaped by
COVID-19. I am pleased to report that the fundamentals of our
business remain robust, sustainable and strong. We entered this
crisis in a position of capital strength which, enabled by our
leading digital technology, allowed us to deliver unprecedented
levels of support to our customers, communities and the economy
when it mattered most. Now, I look forward with confidence as we
implement our strategy to 2023 at pace, demonstrated by our growth
initiatives announced this year. We remain driven by our ambition
to be at the heart of our customers' financial lives while
sustainably creating value and returns to our shareholders."
- Colin Hunt, Chief Executive Officer
Highlights
-- Supporting our customers, colleagues and communities through COVID-19
o >66k Retail Banking payment breaks granted, 88% have
returned to normal terms
o Organisational resilience with >99% of branches remaining
open and >80% of employees seamlessly transitioned to remote
working
-- Operating profit(1) EUR0.7bn; loss after tax EUR0.7bn
o EUR1.46bn ECL charge (cost of risk 240bps); in line with
guidance
o Expect return to profit in 2021 and resumption of normal
dividend distributions
-- Strong capital base supporting sustainable growth and capital returns
o CET1 (FL) 15.6%; includes impact from regulatory developments
of -120bps
o Monitoring regulatory developments in relation to capital
distribution
-- Total income reduced 12% to EUR2.4bn
o Net interest income EUR1.9bn reduced 10%
o Other income EUR0.5bn reduced 19%
-- Continued focus on cost discipline
o Operating expenses EUR1.5bn(2) in line with guidance; 5%
reduction in average FTEs
o Strategic plan to reduce costs to <EUR1.35bn by 2023
-- Performing loans decreased by EUR3.6bn (-6%) to EUR55.2bn as redemptions exceeded new lending
o New lending EUR9.2bn; down EUR3.1bn (-25%); recovery in H2 up
9% versus H1
o NPEs increased to EUR4.3bn at December; NPE deleveraging
strategy on track - Q1 2021 portfolio sales reduce NPE ratio by 1%
to c. 6%
-- Growth in savings due to COVID-19 restrictions adding to excess liquidity
o Customer deposits increased 14% to EUR82bn; strong liquidity
position with LDR 69% facilitating lending to support economic
recovery
o MREL target achieved; two issuances in 2020 - EUR625m AT1 and
EUR1bn Green Tier 2
-- Sustainability leader
o Continued strong green lending: EUR1.5bn in 2020 representing
16% of new lending
o Recognised externally: ESG ratings, CDP 'A' rating and
industry awards
-- Progressing inorganic opportunities to broaden customer proposition and enhance earnings
o Potential acquisition of Ulster Bank's c. EUR4bn corporate and
commercial loan book
o Capacity to grow fee income and diversify revenue through the
acquisition of Goodbody and proposed joint venture with Great-West
LifeCo
Strategy 2023 - medium-term targets(3)
Following a comprehensive review in 2020, the Group refreshed
its strategy and confirmed its medium-term targets on 2 December
2020 as follows:
-- Absolute cost target(2) of <EUR1.35bn in 2023
-- CET1(4) target > 14%
-- RoTE(5) > 8% by 2023
Significant progress on our strategic intent to complete our
product suite and diversify revenue was delivered in early 2021. On
2 March 2021, we announced the agreement to acquire Goodbody, a
leading Irish provider of wealth management, corporate finance and
capital markets services. We are also in advanced discussions with
Great-West LifeCo Inc to establish a joint venture to greatly
enhance our life, pensions and savings propositions.
Additionally, on 19 February 2021 we announced the potential
acquisition of a c. EUR4bn portfolio of performing corporate and
commercial loans and the transfer of employees to AIB from within
Ulster Bank Ireland DAC's Commercial franchise directly involved in
the day to day management of the loan book.
2020 FINANCIAL PERFORMANCE
The challenging operating environment for European banks
remained in 2020 with the continued lower for longer interest rate
backdrop and uncertainties created by the COVID-19 pandemic.
The Group delivered an operating profit(1) of EUR729m (FY 2019:
EUR1,087m) and a loss after tax of EUR741m driven by expected
credit loss (ECL) charge of EUR1,460m and exceptional items of
EUR215m.
Total income reduced 12% reflecting a 10% decline in Net
Interest Income (NII) and a 19% decline in Other Income.
Net interest income (NII) of EUR1,872m was 10% lower than the
prior year (FY 2019: EUR2,076m) and the lower interest rate
environment was a key driver of this decline. Other factors were
lower loan volumes and income from investment securities partially
offset by lower cost of deposits. Net interest margin (NIM) of
1.94% reduced 43bps in 2020 (FY 2019: 2.37%), of which 26bps was
due to excess liquidity factors, the remainder was primarily due to
lower yields on investment securities and reduced loan volumes. Q4
2020 exit NIM was 1.70% and excess liquidity continues to impact in
the first quarter of 2021.
Other income of EUR499m was 19% lower in 2020 than in the
previous year. Fee and commission income of EUR395m was down 16% on
the prior year (FY 2019: EUR472m), predominantly as a result of
reduced economic activity and changes in customer behaviour. These
changes include the shift from cash to digital payments
demonstrated by a 39% reduction in the number of ATM transactions
in 2020 versus 2019 and the continued rise in the number of digital
wallet/contactless payments which have increased by 71% over the
same period. The other material components of Other Income were
income on previously restructured loans (EUR42m), gains on leverage
loan disposals (EUR24m) and gains on equity investments
(EUR36m).
Operating costs of EUR1,527m(2) were in line with guidance and
2% higher than prior year. Factors that impacted costs in 2020 were
increased depreciation and expenses incurred due to the COVID-19
pandemic, partially offset by lower staff costs. FTE numbers
reduced by 5% on average or 3% in the year to 9,356 and 9,193
respectively.
2021 costs are expected to decline marginally from FY 2020 as we
progress towards our updated medium-term target of <EUR1.35bn by
2023 reflecting >10% net cost reduction and >15% or c. 1,500
reduction in FTEs. We continue to simplify, streamline and
strengthen the organisation through digitalisation and ways of
working as we enhance the efficiency of the bank.
Regulatory costs and bank levies were EUR115m in 2020, relating
to the Single Resolution Fund (SRF), the Deposit Guarantee Scheme
(DGS), the Bank levy and other regulatory levies and charges (FY
2019: EUR104m). The higher cost was mainly due to an increase in
the DGS.
The ECL charge was EUR1,460m and is covered in more detail below
(FY 2019: EUR16m ECL charge).
The Group's share of associated undertakings was EUR15m in 2020
compared to EUR20m in the previous year.
Exceptional items were EUR215m in 2020. These include the
operational costs of the tracker restitution programme and customer
redress, UK restructuring, impairment of intangibles and other
one-off system and resourcing costs incurred due to the
implementation of COVID-19 related payment breaks.
ASSET QUALITY
The ECL charge was EUR1.46bn (CoR 240bps) with the majority
(EUR1.2bn) taken in H1 2020. Coverage rates increased across all
stages and in total doubled to 4%. As outlined previously, our ECL
methodology comprises three key components.
1. Macroeconomic assumptions: EUR0.4bn ECL
The IFRS 9 models have been updated with four macroeconomic
scenarios and weightings resulting in a EUR0.3bn reduction to the
ECL charge in H2 2020 versus a EUR0.7bn charge in H1 2020. Economic
indicators such as GDP and house price inflation (HPI) were better
than expected while other factors such as unemployment remain
challenging.
EUR0.4bn of the EUR1.46bn 2020 ECL charge relates to
macroeconomic scenarios.
2. Staging movements: EUR0.7bn ECL
While Stage 2 exposures decreased by EUR1.1bn in the second half
to EUR9.4bn (June 20: EUR10.5bn; Dec 19: EUR4.0 bn), there was an
increase in Stage 3 exposures(6) in those sectors most impacted by
COVID-19 restrictions. The volume of Stage 3 exposures increased by
EUR1bn to EUR4.3bn at the end of December (June 20: EUR3.7bn; Dec
19: EUR3.3 bn). Increased ECL allowance in the sectors most
impacted by COVID-19 restrictions (e.g. accommodation, hospitality,
retail commercial real estate) was the key driver of the H2 ECL
charge.
EUR0.7bn of the EUR1.46bn 2020 ECL charge relates to staging
movements.
3. Post model adjustments (PMAs): EUR0.4bn ECL
In the second half, there were additional PMAs of EUR0.3bn. The
increase in ECL provisions from additional PMAs during the year was
primarily due to increased coverage of EUR0.2bn on legacy NPE
mortgages and EUR0.2bn for risk of further downward staging
migration in those sectors most impacted by COVID-19
restrictions.
EUR0.4bn of the EUR1.46bn 2020 ECL charge relates to post model
adjustments.
Our ECL approach remains conservative, forward looking and
comprehensive. Notwithstanding the significant uncertainty, we
expect the cost of risk to be more normalised in 2021 (c. 40bps)
based on our current view of macroeconomic assumptions.
BALANCE SHEET
Gross loans in the year declined by 4% to EUR59.5bn (June 20:
EUR60.6bn; Dec 19: EUR62.1 bn). In 2020 the perf o r ming loan bo
ok decreased by EUR3.6bn (-6 %) to EUR55.2bn due to redemptions
exceeding new lending, a net movement of EUR1.8bn to non-performing
exposures, EUR0.5bn leverage loan disposals and foreign exchange
impacts.
Despite the various challenges of COVID-19, the Irish mortgage
market remained resilient in 2020 with new lending of EUR8.4bn and
house price inflation of 2.2%. Following a strong start to the
year, our 2020 market share was 28.4%(7) . Amid high uncertainty,
we temporarily amended our credit policy to protect customers from
taking on unsustainable debt until their situations were more
thoroughly assessed. While there is a lag in drawdowns, our new
application pipeline has recovered to pre-COVID-19 levels.
Our new mortgage lending in Ireland reduced 21% in the year to
EUR2.3bn and our personal lending was 10% lower than the previous
year. Within our CIB business, traditional corporate lending was
down c. 10% and there was a c. 40% decrease in real estate finance
lending. Syndicated and international lending was significantly
lower than 2019 reflecting our subdued risk appetite for this
sector. Our renewable energy and infrastructure loan book continues
to grow as we support our customers in the transition to a
low-carbon economy. In total, green lending of EUR1.5bn was
recorded in 2020 representing 16% of new lending.
Our Irish SME new lending in the year was broadly flat versus
the prior year. Throughout the year, SME businesses continued to
face numerous challenges such as the impact of COVID-19
restrictions and Brexit uncertainty. The sector remains in receipt
of government supports and in 2020 AIB was first to market with our
Government-backed COVID-19 Credit Guarantee Scheme term loan. Our
allocation of EUR746m allows us to further support this sector
although credit demand has been subdued so far with modest
drawdowns. UK new lending (in sterling) reduced 26% reflecting
reduced economic activity in COVID-19 impacted sectors and Brexit
related uncertainty.
In total, Group new lending was better than expected with a
decrease of 25% in the year versus guidance of -30%. A pick-up in
economic activity in the second half of 2020 led to a 9% increase
in new lending versus the first half of 2020 with growth in
mortgages, personal and SME.
N P Es increased by EUR1bn to EUR4.3bn (7.3% of gross loans) in
the year within the sectors most impacted by COVID-19 restrictions
such as hospitality and retail shopping centres. In Q1 2021 we
agreed the sales of two NPE portfolios in deep arrears which
collectively reduce the NPE ratio by c. 1% as well as reducing RWAs
and alleviating some negative calendar provisioning impact.
FUNDING & CAPITAL
AIB's funding ratios remain strong with LDR, LCR and NSFR of
69%, 193% and 148% respectively, all well in excess of minimum
requirements. Customer deposits have increased significantly to
EUR82bn from EUR71.8bn in December 2019 (June 20: EUR75.7bn)
reflecting a higher rate of savings. This accumulation of deposits,
in addition to EUR4bn of TLTRO III, contributed to increased
balances held at Central Bank of Ireland of EUR19bn at the end of
the year (Dec 19: EUR7bn).
AIB has met its MREL requirements and issued EUR6bn of HoldCo
debt to date. In 2020, AIB successfully issued an AT1 of EUR650m
and our inaugural Green Tier 2 bond of EUR1bn, further
strengthening our capital position.
The fully l oaded CET1 at t he end of year was 15.6% (Dec 19:
17.3%) and movements in the year re p resent a loss of EUR0.7bn
(-140bps), lower RWAs from reduction in loans (+80bps),
cancellation of the 2019 dividend (+40bps) and other smaller
movements (-30bps). In addition to these movements, there was a
reduction in CET1 from regulatory adjustments (-120bps)
incorporating the negative impacts of TRIM and calendar
provisioning partially offset by the benefits from software
intangibles and SME CRR Art. 501.
Total capital ratio at December 2020 was 20.8% on a fully loaded
basis while transitional capital ratio was 23.9%. At 15.6%, our
CET1 fully loaded capital ratio is in excess of our greater than
14% medium-term target and minimum regulatory requirements with a
very significant buffer above maximum distributable amount (MDA)
trigger levels.
SUSTAINABLE COMMUNITIES
As a leader in Sustainability, progressing the Sustainability
agenda is a strategic priority. We continue to play our part to
ensure a greener tomorrow by backing those building it today. 2020
marks our first year reporting under TCFD(8) and UNEP FI PRB(8)
enhanced disclosures which can be found in our Sustainability
report. The summary below gives a sample of the progress made in
2020 across each of the ESG categories/criteria:
Environment
-- Net Zero long term target and ambitions set and approved by
Board; working to set Science Based Targets aligned to the SBTi(9)
methodology
-- Launched Green Consumer Loan to support customers to retrofit
homes to make them more energy efficient and launched the electric
vehicle (EV) proposition
-- A number of Sustainability linked loans provided to our Corporate customers
-- Raised EUR1 billion in the first Green Bond issuance by an Irish bank
-- First disclosures under TCFD(8) and UNEP FI Principles for Responsible Banking(8)
Social
-- Launched a EUR 300 million Social Housing Fund in November
2020 to deliver 2,000 sustainable A-rated homes
-- Pledged EUR5m to community causes including EUR2.4 million
funding in the battle against COVID-19 for a dedicated Research Hub
at Trinity College Dublin
-- AIB Together Community Partnerships - FoodCloud and GAA
-- Financial Literacy focus - AIB Schools Programme, Vulnerable
Customer Training, Fraud Prevention training and alerts
-- Established a Socially Responsible Investment (SRI) Bond
Framework & related SRI Bond Portfolio (aiming to represent 10%
of the Treasury Fixed Income portfolio)
Governance
-- ESG regulatory training provided at Board, Executive and employee level
-- Enhanced Human Rights Commitment statement published and signatory to UN Global Compact
-- In November 2020 we hosted our fourth annual Sustainability
Conference as part of Ireland's Climate Finance Week 2020, hosting
18 events with 5,100 attendees over five days including significant
employee participation
-- Excluded activities lis t(10) published externally for a
defined list of lending activities for customers with an exposure
greater than EUR300k and integrated into our Group Credit Risk
policy
-- Launched our Responsible Supplier Code setting out
expectations for suppliers and the key social, ethical and
environmental values to abide by
With the ongoing public health crisis, we continue to follow
Government guidelines in relation to the management of COVID-19 and
to put the health and safety of our customers and colleagues at the
forefront of our minds as we support the communities in which we
operate. We welcome the Government's initiatives and are well
positioned to support the rebooting of the Irish economy.
O UTLOOK
Although the economic and operating environment has changed
dramatically over the past year, the five pillars of our strategy
remain in place and their relevance has been further validated and
underpinned by the COVID-19 crisis. Strategy 2023, announced in
December 2020, will see us delivering on a revised set of financial
targets enabled by a refocused set of strategic priorities and
initiatives.
We have started the year in earnest and are pleased with the
progress so far including the agreement with Natwest Holdings for
the proposed acquisition of Ulster Bank's c. EUR4bn corporate and
commercial loan book and the acquisition of Goodbody. We will
continue to seek to make selective investments in order to address
gaps in our overall customer offering and to diversify income
streams, ensuring AIB is the market-leading full service financial
services provider in Ireland.
In terms of economic outlook, the return to lockdown at the
start of 2021 has delayed the recovery. However, the conclusion of
an EU-UK Free Trade Agreement and the approval and roll-out of
COVID-19 vaccines were two positive developments in late 2020.
While it will be the second half of 2021 before the vaccines become
widely available, it does provide the foundation for a strong
sustained recovery as the year progresses. Additionally, the
potential for the unwinding of the large build-up of private sector
savings together with the continuing supportive macro policies
provide optimism for a strong rebound in activity in the next
couple of years.
While in the near term, uncertainty remains high, overall we
remain positive in our return to profitability in 2021 and a
resumption of normal dividend distributions in line with regulatory
guidelines. With our strong balance sheet and implementation of our
refreshed strategy underway, we will reshape our business so that
we generate growing and sustainable profits, provide an excellent
and efficient customer experience and make a meaningful
contribution to the communities and societies that we serve. Our
targets are set, our plans are in place and we are prepared at
every level to deliver on these commitments in the interests of all
of our stakeholders.
***
Click on or paste the following link into your browser to view
the 2020 Annual Financial Report
http://www.rns-pdf.londonstockexchange.com/rns/2595R_1-2021-3-4.pdf
1) Operating profit before impairment losses and exceptional items
2) Costs before bank levies and regulatory fees and exceptional items
3) Excludes potential inorganic opportunities
4) Fully loaded
5) RoTE = (PAT - AT1) / (CET1 @ 14% of RWAs)
6) Stage 3 exposures include Purchased or Originated Impaired Loans (POCI)
7) Source: Mortgage drawdowns BPFI Dec 2020
8) Task Force on Climate-related Financial Disclosures; UN
Environment Programme Finance Initiative Principles for Responsible
Banking
9) Science Based Target initiative
10) Excluded Activities list (see
https://aib.ie/corporate/sector-expertise/excluded-activities ) is
effective in Group Credit Risk Policy since 29.1.2021. It applies
to new term lending to business customers with a Gross Connected
Exposure of >GBP/EUR300k and which are relationship managed.
- ENDS -
For further information, please contact :
Donal Galvin Niamh Hore Paddy McDonnell
Chief Financial Officer Head of Investor Relations Head of Media Relations
Tel: +353-1-6418300 Tel: +353-1-6411817 Tel: +353-(0)87-739 0743
email: donal.j.galvin@aib.ie email: niamh.a.hore@aib.ie email: paddy.x.mcdonnell@aib.ie
Forward Looking Statements This document contains certain
forward looking statements with respect to the financial condition,
results of operations and business of AIB Group and certain of the
plans and objectives of the Group. These forward looking statements
can be identified by the fact that they do not relate only to
historical or current facts. Forward looking statements sometimes
use words such as 'aim', 'anticipate', 'target', 'expect',
'estimate', 'intend', 'plan', 'goal', 'believe', 'may', 'could',
'will', 'seek', 'continue', 'should', 'assume', or other words of
similar meaning. Examples of forward looking statements include,
among others, statements regarding the Group's future financial
position, capital structure, Government shareholding in the Group,
income growth, loan losses, business strategy, projected costs,
capital ratios, estimates of capital expenditures, and plans and
objectives for future operations. Because such statements are
inherently subject to risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward
looking information. By their nature, forward looking statements
involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future. There are a
number of factors that could cause actual results and developments
to differ materially from those expressed or implied by these
forward looking statements. These are set out in the Principal
risks on pages 50 to 53 in the 2020 Annual Financial Report. In
addition to matters relating to the Group's business, future
performance will be impacted by direct and indirect impacts of the
COVID-19 pandemic and by Irish, UK and wider European and global
economic and financial market considerations. Any forward looking
statements made by or on behalf of the Group speak only as of the
date they are made. The Group cautions that the list of important
factors on pages 50 to 53 of the 2020 Annual Financial Report is
not exhaustive. Investors and others should carefully consider the
foregoing factors and other uncertainties and
events when making an investment decision based on any forward
looking statement.
Figures presented in the presentation may be subject to rounding
and thereby differ to the 2020 Annual Financial Report.
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END
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