Bank of Ireland : Year End Results 2020 - Announcement and Q&A Transcript - 166 KB

Bank of Ireland

Full Year Results

Presentation

Monday, 1st March 2021

Introduction Francesca McDonagh

CEO

Good morning. And you're very welcome to our results presentation. 2020 was an exceptional year with myriad challenges for the people and communities we serve, and indeed, for all businesses, including banks.

This morning, we'll set out our full year performance. We'll also update on a number of strategic areas, including: our new cost target; further restructuring of our business model; and the tipping point between branch and digital banking that we have reached.

At Bank of Ireland, from the start of the COVID-19 pandemic, we immediately focused our efforts on protecting and supporting our customers, colleagues and communities. Our previous investment in transforming our culture, systems and our business model meant that we could adapt to the pandemic very quickly. At the same time, we've remained focused on our strategic priorities. Our results reflect this.

In summary, they show a return to profitability in the second half of the year, with H2 underlying profits of €295 million. We maintained our track record on cost management for a sixth reporting period in a row. We achieved a 2% uplift in our Irish mortgage market share, growing to over 25%, whilst maintaining discipline on pricing.

In the UK, we made further progress in repositioning our business and we concluded our review of our Northern Ireland business.

2020 was also a year of strong delivery on our digital strategy. We've seen a multi-year trend in digital engagement by our customers. In 2020, this was clearly accelerated by COVID-19. We now have reached a tipping point between online and offline banking. Reflecting this permanent shift in customer behaviour, we are today announcing a new branch strategy: we will reduce our branch network by around one-third whilst ensuring customers still have a wide range of choices in how they engage with us digitally and offline.

Our asset quality metrics reflect the comprehensive approach we've taken during COVID-19. We took a substantial €1.1 billion impairment charge for the year. Importantly, the experience with customers coming off payment breaks has been more positive than expected. Driven largely by regulatory change, the Group's NPE ratio increased to 5.7% in 2020. Myles will provide more information on these items shortly.

Despite this large impairment charge, we have maintained our strong capital position. Our regulatory CET1 ratio is 14.9%, down just ten bps in the year.

On slide 6, you can see the outcomes from our customer focused response to COVID-19. Our net promoter score improved by five points last year, our highest to-date, and customer complaints in Ireland fell by 22%.

We played an active role in supporting government-backed lending schemes both in Ireland and the UK, and we're making banking simpler and more transparent for our customers. For example, we replaced 26 separate charges for our personal current accounts with a single monthly flat fee.

Around 100,000 payment breaks were agreed with customers, the vast majority of which have now concluded. More than nine in every ten of these customers have returned to their pre-COVID-19 terms, and we are dealing constructively with the 3% of payment break customers who have required further support. Our approach is based on more than a decade of market-leading experience in finding sustainable solutions for our customers and maintaining credit discipline in our origination of new business.

Turning to the next slide. The response of our colleagues to the challenges of the pandemic has been outstanding. This morning, I want to reiterate my pride in them and appreciation for all that they have done. Our agile ways of working have enabled over 75% of colleagues to work from home. We've delivered physical and mental health initiatives to promote colleague well-being during this time.

Our colleagues recognise this. Since 2019, engagement has risen by five points. Culture embedding has also climbed by 11 points, three points ahead of the Global Financial Services benchmark.

As a leading lender to the Irish economy, we're playing a vital role in economic recovery and reboot in the communities that we serve. Across our portfolios, the Group's new lending increased by 30% in H2. Bank of Ireland also announced €4 million in a wide range of community supports. This included emergency funding for a range of charitable groups working with those most impacted by COVID-19 and funding for some of the hardest hit sectors. Combined, this hard work is reflected in Bank of Ireland having been recognised as the best bank in Ireland by Euromoney.

Turning now to the macroeconomic outlook: we expect to see a strengthening and recovery across Ireland and the UK this year. Ireland was one of a small number of countries globally that saw its GDP grow in 2020. This performance reflected strong and ongoing fiscal support by the Irish government. It was also enabled by the presence of multinationals operating in pandemic-resilient sectors such as technology and pharmaceuticals.

This growth was not enough to prevent a sharp rise in unemployment in Ireland. However, we forecast much improved labour market dynamics after the economy reopens during 2021. In the UK, the economy is expected to return to growth following a sharp contraction in 2020. We welcomed the conclusion of Brexit trade negotiations between the European Union and the UK in late December. This has provided greater certainty to support investment on both sides of the Irish Sea.

On slide 9, we highlight the factors that lead us to believe that the current K-shaped economic recovery in Ireland will become more broad-based in the year ahead. We are hopefully coming towards the end of the third lockdown in Ireland. When the economy reopened previously, we saw a rapid fall in recipients of the government's pandemic unemployment payment. As of last week, some 470,000 people were in receipt of this payment. This is close to one-fifth of the labour force in Ireland.

Of those, just over half worked in retail, hospitality or construction before activity in those sectors was restricted. As these sectors reopen, we should see a step-change improvement to the numbers at work. And we expect this to support growth across other segments of the Irish economy. Reopening will provide more opportunities for people to spend and give businesses the confidence to invest.

The resources are there to support this. Irish private sector deposits have increased by 15% since 2019. This mirrors the trends in other countries, including the UK where household and corporate deposits grew 14% last year. And we see clear pent-up demand from surveys such as our Housing Pulse, which rose to a 20-month high in February.

Of course, recovery is conditional on the effective delivery of the COVID-19 vaccine programme. We're all aware of the UK's progress in vaccination rollouts. In Ireland, as of last week, around 7% of the population had received doses, slightly ahead of the European Union average of 6%.

COVID-19 has accelerated the multi-year trend towards digital engagement by our customers. In 2019, six out of ten of our everyday banking products such as current accounts or personal loans were delivered entirely digitally. In 2020, this increased to seven out of ten. And, in 2021, we expect it to increase to more than eight out of ten.

Another example of our digital progress is the 26% increase in registered users of our new mobile app since its launch in 2020. The app has driven increased customer satisfaction, including in the 18 to 30 age group, where we have recorded a remarkable 50-point increase in our customer effort score during 2020.

Digital adoption has clearly reached a tipping point. This underlines the importance of our own systems transformation. It also reinforces the need to continue to evolve how we serve our customers, and that's why we've taken the decision to close 88 branches or around one third of our physical network in Ireland.

Importantly, in taking this step, we've entered into a new partnership with the Irish Postal Service, An Post. This will allow all of our customers access to banking services at local post offices. With Bank of Ireland's and An Post's footprint combined, our customers will have access to more than 1,000 places to bank nationwide.

As we set out on slide 11, our systems transformation is delivering both customer and cost benefits, and we'll continue delivering in 2021. We're making strong progress in digitising everyday banking. This is enabling tangible, commercial benefits, increasing revenue, reducing costs, and improving customer satisfaction. For example, our digitisation of sales and servicing journeys has delivered more than €21 million of cost savings.

We introduced a fully digital mortgage journey for first-time buyers in Ireland, which has supported our increase in market share. 38% of our general insurance sales now come via our digital insurance wallet reducing our cost to serve, and we launched a new digitised small business lending proposition in 2020 where two out of three customers that apply for a loan can now do so digitally in less than ten minutes.

As we look ahead, we feel positive about our digital road map for 2021, which includes a range of new initiatives across payments, wealth, security and customer engagement.

As you can see on slide 12, costs have reduced consistently in the last six reporting periods. Since 2017, we've reduced our gross costs by over €300 million, creating capacity to invest in our people and our technology. We've achieved our original target of a €1.7 billion cost base one year early, and building on this track record, we plan to do more.

Today, we've announced a new €1.5 billion cost target for 2023. And we will deliver this new ambition in five ways: by simplifying and automating more of our customer journeys; by