Bank of Ireland Presentation

Transcription

1 Bank of Ireland Presentation January 203 (as at 4 January 203)

2 Forward-looking statement This document contains certain forward looking statements within the meaning of Section 2E of the US Securities Exchange Act of 934 and Section 27A of the US Securities Act of 933 with respect to certain of the Bank of Ireland Group s (the 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 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. Examples of forward looking statements include among others, statements regarding the Group s near term and longer term future capital requirements and ratios, 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 defined benefit pension schemes, estimates of capital expenditures, discussions with Irish, UK, 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. Such risks and uncertainties include, but are not limited to, the following: concerns on sovereign debt and financial uncertainties in the EU and in member countries and the potential effects of those uncertainties on the Group; general economic conditions in Ireland, the United Kingdom and the other markets in which the Group operates; changes in applicable laws, regulations and taxes in jurisdictions in which the Group operates particularly banking regulation by the Irish and UK Governments together with any changes arising on foot of the Euro Area Summit Statement on 29 June 202; the impact of further downgrades in the Group s and the Irish Government s credit rating; the availability of customer deposits at sustainable pricing levels to fund the Group s loan portfolio and the outcome of the Group s disengagement from the ELG scheme; development and implementation of the Group s strategy, including the Group s deleveraging plan and the Group s ability to achieve estimated net interest margin increases and cost reductions; property market conditions in Ireland and the UK; the performance and volatility of international capital markets; the potential exposure of the Group to various types of market risks, such as interest rate risk, foreign exchange rate risk, credit risk and commodity price risk; the effects of the Irish Government s stockholding in the Group (through the NPRFC) and possible increases in the level of such stockholding; the outcome of any legal claims brought against the Group by third parties or legal or regulatory proceedings more generally that may have implications for the Group; the Group s ability to address information technology issues; potential deterioration in the credit quality of the Group s borrowers and counterparties; and implications of the Personal Insolvency Act 202 for distressed debt recovery and impairment provisions. Nothing in this document should be considered to be a forecast of future profitability or financial position and none of the information in this document is or is intended to be a profit forecast or profit estimate. Any forward looking statements speak only as at the date they are 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. The reader should however, consult any additional disclosures that the Group has made or may make in documents filed or submitted or may file or submit to the US Securities and Exchange Commission. Bank of Ireland is regulated by the Central Bank of Ireland. In the UK, Bank of Ireland is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Services Authority. Details about the extent of our authorisation and regulation by the Financial Services Authority are available from us on request. Bank of Ireland is incorporated in Ireland with limited liability. Registered Office - Head Office, 40 Mespil Road, Dublin 4, Ireland. Registered Number - C-.

3 Irish Economy Overview

4 Ireland re-enters bond markets in % 5% 0% 5% 0% Significant rally in Irish Sovereign debt Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Bloomberg - 0 year generic yields 2% Ireland Spain Italy Jan 2 Feb 2 Mar 2 Apr 2 May 2 Jun 2 Bank debt follows similar trend Jul 2 Aug 2 Sep 2 Oct 2 Nov 2 Market confidence returns From January 202 January 203, the NTMA issued e2.2bn from new and exchange bonds (e7.7bn of which was new funding) and e2bn in T-bills January 202: Bond switch from January new February 205 July, September, October, November 202: T-bills issuance July 202 (i) New issuance 5.5% October 207 (ii) Switch from 203 and 204 (iii) Tap of the existing Irish 5% October 2020 bond August 202: New issuance - 5 amortising bonds January 203: Tap of existing 5.5% October 207 bond Ireland s maturity profile lengthened post recent NTMA issuance BKIR ELG 205 e4.4bn 0% 8% BKIR Covered 205 NTMA 205 e5.9bn 6% e6.bn e7.bn e20.9bn 4% 2% e5.bn e0.bn e7.6bn e6.9bn e3.7bn e0.2bn e3.2bn e6.4bn e9.3bn e4.5bn 0% Feb 2 Mar 2 Apr 2 May 2 Jun 2 Jul 2 Aug 2 Source: Bloomberg yields Source: NTMA, January 203 Sep 2 Oct 2 Nov n Maturing Irish govt. bonds n Maturing Troika funding 2

5 Irish economy stabilising Export sector key driver of economic growth GDP grew by.4% in 20, forecast to grow by 0.8% in 202 Current account surplus c.e.8bn in 200 (.2% of GDP) and 20 (.% of GDP), forecast to be c.e8bn in 202 (5% of GDP) External sector main engine of economic activity Exports forecast to grow by 4% in 202, with imports growing by.5% Domestic environment subdued Consumer spending remains muted Unemployment rate remains high at 4.6% (December 202) Ireland s current account surplus - set to rise Ireland continuing to meet its commitments Final General Government deficit for 202 likely to be below 8% - well within Troika target of 8.6% and the Government s expectation of 8.2% Budget 203 implemented another e3.5bn in austerity measures to bring the General Government deficit to 7.5% in 203 Government Primary balance, which excludes interest payments on National debt, is forecast to be -2% in 203, down from -4.3% in 202 Continued delivery on EU/IMF Programme targets Improving public finances 0,000 8,000 6, Current spending (ex debt interest) Taxes 4, , , , , , , , (f) 203(f) 204(f) 205(f) Q 2007 Q Q Q Q 2008 Q Q Q Q 2009 Q Q Q Q 200 Q2 200 Q3 200 Q4 200 Q 20 Q2 20 Q3 20 Q4 20 Q 202 Q2 202 Q3 202 Q4 202 Graph shows: Current account in millions of Euro Source: CSO & BOI ERU Graph shows: Annual % change in tax revenues and current spending Source: Irish Department of Finance 3

6 Encouraging signs in the housing market 3 month moving average house price data turns positive Housing market showing signs of stabilisation 3 Irish property prices down 49% from peak Property prices rose for the first time in 5 years in May the 3-month moving average of national house prices was.6% in November Residential rents stabilised in Q 20 and have remained in positive territory since Sep 0 Oct 0 Nov 0 Dec 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2 Feb 2 Mar 2 Apr 2 May 2 Jun 2 Jul 2 Aug 2 Sep 2 Oct 2 Nov 2 Gross rental yields nationally c.5.5% in Q3 202 versus 3% - 3.5% during latter stages of the housing boom Source: Central Statistics Office (CSO) Residential Property Price Index Private rents rising again Source: CSO Residential Property Price Index November 202 Activity levels increasing % ( % ) 0 5 Private rents (annual % change) National National excluding Dublin Dublin Q 08 Q2 08 Q3 08 Q4 08 Q 09 Q2 09 Q3 09 Q4 09 Q 0 Q2 0 Q3 0 Q4 0 Q Q2 Q3 Q4 Q 2 Q2 2 Q3 2 Q4 2 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2 Feb 2 Mar 2 Apr 2 May 2 Jun 2 Jul 2 Aug 2 Sep 2 Oct 2 Nov 2 Source: CSO Source: (annual change 3 month average) 4

7 Strong competitive position Underlying strengths of Irish economy remain Very open economy Exports accounted for 06% of GDP in 20 (Portugal 35%, Spain 30%, Italy 29%,Greece 2%) Substantial gains in competitiveness Unit labour costs down c.5% since 2009, forecast to improve by c.24% relative to Euro Area ( ) Commercial rents down c.5% since 2007 Attractive investment characteristics Flexible labour market, st for availability of skilled labour 2 Favourable demographics - c.52% of population under the age of 35 3 Low corporate tax rate of 2.5% Continuing to attract FDI Record number of IDA investments won in 20, significant further investments in 202 st in Eurozone for Ease of Doing Business 4 2nd most attractive country globally for FDI 5 Best location to invest in Western Europe 6 Ireland regained competitiveness: unit labour costs Graph shows: Cumulative change, in percentage, in whole economy unit labour costs Source: EU Commission Autumn 202 forecasts % Change 25% 20% 5% 0% 5% 0% -5% -0% -5% -20% -25% Euro Area -24% Ireland Belgium Germany Greece Spain France Italy Commercial rents down substantially Luxembourg Netherlands Austria Portugal Finland Poland Sweden UK EU US Datastream (for 20) 2 IMD World Competitiveness Yearbook CSO Census 20 4 World Bank Doing Business 202 report 5 NIB/FDI Intelligence Inward Investment Performance Monitor 20 6 Site Selection magazine s annual Best to Invest rankings D339 Jan Source: Lisney Research - Commercial Rental Indices Q

8 Bank of Ireland Overview

9 Bank of Ireland overview Systemically important retail & commercial bank in the Irish banking sector playing a critical role in the operation of the Irish economy Product Irish market shares Current Accounts: Personal 36% Business 36% Corporate >50% Mortgages 2% Credit Cards 34% Business Loan Accounts 35% Life and Pension 2% Extensive network in Ireland over one million customers, c.250 full service branches Leading market positions in Ireland no. or no. 2 in all our principal product and market segments Broad product offering Consumer, Private Banking, Business, Corporate Banking, Treasury, Savings/Pension/Life assurance distribution Extension of relationship with UK Post Office c. one and a half million depositors International presence Acquisition Finance and certain other niche lending activities in UK, US and Europe Deposit & treasury services in UK and US Latest data available 6

10 Further progress on key priorities Capital Loans Deposits Core Tier Ratio 5.% 4.9% E44bn E9bn 32% PCAR/EBA basis 9.7% 4.3% 4.0% E4bn E02bn E98bn e33bn E65bn e9bn E7bn e8bn E72bn e8bn E74bn e25bn e2bn e27bn e29bn 6.3% e33bn e35bn e36bn e35bn Sept 2008 Dec 200 Dec 20 Jun 202 Sept 2008 Dec 200 Dec 20 Jun 202 Sept 2008 Dec 200 Dec 20 Jun 202 Nov n Retail Ireland n Retail UK n Corporate Group maintains strong capital ratios On a PCAR/EBA basis, core tier ratio of 3.9% 2 at end October 202 from 4% at end June 202 (0.5% PCAR requirement) Net of impairment provisions 2 As per Group s Interim Management Statement (3 November 202) Ongoing redemptions and repayments on our loan assets remain in line with our expectations Asset disposal target of 0bn exceeded ahead of schedule and below 20 PCAR base case assumptions - average discount of 7.9% incurred On track to reach Group s target of c. 90bn loans and advances to customers by December 204 Customer deposits increased to 74bn in November from 72bn in June 202 Loan to deposit ratio reduced from 36% at June 202 to less than 30% in November Focus on reducing quantum of deposits covered under ELG Scheme and reducing rates paid Deposit target of 75bn - 80bn by December 204 7

11 Focus on rebuilding profitability 33bps Net Interest Margin Net Interest Margin trend 33bps Ongoing pressure on NIM from exceptionally low interest rates 20bps H 20 H2 20 H 202 Despite this, NIM has started to be positively impacted by actions taken by the Group to: reduce the cost of deposits and other funding improve charge rates on loan assets where commercially appropriate and possible E36bn ELG exit Covered liabilities Reduction c.e08bn / c.80% E36bn E22bn <E28bn E4bn Sept 2008 Jun 202 Nov n CIFS Scheme n Customer Deposits n Wholesale Funding n ELG Covered Liabilities Further progress has been made on disengaging from the ELG Scheme Total liabilities covered by the ELG reduced from 36bn at June 202 to less than 28bn in November We have prepared for and are ready for the expiry of the ELG Ownership structure 85% 5% Private Stakeholders State Ireland 5% stockholder in BOI Cash invested by the State 4.8bn Cash returned to the State 3.8bn 3 Current State investments in BOI.8bn +5% stockholding Group focused on reducing risk to State c.80% reduction in covered liabilities since September 2008 Taking actions to fully disengage from ELG Cash returned to the State includes the State sale of bn Convertible Contingent Capital Tier 2 Notes (CoCo) in Bank of Ireland to private investors in January 203 ELG covers (i) certain eligible debt securities issued by the Group and (ii) eligible deposits to the extent not covered by deposit protection schemes in the State (Deposit Guarantee Scheme) or any other jurisdiction 2 As per Group s Interim Management Statement (3 November 202) 3 Includes the sale of the CoCo, Government Guarantee fees, repurchase of warrants, recapitalisation fees, the dividends on the Preference shares paid in cash in 20 and 202 and accrued to 9 January 203 along with the coupon paid on the CoCo instrument in July 202 and accrued to 9 January 203 8

12 Asset profile at June 202 Profile of total loans and advances to customers e98bn Impairment charges 3bn ROI Mortgages E.bn E0.3bn E0.94bn 23bn 7bn 26bn UK Mortgages Non-property SME & corporate Property & Construction Consumer E0.84bn E0.6bn E0.25bn E0.25bn E0.3bn E0.22bn n Residential Mortgages n Property & Construction n Non-property SME & corporate n Consumer 29bn E0.39bn E0.5bn E0.38bn E0.04bn E0.03bn E0.03bn H 20 H2 20 H 202 Geographic profile of total loans and advances to customers AFS portfolio June e.3bn (ex NAMA bonds) 2 Republic of Ireland Net incremental investment in 202 of e.5bn in Irish bonds funded by ECB 3 year LTRO (total Irish Sovereign holding e5.5bn) 49% 5% Rest of World Exposures to Spain and Portugal are substantially covered bonds - all investment grade Italian exposures primarily short dated - e0.2bn will mature within year No AFS exposures to Greece Net of impairment provisions 2 NAMA Bonds e4.7bn June 202 9

13 Irish residential mortgage book at June 202 Bank of Ireland Irish mortgages E26bn E6bn Irish mortgage book represents 49% of Group mortgages (27% of total Group loans and advances to customers) Tracker mortgages represent c.60% of total book 2% market share (total mortgage market: c. 29bn) E20bn June 202 n Owner occupier n Buy to let Split of new lending H 202 New lending Responsible for c.40% of total new mortgage lending in H 202.5bn mortgage fund announced in December 20 - oversubscribed for applications. New 2bn fund for remainder 202 and throughout 203 Variable rate for new customers: 4.30% % Weighted average indexed LTV 73% for new mortgages 3% 3% First time buyers 47% Movers Equity release/refinance 37% Buy to Let Net of impairment provisions 0

14 Asset quality - Irish residential mortgages at June 202 Retail Ireland Owner Occupier Buy to Let Total Total mortgages (gross) em 20,7 6,87 27,582 Paying principal and interest 88% 49% 79% Neither past due nor impaired 87% 74% 84% Negative equity em 2,86,425 4,286 Weighted average indexed LTV 06% 25% 0% Coverage ratio 35% 46% 40% Arrears >90 days past due and/or impaired - BOI (no. of cases) - Industry (no. of cases) Restructuring arrangements em 7.03% 0.9% 3.99% % -, ,548 Owner occupier repayment basis - substantially capital and interest (88%). Buy to let repayment basis - 49% on capital and interest 84% of total book neither past due nor impaired 76% of negative equity neither past due nor impaired Falling disposable incomes and elevated unemployment levels remain the key drivers of default Restructures 98% are for repayments of Interest Only or greater c.86% of those mortgages under a formal restructuring arrangement have maintained their revised repayments Arrears formation - pace slowed from Q2 202 Owner occupier BOI Industry Industry ex BOI Arrears (no. of cases) 7.03% 0.93%.98% Arrears (volume) 9.22% 4.72% 5.96% Restructures 8.7% 3.5% 4.5% Impairment provisions as a % of loans where arrears are greater than 90 days past due and/or impaired

15 Mortgage Arrears Resolution Strategy (MARS) Short Term Medium / Long Term Formal restructuring arrangements Interest only Reduced payments (> interest only) Term extension Longer term forbearance options: Split mortgages Trade down negative equity Interest only Reduced payments (> interest only) Full implementation of CCMA Significant resources allocated and training undertaken for collections and front line staff: Each branch has key contact with specific responsibility to deal with arrears/pre-arrears cases Network Account Managers (NAMs) supporting enhanced customer engagement Centralised Arrears Support Unit (ASU) established Use of Standard Financial Statement (SFS) to obtain financial information for borrowers in arrears/pre-arrears Focus on Mortgage Arrears Resolution Strategy (MARS) New MARS unit established in Summer 202 providing singular focus and visibility to achieve MARS objectives Use of external expertise to leverage off experience in the UK and US Comprehensive suite of forbearance options in place either on a temporary or permanent basis to facilitate sustainable repayment plans Increased focus on BTL arrears management and recovery strategies - rent receivers appointed to 500 properties (June 202) 2

16 Personal Insolvency Act Resolution options New Debt Settlement Processes Reformed Bankruptcy DRN (3 years) DSA (up to 5/6 years) PIA (up to 6/7 years) Full write off of qualifying secured and unsecured debt up to 20,000 at the end of a 3 year period Net disposable income after reasonable expenses to be < 60 per month Assets and cash to be 400 or less (subject to certain exceptions) No creditor consent Settlement structure for unsecured debts No prospect of solvency in 5 years Creditor(s) meeting to approve (65% votes required) Settlement structure for secured and unsecured debt where secured liabilities are < 3m Must be co-operating with secured creditor(s) regarding Principal Private Residence for at least 6 months under MARP No prospect of solvency in 5 years Creditor(s) meeting to approve (65% votes of all creditors, 50% secured, 50% unsecured) Bankruptcy Threshold for debt > 20,000 Discharge from bankruptcy reduced to 3 years If bankrupt does not co-operate or has hidden or failed to disclose assets, court may extend this period up to 8 years The Personal Insolvency Act provides for reform of the bankruptcy regime (bringing Irish law closer to international legal norms) and three alternative debt resolution procedures for individuals who can demonstrate they are insolvent (cash flow test) The Act amends existing bankruptcy provisions by reducing the timescale for discharge from bankruptcy from twelve years to a three year period (unlike existing provisions the debtor is discharged at year 3 but his/her unliquidated assets remain vested in state bankruptcy official) The Act also introduces three routes to debt resolution as an alternative to bankruptcy namely: Debt Relief Notice (DRN) Debt Settlement Arrangement (DSA) Personal Insolvency Arrangement (PIA) The Act provides for the establishment of the Insolvency Service of Ireland and for the appointment of specialist judges to operate the new debt resolution processes Personal Insolvency Practitioners propose DSA and PIA to creditors on behalf of debtors 3

17 Group funding strategy E85bn 36% Retail deposits - core to Group funding strategy e9bn e33bn e25bn Extension of maturity profile of wholesale funding 29% e85bn e35bn e2bn E78bn E6bn 32% e84bn e35bn e23bn e33bn e29bn e26bn E58bn 4% e65bn e35bn E70bn 32% e65bn e34bn E6bn 3% n Total wholesale funding Term funding ratio e7bn e36bn E5bn e72bn e35bn e2bn e2bn e27bn e29bn e9bn e0bn e8bn e8bn Sep 2008 Dec 2009 Jun 200 Dec 200 Jun 20 Dec 20 Jun 202 n Retail Ireland n Retail UK n Corporate E53bn 55% 56% Sept 2007 Sept 2008 Dec 2009 Jun 200 Dec 200 Jun 20 Dec 20 Jun 202 Funding position improved Customer deposits increased to E74bn in November 202 compared to E72bn at end June 202 The Group continues to reduce reliance on wholesale funding including Monetary Authority borrowings: Wholesale funding in November 202 was E44bn, a reduction of E8bn compared to end June 202 Monetary Authority drawings were E2bn in November 202, reduced from E28bn in June 202 In November 202, the Group successfully returned to the public bond markets with an un-guaranteed 3 year Ebn Asset Covered Security (ACS) Funding strategy The Group s aim is to fund its loan portfolios substantially through deposits and term funding while maintaining prudent capital and liquidity ratios Target a loan to deposit ratio of 20% by December 204 Drive deposit strategies through the strength of our franchise and the scale of our distribution Deleveraging is reducing the reliance on wholesale funding 204 Targets Customer deposits: E75bn - E80bn Wholesale funding: E25bn - E30bn Wholesale funding with a remaining term to maturity of greater than one year 4

18 Bank of Ireland 3 year Ebn ACS In November 202, Bank of Ireland successfully returned to the public bond markets with an un-guaranteed bn 3 year ACS deal Allocation by investor type The transaction represented the Group s first public issuance since October 200 and its first public ACS issue since September 2009 Order books were substantially oversubscribed at c. 2.5bn The transaction was sold to a diversified group of almost 200 investors, with 98% sold to investors outside Ireland 0% % 7% 4% 54% Asset Managers Insurance Companies Central Banks / Official Institutions Banks Hedge Funds Issuer Format Key Terms Bank of Ireland Mortgage Bank (BOIMB) ACS, Irish covered bond 4% Private Banks Collateral 00% Irish residential mortgages Issue size ebn Spread 3 year mid swaps bps Yield 3.9% Coupon 3.25% fixed, annual Maturity date 20 November 205 (3 years) 5% 5% 6% 4% Allocation by region 2% 2%% 37% Germany / Austria UK Asia France Nordics Benelux 8% Southern Europe Bank of Ireland s ebn covered bond named Covered Bond of the year 202 % 9% Switzerland Ireland US Other 5

19 Focused on medium term targets Measure 20 Jun 202 Target Progress Loans and advances to customers 02bn 98bn c. 90bn Financial Stability Group loan / deposit ratio 44% 36% 20% Capital Core tier ratio Core tier ratio (PCAR / EBA basis) 5.% 4.3% 4.9% 4.0% Buffer maintained over regulatory minimum On track for 204 delivery ELG covered liabilities ELG fees 42bn 449m 36bn 22m Fully disengaged Rebuilding Profitability Net interest margin.33%.20% >2.0% Cost / income ratio 79% 92% <50% Impairment charges.9bn 0.9bn 55bps - 65bps Timing will reflect interest rates and pace of economic recovery Loans and advances to customers are stated net of impairment provisions D339 Jan 3 6

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