TIDMAIBG
RNS Number : 4961H
AIB Group PLC
28 July 2023
EMBARGO 07:00 28 July 2023
AIB Group plc announces half-year profit after tax of
EUR854m
"As we enter the final stages of our three-year transformation
strategy, AIB Group has delivered a strong financial and
operational performance with after-tax profit of EUR854 million in
the first half as we welcomed large numbers of new customers
against the backdrop of an evolving banking market, a higher
interest rate environment and a resilient Irish economy. Gross
loans rose to EUR62.8 billion driven by a combination of acquired
new loans and new lending of EUR5.6 billion. Underpinned by our
long-standing commitment to Sustainability and to the communities
in which we serve, AIB is well-placed to support our 3.2 million
customers and the wider Irish economy.
The continued delivery of our strategy enabled the State to
recoup almost EUR1.2 billion in the first half as the State's
shareholding reduced to 46.9% in June - marking a significant
milestone as the bank returned to majority private ownership. 2023
is expected to be a very strong year and, with a transformed Group,
we are now planning for the next strategic cycle. Our focus remains
on supporting our customers, creating shareholder value and
delivering sustainable returns."
- Colin Hunt, Chief Executive Officer
KEY HIGHLIGHTS
Financial highlights (all comparisons versus H1 2022 unless
otherwise stated)
-- Very strong profitability in H1 2023: Profit after tax
EUR854m; Operating profit (1) EUR1,205m
-- 2023 guidance revised upwards to expect:
o Net interest income (NII) >EUR3.6bn and net interest margin
(NIM) >2.90%
o RoTE(2) in 2023 of c.20%, materially in excess of >13%
medium-term target
-- Total income increased by 73% to EUR2.2bn; supported by a higher interest rate environment
o NIM of 2.94%; NII of EUR1,772m up 40% and 98% compared to H2
2022 and H1 2022 respectively
o Other income of EUR437m up 15%, increase of 7% in net fee and
commission income
-- Costs (3) up 15% to EUR897m reflecting an inflationary
environment, higher employee numbers and the cost of servicing an
expanded customer base
o Cost income ratio (CIR) of 41% (H1 2022: 61%)
-- Net credit impairment charge of EUR91m (H1 2022: EUR309m writeback)
o Maintaining our conservative approach to asset quality
cognisant of the impact of rising rates and inflation
-- Gross loans up EUR1.6bn to EUR62.8bn (Dec 22: EUR61.2bn)
o EUR0.7bn of Ulster Bank corporate and commercial loans
migrated in H1 2023
o New lending of EUR5.6bn, up 2%; Green lending of EUR1.1bn
representing 20% of total new lending
o Mortgage market share 30.7% in the first half (4)
-- NPEs at EUR2.1bn or 3.3% of gross loans (Dec 22: EUR2.2bn or 3.5%)
-- Strong and diversified funding with customer accounts up
EUR1.3bn to EUR103.7bn (Dec 22: EUR102.4bn)
-- A further c. 185,000 new accounts opened in H1 as we welcomed
new customers from exiting banks; overall market share of account
openings at 49% (5)
-- Fully loaded CET1 of 15.7% (Dec 22: 16.3%) comfortably ahead of regulatory requirements
-- Majority private ownership as the State's shareholding reduced to 46.9% in June 2023
Strategic highlights
-- Successfully delivering on our strategic priorities as we
approach the end of our current three-year plan
-- Strategic progress in H1 further demonstrates the transformation of AIB
o Enhanced product suite with launch of AIB life and
Goodbody-Private in H1
o Increased customer base to 3.2m customers with c. 635,000 new
accounts opened since Jan 2022
o Loan book acquisitions:
-- Ulster Bank corporate and commercial loans: EUR0.7bn migrated
in H1; completed the final tranche in July resulting in the
transfer of EUR3.1bn of loans, c. 3,500 customers and 227 ex-Ulster
Bank colleagues
-- Ulster Bank tracker (and linked) mortgages: received
regulatory approval in H1, expect c. EUR5bn of loans to transfer on
completion with c. 80% migrated in July
-- Continuous investment in IT providing modern, resilient, customer-focused digital technology
o Investment averaging c. EUR300m per annum
o Launched the new mobile AIB Business (iBB) app in June 2023
offering prompt, convenient and secure banking on the go
o 2.15m digitally-active customers; 3m daily interactions on
Mobile
-- Lower property footprint as hybrid working model implemented
-- Continued progress on Sustainability agenda
o Environment: EUR9bn of EUR10bn climate action fund drawn to
date
o Social: EUR750m social bond issued in H1
o Governance: returned to majority private ownership
FINANCIAL PERFORMANCE
The Group recorded a very strong financial performance in H1
2023 driven by increased income which contributed to profit after
tax of EUR854m.
Net interest income (NII) of EUR1,772m increased significantly
(H1 2022: EUR895m) due to the changed interest rate environment and
higher average customer loan volumes. The Group operated in a
negative interest rate environment in H1 2022 compared to entering
2023 with an ECB deposit rate at 2% which moved to 3.50% by June
2023. NIM for H1 2023 was 2.94% (H1 2022: 1.48%) versus a Q4 2022
exit NIM of 2.18% which excluded the net TLTRO funding benefit
recognised in Q4 2022. For 2023 we expect NII of >EUR3.6bn and
NIM of >2.90% which compares to our previous guidance of
>EUR3.3bn and >2.70% respectively. Our NII guidance of
>EUR3.6bn uses revised rate assumptions of an ECB deposit rate
of 3.75% (3.50% previously assumed) and a BOE rate of 5.5% (4.0%
previously assumed) by December 2023.
Other income increased by 15% to EUR437m (H1 2022: EUR379m) and
includes a total of EUR138m in respect of forward contracts for the
acquisition of Ulster Bank tracker (and linked) mortgages (EUR126m)
and Ulster Bank corporate & commercial loans (EUR12m). Net fee
and commission income increased by 7% to EUR306m (H1 2022: EUR286m)
primarily reflecting higher transaction volumes due to increased
customer numbers and higher card interchange fees. We expect FY
2023 other income of c. EUR780m.
Operating costs were EUR897m (H1 2022: EUR782m), an increase of
15%. Factors impacting costs include wage and general inflation, an
allowance for limited variable remuneration(6) payable in 2024
(following the relaxation of some pay constraints), increased cost
of servicing for a larger customer base and higher staff numbers
given the enlarged Group. FTEs at H1 2023 were 10,133 (H1 2022:
9,027). Taking these factors into consideration, we expect costs in
FY 2023 to be c. EUR1.8bn with a CIR in the low-40%s.
Overall credit quality remains robust against the backdrop of
inflation and higher interest rates. There was a net credit
impairment charge of EUR91m in the half-year to June 2023 driven by
a charge in relation to commercial property, including additional
post-model adjustments, to address the potential adverse impacts
from higher interest rates and lower valuations(7) . Our overall
approach remains conservative, comprehensive and forward-looking
and is reflected in an expected credit loss coverage rate of
2.6%.
For FY 2023 we expect CoR at the lower end of our
through-the-cycle range of 30-40bps.
Regulatory costs and bank levies increased to EUR107m in H1 2023
(H1 2022: EUR101m) primarily due to higher Deposit Guarantee Scheme
(DGS) fees. Regulatory costs and bank levies are expected to be c.
EUR165m in 2023.
Exceptional items of EUR130m are primarily driven by costs for
Belfry(8) investment property funds and inorganic transaction
costs. Exceptional costs are expected to be c. EUR150m in 2023.
CUSTOMER LOANS
Gross loans of EUR62.8bn increased by EUR1.6bn (Dec 22:
EUR61.2bn) primarily driven by new lending exceeding redemptions
and the further migration of EUR0.7bn Ulster Bank corporate and
commercial loans in H1. We expect customer loans to grow by >10%
in 2023.
Total new lending increased by 2% to EUR5.6bn (H1 2022:
EUR5.4bn) with positive trends across personal, corporate and
energy climate action & infrastructure (ECAI) portfolios.
New mortgage lending in Ireland was EUR1.7bn broadly in line
with the equivalent prior year period and representing a market
share of 30.7% (4) in the first half. Personal lending was up 29%
to EUR0.6bn reflecting our enlarged customer base and an increase
in consumer credit demand.
Capital Markets delivered new lending of EUR2.1bn with growth in
corporate banking and ECAI offset by lower property lending as we
maintain a prudent approach. SME credit demand in Ireland remains
subdued with new lending of EUR0.7bn in the first half.
In AIB UK, new lending of GBP0.6bn was up 23% as we focus on our
chosen sectors such as renewable energy and infrastructure.
We continue to support our customers as we all transition to a
lower-carbon economy. New green lending was EUR1.1bn and accounted
for 20% of total new lending whilst our green mortgage products
represented 24% (9) of new mortgage lending.
NPEs decreased to EUR2.1bn or 3.3% of gross loans (Dec 2022:
EUR2.2bn or 3.5%). Legacy (10) NPEs have been addressed and were
EUR0.2bn or 0.3% of gross loans at June 2023. We are
well-progressed towards our target of c. 3% by end 2023.
FUNDING & CAPITAL
AIB's balance sheet remains strong with ample and diversified
funding. Customer accounts increased by EUR1.3bn to EUR103.7bn with
77% in our Retail Banking segment (Dec 22: 74%). 53% of all
customer accounts are DGS insured. The mix between current accounts
and deposits remains broadly unchanged from Dec 22. The Group
continues to have strong funding and liquidity ratios with an LDR
of 59%, LCR of 164% and NSFR of 158% at H1 2023. The LCR reduced
from 192% at Dec 22 due to the expected cash outflow of the
consideration for the acquisition of Ulster Bank tracker mortgages
in July; post-settlement, the LCR was 177%. The majority of excess
liquidity is deposited with the Central Bank of Ireland (EUR31.2bn)
and Bank of England (EUR4.0bn).
Capital remains robust and ahead of minimum regulatory
requirements of 10.61%. The fully loaded CET1 at H1 2023 was 15.7%
(Dec 2022: 16.3%). The main drivers of the 60bps CET1 movement were
profit (+150bps) offset by a dividend accrual (-100bps (11) ), the
completed EUR215m share buyback (-40bps), increased RWAs for the
Ulster Bank tracker mortgage portfolio (-50bps) and an increase in
RWAs for the redeveloped mortgage and corporate IRB models (-40bps)
and other capital adjustments including RWA- related efficiency
measures (+20bps).
In January 2023 AIB raised EUR750m in our second social bond
issuance bringing total proceeds raised from ESG bonds to EUR5bn.
The Group's MREL ratio at June 2023 was 31.4% of RWAs which is
ahead of our estimated requirement of 29.4% of RWAs for 1 January
2024.
The Group is rated at investment grade with Moody's and Standard
& Poor's (S&P). In June 2023 S&P upgraded the AIB Group
plc senior rating to BBB from BBB- following an upgrade of
Ireland's sovereign debt rating. S&P's expectation is for the
Irish economy to grow this year, asset quality to remain robust
with increased profitability and market consolidation to support
momentum.
SUSTAINABILITY
The Group continued to progress the Sustainability agenda,
addressing both our own and our financed emissions and deepening
our support for our communities. We continue to play our part as a
sustainability leader to ensure a greener tomorrow by backing those
building it today. The summary below shows some of the highlights
of H1 2023 across each of the ESG categories/criteria:
Environment
-- AIB is the first bank globally to secure a validated
electricity generation maintenance target from the Science Based
Targets initiative (SBTi), recognising AIB's early commitment to
financing renewables and the existing low-carbon intensity of AIB's
electricity generation loan book. Financed emissions targets for
75% of the AIB loan book have now been validated by SBTi
-- Secured a Corporate Power Purchase Agreement with NTR plc in
October 2022 to provide up to 80% of the Group's energy needs along
with additional capacity for the national grid. The construction of
two solar farms is well-advanced with the first expected to be
ready for energisation in H2 2023
-- Supporting Agri Sector transition as the exclusive financial
institution partner with the Farm Zero C project, a joint project
of Carbery, West-Cork based international food ingredients company,
and BiOrbic Ireland's national bioeconomy research centre, which
aims to create an economically viable, climate neutral model for
Irish dairy farming
Social
-- The Group issued its second social bond in January raising
EUR750m, the proceeds of which will contribute to the financing of
projects with clear social benefits in communities across Ireland
in the areas of healthcare, education and social and affordable
energy efficient housing
-- Supported the humanitarian agency GOAL through the promotion
of the GOAL Syria & Turkey Crisis Appeal and raising c.
EUR460,000 customer donations through our mobile banking app
supporting over 245,000 impacted people with their daily water
needs for a month
-- Launched the AIB Community EUR1 Million Fund 2023 to support
70 local charities; c. 16,000 nominations received from our
customers, our people and members of the public
Governance
-- The Group returned to majority private ownership with a
free-float of 53.1% in June following a directed buyback, a share
placing in an accelerated book build process with institutional
investors and disposals as part of a pre-arranged trading plan. The
State's shareholding is now below 50% at 46.9%
-- Updated our remuneration policy to reflect our intention to
provide healthcare benefits from 2024 and a variable remuneration
scheme based on performance in 2023, payable in 2024
-- Our employee engagement strategy incorporates new ways of
listening that enable us to focus on the issues that matter to our
people; in Q2, 82% of colleagues were satisfied with AIB as a place
to work, an increase of 6% since Q4 2022
OUTLOOK & GUIDANCE
As we approach the end of our current strategic cycle, we have
made significant progress on transforming the Group having grown
customer numbers, increased our loan book organically and
inorganically and filled customer proposition gaps. Our
conservative approach to asset quality, resolving legacy NPEs and
maintaining a stable and diversified funding base have ensured a
resilient balance sheet with robust capital. In a changed operating
environment, our strategy has positioned us well for the future.
2023 is expected to be a very strong year and with a transformed
Group, we are now planning for the next strategic cycle. Our focus
remains on supporting our customers, creating shareholder value and
delivering sustainable returns.
Guidance full year 2023
-- NII is expected to be >EUR3.6bn with NIM >2.90%
-- Other income is expected to be c. EUR780m
-- Costs are expected to be c. EUR1.8bn with CIR in the low-40%s
-- CoR at the lower end of our through-the-cycle range of 30-40bps
-- Bank levies and regulatory fees are expected to be c. EUR165m
-- Exceptional costs are expected to be c. EUR150m
-- Customer loans are expected to grow by >10%
An analyst webcast and conference call will be held at 09:00 IST
today, details of which are available at
aib.ie/investorrelations
Further information is provided in the half-yearly financial
report 2023 which can be found on our website.
aib.ie/investorrelations o r click here to view
http://www.rns-pdf.londonstockexchange.com/rns/4961H_1-2023-7-28.pdf
Notes:
(1) Operating profit before impairment losses and exceptional items
(2) RoTE = (PAT - AT1) / (CET1 @ 13.5% of RWAs)
(3) Costs before bank levies and regulatory fees and exceptional items
(4) Source: Mortgage drawdowns BPFI Jun 2023
(5) New accounts opened across the three main Irish retail banks
(6) Following the relaxation of some restrictions on staff pay
and incentives in the Retail Banking Review
(7) Due to the potential adverse impacts from higher interest
rates and lower valuations in specific areas of CRE, a net EUR2.3bn
of assets moved to Stage 2 from Stage 1 in the period, bringing
total Stage 2 assets to EUR8.3bn with ECL coverage of 8.5%
(8) Belfry relates to a series of UK commercial investment
property funds which were sold to individual investors during the
period 2002 to 2006. Further information is available on page 107
of the 2023 Half-Yearly Financial Report
(9) Actual % of new mortgage lending to energy efficient homes
was 44% based on AIB brand in H1 2023
(10) Legacy NPEs are those NPEs in default prior to December 2018
(11) Article 2 Regulation (EU) No 241/2014 requires a
foreseeable charge, being the maximum dividend pay-out ratio under
the Group's internal dividend policy, to be deducted from
equity
Figures presented above may be subject to rounding and thereby
may differ to the 2023 Half-Yearly Financial Report
-S -
For further information, please contact :
Niamh Hore / Siobhain Walsh Paddy McDonnell
Investor Relations Media Relations
AIB Group AIB Group
Dublin Dublin
Tel: +353-86-3135647 / +353-87-3956864 Tel: +353-87-7390743
email: niamh.a.hore@aib.ie email: paddy.x.mcdonnell@aib.ie
siobhain.m.walsh@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 Principal risks on pages 23 to 25
of the Annual Financial Report 2022 and updated on page 33 of the
Half-Yearly Financial Report 2023. In addition to matters relating
to the Group's business, future performance will be impacted by the
Group's ability along with governments and other stakeholders to
measure, manage and mitigate the impacts of climate change
effectively, the impact of higher inflation on customer sentiment
and by Irish, UK and wider European and global economic and
financial market considerations. Future performance will further be
impacted by the direct and indirect consequences of the
Russia-Ukraine War on European and global macroeconomic conditions.
Any forward looking statements made by or on behalf of the Group
speak only as of the date they are made. The Group cautions that
the list of important factors on pages 23 to 25 of the Annual
Financial Report 2022 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.
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END
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