20
20
2020 Interim Results Announcement
30 June 2020
3
Bank of Ireland 2020 Interim Results
Group CEO
Francesca McDonagh
H1 2020 Summary
H1 Performance | €669m |
Underlying loss | |
before tax |
Asset Quality | €937m |
IFRS 9 | |
impairment charge |
5
Bank of Ireland 2020 Interim Results
- Total income reduced 13%; lower business income and valuation item movements
- Stable net interest income; NIM of 2.02%
-
Strong cost discipline continues; costs reduced by further 3% vs.
H1 2019 - Net lending growth €0.2bn including €1.3bn of revolving credit facilities; Irish mortgage market share increased to 25%
- Impairment charge of €937m, of which 60% relates to performing Stage 1 and Stage 2 loans; prudent and comprehensive approach
- Increased NPE ratio 5.8%; credit migration in Q2 and implementation of new Definition of Default regulatory framework
- Proven track record of working with customers to find sustainable solutions; diversified balance sheet across portfolios and geographies
Transformation | 3% |
Reduction in costs | |
Capital | 13.6% |
Fully loaded | |
CET1 ratio |
- Cost reduction in each of past five reporting periods; 10% lower vs. H2 2017
- Launched new mobile app; strong progress against key milestones
- Further Wealth and Insurance digital platforms launched
- Impairment on intangible software assets €136m
- Strong capital position; fully loaded CET1 ratio 13.6%, regulatory CET1 ratio 14.9%
- Pre-impairmentorganic capital generation of 45bps
- Completed €675m AT1 transaction in Q2
6
Supporting our customers during COVID-19
Bank of Ireland 2020 Interim Results
Customers
- Relationship Net Promoter Score (NPS) improved by 10 points from end 2019; reflecting actions taken to support customers
- Over 100k payment breaks approved for personal and business customers in Ireland and the UK
- Residential development lending fund increased by €0.4bn to €2bn to support homebuilding
- Additional €1bn in funding for green mortgages and loans launched through the Bank of Ireland Sustainable Finance Fund to support a green recovery
- Issued over 50% of all business loans under the government COVID-19 Working Capital Loan Scheme since launch
- Over £0.2bn of approved new lending to businesses in the UK through government guarantee schemes
- Ready to support €2bn Irish Credit Guarantee Scheme
-
Total approved initial 3 month payment breaks as at 24 July 2020
2 Includes retail business banking property exposures
3 Based upon 3 month expiration / responses from c.75% of Irish customers at 24 July 2020 4 Based upon 3 month expiration / responses from c.54% of UK customers at 24 July 2020
Payment Breaks
Ireland1 | Mortgages | Consumer | SME2 | Total |
No. of accounts | 21k | 8k | 13k | 42k |
Exposure | €3.1bn | €0.1bn | €2.8bn | €6.0bn |
% of accounts | 11% | 4% | 11% | 9% |
% of portfolio | 13% | 6% | 30% | 18% |
UK1 | Mortgages | Consumer | SME2 | Total |
No. of accounts | 23k | 32k | 8k | 63k |
Exposure | €3.3bn | €0.4bn | €0.4bn | €4.1bn |
% of accounts | 14% | 10% | 16% | 11% |
% of portfolio | 15% | 12% | 15% | 15% |
- 105k / €10.1bn initial 3 month payment breaks approved in Ireland (€6.0bn) and the UK (€4.1bn)
- Proactively contacting customers with options at the end of initial 3 month payment break; of those customers contacted:
- In Ireland, c.54% of mortgage accounts and c.62% of SME accounts have availed of a 3 month payment break extension with remainder resuming capital and interest payments3
- In the UK, c.33% of mortgage accounts and less than 10% of consumer accounts have availed of a 3 month payment break extension with remainder resuming capital and interest payments4
Enabling our colleagues and communities to thrive
7
Bank of Ireland 2020 Interim Results
Colleagues
- Colleague engagement up 8 points since Q4 2019 to a high of 70%, surpassing the Global Financial Services benchmark for Engagement for the first time
- 87% of colleagues believe that the Group is quickly adapting to the changing ways of doing business; new ways of working established for H2 2020
- Launched Family Carers Ireland 'Caring Employers' Programme
- Allowance scheme for colleagues working in front line and on site locations was extended to July 2020
- Colleague supports include mental and physical wellbeing app, 24/7 health support line, and COVID-19 communications hub
- Over 119k learning courses completed by colleagues in H1 2020
Communities
- Proactive and regular engagement with Irish Government and state bodies to support re-boot of Irish economy
- Customers' view that Bank of Ireland 'cares about community' is a key driver of improvement in relationship NPS to June 2020
- ESG progress reflected in improved Sustainalytics ESG Risk Rating from 29.3 to 22.4
- Fast tracking of payments to more than 1,000 SME suppliers nationwide extended for the remainder of 2020
- Donated €1m in emergency funding for communities with urgent needs
- Launched €3m Begin Together campaign to improve financial, physical and mental wellbeing
- 'Best Bank in Ireland' Euromoney Awards for Excellence 2020
8
Economic activity has increased but uncertainties remain Bank of Ireland 2020 Interim Results
Ireland | • | ||
13.5% | |||
8.2% | • | ||
5.0% | |||
5.6% | 6.0% | • | |
(7.0%) | |||
2019a | 2020f | 2021f | • |
n GDP1 | Unemployment2 | • | |
UK | 7.0% | ||
5.8% | |||
3.8% | 6.7% | • | |
1.5% | |||
• | |||
(9.5%) | |||
2019a | 2020f | 2021f | |
n GDP1 | Unemployment2 |
Significant contraction in our core markets March - May 2020, but high frequency data points to an improving environment in Q2 2020
Reopening of the Irish economy accelerated during Q2
€7.4bn additional fiscal stimulus announced in July to provide further support towards economic recovery
Irish government's response now c.€24bn / c.11% of GNI*
Claimants of Pandemic Unemployment Payment down to 48% of peak; supportive of continued recovery in
H2 2020
Consumer spending, investment and exports will make positive contribution to Irish GDP growth in 2021
Alert to risks such as a potential second wave and on-going Brexit uncertainties
Sources: Forecasts (July 2020) by Bank of Ireland Economic Research Unit; CSO; Department of Finance; Department of Employment Affairs and Social Protection; Department of Taoiseach; ONS
- Annual real growth
- Annual average rate
High frequency Irish data show improving trends
9
Bank of Ireland 2020 Interim Results
Number of Pandemic Unemployment
Payment recipients; 52% below peak
650,000 | ||||
550,000 | ||||
450,000 | ||||
350,000 | ||||
250,000 | ||||
07-Apr | 05-May | 02-Jun | 30-Jun | 28-Jul |
BOI Economic Pulse reflects the gradual
reopening of Ireland's economy
110 | ||||||
100 | ||||||
90 | ||||||
80 | ||||||
70 | ||||||
60 | ||||||
50 | ||||||
40 | ||||||
30 | ||||||
Jan-19 | Apr-19 | Jul-19 | Oct-19 | Jan-20 | Apr-20 | Jul-20 |
Aggregate credit and debit card spend1 (€m) is now
broadly in-line with the pre-COVID level
1,600 | |||||
1,500 | |||||
1,400 | |||||
1,300 | |||||
1,200 | |||||
1,100 | |||||
1,000 | |||||
900 | |||||
800 | |||||
07-Mar | 03-Apr | 30-Apr | 27-May | 23-Jun | 20-Jul |
Housing sentiment tracking higher
120 | ||||||
100 | ||||||
80 | ||||||
60 | ||||||
40 | ||||||
20 | ||||||
Jan-19 | Apr-19 | Jul-19 | Oct-19 | Jan-20 | Apr-20 | Jul-20 |
Sources: Dept. of Employment Affairs & Social Protection; Bank of Ireland Economic Pulse; Bank of Ireland Housing Pulse; Central Bank of Ireland
1 Card spend data are presented on a 7 day moving sum basis
Increasing trend to digital engagement accelerating
10
Bank of Ireland 2020 Interim Results
Longer term trend of decline in over-the-counter branch transactions and services
(61%) | ||
(38%) | ||
(28%) | ||
Branch | ATM | Cheque |
n H1 2018 n H1 2019 n H1 2020 |
- <10% branch transactions are completed over-the-counter
Mobile app now accounts for over
60% of digital traffic
+5% | +7% | |
39% | 36% | |
47% | ||
61% | 64% | |
53% | ||
H1 2018 | H1 2019 | H1 2020 |
n Mobile app traffic n Non-app digital traffic
- 1.2m active digital users1 representing c.70% of the current account base
- Over 20m visits per month to digital channels
>65% of high volume product applications fulfilled digitally
4% | ||
20% | 30% | |
34% | ||
65% | ||
96% | 100% | |
80% | 70% | |
66% | ||
35% |
ROI | ROI | ROI | ROI | UK | UK |
Current | Deposits | Credit | Personal | Deposits | Personal |
accounts | cards | loans | loans |
- Digitised n Assisted
- New current account origination journey launched H1 2020; fully digitised 100% Cloud service including biometrics
1 Active digital users: customer has logged in during the past 90 days
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Transformation delivering customer and cost benefits
Bank of Ireland 2020 Interim Results
Key milestones delivered
• New mobile app deployment; |
+19 point improvement in |
mobile app Customer Effort |
Delivering market leading digital platforms in Wealth and Insurance
Favourable Irish demographics, growing pension demand, increased deposit
base and strength of our franchise provide significant opportunity
Score since launch | |
• | Enhanced verification capability |
using embedded third party API | |
technologies | |
• New card payment technology | |
including migration of 2m | |
customers | |
• | New relationship management |
tools (Life Goals, Financial | |
Wellbeing) |
Committed milestones
on roadmap
• Fully digitised mortgage |
application process (Q3 2020) |
• New digitised small business |
lending proposition (Q4 2020) |
• Digital payments for mobile app |
(Q4 2020) |
• Refreshed 'Pay to Mobile' peer-to- |
Group
Pensions
- Launch of MyPension365; first customers on- boarded in H1 2020
- Full digitisation and automation of end- to-endprocesses for advisers and employers
- 90% reduction in on- boarding times from 10 weeks to 5 days
- Customers able to manage personal pension in real-time using mobile, tablet or desktop
Digital Wealth and | Portal and | |
Insurance Advice | broker, adviser | |
Platforms | connectivity | |
• Roll-out of digital advice | • Launch of Broker portal | |
platform commenced | provides secure access | |
• Allows end to end digital | point for external and | |
internal advisors | ||
sale and fulfilment; all | ||
• | Allows customers to | |
sales to be migrated onto | ||
platform in H2 2020 | access self-service | |
• Digital Insurance Wallet | options and policy | |
information | ||
launched in Dec 2019 | ||
• | Enables seamless, digital, | |
providing customers with | ||
choice of provider, quick, | end-to-end fulfilment | |
easy purchase of general | experience for brokers | |
insurance | and customers |
- Self-servicefor product adjustments and efficient renewal
peer payment service (Q4 2020) | |
• | >85% of day-to-day product |
journeys digitised (Q1 2021) | |
• | Card control features for mobile |
and online customers (Q1 2021) |
Forecast growth in defined | 41% of insurance sales |
contribution assets of c.8%1 | through digital wallet in |
per annum | H1 2020 |
1 Thinking Ahead Institute research Global Pension Assets Survey 2020
Capturing all tactical and strategic opportunities to further reduce our cost base
12
Bank of Ireland 2020 Interim Results
Consistent
- Costs reduced by 10% vs. H2 2017
- Costs have reduced during each of the past five reporting periods
€964m | |||||
€933m | €919m €903m | €882m €872m | |||
H217 | H118 | H218 | H119 | H219 | H120 |
Broad-based
- Cost reduction broad based across staff and non-staff costs since 2017
(5%) | |
(13%) | |
Staff | Non-staff |
Efficient
- €262m in gross cost savings since FY 2017 created capacity to absorb investment in our people and infrastructure
Change | €26m | |||||
demand / | ||||||
Sourcing | ||||||
efficiencies | €67m | |||||
strategically | ||||||
€156m
Simplifying the | ||
Ways of | ||
organisation | ||
Working |
€13m
Future focus | |||||
€1.9bn | • 2021 costs now expected to be below previous guidance of | ||||
<€1.65bn | €1.65bn | ||||
• Review underway to further reduce costs beyond 2021: | |||||
- Continued investment in digital capabilities | |||||
- Simplifying and automating customer journeys | |||||
€1.9bn | - Additional investment in business model restructuring | ||||
€1.85bn | €1.79bn | - Enhanced property footprint, supported by modern and | |||
agile ways of working | |||||
• Guidance update to be provided at FY 2020 | |||||
2017 | 2018 | 2019 | 2020 | 2021 | Beyond |
2021 |
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Strategic progress in Retail UK business with further restructuring required
Bank of Ireland 2020 Interim Results
• | Net interest income: back book deleveraging, lower base rates | ||||
Retail UK | H1 20181 | H1 2019 | H1 2020 | ||
and mortgage competition impacting NII; partial offset from | |||||
Net interest income | £258m | £250m | £239m | ||
actions taken on pricing of deposits and new lending | |||||
Other income | (£16m) | (£6m) | £1m | ||
• | Other income: commission mix enhanced; income increased | ||||
Costs | (£155m) | (£147m) | (£136m) | £7m vs. H1 2019 | |
Impairment | (£12m) | (£31m) | (£250m) | • | Costs: 7% cost reduction in H1 2020; 23% reduction since 2017 |
JV income | £15m | £14m | £1m | • | Asset quality: Increased impairments from deteriorating |
macro-economic outlook; historic loan losses favourable to | |||||
Underlying profit / (loss) | £90m | £80m | (£145m) | ||
industry average | |||||
Cost income ratio | 64% | 60% | 57% | ||
• | JV income: no. 1 travel business (FRES) in UK; 2020 income | ||||
Loan book | £24.2bn | £24.8bn | £24.5bn | ||
impacted by COVID-19 and reduced travel | |||||
Deposits | £19.0bn | £19.2bn | £19.5bn | • | Loan book: improving loan book mix; bespoke mortgage |
1 Excludes credit cards, exited 2019 | growth and legacy portfolio 30% lower |
Strategic imperative to improve returns
- Protracted difficult market conditions necessitate further restructuring of our retail businesses in UK. A multi-year restructuring programme now commenced:
GB Retail restructuring
• A smaller balance sheet and higher margin business: | |
- | Run-down of lower margin and less profitable |
mortgages over time (UK mortgage loan book £19.6bn) | |
- | Grow bespoke mortgage business; c.150 brokers / |
£320m of new lending since launch |
Northern Ireland Retail
- Strategic review recently commenced to assess options impacting:
- £2.5bn of consumer, mortgage and business loans
- £5.0bn of deposit and current accounts
Northern
Ireland GB
- Leverage expertise in travel money and car finance | |
- | Smaller balance sheet will enable further funding cost |
reductions | |
- | Material reduction in cost base from smaller scale, |
efficiency and operating model |
- c.200k consumer and business customers
15
Bank of Ireland 2020 Interim Results
Group CFO
Myles O'Grady
H1 2020 Financial Summary
16
Bank of Ireland 2020 Interim Results
- Underlying loss before tax €669m
- Total income 13% lower; net interest income stable
- Strong cost discipline; costs reduced by 3%
- IFRS 9 impairment charge €937m
- Net lending growth €0.2bn including €1.3bn of revolving credit facilities
- Pre-impairmentorganic capital generation 45bps
- Strong capital position; fully loaded CET1 capital ratio 13.6%, regulatory ratio 14.9%
H1 2020 Financials
H1 2019 | H1 2020 | |
(€m) | (€m) | |
Net interest income | 1,069 | 1,079 |
Business income | 311 | 266 |
Additional gains, valuation and other items | 31 | (123) |
Total income | 1,411 | 1,222 |
Operating expenses | (903) | (872) |
Levies and Regulatory charges | (73) | (70) |
Impairment of goodwill | - | (9) |
Operating profit pre-impairment | 435 | 271 |
Net Impairment gains / (charges) | (79) | (937) |
Share of associates / JVs | 20 | (3) |
Underlying profit / (loss) before tax | 376 | (669) |
Non-core items | (61) | (153) |
Profit before tax | 315 | (822) |
H1 2019 | H1 2020 | |
(€m) | (€m) | |
Net interest margin (NIM) | 2.16% | 2.02% |
Cost income ratio1 | 65% | 66% |
Underlying earnings per share | 25.2c | (58.8c) |
1 See slide 53 for calculation
17
Bank of Ireland 2020 Interim Results
- Underlying loss before tax €669m
- Total income 13% lower; net interest income stable
- Business income 14% lower from reduced economic activity
- Falling equity markets and widening credit spreads impacting Wealth and Insurance valuations
- 3% reduction in operating expenses
- Net impairment charge €937m reflects:
- IFRS 9 macro-economic outlook and model update €432m
- Management adjustment related to payment breaks €184m
- Actual loan loss experience €321m
- Non-coreitems include charges associated with:
- Impairment of intangible asset €136m
- Restructuring costs €27m
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Stable net interest income
Net interest income1 / NIM
€1,069m€1,081m€1,079m
285bps | 280bps | 278bps |
(17bps) | (21bps) | (24bps) | |||||
H1 2019 | H2 2019 | H1 2020 | |||||
Loan asset spread2 | Liquid asset spread2 | ||||||
Bank of Ireland 2020 Interim Results
Stable net interest income / NIM 2.02%
- Net interest income benefitting from loan book growth since 2017 and reduced liability costs offsetting lower structural hedge income and UK competitive pressures
- NIM 2.02% is 12bps lower than FY 2019 reflecting:
- Growth in liquid assets
- Impact of low rate environment on structural hedge
- Competitive pressure in the UK mortgage market
- Strong commercial pricing discipline
• Q2 exit NIM 1.97% | |||||
NIM movement | Outlook | ||||
(6bps) | • FY 2020 NIM to be c.1.95% primarily reflecting: | ||||
(4bps) | - Lower new lending volumes | ||||
- Growth in liquid assets | |||||
(2bps) | |||||
2.14% | - Impact of low rate environment on structural hedge | ||||
2.02% | • Net interest income in 2020 to be c.5% lower than 2019 | ||||
FY 2019 | Liquid asset | Structural hedge | UK competitive | H1 2020 | |
growth | pressures |
- Excludes IFRS income classifications which are included in NIM calculation
- Spread = Loan asset yield or Liquid asset (excl. NAMA bonds) yield less Group's average cost of funds
Net lending growth of €0.2bn
Group loan book movement
€5.8bn | €1.3bn | (€6.9bn) | ||||||||||||||||||||||||
(€0.9bn) | (€2.1bn) | |||||||||||||||||||||||||
Total €0.2bn net lending | ||||||||||||||||||||||||||
€79.5bn | €76.7bn | |||||||||||||||||||||||||
Dec 19 | New | RCF | Redemptions Impairment FX / Other | Jun 20 | ||||||||||||||||||||||
Loan book | Lending | activity | Loan book |
New lending2 and redemptions by quarter
19
Bank of Ireland 2020 Interim Results
Net lending growth of €0.2bn in H1 2020
- New lending €5.8bn decreased by 19% vs. H1 20191:
- Retail Ireland new lending €2.3bn, (14%) vs. H1 2019
- Retail UK new lending €2.4bn, (18%) vs. H1 2019
- Corporate new lending €1.1bn, (30%) vs. H1 2019
- Redemptions 7% higher vs. H1 2019 due to higher Corporate redemptions in Q1 2020
- RCF drawdown by Corporate customers in H1 2020 of €1.3bn
- Maintaining commercial discipline on risk and pricing
Reduced lending and economic activity in Q2 2020
• | Q2 2020 new lending2 48% lower than Q2 2019 |
• | Redemptions 7% lower than Q2 2019 |
€3.2bn€3.9bn
€3.8bn€3.8bn
€1.3bn€1.5bn
€1.1bn€0.8bn
€1.3bn | €1.4bn |
Q1 19 | Q1 20 |
€3.3bn | €3.1bn |
€3.8bn | 48% |
€1.5bn | |
€1.0bn | €2.0bn |
€0.8bn | |
€1.4bn | €0.3bn |
€0.9bn | |
Q2 19 | Q2 20 |
• | Irish mortgage applications 28% lower in Q2 2020 vs. | |
Q2 | 2019 | |
• | Q2 | 2020 UK mortgage applications 32% lower than prior |
year |
Outlook
- Improving outlook and government measures supportive
- 2020 gross new lending volumes expected to be c.70% of 2019 volumes
n Retail Ireland n Corporate n Retail UK Redemptions
- On a constant currency basis
- Excluding revolving credit facilities
20
Lower business income from reduced economic activity Bank of Ireland 2020 Interim Results
H1 2019 | H1 2020 | |
(€m) | (€m) | |
Wealth and Insurance | 119 | 100 |
Retail Ireland | 129 | 103 |
Retail UK | (11) | 2 |
Corporate and Treasury | 77 | 67 |
Group Centre and other | (3) | (6) |
Business Income | 311 | 266 |
Additional Gains | 3 | 2 |
IFRS income classifications1 | 10 | (16) |
Valuation and other items | 18 | (109) |
Other Income | 342 | 143 |
14% decrease in business income
- 16% decrease in Wealth and Insurance:
-
New business sales (APE) decreased by 21% vs.
H1 2019 - Decrease in existing book income due to COVID-19 impact on returns and experience vs. 2019
-
New business sales (APE) decreased by 21% vs.
- Retail Ireland 20% lower vs. H1 2019:
- Reduced economic activity driving lower current account income
- Decrease in FX income from reduced travel
- Q2 card transactions 9% lower than Q1 2020
- Retail UK €13m increase due to lower commissions paid
- Corporate and Treasury income impacted by lower FX income
Business income by quarter
Valuation and other items (€109m)
• Falling equity markets and widening credit spreads |
relating to unit linked assets and bond portfolio |
€144m | €152m |
Q1 19 | Q1 20 |
€167m | 32% |
€114m | |
Q2 19 | Q2 20 |
valuations in Wealth and Insurance (€90m) |
• Financial instruments valuation adjustments and other |
items (€19m) |
Outlook
- Increased economic activity and accelerated reopening
- 2020 business income to be 20%-30% lower than 2019
1 IFRS income classifications include c.€6m of interest income in H1 2020 on 'Life loan mortgage products' which on transition to IFRS 9 were mandatorily classified as FVTPL, with all income on such loans reported in 'net other income'. IFRS income classifications are fully offset in net interest income
Strong cost discipline - €31m / 3% reduction
21
Bank of Ireland 2020 Interim Results
Cost Movement
(€47m) | ||||
€12m | €4m | |||
€903m | ||||
€872m | ||||
H1 2019 | Cost initiatives | COVID-19 costs | Other costs | H1 2020 |
Non-core items | H1 2019 | H1 2020 |
(€m) | (€m) | |
Impairment on intangible assets | - | (136) |
Customer redress programme | (62) | (7) |
- Tracker Mortgage Examination | (55) | (7) |
- Other programme | (7) | - |
Cost of restructuring programme | (27) | (27) |
Investment return on treasury stock held | 1 | 17 |
for policyholders | ||
Other | 27 | - |
Total non-core items | (61) | (153) |
Strong cost discipline - €31m / 3% reduction
- €31m / 3% net reduction after absorbing wage inflation of 2.6%
- Gross cost savings €47m:
- Process efficiencies, organisational design and sourcing strategically (€21m)
- Change demand reduction and efficiencies driving lower levels of investment spend and value for money savings (€26m)
- COVID-19costs €12m, incremental expenditure managing response to the pandemic
Non-core items
- €136m charge included in non-core related to impairment of intangible assets:
- Charge incurred on software assets, as no longer expected to provide future economic benefits
- No impact on capital ratios
- €27m of charges related to business model restructuring
Outlook
- 2020 costs to be lower than 2019
- 2021 costs to be below previous guidance of €1.65bn
H1 2020 impairment charge €937m - prudent and comprehensive approach
IFRS 9 models | Payment breaks | |||
macro-economic update | ||||
€432m | €184m | |||
• Updated IFRS 9 models | • Management adjustment to | |||
incorporating impact of | reflect increased risk related | |||
2020 | Forward Looking Information | to: | ||
(FLI) from latest macro- | - | Estimated rates of | ||
H1 | economic outlook | migration from payment | ||
• | Central scenario1 assumes | breaks to forbearance / | ||
a deep downturn, gradual | arrears | |||
recovery and an orderly Brexit | - | Assessment of mortgages, | ||
• | Reduced weighting towards | consumer loans, higher | ||
upside scenario | impacted sectors at risk | |||
• Will reflect mitigating impacts | from COVID-19 impact | |||
of government support | ||||
schemes |
22
Bank of Ireland 2020 Interim Results
Actual loan loss experience
€321m
- Actual loan loss experience on Stage 3 loans:
- Property and construction €179m, includes €166m related to legacy investment property exposures
- Non-propertySME and corporate €115m
- Mortgage and consumer portfolios €27m
Outlook
- A change in the macro- economic outlook would lead to a change in lFRS 9 expected credit loss
• H1 2020 impairment charge | • Actual loss experience in |
incorporates risk of credit | H2 will reflect timing of loan |
migration of customers on | migration to Stage 3 and final |
payment breaks | payment break outcomes |
2020
While uncertainties remain, subject to no further deterioration in the economic environment or outlook, 2020 impairment charge expected to be in a range of c.€1.1bn to €1.3bn
1 See slide 44 for 2020-2024macro-economic assumptions used in IFRS 9 models
Impairment coverage increased to 2.7%
23
Bank of Ireland 2020 Interim Results
Net impairment charge | Impairment coverage increased to 2.7% |
€365m | • | ||
€246m | |||
• | |||
€77m | €76m | €124m | |
€25m | €6m | €37m | €24m |
(€11m) |
Mortgages (ROI) Mortgages (UK) Non-property | Property and | Consumer |
SME and | construction | |
corporate |
- H1 2019 n H1 2020
Impairment loss allowance (ILA) by portfolio | • | ||||
Dec-19 | Jun-20 | ||||
ILA | ILA % of | ILA | ILA % of | • | |
gross | gross | ||||
(€m) | (€m) | ||||
loans | loans | ||||
Mortgages ROI | 369 | 1.6% | 448 | 2.0% | • |
Mortgages UK | 63 | 0.3% | 133 | 0.6% | |
Non-property SME and | 487 | 2.4% | 818 | 4.0% | |
corporate | |||||
Property and construction | 230 | 2.8% | 455 | 5.6% | |
Consumer | 159 | 2.8% | 268 | 5.1% | |
Total | 1,308 | 1.6% | 2,122 | 2.7% | |
Stage 1 impairment coverage | 0.2% | 0.7% | |||
Stage 2 impairment coverage | 3.4% | 3.4% | |||
Stage 3 impairment coverage | 31.5% | 29.4% |
Net impairment charge €888m1 / 222bps (H1 2019: 21bps) on loans and advances to customers
Increased impairment charge driven by:
- Change in macro-economic outlook due to COVID-19
- Estimated future credit migration related to payment breaks
- Actual loan loss experience (€0.3bn) primarily in corporate and property portfolios, including €0.2bn on legacy property exposures
60% of impairment charge recognised on performing Stage 1 and Stage 2 loans
ILA increased by €0.8bn to €2.1bn since Dec 2019, €0.5bn of increase on performing Stage 1 and Stage 2 loans
Group impairment coverage increased from 1.6% to 2.7% at June 2020
1 Net impairment charge €888m on loans and advances to customers, net impairment charge on other financial instruments €49m, total net impairment charge €937m
24
Macro-economic outlook increasing Stage 2 balances | Bank of Ireland 2020 Interim Results |
Gross loans by stage
€80.5bn | €78.5bn | ||||||||
€0.1bn | |||||||||
€0.1bn | |||||||||
€3.1bn | |||||||||
€5.6bn | €4.4bn | ||||||||
€11.3bn | |||||||||
€71.8bn | |||||||||
€62.7bn | |||||||||
Macro-economic outlook increasing Stage 2 loans
- €5.7bn increase in Stage 2 loans since Dec 2019 reflecting deteriorated macro-economic outlook:
- Non-propertySME and corporate portfolio Stage 2 loans increased €3.7bn
- Property and construction Stage 2 loans increased €1.9bn
- Stage 3 loans of €4.4bn, increase of €1.3bn since Dec 2019:
Dec 19 | Jun 20 |
- Stage 1 n Stage 2 n Stage 3 n POCI
ILA movement
- €0.9bn increase from implementation of new Definition of Default; remainder from credit migration in corporate and property portfolios
- ILA increased by €0.8bn to €2.1bn since Dec 2019:
- €0.5bn increase on performing loan books
1.6% | 2.7% |
€337m | |
€477m | |
€2,122m | |
€1,308m |
Dec 19 | Stage 1 / 2 | Stage 31 | Jun 20 |
ILA % of gross loans |
1 Includes Purchased Other Credit Impaired (POCI)
- €0.3bn increase in Stage 3 ILA from credit migration in Non-property SME and corporate and Property and construction portfolios
Residential mortgages
Gross loans by stage | |||||||
€46.3bn | €44.3bn | ||||||
€1.7bn | |||||||
€1.7bn | €2.2bn | ||||||
€1.7bn | |||||||
€42.9bn | €40.4bn | ||||||
Dec 19 | Jun 20 |
- Stage 1 n Stage 2 n Stage 3
ILA movement
0.9% | 1.3% | ||
€94m | €55m | ||
€581m | |||
€432m | |||
Dec 19 | Stage 1 / 2 | Stage 3 | Jun 20 |
25
Bank of Ireland 2020 Interim Results
Residential mortgages
- Mortgage portfolios 57% of Group loan book
- ROI mortgage portfolio €22.9bn at June 2020:
- Average LTV of 60% on stock
- 81% of the portfolio has LTV <80%
- UK mortgage €21.5bn at June 2020:
- Average LTV of 62% on stock
- 82% of the portfolio has LTV <80%
- Implementation of new Definition of Default regulatory framework driving increase in stage 3 loans
- €149m impairment loss allowance increase largely on performing loans including management adjustment relating to payment breaks
- Impairment coverage increased from 0.9% to 1.3% at June 2020
ILA % of gross loans
26
Non-property SME and corporate
Gross loans by stage | |||||||
€20.4bn | €20.7bn | ||||||
€0.8bn | €1.1bn | ||||||
€2.2bn | |||||||
€17.5bn | €5.9bn | ||||||
€13.7bn | |||||||
Dec 19 | Jun 20 | ||||||
n Stage 1 n Stage 2 n Stage 3 | |||||||
ILA movement |
Bank of Ireland 2020 Interim Results
Non-property SME and corporate
- Non-propertySME and corporate portfolio well diversified by geography and sector
- Predominantly secured portfolios; government measures providing additional support
- €3.7bn increase in Stage 2 loans since Dec 2019 reflecting macro-economic outlook on higher impacted sectors:
- Wholesale and retail trade Stage 2 loans increased by €0.3bn to €0.6bn
- Accommodation and food service activities Stage 2 loans increased by €0.7bn to €0.9bn
- Acquisition Finance Stage 2 loans increased by €1.0bn to €1.3bn
• | |||
2.4% | 4.0% | ||
€91m | |||
€240m | |||
€818m | |||
€487m | • | ||
• | |||
Dec 19 | Stage 1 / 2 | Stage 3 | Jun 20 |
Increased impairment coverage across higher impacted sectors and portfolios:
- Wholesale and retail trade exposures €2.5bn, impairment coverage 5.0% (3.3% Dec 2019)
- Accommodation and food service activities exposures €1.7bn, impairment coverage 3.3% (1.6% Dec 2019)
- Acquisition Finance exposures €4.8bn, impairment coverage 3.5% (1.4% Dec 2019)
€240m / 73% of increase in ILA related to performing Stage 1 and Stage 2 loans
Impairment coverage increased from 2.4% to 4.0% at Jun 2020
ILA % of gross loans
27
Property and construction
Bank of Ireland 2020 Interim Results
Gross loans by stage | Property and construction |
€8.1bn | €8.2bn | • | ||
€0.6bn | €1.1bn | |||
€1.5bn | ||||
€3.4bn | • | |||
€6.0bn | ||||
€3.7bn | • | |||
Dec 19 | Jun 20 | |||
n Stage 1 n Stage 2 n Stage 3 | • | |||
ILA movement | • | |||
2.8% | 5.6% | |||
€179m | • | |||
€46m | • | |||
€455m | ||||
€230m | ||||
Dec 19 | Stage 1 / 2 | Stage 3 | Jun 20 |
10% of Group loan book; €7.4bn Investment Property; €0.8bn Development lending
>40% Investment property exposures in Dublin; 30% UK exposures
Investment Property exposures largely Retail (37%), Office (33%), Residential (19%) and Other (11%); 75% of the book LTV <70%
Development lending portfolio comprises exposures to active development sites
Deterioration in macro-economic outlook driving stage migration including forecast decrease in commercial property prices
Legacy investment property exposures driving €179m increase in Stage 3 ILA
Impairment coverage increased from 2.8% to 5.6% at June 2020
ILA % of gross loans
Consumer
Gross loans by stage
€5.7bn
€0.2bn | €5.3bn | |
€0.3bn
€5.4bn
€4.9bn
Dec 19 | Jun 20 |
- Stage 1 n Stage 2 n Stage 3
ILA movement
2.8% | 5.1% | ||
€97m | €12m | ||
€268m | |||
€159m | |||
Dec 19 | Stage 1 / 2 | Stage 3 | Jun 20 |
28
Bank of Ireland 2020 Interim Results
Consumer
- 7% of Group loan book; exit of UK Credit Cards in 2019
- €2.0bn Ireland consumer exposure; €0.8bn motor, €0.8bn consumer loans. €0.4bn credit cards
- €3.3bn UK consumer exposure; €2.1bn motor, €1.2bn consumer loans
- €109m impairment loss allowance increase largely on performing loans including management adjustment relating to payment breaks
- Impairment coverage increased from 2.8% to 5.1% at June 2020
ILA % of gross loans
NPE ratio increase to 5.8%
NPE movements
29
Bank of Ireland 2020 Interim Results
Non-performing exposures
6.3% | 4.4% | |
€0.6bn | ||
€5.0bn | ||
€3.5bn | ||
Dec 18 | Dec 19 | Inflows |
NPE ratio |
5.8% | |||||
€0.5bn | |||||
€4.6bn | |||||
Definition of | Jun 20 | ||||
Default |
- NPE ratio increased by 140bps to 5.8%
- €0.6bn inflows primarily from credit migration in Non-property SME and corporate, and Property and construction portfolios
- Implementation of new Definition of Default regulatory framework increased NPEs by €0.5bn
- No NPE transactions completed in H1 2020 due to market conditions
- Group NPE coverage ratio increased by 10% to 47% at Jun 2020
NPEs by portfolio | Jun 20 | |||||||
Coverage Ratio | ||||||||
Mortgages | €1.5bn | 29% | ||||||
(ROI) | €1.6bn | |||||||
Non-property SME | €0.9bn | 73% | ||||||
and corporate | €1.1bn | |||||||
Property and | €0.6bn | 42% | ||||||
construction | €1.1bn | |||||||
Mortgages | €0.5bn | 21% | ||||||
(UK) | €0.6bn | |||||||
Consumer | €0.1bn | |||||||
(ROI & UK) | €0.1bn | |||||||
n Dec 19 n Jun 20
1 See slide 45
Outlook
- Proven track record of working with customers to implement sustainable solutions; significantly below industry average for arrears management1
- NPE transactions dependent on market conditions
30
Strong capital position
Bank of Ireland 2020 Interim Results
Fully loaded CET1 ratio
RWAs | 45bps | 40bps | (65bps) | ||||||||||||||||||||||||||||||||||||||
(15bps) | RWAs | ||||||||||||||||||||||||||||||||||||||||
€49.9bn | (15bps) | (60bps) | |||||||||||||||||||||||||||||||||||||||
40bps | 10bps | €47.6bn | |||||||||||||||||||||||||||||||||||||||
Impairment | (190bps) | ||||||||||||||||||||||||||||||||||||||||
EL offset | 90bps | ||||||||||||||||||||||||||||||||||||||||
RWA reduction | 35bps | ||||||||||||||||||||||||||||||||||||||||
13.8% | Net impact | (65bps) | (20bps) | ||||||||||||||||||||||||||||||||||||||
13.6% | |||||||||||||||||||||||||||||||||||||||||
Regulatory capital | |||||||||||||||||||||||||||||||||||||||||
demand | |||||||||||||||||||||||||||||||||||||||||
Dec 19 | Pre-impairment | 2019 Dividend | Credit | Loan Growth / | Transformation | Definition of | SME supporting | Other / Pension | Jun 20 | ||||||||||||||||||||||||||||||||
organic capital | deterioration | RWA2 | investment | Default / IRB | factor | ||||||||||||||||||||||||||||||||||||
generation1 | models | ||||||||||||||||||||||||||||||||||||||||
Headroom to 2020 CET1 regulatory capital requirements
13.6% | 14.9% | |
c.560bps | ||
2020 Regulatory | headroom | |
9.27% | ||
Requirements | ||
(excl. P2G) |
Jun-20 Fully Loaded | Jun-20 Regulatory |
CET1 Ratio | CET1 Ratio |
Strong capital position
- Fully loaded CET1 ratio +10bps since Q1 2020
- Regulatory CET1 ratio +50bps since Q1 2020
- 2% reduction in RWA density
Outlook
- 2020 regulatory CET1 ratio to remain above 13.5%
- No dividend deduction assumed for 2020
- Pre-impairmentorganic capital generation primarily consists of attributable profit excluding impairment and movements in regulatory deductions
- Loan Growth / RWA movements from net loan growth, changes in asset quality and book mix and movements in other RWAs
Outlook
Profitability
- 2020 gross new lending volumes expected to be c.70% of 2019 volumes
- Net interest income in 2020 to be c.5% lower than 2019
-
2020 business income to be
20%-30% lower than 2019 - Costs will continue to reduce:
-
2020 costs to be lower than
2019 - 2021 costs to be below previous guidance of €1.65bn
-
2020 costs to be lower than
Asset Quality
- While we expect economic recovery commencing in H2 2020, COVID-19 and Brexit are ongoing uncertainties
- Subject to no further deterioration in the economic environment or outlook, 2020 impairment charge expected to be in a range of c.€1.1bn to €1.3bn
31
Bank of Ireland 2020 Interim Results
Capital
- 2020 regulatory CET1 ratio to remain above 13.5%
- No dividend deduction assumed for 2020
Longer term impacts of COVID-19 on the economy and the Group's financial performance remain uncertain,
our medium term targets should therefore no longer be considered current in these circumstances
Summary and conclusion
32
Bank of Ireland 2020 Interim Results
Trading outlook
Capital
Asset quality
Transformation
Efficiency
UK retail
While uncertainties remain, accelerated economic activity is supporting improved outlook for 2020 lending and income vs. Q1 outlook
Strong capital position with fully loaded CET1 ratio of 13.6%, regulatory CET1 ratio 14.9%
Proven track record, over a sustained period, of working with customers to find sustainable solutions
Multi-year programme delivery against milestones; delivering agile, digitised solutions for customers and creating cost efficiencies
All tactical and strategic opportunities being captured to further reduce our cost base; 2021 costs to be below previous guidance of €1.65bn
Further restructuring required to improve returns; strategic review of Northern Ireland retail business recently commenced
34
Bank of Ireland 2020 Interim Results
Appendix
35
Appendix | Bank of Ireland 2020 Interim Results | |
Slide No. | ||
• | BOI overview - customer loans / new lending volumes | 36 |
• | ROI mortgage loan book | 37 |
- Income Statement
- Net interest income analysis | 38 | |
- | Structural hedge | 39 |
- | Interest rate sensitivity | 40 |
- Asset Quality
- Non-performing exposures by portfolio | 41 | |
- | Portfolio by stage | 42 |
- Non-property SME and corporate by stage | 43 | |
- Forward Looking Information - macro-economic scenarios | 44 | |
- | ROI Mortgages | 45 |
- | UK customer loans | 46 |
• Ordinary shareholders' equity and TNAV | 47 |
- Capital
- | Capital and liquidity | 48 | |
- | CET1 ratios | 49 | |
- | Regulatory capital requirements | 50 | |
- | Risk weighted assets | 51 | |
• | Transformation investment / operating expenses | 52 | |
• | Cost income ratio: Jun 2020 | 53 | |
• | Defined Benefit Pension Schemes | 54 | |
• | Forward-Looking statement | 55 | |
• | Contact details | 56 |
36
BOI Overview
Bank of Ireland 2020 Interim Results
Profile of customer loans1 at Jun 20 (Gross)
Composition (Jun 20) | ROI | UK | RoW | Total | Total | |
(€bn) | (€bn) | (€bn) | (€bn) | (%) | ||
Mortgages | 22.9 | 21.4 | 0.0 | 44.4 | 57% | |
Non-property SME and corporate | 10.8 | 5.1 | 4.7 | 20.6 | 26% | |
SME | 7.1 | 1.6 | 0.0 | 8.7 | 11% | |
Corporate | 3.7 | 3.5 | 4.7 | 11.9 | 15% | |
Property and construction | 5.3 | 1.9 | 1.0 | 8.2 | 10% | |
Investment | 4.7 | 1.7 | 1.0 | 7.4 | 9% | |
Development | 0.6 | 0.2 | 0.0 | 0.8 | 1% | |
Consumer | 2.0 | 3.3 | 0.0 | 5.3 | 7% | |
Customer loans (gross) | 41.1 | 31.7 | 5.7 | 78.5 | 100% | |
Geographic (%) | 53% | 40% | 7% | 100% |
Gross new lending volumes
€2.7bn | Retail Ireland | Retail UK | Corporate Banking | ||||||||||
£2.5bn | |||||||||||||
€1.0bn | €2.3bn | £2.1bn | €2.1bn | ||||||||||
€0.9bn | £1.3bn | €0.6bn | |||||||||||
€0.3bn | £1.2bn | ||||||||||||
€0.2bn | €0.5bn | €1.1bn2 | |||||||||||
€1.5bn | €1.2bn | £1.1bn | €0.7bn | €0.6bn | |||||||||
£0.7bn | €0.2bn | ||||||||||||
€0.4bn | €0.3bn | ||||||||||||
£0.1bn | £0.2bn | ||||||||||||
€0.1bn | |||||||||||||
H1 2019 | H1 2020 | H1 2019 | H1 2020 | H1 2019 | H1 2020 |
n Mortgages n Consumer n Business Banking n Property n Corporate Ireland n Acquisition Finance n Corporate UK
1 Based on geographic location of customer
2 Excludes revolving credit facilities
ROI Mortgages: €22.9bn
New Lending volumes and Market Share
23% | 24% | 25% |
€1.0bn | €1.3bn | €0.9bn |
H1 2019 | H2 2019 | H1 2020 |
n New Lending Volumes | Market Share |
Pricing strategy
- Fixed rate led mortgage pricing strategy which provides value, certainty and stability to our customers and to the Group
- Fixed rate products accounted for c.94% of our new lending in H1 2020, up from c.30% in 2014
Distribution strategy - continued expansion into broker channel
- Establishing a large network of active brokers at a national level; brokers accounted for 30% of the market in H1 2020
Wider proposition
- 7 in 10 ROI customers who take out a new mortgage take out a life assurance policy through BOI Group
- 3 in 10 ROI customers who take out a new mortgage take out a general insurance policy through BOI Group with insurance partners
1 Average customer pay rate of 111bps less Group average cost of funds of 39bps
37
Bank of Ireland 2020 Interim Results
ROI Mortgages (gross)
€23.7bn | €23.0bn | €22.9bn |
€9.5bn | €11.1bn | €11.6bn |
€4.4bn | €3.2bn | €3.0bn |
€9.8bn | €8.7bn | €8.3bn |
Dec 18 | Dec 19 | Jun 20 |
n Tracker n Variable Rates n Fixed Rates |
LTV profile
- Average LTV of 60% on mortgage stock at Jun 2020 (Dec 19: 59%)
- Average LTV of 76% on new mortgages in H1 2020 (2019: 74%)
Tracker mortgages
- €7.9bn or 95% of trackers at Jun 2020 are on a capital and interest repayment basis
- 82% of trackers are Owner Occupier mortgages; 18% of trackers are Buy to Let mortgages
- Loan asset spread on ECB tracker mortgages was c.72bps1 in H1 2020
38
Income Statement
Net interest income analysis
Bank of Ireland 2020 Interim Results
H2 2018 | H1 2019 | H2 2019 | H1 2020 | |||||||||||
Average | Gross | Gross | Average | Gross | Gross | Average | Gross | Gross | Average | Gross | Gross | |||
Volumes Interest | Rate | Volumes Interest | Rate | Volumes Interest | Rate | Volumes Interest | Rate | |||||||
(€bn) | (€m) | (%) | (€bn) | (€m) | (%) | (€bn) | (€m) | (%) | (€bn) | (€m) | (%) | |||
Ireland Loans1 | 34.4 | 595 | 3.43% | 34.2 | 582 | 3.43% | 33.7 | 583 | 3.43% | 33.4 | 561 | 3.38% | ||
UK Loans | 27.6 | 391 | 2.82% | 27.5 | 377 | 2.76% | 28.0 | 375 | 2.66% | 28.5 | 356 | 2.52% | ||
C&T | 14.6 | 294 | 3.98% | 15.8 | 314 | 3.99% | 16.8 | 330 | 3.90% | 17.4 | 324 | 3.74% | ||
Total Loans and Advances to Customers | 76.6 | 1,280 | 3.31% | 77.5 | 1,273 | 3.31% | 78.5 | 1,288 | 3.26% | 79.3 | 1,241 | 3.15% | ||
Liquid Assets | 22.7 | 38 | 0.33% | 22.9 | 33 | 0.29% | 23.9 | 30 | 0.25% | 26.6 | 16 | 0.12% | ||
NAMA Sub Debt | 0.1 | 2 | 5.24% | 0.1 | 2 | 5.40% | 0.1 | 2 | 5.26% | 0.0 | 1 | 5.22% | ||
Total Liquid Assets | 22.8 | 40 | 0.35% | 23.0 | 35 | 0.31% | 24.0 | 32 | 0.27% | 26.6 | 17 | 0.13% | ||
Total Interest Earning Assets | 99.4 | 1,320 | 2.63% | 100.5 | 1,308 | 2.62% | 102.5 | 1,320 | 2.56% | 105.9 | 1,258 | 2.36% | ||
Ireland Deposits | 20.7 | (8) | (0.08%) | 20.7 | (7) | (0.07%) | 21.0 | (5) | (0.05%) | 21.3 | (2) | (0.02%) | ||
Credit Balances2 | 32.8 | 3 | 0.02% | 34.5 | 3 | 0.02% | 36.6 | 6 | 0.03% | 39.6 | 8 | 0.04% | ||
UK Deposits | 18.6 | (88) | (0.94%) | 18.3 | (91) | (1.00%) | 18.6 | (103) | (1.09%) | 18.7 | (90) | (0.97%) | ||
C&T Deposits | 4.9 | (9) | (0.37%) | 5.1 | (9) | (0.35%) | 5.0 | (9) | (0.34%) | 4.7 | (4) | (0.16%) | ||
Total Deposits | 77.0 | (102) | (0.26%) | 78.6 | (104) | (0.27%) | 81.2 | (111) | (0.27%) | 84.2 | (88) | (0.21%) | ||
Wholesale Funding3 | 11.0 | (52) | (0.94%) | 10.3 | (54) | (1.06%) | 9.9 | (62) | (1.24%) | 9.7 | (55) | (1.13%) | ||
Subordinated Liabilities | 2.1 | (51) | (4.86%) | 2.0 | (49) | (4.85%) | 1.5 | (41) | (5.44%) | 1.5 | (34) | (4.61%) | ||
Total Interest Bearing Liabilities | 90.1 | (205) | (0.45%) | 90.9 | (207) | (0.46%) | 92.6 | (214) | (0.46%) | 95.4 | (177) | (0.37%) | ||
Other4 | (30) | (22) | (18) | (18) | ||||||||||
Net Interest Margin as reported | 99.4 | 1,085 | 2.17% | 100.5 | 1,079 | 2.16% | 102.5 | 1,088 | 2.11% | 105.9 | 1,063 | 2.02% | ||
Average ECB Base rate | 0.00% | 0.00% | 0.00% | 0.00% | ||||||||||
Average 3 month Euribor | (0.32%) | (0.31%) | (0.40%) | (0.31%) | ||||||||||
Average BOE Base rate | 0.70% | 0.75% | 0.75% | 0.36% | ||||||||||
Average 3 month LIBOR | 0.82% | 0.84% | 0.78% | 0.35% |
- Includes average interest earning assets of c.€0.3bn in 2020 carried at FVTPL with associated FY20 interest income of c.€6m
- Credit balances in H1 2020: ROI €31.1bn, UK €3.8bn, C&T €4.7bn
- Includes impact of credit risk transfer transactions executed in Dec 2016, Nov 2017 and Dec 2019
- Includes IFRS 16 lease expense, interest on certain FVPTL items and adjustments that are of a non-recurring nature such as customer termination fees and EIR adjustments
Structural Hedge
Interest income on structural hedge1
Average structural | €32.7bn | €35.8bn |
hedge volume | ||
€85m | ||
€68m | ||
€51m | €34m | |
€34m | €34m | |
H1 2019 | H1 2020 | |
n EUR n GBP |
EUR structural hedge
1.5% | |||
1.0% | |||
0.5% | |||
0.0% | 51bps | ||
-0.5% | |||
Jul-16 | Jan-17Jul-17Jan-18 | Jul-18 | Jan-19Jul-19Jan-20Jun-20 |
EUR structural hedge yield | External EUR 7yr swap rate |
1 Gross interest income from fixed leg of hedging swap
39
Bank of Ireland 2020 Interim Results
Overview
- Structural hedging is used to help mitigate volatility in earnings from interest rate movements
- Income from structural hedging has supported interest income as market rates have declined
- Average structural hedge volume in H1 2020 of €35.8bn (EUR 84%, GBP 16%):
- c.75% of equity and credit balances hedged
- Weighted average life of hedges is c.3.5 years
- c.15% of existing hedges are re-hedged annually
- Hedging of incremental growth in credit balances paused in H1 2020
- Interest income of €68m from structural hedge in H1 2020; c.6% of Group's net interest income (c.8% in 2019)
- Impact of lower interest rate environment incorporated in net interest income and NIM 2020 guidance
Interest Rate Sensitivity
40
Bank of Ireland 2020 Interim Results
The table below shows the estimated sensitivity of the Group's income (before tax) to an instantaneous and sustained 1% parallel movement in interest rates
Estimated sensitivity on Group income (1 year horizon) | Dec 19 | Jun 20 |
(€m) | (€m) | |
100bps higher | c.210 | c.250 |
100bps lower | (c.250) | (c.270) |
The above sensitivities are based on certain simplifying assumptions such as:
- the assumption of a static balance sheet by size and composition;
- assets and liabilities whose pricing is mechanically linked to market / central bank rates are assumed to reprice accordingly; and
- the sensitivities should not be considered a forecast of future performance in these rate scenarios as they do not capture potential management action in response to unexpected changes in the interest rate environment.
Non-performing exposures by portfolio
41
Bank of Ireland 2020 Interim Results
Composition (Jun 20) | Advances | Non-performing | Non-performing | Impairment | Impairment loss |
exposures | exposures as % | loss allowance | allowance as % of | ||
(€bn) | |||||
(€bn) | of advances | (€bn) | non-performing exposures | ||
Residential Mortgages | 44.4 | 2.2 | 5.0% | 0.6 | 26% |
- Republic of Ireland | 22.9 | 1.6 | 6.9% | 0.4 | 29% |
- UK | 21.4 | 0.6 | 3.0% | 0.1 | 21% |
Non-property SME and corporate | 20.7 | 1.1 | 5.4% | 0.8 | 73% |
- Republic of Ireland SME | 7.1 | 0.6 | 9.1% | 0.4 | 66% |
- UK SME | 1.7 | 0.1 | 6.8% | 0.1 | 57% |
- Corporate | 11.9 | 0.4 | 3.1% | 0.3 | 89% |
Property and construction | 8.2 | 1.1 | 13.3% | 0.5 | 42% |
- Investment | 7.4 | 1.1 | 14.4% | 0.4 | 39% |
- Development | 0.8 | 0.0 | 4.0% | 0.0 | 118% |
Consumer | 5.3 | 0.1 | 2.4% | 0.3 | 208% |
Total loans and advances to customers | 78.5 | 4.6 | 5.8% | 2.1 | 47% |
Composition (Dec 19) | Advances | Non-performing | Non-performing | Impairment | Impairment loss |
exposures | exposures as % | loss allowance | allowance as % of | ||
(€bn) | |||||
(€bn) | of advances | (€bn) | non-performing exposures | ||
Residential Mortgages | 46.3 | 1.9 | 4.2% | 0.4 | 22% |
- Republic of Ireland | 23.0 | 1.5 | 6.3% | 0.4 | 25% |
- UK | 23.2 | 0.5 | 2.1% | 0.1 | 13% |
Non-property SME and corporate | 20.4 | 0.9 | 4.3% | 0.5 | 55% |
- Republic of Ireland SME | 7.3 | 0.5 | 7.5% | 0.3 | 54% |
- UK SME | 1.7 | 0.1 | 6.3% | 0.0 | 46% |
- Corporate | 11.4 | 0.2 | 2.0% | 0.1 | 60% |
Property and construction | 8.1 | 0.6 | 7.3% | 0.2 | 39% |
- Investment | 7.2 | 0.6 | 7.7% | 0.2 | 37% |
- Development | 0.9 | 0.0 | 3.8% | 0.0 | 64% |
Consumer | 5.7 | 0.1 | 1.7% | 0.2 | 159% |
Total loans and advances to customers | 80.5 | 3.5 | 4.4% | 1.3 | 37% |
42
Portfolio by stage | Bank of Ireland 2020 Interim Results | ||||||||||
Composition (Jun 20) | Gross carrying amount | Impairment loss allowance | ILA % | ||||||||
(before impairment loss allowance) | |||||||||||
of gross | |||||||||||
Sectoral analysis by stage | Stage 1 | Stage 2 | Stage 3 | POCI | Total | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
loans | |||||||||||
€m | €m | €m | €m | €m | €m | €m | €m | €m | €m | ||
Residential Mortgages | 40,435 | 1,680 | 2,199 | 3 | 44,317 | 105 | 41 | 435 | - | 581 | 1.3% |
- Republic of Ireland | 20,106 | 1,209 | 1,565 | 3 | 22,883 | 50 | 22 | 376 | - | 448 | 2.0% |
- UK | 20,329 | 471 | 634 | - | 21,434 | 55 | 19 | 59 | - | 133 | 0.6% |
Non-property SME and corporate | 13,686 | 5,899 | 1,047 | 27 | 20,659 | 154 | 220 | 437 | 7 | 818 | 4.0% |
- Republic of Ireland SME | 5,344 | 1,128 | 636 | - | 7,108 | 108 | 68 | 251 | - | 427 | 6.0% |
- UK SME | 1,074 | 497 | 106 | 1 | 1,678 | 6 | 22 | 37 | - | 65 | 3.9% |
- Corporate | 7,268 | 4,274 | 305 | 26 | 11,873 | 40 | 130 | 149 | 7 | 326 | 2.7% |
Property and construction | 3,684 | 3,426 | 1,027 | 60 | 8,197 | 12 | 82 | 345 | 16 | 455 | 5.6% |
- Investment | 3,470 | 2,834 | 993 | 60 | 7,357 | 11 | 58 | 330 | 16 | 415 | 5.6% |
- Development | 214 | 592 | 34 | - | 840 | 1 | 24 | 15 | - | 40 | 4.8% |
Consumer | 4,905 | 265 | 128 | - | 5,298 | 151 | 42 | 75 | - | 268 | 5.1% |
- Motor Lending UK | 1,954 | 83 | 22 | - | 2,059 | 13 | 8 | 10 | - | 31 | 1.5% |
- Loans UK | 1,216 | 41 | 36 | - | 1,293 | 106 | 17 | 30 | - | 153 | 11.8% |
- Motor Lending ROI | 767 | - | 21 | - | 788 | 6 | - | 8 | - | 14 | 1.8% |
- Loans ROI | 600 | 107 | 33 | - | 740 | 19 | 10 | 18 | - | 47 | 6.4% |
- Credit Cards ROI | 368 | 34 | 16 | 418 | 7 | 7 | 9 | - | 23 | 5.5% | |
Total | 62,710 | 11,270 | 4,401 | 90 | 78,471 | 422 | 385 | 1,292 | 23 | 2,122 | 2.7% |
Composition (Dec 19) | Gross carrying amount | Impairment loss allowance | ILA % | ||||||||
(before impairment loss allowance) | |||||||||||
of gross | |||||||||||
Sectoral analysis by stage | Stage 1 | Stage 2 | Stage 3 | POCI | Total | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
loans | |||||||||||
€m | €m | €m | €m | €m | €m | €m | €m | €m | €m | ||
Residential Mortgages | 42,898 | 1,677 | 1,693 | 3 | 46,271 | 16 | 36 | 380 | - | 432 | 0.9% |
- Republic of Ireland | 20,610 | 1,133 | 1,289 | 3 | 23,035 | 7 | 22 | 340 | - | 369 | 1.6% |
- UK | 22,288 | 544 | 404 | - | 23,236 | 9 | 14 | 40 | - | 63 | 0.3% |
Non-property SME and corporate | 17,474 | 2,175 | 757 | 27 | 20,433 | 56 | 78 | 353 | - | 487 | 2.4% |
- Republic of Ireland SME | 5,799 | 1,011 | 495 | - | 7,305 | 33 | 39 | 225 | - | 297 | 4.1% |
- UK SME | 1,382 | 225 | 78 | 2 | 1,687 | 3 | 8 | 38 | - | 49 | 2.9% |
- Corporate | 10,293 | 939 | 184 | 25 | 11,441 | 20 | 31 | 90 | - | 141 | 1.2% |
Property and construction | 5,985 | 1,513 | 549 | 65 | 8,112 | 6 | 42 | 180 | 2 | 230 | 2.8% |
- Investment | 5,418 | 1,251 | 519 | 65 | 7,253 | 5 | 40 | 162 | 2 | 209 | 2.9% |
- Development | 567 | 262 | 30 | - | 859 | 1 | 2 | 18 | - | 21 | 2.4% |
Consumer | 5,421 | 206 | 100 | - | 5,727 | 64 | 32 | 63 | - | 159 | 2.8% |
- Motor Lending UK | 2,147 | 58 | 21 | - | 2,226 | 6 | 3 | 10 | - | 19 | 0.9% |
- Loans UK | 1,232 | 40 | 24 | - | 1,296 | 42 | 17 | 21 | - | 80 | 6.2% |
- Motor Lending ROI | 821 | - | 14 | - | 835 | 3 | - | 6 | - | 9 | 1.1% |
- Loans ROI | 681 | 74 | 30 | - | 785 | 9 | 6 | 19 | - | 34 | 4.3% |
- Credit Cards ROI | 540 | 34 | 11 | 585 | 4 | 6 | 7 | - | 17 | 2.9% | |
Total | 71,778 | 5,571 | 3,099 | 95 | 80,543 | 142 | 188 | 976 | 2 | 1,308 | 1.6% |
43
Non-property SME and corporate by stage1,2 | Bank of Ireland 2020 Interim Results | ||||||||||
Composition (Jun 20) | Gross carrying amount | Impairment loss allowance | ILA % | ||||||||
(before impairment loss allowance) | |||||||||||
of gross | |||||||||||
Sectoral analysis by stage | Stage 1 | Stage 2 | Stage 3 | POCI | Total | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
loans | |||||||||||
€m | €m | €m | €m | €m | €m | €m | €m | €m | €m | ||
Non-property SME and corporate | |||||||||||
- Manufacturing | 3,013 | 1,305 | 117 | - | 4,435 | 24 | 46 | 45 | - | 115 | 2.6% |
- Wholesale and retail trade | 1,723 | 569 | 147 | 1 | 2,440 | 23 | 21 | 79 | - | 123 | 5.0% |
- Administrative and support service activities | 1,705 | 562 | 95 | 26 | 2,388 | 23 | 17 | 53 | 7 | 100 | 4.2% |
- Accommodation and food service activities | 783 | 889 | 105 | - | 1,777 | 12 | 14 | 33 | - | 59 | 3.3% |
- Agriculture, forestry and fishing | 1,347 | 202 | 119 | - | 1,668 | 17 | 9 | 29 | - | 55 | 3.3% |
- Human health services and social work activities | 766 | 620 | 68 | - | 1,454 | 11 | 42 | 34 | - | 87 | 6.0% |
- Transport and storage | 675 | 367 | 71 | - | 1,113 | 6 | 12 | 45 | - | 63 | 5.7% |
- Other services | 615 | 221 | 145 | - | 981 | 5 | 9 | 55 | - | 69 | 7.0% |
- Professional, scientific and technical activities | 462 | 176 | 14 | - | 652 | 6 | 7 | 6 | - | 19 | 2.9% |
- Arts, entertainment and recreation | 308 | 306 | 31 | - | 645 | 2 | 18 | 11 | - | 31 | 4.8% |
- Financial and insurance activities | 535 | 51 | 24 | - | 610 | 4 | 2 | 8 | - | 14 | 2.3% |
- Real estate activities | 397 | 118 | 73 | - | 588 | 10 | 4 | 28 | - | 42 | 7.1% |
- Education | 374 | 71 | 1 | - | 446 | 3 | 4 | - | - | 7 | 1.6% |
- Other sectors | 983 | 442 | 37 | - | 1,462 | 8 | 15 | 11 | - | 34 | 2.3% |
Total | 13,686 | 5,899 | 1,047 | 27 | 20,659 | 154 | 220 | 437 | 7 | 818 | 4.0% |
Composition (Dec 19) | Gross carrying amount | Impairment loss allowance | ILA % | ||||||||
(before impairment loss allowance) | |||||||||||
of gross | |||||||||||
Sectoral analysis by stage | Stage 1 | Stage 2 | Stage 3 | POCI | Total | Stage 1 | Stage 2 | Stage 3 | POCI | Total | |
loans | |||||||||||
€m | €m | €m | €m | €m | €m | €m | €m | €m | €m | ||
Non-property SME and corporate | |||||||||||
- Manufacturing | 3,963 | 356 | 99 | - | 4,418 | 10 | 11 | 41 | - | 62 | 1.4% |
- Wholesale and retail trade | 2,031 | 327 | 129 | 1 | 2,488 | 8 | 10 | 63 | - | 81 | 3.3% |
- Administrative and support service activities | 1,987 | 142 | 67 | 25 | 2,221 | 7 | 5 | 39 | - | 51 | 2.3% |
- Agriculture, forestry and fishing | 1,523 | 127 | 94 | 1 | 1,745 | 7 | 5 | 29 | - | 41 | 2.3% |
- Accommodation and food service activities | 1,476 | 193 | 49 | - | 1,718 | 3 | 6 | 19 | - | 28 | 1.6% |
- Human health services and social work activities | 1,018 | 414 | 30 | - | 1,462 | 4 | 15 | 22 | - | 41 | 2.8% |
- Transport and storage | 902 | 137 | 46 | - | 1,085 | 3 | 5 | 34 | - | 42 | 3.9% |
- Other services | 778 | 98 | 123 | - | 999 | 2 | 7 | 51 | - | 60 | 6.0% |
- Financial and insurance activities | 662 | 14 | 19 | - | 695 | 1 | - | 6 | - | 7 | 1.0% |
- Professional, scientific and technical activities | 597 | 67 | 9 | - | 673 | 2 | 3 | 5 | - | 10 | 1.5% |
- Real estate activities | 435 | 90 | 60 | - | 585 | 3 | 5 | 27 | - | 35 | 6.0% |
- Arts, entertainment and recreation | 364 | 62 | 18 | - | 444 | 1 | 3 | 7 | - | 11 | 2.5% |
- Education | 426 | 8 | 1 | - | 435 | 1 | - | 1 | - | 2 | 0.5% |
- Electricity, gas, steam and air conditioning supply | 363 | 38 | 3 | - | 404 | 1 | 1 | 2 | - | 4 | 1.0% |
- Other sectors | 949 | 102 | 10 | - | 1,061 | 3 | 2 | 7 | - | 12 | 1.1% |
Total | 17,474 | 2,175 | 757 | 27 | 20,433 | 56 | 78 | 353 | - | 487 | 2.4% |
- The Non-property SME and corporate portfolio is analysed by NACE code. The NACE code classification system is a pan-European classification system that groups organisations according to their business activities.
- Exposures to NACE codes totaling less than €400 million are grouped together as 'Other sectors'. The NACE codes reported in the table above can therefore differ period on period.
44
Forward Looking Information - macro-economic scenarios
Bank of Ireland 2020 Interim Results
30 June 2020 | Republic of Ireland | United Kingdom | ||||
2020 | 2021 | 2022-2024 | 2020 | 2021 | 2022-2024 | |
Downside - 30% scenario probability weighting | ||||||
GDP growth1 | (12.0%) | 5.7% | 2.5% | (13.0%) | 7.9% | 1.6% |
GNP growth1 | (14.0%) | 6.9% | 2.1% | n/a | n/a | n/a |
Unemployment rate2 | 14.8% | 10.9% | 7.5% | 9.5% | 7.9% | 6.3% |
Residential property price growth3 | (10.0%) | (5.0%) | (0.7%) | (10.0%) | (5.0%) | (0.7%) |
Commercial property price growth3 | (14.0%) | (9.0%) | (0.3%) | (15.0%) | (9.0%) | (0.3%) |
Central - 50% scenario probability weighting | ||||||
GDP growth1 | (8.3%) | 6.1% | 2.7% | (9.3%) | 8.8% | 1.8% |
GNP growth1 | (11.6%) | 7.3% | 2.3% | n/a | n/a | n/a |
Unemployment rate2 | 13.0% | 8.2% | 4.8% | 7.3% | 6.0% | 4.5% |
Residential property price growth3 | (10.0%) | (1.0%) | 1.0% | (10.0%) | (2.0%) | 1.0% |
Commercial property price growth3 | (14.0%) | (2.0%) | 0.7% | (15.0%) | (3.0%) | 1.0% |
Upside - 20% scenario probability weighting | ||||||
GDP growth1 | (5.0%) | 8.5% | 2.9% | (6.0%) | 10.7% | 2.2% |
GNP growth1 | (7.0%) | 9.7% | 2.5% | n/a | n/a | n/a |
Unemployment rate2 | 9.8% | 6.2% | 4.5% | 6.3% | 4.2% | 4.0% |
Residential property price growth3 | (7.0%) | 1.0% | 1.7% | (7.0%) | (1.0%) | 2.0% |
Commercial property price growth3 | (10.5%) | 0.0% | 1.8% | (11.5%) | (0.5%) | 1.8% |
- Annual growth rate
- Average yearly rate
- Year-endfigures
ROI Mortgages
Continued proactive arrears management
>90 days arrears1
Industry | |||
Average | |||
Industry | |||
Average | 15.7% | ||
6.5% | 3.8% | ||
1.9% | |||
Owner Occupier | Owner Occupier | Buy to let | Buy to let |
>720 days arrears1
Industry | |||
Average | |||
Industry | 12.1% | ||
Average | |||
4.3% | 1.0% | 2.1% | |
Owner Occupier | Owner Occupier | Buy to let | Buy to let |
45
Bank of Ireland 2020 Interim Results
>90 days arrears
- Bank of Ireland is significantly below the industry average for both Owner Occupier (29% of industry average) and Buy to Let (24% of industry average)
>720 days arrears
- Bank of Ireland is significantly below the industry average for both Owner Occupier (23% of industry average) and Buy to Let (17% of industry average)
1 As at March 2020, based on number of accounts, industry average excluding BOI
46
UK Customer Loans £29.1bn (€31.7bn)
UK Mortgages - £19.6bn
n South East | n Wales | |||||||||||||
£2.0bn | £0.8bn | |||||||||||||
n Scotland | n Greater | |||||||||||||
London | ||||||||||||||
£1.2bn | £3.3bn | |||||||||||||
n Northern | ||||||||||||||
Ireland | ||||||||||||||
n Rest of England | £1.1bn | |||||||||||||
£9.1bn | n Outer | |||||||||||||
Metropolitan | ||||||||||||||
£2.1bn |
Bank of Ireland 2020 Interim Results
UK Mortgages Analysis - £19.6bn
- Total UK mortgages of £19.6bn; (NPEs: 3.1%):
- Average LTV of 62% on existing stock at Jun 2020 (Dec 19: 63%)
- Average LTV of 71% on new UK mortgages in H1 2020 (2019: 73%)
-
68% of the current mortgage portfolio originated since January
2010 are standard owner occupier mortgages - BTL book is well seasoned with 62% of these mortgages originated prior to January 2010
- Average balance of Greater London mortgages is c.£194k, with 91% of Greater London mortgages having an indexed LTV <70%
Other UK Customer Loans - £9.5bn
£0.1bn | £0.1bn | |||
£0.1bn | £3.1bn | £0.5bn | £3.0bn | |
£1.3bn | £1.0bn | |||
£0.2bn | ||||
SME | Corporate | Investment | Land & | Consumer |
Property | Development |
n Performing loans n Non-performing exposures
Other UK Customer Loans Analysis - £9.5bn
- Non-performingexposures of £0.8bn with strong coverage ratios
- Performing loans of £8.7bn:
- SME: broad sectoral diversification with low concentration risk
- Corporate: specialist lending teams in Acquisition Finance and Corporate lending through a focused sector strategy
- Investment Property: primarily retail, office and residential sectors
- Consumer (£3.1bn):
- Northridge (£1.9bn): Asset backed motor finance business; net loan book stable in H1 2020; mid-market targeting prime business only; below industry arrears and loan losses
- Personal loan volumes (£1.2bn): net loan book increase of £0.1bn in H1 2020
47
Ordinary shareholders' equity and TNAV
Bank of Ireland 2020 Interim Results
Movement in ordinary shareholders' equity | 2019 | H1 2020 |
(€m) | (€m) | |
Ordinary shareholders' equity at beginning of period | 9,243 | 9,625 |
Movements: | ||
Profit attributable to shareholders | 448 | (726) |
Dividend paid to ordinary shareholders | (173) | - |
Distribution on other equity instruments - additional tier 1 coupon (net of tax) | - | (31) |
Re-measurement of the net defined benefit pension liability | 39 | 562 |
Debt instruments at FVOCI reserve movements | 26 | (40) |
Cash flow hedge reserve movement | (5) | 11 |
Foreign exchange movements | 132 | (168) |
Other movements | (85) | (2) |
Ordinary shareholders' equity at end of period | 9,625 | 9,231 |
Tangible net asset value | 2019 | Jun 20 |
(€m) | (€m) | |
Ordinary shareholders' equity at the end of period | 9,625 | 9,231 |
Adjustments: | ||
Intangible assets and goodwill | (838) | (720) |
Own stock held for benefit of life assurance policyholders | 30 | 35 |
Tangible net asset value (TNAV) | 8,817 | 8,546 |
Number of ordinary shares in issue at the end of the period excluding treasury shares | 1,074 | 1,072 |
TNAV per share (€) | €8.21 | €7.97 |
Capital and liquidity
Dec 2019 | Jun 2020 | |
(€bn) | (€bn) | |
Customer loans | 79 | 77 |
Liquid assets | 27 | 29 |
Other assets | 26 | 26 |
Total assets | 132 | 132 |
Customer deposits | 84 | 87 |
Wholesale funding | 11 | 10 |
Shareholders' equity | 10 | 9 |
Other liabilities | 27 | 26 |
Total liabilities | 132 | 132 |
TNAV per share | €8.21 | €7.97 |
Closing EUR / GBP FX rates | 0.85 | 0.91 |
Dec 2019 | Jun 2020 | |
Liquidity Coverage Ratio | 138% | 149% |
Net Stable Funding Ratio | 131% | 135% |
Loan to Deposit Ratio | 95% | 89% |
48
Bank of Ireland 2020 Interim Results
Liquidity
- Funding and liquidity remains strong from stable customer deposits and MREL issuance
Customer deposits: €86.5bn
- Growth of €2.5bn principally due to higher current account credit balances predominantly from the impact of COVID-19 restrictions and lower consumer spending
Wholesale funding: €9.5bn
- AT1 and senior debt issuance of c.€0.75bn during H1 2020
- MREL ratio of 24.4% based on RWA at Jun 2020
Leverage Ratio
- Fully Loaded Leverage Ratio: 6.3%
- Regulatory Leverage Ratio: 6.8%
Tangible Net Asset Value
- TNAV decreased to €7.97
49
Capital - strong fully loaded and regulatory CET1 ratios | Bank of Ireland 2020 Interim Results | |
Capital ratios - Jun 2020 | ||
Regulatory ratio | Fully loaded ratio | |
(€bn) | (€bn) | |
Total equity | 9.9 | 10.0 |
Less Additional Tier 1 | (0.7) | (0.7) |
Deferred tax | (0.7) | (1.2) |
Intangible assets and goodwill | (0.6) | (0.6) |
Foreseeable dividend | - | - |
Expected loss deduction | (0.3) | (0.2) |
Pension Fund Asset | (0.6) | (0.6) |
IFRS 9 Regulatory Addback | 0.4 | - |
Other items | (0.2) | (0.3) |
Common Equity Tier 1 Capital | 7.1 | 6.5 |
Credit RWA | 41.8 | 41.5 |
Operational RWA | 4.4 | 4.4 |
Market, Counterparty Credit Risk and Securitisations | 1.7 | 1.7 |
Total RWA | 47.9 | 47.6 |
Common Equity Tier 1 ratio | 14.9% | 13.6% |
Total Capital Ratio | 18.7% | 17.4% |
Leverage ratio | 6.8% | 6.3% |
Phasing impacts on Regulatory ratio
- Deferred tax assets - certain DTAs1 are deducted at a rate of 60% for 2020, increasing annually at a rate of 10% thereafter until 2024
- IFRS 92 - the Group has elected to apply the transitional arrangement. The transitional arrangement allows a 100% add-back in 2020 and 2021, decreasing to 75%, 50%, and 25% in subsequent years
1 Deferred tax assets due to temporary differences are included in other RWA with a 250% risk weighting applied
2 The IFRS 9 addback to the Regulatory CET1 was c.70bps at 30 Jun 2020, increased from c.15bps at 31 Dec 2019
50
Regulatory Capital Requirements | Bank of Ireland 2020 Interim Results | |||
Pro forma CET1 Regulatory Capital Requirements | 2019 | 2020 | 2021 | |
Pillar 1 - CET1 | 4.50% | 4.50% | 4.50% | |
Pillar 2 Requirement (P2R) | 2.25% | 1.27% | 1.27% | |
Capital Conservation Buffer (CCB) | 2.50% | 2.50% | 2.50% | |
ROI Countercyclical buffer (CCyB) | 0.60% | 0.00% | 0.00% | |
UK Countercyclical buffer (CCyB) | 0.30% | 0.00% | 0.00% | |
O-SIIBuffer (phase in July each year) | 0.50% | 1.00% | 1.50% | |
Systemic Risk Buffer - Ireland | - | - | - | |
Pro forma Minimum CET1 Regulatory Requirements | 10.65% | 9.27% | 9.77% | |
Pillar 2 Guidance (P2G) | Not disclosed in line with regulatory preference |
Regulatory Capital Requirements
- The Group's 2020 regulatory CET1 requirement, excluding P2G, has reduced by 218bps, from 11.45% to 9.27%:
- Pillar 2 Requirement (P2R): ECB announced change in composition of P2R of 2.25%, which reduced the Group's CET1 P2R by 98bps to 1.27%
- Countercyclical Buffer (CCyB): the Financial Policy Committee UK (FPC) and the Central Bank of Ireland reduced the UK and ROI CCyB rates to 0% until at least Q1 2022, which reduced the Group's CCyB by c.120bps
- CET1 headroom of c.560bps to Dec 2020 regulatory capital requirements of 9.27%
- Regulatory total capital ratio of 18.7% provides headroom of c.495bps above total capital requirement of 14.75% pending further AT1 / Tier 2 issuance to meet increased Tier 1 / Tier 2 requirements following P2R composition change
Risk Weighted Assets (RWAs) / Leverage Ratio
51
Bank of Ireland 2020 Interim Results
Customer lending average credit risk weights - Jun 20201, 2
(Based on regulatory exposure class)
EAD3 | RWA | Avg. Risk | |
(€bn) | (€bn) | Weight | |
ROI Mortgages | 23.4 | 6.4 | 27% |
UK Mortgages | 22.0 | 4.1 | 19% |
SME | 17.0 | 11.7 | 69% |
Corporate | 10.5 | 10.3 | 98% |
Other Retail | 5.9 | 4.2 | 71% |
Customer lending credit risk | 78.8 | 36.7 | 47% |
- IRB approach accounts for:
- 67% of credit EAD (Dec 19: 69%)
- 72% of credit RWA (Dec 19: 73%)
- Regulatory RWA has decreased from €50.1bn at Dec 2019 to €47.9bn at Jun 2020. The decrease is primarily due to net loan book growth being more than offset by application of revised SME supporting factor rules, reduction in RWA due to changes in asset quality and mix and FX movements
Leverage Ratio
- Fully Loaded Leverage Ratio: 6.3%
- Regulatory Leverage Ratio: 6.8%
EBA Transparency Exercise 2019
Country by Country Average IRB risk weights
Residential Mortgages - Jun 2019
Sweden | |||||||||
4.2% | |||||||||
Belgium | |||||||||
10.1% | |||||||||
United Kingdom | |||||||||
10.2% | |||||||||
Austria | 10.7% | ||||||||
France | 10.9% | ||||||||
Netherlands | |||||||||
11.0% | |||||||||
Germany | 14.3% | ||||||||
Spain | 14.4% | ||||||||
Denmark | 14.6% | ||||||||
Finland | |||||||||
15.8% | |||||||||
Portugal | 18.0% | ||||||||
Italy | 18.9% | ||||||||
Norway | 20.9% | ||||||||
Ireland | 35.0% | ||||||||
EBA Risk Dashboard Q2 2019
Country by Country Average Leverage ratio
Regulatory Leverage Ratio - Jun 2019
Sweden | |||||||||
4.4% | |||||||||
Germany | |||||||||
4.5% | |||||||||
Netherlands | |||||||||
4.6% | |||||||||
Denmark | |||||||||
4.6% | |||||||||
United Kingdom | 5.1% | ||||||||
France | |||||||||
5.1% | |||||||||
Spain | 5.6% | ||||||||
Finland | 5.6% | ||||||||
Italy | |||||||||
5.8% | |||||||||
Belgium | 6.2% | ||||||||
Norway | |||||||||
7.0% | |||||||||
Austria | 7.0% | ||||||||
Portugal | 7.6% | ||||||||
Ireland | 10.1% | ||||||||
- EAD and RWA include both IRB and Standardised approaches and comprise both non-defaulted and defaulted loans
- Securitised exposures are excluded from the table (i.e. excludes exposures included in CRT executed in Nov 2017 and Dec 2019)
- Exposure at default (EAD) is a regulatory estimate of credit risk exposure consisting of both on balance exposures and off balance sheet commitments
Transformation Investment / Operating expenses
52
Bank of Ireland 2020 Interim Results
Transformation Investment: €1.4bn (2016-2021) | Transformation Investment | |||||
Average of €275m p.a. | • Average annual investment of €275m from 2018-2021; | |||||
equates to CET1 capital of c.50-60bps | ||||||
• Investment of €109m in H1 2020 split across the income | ||||||
€306m | statement (26%), balance sheet (49%) and non-core | |||||
€263m | items (25%) | |||||
€195m | • Total transformation investment of €1.4bn 2016-2021 | |||||
€105m | ||||||
unchanged | ||||||
2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
Operating Expenses | H1 2019 | H1 2020 |
(€m) | (€m) | |
Total staff costs | 414 | 425 |
- Staff costs | 350 | 361 |
- Pension costs | 64 | 64 |
Other costs | 277 | 288 |
Depreciation | 149 | 131 |
Operating Expenses | 840 | 844 |
Transformation Investment charge | 63 | 28 |
Operating Expenses (before levies and | 903 | 872 |
regulatory charges) | ||
Levies and Regulatory charges | 73 | 70 |
Total Operating Expenses | 976 | 942 |
Average staff numbers | 10,368 | 10,383 |
Cost income ratio1 | 65% | 66% |
1 See slide 53 for additional detail
53
Cost income ratio: Jun 2020
Headline vs. Adjusted
Bank of Ireland 2020 Interim Results
H1 2020 | Pro forma | FY 2019 | |
Headline | adjustments | Pro forma | |
(€m) | (€m) | (€m) | |
Net interest income | 1,079 | - | 1,079 |
Other income | |||
- Business income | 266 | - | 266 |
- Additional gains | 2 | (2) | - |
- Other valuation items1 | (125) | 109 | (16) |
Total Income | 1,222 | 107 | 1,329 |
Costs | |||
- Operating expenses | 844 | - | 844 |
- Transformation Investment | 28 | - | 28 |
Costs | 872 | - | 872 |
Cost income ratio | 71% | 66% | |
• Cost income ratio excludes: | • H1 2020 adjusted cost income ratio is adjusted for: | ||
- | Levies and Regulatory charges | - Additional gains and valuation items1 €107m | |
- | Non-core items | ||
1 Excludes IFRS income classifications which is fully offset in net interest income
Defined Benefit Pension Schemes
Group IAS19 Defined Benefit Pension (Deficit) / Surplus
2.10% | 2.00% | |||
1.60% | 1.45% | |||
1.30% | ||||
€0.53bn | ||||
(€0.48bn) | (€0.23bn) | (€0.14bn) | ||
(€1.19bn) | ||||
Jun 16 | Dec 17 | Dec 18 | Dec 19 | Jun 20 |
- IAS19 DB Pension (Deficit) / Surplus EUR Discount Rate
IAS19 Pension Deficit Sensitivities
(Jun 2016 / Dec 2017 / Dec 2018 / Dec 2019 / Jun 2020)
€313m | |||||||||
€118m | €109m €33m | €173m €162m €153m €181m €166m | €122m | €128m | €118m | ||||
€102m | €102m | ||||||||
€71m | €90m | ||||||||
€38m €19m | |||||||||
€28m €28m | |||||||||
Interest Rates1 | Credit Spreads2 | Inflation3 | Global Equity4 |
- Sensitivity of Group deficit to a 0.25% decrease in interest rates
- Sensitivity of IAS19 liabilities to a 0.10% decrease in credit spread over risk free rates
- Sensitivity of Group deficit to a 0.10% increase in long term inflation
- Sensitivity of deficit to a 5% decrease in global equity markets with allowance for other correlated diversified asset classes
54
Bank of Ireland 2020 Interim Results
Total Group Defined Benefit Pension Scheme Assets (%)
€7.1bn | €7.2bn | €7.2bn | €8.4bn | €8.5bn |
58% | 55% | 65% | 65% | 68% |
17% | 21% | 23% | 23% | |
25% | 24% | 21% | ||
12% | 12% | 11% | ||
Jun 16 | Dec 17 | Dec 18 | Dec 19 | Jun 20 |
- Listed equities n Diversified assets1 n Credit / LDI / Hedging
1Diversified assets includes infrastructure, private equity, hedge funds and property
- IAS19 Pension surplus of €0.53bn at Jun 2020 (€0.14bn deficit Dec 2019). Schemes in deficit €0.18bn, schemes in surplus €0.71bn
- Discount rates increased from year end - a significant fall in risk free interest rates was more than offset by a rise in credit spreads
- The interest rate hedging in the investment portfolios largely compensated for the impact of the reduction in risk free rates, and widening credit spreads resulted in an overall improvement in the balance sheet position
- Long term inflation assumptions have also decreased in the period with the reduction in liabilities partially offset by the reduction in inflation hedging assets
- De-riskingstrategies in recent years have also reduced the schemes' sensitivity to global equity movements. Listed equity asset holdings have been reduced in favour of increases in Diversified assets and Credit / LDI / Hedging allocations
Forward - Looking statement
55
Bank of Ireland 2020 Interim Results
This document contains forward-looking statements with respect to certain of the Bank of Ireland Group plc (the 'Company' or 'BOIG plc') and its subsidiaries' (collectively the 'Group' or 'BOIG plc Group') plans and its current goals and expectations relating to its future financial condition and performance, the markets in which it operates and its future capital requirements. These forward-looking statements often can be identified by the fact that they do not relate only to historical or current facts. Generally, but not always, words such as 'may,' 'could,' 'should,' 'will,' 'expect,' 'intend,' 'estimate,' 'anticipate,' 'assume,' 'believe,' 'plan,' 'seek,' 'continue,' 'target,' 'goal,' 'would,' or their negative variations or similar expressions identify forward-looking statements, but their absence does not mean that a statement is not forward-looking.
Examples of forward-looking statements include, among others: statements regarding the Group's near term and longer term future capital requirements and ratios, level of ownership by the Irish Government, loan to deposit ratios, expected impairment charges, the level of the Group's assets, the Group's financial position, future income, business strategy, projected costs, margins, future payment of dividends, the implementation of changes in respect of certain of the Group's pension schemes, estimates of capital expenditures, discussions with Irish, United Kingdom, European and other regulators and plans and objectives for future operations. Such forward-looking statements are inherently subject to risks and uncertainties, and hence actual results may differ materially from those expressed or implied by such forward-looking statements.
Investors should read 'Principal Risks and Uncertainties' in the Group's Interim Report for the 6 months ended 30 June 2020 beginning on page 28 and also the discussion on risk in the Group's Annual Report for the year ended 31 December 2019.
Nothing in this document should be considered to be a forecast of future profitability or financial position of the Group and none of the information in this document is or is intended to be a profit forecast or profit estimate. Any forward-looking statement speaks only as at the date it is made. The Group does not undertake to release publicly any revision to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date hereof.
Contact Details
For further information please contact:
- Group Chief Financial Officer
Myles O'Grady | tel: +353 76 624 3291 | myles.ogrady@boi.com |
- Investor Relations
Darach O'Leary | tel: +353 76 624 4711 | darach.oleary@boi.com |
Eoin Veale | tel: +353 76 624 1873 | eoin.veale@boi.com |
Philip O'Sullivan | tel: +353 76 623 5328 | philip.osullivan1@boi.com |
Catriona Hickey | tel: +353 76 624 9051 | catriona.hickey@boi.com |
- Capital Management
Lorraine Smyth | tel: +353 76 624 8409 | lorraine.smyth@boi.com |
Alan Elliott | tel: +353 76 624 4371 | alan.elliott@boi.com |
Alan McNamara | tel: +353 76 624 8725 | alan.mcnamara@boi.com |
- Group Communications
Damien Garvey | tel: +353 76 624 6716 | damien.garvey@boi.com |
- Investor Relations website www.bankofireland.com/investor
56
Bank of Ireland 2020 Interim Results
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Bank of Ireland Group plc published this content on 05 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 August 2020 06:11:05 UTC