Allied Irish Banks, p.l.c. 3 September Presentation to Joint Oireachtas Committee on Finance, Public Expenditure and Reform

Transcription

1 Allied Irish Banks, p.l.c. 3 September 2013 Presentation to Joint Oireachtas Committee on Finance, Public Expenditure and Reform

2 Forward Looking Statements Important Notice This presentation should be considered in parallel with AIB s Half Year Financial Report for 2013, a copy of which including full disclosures and notes to the financial statements can be found at the following link: A number of statements we will be making in our presentation and in the accompanying slides will not be based on historical fact but will be "forward-looking statements" within the meaning of Section 27A of the US Securities Act of 1933 (as amended) and Section 21E of the US Securities Exchange Act of 1934 (as amended), with respect to the financial condition, results of operations and business of the Group and certain of the plans and objectives of the Group. In particular, among other statements in this presentation, with regard to management objectives, trends in results of operations, margins, risk management, competition and the impact of changes in International Financial Reporting Standards are forward-looking in nature. 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, 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 Risk factors include, but are not limited to the Group s access to funding and liquidity which is adversely affected by the financial instability within the Eurozone, contagion risks disrupting the financial markets, constraints on liquidity and market reaction to factors affecting Ireland and the Irish economy, the Group s markets, particularly for retail deposits, at risk from more intense competition, the Group s business being adversely affected by a further deterioration in economic and market conditions, general economic conditions being very challenging for our mortgage and other lending customers and increase the risk of payment default, the depressed Irish property prices may give rise to increased losses experienced by the Group, the Group faces market risks, including non-trading interest rate risk, the Group is subject to rigorous and demanding Government supervision and oversight, the Group may be subject to the risk of having insufficient capital to meet increased regulatory requirements, the Group s business activities must comply with increasing levels of regulation, the Group s participation in the NAMA Programme gives rise to certain residual financial risks, the Group may be adversely affected by further austerity and budget measures introduced by the Irish Government, the value of certain financial instruments recorded at fair value is determined using financial models incorporating assumptions, judgements and estimates that may change over time, or may ultimately not turn out to be accurate, the Group s deferred tax assets depend substantially on the generation of future profits over an extended number of years, adverse changes to tax legislation, regulatory requirements or accounting standards could impact capital ratios, the Group is subject to inherent credit risks in respect of customers, the Group faces heightened operational and reputational risks, the restructuring of the Group entails risk, the Group s risk management strategies and techniques may be unsuccessful, risk of litigation arising from the Group s activities. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made. AIB cautions that the foregoing list of important factors 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. In light of these risks, uncertainties and assumptions, the forward-looking events referenced in this presentation may not occur. 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.

3 Overall Group Performance Half Year to June 2013 Improving Operating Performance Returned to pre-provision operating profit in H Total operating costs down 14% year on year Full time employee numbers down to 12,718 in June 2013 Staff costs down 16% year on year 53% reduction in total bad debt provisions for the first half of 2013 Net Interest Margin (NIM) trending upwards Impaired loans trending lower in line with expectations Reduction in loss before tax Balance Sheet Strengthening Loan to deposit ratio further reduced Achieved year end 2013 non core deleveraging target ahead of schedule Overall capital position remains robust Supporting our Customers & Economic Growth 3bn in lending approvals June YTD Largest mortgage lender in the country with 46% market share of mortgage approvals June YTD SME lending approvals YTD to 16,300 customers Exceeded Q targets for mortgage arrears resolution offers Allied Irish Banks, p.l.c. -3-

4 Lending Policy AIB is open for business with responsible, prudent lending policies and practices AIB bases its lending decisions to new and existing businesses on the soundness and viability of each proposition Providing professional advice and customer service All SME lending decisions are primarily evaluated on the basis of sustainable cash flows and the customers ability to repay borrowings Specifically regarding mortgage lending, there is strong emphasis on income sustainability (focus on core income) and review of the customers personal and financial commitments Loan support may involve restoring customer stability and restructuring existing debts Seminars supporting AIB and EBS customers in SME and mortgage markets All lending is evaluated and advanced in line with the Credit Framework Standards. Portfolio limits are set where appropriate Allied Irish Banks, p.l.c. -4-

5 Mortgages

6 AIB Standard Variable Rate (SVR) Vs The Market Ireland SVR PDH SVR Rate Market Average (Excl. AIB Group) 4.53% Market Average (All incl. AIB) 4.53% AIB 4.40% EBS 4.58% *Rates correct as at 23 rd August 2013 The average Principal Dwelling Home (PDH) SVR for AIB Group (AIB & EBS) is 4.53%, in line with the market average for our competitors, also at 4.53% The market average SVR in Ireland at 4.53% is higher than the market average in the UK at 4.19% Most institutions have moved away from changing variable rates in line with ECB. The average PDH standard variable rate in the market (excl. AIB Group) has increased from a low of 3.21% in March 2010 to 4.53% in Aug 2013 The ECB rate was reduced to an all time low of 0.50% in May 2013, in line with the Bank of England rate which is also at 0.50% since

7 AIB/EBS Mortgage Market Share AIB/EBS Mortgage Sanctions Market Share H Sanctions by value Sanctions by number 46% 44% AIB/EBS Mortgage Drawdowns By number Allied Irish Banks, p.l.c % increase Q Q AIB Combined Rest of Industry AIB/EBS continue to approve seven out of ten mortgage applications received To June 2013, AIB/EBS has provided 40% of number of mortgages drawn down, 41% by value To June 2013, AIB/EBS issued 44% of total industry sanctions by number, 46% by value In terms of trends from Q1 to Q AIB/EBS has increased number of loans issued by 67% and value of loans issued by 60%. Overall industry increase is 56% and 56% respectively Circa 500m in AIB s mortgage demand pipeline Initiatives undertaken include comprehensive marketing campaigns, extensive countrywide customer and Key Business Influencer seminars, proactive management of pipeline sanctions and on-going development of our online and digital offering While Q2 has shown significant lift in activity, the market continues to be constrained by shortages in suitable supply while demand remains location specific -7-

8 AIB/EBS Mortgage Initiatives AIB to launch new online mortgage approver this month. This will allow customers to log on, enter details and have a Sanction In Principle generated in minutes This month AIB and EBS will launch their Autumn mortgage marketing campaign 30 customer information evenings have been held across the country with c.1,400 attendees to date and further sessions planned for Autumn 2013 Formal appeals process for declined applications established internally Active participant in NAMA Mortgage Deferred Payment Initiative Industry think-tank initiative chaired in April with attendance from Department of Finance, Estate Agents and Broker groups Chairmanship of Irish Mortgage Council (IBF) embarked on market research with ESRI and NAMA Launch of new Housing Market Confidence Index with ESRI in Q Allied Irish Banks p.l.c. -8-

9 ROI Owner Occupied Mortgage Portfolio Profile: 31.1bn Mortgage Portfolio by Value ( m) 5% 13% 82% Neither Past Due nor Impaired Past Due but not Impaired Impaired 1. By number of accounts 2. Source : Central Statistics Office 37% 12% 51% Variable Tracker Fixed Performance Profile by Number of Accounts Allied Irish Banks, p.l.c. Arrears Profile & Provisions ( m) 6 Month Period Ending June 2012 Dec 2012 June days Past Due 1,704 1,863 1,994 of which Impaired days past Due 3,090 3,424 3,771 of which Impaired 2,904 3,245 3,568 Impaired Loans not Past Due Total Impaired Loans 3,906 4,523 4,892 Impairment Charge (Total) Impairment Charge (bps) 88bps 198bps 62bps Total Specific Provisions 935 1,224 1,409 Specific Provisions / Impaired Loans 24% 27% 29% Summary 85% of ROI mortgage portfolio is owner occupier (1) 3% of the portfolio is interest only (1) 82% of portfolio is neither past due or impaired (1) Environment : Evidence of residential property price stabilisation Average fall of 50% from peak values (2) Unemployment remains elevated but declining Provision assumptions include 55% peak to trough fall in prices, forced sale discount, disposal costs Pace of increase in total impaired loans slowed in H vs. H Impairment charge for H down 220m from H Specific coverage increased to 29% at June 2013 from 27% at Dec

10 ROI Buy to Let Mortgage Portfolio Profile: 7.7bn Mortgage Portfolio Profile by Value ( m) Arrears Profile & Provisions ( m) 6 Month Period Ending June 2012 Dec 2012 June % 2% 36% 1-90 Days Past Due of which Impaired Days Past Due 2,114 2,013 2,302 of which Impaired 1,874 1,883 2,163 Impaired Loans not Past Due 966 1, Total Impaired Loans 3,250 3,333 3,567 Variable Tracker Fixed Performance Profile by Number of Accounts Impairment Charge (Total) Impairment Charge (bps) 429bps 170bps 354bps Total Specific Provisions 1,180 1,365 1,540 Specific Provisions / Impaired Loans 36% 41% 43% Summary 32% 5% 63% 15% of ROI Mortgage portfolio is buy-to-let (1) 14% of the portfolio is interest only (1) 63% of portfolio is neither past due or impaired (1) Evidence of property price stabilisation Average fall of 50% from peak values (2) Provision assumptions include 55% peak to trough fall in prices, forced sale discount, disposal costs Impairment charge for H increased 67m versus H Specific Coverage Increased to 43% at June 2013 from 41% at Dec 2012 Neither Past Due nor Impaired Past Due but not Impaired Impaired 1. By number of accounts 2. Source : Central Statistics Office Allied Irish Banks, p.l.c. -10-

11 Mortgage Customers in Financial Difficulty RoI Mortgage Portfolio Overview by Number of Accounts June % 85% Owner Occupier BTL ROI Performing Mortgage Portfolio by Number of Accounts June % 82% 79% 63% Summary ROI mortgages Eight out of ten mortgage accounts fully performing 85% of portfolio is owner occupier mortgages Exceeded Mortgage Arrears Resolution Target offers for Q (1) Portfolio continues to perform better than the comparable June 2013 industry data (2) Target customer engagement prior to potential arrears Number of accounts in pre-arrears has been declining since January 2013 (3) Focused on management of early arrears Customer contact levels and cash collection has increased significantly YTD (3) Replacing short term forbearance measures with sustainable solutions including legal options for non co-operating customers Continued evidence of strategic default within the arrears portfolio ROI Residential Mortgages >90 Days Past Due By Number of Accounts 50% Owner Occupier + BTL Portfolios AIB Industry (3) Industry Ex AIB (3) Residential Mortgages Mortgages >90 days past due 11.6% 13.9% 14.9% 0% Owner Occupier Buy to Let Total Portfolio 1. Subject to CBI confirmation. 2. CBI Industry data as at June Reflects activity within the arrears support unit of the Financial Solutions Group which manages the majority of mortgage arrears cases. Allied Irish Banks, p.l.c. -11-

12 Paths to Resolution Options Interest Only / Deferred Term Extension Mortgage to Rent Split Mortgage Voluntary Sale for Loss Negative Equity Trade Down Irish Mortgage Arrears Strategy is to keep people in their homes, wherever possible, where customers prioritise their mortgage debt and co-operate with the bank The bank s mortgage arrears support unit (ASU) is dealing with mortgage cases in difficulty: c.800 staff trained in dealing with mortgage arrears c.300 dedicated staff members in ASU AIB is meeting the Central Bank of Ireland 2013 sustainable mortgage solution offers targets of: 20% proposed solutions offered by end Q2 2013, 30% by end Q3 2013, 50% by end Q Allied Irish Banks, p.l.c. -12-

13 Restructure Solutions Case Studies

14 Case Study: Capitalisation Case Background Married couple aged 39 and 36 with 3 dependents, aged 18, 15 and 8 years Total Mortgage Debt: 251,640 (LTV 173%) Current market value of property: 145,767 Both Borrowers are in full time employment in the private sector on a combined gross base salary of 55,000 with additional allowances for shift work which increase annual gross salary to c. 80k p.a. Customer s stated monthly expenditure is 1,933 (including childcare costs). ISI expenditure guidelines for this family is 2,844. AIB guidelines for this family (allowing childcare costs) are 3,757 which is 32% more than ISI guidelines (25% excl. childcare). Customers were previously granted 12 months standard forbearance, since then the arrears on the account have been reduced from 3,278 to 2,584. Borrowers have 22,000 of other unsecured debt. Customer has paid their contracted capital and interest payments for the last 6 months and so meet the criteria for capitalisation. Financial Summary Proposed Restructure Total net monthly income Less total monthly expenditure Sub Total 2,063 Less Mortgage (1,656) repayment due Total Surplus/(Deficit) 407 4,907 Capitalisation of arrears to the account and customer to continue full capital and interest payments on the account. (2,844) The capitalisation of arrears increases the monthly payment from 1,634 to 1,656, which is affordable to the customer. 14

15 Case Study: Term Extension Case Background Married couple both aged 47 with 4 dependents aged 12 through to 6. Total Mortgage Debt: 212,890 (LTV 105%) Current market value of property: 203,026 Borrower 1 is in full time employment in the public sector on an gross salary of 50k. Borrower 2 is unemployed and in receipt of child benefit for 4 children. Customer s stated monthly expenditure is 2,359. ISI expenditure guidelines for this family is 2,968. AIB guidelines for this family are 3,730 which is 25% more than ISI guidelines. Customers were granted 18 months standard forbearance to date, the arrears on the account are 4,667, greater than 90 DPD. Borrowers have c. 40,000 of other unsecured debt with a number of lenders which they are also seeking to have restructured. Bank offering a term extension to reduce monthly repayment to within affordable levels. Financial Summary Before Restructure After Restructure Proposed Restructure Total net monthly 3,944 3,944 Bank offered the customer a term extension to age 70 for income Borrower 1. Less total monthly (2,968) (2,968) The customers stated expenditure is lower than ISI, the expenditure Sub Total Bank allows a minimum of ISI when restructuring the mortgage. Revised payment following term extension is within Less Mortgage (1,258) (902) customers net disposable income as calculated. repayment due Total Surplus/(Deficit) (282) 74 15

16 Case Study: Split Mortgage Solution Case Background Married couple aged 31 and 30 with 1 dependent, aged 1 year Total Mortgage Debt: 328,588 (LTV 219%) Current market value of property: 150,000 Borrower 1 in full time employment in the private sector on a gross salary of 38,000. Borrower 2 is unemployed and in receipt of social welfare. Child is in childcare one day a week to accommodate borrowers job search. Customer s stated monthly expenditure is 2,191 (including childcare costs). ISI expenditure guidelines for this family is 1,779. AIB guidelines for this family (allowing childcare costs) are 2,285 which is 28% more than ISI guidelines. Customers were granted 14 months standard forbearance to date, the arrears on the account are less than 90 DPD. Borrowers have 2,000 of other unsecured debt. Financial Summary Before Following Proposed Restructure Restructure Restructure Total net monthly income Less total monthly 3,063 (2,191) 3,063 (2,285) A - ECB+1.25% (Tracker) to retirement B - 0% warehoused until retirement expenditure Sub Total Repayments on loan A will be 778 p/m. Childcare costs are included over and above guidelines expenditure Less Mortgage (1,229) (778) ( 2, p/m = 2,285). We extend the loan term to normal retirement age for a split. repayment due In this case living expenses are 28% ahead of ISI (22% ahead if Total (357) 0 Surplus/(Deficit) we excluded childcare costs). 16

17 Case Study: Mortgage to Rent Case Background Single Borrower aged 32 with 1 dependent, aged 4 years. Total Mortgage Debt: 160,883 (LTV 179%) Current market value of property: 90,000 Borrower 1 is unemployed since 2010 and in receipt of social welfare. Customer s stated monthly expenditure is 1,340. ISI expenditure guidelines for this family is 1,287. AIB guidelines for this family are 1,683 which is 25% more than ISI guidelines. Customer has not been granted any forbearance to date (as Bank was not in receipt of an SFS) and the arrears on the account are more than 90 DPD. Borrower has 7,000 of unsecured debt. Bank has submitted case for consideration under the Mortgage to Rent scheme. If accepted Bank will accept Open Market Value of the house and residual debt will be written off c. 70k Financial Summary Proposed Restructure Total net monthly income Less total monthly expenditure Sub Total 39 Less Mortgage repayment due Total Surplus/(Deficit) (773) 1,379 Case submitted to Housing Authority for consideration under the Mortgage to Rent scheme. (1,340) Criteria for MTR: 2,3,4 bedroom apartments/houses. Appropriate needs for borrower Borrower in arrears Borrower in negative equity (812) Insufficient income Max value of house 180K ( 220K in Dublin, Meath, Kildare, Wicklow) Must be located in large urban area/town. Customer must not have any judgment outstanding against their name i.e. by another creditor. 17

18 Case Study: Voluntary Sale for Loss Case Background Joint borrowers now separated, age 35 and 34 with 1 dependent age 8. Total Mortgage Debt: 329,686 (275%) Current market value of property: 120,000 Borrower 1 is self employed with a gross annual salary of 19k, Borrower 2 is in full time employment in the private sector on a gross annual salary of 27k. Borrower 1 s stated monthly expenditure is 1,276 (including rent). ISI expenditure guidelines for this customer is 1,045. AIB guidelines for this borrower (allowing for rent) are 1,436 which is 37% more than ISI guidelines. Borrower 2 s stated monthly expenditure is 2,225 (including childcare costs). ISI expenditure guidelines for this customer is 1,428. AIB guidelines for this borrower (allowing for childcare) are 2,283 which is 60% more than ISI guidelines (excl. childcare would be 18% more than ISI). Borrower s were previously granted 12 months standard forbearance, the arrears on the account are 55,492, greater than 90 DPD. Borrower 1 has 11,000 of other unsecured debt. Borrower 2 has 5,000 of other unsecured debt. Only sustainable solution available is a voluntary sale of loss, which the customer has agreed to. Debt compromise agreement reached. Financial Summary Borrower 1 Borrower 2 Proposed Restructure Total net monthly 1,340 2,350 Borrowers do not qualify for term extension or Split income mortgage as limited affordability and does not qualify for MTR as not suitable for his needs. Less total monthly (1,276) (2,225) expenditure Sub Total Less Mortgage repayment due Total Surplus/(Deficit) (1,509) (1,509) (1,716) (1,384) Voluntary sale for loss is only available sustainable solution. Expected residual balance after costs c. 213,722 c.65% of total mortgage debt. Bank has agreed to accept partial payments against the residual debt in line with the customer s affordability for an agreed period, following the sale of the property by the borrower, with the residual debt to be written down. 18

19 SMEs

20 Support for SME & Corporate Customers SME Corporate Expect to meet or exceed Government lending target of 4 billion for 2013 Sectoral approach to lending based on research in key areas of economic activity SME lending approval YTD June 2013 to c.16,300 customers Approvals for new facilities to SMEs up 11% year on year 39% market share of Agri sector (1) Corporate lending supporting indigenous companies Leading bank supporting FDI investment Approved 2.2 billion in SME and corporate lending YTD June 2013 Microfinance The under 25K initiative involves a new simplified loan application process to help boost access to credit for SME Largest pipeline of lending in several years The Financial Solutions Group (FSG) has been focusing on engaging with and stabilising SMEs in difficulty New Business/Farmers Committed to two Seed Capital Funds totalling 75m which have invested in c.85 companies Launched 200m loan fund for SMEs in partnership with European Investment Bank in April 2013 Responding to weather issues, AIB introduced 50m Farm Cash Flow Support Package in Q2 combining short and medium term finance options Follows launch of 250m Agri fund in Source : AIB and Central Bank of Ireland Outstanding loan balances data Q Allied Irish Banks, p.l.c. -20-

21 SME / Other Commercial Lending: 14.2bn SME Portfolio Profile ( 14.2bn) Impairment Charge & Provisions ( m) 46% 13% 17% 24% 6 Month Period Ending June 2012 Dec 2012 June 2013 Impaired Loans 4,896 5,221 4,942 Impairment Charge Impairment Charge (bps) 138bps 526bps 196bps Total Specific Provisions 2,822 3,230 3,180 Specific Provisions / Impaired Loans 58% 62% 64% Agriculture Retail / Wholesale Hotels & Licensed Premises Other / Services Performance Profile ( 14.2bn) 35% 46% 9% 10% Satisfactory Watch Vulnerable Impaired Summary Overall portfolio has reduced by 0.9bn YTD 69% of exposure is to SMEs in Ireland who are dependent on the challenged domestic economy Reduction in criticised and impaired loans of 0.5bn and 0.3bn respectively Total impaired loans of 4.9bn with specific provision cover of 64% Impairment charge down 65% Allied Irish Banks, p.l.c. -21-

22 Strategic Focus Focus On Commercial Agenda 2013 Secure pre-provision operating profit for the full year On-going reduction in credit provisions Implement further cost savings Continue progress in NIM and other financial and operational metrics Progress on balance sheet and capital efficiency Exceed lending targets in key product segments Exceed Central Bank of Ireland targets in relation to arrears Returning to Profitability 2014 and Beyond Target a return to sustainable profitability during 2014 Substantially complete restructuring for mortgage and SME arrears customers Full funding market access and further capital structure improvements Work to return capital to the Irish State over time Allied Irish Banks, p.l.c. -22-

23 Appendix

24 Irish Economic Summary Unemployment Rate % Irish GDP fell in Q but strong rise in GNP in the quarter Noticeable improvement in many economic indicators since the Spring Forecasting GDP growth of 0.5% in 2013 and 2.2% in 2014 Government Budget deficit declining at an encouraging pace Source: CSO Live Register June 2013, 3 July 2013 GDP YoY Change (%) Real GDP Growth (0.5%) in 2013 On course for sub 3% budget deficit by 2015 EU/IMF bailout programme exit on schedule for end 2013 Domestic economy stabilising Housing, labour market and domestic demand either stabilising or improving Source: CSO Quarterly National Accounts, 27 June 2013 Residential Property Prices YoY Change (%) Ongoing signs of housing market improvement Dublin market appears to be leading indicator Demand & supply issues evident in some areas Signs of investor confidence returning Sovereign s re-entry to funding markets Source: CSO Irish Bond yields have stabilised and fallen sharply from crisis levels Allied Irish Banks, p.l.c. -24-

25 Customer Loan Book Impairment and Provisioning Loan Book Sectoral Profile - June 2013 Amount in bn s ROI Mortgages UK Mortgages Land & Development Investment Property SME / Other Commercial (1) Personal Corporate Total Advances Impaired Impairment Charge (6 Months P&L) Balance Sheet Provisions (Specific + IBNR) Specific Provisions / Impaired Loans (%) 35% 42% 77% 45% 64% 76% 57% 54% Total Provisions / Impaired Loans (%) 38% 53% 78% 48% 69% 81% 71% 57% Loan Book Sectoral Profile - June 2012 Amount in bn s ROI Mortgages UK Mortgages Land & Development Investment Property SME / Other Commercial (1) Personal Corporate Total Advances Impaired Impairment Charge (6 Months P&L) Balance Sheet Provisions (Specific + IBNR) Specific Provisions / Impaired Loans (%) 33% 40% 74% 42% 62% 74% 60% 52% Total Provisions / Impaired Loans (%) 38% 67% 75% 47% 66% 80% 73% 56% RoI Mortgage Portfolio Specific provision cover to impaired loans has increased to 35% from 33% at Dec 2012 Property & Construction Portfolio Remains challenging however evidence of stabilisation of prime rents and yields SME/Other Commercial c. 69% of this portfolio is to SME s in Ireland who are exposed to a challenged domestic economy Personal Portfolio Evidence of stabilisation in unemployment and house prices, however, the reduction in the overall personal lending book reflects the continued lack of demand for personal credit as households focus on reducing debt Corporate Portfolio Reduction of 0.8bn due to deleveraging along with scheduled payments 1. Excludes 0.8bn for contractors and housing associations ( 0.9bn Dec 2012) Allied Irish Banks, p.l.c. -25-