AIB Group plc (A5G) Earnings Call Transcript & Summary

Good morning and welcome to the presentation of our interim results for 2025, our first set of results as a fully privatized company in over 15 years. As usual, I will spend a few moments reflecting on the highlights of the first half, give some time to the economic performance and outlook and update you on our progress on the group's 3 strategic priorities before I hand over to Donal, who will bring us through the financial details. And then as usual, we will open to the floor for questions. We are now halfway through our current strategic cycle. We're very pleased with the performance of the business and are confident in the outlook for this year and beyond. In the first half of this year, we delivered a profit after tax of EUR 927 million, representing a return on tangible equity of 21.4%. We maintained an exceptionally strong capital position with a CET1 ratio of 16.4%, while the Irish state exited our share register at the end of the half with total proceeds of EUR 20.5 billion to date. The state stood behind AIB Group when that support is vital to our continued existence as a key part of the country's economic infrastructure, and we remain extremely grateful to the taxpayers of Ireland. Notwithstanding a significant easing of monetary policy, our net interest income remains resilient and in line with expectations at EUR 1.9 billion in the half. And on foot of the strong performance, we are pleased to be resuming the payment of interim dividends with a cash distribution of EUR 263 million. And this is the first interim dividend that AIB has paid in 17 years, reflecting the full post-crisis normalization of the group. Sustainability sits at the very heart of our purpose, and we remain committed to our leadership standing in this critical area. The first half saw further significant progress with over EUR 19 billion now deployed in supporting the transition to a low-carbon future since 2019, including EUR 2.5 billion in new lending to the end of June, representing 36% of the total. We're firmly on track to meet our 2030 target of 70% of all new lending being green or transitional in nature. We continue to augment our range of sustainability products and services with real traction now in our consultancy services to business customers across both the AIB and Goodbody brands, while we were pleased to launch new low-cost green and transition loans for SMEs. We continue to be a leading issuer of ESG bonds with EUR 7.2 billion raised in total since 2020. And for our personal customers, we will continue to incentivize the purchase of energy-efficient homes through discounted mortgage rates. Since 2024, we've made a cumulative total of EUR 4 billion available to 14,000 first-time buyers and we pledged to do even more. And finally, we continue to achieve broad gender balance across management levels throughout the organization. Turning to the economy. The world is grappling with a wide array of uncertainties driven by trade negotiations, tariffs and marked geopolitical tensions. That said, the Irish economy continues to perform well. While we expect growth to be more moderate than in recent years, as measured by modified domestic demand, which is the most relevant metric for our business, our real rate of expansion of at least 2% is forecast over the next 3 years. And if anything, in the current year, the risk to that forecast is to the upside. Our confidence in the outlook is underpinned by ongoing buoyancy in the labor market with employment continuing to grow strongly, now standing at an all-time high of 2.8 million people. Private sector balance sheets for both households and businesses are in rude health, with releverage at some 40% of its post GFC peak. While savings ratios remain very high at 14% something which is very clearly manifest in the liability side of our balance sheet. Ireland's demographic outlook is also very positive with population growth of 33% recorded in the last 20 years and a further increase of 8% expected in the next 5, which will bring the population in the Republic of Ireland to just shy of 6 million people. And that's a very strong backdrop for the economy and for our customer base, given our standing as the #1 choice by a country mile for new account openings. There has been a significant increase in trade tensions and uncertainty since the start of the year and that has the potential to weigh on economic activity. However, the economy despite its market trade and investment openness has proven to be remarkably resilient in 2025. Ireland, a leading destination for inward investment over many decades now remains a very attractive home for overseas headquartered companies. This is underscored with the news of the flow of IDA-supported foreign direct investments grew by 37% in the first half of this year. Our standing as the only English-speaking common law member of the world's largest single market continues to be an important ballast to the country's economic performance. Matching the good health that we're seeing in household balance sheets, the fiscal position is strong. We welcomed the announcement last week that the National Development Plan will see capital expenditure of EUR 100 billion to 2030, with a further EUR 175 billion to 2035 with a focus on housing, energy, water, transport and research and development. The plan lays out a significant increase in capital investment, which is designed to enhance our national infrastructure in housing, climate, energy and transport sectors. It will boost current activity, and it will enhance the competitiveness and the sustainability of our core markets. It also will create new lending opportunities for AIB over the years ahead, with the government targeting a critically needed doubling of housing output to 60,000 units per annum by 2030. And there are a few countries that can offer such a promising medium term economic outlook in an age of increased global uncertainties. Returning to our own performance in the first half of 2025. We recorded new lending growth of 9%, bringing the total to EUR 6.9 billion in the opening 6 months of this year. Mortgage lending increased by 7%, giving the group a 32% market share. Personal lending was up by 4%, while property lending, growing from a low base, reached EUR 1 billion, which was in line with the performance in the first half of '23. Corporate lending grew strongly by 13%, though this was offset by softer activity in Climate Capital, which is lumpy and uneven in nature as well as flat SME lending. Green and transitional lending accounted for 36% of total new lending. Overall, we expect our loan book to grow by some 3% this year and we continue to expect a CAGR of 5% to the end of 2027. AIB is Ireland's leading financial services group. The strength of our franchise is underpinned by our geographic reach, the array of products and services, we present to our 3.35 million customers and the quality and the resilience of our digital offering. Over half of those people opening personal current accounts in Ireland choose to bank with AIB, while we are also the leading bank for business with a 49% share of main current accounts. We are committed to an omnichannel approach, which is predominantly digital for everyday transactions and in person for the moments that matter. And that's a winning formula and underpins the strength of our franchise and our extraordinary success in attracting new customers. Turning to the first of our strategic priorities, customer first. We are now using our rich pools of data to better understand our various customer segments and their differing needs over the course of their financial life cycles. This is enabling us to build more targeted propositions, tailored communications and a better customer experience all around. We've segmented the franchise into 7 distinct cohorts. And today, we're putting a spotlight on the 25- to 34-year-old segment, comprising 18% of the retail banking customer base with diverse nationalities, strong growth momentum and whose needs are as outlined here, savings payments, credit flexibility and tailored financial advice. This approach is already reflected in a significant improvement in our Net Promoter Scores, which are hitting all-time highs for customer experience across the branch network, our call centers and our digital channels. And we continue to increase the number of customer journeys handled by Abi, our AI Digital Assistant, which now stands at 36% with an expectation that this will exceed 50% by year-end. We'll leave it open to our customers to speak with a person to assist them on these 36% journeys, and 85% of customers are choosing to engage with Abi, who is now handling over 3,000 calls every day. Meanwhile, we are pleased with the reaction of our customers to our AIB life offering with a number of policyholders now standing at 50,000, an increase of 15% in the first half. And we look forward to further significant progress here as AIB Life becomes an ever more important part of our customer offering and our financial performance. We believe that the transition to a low carbon future presents AIB with an enormous opportunity and we have the capital, the expertise and the appetite to realize it. We have a target to deploy EUR 30 billion in climate action funding by 2030 and we're now 64% of the way there. In the first half of the year, green drawdowns amounted to EUR 2.5 billion, 36% of all new lending with each of our business segments making a strong contribution, most obviously, Retail Ireland. We will continue to broaden our product and service range over the course ahead, and I was pleased to see AIB launch green loans for SMEs in the first half of the year. Climate Capital had a relatively soft 6 months in terms of new lending in a quiet market but we are confident that the strong second half pipeline will see a robust performance for the year as a whole. On the slide, we are highlighting 2 of the transactions we were involved in this year, which saw the Climate Capital team supporting Ireland's green transition as well as the development of critical social infrastructure. Operational efficiency is our third strategic priority with a key focus on simplification and digitalization. We've been investing some EUR 300 million on average per year over the past decade in the progressive modernization of our technology and we'll continue to do so. Highlights for the half of 2025 include the delivery of a new data center in the cloud, our third data center, the introduction of push notifications on our mobile app and DORA readiness delivered. We're also rolling out copilot to all our colleagues in an investment, which, as Microsoft has remarked, shows AIB leading innovation in Irish banking. We're very excited about the potential of AI to assist us in delivering better services, better security and greater efficiency over the years ahead. And that's building on the progress driven by our AI Center of Excellence, which we established in 2024. At the same time, we are continuing to invest in our security and our resilience, which we know are central to customer trust. And I can report that we delivered Level 1 IT service availability of 99.99% in the first half. And our digital offering is delivering better outcomes to our customers with 66% of new business lending now on our nCino platform, putting business customers in a position to draw within days of making a loan application. On the personal side of the house, 84% of our customers are now digitally active with 87% of personal loans applied for via the app. And interestingly, only 26% of mortgages are applied for digitally highlighting the reality that for the biggest financial decision to the moments that matter, the majority of our customers want to engage in person with our colleagues across the group. Now that's just a taste of what's in the hopper and I look forward to updating you in future presentations as we relentlessly and resiliently drive efficiency gains through the business. So a lot to report on the 3 strategic priorities with lots more in the pipeline. Now for one last time, we will have a look at our progress and accommodating the state's exit from our share register. Through a combination of ABB's, BBBs and the state's trading plan, the government reduced its shareholding in AIB from 71% to 0 over the past 3.5 years. We welcome the return to full private ownership and we are very grateful to the support of Irish taxpayers to sustain this institution when that support was needed. As of today, we have now returned a total of EUR 20.5 billion to the state taking into account the proceeds of share sales, redeemed capital instruments, fee income, coupons, dividends and levies. We are in ongoing discussions with the Department of Finance regarding the potential purchase of the warrants issued at the time of the IPO in June 2017. And we estimate that a successful conclusion to those discussions would see a further circa EUR 0.3 billion being generated for the state. Taking account of the EUR 100 million bank levy to be paid in the second half of the year, total payments in the state are expected to reach EUR 20.9 billion by the end of this year. We've demonstrated clearly and consistently in recent years, the ability of AIB to generate strong returns for our shareholders. Against a medium-term return on tangible equity target of 15%, we are upgrading our guidance now and expect the 2025 outturn to be above 20%. The first half ROTE result was 21.4%. We're confident in the ability of our business to deliver strong capital generation over the years ahead. We did 150 bps in the first half. And that will allow us to maintain a strong CET1 ratio above 14% to invest in our business and to make sustainable distributions to our shareholders. With our share register now normalized and the imperative of directed buybacks eliminated, we are very pleased to be resuming the payment of interim dividends with the 2025 interim cash distribution of EUR 263 million, representing 1/3 of the full year ordinary cash dividend in 2024. With the CET1 ratio of 16.4% in June, we're still well above our end 2026 CET1 target. We have no desire to be a hoarder of excess capital over the medium term and we will be considering further special distributions at Board level at year-end, of course, subject to regulatory approval with any announcements to be made at the time of the full year results in early March next year. So AIB is in a position of great strength. We have built an exceptional customer franchise with a heavy exposure to one of Europe's most dynamic economies. We've dealt comprehensively and conclusively with all the post-GFC legacy items. We are focused on delivering day in, day out in our plans, and we're creating sustainable real value for our shareholders. I've never been more optimistic about the medium and long-term outlook for AIB. The group's legacy chapter is now firmly closed and we've entered a new era, focused relentlessly on the future, executing on our 3 strategic priorities and delivering on our purpose of empowering people to build a sustainable future. Donal?

Thank you very much, Colin and good morning, everyone. Thank you very much for joining us for our half 1 update. I'm going to run you through financial highlights for AIB. Profit after tax of EUR 927 million, which represents a return on tangible equity of 21.4% with total income of just over EUR 2.2 billion, which was down 10%. That's made up of an interest income reduction of around 10%, and then our fees and commissions were up around 1%. With cost of EUR 979 million, which is up 3% as guided, that means a cost-to-income ratio of around 44%, a slight reduction in our FTEs. Our gross loans increased by 1% to EUR 71.6 billion. And as Colin described, our new lending was very strong at EUR 6.9 billion, which was up 9% year-on-year. Asset quality remains very resilient, and our ECL coverage rate remains unchanged at 1.9%. We had an ECL charge for the first half of the year of EUR 85 million, which represents a 24 basis points cost of risk. Our funding position remains very strong. Our customer accounts of EUR 112.5 billion, shows an increase of around EUR 2.6 billion, which is around 2%. We have a significant amount of MREL executed in the first half of the year, including AT1 and a number of senior nonpreferred transactions. Our CET1 ratio of 16.4% is very strong, comfortably ahead of all of our regulatory requirements and a large part of that increase is related to a Basel IV impact of around 120 basis points. We had very strong organic capital generation of 150 basis points, which we haven't included in the CET1 ratio. As Colin mentioned, we're delighted to be able to announce the resumption of our interim ordinary dividend of EUR 0.12328 per share or EUR 263 million. On the income statement, I've already touched on some of the key highlights. We just need to draw your attention to some of the return metrics. Return on assets, 1.2%, we believe, is very strong. Earnings per share, EUR 0.39, really benefiting from all of the buybacks over the last number of years and the dividends per share are EUR 0.1232, as I just described. Number of items here that I typically don't have an opportunity to touch on later. I'll just run you through. Our bank levies and regulatory fees, we expect to be EUR 140 million for 2025, slightly less, I think, than consensus but we're very comfortable with that number. And overall, on exceptional items for the first half of the year, we really haven't seen any material items, obviously, given a large number of the legacy issues have been concluded. But we do foresee a gain in the second half of the year, and this is going to be related to the sale of our 49% shareholding in AIB Merchant Services. So we'll have a P&L gain of over EUR 100 million and that equates to a CET1 benefit of around 35 basis points and there's a small RWA impact there as well. Flip side to this will be on a go-forward basis. We'll see less income from this investment, which has historically been around EUR 30 million and you'd have seen that on the associates line. So for full year '25, EUR 140 million for levies and regulatory fees and EUR 100 million of an exceptional gain expected. Net interest income, just over EUR 1.8 billion for the first half, which is down 10% really driven by the change in the reduction in interest rates. I'll just walk you through the main moving parts here. Obviously, as rates go lower, the structural hedge is beginning to kick in and we see a benefit of EUR 283 million or 43 basis points. Cash loans to banks, which is really cash balance is excess cash held with the ECB of minus EUR 256 million or minus 43 basis points. EUR 109 million from investment securities. Obviously, these are all asset swaps, securities, which accrue less in a lower rate environment and that has a 19 basis points effect. And then overall, on customer loans, a reduction of around EUR 95 million, which is 20 basis points. Again, this is the ECB tracker related loans or wholesale loans, which are Euribor plus denominated. On the liability side, obviously, there is an increase in the amount of interest paid on deposits against that given the lower rate environment, we have lower wholesale funding costs. So we have an exit NIM of 2.7% and overall 2.78% NIM for the first half. With respect to the outlook on net interest income, we believe that our interest income profile is now very resilient. We've come through a very volatile interest rate period over the last number of years. And I think we're getting a little bit more comfortable with where we see the yield curve. So our guidance of greater than EUR 3.6 billion is imagining a deposit rate of 1.75% by the end of the year and a deposit beta, which at the first half of the year was 19% but we expect that to be around 20% for the full year. Obviously, resilience has been a main theme over the last number of years. We feel we have a resilient balance sheet, which is growing at 5% per annum. We have a very granular deposit base, which I'll be able to break out in a little bit more detail. And with respect to proactive activity in the first half of the year, we would have increased our structural hedge by around EUR 15 billion and obviously taken advantage of the wider spread environment and steeper curves by buying an additional EUR 2.2 billion of govi and SSA securities. Just to run through the hedge in a little bit more detail. I would have mentioned at the first quarter results that we executed an additional EUR 10 billion of hedge in January. We've also added to that in June by adding an additional EUR 5 billion. So total EUR 15 billion in the first half of the year and that's materially reduced our interest rate sensitivity from EUR 439 million down to EUR 306 million. We expect to replace around EUR 7 billion of swaps in 2025 and approximately EUR 6 billion in 2026. By executing these transactions, the EUR 15 billion, we were looking to obviously reduce sensitivity, but add duration. So the average life of our euro hedge is now over 5.1 years. That's where we expect it to be by the end of 2025. With respect to receive fixed yields, we expect for euros, this to be around 2.3% and for sterling, 2.4%. And then as we look at the duration overall on our balance sheet, we normally look at our fixed rate mortgage portfolio as well, which remains unhedged on our balance sheet. So the quantum there remains around EUR 20 billion and the average life of that is now around 2 years yield of 3%. So we feel that the outlook and the balance sheet position is very resilient, and we're very comfortable maintaining guidance of greater than EUR 3.6 billion for 2025. Other income of EUR 358 million, stable and growing net fees and commission income, which is up 1% year-on-year. Some of the positives is that we're on card income, wealth and insurance and investment banking. And against that, we probably had a weaker first half and some of the other more volatile line items like equity investments. We bought back some debt securities, et cetera. I do think on those other income areas, we'll be able to outperform the second half of the year. And as I look at the fees and comms line, we expect to see a slight outperformance in the second half of the year. Some of the line items, I would say, such as FX may be impacted a little bit by some of the uncertainty, particularly in the SME segment. But putting all of that together, very comfortable to reiterate our other income guidance of EUR 750 million for 2025. I would draw your attention to the fact that we've restated the way we present these numbers. We have a large focus on wealth and insurance area. And we've really tried to break it out to make it really clear. So you'll be able to follow this line item going forward. And also, we've disclosed what the AUM volumes are for Goodbody and AIB Life, which are the main drivers of that line. So we'll be able to talk to that in more detail in future outings. Costs of EUR 979 million, which is a 3% increase in line with guidance. Staff costs flat, really due to lower headcount, offset by a little bit of inflation. Depreciation is down slightly year-on-year, and our G&A is up 12%, a little bit of inflation, but also some higher OpEx spend related to operational efficiency initiatives. That gives us a cost income ratio of 44%. And if you see our headcount here, slowly reducing, down 2% in the year, which is very much in line with what we would have talked about. We would expect to see that to continue to decrease on an organic basis. So costs for the year expected to be 3%, very much in line with what we talked about. In terms of asset quality and ECLs, we had a charge of EUR 85 million which represents a 24 basis points cost of risk. We've maintained our ECL cover rate of 1.9%. And if I was just to have a look here at the main 3 moving parts. We've obviously taken into account the wide range of outcomes in the geopolitical environment. So we've had a charge of around EUR 23 million based off a change in macro assumptions. Underlying credit performance was around EUR 103 million. And then between PMAs and model changes, we had a small write-back of around EUR 41 million. Really taking a step back, notwithstanding the fact that the environment is quite uncertain, we haven't seen any asset quality deterioration in any of our main markets. And we do believe that given the certainty in recent agreements between the EU and the U.S. that this should remain quite stable for the rest of the year. But very happy to reaffirm our cost of risk guidance for the year of between 20 to 30 basis points. Balance sheet wise, nothing really new to talk about here. I would have mentioned earlier that we would have increased the holdings of investment securities, really just to take advantage of widening spreads, particularly in core Europe and in SSAs. Given the fact that we have a significant amount of excess liquidity that seems to make a lot of sense. And we do think that we'll be able to add to that in the future, particularly in 2026, maybe another EUR 2 billion or EUR 3 billion to bring the total to around EUR 5 billion between '25 and '26. Overall, our equity position of EUR 14.3 billion reduced by EUR 1.1 billion and that's obviously due to the buyback and distribution paid in the first half of the year, partially offset by the H1 profit. Our loan book increased by 1% to EUR 71.6 billion. I'll just try and walk you through some of the main moving parts here. New lending very strong at EUR 6.9 billion, redemptions of EUR 5.5 billion, pretty much in line with our own expectations. Given the volatile external environment, some of our reporting currencies are a little bit weaker. So there's an FX effect of around EUR 700 million and also an inclusion or reduction from some NPE reductions. So notwithstanding the fact that we imagined a 5% asset growth for 2025, given the first half of the year, a slight amount of uncertainty, we think that that's going to be more like 3%. But overall, as we look to the second half of the year and beyond, we're very happy and comfortable with our 5% CAGR out to 2027. Colin would have talked about the new lending in all of the main segments. And I'm really just looking at the total balance sheet effect here, really in the Republic of Ireland mortgage consumer space, strong growth, very comfortable there. Property, we've seen a slight increase there, albeit from a low base. And then within the wholesale construct, I would say, corporate strong, SME a little bit weaker or flat. But overall, from a balance sheet perspective, that's flat. So for 2025 on a reported basis, we see growth of 3% in 2025, but growing strongly into '26 and '27. On the liability side, our position remains very strong. 81% of our funding is coming from deposits. 72% of these are in personal and SME balances less than EUR 1 million. 52% of our deposits are insured and 92% of our customer accounts are in the Republic of Ireland, really representing a very strong franchise in our main market. Our MREL ratio was 34.9%, well in excess of our 28.9% requirement, and we continue to transact around 3 MREL type transactions on an annual basis. LDR remains strong at 62%, LCR, very strong at 204% and our net stable funding ratio is very strong at 165%. Overall, on the liability side, we've seen growth of around 2% in the first half of the year. And that really -- that growth is coming, I would say, in personal and business areas. AIB is attracting 53% of new account openings, which has really given a strong performance on the liability side. So we expect overall liability growth to be at least 3% in 2025. Our capital slide and our capital position of 16.4% is well ahead of regulatory requirements. And I think that this is a particularly strong and insightful slide. So we finished 2024 with a CET1 ratio of 15.1%. January, we would have had a benefit from Basel IV of 120 basis points. In the first half of the year, we've had a strong performance, generating 150 basis points. We've just announced an interim dividend of EUR 0.1232 which represents around 40 basis points or EUR 263 million, slight DTA benefit of 20 basis points, adjustment for AT1 coupons. That leaves us with a pro forma CET1 of around 17.5%. We then deduct the remaining quantum of our earnings for the year of 1.1% to leave us with a reported CET1 of 16.4%. The exclusion of the remaining half on profits of 110 basis points really is pending a final decision on distributions at the year-end. We feel that, that provides -- gives us maximum flexibility on payouts and is very much in line with the regulatory expectations. Just running through the headwinds and tailwinds out to 2026. Obviously, our goal is always to maximize our capital generation. Sustainable profits of greater than 270 basis points, DTA benefits of 30 basis points. So it looks like we're going to exceed that certainly for 2025. We're always going to invest in our business. That's a requirement on an ongoing basis. So we'll invest at least EUR 300 million on an annual basis. And we obviously require capital to support our balance sheet growth objectives of 5% growth per annum. With respect to headwinds and tailwinds, what I talked previously about the benefit of -- in CET1 of 35 basis points from our sale of AIB merchant services or a stake in AIB merchant services. We expect that transaction to close in Q3. We're in discussions with the Department of Finance to retire the IPO warrants with an cost of around 40 basis points. Again, we would hope to be able to conclude that in quarter 3. And we look to close the second of our SRTs in Q3 or Q4. I've talked previously about a multiyear, multi-asset program. So we're really targeting AIB mortgages in Q3 or Q4. We're going to look at EUR 2 billion worth of nominal to reduce EUR 1 billion worth of RWA. The CET1 benefit could be 20 or 30 basis points. The estimated cost of equity of that transaction is around 5%. But I'll be able to update you on that at a later stage. On IRB models, adoptions and developments. I'd say as we stand here in '25, 50% of our risk-weighted assets are on IRB models. We want to move that up to 80% to 90% by 2030. And we think that that's going to increase fairly linearly by 10% per annum. There's a number of models, which are close to a conclusion, such as mortgages and project finance. We don't have any final conclusions on those, but I'm not expecting any negative outcomes. And with respect to distributions, obviously, as Colin would have mentioned, this is the first time we presented results when the governments are no longer a shareholder. And in prior years, engaging with the government on a directed basis was a very supportive thing for the government and very advantageous to AIB as well. So really, what we wanted to do today is outline a very clear distribution plan for all shareholders to understand. So from an ordinary dividend perspective, we'll look to pay a sustainable dividend within a 40% to 60% payout policy range. The ordinary dividend is going to be paid in cash. We've obviously announced the resumption of our interim dividend today and we're going to set that at 1/3 of the prior year's ordinary dividend per share. Coming the end -- towards the end of the year in quarter 4, we look at the overall performance of the business. We'll look at the outlook and the way that we're going to view additional distributions is that there will be capacity for above policy payouts subject to annual review and necessary approvals. And that we'll have the optionality to utilize share buybacks or special dividends or a combination of both as we move towards our medium-term target of 14%. Okay. Just to wrap all that up with respect to guidance. Net interest income greater than 3.6 billion, other income circa EUR 750 million, a cost increase of 3%, cost of risk within 20 to 30 basis points range, levies and reg fees at EUR 140 million, an exceptional gain of EUR 100 million and assets and deposits to grow by around 3%. And overall, giving us a return on tangible equity of greater than 20% for 2025, moving us towards our 2026 medium-term targets. So thank you very much, and I look forward to taking your questions.

Thanks very much, Donal. We will now turn to phone lines. I understand the first question we have this morning is coming from Denis McGoldrick in Goodbody.

Two please, if I may. One is just around your expectations on loan growth. And I guess maybe if you could give some additional color on what areas were slower than expected in H1. And more importantly, what gives you the confidence to retain the 5% CAGR for '25 to '27? And then just secondly, on bond activity. So I know the 12% increase in the first half of the year. Could you give some additional color as well then on what level of activity we can expect in H2 of this year?

Thanks for that. I'll deal with the loan growth volume question, and I'll hand over to Donal for the second question. The business performed largely in line with our expectations in terms of volume growth. The exception was Climate Capital. The market was quieter than we've seen for some time. It's a business by definition where the lending is lumpy. It's uneven. And our confidence in the outlook is driven by the pipeline that we see before us. It's a very, very strong pipeline. And gives us confidence in our expectation that we'll hit 3% loan growth -- circa 3% loan growth for the year as a whole and indeed in the outlook over the medium term. These are typically projects with a long lead time, extended delivery times but you can see them coming. And the pipeline, as I said, is very, very strong for the second half of the year after a first half, which was quieter than would have been expected, perhaps driven by some of the noise that we've had out there about renewable energy in the first 6 months of the year. But looking out to the second 6 months and indeed beyond, we're very comfortable with the guidance given this morning.

Denis, so with respect to bond activity, we obviously recognized post liberation Day that curves are going to be a little bit steeper and spreads were a little bit wider. We don't think that, that's like for a moment in time. Most of the large Eurozone supernationals governments are going to be issuing more of that going forward to finance infrastructure and to rent type activity. So we don't think that there's any particular rush to take advantage of these wider spreads. But specifically to the question, we would have bought around EUR 2 billion in the first half of the year. And for the second half of the year, we just want to take a little bit of a break, look at the whole portfolio and make some adjustments if and where we see fit. And then looking at 2026, maybe look to add another EUR 3 billion. Like I said, I don't think these wider spreads are going to be going away anytime soon. And if anything could go a little bit wider.

We're turning now to Diarmaid Sheridan, Davy.

A couple, if I may. First of all, just on net interest income. Donal, your guide of greater than EUR 3.6 billion, I guess, consensus is maybe about 2% or so above that. Are you comfortable with that? Or do you think the greater than could be a little bit more than 2%. Secondly, just on distributions. And maybe, I guess, if we read between the lines of what you're saying to us is, you're going to look to try and return kind of substantially all of the profit that you generate this year. Is that the correct way to think about this? And over what kind of time frame do you think you can get to the greater than 14% target? Because obviously, when you incorporate profitability, you're at significantly higher levels than that at the moment.

Yes. I think on the NII, the -- certainly very comfortable greater than EUR 3.6 Billion. I mean we had set that guidance, imagining ECB rates were going to be 2%. They're now a bit lower at 1.75%. I think the domain area that gives us the comfort to reiterate that is the growth on the liability side. We thought it might be 2%. It's already 2% at the half year. And in some respects, I think that the performance or outperformance will depend on where that's going to land. We've guided for 3% but we'll see how that one goes. I think on the distribution and the profits, we're in a new world now, okay? The government isn't on the share register. Directed buybacks are no longer going to be a feature. So what we really wanted to do today was set a really clear policy that was very easy to understand and effectively make AIB look like every other bank around the world, certainly in Europe. So we think it's appropriate to be very clear on what our interim dividend policy is going to be. And then we're just being, I think, conservative by holding back on the interim profits or reporting of the interim profits. We feel that, that gives us maximum flexibility around payouts towards the end of the year. And then I think with respect to the 14% payout ratio, I mean this is obviously an evergreen item. I don't -- if we look at our CET1 ratio of 16.4%, we've got a medium-term target of 14%. I don't think that outperformance is relating to any form of trapped surplus capital that we're unable to access, particularly this year and slightly last year as well through RWA efficiencies, we probably have generated around 200 basis points, okay? And obviously, we're looking to move towards our medium-term target of 14%. But if we continue to be very successful on RWA initiatives, it might take us a little bit longer to reach that 14% CET1 ratio, but I don't think that that's necessarily a bad thing.

Okay. Thanks for that. Very clear. The next question is from Chris Cant, Autonomous.

I just wanted to follow up on -- I have got an echo.

Well, we don't. So proceed if you can.

Okay. I think I managed to fix. I'm not sure what I did. So following up on capital distributions. Look, I guess the question is why no interim buyback, why no interim special dividend. I mean, you had sort of an exceptional capital benefit in the first half with Basel IV. That, to me, is the kind of thing that could definitely warrant a special dividend. It's a one-off item. It's not going to repeat. It's not part of your yearly profit. It shouldn't really form part of the payout ratio debate. So with the government of the shareholder register, I appreciate you moved to an interim dividend policy, but you were able to do an interim buyback last year, direct buyback? Why no interim buyback this year? Why no interim special dividend? And is that what we should expect going forward? So is the cadence of capital return sort of mechanical interim dividend and then surplus capital return just on an annual basis. And in terms of your comment on the last question, coming down to 14% potentially more slowly if your RWA actions are more successful than you think. Again, if special dividends are part of the equation here, why is it the case that you can't come down to target at the same speed, especially -- I understand there may be a sort of a liquidity limitation on the ability to deploy capital through open market buybacks. But if specials are going to be part of the equation. Why is it that you would need to come down to target more slowly?

Chris, yes, thanks for that. Look, in 2024, I would say, the conversations we had amongst ourselves was resume interim dividend or focus on buyback -- directed buyback with the government. That was the most advantageous thing for us and for shareholders at the time. So this year, we were really focused on trying to normalize our distribution policy and how we set ourselves out. So I think going forward, we do want to normalize the way in which we return to shareholders with an interim and then move the special or the additional conversations towards the end of the year. Just gives everyone a little bit more time to understand the environment and ensure that we get the best outcome for all of our stakeholders. So I would say yes, you should expect to see that kind of cadence going forward. And then with respect to items like Basel IV impacts and stuff like that, I mean, there's always things coming in and things coming out. I mean one wants to have things settle and you want to have comfort that you're not going to have any negative surprises. And that's not me saying that out. There is one on the horizon because there certainly isn't. But even with the existing environment at the moment and the geopolitical tensions, it really didn't seem like the appropriate time to be overly aggressive with respect to distributions. And notwithstanding the fact that we will continue to work hard on RWA efficiencies and generating more capital.

Well, that end '26 target of a CET1 ratio above 14% is real. And we will use all the tools at our disposal to get close to that by the end of 2026. And we look forward to having an informed debate at Board in the fourth quarter of this year and also to engaging with our regulators on what shape and size and form distributions will take for the full year. And look forward to making those announcements when we are standing up here at the start of March, delivering the full year results. Now we're going to talk -- we're going to turn to Grace Dargan at Barclays. Good morning, Grace.

I just have a couple, Apologies. I'm going to follow up again on the distributions and maybe just very slightly differently. Given what you're saying and given the payout today, is there any reason we shouldn't think about 100% payout going forward? I presume from your comments, now that we should still be thinking about that. But any color around that would be helpful. Then secondly, just around the loan growth. Just coming back on that, I guess, the CAGR does imply quite a significant step up in loan growth. Cognizant of your comments around climate capital, but you do also have increasing competition in your domestic market. So isn't your growth potentially more challenging into '26 and '27 when you're pointing to a bigger step-up. And I guess, in that context, maybe could you just give a little bit of color about what you think of as the long-term mix of that loan book kind of nondomestic versus domestic as well.