AIB Group plc (A5G) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of our interim results for 2023. As usual, I'll spend a few moments reflecting on the highlights of the first half. I'll give an overview of the economic landscape as we see it, as well as provide an update on our strategic development before I hand over to Donal, our CFO, who will bring us to the financial details, and then we'll some time for questions. As we move through the closing phase of the 3-year transformation plan that we announced in December 2020, we're very pleased with how AIB Group is performing. We've overseen considerable positive change at AIB in terms of the strength of our customer franchise, the range of the products and the services that we present to market, the efficiency of our operations and the quality of our balance sheet. At the outset, I want to thank my colleagues across the group for the energy and professionalism they invested in our transformation plan, that they brought to the task of onboarding, migrating customers and seizing the once-in-a-lifetime opportunity presented by the imminent departures of Ulster Bank and KBC from our core markets. Our group is in vigorous good health. Against resilient economic backdrop, we're reporting organic growth in our lending book and continued deposit inflows on the liability side of the balance sheet. With a larger customer base in our core market than ever before, more assets at work and a normalized monetary policy environment, we're reporting a very strong financial performance for the first 6 months of this year with profit after tax of EUR 854 million. Given the performance to-date this year and the momentum we see in our business, we're again upgrading our guidance for 2023 with net interest income expected now to exceed EUR 3.6 billion with the expected RoTE tipping above the 20% mark. This performance is firmly underpinned by continuing conservatism and how we run the business. We're cautious and forward-looking in our underwriting. We're rational in our pricing, and we're prudent in our provisioning. We've no doubt that this is the correct approach today and for the long term, and it is supported by very strong capital and liquidity position with a CET1 of 15.7% reported at the end of June. Now, as I said already, we are nearing the end of our current strategic cycle and the group is in a position of great strength. As we complete our product suite, migrate the great majority of the Ulster Bank portfolio acquisitions, while advancing the digitalization of our business with clear benefits for customers, for risk management, and for efficiency. We're also pleased with the progress in the broad ESG agenda in the first half of the year with a strong performance by our renewable energy lenders being counterbalanced by a significant and deliberate pullback in new commercial property lending. Our leadership in the ESG area was recognized by our peers earlier this year in the most impressive financial institution ESG bond Issuer award by GlobalCapital. In addition, a key milestone in the group's strategic evolution was reached at the end of June with AIB returning to majority private ownership. So I think it's only fair for us to regard the first 6 months of this year as very successful across a multitude of fronts. Turning now to the economy. While we are expecting a moderation in the pace of growth, the real rate of expansion in modified domestic demand is forecasted to remain comfortably in positive territory. This confidence is underpinned by employment levels pushing to fresh all-time highs, a rate of unemployment of 3.8%, healthy household and business balance sheets and a savings ratio of 14%. Households and businesses will also be supported by the ongoing fall in the rates of consumer price inflation with a forecast of 2.8% penciled in for 2024. We do recognize and take account of the headwinds from the uncertain global environment and the sustained tightening of monetary policy, which are reflected in a softening in our own manufacturing PMI readings. We remain positive about the resiliency of the domestic economy, and we will continue to be a leading provider of capital to support economic, social and environmental progress, while maintaining robust credit discipline. We're now closing out on our 2021 to 2023 strategic plan with 12 planned initiatives concluding successfully in the first 7 months of this year. The scale of that plan's ambition requires significant collaboration and effort right the way across the organization over the last number of years. I am pleased to report that the majority of transformation project activity is now behind us with the migration of the bulk of Ulster Bank's tracker mortgage book taking place successfully last weekend. The group is now very well positioned and is poised to deliver a strong and sustainable performance over the years ahead. 2023 has been a busy year on the product front with years of planning and careful execution manifesting in an enhanced suite of customer propositions. AIB Life, our JV with Great-West Lifeco is now live in the market, and we are pleased with this performance and look forward to it making a material contribution to the group over the medium and long terms. And highlighting the quality of the integration of Goodbody, we launched Goodbody-Private, which significantly enhances the wealth proposition available to our customers. Meanwhile, we have just launched our AIB Business app, which allows us to align the mobile experiences enjoyed by both our personal and our business customers. We will continue to invest in new propositions to support our customers and to enhance our operational efficiency. On the inorganic front, the Ulster Bank portfolio acquisitions and migrations are now substantially complete. On a combined basis, these transactions introduced over 45,000 new customers to AIB Group with associated drawn balances in excess of EUR 8 billion. We also welcomed 227 ex-Ulster Bank employees to AIB, who will work to service our expanded customer base. And together with our existing franchise, these acquisitions position AIB as Ireland's leading corporate business and personal bank. They add materially to our pro forma balance sheet today, as well as our prospects for sustained strong growth in the years ahead. From an organic lending perspective, headline new lending growth of 2% masks quite significant differences in the performances of our various business sectors. New mortgage lending was broadly flat with the market adjusting to lower switcher activity and to varying speed of interest rate changes across the competitive landscape, while personal lending increased by some 29%. Property lending was down by 20%, reflecting a conservative and risk-conscious disposition towards that sector, while new business lending was ahead by 12%, with particularly strong performances reported by both our corporate banking and our energy climate action and infrastructure teams. Reflecting the quality of our customer franchise and our underwriting discipline. Our balance sheet is very resilient. Mortgage remain the largest part of our lending book, accounting for some 50% of loan exposures. With an increased appetite for our fixed rate offerings, pushing that share of the portfolio to 62% today. In around 60% of mortgages have been underwritten since the introduction of the Central Bank of Ireland's macro prudential rules, 2015. And the book is characterized by relatively low LTVs in terms of both flow and stock. In our commercial real estate book, over 40% is residential in nature with offices and retail assets accounting for 25% and 16%, respectively. In line with our conservative and forward-looking approach to asset quality, we have increased CRE Stage 2 assets by EUR 2.3 billion, and we remain cautious on new lending opportunities in this space, at least in the near term. Meanwhile, we have made further progress in reducing nonperforming exposures, which stood at 3.3% of gross loans at end June. Legacy pre-COVID NPEs now stand at 0.3% of gross loans, highlighting the huge progress made over many years in strengthening the quality of our balance sheet. And it's worth recalling, in the aftermath of the global financial crisis, NPEs at AIB reached 30% of gross loans. Sustainability is core for our mission and will continue to play a central role in our strategic development as we prepare to enter our next planning cycle. Supporting all our customers in their transition to a lower carbon future creates significant opportunities for remunerative and risk-conscious capital deployment, both domestically and in selected international markets. We continue to make progress towards meeting the ambitious 2030 targets we've set ourselves, not only in terms of lending, but also in relation to our own emissions as a business. And we're looking forward to the autumn energization of our first solar farm in Wexford under our Corporate Power Purchase Agreement with NTR, which is key to our own net-zero ambitions. We remain the leading ESG issuer domestically, and our peer recognized leadership in this space is creating new advisory opportunities for the group. We were delighted with the further reduction in the state's shareholding in June, which returned AIB to majority private ownership. And we, taking into account the partial relaxation of government remuneration restrictions have updated our remuneration policies to provide health care for our colleagues from next year and a variable remuneration scheme of up to EUR 20,000 to be paid next year on foot of this year's performance, and accruals for this scheme are reflected in our cost outturn for the first half. So, we have delivered on our commitment to transform the group. More customers, more lending, more products and services, these are the underpinnings of our performance. To ongoing and sustained investment in our digital infrastructure, we will continue to enhance the quality of our customer experience and the operational efficiency of the group. And of course, we remain disciplined in our underwriting and rational in our pricing because that's in the best long-term interest of our customers and our shareholders. While the 2023 performance of AIB will be regarded as truly exceptional with a RoTE of above 20%, we are very confident in the ability of our franchise and our business to generate very strong returns over the years ahead. The capital that we expect to generate will be deployed to invest in our business, both organically as well as potentially through small earnings accretive bolt-on acquisitions, should such opportunities arise, while being very firmly committed to delivering progressive returns to our shareholders. The group is now in its most robust position in decades, and we're committed to building on that strength in the interests of all the stakeholders that we serve. We've had an exceptionally strong start to this year, and we're set to deliver superior returns over the years ahead. Having restored AIB, we will invest all our energies in ensuring the group remains sustainably strong for decades to come, and we look forward to updating you on our plans for the next phase of the group's development and our medium-term targets 2026 when we close out this year. I'll hand over to Donal now.

Thank you very much, and good morning, everyone. We, obviously, finished 2022 with a lot of -- a very strong trajectory. So I'm going to run through the financial highlights for the first half of the year. We had a profit after tax of EUR 854 million, total income of EUR 2.2 billion, and that was made up of interest income, up 98% and other income up 15%. Our costs were EUR 897 million, which is up 15%, and the amount of employees in AIB rose to 10,000 -- just over 10,000 staff. That gives us a cost/income ratio for the half year of 41%. Our gross loans are now EUR 62.8 billion, which is an increase of 3% from the end of the year. That's made up of 2 parts. Firstly, organic growth of 2% in the underlying business, which Colin would have talked to. And in addition, we on-boarded some additional Ulster corporate loans of EUR 700 million. The tracker portfolio, which Colin alluded to, was executed in July or on-boarded in July at around 80%, so that's not included in those numbers. Our asset quality remains very strong, and our ECL coverage is at 2.6% with an NPE ratio of 3.3%. Our funding position is very strong. We saw an increase -- a slight increase in customer accounts in the first half of the year. And overall, all of our liquidity ratios are very strong. And given the strong underlying performance, our CET1 fully loaded ratio is 15.7%. In terms of the income statement, there's nothing really here that I want to touch on a little bit later, other than to run through some of the key financial metrics here. Our net interest margin, 2.94%, a return on tangible equity, 21.5% and earnings per share for the first half of the year, EUR 0.31. In terms of net interest income, obviously, a huge number of moving parts there given the speed at which rates have moved. But just if I was to break these down into the main blocks, our liability costs would have increased up to EUR 273 million. That's broken down into pay costs on deposits of around EUR 77 million and then EUR 196 million, really on wholesale liabilities where we hedge all of our issuance. In terms of customer loans, there's obviously a benefit there of 33 basis points, and that's on a net basis. The underlying customer loans were up around 81 basis points, and our structural hedge is incorporated here, and that's minus 48 basis points. There's a strong benefit from our investment securities of EUR 258 million. Our strategy has always been to asset swap all of our bonds. So this really sees the impact of the rising rate environment. And indeed, the balances held with the Central Bank, there's a benefit of 116 basis points or EUR 695 million. Overall, our guidance for 2023, we're happy to upgrade it from EUR 3.3 million to greater than EUR 3.6 billion and a net interest margin of greater than 2.9%. I think this slide is a really important one, just to really give a sense of the underlying factors that are going to impact NII for '23 and indeed into 2024. We've assumed an ECB deposit rate at 3.75% at the end of the year, and we've also assumed a Bank of England rate of 5.5%. The other key ingredients into this, I would say, is loan growth and loan growth assumptions, which I will touch on later. But overall, we see 10% growth in '23 and around 3% growth per annum on an organic basis going forward. In terms of deposits, what we're seeing in terms of flows or movements from current accounts into more term deposits or term deposit accounts. In the first half of the year, our deposit beta would have been less than 10%, though we have been introducing more and more liability products for our customers, and we are beginning to see customers slowly transition into these products. And by the end of the year, we probably see an exit deposit beta of just under 30%. But then as I look into 2024, we think that we'll be able to manage it and hold it in or around that level. Another key part of the interest income equation is related to our structural hedge. Obviously, I would have talked to this at the end of the year about our plan to term out duration and increase the quantum of the hedge. So what I've tried to do here is break down the half year and show the quantum and the average yield for euros and sterling, and where I see the exit yields and the exit quantums for the end of 2023. So obviously, at the end of 2022, our quantum was around EUR 20 billion. This has increased to EUR 32.2 billion. We do see that increasing to EUR 33.1 billion. But there's a lot going on underneath the surface here. As we go into 2024, we think that the -- well, the duration, particularly in euros, we want to maintain at or above 4.3 years. The yield is obviously going to continue to increase as we continue to reinvest at higher yields. And the decay that we see for -- in 2024 is around EUR 10 billion, and that's obviously going to be replaced with more hedges that are at the money. So overall, like I would have said, we wanted to slowly extend the duration of the hedge. And you can see with the older swaps maturing, being restruct at higher levels. As we go forward, that is going to provide a lot of support in a changing interest rate environment. Very strong other income, particularly on fees and income -- fees and commissions, probably 2 areas that I would draw your attention to. Number one is the impact from the forward contract from the tracker portfolio, and that was around EUR 125 million, EUR 126 million in the first half of the year. Obviously, as that transaction matures and comes on our balance sheet, that will come out of other income and interest income. But really the driving force behind the fees and commission and the trajectory that we're seeing there, it's generated from the increase in new accounts and new customers where we have 635 (sic) [ 635,000 ] new customers, which Colin have alluded to. So we do see really strong trajectory coming into the second half of the year. And overall for this year, we see other income around EUR 780 million. Costs were EUR 897 million, which is up 15%. 2 main areas here. I would say on the staff side, we're seeing, and have seen salary inflation from '22 into 2023. We've increased our headcount by around just over 1,000 people. And we've also included an allowance for variable pay, which Colin would have alluded to, in 2023 of around EUR 30 million, and that would be for the full year. Overall, in G&A expenses, we're seeing inflationary pressures coming through here, not per se from an AIB perspective, but from external suppliers. And obviously, we have an expanded product range, and expanded number of customers that we need to manage. Exceptional costs of EUR 130 million, legacy items and strategic items, which we believe are primarily concluded now, so we'll maintain our guidance for the full year on exceptionals. And as we look to the future with respect to positive things or headwinds, we obviously have a larger customer base, and we need to manage those. We need to onboard all of the inorganic initiatives, which we have effectively concluded in July. The inflationary environment, though, still there and reducing, is having an impact. And like I said, there will be an impact in '23 and '24 from variable pay and insurance, but we do obviously have the benefits from our transformation program still accruing. So our full year costs are expected to be circa EUR 1.8 billion with a cost/income ratio in the low 40s. In terms of ECL, small charge for the first half of the year, maintained our cover rates at similar levels to the end of the year. I think the credit story, as I would say or see it is, retail/consumer portfolios are remaining very resilient, notwithstanding the fact that rates have moved and net disposable income have changed or reduced. We're keeping a close eye on this, but certainly, very few signs of deterioration to-date. On the positive side, the businesses or the industries and sectors that were most heavily hit by COVID or impacted by COVID, they've all rebounded very strongly. So we're talking leisure, hotels, et cetera, and we're seeing really strong performance in that area. And then the one area where I would say we're pretty focused on is specific areas in the real estate world and more specifically in the office space or in the residential investment space. And in the first half of the year, we would have moved around EUR 2.3 billion of assets from Stage 1 to Stage 2 and in these sectors. Obviously, this is a yield impact on valuations, tighter interest rate cover ratios. But this is just a prudent forward-looking approach. Our overall LTV in our commercial real estate portfolio is around 54%, but we're just being cautious and very focused on that particular area. But for full year 2023, maintain guidance here, 30, 40 basis points through the cycle and more likely to be at the lower end of that range for 2023. In terms of balance sheet, not really too much changing overall at the half year. The larger change will take place in Q3, as we see the impact of the Ulster tracker portfolio come on board. But overall, for the half year, EUR 45.5 billion held with central banks, EUR 31.2 million at the ECB and around EUR 4 billion with the Bank of England. Loan book movements. Overall, we've seen 3% increase in the first half of the year, and for the full year, we see that being greater than 10%, which is slightly more than what we would have imagined at the last quarter. Our funding position remains very strong. Loan-to-deposit ratio of 59%, LCR 164%, NSFR 158%. And you can see that the largest part of our liability base is in our retail banking franchise, it is in customer deposits. And within those customer deposits, around 53% of those will be covered by various guarantee schemes. So very strong from a liquidity perspective. And from the MREL perspective our ratio is 31.4%, and that's in excess of our requirements. The CET1 outturn is very strong 15.7%. That's a 5.1% buffer to -- are ahead of SREP and a 5.9% ahead of SREP on a transitional basis. Few moving parts within that. Obviously, really strong financial performance of 150 basis points of capital generation, 40 basis points charge for the buyback that was executed in 2023, a 50 basis points reduction for the acquisition of the Ulster tracker portfolio, and we've made 100 basis points charge with respect to a dividend, which is at the upper end of our policy payout range, and there's a 40 basis point impact for RWAs for redeveloped and approved models in the mortgage and corporate space. We did make some efficiencies of 20 basis points, which is part of BAU, but overall, a really strong outturn in CET1. So I'm going to wrap it up now. Guidance for the year -- just to pull it all together. We see net interest income greater than EUR 3.6 billion. Net interest margin, greater than 2.9%. Other income, around EUR 780 million, cost of EUR 1.8 billion, cost of risk at the lower end of the 30 to 40 basis point range and a RoTE of circa 20%. When we're to think about distributions, no significant change here from what we've talked about before. Obviously, the focus for us has really been on business performance, organic capital generation, being mindful of all regulatory developments and really driving that performance for 2023. So in 2024, from '23's profits, we will look to pay ordinary distributions utilizing our normal dividend policy and consider additional distributions to move from our CET1 towards our medium-term target. As we move to our next strategic cycle with a continued focus on creating shareholder value and sustainable returns, we will review our medium-term targets and update these in due course. Thank you very much.

Thank you, Donal. And now we're going to go to the lines for some questions. Our first question this morning is from Raul Sinha at JPM.

Can I have 2, please, to start with? The first one is just on NII, just thinking about the very strong momentum you've got. You just have described the performance that AIB will deliver this year as somewhat exceptional. I think last call, you were keen for us not to upgrade the 2024 NII expectations too much. I mean, obviously, looking at this performance and even triangulating what you're saying around deposit beta with your hedging activity, it appears that there should be a little bit more of a follow through into 2024 in terms of the NII upgrade. Would you care to comment on that? And maybe if you don't want to talk specifically about '24, could you talk about the stability of NII from a medium-term perspective? That's the first one. Shall I give you my second or do you want to take that first?

Give us the second one, yes.

In terms of the second one, I guess, the ordinary dividend -- again, going back to the exceptional nature of profitability this year, the ordinary dividend payout potentially should be towards the low end. Just thinking about whether or not you want to maintain a progressive dividend as well over the medium term. So should we think about the mix within your distributions to be weighted predominantly towards buybacks, perhaps greater than 50% in terms of payout from buybacks and perhaps towards the lower end of your payout ratio for the dividends?

I'll briefly speak about the second question first before I hand over to Donal to address the first one. We have an established ordinary dividend policy, 46% payout of distributable profits. We're not going to provide guidance at this stage in relation to the exact level. That is obviously going to be the subject of Board debate when we actually conclude 2023. We have consistently said that we wanted to embed the inorganic acquisitions. We wanted to complete the transformation program. And in 2024, we would look to begin the process of returning our surplus capital to our shareholders, subject to a supportive economic environment, subject to regulatory approval, and subject to Board approval. And our intention is to do that or start that process in '24 out of the 2023 performance.

Hi, Raul. I think with respect to the NII, the outlook, certainly from my perspective, is all very much in line with what my expectations were with respect to asset growth, with respect to how we've increased our structural hedge. The great unknown is really around behavior -- customer behavior. And as we brought online more products, different durations, et cetera, trying to estimate what the behavioral aspects of that were going to be. So we've seen kind of a low flow from current accounts to term accounts in the first half of the year. We do think that it is going to increase in the second half of the year. But like I said, as we go into 2024 and I still see the betas close to that exit level. So as a result of that, and given the very strong performance of '23, as we go into '24 and '25, the trajectory is certainly stronger than what we would have imagined the last time we spoke.

Thank you, Raul. Our next question is from Alastair Ryan at Bank of America Merrill Lynch. Alastair?

Yes. So just to press on things you don't want to answer again, but nice problems. First, on the bad debt. I mean, the bad debts in the first half is all management overlays again, which are now a very high proportion of your total loan loss reserves. And given the strength of your book and the strength of the economy, I'm trying to see where your bad debts might come from in the second half. It doesn't -- doesn't feel like your number is very conservative there. And secondly, just on the capital, but it almost feels like you need to be distribution. If you're only growing at 3%, you're going to need to be making very high distributions to keep your capital ratio flat rather than going down. So I suppose ask that's the question where you might answer. Why is there any 3% growth in the loan book given the capital generation from next year onwards?

In relation to the provisioning, the bulk of what we're seeing and what we're reporting in the first half of the year is a PMA. It's our best judgment as to what may happen in terms of the credit environment as we move through the back end of the year. It's very much in line with our conservative approach. We have a very conservative approach to underwriting. We have a very conservative approach to the assets we choose to put on to the balance sheet, and we have a very, very conservative approach to provisioning. And we strongly believe at a philosophical level, that, that is unquestionably the best way of running the bank in the long-term interest of all our stakeholders. It is a reflection of the fact that we are dealing with an evolving monetary policy environment, and we haven't seen the full impact of the tightening monetary policy, yes. And we are still dealing with an uncertain global economic environment.

Yes. I think the question around the return on tangible equity or -- and how that evolves over time. We want to deal with all of our medium-term targets together very comprehensively, and we will do that in due course. The trajectory on income is certainly a little bit more than what we would have expected the last time we spoke. And we are cognizant of the fact that our return on tangible equity and our return on equity -- that gap is widening. But what we do have now, I think, is a very good view of where ECB rates are going and where they're going to stop. So the outlook for '24 and '25 is certainly a lot more certain than it has been for a while. We have concluded all of the inorganic items. So we certainly feel like we have all of the key ingredients now to look to the future with a good understanding of the baseline, so we can address all of the capital structure in its entirety with respect to investment in the business and obviously, return to shareholders.

Thank you very much. Next question is from Chris Cant at Autonomous.

If I could just again ask on the NII outlook into '24, please. So when I think about your guide for this year, the greater than EUR 3.6 billion, the sort of quarterly progression implied in the first half. I guess, you're pointing to an exit run rate post that 30% beta assumption of something like EUR 3.6 billion as of kind of the 4Q exit run rate. If you're then expecting the deposit beta and deposit trend component of the NII were to be sort of stabilizing into '24 and you've got EUR 10 billion of positive structural hedge churn plus a bit of loan growth. Should we be then expecting '24 NII to be sequentially higher? Or is there something else that you're worrying about taking a bite out of the NII as we look into '24. It feels like absent a significant unhedged rate move from the ECB downwards. We should actually be expecting probably some growth year-over-year into '24. So that will be the first question, please. The second is on cost. I know that towards the back of the slides, you sort of flagged you're going to be revisiting the guidance and the targets in due course. But I think formally, you're still guiding to a sub EUR 1.75 billion cost number for 2024. I presume that, that isn't really what you're now expecting, absent some other cost programs that you are thinking about impacting year-over-year? Because, I think previously, you were saying sub EUR 1.75 billion for this year and next. You're now saying circa EUR 1.8 billion for this year, but then still sub-EUR 1.75 billion, for next. So I just wanted to understand how we should be thinking about that? Is that guidance now effectively a bit stale on 2024 costs, please?

Okay. Chris, thanks very much. I think overall, if I look at the cost picture, in 2023, we've effectively revised guidance on the income side of around EUR 630 million. And then today, we've obviously adjusted costs for EUR 23 million, up around EUR 50 million. So for '23, I think we're all pretty comfortable with that. Our transformation program is still in place. The EUR 200 million takeout, 50% of that is completed prior to '23, 25% of that concludes in 2023. And then the last 25% of that will conclude in 2024. So the main impact in cost that we're seeing in '23 is from the increase in FTEs. And if I was to speak just at the highest level on that, we probably see that quantum plateauing in '23 and then '24, '25 and beyond, beginning to reduce again as we get all of the customers on-boarded. The new item is, as Colin alluded to, the change in variable pay. And also the introduction of insurance for all of our staff members, which was announced last November by the Ministry for Finance. So we need to take that into our thinking. But we will take a provision for 2023 of around EUR 30 million for that. And then just trying to understand that a little bit better for the future. So that certainly is new. But look, overall, our customer base is higher than it's ever been before. So our goal really is to maintain and improve our customer service. We need to bring our expanded product suite to our enlarged customer base, and that's going to be a huge focus for us as we go forward. And we're going to drive efficiencies through digitization and simplification. So thematically, they are the things that will be on our minds for the outer years, and then I'll try to give you some specifics that have impacted us for 2023. In terms of NII, I think that 2023, if we're to talk about peak NIM, et cetera, 2023 will definitely be the peak year, and that really is just because the speed at which rates move and the benefits that we're seeing in the -- particularly in the first half of the year and going into the second half of the year, they're just not likely to repeat again. The hard thing to predict is the behavioral side. And I've really tried to give you an understanding of our current thinking there around the deposit beta. But you're right around the structural hedge as we go forward, '23 into '24 with the churn there at new rates, that will be a marginal benefit on an overall basis. But I would -- '23 will be the peak year, but the impact in '24, '25, I don't see as being too material.

Thank you. For next, we're going to John Cronin at Goodbody.

Just firstly, like a clarification one on the deposit pass-through. So does that excess second half less than 30% beta relates to the entire suite, the EUR 103 billion or just the interest bearing component? So just a clarification there. Secondly, perhaps another clarification on rate sensitivity on the table at the back end of the presentation, you outlined that a 100 bps reduction in official rates would drive a EUR 288 million head to Euro NII. And on that, look, is there anything you can tell us around what assumptions you're making within that disclosure around fixed and variable markets rates pass through of lower rates? Are you assuming just automatically pass through? Or are there different assumptions? And then thirdly, on the RWA efficiencies that you mentioned, I know we've kind of spoken about this before, and it's obviously a '24 or later kind of time frame. But if you -- is there any kind of directional sense roughly that you could give us in terms of the potential sizing of CET1 capital ratio benefit that you could generate through those efficiency programs over -- perhaps an elongated time periods?

Hi, John, thanks very much. Just to go through these. When I talk about beta, I look at the entire deposit portfolio. So it's everything. I don't try and segment it down. It's -- in terms of the [ IRBB ] assumptions, I haven't highlighted these specifically. I've been really focused on my assumptions around pass-throughs in a rising rate environment. And in terms of focusing on the downside sensitivities, I don't really want to go into too much detail on those, because I really want to work through and validate some of those assumptions directionally. It's obviously correct, structural hedges increased from EUR 20 billion to EUR 32 billion and is extending a duration. So it's certainly a lot less. But I'm just not comfortable with any of the assumptions in a falling rate environment just yet. I'm still really focused on the asset side and the rising rate environment. In terms of SRT, we have organizationally focused on the inorganic activities, and now they have concluded. I've included in the slide basically my intention to execute an SRT transaction in the first half of 2024. What I would say is it's certainly not my intention to do a jumbo portfolio type of SRT. I think these types of products, this is a capital management tool. I want to be able to introduce it and be able to execute transactions on a multiyear basis. So you can expect to see multiple SRTs over the coming years. And quantum is probably not in the particularly large size, maybe targeting EUR 1 billion per transaction. And I would say, like, it depends on the portfolio, which you're focusing on. Some are going to have different impacts. But we'd certainly look to be targeting on EUR 1 billion transaction, something like a 30 basis point benefit. But I'll be able to update closer to the time when we're closer to deal time.

Thank you. Now we're going over to Diarmaid Sheridan and Davy.