AIB Group plc (A5G) Earnings Call Transcript & Summary

Good morning, and welcome to the presentation of AIB Group's results for 2024. As usual, I will spend some time giving an update on the economic backdrop for our business, and the implementation of our strategy. And then Donal, our CFO, will bring us through the details of the financial performance before we open to the floor for questions. We're delighted with the performance of the group in 2024, which can fairly be characterized as excellent, in terms of both the financial outturn and the significant progress which we have made as we drive forward on our three strategic priorities. Today, we are very pleased to report that AIB made an after-tax profit of almost EUR 2.4 billion, representing ROTE of 26.7%. Our net interest income grew by 7%, ahead of our expectations, with a strong performance being reported across both assets and liabilities. On a fully loaded basis and allowing for our proposed distributions, our capital position remains very robust with our CET1 ratio ending the year at 15.1%. The strength of the financial performance in 2024 and our confidence in the outlook allows us to propose total distributions for the year of EUR 2.6 billion, representing a payout ratio of 109%. The proposed distribution for the full year includes a midyear directed buyback of EUR 500 million, a cash dividend of EUR 861 million as well as a regulatory approved share buyback of EUR 1.2 billion. Now discussions are currently underway with the Department of Finance for this proposed and potentially final directed buyback of EUR 1.2 billion. And subject to agreement with the Department of Finance, we will seek shareholder approval at our AGM on the 1st of May. We continue to see material progress in making repayments to the state and in reducing the state's shareholding in AIB Group which currently stands at 12.39%. The return of the group to full private ownership in 2025 is now well within the bounds of possibility. Our purpose is empowering people to build a sustainable future, a purpose to which we remain resolutely committed and we have important progress to report for 2024. Over EUR 16.5 billion of our EUR 30 billion Climate Action Fund has now been successfully deployed, and 35% of our new lending last year was Green or transitional in nature. We continue to make a significant contribution to key economic and social infrastructure projects in energy and housing, areas of great opportunity for our business while we continue to promote financial well-being amongst the communities we serve. We remain a leading player in supporting our customers to buy a home with new lending to first-time buyers reaching EUR 2.8 billion. While we continue to make significant progress on reducing our own carbon footprint with 84% of our power now sourced from fully traceable energy sources. And in addition, we're broadening our offering to our corporates through our Sustainability Coordinator Service and our steps to sustainability resource for SMEs, while we continue to have gender balance at Board and senior management. Our sustainability commitments are resolute as we build a stronger AIB while actively supporting the transition to a lower carbon future. Now looking at the outlook for Ireland, the underpinnings for our economy are robust, notwithstanding current geopolitical uncertainties. We're expecting growth in modified domestic demand of just over 3% this year, with a slight moderation in the annual rate of expansion to 2.3% to the end of 2027. And our confidence in the outlook is supported by the strength of the labor market performance here in Ireland and conservative balance sheet positions in both the personal and the corporate sectors. Total employment in the state is now at a record 2.8 million people, representing an increase of 18%, an incredible performance since the onset of the COVID-19 pandemic. While our population growth is expected to remain very healthy, comfortably exceeding the levels forecast for our partners in the European Union. This all points to the potential for continued outperformance over the years ahead for the Irish economy and therefore, the transformed AIB Group. There is a clear symbiotic relationship between the Irish economy and AIB, Ireland's leading bank. And we have both the capacity and the clear interest in supporting in a sustainable way, the ongoing development of Ireland, an economy with both performance and potential. Ireland is one of the world's most open economies, has been a key beneficiary of globalization in recent decades, and we remain an attractive destination for foreign direct investment. Given that openness, we can't be immune to increased trade tensions and frictions. But the country is defensively positioned in key sectors such as chemicals, pharmaceuticals, while we're also a critical base for service industries. And over the course of more than 50 years now, Ireland has successfully built a series of industrial clusters, which remains strongly underpinned by pools of expertise and talent, an outward orientation, and an open unfettered access to the European Union's single market, the largest in the world. That said, there is a clear need for a significant upgrading of critical economic and social infrastructure, given the strength of population growth and the need to safeguard our competitiveness for future generations. Given the strength of the fiscal position, the government is well positioned to accelerate capital investment to enhance capacity in housing, in energy, transport and climate. These investment needs create very clear opportunities both for future economic growth and for sustainable lending. And AIB, given our strong capital and liquidity and expertise will play its role in building a stronger future-proofed infrastructure in this country. Now turning to the group's performance. 2024 saw an exceptionally strong lending performance across our key business lines, with new lending increasing by 17% to EUR 14.5 billion. New mortgage lending was up 16%, personal lending up 7% and Corporate and SME lending up by 36%, with a particularly strong performance in renewable energy and infrastructure. Overall, 35% of all new lending was Green or transitional in nature, including 52% of all new mortgages. And we continue to expect strong growth in this space as we progress towards our 2030 new Green lending target of 70%. New property lending was 21% lower in the year, reflecting continuing subdued conditions in the commercial real estate market. AIB is Ireland's leading bank with an unrivaled customer franchise and leading market shares in key products and services. For main current accounts, we have a 40% market share in the personal market, while for business main current accounts, we hold a 49% market share. Both market-leading positions, reflecting the quality of our omnichannel approach across digital, phone and branches. Across our AIB, EBS and Haven brands, we enjoyed a mortgage market share of 36% for the year, a 3% increase on the 2023 outturn. And the pipeline in this vital product area remains strong. Through our extensive branch network, our customer engagement centers and our leading digital offering, we deliver our products and services to our 3.35 million customers in the way that they want. While 83% of our key products are now sold digitally, we are deeply conscious that customers want the assurance that we are there for them in person when they need us, particularly when it comes to some of life's biggest decisions such as the purchase of a home or savings and investment. We are the country's leading provider of Green finance while our wealth and life offerings are gaining real traction. Having built through AIB Life and acquired through Goodbody, the capacity to deliver more fee earning products and services to our customers, we see scope for solid growth in assets under management, currently EUR 17 billion over the quarters and the years ahead. The group has three strategic priorities, which guide all our efforts as we build a stronger AIB in the interests of all our stakeholders. Customer First, Greening our Business and Operational Efficiency & Resilience. On Customer First, ongoing investment in our digital functionality in our branch network is driving positive outcomes. We were pleased to launch Abi, our new AI digital assistant in December of last year. And over 130,000 customers have been assisted by Abi since her launch with eligible calls being successfully completed in less than half the time taken with colleagues. 21% of eligible calls have been handled by Abi since December, and we look forward to seeing more customer journeys and services moving to her as we work through 2025. Abi uses simple conversational language to help customers with everyday banking questions. She provides quick and accurate responses based on a set of predefined answers. For example, credit card limit checks and pin unblocking while still giving customers the option to speak to an agent if they wish. Our customer experience performance is measured across five core Net Promoter Scores, and all five have outperformed the target of 2024 with four of the five now at all-time highs, reflecting the quality of the service delivered day in, day out by my colleagues across the group. On Greening our Business, over EUR 16.5 billion of our EUR 30 billion Climate Action Fund has now been successfully deployed. Over EUR 5 billion of new lending or 35% was Green are transitional in nature in 2024 and reflecting the embeddedness of the strategic priority, we saw every division of the group contributing to this welcome outturn. Our Climate Capital had a very successful first year of operations as a separate business unit, the largest contribution to our Green lending in 2024 came from retail banking here in Ireland, thanks in very large part to our performance in Green mortgage lending. In Climate Capital, we continue to grow our loan book across Ireland, Britain, the European Union and North America, with a focus on renewable energy technologies, robust underwriting standards and strong reputable equity sponsors. We'll continue to target green lending as an area of significant opportunity for us right the way across the group. The size of the transition challenge is enormous, as is the opportunity to deploy capital selectively in long-duration acyclical assets. Last year, we financed over 5,000 gigawatt hours of renewable energy, and we will do more. Given the scale of the opportunity, we can be highly selective and disciplined in relation to both the assets and the geographies where we choose to have exposures, and we expect to report further material growth in this sector over the years ahead. We have the skills, we have the expertise and the reputation built over the best part of a decade to deliver on these ambitions. Our third strategic priority relates to our operational efficiency and resilience with a key focus on continuing to digitalize our processes and simplify our business. We continue to invest some EUR 300 million on average per annum in a progressive modernization of our technology platforms, delivering better outcomes for our customers and better commercial results. 2024 was a year of significant progress in this strategic priority. SEPA instant incoming has been achieved, providing a stronger payment experience for our customers. DORA readiness has been successfully achieved, which improves the resilience of our critical banking services, while we continued the modernization of our key data platforms to support our business ambitions. Our approach continues to deliver a resilient platform with IT service availability at Level 1 exceeding 99.98% in 2024. We also continue to upgrade the functionality of our mobile app. We introduced biometric authentication for seamless payments experience. While we established an AI center of excellence, the focus on deploying cutting-edge technologies with use cases currently being advanced in customer experience, including through Abi, fraud, cyber security and operations. Our business credit processes have been transformed and streamlined with more than 60% of new SME lending on the nCino platform with auto decisioning reaching 76%. The quality of our digital offering is reflected in the fact that 84% of personal current account customers are now digitally active with 87% of personal loan applications being made online. At the same time, we have made progress on removing organizational complexity with a 17% reduction in our legal entities to date and 5 legacy applications decommissioned. I'm very pleased to report that our multiyear technology modernization programs are all progressing strongly to plan. 2024 was a year of significant progress in the sell-down of the state's shareholding in AIB, which fell from 41% to 19% over the 12 months. Today, the state's shareholding stands at less than 12.4% and a total of EUR 18.5 billion has now been returned to the state. We are proposing subject to agreement with the Department of Finance and approval at AGM, but we will complete a directed buyback with the state amounting to EUR 1.2 billion in May. The pathway to a return to full private ownership is now clear and is achievable over the course of the year. We're also proposing a cash dividend of EUR 861 million or EUR 0.36984 per share, representing a 39% increase on 2023. This, together with both the proposed EUR 1.2 billion and completed EUR 500 million directed buybacks, brings the total payout ratio to 109%, delivering on our commitment to return excess capital as we target a CET1 ratio greater than 14% in 2026. Thanks to the success of the business, we are creating real value for all our shareholders with a threefold increase in our organic capital generation in the last 3 years. And given the strength of our capital generation, we look forward to continuing to deliver sustainable, progressive dividends over the years ahead. The results we're announcing this morning clearly demonstrate that we are delivering on our commitments to our stakeholders. Through a concerted effort, right the way across our business, we've built a very strong platform for enduring growth. We continue to execute on our strategic priorities at pace, and we are creating real sustainable value. Our business is strong. Our strategy is clear. Guided by our medium-term targets, we will continue to drive AIB forward. As CEO, I am very proud of the achievements of my colleagues over many years. And I am very excited about the potential for future growth as we build an ever better AIB in the interests of all our customers, our shareholders and the communities which we serve. I'd now hand over to Donal.

Thank you very much, Colin, and thank you very much, everyone, for joining us this morning. I'm going to run you through, firstly, the key financial highlights for 2024 for AIB. We had a profit after tax of EUR 2.3 billion, return on tangible equity of 26.7%, which was a 22% growth in our earnings per share to EUR 0.925. Our total income was EUR 4.9 billion, which was up 4%, and that's made up of an increase in net interest income of 7% up to EUR 4.1 billion and an increase in our net fees and commission of 5% to EUR 666 million. Our costs were EUR 1.9 billion, which was an underlying growth of 7%, which will moderate into 2025, leaving us with a cost income to ratio of 40%. Gross loans were EUR 71.2 billion, which increased 6% in the year. That's broken down by 5% of organic growth across our franchise businesses, a 1% of that was related to inorganic items and the last take on of Ulster Bank mortgages, with EUR 14.5 billion of new lending, which is up 17% in the year. Our asset quality remains very strong. We had a cost of risk of 8 basis points or a charge of EUR 55 million. But overall, coverage on the overall portfolio is very strong at 1.9%. Our funding position is exceptionally strong, and that's underpinned by our customer accounts of EUR 109.9 billion, which increased by EUR 5 billion on the year. Our CET1 position is strong at 15.1%, which is obviously comfortably ahead of regulatory requirements and after all of the distributions that I'm just going to talk about now. Total distributions for 2024 will be EUR 2.6 billion, which represents a 109% payout. EUR 500 million was paid out via directed buyback in the first half of the year. EUR 861 million is our proposed cash dividend and we have regulatory approval to do a EUR 1.2 billion directed buyback. Overall, on the income statement, I've already touched on some of the key highlights. Some of the areas that we don't get to talk about in future slides, I want to draw your attention to our bank levies around EUR 140 million for 2024. We expect that to be similar in 2025, the largest part of that obviously being the Irish Bank levy. Our exceptional costs in 2024 was EUR 66 million. Half of that was made up of legacy items being concluded and the other half of strategic items, which is really the conclusion of the onboarding of all of the inorganic assets. So as we look out to 2025, levies, reg fee is the same, and we don't expect any material exceptional costs for the year. Overall net interest income of EUR 4.1 billion was up 7% and really strong performance. Obviously, looking at both sides of the balance sheet, we had a cost of liabilities where we saw increased payout costs for depositors and also for MREL costs having a 34 basis points cost. On the asset side, customer loans improved on margins of around 21 basis points. And then investment securities and cash balances had with central banks, up 6 and 12 basis points. So we exited the year with a net interest margin of 3%, but a very strong year overall. I'm going to take a little bit of time on this slide. This is really where I want to talk to the NII outlook. I'll try to lay this out in the same way as I have over the last while. So number one, we start off by looking at the interest rate outlook as we see it. Rates peaked at 4%. We now see ECB depo rates moving to 2% by June of 2025, and basically flatlining there out. So we think that's pretty much in line with the market. Another one of the key ingredients in our NII story is obviously how deposit beta evolves. As you can see here, it was 12% for 2024, and we see that being up to or maxing out at around 20% in 2025. As interest rates have fallen, we have seen the move to term slowdown. At it's height, it was maybe EUR 600 million a month. That was reduced down to around EUR 200 million or EUR 300 million. So we think that, that deposit beta guidance is very accurate. Overall, on NII resilience. Obviously, we talked about the deposits. Obviously, asset growth, which I'll come on to later, is a key part of that as well, where we do see 5% growth, not just in '25, but beyond for '26 and '27, and underpinning everything is our deposit portfolio, particularly in the Republic of Ireland, which continued to grow throughout 2025 and is very granular. Lastly, I want to look at the structural hedge. Obviously, the breakout is through derivatives, which I separate out in different currencies and fixed rate mortgages that we can see here on the slides. Throughout '24 and into 2025, this is obviously a keen area of focus. And we have taken the opportunity, given the interest rate outlook to somewhat amend our structural hedge. So we have increased the duration, and we have increased the quantum. So going forward, we do see that the fixed rate mortgage quantum will remain the same for the next number of years. But I'd say the change that has really happened is earlier this year, we increased the total size by an additional EUR 10 billion, and that had the effect of reducing our overall sensitivity from EUR 439 million down to around EUR 351 million. The weighted average life of the hedge moved up around a year from 4 years up to 5 years, and we expect to receive fixed yield on the structural hedge program for euros to be 2.3%, for sterling to be 2.4%. I've tried to give you a good understanding of how we see this evolving in the coming years. We do expect to have EUR 7 billion of swaps maturing in '25, which will replace at that duration and EUR 6 billion maturing in 2026, again -- and reinvested at that target duration. So you can see here, I've given the received fixed yield, 2.4% was the actual '24 outturn. 2025, we expect 2.3%, and 2.2% in 2026. So effectively, from June of this year, we would say our euro structural hedge program will be at or in the money. Sterling, a lot smaller, but you can see the effect here as well. Putting all this together and given a lot of the hedging activity that we have completed through '23, '24, '25, we believe our NII outlook is very resilient, and we're very comfortable with our guidance of greater than EUR 3.6 billion for 2025. Other income, EUR 779 million, down around 13%. Rationale for that is that there was a crossover in, I would say, from income from inorganic assets moving from a forward contract, which was treated as other income onto the balance sheet as interest income. That forward contract was linked to the Ulster tracker portfolio. That's now fully onboarded, and we don't think we -- well, I know we won't see that again. So really, what I want to do is focus on the fees and commission line. So overall, EUR 666 million, which is up 5%. Colin would have talked about the enlarged group, larger number of customers. We've seen that impact coming through '23, '24, '25, and we continue to see it. So income from customer accounts up 3%; customer-related FX, up 4%. Then if I look at wealth, stock broking fees, which is really related to Goodbody, and wealth income which is related to AIB Life were up 23% and 16% if we look at those. So really strong momentum overall. There's other items beneath the line, which are always a little bit variable, and I tend not to give clear guidance on those in the early part of the year. But if we put them all together, we're very happy with other income of circa EUR 750 million. Our costs were EUR 1.9 billion, which was up 7% on an underlying basis or 8% if we incorporate the EUR 25 million one-off cost for efficiency that we talked about at the half year. Our staff costs were up 9%, and that's really due to inflation, higher average FTE, the introduction of health insurance and the introduction of variable pay for AIB staff. Our G&A was up 10%, and that includes the EUR 25 million one-off expenditure that I would have just talked about. And we have a very stable depreciation trend. We would have been investing and have been investing around EUR 300 million per annum for the last number of years. So that depreciation line tends to be very stable. Overall, our headcount finished the year down 1%, having been a bit higher at the half year. We do expect our headcount to reduce gradually over time, but no specific large projects looking at headcount as we get more efficient, we do believe that the headcount will just naturally drift lower. So for 2025, we expect cost growth of 3%. Overall, asset quality was very strong. Obviously, we would have guided or I would have guided at the lower end of our 20 to 30 basis points range for 2024. The actual outturn was a little bit better than that. We had a charge of EUR 55 million, which represented a cost of risk of 8 basis points. Really, what happened there was for Q3 and Q4, we had a number of repayments and redemptions in asset classes or sectors that had high cover rates. So hotels that might have been impacted by the COVID era or indeed even on property cases that would have redeemed or repaid in the latter half of the year. So overall, our book cover remains very strong at 1.9%, and we have a very resilient balance sheet. So for 2025, again, we think 20 to 30 basis points is the appropriate cost of risk to think about for AIB through the cycle. And obviously, in different years, there could be slightly different outcomes. Overall on balance sheet, I think the main story for '24 is gross loans increasing by 6%. In years prior, what we've seen is increased balance sheet driven by inflows on the liability side or liability-driven asset growth. So I think what's different for AIB in '24 versus '25, '26, '27, is this gross loan increase and growth overall that we see coming through from the franchise. Colin would have talked about the new lending across all of the different segments. I'm just going to look at the total balance sheet here. So EUR 14.5 billion of new lending with EUR 10.7 billion of redemptions, not too many material other movements. But you can see here on the right-hand side, I'm just really trying to give you an idea of the segment and the segment growth that we saw between '23 and '24 and indeed, some idea of growth expectations in the coming years. So notwithstanding the fact that is a lot of geopolitical uncertainty, we do see growth in all of our business lines. If we talked about 5%, 6% last year, moderating slightly to maybe 5%, certainly for '25, '26, '27 though, we do see growth in all of our key business lines. Our funding and liquidity position is very strong. Obviously, we're in excess of our MREL ratio. We would have issued some AT1 earlier this year. We'll probably look to transact two more deals in 2025, EUR 1 on $1, that a lot of our key liquidity metrics are very strong and remain strong. LDR 64%, LCR over 200% and a net stable funding ratio of 162%. And really, I think the thing that underpins our liquidity position is our very strong deposit franchise, current account franchise in the Republic of Ireland. 92% of our deposits are in the Republic of Ireland. And these have been very resilient over the last number of years. So notwithstanding the fact that we saw depositors terming out into our 1-year and 2-year products, the overall business grew new customers joined AIB and the overall deposit portfolio increased. Our capital position is very strong, 15.1% for the end of the year, shown really strong capital generation and delivering significant shareholder returns. Really, if I just break that out a little bit for 2025. So we have 400 basis points of capital generation. 80 basis points represented our midyear DBB, 350 basis points is our proposed distribution, and then we had some other equity-related items, an AT1 coupon or 20 basis points and the DTA utilization effect was 50 basis points. RWA effects, obviously, associated with this. We had growth in the overall balance sheet. So this had an RWA effect. Operational risk charge obviously increased given the high profitability of the firm. But in 2024, we issued our first SRT, which had a positive benefit of 20 basis points. So we put that together, and we're comfortably above of our SREP capital target of 11.4%, which represents a 3.7% buffer. And obviously, throughout the year, we had a reduction in our P2R to 2.4% from 2.6%. Another key slide, I think, overall, as we look at capital, we believe we're operating in a macro environment with solid fundamentals. We believe we have the leading banking franchise in our core market, which is Ireland, and we're very capital generative. We will pay a consistent and sustainable return to our shareholders. We will continue to invest in our business. We'll obviously navigate headwinds and tailwinds, which are always going to be a feature of banking, and we will deliver market-leading distributions. Just a couple of these items are probably worth focusing on for a minute. We do see sustainable profits going forward of at least 270 basis points, and I would draw your attention to the DTA benefits. So for 2024, very strong at 50 basis points, utilization was up in the early '80s. Going forward, the benefit of that deferred tax asset is -- will continue to be a feature of our results. So we see 30 basis points being the benefit from that with a utilization of around 75% or 80%. In terms of the headwinds and tailwinds, Basel IV, we had a positive effect of 120 basis points. I previously guided 50 basis points again throughout Q3, Q4. We got a little bit more certainty and a bit more comfort on some of the interpretations. And we obviously did a lot of work to make sure we could maximize the benefit. We do have a very significant IRB model rollout program underway. And in the next 12 to 18 months, we'll have a commercial real estate model being redeveloped. Our EBS mortgage is being developed or approved, a project finance model being approved and a bank model being approved. So I have no idea on how this is exactly going to pan out other than to say some of the portfolios that benefited the greatest from Basel IV being EBS mortgages and commercial real estate, we may have to give up some of those gains, but it is too early to say. I mentioned earlier, we did our first SRT in 2024. And also that I wanted to look at a multi-asset, multiyear program, and that's how we are looking at this. So for 2025, we will look to do an SRT and AIB mortgages. 2026, we look at wholesale assets, commercial real estate, project finance. And in 2027, we look at EBS mortgages. I think a simple rule of thumb to take for these SRT transactions is a 20 basis point RWA or capital effect and maybe an NII cost of around EUR 10 million. Given these programs and these transactions paid down, I wouldn't just take 5 transactions by 5 and call it a 100, we probably see it more like 60 basis points on a go-forward basis. Another item that we want to resolve throughout 2025 is related to some warrants that were issued to the Minister for Finance at the time of the IPO. The IPO, the level or the price was EUR 4.40 and they were issued with an exercise price of EUR 8.80. What's happened over the last number of years is as we have bought back shares, that strike price has been reducing, and we have been informing the market with that. So as we sit here today, those warrants are effectively at the money. Our current estimate is that this could be a cost of 40 basis points of capital. But we will look to talk to the Minister for Finance and to retire these within 2025, but that's the range that we're talking about. Finally, on returns. Our target is to deliver market-leading distributions. Our track record in this area is very strong. And just to reiterate how we look at this. We target a payout ratio at the upper end of 40% to 60%. We'll grow our cash dividend per share on a sustainable and progressive basis. We'll take a balanced approach to cash dividends and share buybacks and we'll move towards our 14% target over time via additional distributions. So just to wrap all of this up, net interest income, greater than EUR 3.6 billion; other income, EUR 750 million; cost increase, 3%; cost of risk within 20 to 30 basis points; bank levies and reg fees, EUR 140 million; no material exceptional costs expected; customer loans to grow by 5%; and a return on tangible equity meaningfully ahead of a 15% medium-term target. Our 2026 medium-term targets remain the same and they're very clear, cost target of EUR 2 billion, CET1 greater than 14% and a return on tangible equity of 15%. Thank you very much, and I look forward to your questions.

We're now going to the phone lines. And our first question this morning is from Denis McGoldrick in Goodbody.

Just two if I may, please. Firstly, it would be great to hear your views on the potential impact of tariffs on the Irish economy. And then how you think about the Green Finance opportunity in the U.S. in light of the obvious pushback by the Trump administration on sustainability initiatives? And then secondly, if we look at NII, I'm just interested on your thoughts on NII beyond 2025. So maybe how comfortable you are with consensus being at circa EUR 3.52 billion in 2026, given you're assuming 2% ECB rates and obviously 5% annual loan book growth?

Thank you very much indeed. I'll take the first two, and Donal can deal with the third question. Look, tariffs are negative for economies. They lead to lower growth. They lead to higher inflation. They will have a dampening impact on the economy globally. And Ireland is one of the world's most open economies. So we're not going to be immune. We are expecting that you will see our -- we are expecting that we will see our rate of modified domestic demand growth moderating from about 3% in 2025, down to 2.3% in 2027. And when we look at the business, we have an array of economic outcomes that we factor in, when we're thinking about the future prospects of the organization. And that economic outlook is taking into account in terms of the guidance that we've given this morning. Now would we prefer to have a situation where these trade tensions weren't arising, where we didn't have this trade friction? Of course, we would. But the fact of the matter is that the underlying fundamentals of the economy here remains very robust. We've got employment at a record level, 2.8 million. We have unemployment running at about 4% at the moment. We've seen 15 years really of deleveraging of personal balance sheets, of corporate balance sheets. So the economy is actually quite likely indebted. And I think that we're well set to weather the storm that lies ahead of us. U.S. is an important provider of foreign direct investment into Ireland. It has been for over 50 years now. We've got a bunch of industrial clusters really in defensive sectors such as pharma, such as chemicals. We obviously have a huge exposure here in Dublin in the technology space. But that relationship is not one directional. It's a bilateral relationship. And Irish companies are the 6th largest investor in FDI in the United States of America. And in fact, Irish companies employ more people in the United States than American companies employ here in Ireland. So yes, it is going to have a dampening impact. It's going to have a dampening impact globally. It's going to push upward pressure on inflation globally. But we're in a reasonably good position to, as I said, weather that particular storm. In relation to Green Finance, I've consistently said that this is the biggest opportunity ever to present itself to the global financial markets and to the banking industry. And we have a very, very ambitious plan in that space, but the scale of our ambition is very small compared to the scale of the opportunity. And we are active in deploying capital in this space in Ireland, in Britain, in the European -- right the way, across the European Union, and in North America as well. And we take a very disciplined approach to where we chose to put capital to work. The average deal size in terms of the whole size is about EUR 40 million. And of the deals that we see coming through us -- coming to us, the deals come to us because of the strength of the relationships we have because of our expertise, because of reputation in the space, we see a huge volume of deals coming to us. And we progress about 1/3 of what we see through our credit process. So I certainly don't envisage a reduction in terms of our overall ambition to deploy consensus would have had. I've given you the '25 guidance of greater than EUR 3.6 billion. I definitely feel like some of the movable parts talking about beta here and the euro yield curve are settling down a bit. So I would say consensus looks a little bit light for 2026 on net interest income. So if the guidance for 2025 is greater than EUR 3.6 billion, it should be at least that for 2026. We're now going back to the lines and to our next question which comes from Diarmaid Sheridan in Davy.

Two as well, please, if you don't mind. First of all, just your thoughts on distributions, please. Just mind sort of where your valuation is and moving to, I guess, beyond the state being on your balance sheet. Just your thoughts around buyback versus a special dividend once you kind of -- obviously, you'll have the core ordinary dividend, but how you might think about the supplemental piece there? And then secondly, just on costs, please. I mean, if you take the 3% increase that you're guiding for this year and just run another 2% inflation maybe in 2026, that would infer maybe about EUR 70 million of cost takeout or so. Just wondering what type of levers you're looking at to get that cost down?

Thanks, Diarmaid. On distributions, look, the focus at the moment is to work with both shareholders and the Department of Finance so that we can execute a directed buyback, just post our AGM. After that, in Q2 or certainly in half year results, I think we'll be able to give an update with respect to some of the half year deliberations overall. But look, our focus has never changed on how we talk about capital has never changed. We start every year and we try to generate as strong returns as possible. At the end of the year, Q3, Q4, we talk with our Board, we talk with our regulator, and we figure out what the best thing is to do. There is no doubt in the second half of this year, our deliberations will be slightly different, because our shareholding structure will be slightly different. But I think that is the right stage to understand, does cash payout make more sense than a buyback. It is really a function of where the share price is as well. But the key is to ensure that you deliver strong results on an annual basis, and that way, you're in the best position possible to repay our returns in the most efficient way possible. I think on costs -- and just to reiterate, our medium-term target is CET1 of greater than 14%, and we are very focused on that and moving towards that. It doesn't mean that we -- I won't do capital-efficient measures like execute SRTs or maximize the benefit from Basel IV. I'm always going to do all those things. And we're always going to try and be as efficient as we possibly can with capital. But I think the future road map for capital looks is very strong, particularly given the fact that we're still capital generative. On costs, again, EUR 2 billion target, except that's a stretch target. We've always wanted to maintain a hard cost target. It helps focus the mind and it's far easier to manage internally. We have a number of initiatives underway to improve efficiencies. Colin would have talked about a number of these. They all require small investments typically with respect to technology to typically manage headcount which is one of the biggest attractor of costs. And that is more a perpetual idea. And I don't think, unlike any other bank, we're different. We will always try to match, beat inflation on an annual basis by becoming more efficient, and you become more efficient by investing in your business.

Thanks very much, indeed, Donal. We're now turning to Sheel Shah and JPMorgan.

Questions I have, one of the deposit betas. You've previously talked around the 30% long-term deposit beta and considering what you're saying around 20% for 2025, do you think that 30% is still valid, especially given the slowing migration trends that we've seen? And then secondly, just on the hedge. You've increased the hedge to -- by EUR 10 billion in January, you're saying EUR 44 billion is the run rate going forward. At the same time, you're expecting to see deposit growth. So I'm just trying to tally the two. Would you expect to see some growth in the hedge going forward? Or is this more of a conservative approach you're taking?

On deposit betas overall, going back a number of years, we had imagined a different customer behavior from the depositor perspective. So we're certainly seeing a beta of 20%. We are seeing the slowdown. And I know I did talk about 30% being the go-forward deposit beta. We probably see that more like 25% now as the max and the new norm. So that's that one. And then the second question was on the hedge. Yes, liabilities are interesting. We had really, really strong deposit growth over the last number of years. Some is quite technical -- or sorry, it was due to the fact the two or five banks decided to leave Ireland. And we were very successful in onboarding all of those customers. Our experience throughout 2024 was really strong, new-to-bank customers, really, really strong with very high market share conditions. So I mean, deposit growth, I think for us, it will slow down from what we've seen in prior years. I'm probably going to be more like a couple of percent than what we've seen in prior years. So that will obviously have a knock-on effect on what we might do on hedging. A little bit too early to say in the year, but you could and should expect to see that grow. Really, what I was trying to show was the change that we made or we significantly increased our hedge by around 30%, and we consciously increased the duration, because we felt the time was right to add duration to our balance sheet. But yes, you could naturally assume that the hedge will grow in line with how deposits grow as well.

Very good. Thank you. Now we're turning to Chris Cant in Autonomous.

I wanted to ask on RWAs, please. Donal, you talked about sort of uncertainty around the IRB model piece, but obviously, the Basel IV impact guidance is meaningfully better than anticipated. In the past, you've commented on consensus into the out years. And looking at your consensus, there's quite a decent amount of RWA growth in there going up to about EUR 66 billion in '26 from EUR 62 billion despite the fact you're going to do execute the SRTs and despite the 120 bps. So how are you thinking about this appreciating the uncertainty around the model piece on IRB? Is that likely to be very material? Do you see a path to getting up to that sort of EUR 66 billion level? Or actually, should we be anticipating a number inside of that? And then, in terms of the CET1 progression and the path down to the 14% target. I mean, I know you've got another reduction in your Pillar 2 coming through. You have meaningful countercyclical buffers in your MDA, which isn't the case for other banks in Europe, are certainly not in all cases. Why do you need to run with greater than 270 basis points of headroom to your SREP?

Okay. Thanks, Chris. I think, I'll take the second question first. Obviously, we're takers of P2Gs, P2Rs and countercyclical buffers. And we never, in our thinking, assume that they will change materially to the better. I think that's a safer way to approach it. We certainly do everything we possibly can to manage our balance sheet, our business as well as possible as efficiently as possible to put ourselves in as good a shape as possible to get reductions in these things. But I think the answer is, we never and wouldn't ever assume that we would get any relief. And we just built our CET1 from there. And we do feel, overall, looking at our business model, looking at our history, 14% certainly for now is the appropriate level. On RWAs, I think -- we didn't want to start adjusting slides for pro formas and all of that kind of stuff. But I mean the reality is 15.1% is 16.3% CET1 as we sit here today. And I'd say the easiest way to think about it is, if you start at 16.3% and take all of the B4 benefit, if I'm seeing loan growth of 5% in the coming years, I think I would just assume RWA growth will move in line with that loan growth. And that might seem slightly counterintuitive given a number of the initiatives that I had -- that I described earlier. But 2/3 of our net growth going forward, we do see coming in more high risk-weighted sectors areas. So really Corporate Banking and Climate Capital. Maybe 1/3 of that will come in, let's say, lower density retail type of products. Look, we will always try and beat that and be as efficient as possible. But I think from modeling RWAs going forward, that is how I would think about it.

Thank you, Donal. We're now turning to Andrew Stimpson in KBW.

Two questions from me, please. I appreciate the extra view on the outlook of the fixed leg of the swaps on Slide 19. And you show there that the yields will gradually come down now, especially on the euro leg. So just wondering what you've assumed on the move in the rates that you get there. I guess we can back it out from what you've given there. But just wondering if you're assuming that the 5 to 10-year whichever rate you're receiving comes down in line with the policy rates. So if you're already assuming an upward sloping yield curve when you go to roll those. It just seems like there's probably some upside risk to those yields, if the curves carries on the steepening? And then secondly, on the rate sensitivity moves, I appreciate you've added to the hedge, which brings the rate sensitivity down this year, but it did go up quite meaningfully in the second half of last year. I'm just confused what caused that. So it'd be interesting, any comments there as well, please.

Okay. Thanks very much. Look, the movements there on the structural hedge, overall, it's positive. Some maturing hedges that have been done at higher receive fixed levels maturing. But overall, that wash through as a positive. The overall rate curves, we think we would have looked at this with a fairly flattish yield curve, I mean, 2%, certainly kind of out to 3 years and slightly steeper from there on. What I've really just tried to show overall is, I would say, from June 2025, overall euro hedge is kind of at in the money. If curves steepen from here, well, that's probably going to be an increased benefit. And look, again, maybe because rates have steeper so much this morning, it's quite topical. But like these things, we don't react on a daily basis to them. You'll certainly be able to see that coming. Overall, the sensitivities and the reason why they went up, I would say, overall, that it was the way in which deposits accumulated for AIB. We continued -- notwithstanding the fact that we did see a fairly steady move to term, it was always matched by a flow in and new customers coming in. So it -- which obviously increased the overall sensitivity metrics. But we're very pleased with how things panned out. I mean, it's hardly your sensitivity will reduce if all your customers move from overnight into term, which didn't happen. So I think we've got a better visibility on the customer base and the behaviors and we're pretty confident and we're comfortable with those sensitivities where they are at the moment.

Now we're turning to Borja Ramirez at Citi.

I have two. Firstly, on the deposit EBITDA, I would like to ask what was the exit rate in December? And also, if you could provide some indications on how it has trended into January and February and also on the deposit growth year-to-date? And then, my second question is just a quick follow-up. If I understood well, the underlying growth going forward will be in line with the loan growth of 5%. But do we need to add on top the SRTs, and -- or is that net?

Thank you very much. Deposit Beta for December, I can't actually remember, sorry. 12% for 2024, it's going to be 20% for 2025. So you can draw a straight line through that one. And then, I think, I would have talked earlier about is maybe going out to 2025. So less than 25% as we go beyond '25. The trends that we're seeing, I would say, as rates moved up, where we're seeing EUR 600 million per month, moving from short-dated to long-dated that reduced then, I would say, in Q3, Q4 then to maybe EUR 400 million a month moving from short dates out to longer dates. And our experience in the first couple of months of this year is that it has reduced again. And putting all that together, that's what gives us the comfort that the deposit beta for 2025 won't be more than 20%. On RWAs, yes, what I said was take the B4 benefit, right, start from now at 16.3%. Loan growth is going to be 5% per annum. RWA growth is going to be 5% per annum, and they're all in. Wash everything together, they're all in those numbers.

Now James Murphy from Clark Hill has a question for us.

I'm just trying to understand the NII guide for 2025. If I look at it, basically, we did hedge up by EUR 10 billion, which adds roughly EUR 230 million, let's say, you put that on a duration of 2.5 or 2.3. And you're talking about deposit beta being lower. And then, when we're talking about the deposit growth and loan growth on top of 5 to 6, then I'm really struggling to see how we get only EUR 3.6 billion, basically or just greater than EUR 3.6 billion, I mean, it seems like it should be quite a bit higher. I don't understand basically that interest rates have come down and the cash component of it, but it just seems like the guide is exceptionally conservative. Put some thoughts around -- additional thoughts around that would be helpful, especially with the deposit piece coming down as well. So the incremental deposit growth comes on -- comes on at much higher margin basically, especially if we're putting that out a duration.

Yes. Look, it's no different to what we've seen in prior years. If I knew where rates would be in a year's time and deposit betas could be a little bit more accurate, greater than EUR 3.6 billion, we're comfortable with that. I mean we have seen large swings in rates. So that's currently where we see it. Deposit betas, I wouldn't say -- I mean, the movement to term is slowing down, the deposit beta is up, okay? So that is going to be an impact. And then deposit inflow is a key ingredient. I mean, we have highest market shares in this market. Is it reasonable to expect that we can continue to grow at that level? I'm saying, maybe, but probably not, okay? Our experience over the last few years has been very strong. So if I'm being cautious anywhere, it's really in that area. But look, we'll see. I mean we all got the same quarterly reports that show how these things transpire throughout year.

Now we're going to Robert Noble in Deutsche Bank.

Can I just ask if you could walk us through the maths on the warrants. So I presume -- well, first of all, I presume the warrants aren't in the share count and the EPS currently. The exercise price at the moment is what, EUR 7.455, right? So how does that change for today's announced buyback? And if the exercise condition is met, what actually happens if you can walk through the math on it?

Yes. Look, we certainly wanted to go out of our way to explain and remind everyone of the existence of these warrants. I don't -- look, they were issued in 2017 when we IPO-ed at EUR 4.40. The exercise price was EUR 8.80. If we are successful, and getting shareholder approval for our DBB and executing with the government, those at the exercise price would then move down to around EUR 6.80. So they're more or less at the money. The way in which these warrants could be exercised is that the daily VWAP would need to be above the exercise price for 30 days continually, and then it would be with the government's call. So there's a huge amount of logistical complexity, I would say, involved with looking to execute these warrants. So we're taking the opportunity to engage with the government and see if we can just retire these. But they're not included in the -- as a capital item and our share count. And if we were to resolve them or retire them, there would be a capital item and not a P&L item. But that's something I want to focus on getting the directed buyback done with the government, and then we'll look to retire these warrants by the half year, but it's -- you should be thinking about 40 basis points. That will be the -- that's roughly where we see that total cost.

Now going Grace Dargan in Barclays. You have the floor.

If I could start with distribution. So it was at 109% payout this year. Is that kind of in the realm, we can think about going forward? And how should we think about the interaction of Basel with that? Then secondly, on costs, if I could just push a little bit more on that trajectory into '26. You're obviously talking about no material exceptionals in '25, but still looking to do small investments, et cetera, to bring that cost base down into '26. Just trying to square that out in my mind. And then, if I could ask a very quick one finally. I know you've given us the exit NIM for Q4. Could you just confirm what the Q4 NII was?

Okay. Q4 NII, sorry, no, we don't have -- and I'm not going to guess, but certainly can get that for you quite easily. Exceptionals, I think it's unusual in guidance to say that you won't have any exceptionals. We just felt that in prior years, given restructurings, given NPEs et cetera, where we have had very heightened exceptional costs. It's been a huge focus, certainly myself, the organization to reduce all of those exceptional costs. And we do feel like -- we put a lot of the legacy items behind us. We've put a lot of the -- we've executed well on all of the inorganic items. So I suppose it's our statement to say that thank you for bearing with us as we utilize the exceptional costs to fix things. And for 2025, we don't really see anything coming through. Look, with reference to some of the efficiency initiatives, et cetera, that should be and is part of the BAU at the moment. We don't have any large restructurings that are coming through that could impact. So investments for operational efficiency, et cetera, is incorporated in our overall EUR 300 million annual investment cycle, where one of the strategic priorities is operational efficiencies. And it's incumbent on all of us, in all of the divisions to make their own business areas and their own platforms a little a bit more efficient. Then lastly, on distributions.

Yes, the 109%. Yes. Look, the -- our focus as a management team is consistently on managing the ability -- managing the business to the best of our ability, delivering sustainable profits. And then we will engage in a conversation with our board and our regulator about an appropriate level of distribution. You have a well-established ordinary dividend policy out there of between 40% and 60%. We obviously are in a very, very strong capital position. I think, it was very important for us to be able to demonstrate to the market as we have done that we could exceed 100% payout ratio. But this is a discussion we're going to be having at Board and with the regulator as we move into the back end of this year. And just if you can add on exceptionals. We did EUR 55 million exceptional costs in the first half of '24, we did EUR 11 million in the second half. And the exceptional costs, which we've incurred over the course of the past decade or so, this is the lowest number you'd have seen in that period. They were very much driven by the need to repair and reform and transform the institution. And now that we have done that, the reduction in exceptional costs is yet another important symbol of the normalization of AIB after 15 years. So we don't -- as I said -- as Donal said, we don't expect any material exceptional costs in this year. And I certainly don't want to find ourselves in a position where we have to incur more exceptional costs going forward. But now, I'm going to turn to Jordan Bartlam at Mediobanca. And it seems to be an issue there. Finally, we're going to go to Benjamin Toms at RBC.

The first one is on cost of risk. It was 8 basis points in 2024. Your PMA is at 26% of your stock provisions. What is that you're seeing that leads you to expect cost of risk to be in the 20 to 30-point basis points range in 2025? It feels to me like this could end up being quite conservative guidance. And secondly, you spoke in your presentation on your expectations that AUM growth. Can you just put a little bit meat on the bones here, how much growth do you expect over the next couple of years? I think one of your peers has talked about [ 1% ] growth over the next 3 years. I'm just looking for some medium-term expectations for that subsector, please?

I will do the AUM, come to you then. Look, 4 years ago, we didn't have any offering in terms of wealth savings and investment. We acquired Goodbody and we built AIB Life our joint venture with Great-West Lifeco of Canada. And 2024 was the first full year of operations for AIB Life. And we're seeing real traction and real progression coming through that business now. Now we don't have set out explicitly the volume of growth we expect to be reporting in AUM. But we're in a very good position now, a position we worked in, because we have the products, and we have the services available to our customers. And we have that 3.35 million unrivaled customer franchise within this country. What I can say to you today is that certainly my expectations and the expectations of the team here is that we will see the income -- the fee income flowing from wealth and advisory growing by double digits, by teens in '25, in '26 and '27.

Thank you very much. And with respect to the cost of risk, look, again, this all kind of depends on the environment that we're in. We're very comfortable with our overall cover on the portfolio. We're pretty conservatively weighted, I would say, for a heightened geopolitical environment. We have our base case at 50%. We have a markdown at 40%. But look, we'll have to wait and see how the environment transpires. Our PMAs are kind of gradually reducing over time. One uncertainty disappears and a new one appears such as the way of banking life. But look, I think '24 was just an overall -- was a very strong year. Asset quality was very strong, and we did see write-backs from COVID-impacted sectors where we had been conservative and for commercial real estate where we have been conservative. So look, we got benefits from prior year's conservatism, and I don't know that, that's a bad thing. And going forward, I think you can probably expect it to be the same.

So there you have it, another full set of results done. And I want to thank all the people on the call this morning for your interest and for reporting on the AIB story. So thank you very much indeed, and we look forward to catching up with our investors over the course of the next number of days.