Bank of Ireland Presentation October 2013 (as at 1 Oct 2013) 1
Forward looking statement 2
Irish Economy Overview 3
Government finances ahead of target Public finances continue towards sustainability The General Government deficit for 2012 was 12.5bn or 7.6% of GDP, well within Troika target of 8.6% Overall tax revenue for 2013 is broadly in line with Budget targets Spending running 2.2% below Budget targets by end Aug 2013 H1 2013, NTMA raised 7.5bn in longer term funding, excluding Irish Life sale and BOI CoCos of c. 2.3bn End Q2 2013, NTMA held cash and liquid assets of 30.1bn, covers projected funding needs into 2015 Primary Balance forecast to return to surplus of 0.5% in 2014 Near term funding requirement declining steadily 4
Economy showing positive signs gradual recovery intact Economy showing positive signs despite falls in GDP Irish employment has risen in each quarter since mid 2012 The unemployment rate has also fallen, standing at 13.4%, in Aug 2013, down from a peak of over 15% in 2012 GDP fell by 0.5% in H1 2013, but activity is forecast to pick up in the second half, with GDP expected to be flat for the year Encouraging signs, leading indicators improving consumer confidence rose unemployment fell, employment increased tax receipts improved housing market showed signs of stabilisation During 2014, domestic demand to recover, increasing by 0.5% 5
Property market stabilising Signs of recovery with trends improving National residential prices increased in each of the five months to Aug 2013, leaving the annual increase at 2.8% Prices in Dublin are up 10.6% in the year to Aug Rental market data shows that residential rents continue to increase, private rents rose at an annual rate of 7.6% in Aug Increasing activity in commercial market property e.g. Ireland s first REIT (Real Estate Investment Trust) Investor yields are substantially improving in both Dublin and nationally, nearly doubling since the peak of the house boom 6
Ireland s competitive position remains Strong competitive position versus other countries Irish unit labour costs have reduced by c.13% since 2009 - forecast to reduce by c.23% relative to Euro Area by 2014 Relative real effective exchange rates also reflect strong recovery in competitiveness since the peak Current account surplus 7.3bn in 2012 (4.4% of GDP), forecast 11bn in 2013 (7.5% of GDP) Ireland is more open than other non-core countries Exports accounted for 108% of GDP versus 32% in 1 Spain, 39% in Portugal and 30% in Italy Continuing to attract FDI 2009-2012 Ireland has had 2 nd strongest FDI inflows in the Euro Area when scaled to GDP 1 Eurostat (for 2012) Doc339/0913/v4 7
Bank of Ireland Overview
Bank of Ireland overview strong franchise positions Retail Ireland leading bank in a consolidating market Retail UK challenger consumer banking franchise Strong relationships with customers c.1.6m Consumer Banking customers Wealth Management inc. New Ireland Assurance >600k customers c. 150k SME / Business Banking customers Leading multi-channel distribution platform 250 branches, 1,700 self service devices, online and phone banking, market leading mobile technology Market leading positions 38% of all new mortgage lending drawdowns in Q1 2013 Life Assurance c.24% APE Half of all new non-property SME lending drawdowns in Q1 2013 Continue to develop partnership, leverage strong/trusted brand to grow consumer banking franchise More branches than all other retail banks in the UK combined c.11,500 Post Office branches, c.2,400 Post Office / BOI ATMs, online, mobile and phone banking Expanding product range c.1.6m Post Office savings accounts, c.200k mortgages, Retail FX, c.500k + credit cards / pre-paid loans / personal loans, c.500k + insurance policies, current accounts (6 months trial underway) Universal offering in Northern Ireland through branches and product specialists. NIIB specialist car / asset finance business Corporate & Treasury # 1 Corporate Bank in Ireland Strong market positions >30% market share, >50% of MNCs Leading provider of treasury products and services to retail, business banking, corporate and institutional clients in Ireland Government Investment Jan 2009 March 2013 Selective provisions of credit for commercial real estate and construction Public Private Partnership relationships with Irish Government Well recognised lead arranger / underwriter of mid-market leveraged finance transactions, both in Europe and the US 1 IBI Corporate Finance ranked #1 Irish advisor for each of the last 8 years 1 Includes the sale of the CoCos, Government Guarantee fees, repurchase of warrants, recapitalisation fees, the dividends on the 2009 Preference Shares paid in cash in 2011 to 2013, along with the coupon paid on the CoCos instrument 9
Delivering on strategic objectives Group maintains a healthy capital position Core tier 1 ratio of 14.2% at Jun 2013, 13.8% at Dec 2012 and 13.7% at Dec 2011 1, above Central Bank s requirement of 10.5% 5.4bn or 10% reduction in RWAs reflecting deleveraging, impact of impaired loans and FX Basel III fully loaded CET1 ratio of c.8.6% at Jun 2013 2 2009 Preference Shares proactively reviewing a range of options Loan to deposit ratio improved to 121% Customer deposits now 70% of funding - deposits were 72bn at Jun 2013, 75bn at Dec 2012 and 71bn at Dec 2011 Reliance on wholesale funding reduced further to 31bn at Jun 2013 Monetary Authority borrowings (excl. NAMA) normalising (repaid 6bn in H1 2013) Since Nov 2012, 1bn CoCo refinanced, issued 1.5bn Asset Covered Securities (ACS) and 500m senior unsecured debt Maintained and enhanced strategic shape of Group EU Restructuring Plans amended and confirmed - New Ireland retained, GB Business and Corporate Banking and ICS Platform exited / wound down Completed > 10bn of asset divestments exceeded PCAR target, below assumed cost and ahead of 2013 timeframe Capital and liquidity available to support and profitably grow our core franchises actively seeking new growth opportunities 1 A Core tier 1 ratio of 14.4% was reported at Dec 12 and 14.3% at Dec 11. With effect from 1 Jan 13 an amount of 0.6% for the Group s participation in its life and pensions business was deducted. For ease of comparison purposes, the Dec 12 and Dec 11 Core tier 1 ratio have been presented on a pro-forma basis to take account of this deduction 2 Including 2009 Preference Shares. 2009 Preference Shares of 1.8bn will be grandfathered as Common Equity Tier 1 until 31 Dec 2017 3 Net of impairment provisions 10
Close to profitability Group Income Statement Total income up 313m or 36% Pre impairments operating profit building strongly, up 343m Increased net interest income by 128m (15%) ELG expired with no adverse impact on deposit volumes; fees phasing out quickly, reduced by 113m or 53% Reduced underlying loss by 550m Continuing to rebuild NIM, with a 31bps increase in H1 2013 Exit margin higher than average for H1 2013 with momentum continuing Continue to reprice deposits across each portfolios Achieving higher margins on new lending, albeit volumes remain muted More efficient management of balance sheet Three consecutive periods of decline, reduced by 103m or 13% (ex CBI guidelines) CBI impact is 100m one off charge, primarily impacts the mortgage portfolios Portfolios performing broadly in line with expectations Pace of defaulted loans continue to reduce Expect to continue to reduce to more normalised levels as economy recovers 1 Includes a 3bps impact from the reimbursement of the CoCos 11
Capital: Basel III impacts Risk Weighted Assets Basel III Core tier 1 ratio of 14.2% versus CBI requirement of 10.5% Pro-forma fully loaded CET1 ratio of c.8.6% at 30 Jun 13 (incl. 2009 Preference Shares) Basel III adjustments assumed to be phased in from 2014 to 2018. Impact should be mitigated by capital generated from earnings and management actions Assume CET1 ratio regulatory requirement will be 10% - expect to maintain buffer above this on a transitional basis Leverage ratio expect to remain about 3% on transitional basis, on a pro-forma fully loaded basis, incl. 2009 Preference Shares, ratio is above 3% at Jun 13 1 A Core tier 1 ratio of 14.4% was reported at Dec 12 and 14.3% at Dec 11. With effect from 1 Jan 13 an amount of 0.6% for the Group s participation in its life and pensions business was deducted. For ease of comparison purposes, the Dec 12 and Dec 11 Core tier 1 ratio have been presented on a pro-forma basis to take account of this deduction. Table 1 Calculated through 10% / 15% threshold deduction. 12 2`50% of expected loss adjustment already deducted in arriving at Core tier 1 ratio. 3 RWAs: Includes Basel III impact of CVA, SME reduction factor and securitisations. 4 2009 Preference Shares of 1.8bn will be grandfathered as Common Equity Tier 1 until 31 Dec 17.
Asset quality at June 2013 Three consecutive periods of reducing impairment charge ROI Mortgages: Impairment charge of 223m for the 6 months to Jun 2013 decreased by 68m from 291m in H1 2012 Non-property SME & Corporate: Impairment charge decreased by 8m during the first 6 months of 2013 versus same period in 2012. Sector stabilising but areas correlated with consumer spending and property markets in Ireland remain challenged Investment Property: Impairment charge was flat at 181m in H1 2013 versus same period in 2012. Activity in the commercial property market in Dublin is increasing, however market outside Dublin remains subdued Land & Development: Impairment charge was 110m in the first half of 2013 versus 207m in H1 2012. Market conditions continue to be challenging with illiquid markets and deteriorating individual borrower circumstances 1 Net of impairment provisions 13
ROI owner occupied mortgages: 20.6bn Owner Occupied Owner Occupied Profile of Assets Repayment basis 93% capital and interest 55% or 11.3bn are ECB tracker mortgages Market Environment House prices continue to stabilise Employment levels increased modestly in recent quarters Provisioning assumptions 55% peak to trough fall, plus other changes for forced sale discounts, disposal costs Portfolio Performance 9 out of 10 accounts fully performing BOI arrears levels 53% of rest of industry 1 Arrears reflect economic conditions and affordability issues negative equity not a driver Growth in defaulted loans continue to reduce Focused on restructuring customers on a sustainable basis CBI recent guidelines have increased provision stock by 50m 1 At Mar 13 BOI s arrears levels (based on number of accounts >90 days in arrears) was 7.3% compared to 13.7% for the industry ex BOI. Source : Central Bank of Ireland 2 Impairment provisions as a % of loans where arrears are > 90 days past due and/or impaired 14
ROI buy to let mortgages: 6.5bn Owner Occupied Buy to Let Profile of Assets Repayment basis 57% capital and interest (Dec 12-52%) Portfolio repaid net 142m in H1 2013 2% reduction 81% or 5.3bn are ECB tracker mortgages Market Environment House prices continue to stabilise Private rents continue to increase particularly in Dublin and other urban areas Provisioning assumptions 55% peak to trough fall, plus other changes for forced sale discounts, disposal costs Portfolio Performance 8 out of 10 accounts fully performing BOI arrears levels 69% of rest of industry 1 Growth in defaulted loan volumes consistent with H2 2012 and significantly lower than H1 2012 Arrears partially reflected the impact of rising employment repayments when interest only periods end and capital repayments are required Focused on restructuring customers on a sustainable basis CBI recent guidelines have increased provision stock by 25m 1 At Mar 13 BOI s arrears levels (based on number of accounts >90 days in arrears) was 14.7% compared to 21.3% for the industry ex BOI. Source : Central Bank of Ireland 2 Impairment provisions as a % of loans where arrears are > 90 days past due and/or impaired 15
Funding transformation Funding transformation Transformed the profile, availability and cost of our funding Consistently accessed private market funding Issued 500m of 3 year term unsecured senior debt in May 13 Issued 500m Asset Covered Securities using Irish mortgage collateral in Mar 13 13.4bn of 62% of private market funding has a residual term to maturity of > 1year Refinancing requirement from unsecured maturities very low Repaid 6bn of Monetary Authority funding Remaining 9bn includes: NAMA senior bonds of c. 4bn, LTRO funded investment in Irish bonds of 1.5bn Achieved our target Loan to Deposit Ratio Loan to deposit ratio improved to 121%; impacted by FX rates No volume impact from ELG expiry Optimising across funding pools for volume, stability and cost Deposit strategies leverage the strength of our franchises and scale of our distribution Retail Ireland stable deposit volumes Retail UK - 2.3bn reduction in H1 2013 reflecting the planned reduction of excess liquidity in the UK subsidiary Access features being revised Continuing to focus on deposit pricing strategies in each portfolio 1 Includes c 4bn NAMA Bonds and 1.5bn LTRO funded investment Doc339/0913/v4 16
Appendix
Mortgage market developments Personal Insolvency Act - PIA (Dec 12) The Land Conveyancing Law Reform Act 2013 Provides three debt resolution options for customers who are unable to repay their debts Debt Relief Notice allows write off of debt up to 20,000, subject to 3 year supervision period Debt Settlement Arrangement for agreed settlement of unsecured debt, with no limit, normally over 5 years Personal Insolvency Arrangement for agreed settlement of secured debt up to 3 million and unsecured debt with no limit, normally over 6 years Automatic discharge from bankruptcy, subject to certain conditions after 3 years Lenders were previously uncertain to their statutory rights to obtain possession of a secured property by way of summary proceedings This uncertainty rose as a result of a High Court decision made by Justice Dunne in 2011, following which it was difficult to repossess property under the existing law The Act was signed into law in August 2013 and is a long awaited development The new Act will rectify the problems created by the Justice Dunne ruling and will address difficulties experienced by lenders in seeking summary possession of registered land Revised Code of Conduct on Mortgage Arrears CCMA (July 13) Code of conduct issued by the Irish Central Bank setting out how mortgage lenders must treat borrowers in mortgage arrears and pre-arrears Revised CCMA operative on 1 July 2013 CBI s additional measures on mortgage arrears (Mar 13) Mortgage Arrears Resolution Target CCMA 2013 Quarterly targets on sustainable solutions proposed and concluded Specific targets applied for individual banks based on capacity, system handling of early arrears etc Changes to the contact levels permitted while ensuring customers are not subject to harassment Further safeguards to ensure borrowers are given sufficient warning before being classified as not co-operating Transparency on resolution options so borrowers have full understanding before making a decision Removal of a tracker rate where the lender has offered an alternative arrangement which is more advantageous in the long term 18
ROI owner occupied mortgages - arrears / forbearance profile 9 out of 10 mortgage accounts are performing 9 out of 10 accounts are performing Early arrears are customer accounts with arrears <90 days past due Late arrears are customers whom we continue to work with on a case by case basis to identify and agree a suitable forbearance or resolution strategy Forbearance is where a customer s mortgage contract has been revised on a case specific basis Overpayment reflects cases where the customer pays greater than 100% of the mortgage repayment, thus reducing their arrears Resolution: Consensual process is a non-legal resolution agreed with the customer such as voluntary sale, Mortgage-to-Rent Resolution: Legal process means the bank has initiated legal proceedings against the customer for the recovery of the debt 19
ROI buy to let mortgages - arrears / forbearance profile 8 out of 10 mortgage accounts are performing Early arrears are customer accounts with arrears <90 days past due Late arrears are customers whom we continue to work with on a case by case basis to identify and agree a suitable forbearance or resolution strategy Forbearance is where a customer s mortgage contract has been revised on a case specific basis Overpayment reflects cases where the customer pays greater than 100% of the mortgage repayment, thus reducing their arrears Resolution: Consensual process is a non-legal resolution agreed with the customer, such as voluntary sale Resolution: Legal process means the bank has initiated legal proceedings against the customer for the recovery of the debt including the appointment of fixed charge receivers 20
SME & corporate loans: 22bn Stabilising albeit sectors correlated with consumer spending and property markets remain challenged Increase in 2013 reflects several individual cases Corporate portfolio performing satisfactorily Asset quality is stabilising 21
Property & construction: 17.4bn Transformed the profile, availability and cost of our funding Investment property profile Reduced by 4.1bn or 9% in H1 2013 46% ROI, 49% UK and 5% RoW 37% Retail, 16% Office, 8% Industrial, 39% Other/Mixed ROI main urban areas and prime investment yields are showing modest improvement reflecting transaction levels; other markets and locations remain subdued UK London / South East performing well; secondary markets remain weak Retail sector remains under pressure Land & Development Profile 94% is impaired with a coverage ratio of 63% Impairment Charge 22
Owner Occupied Owner Occupied buy Buy to to let Let 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 the Prudential Regulation Authority and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority and regulation by Financial Conduct Authority are available from us on request. Bank of Ireland is incorporated in Ireland with limited liability. Registered Office - 40 Mespil Road, Dublin 4, Ireland. Registered Number - C-1. 23
Notes Owner Occupied Owner Occupied buy Buy to to let Let 24
Notes Owner Occupied Owner Occupied buy Buy to to let Let 25