TIDMAIBG
RNS Number : 9450R
AIB Group PLC
01 November 2023
EMBARGO 07:00 01 November 2023
AIB Group pLC - Q3 2023 Trading update (UNAUDITED)
Very strong Q3 performance driven by growth in revenue
"I am pleased to announce that the Group had a very strong third
quarter performance continuing the momentum from the first half and
we expect that to continue in the final quarter. Notwithstanding
geopolitical uncertainty, AIB remains in a position of strength,
delivering on our strategy and supporting our 3.2 million customers
as well as the wider economy. 2023 is set to be a record year for
the Group and we expect to deliver RoTE in excess of 20%. As we
conclude the successful delivery of our three year strategy, we are
now preparing for the next phase of the Group's development and
remain committed to the creation of value for all our stakeholders
and delivery of sustainable returns. We look forward to updating
the market on our new medium-term targets and capital distribution
plans in March 2024. "
- Colin Hunt, Chief Executive Officer
Key highlights: (all comparisons to YTD September versus
equivalent period 2022 unless otherwise stated)
-- Continued positive momentum in Q3 with very strong full year performance expected
-- 2023 guidance revised upwards to expect:
o Net interest income (NII) > EUR3.75bn and net interest
margin (NIM) > 3%
o Other income c. EUR850m
o RoTE(1) in 2023 >20%
-- Total income increased 70% supported by the higher interest rate environment
o NII up 95%; NIM to September 3.08%
o Other income increased 10%, increase of 8% in fee and
commission income
-- Costs(2) up 13% reflecting an enlarged Group, the wider
inflationary environment and the introduction of variable
remuneration
-- Small net credit impairment writeback in Q3
-- Gross loans up EUR5.6bn to EUR66.8bn (Dec 22: EUR61.2bn)
driven by Ulster Bank loan book acquisitions
o c. EUR4bn of Ulster Bank tracker mortgages migrated in Q3
o New lending of EUR8.5bn; green lending of EUR1.7bn
representing c. 20%
o Mortgage market share 32.1% YTD(3)
-- Strong and diversified funding: Customer accounts up EUR2bn
to EUR104.4bn (Dec 22: EUR102.4bn); US$1bn bond issued in
September
-- Fully loaded CET1 of 16.2% (Jun 23: 15.7%) driven by strong
organic capital generation and comfortably ahead of regulatory
requirements
-- Seven ESG bond issuances to date totalling EUR5.75bn
Financial Performance
The Group recorded a very strong financial performance in the
first nine months and is set to deliver an exceptional full year
outcome.
In the nine months to September NII increased by 95% versus the
equivalent prior year period, reflecting higher loan volumes,
increased interest rates and the slower than anticipated pace of
deposit migration and associated interest expense, which we expect
to evolve. In the first nine months we continued to increase the
size and lengthen the duration of our structural hedge programme in
order to reduce future NII sensitivity and volatility. NIM for
September YTD was 3.08% versus H1 2023 of 2.94%. We expect NII of
> EUR3.75bn and NIM of > 3% for FY 2023 which compares to our
previous guidance of NII of > EUR3.6bn and NIM of >
2.90%.
Other income increased 10% on the equivalent prior year period
with strong performances across most fee-based lines. Other income
included non-recurring revenue in respect of forward contracts for
the acquisition of Ulster Bank loan portfolios. We expect FY 2023
other income of c. EUR850m which compares to our previous guidance
of c. EUR780m.
Operating costs were up 13% reflecting the enlarged Group, the
impact of wage and general inflation and an allowance for limited
variable remuneration payable in 2024. FTEs at end Q3 2023 were
10,502 (Jun 23: 10,133). We expect costs in FY 2023 to be c.
EUR1.8bn with a CIR of c. 40%, inclusive of a c. EUR30m allowance
for limited variable remuneration with further employee benefits to
commence in 2024.
AIB acknowledges the increase in the bank levy following the
publication of the Finance Bill 2023 and estimates an annual charge
for 2024 of c. EUR100m which compares to an estimated c. EUR40m
charge in 2023 (FY 2022: EUR37m). Regulatory costs and bank levies
are expected to be c. EUR165m in 2023.
A small net credit impairment writeback was recorded in Q3. At
this point, we remain vigilant to emerging risks and maintain our
conservative, forward-looking and comprehensive ECL approach. For
FY 2023 we expect a cost of risk (CoR) at the lower end of our
30-40bps through-the-cycle range.
Balance sheet
Gross loans of EUR66.8bn were up EUR5.6bn (Dec 22: EUR61.2bn)
primarily driven by EUR4.7bn further migration of both Ulster Bank
loan portfolios and new lending exceeding redemptions. NPEs were
EUR2.2bn or 3.4% of gross loans (Dec 22: EUR2.2bn or 3.5%). We
expect customer loans to grow by c. 10% in 2023 with the final
tranche of Ulster Bank tracker mortgages expected to migrate early
in 2024.
Total new lending for the nine months to September was EUR8.5bn,
down 6% versus the equivalent prior year period.
New mortgage lending in Ireland was EUR2.8bn down 7% on the
equivalent strong prior year period which included a high level of
switching activity. Mortgage market share to September was 32.1%(3)
. Personal lending was up 27% to EUR0.9bn reflecting our enlarged
customer base and an increase in consumer credit demand. SME credit
demand in Ireland remains subdued and new lending was in line with
the equivalent prior year period .
New lending in Capital Markets decreased by 9% as growth in
corporate banking and ECAI was offset by lower property lending
reflecting reduced activity levels in the commercial real estate
sector. New lending in AIB UK decreased by 13% compared to the
equivalent prior year period.
We continue to support our customers with the transition to a
lower-carbon economy. New green lending for the nine months to
September was c. 20% of new lending and we are on track to deliver
our EUR10bn climate action fund by the end of 2023.
Funding and Capital
AIB's balance sheet remains strong with ample and diversified
funding. Customer accounts increased to EUR104.4bn (Dec 22:
EUR102.4bn) with 77% in our Retail Banking segment (Dec 22: 74%).
The mix between current accounts and deposits remains broadly
unchanged from December 2022. The Group completed a number of MREL
issuances this year including a EUR1bn social bond, a US$1bn bond
and more recently a EUR750m green bond in October placing us
comfortably ahead of our MREL target. The Group continues to have
strong funding with September 2023 liquidity ratios of LDR of 62%,
LCR of 187% and NSFR of 155%(4) which compare to 58%, 192% and 164%
respectively at December 2022. The majority of our excess liquidity
is deposited with the Central Bank of Ireland (EUR29.5bn) and Bank
of England (EUR4.1bn).
The fully loaded CET1 at the end of September was 16.2%
comfortably ahead of regulatory requirements. The primary driver of
the increase since June (CET1: 15.7%) was strong organic capital
generation which was partially offset by a dividend accrual(5)
.
Sustainability
Environmental:
-- Having 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, work
continues to bring these solar farms to operation in the near
term
-- The Group issued its fifth green bond in October 2023 raising
EUR750m (total ESG bonds issued EUR5.75bn) helping to finance our
EUR10bn climate action fund which is on track for completion by the
end of 2023
Social:
-- Introduction of healthcare benefits for all employees from
January 2024 and from November 2023 support for carers with up to
ten days paid leave per annum for staff who provide critical care
for a dependent
-- 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:
-- Having returned to majority private ownership in the first
half, the State's shareholding was 45.96% at 16 October 2023
-- Our remuneration policy was updated to reflect our intention
to provide healthcare benefits from 2024 and variable remuneration
based on performance in 2023, payable in 2024
Outlook
As we approach the end of our current strategic cycle, we have
made significant progress on transforming the Group. With a
supportive domestic economy and a changed operating environment, we
are well-positioned for the future. We are now planning for the
next strategic cycle and our focus will remain on supporting our
customers, creating value for all our stakeholders and delivering
sustainable returns. We look forward to updating the market with
our new medium-term targets, including our capital distribution
plans, on 6 March 2024 when we publish our full year 2023 financial
results.
Guidance full year 2023
We anticipate 2023 to be an exceptionally strong year with a
RoTE in excess of 20% and our updated guidance is as follows:
-- NII is expected to be > EUR3.75bn with NIM > 3%
-- Other income is expected to be c. EUR850m
-- Costs are expected to be c. EUR1.8bn with CIR of c. 40%
-- CoR expected to be at the lower end of 30-40bps through-the-cycle range
-- 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 c. 10%
***
Analyst conference call
Colin Hunt, CEO and Donal Galvin, CFO, will host a conference
call today at 08.30 GMT, details as follows:
CONFERENCE CALL
Republic of Ireland +353 (0)1 436 0959
UK / International +44 (0) 33 0551 0200
USA Local +1 786 697 3501
Event Password: AIB
Please dial in 5-10 minutes prior to the start time using
the number / event password above
Note: Figures presented above may be subject to rounding
Abbreviations:
FTE: Full time equivalents
CIR: Cost income ratio
ECAI: Energy, Climate Action & Infrastructure
Liquidity metrics: Loan to deposit ratio (LDR); Liquidity
coverage ratio (LCR); Net stable funding ratio (NSFR)
(1) RoTE = (PAT - AT1) / (CET1 @ 13.5% of RWAs)
(2) Costs before bank levies and regulatory fees and exceptional items
(3) Source: Mortgage drawdowns BPFI Sept 2023
(4) Subject to finalisation
(5) 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
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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