AIB Group plc (A5G) Earnings Call Transcript & Summary

Good morning, and welcome to AIB Group's interim results for 2024. As usual, this morning, I'll spend some time on the key highlights for the first half of the year as we make real progress on our strategy to 2026 before I hand over to our CFO, Donal Galvin, for the financial details of the period just ended before we open to the floor for questions. On the back of an exceptionally strong performance in 2023, the first half of this year has seen us delivering a very robust outturn. This reflects not only a supportive economic backdrop, but is underpinned by the strong strategic foundations we have put in place in recent years. Today, our business is characterized by a broad and attractive range of products and services, a market-leading customer base of more than 3.3 million people. And robust capital and liquidity metrics. We are continuing to deliver on our purpose and on our promise to all our stakeholders. For the first half of the year, we're pleased to report a profit after tax exceeding EUR 1.1 billion, a RoTE of more than 25% and enduring capital strength with our CET1 ratio standing at 15.5%. Our business units are all performing well with our new Climate Capital segment now showing real traction and making a tangible contribution to our new lending and our profitability. The strength of the first half outturn positions us very well for the full year, and we are delighted today to be upgrading our NII guidance to circa EUR 4 billion. The first half of the year saw the states holding in the group falling to 25.5%. We welcome this development, which has seen total capital returned to the state exceeding EUR 16 billion. Now the strength of the performance creates a positive backdrop for further progress here, and we're very pleased to report that we have received approval from the European Central Bank on making an exceptional distribution of EUR 505 million, which, subject to discussions with the state, will mainly take the form of a directed buyback of EUR 500 million. Supporting the transition to a lower carbon future sits at the very core of our strategy, and we are continuing to adapt our products and our approach to meet that objective. As you know, we've increased our Climate Action Fund to EUR 30 billion. And the first half of this year with total new green and transition facilities hitting 34% of new lending, we advanced a further EUR 2.1 billion, bringing the total deployed since we established the fund in 2019 to EUR 13.7 billion. We are pleased that the first half saw us broadening the array of transition finance, which we make available to our customers, while we've also launched a new sustainability academy, which is providing training and learning supports for all of our colleagues right the way across the group. Our ambition and achievements in driving the sustainability agenda. Our support of our bond issuance program was our sixth green bond raising EUR 650 million in the first half. They're also leading to deeper customer relationships, with the group now acting as sustainability coordinator to 10 of Ireland's leading companies. Looking ahead, the economy is expected to put in a solid performance over the forecast horizon, with domestic demand growth set to hover in a range of 2% to 2.5%. The enduring and sustainable strength of the Irish economy is a key underpinning for our business. The total numbers that work in our core market here in Ireland, now standing some 14% higher than they were pre-COVID. Inflation pressures continue to ease, providing households and businesses with a welcome relief and greater certainty, while housing output continues to grow, and that imbalance that exists between demand and supply continues to shrink. Balance sheets across the business and personal sectors remain healthy on front of multiyear post global financial crisis decline in leverage, which may now have reached its trough while system-wide deposits and savings ratios remain high. Meanwhile, our own PMIs suggests that the performance of the services sector will continue to outpace manufacturing for the foreseeable future. Overall, it's a solid, steady, sustainable backdrop for our business. We're pleased that the Department of Finance has continued to use all of the levers at its disposal, its trading plan, accelerated book bills and directed buybacks to reduce its shareholding in AIB Group. This is an important development in the normalization of our share register and in the process of returning to the state and the Irish taxpayers, their support for the group during the global financial crisis, support, which sustained AIB at a time of acute need and for which we remain deeply grateful. Following approval by the European Central Bank and subject to discussions with the state, the exceptional distribution we are proposing on foot of these interim results, we'll have the effect of reducing the state's shareholding to less than 23%, and we'll bring the total payments to the state to date to just shy of EUR 17 billion. The total sum realized by the state has already reached EUR 2.5 billion since the start of this year. And on completion of the proposed share buyback will reach EUR 3 billion. The group's underlying vigor and performance in the first half sees organic capital generation of some 190 basis points of CET1, and that creates the opportunity for the share buyback proposed. This is an important step forward in the process of returning surplus capital to our shareholders while accommodating the reduction in the state's shareholding and at the same time, maintaining strong capital ratios, which will sustain our business and our customers through the vagaries of the economic cycle. We remain committed to continuing to move towards our 2026 CET1 target of greater than 14%. Turning now to the core of our business. New lending was 13% higher in the first half, reaching a total of EUR 6.3 billion. The pace of this lending growth is reflective of the strength of the operating environment, the consolidation of our industry and the exceptional growth in our customer base in recent years. New mortgage lending was ahead by 11% with our market share reaching 36.4% year-to-date. Personal lending expanded by 10%, while our corporate and SME lending grew by 38%, driven in large part by the success of Climate Capital. We remain cautious and selective in our approach to new CRE lending, which fell by a further 39% in the first half. But we do expect to see some recovery here as we move towards year-end and through the anticipated bottom of the valuation cycle. Overall, green lending reached 34% of new lending, and we're now well embarked on reaching our 2030 target of 70% of all new lending being green or transitional in nature. Thanks to the exceptional strength of our customer franchise, the portfolio and business acquisitions of recent years and the expansion in our product and service range, we can credibly state that AIB is Ireland's leading financial services group. Whether it's retail banking, business banking or green banking, AIB is #1, and we will strive to maintain those leading positions over the years ahead through an unrelenting focus on our 3 strategic priorities: customer first, greening our business and operational efficiency. On customer first, we've built a single center of excellence under the leadership of a new Chief Customer Officer to deliver ongoing improvements in our understanding of our customers' needs, the way we deliver our services and in building ever stronger, more enduring relationships. We are determined to make the service experience by our customers as intuitive, responsive and friction-free as possible. And I look forward to updating you on further progress here as we continue to innovate and to invest in this vital pillar of our business. The first half of 2024 saw the formal launch of a new business segment, Climate Capital. This part of the group will remain focused on lending opportunities in established renewable technologies and related infrastructure in proven markets with an experienced team delivering for our customers from our Dublin, London and New York offices. This is a sector we understand intimately and where we have built excellent industry credentials. It's also the most internationally oriented part of our business, as reflected in the loan growth reported in the United States and Britain in the first half of the year. It's our clear ambition that AIB Climate Capital will be a key driver of profitable, sustainable and risk-conscious balance sheet expansion over the years ahead, and the track record speaks for itself. On operational efficiency, we have good progress to report. We've invested heavily in our technology, our data and operations and are now really reaping the benefits. With business credit processes transformed, our mobile banking app upgraded and enhanced and our organization made less complex. Now these are works in progress, but we are already seeing substantial benefits in terms of the service our customers experience, the ease of digital banking use and the speed at which we can respond to evolving needs and the operating environment. We are now well-embarked on a program of relentless simplification, which will deliver real benefits as we streamline and strengthen AIB. For instance, over the course of the years ahead, we are planning to reduce the number of legal entities in the group by 40%, reduce our outbound postal volumes by 25% and decommission 12 legacy IT applications. While we are committed to maintaining our community presence across Ireland and to be available to spend time in person or by phone with our customers when they need us, more and more of the group's products are going to be sold and delivered online over the years ahead, and we have the capabilities, the plans and the resources to meet the opportunities presented by that trend, and that's clearly in the interest of all our stakeholders. Technology sits at the heart of our plans as we continue to invest in building a secure, reliable and high-quality platform for our business and for our customers. Safety must come first, and we will continue to invest in our business resilience, strengthening our fraud capabilities and enhancing our cybersecurity. We will continue to enhance the channel experience for our customers and we have very exciting plans for the next evolution of our digital offering, plans which will come to life over the coming quarters. We're actively exploring the potential of AI to drive greater operational efficiency and customer outcomes, and we're currently scaling a set of AI use cases. We have the resources, we have the track record, and we have the strong foundations to progressively modernize our technology over the years ahead, and we'll do that in a way that is fully aligned with our 3 strategic priorities. Our purpose is to empower people to build a sustainable future. That's what we do every day. We're now well embarked on our strategy to 2026 and the plan is working. That much is abundantly clear. Put simply, we are delighted with the performance of the group, and we are optimistic about its prospects and confident in its ability to deliver for all our stakeholders today, tomorrow and well into the future. Donal?

Thank you very much, Colin, and good morning, everybody. I'm delighted to be able to bring you through the financial performance for AIB in the first half of 2024. Our profit after tax was EUR 1.1 billion, which is up 30% versus half 1 2023. Our total income was up EUR 2.47 billion, which is up 12%, and that's broken down by an increase in interest income of around 18% and an increase in fees and commissions of around 10%. Our costs were EUR 947 million, which is up 6% with a half year cost-income ratio of 38%. Gross loans are EUR 68.9 billion and have increased by 3%, and our new lending of EUR 6.3 billion was up 13%. Our asset quality remains strong and resilient, and we've maintained our ECL coverage at 2.3%. We had a charge of EUR 61 million for the 6 months, which equates to an 18 basis points cost of risk. Our funding position remains very strong. Our customer accounts are of EUR 107 billion increased by EUR 2.2 billion in the 6 months. We also issued a lot of MREL securities in the first 6 months of the year, including AT1, Tier 2 and $1 (sic) [ $1 billion ] senior nonpreferred. Our CET1 ratio is 15.5%, and that reflects 190 basis points of capital generation, which is offset by a proposed buyback, dividend accrual and some RWA growth. Delighted to be able to announce a major distribution of EUR 505 million, where we've already received regulatory approval and it's our intention to transact EUR 500 million on a direct basis for the state. Overall, on the income statement, I've already touched on some of the key highlights. Some of the other areas, just to draw your attention to, I think, levies, regulatory fees, we see as being EUR 145 million for the year, and that's predominantly EUR 100 million government bank levy. Our exceptional items, we see as being EUR 100 million for the year, which is what I would have previously guided. And just if we look through the key financial metrics for the first half of the year, our net interest margin was 3.24%. Cost-income ratio was 38%, with a return on tangible equity of 25.5%, which equates to an earnings per share of $0.42. Just to really break out the interest income. This is a slide that I've tried to be able to present consistently. As you'd expect to see higher cost of liabilities, EUR 145 million of this really related to higher pay costs on deposit accounts, EUR 130 million, effectively reflecting the higher cost of MREL securities and that's a 29 basis points NIM impact. Customer loans have obviously benefited from the higher rate environment and indeed higher average balances for EUR 228 million. So that's a 24 basis point benefit. And then we have other items such as investment securities and balances with central banks, which has a positive impact of EUR 130 million and EUR 239 million, respectively, giving us a quarter 2 exit NIM of 3.22%. With respect to the NII outlook, we obviously came out of '23 and into '24 with really strong momentum. We're upgrading our guidance today for interest income from greater than EUR 3.65 billion to circa EUR 4 billion, and there's a number of items for that. Firstly, our deposit rate assumptions around the ECB have changed. We had previously used 2.75% as an endpoint. Now we're using 3.25%, really reflecting where the market is. With respect to deposit beta and deposit migrations, I previously said for the year, we saw a beta of less than 20%. We're now seeing that more like less than 15%. With respect to the actual flows observed, they've been very, very consistent really since September of last year, effectively EUR 600 million per month is moving from shorter-dated to long-dated deposit accounts. And so that's why we're comfortable changing these beta assumptions. Outside of those 2 key items, there are a number of items, just on our balance sheet, which we feel gives us a lot of resilience. I think now everyone is a bit more comfortable with where the euro curve is going to go and what the euro rate outlook is, which is helpful for everyone. But what we've really witnessed over the last number of years is a very a sticky and granular deposit base, which has continued to grow year-on-year. And indeed, if I look back to 2020, even pre-COVID and compare our balance sheet then to now, really, what we've seen is a material change on the balance sheet. We have EUR 25 billion more customer accounts, and we have around EUR 15 billion more of assets. Obviously, this is reflective of the changing banking landscape in Ireland and obviously the take on of another large number of customers. So the balance sheet has materially changed as well, giving us more resilience we feel going forward. And overall, this is obviously underpinned by the structural hedge program. Not too much really to report here since the year-end. We've maintained the overall quantum of hedges that we have in place on our balance sheet, and we slightly extended duration like I would have indicated. So we currently expect to see December 24 exit fixed yield on euros to be 2.5%. And sterling around 2.2%. So we put all that together, we see a really strong momentum for '24, and we're happy to upgrade our guidance to EUR 4 billion. Overall, strong growth on fees and commissions, though our other income was down 14% year-on-year, and that's really due to the fact that in half 1 '23, we had the benefits of a forward contract with Ulster Bank in place. But looking through that and looking under that, the fees and commissions of EUR 336 million, about EUR 30 million or 10%. And this just really reflects the impact of the increased customer base. And you see that in higher card income, higher transaction volumes, customer account fees are up 6%, card income revenues, up 9%, customer-related FX up 18% and stock-broken client fees via our good bodies are up 25%. So as we look to the end of the year, we had given guidance of greater than EUR 700 million. We're going to maintain that in place, but I'd be confident that we should do a little bit better than that. Our costs are EUR 947 million, and that's a 6% increase. Staff costs were up 10%, and that's really due, I would say, to the '23-'24 inflationary effects, higher FTEs in AIB as we onboarded a lot of new customers, the introduction of health insurance for all of our staff and an increase in variable pay allowance, which was implemented in 2024. Our cost/income ratio is down from 41% to 38%, and our FTEs are broadly in line with December 2023. So for full year 2024, we expect to see a 6% increase in our core costs, as previously guided. And we'll also have a one-off charge through our OpEx of EUR 25 million, where we've really just brought forward some spend in 2 different areas. One is to invest in some of our branch estate and improve their efficiencies to achieve our net-zero ambition. And secondly is to bring forward and execute some of the operational efficiency measures and initiatives that Colin would have referenced early. So overall, costs, 6%, 7% increase, plus EUR 25 million in 2024. Overall asset quality is strong. As you can see here from the overviews, the macroeconomic assumptions have improved slightly. So we've seen a write-back of EUR 35 million. Credit charges of EUR 144 million across the entire portfolio and a release of PMAs of EUR 48 million, gives us a half 1 charge of EUR 61 million, which is an 18 basis points cost of risk. We've tried to maintain our conservative cover at 2.3%, and we're very focused on ensuring that the overall stock of PMA is coming down overall, whilst we maintain our conservative forward-looking approach to provision. So for 2024, we expect cost of risk at the lower end of the 20 to 30 basis points range. Not too much really to report on balance sheet, but just referencing some comments that I made earlier. In prior years, we've had large movements and inflows on the liability side. We've had large changes on the asset side with inorganic acquisitions. I think now going forward, we're going to have a much more symmetrical move in our balance sheet. So we can see that our gross loans have increased 3%. Our customer accounts have increased 2%. So I think it should be a little bit more steady state going forward with asset and liabilities. And just with respect to that loan growth and Colin would have gone through the individual segments, we had EUR 6.3 billion of new lending and redemptions of EUR 4.5 billion. But if you look on the right-hand side here, I think all of the business units have performed well in the first half of the year. We saw a growth of around 3% in the first 6 months of 2024. So we expect to see at least 4% growth overall for the full year in 2024. I think I would have talked previously about normalized growth of around 3% per annum. I think we'd be a little bit probably more comfortable with 4% growth per annum out to 2026. But certainly for 2024 gross loans are expected to grow by at least 4%. Our funding position remains very strong. 81% of our funding is customer accounts, of which 70% of these are personal and SME balances less than EUR 1 million, really that reference to the granular -- the sticky granular deposit portfolio that we have. Our MREL ratio is 33.2%, which is obviously well in excess of our 30% requirement. And if we look here on the right-hand side, this is just the breakout of our deposit portfolio. And you can see it's been pretty consistent in the 6 months. We've seen the flow to term, as you can see above. But as that has been happening, our current account balances have actually maintained at the same level because we're getting more customers and more customer balances. So overall, an increase in customer liabilities put -- leaves us in a really, really strong liquidity position. So our loan-to-deposit ratio was 63%. Our LCR is 204% and our net stable funding ratio is 163%. In terms of capital generation, just a fairly straightforward walk-through here. We had 190 basis points of organic capital generation in the first half of the year, which is a really strong performance. We've made a deduction of 120 basis points for a dividend distribution accrual, and that's effectively our policy for providing for 60% of our attributable earnings. We've made an 80 basis points deduction for the share buyback, which we have just announced today. And then we had a small effect of 40 basis points for RWA growth on the back of that new lending, which I would have talked about. So leaving us at 15.5%, well above all of our regulatory buffers. With respect to distributions and capital management and how we intend to move towards our 14% CET1 target, really just 3 different blocks that I want to talk through. Firstly, is just a reiteration of our distribution policy and how we think about this. So we see organic capital generation to average around 250 basis points out to 2026. But obviously that's going to be a little bit stronger in 2024. We target a payout range at the upper end of 40% to 60% of attributable earnings, and that's our ordinary dividend policy range. We will look to make additional distributions above policy to move towards our CET1 target in the medium term. We will look to grow our cash dividend per share on a sustainable and progressive basis. And every year and every half year, we'll take a balanced approach to cash dividends and share buybacks. There's obviously a number of items that are impacting capital as always. I think thematically at the moment, Basel IV, Basel IV impacts are live for all institutions. For AIB, our best estimate at this stage for the effect was around 50 basis points benefit. And that's looking through all of our 3 articles in June 2024. And obviously this will be something we'll be able to finalize and firm up on in at year-end. I've talked previously about an SRT program that I wanted to put in place in AIB, which is going to be multiyear, multi-asset class -- we're going to look to execute our first transaction in the second half of 2024. It's going to be referencing our corporate portfolio, approximately EUR 1 billion of loans, EUR 800 million of RWA, and we think that, that will have a 20 basis point impact. Obviously, balance sheet growth and profitability are going to drive credit and operational risk RWA inflation, which is quite formulaic. And as ever, there's ongoing IRB model developments. Nothing in particular positive or negative to update you with there, but there's always a lot of activity in that area. And lastly, obviously, just to discuss our midyear distribution. This is our first post-GFC mid-year distribution, EUR 505 million proposed share buyback. This includes a EUR 500 million buyback that we want to execute with the government where discussions are under the way. And in addition, we're going to execute a small odd-lot offer for smaller retail investors, and that was something that we had seeked to approval at our last AGM from. Overall, we think our capital distribution policy is supported by strong organic capital generation and good, strong RWA management. So just to wrap all of that up for guidance, interest income, EUR 4 billion, other income greater than EUR 700 million, cost increase 6% to 7% plus a one-off OpEx of EUR 25 million. Cost of risk at the lower end of 20 to 30 basis points, bank levies and regulatory fees of EUR 145 million, exceptional costs of EUR 100 million and customer loans to grow by 4%. So as we look to '25, going into '26, just reiterating our medium-term targets, costs, less than EUR 2 billion, CET1 greater than 14% and a RoTE of 15%. Thank you very much. We'll hand it over now to Q&A.

Thanks very much, indeed, Donal. And now we're going to go to the phones for questions from the analyst community. And I believe our first question this morning is from Grace Dargan at Barclays.

If I could ask one on NII and one on the distributions. So I guess, firstly, on NII, really keen just to hear a little bit more about how you're thinking about that trajectory into 2025. I guess maybe to help us a little bit thinking about your rate sensitivity, kind of what beat your assumption? Is in that minus 100 bps rate sensitivity as well? And then secondly, on the distributions, great to see the share buyback this morning. I guess the Q1, you were still talking about ruling nothing in, ruling nothing out. So what changed over the last couple of months to get the reg approval over the line? And maybe put another way, what would prevent you doing half yearly buybacks from this point forward?

I'll take the distributions question, and Donal can deal with the NII question. Nothing changed. We just didn't want to make an announcement about a distribution until we had an announcement to make. And that was what was meant by nothing was ruled in and nothing was ruled out. We weren't going to give a commitment to the market until we were ready to give that commitment, and today is that day. In terms of going forward, I want to make it very clear that it is the firm intention of myself and the firm intention of the executive team that we will return to a normal cadence of distributions of dividends over the period ahead, and we look forward to having a discussion with our Board in relation to that from a policy perspective as our share register normalizes. But I want to make it abundantly clear, it is our firm intention as an executive team that we will have a normal cadence in terms of timing of distributions going forward. Donal?

Yes. With respect to the net interest income, a couple of moving parts here. Obviously the ingredients would be assumed loan growth. So I've given you that at 4%. In terms of liability growth, we've seen like extraordinary growth, I would say, over a 4- or 5-year period. I think the total quantum is likely to slow down from here, should we say. So there are 2 of them, the main parts. But then lastly is obviously going to be the deposit beta. What we're seeing certainly in our market is just a slower move to term, albeit it's happening on a very consistent basis. So we would have adjusted our beta assumptions for '24 from less than 20% to less than 15%, though we do expect to continue to see the term out of products, just it has been slower than what we might have expected. I think medium term, we think that a normalized beta for this market is probably less than 30% so you can estimate what the impacts of that are going to be. And obviously, all of the while we feel that the resilience in NII is always underpinned by the effects of the structural hedge program, which we've obviously increased quite considerably over the last number of years.

Thanks, Donal. We're now going to Diarmaid Sheridan in Davy. Good morning, Diarmaid.

Maybe 2 quick questions for me. Firstly, around the capital piece. And I appreciate the comments around the cadence, Colin. Maybe just around the absolute amount. I mean obviously you've got a phenomenal amount of capital being both generated, but also saving on your balance sheet today. You talked to a couple of different moving parts, Donal in your slides around different things, SRT, Basel IV being beneficial. So is there anything that would stop you from moving to greater than 100% for a period of time to help get down to -- towards that 14% target? Or do we need to think about this as being kind of 80%, 90% kind of distributions over the next couple of years in loan growth and various other things moving? And then secondly, just a quick follow-up on the net interest income piece. If we look at the other side, Donal, at the liquid assets and the cash, I mean, I assume those will be very, very sensitive to the rate move down. So that's where most of the reductions that are in consensus right now, is consensus kind of looking -- would you be comfortable with where consensus is for '25-'26 at this point in terms of net interest income?

Okay. On the capital piece, Diarmaid, I think it's worth pointing out maybe reminding ourselves that we've got a very, very strong track record in terms of getting regulatory approval for distributions outside our normal dividend policy. We had a ECB approved buyback of EUR 1 billion that we announced in March. And today, we're announcing another EUR 500 million. So the track record is there and speaks for itself. We have an ordinary dividend policy of paying out between 40% to 60% in ordinary dividends. That remains in place. But we are deeply conscious of the fact that notwithstanding the fact that we have fully adjusted our CET1 outturn for that EUR 0.5 billion distribution today stands at 15.5%. We are continuing to generate capital organically. Donal will have walked you through the various moving parts. But we are very committed to getting to that CET1 target of greater than 14% by the end of 2026.

Yes. Just with respect to the sensitivity questions there and the NII, yes, your view, you've mentioned some of the areas of the balance sheet that are most sensitive to rates. And you're absolutely right. Obviously, one has structural hedges operating separately to extend duration. I'm not going to get into guidance changes for '25 and '26 other than really to give you that idea on the asset growth and what we think is a more appropriate level. But obviously, putting everything together, consensus 25 total income-wise looks about right to me. But look, there's -- 2 main moving parts for European banks, including AIB, one, the euro rate curve, 2 the beta movements. We're getting a lot more comfortable with both of those. We're very happy to give very clear guidance and upgrade guidance for 2024, but we'll deal with '25 and '26 at the appropriate time.

Thanks very much, indeed, Donal. And now we're going to JPM to Sheel Shah. Good morning.

Firstly, on the structural hedge, when I'm looking at the December '24 exit fixed yield, you're saying 2.5%. The current swap rate at the moment, given that rates have moved down over the last few days is around 2.5%. So I just want to get a sense of the potential tailwind we should still expect from the hedge, given that the average yield is coming close to current rates at the moment? And then secondly, with regards to the strength of the Irish economy that you talked to earlier in the presentation, you've still got around EUR 450 million of PMAs or around 65 bps cost of risk being held on the balance sheet. What are the thresholds or what are your confidence levels in this being returned back through the P&L?

Social hedge?

Okay. Yes, on the structural hedge, I think previously when I were to talk to this, I would have said that we had EUR 10 billion of hedge maturing in 2024. That has, by and large, exactly that's what happened, being replaced with new hedge, just looking to extend duration a little bit. As we look into '25 and '26, I said the turnover is far less, more of EUR 5 million or EUR 6 billion. As you say, where euro curves are at the moment, the euro hedge is as an exit year for '24, let's say, approaching being at the money. But certainly for '24 was a remainder reasonably chunky drag on NII. So I think there's uplift there, should we say. Sterling hedge is fairly straightforward to model. It's just quite formulaic over the term. So '24 NII drag was pretty relevant, so was '23 and benefits you're going to see into 2025, a, from maturing swaps and then b, from obviously lowering short-term rates. With respect to PMAs and cost of risk, look, the increase in PMAs is really driven by the speed at which interest rates change, the speed at which inflation assumptions changed. So I'd say inflation assumptions have gone up and come down, which is positive. We certainly haven't seen any unusual deterioration in asset quality, but we remain cautious in some sectors. I think you can reasonably expect to see as time goes by, obviously, that these PMAs will just reduce over time. There's not going to be a day 1 moment where we decide, well, we don't need these anymore. It's a big write-back. You're more likely to see it spread out over time when we feel that there is any particular weaknesses in the book that there's just no vulnerability whatsoever. We're always quite conservative and forward-looking on our provisioning and it's our intention to remain as such. And of course, the Irish economy remains very, very strong. One of the standout features of the economy here in Ireland relative to other countries is that not only have we recovered all those jobs that were lost during the COVID years, but our total employment in the state now stands some 14% higher than it was on the 1st of January 2020. At the same time, you obviously have the support for disposable income and real income growth coming from the very welcome decline in inflation readings. And we just don't have the sort of fiscal imbalance that you have in other countries. And rather than fiscal policy being a drag on household incomes and indeed overall activity in the economy, quite the contrary is likely to prevail as we move into 2025. We're now going to go to -- back to the lines back to Chris Hallam at Goldman Sachs. Good morning, Chris.

So 2 quick ones. So first, maybe just have the competitive dynamics changed at all this year in the Irish market, particularly when you think about the potential for new market entrants. That's the first question. And then secondly, on Slide 28. On the plus/minus you have for regulatory developments, is there anything already on the horizon that you want to flag there? Or is that just a bit of an insurance policy on whatever may come down the line? And then is there any sort of scale you'd like to put on the SRT program, particularly maybe with regards to how much of the RWA growth that might offset through the plan.

Okay. Thanks, Chris. On competitive dynamics, we do have 3, [indiscernible] Ulster Bank and KBC. We have 3 full-service retail banks here and aren't. But we've niche operators offering particular products and services. So for instance, in the mortgage market, there's not 3 mortgage product providers that are 10. And if you look at our performance in terms of what we have done, we have products at both the variable in terms of both variable rates and in terms of fixed rate, which are proven to be very attractive to our customers. And last year, we would have had a mortgage market share of about 33%. We've seen that -- we saw that trending higher as we move towards the end of last year. That trend has continued into 2024, an average year-to-date market share of 36.4% and continuing to trend higher in the month of June alone, our mortgage market share in terms of drawdowns was 37.3%. One of the big advantages we have here is that we just haven't hung our hats on one product. We're competitive on variable, we are competitive on fixed rate. And you saw a very significant flow from variable towards fixed as interest rates went up. And we are already now beginning to see a flow back towards greater appetite for variable product as people anticipate or people see the term in the official ECB interest rate cycle.

Hi, Chris, yes, with respect to regulatory developments, yes, indeed, I kind of put that there as a little bit of a catch-all. Some items in there that we keep under consideration. On Basel IV, our best estimate currently 50 basis points. There's a number of questions outstanding with the regulator with respect to potential treatment of undrawn balances, stuff like this. Obviously we're going to have to wait and see. And that's an industry-wide type question. Typically for us, I mean, we're in 1 or 2 years into a very condensed heavy IRB rollout program, okay? So every year, we've got large, say, asset classes under review and getting approval from the regulator as we look to modernize our model landscape. So 3 that are coming up, I would say, in the next 12 to 18 months, new bank model, EBS mortgages going on to IRB, property and construction business going on to IRB. So what I'm saying is they're all happening. There'll certainly be an impact. I think there'll be ups and downs. I don't think that on an overall basis, there's anything to update you with, but they are the kinds of things that I would bucket together and talk to on the regulatory developments. With respect to the SRT -- we have an approval in with the regulator. This is our first transaction. So it's probably the most important one. So we've gone with a fairly straightforward construct looking at corporate loans. They're going to be well-rated ones. We just want to make this fairly straightforward, fairly vanilla. We want to get the investor group who looks at these areas comfortable with how we manage our credit. So that's going to be transaction one on the corporate side. But like I said, I see this as a program. This is going to run over multiple years. It's not like we need to do an SRT to raise capital for any particular reason. This is a capital management tool for us. So we'll be able to manage our RWAs, optimize our capital as our dividend policy distribution policy and overall business plans evolve over time. But for now, what I'm saying is corporate transaction, H2 20 basis points benefit. And thereafter we'll be able to update you with further plans.

Thanks, Donal. Over to Chris Cant in Autonomous. Good morning, Chris.

Donal, I know you said you didn't want to give guidance beyond '24 in any detail, but you've given us a very nice-looking fuzzy bar on Slide 18 for your kind of NII resilience comment out to 2026. Should we be taking away from that fuzzy bar that you're sort of broadly comfortable with consensus 26 NII around EUR 3.5 billion? That would be the first question, please. And the second question is on hedge yields. It's a while since you gave us commentary around the yields on maturing positions. So any information you could give us there would be very helpful. And on the volume churn point, obviously, you also have this EUR 20 billion fixed rate mortgage book, which effectively forms part of your hedge. But I think when you speak to the churning volumes, you're not including that. So could you give us a sense of how quickly that EUR 20 billion mortgage book churns over the next couple of years, please, as well. That would be helpful.

Okay. Thanks very much, Chris. Yes, on Slide 18, referencing the fuzzy bar. Certainly what I meant to do is put the -- to show the interest rate there in 2026. That's the rate we're assuming and we're comfortable with our medium-term targets, assuming that as the underlying rate. Naturally that's going to probably move around a little bit over time. But specifically with respect to the '26 consensus type number, absolutely, yes, is the answer to that. And then I think the question was some more detail around the structural hedge. 2024, we are doing EUR 10 billion of hedge maturing had from memory yields of around 2%, just under that. So as that's being replaced, we're getting an uplift on that. When I talk about maturities, you are right, I talk about the interest rate swap portfolio, not the EUR 20 billion of fixed rate mortgages. I think when I talked about those previously, we were saying EUR 20 billion at 3% in 3 years. Overall flows into fixed rate mortgages, still relevant, less so, standard variable rates, floating rate products becoming a little bit more popular as well. So probably see the weighted average life of that portfolio now just less than 3 years with the overall fixed rate of 3% as well. So beginning -- already beginning to churn at those higher rates. I hope that answers the questions.

Thank you very much. Over now to Andrew Stimpson in KBW.

One question on the buyback again, I'm afraid, for me, and then one on the Climate Capital, please. So on the buyback, as others have said, it's great to see the midyear buyback there. My question is, how did you think about the sizing of that buyback? Was it to get down to the 15.5% or are you just taking half of what you did last year? Because on Slide 27 we can see that the distribution accrual plus the proposed buyback is 200 basis points, that's greater than 190 capital generated in the half. So in a way we can say you've already had a payout of more than 100% in the first half. So just wondering if you'd warn me away from describing it like that. And then secondly, on Climate Capital. Again, great to see that you've split that business out into different divisions. So thank you for that. And apologies if I can actually get this from the new data you've given us. But is there a difference in the pricing that you can charge on that lending versus other lending? And do you feel also that you get any extra credit from the supervisor for the climate lending that you're doing. We see a lot from the policymakers asking banks to do more. So I'm just wondering if there is actually any benefit you feel from being on the front foot there.

On the Climate Capital, I think there's -- climate risk is increasingly front and center for regulators around the world, not least the ECB. And I believe that we are doing everything that we should be doing in terms of supporting that transition to a lower carbon future. We're doing it not only here in Ireland. We're doing it in Britain. We're doing it across the rest of the European Union, and we're doing it in the United States. And in terms of the margins on it, let's look at it in terms of RAROC. And I can confirm to you that, that business is RAROCing very well. It is a low-risk business. It is a capital-intensive business, and it's a business in which we've got exceptionally strong credentials. And we find ourselves in a position that this is an industry that has reasonably few players in it, reasonably few significant players in it. They come to us because they know we understand the industry. They know that we understand it intimately, not just as lenders, but as people who have built these assets in the past, and it is a source of huge opportunity for us. We have more opportunity than we're actually going to put on to the book. We're extraordinarily selective in terms of the partners, in terms of the geographies and in terms of the assets where we are pushing that capital to work. But it is a source of very significant growth for us. It will remain a source of very significant growth for us, and it is RAROCing very, very nicely. Yes. I think with respect to the question around the sizing of the exceptional distribution for the half year, we had a look at, obviously, at the financial outlook. We knew that we were going to be in a strong position. So our questions were really about what was the most effective thing to do next. So the discussion with the Board was really around what was the regulator's thoughts around a mid-year exceptional buyback, government. And so I would say through kind of discussions amongst all parties, we've landed on that number. The fact that it's that plus the accrual is not really how we would have thought about it. We just are very focused on ensuring that we can help the government maintain their goals of reducing their shareholding in AIB, which is obviously always going to be dependent on our financial performance. So that's really what we focus on.

And just the risk of repeating myself, let's go back and remind us about the numbers. We've had a EUR 1 billion directed buyback. We've had a EUR 700 million cash dividend, and we've had a EUR 500 million proposed buyback today, all in calendar 2024. Next, we're going to Raul in JPM. Good morning, Raul.

I've got 2, please. The first one is on the fee performance, which I thought was quite good compared to what sector peers have been reporting. Could you maybe talk a little bit about how much of this performance is just driven by the additional customer base that you've acquired versus sort of underlying growth? And how should we think about sustainability of this type of growth rate, especially perhaps looking at the customer FX or stock broking client fees segments. And I've got a second question on competition. I was just wondering if you could give us your thoughts on how you think competition for the deposit, in the deposit market is likely to evolve as rates come down? And I guess, related to that, structurally, your loan-to-deposit ratio is now very low compared to what it has been historically. How should we think about that potentially moving up given the trends we're seeing [indiscernible] with lower rates?

Yes. On the fees and charges, this is an organization that 4 years ago at 2.7 million customers. Today we have more than 3.3 million customers. So it's a bigger bank, bigger customer base, serving more customers and a bigger loan book. And that is reflected in the sort of numbers that you are seeing here today. Do you want to add anything to that?

No. Look, again, I think we would have talked about this before. Expectation, the fee income is going to increase with the enlarged group. I think really what we're showing here today is that you would expect to see that. And I think now that you are seeing that. So I don't think that the customer numbers are going to grow materially from here, though I think they'll kind of grow at a normalized rate. But the challenge for us is now going to be with all of these customers that we now have, is there an additional products that we're able to offer this customer group in as well. So that's really going to be what the focus is going to be, I'd say, on the technology side for investment for our customers and where you're going to see the outcome is going to be in fees and commissions.

On deposits, we've already seen a reasonably significant number of new entrants coming in. And notwithstanding that, we've seen our own deposits growing by, I think, EUR 2.4 billion in the first in the first half of this year. And again, we're delivering those products in branch, on phones and digitally. Very, very pleased with how the digital platform is performing at the moment of all the new accounts that we opened in the first half of 2024, 62% of them are opened online. And that's telling about the quality of the digital platform that we present to the market. But our customers can rest easy in the knowledge that when they need to pick up the phone, we're there for them. And when they need to come and visit us in a branch, we're there for them, 170 branches, the length and breadth of the country, and that's a key differentiator for us in this market.

Yes. I think last year, the LDR question, we're at 62%, 63%. We need to be very clear on this one, okay? Our business strategy is very clear. The segments where we want to play is very clear. We'll have 4% asset growth, we believe, in core businesses and core areas, and that's going to lead to wherever it's going to lead you. What we're not going to do is say we have a lot of excess liquidity over here. Have we -- are there any areas of wholesale markets. We want to try and corner with all of this excess cash. We're not going to do that, okay? Excess cash that we have is very visible. It's either sitting with the ECB or in a low-risk fixed income portfolio, and that is going to be what our position is going to be. But you are going to see, over time, which you haven't seen in Irish banking probably for quite a period of time. We believe you'll see a sustained period of net growth overall on the asset side, which, again, due to the strength of the economy due to the changing banking landscape and the fact that there's 3 banks now core banks in Ireland servicing the country. So that's going to be different. And we think over time, that's how you're going to see the LDR change, and you're not going to see anything unusual short term taking place.

And we may well be at the -- as I said in my own comments at the start, we may well be through the trough of the multiyear deleveraging we saw happening in this country. I think one of the areas of evidence there is in SME lending. We've been dealing with reasonably subdued SME lending for many, many years as businesses delevered. But in the first half, our SME lending was up 8%. And that's, I think, a very, very positive indicator for the level of buoyancy that we're seeing out there and also supportive evidence in terms of our view that we may well be through the inflection point or past the inflection point in terms of overall leverage in the economy. Going to turn now to Borja Ramirez at Citi. And I think this may well be our last question because we're getting very close to the top of the hour. So go for it.

I have 2. The firstly is, if you could kindly help us with the moving parts of the RWA growth outlook for -- into 2026. So you guided for 4% loan growth, but I would like to ask how this interplays with the SRTs going forward and also, presumably, the new mortgage lending will have a lower risk weight than the back book. So how should we think about RWA growth into 2026. And then my second question would be on the CET1 target of 14%. So when you mention it's in the medium term. So if you could give more details if this would be by end of 2026 or could be before that.

Thanks very much, Borja. Overall, obviously, loan growth, you've got a good understanding of that. We do have ongoing [indiscernible] management programs. But I know you're asking me if we're going to have 4%, let's say, gross loan growth, what should you assume for RWAs? I would probably, for now, assume a similar RWA type of growth. There will be positives, there will be negatives, but the mix of the business is really what drives that total number. Obviously, mortgages, lower risk weighting, et cetera, but then things in the wholesale area or even climate capital, where we're really, really focused it's positive from an RWA perspective, but it's still like an 80% RWA type of business. And we are seeing more growth there. So we think maybe best for you to just move RWAs and loan growth together, and hopefully we compete that.

We are going to take another question. We're going to take one from Robert Noble in Deutsche Bank. Good morning, Rob.

A couple of questions from me. Why have you separated out the EUR 25 million in extra costs in the guidance I would have presumed kind of 26% RoTE that you're set on investing more into the business is natural rather than exceptional. And could you give us an example of what you're actually using AI for and how it benefits the business and the bottom line? And then on capital, I know the SRT is a new and relatively small to start with. So my understanding is the capital benefit amortizes over time and then you roll it over time as well. So does it actually add to distributable capital in your minds? And does the regulator see it as distributable? And if it's not, then I presume as a cost why bother doing it?

I'll do with the AI. We cast the net very wide across the organization. A good team of people are working on the potential of by AI now. Multidisciplinary team drawn from the various business units and from our technology division. And we've settled, I was standing with a huge array of potential areas of test case use. We settled on 8 areas, and they're focused in 4 particular pillars. One is our cyber defense, secondly our fraud defense, thirdly our customer experience, and you'll see that impacting in terms of future iterations of our mobile platform. And finally of course we're also going to be using AI to drive enhanced efficiency in terms of operations and stripping out even more manual processes than we have to date.

Yes. With respect to the capital SRT, historically years gone by when our CET1 was 17%, 18%. We took the decision that it didn't make any sense for us to be executing SRTs because then we would have had way too much capital. We feel now that our runway and our trajectory is much clearer. So we feel that now is the right time to introduce SRT transactions. It's my expectation. As you say, these transactions pay down over time, can be quite quickly. We will look to replenish and grow over time. And this -- the RWA benefits will form a key part of our capital management plans, which obviously will impact distributions as well over time.

Now this is really the last question, but I can't not take a question from our colleague in Goodbody, Antonio Duarte. Good morning, Antonio. He must have taken up my word earlier. Okay. I think that is the end of our questions and answers. And our Investor Relations team, as ever, will be happy to answer any further questions. Thank you very much, indeed, for your time this morning and you for taking a break over the month of August, enjoy, and we'll be talking to you later on this year. Thank you.