AIB Group plc (A5G) Earnings Call Transcript & Summary

Good morning, and welcome to the AIB Group Q3 2025 Trading Update Conference Call. [Operator Instructions] I would like to advise all participants that this call is being recorded. I will now pass you over to our speakers for today's session, CEO, Colin Hunt and CFO, Donal Galvin. Mr. Hunt, please go ahead.

Thank you so much, Nadia. Good morning, everybody. We are pleased to report another strong performance in the third quarter of this year, demonstrating the ongoing resilience of our business. On the back of this morning's release and pretty clear visibility now to the end of the year, we are nudging our NII guidance higher to greater than EUR 3.7 billion for the year as a whole, reporting 5% growth in new lending to the end of September with some particular strength being seen in personal lending and in our capital markets and U.K. businesses. Our lending book remains very resilient, and we are now guiding our cost of risk for the full year at the lower end of the previously advised 20 basis points to 30 basis points range. The domestic economic backdrop remains supportive of our business, and we will enter 2026 with good momentum in terms of both activity and pipeline. I'm going to stop there for the moment, and I'm going to open to the floor for questions.

And now we're going to take the first question and it comes from the line of Diarmaid Sheridan from Davy.

Maybe firstly, on net interest income. Obviously, Colin, you referred to nudging off. I guess I wonder what the implications for 2026 are, if you look at the run rate in Q3. I guess we're going to assume there's going to be a little bit of growth given some of the other factors that you talked to in terms of balance sheet growth. So is a level of around EUR 3.8 billion, is that acceptable? Or is that something that you think is possibly achievable for 2026 net interest income? And just secondly, I appreciated Q3, it will be decided upon at Q4. Just thoughts in terms of capital and distributions. Obviously, another very strong quarter in terms of capital generation. It's not in the number appreciated. But if we look out how much capital do you think you can return to get back to that 14% because you're trending very, very strongly at the moment. Each quarter is a little bit stronger than expected there. So is it still your expectation that you can get to 14% by full year 2027?

Hi Diarmaid, thank you very much. Look, on NII, I think as the year has progressed, we've got increasingly more confident on the outturn for the year, which is why we're very happy to upgrade our guidance greater than EUR 3.7 billion. Obviously, the moving parts there are interest rates, where I think we have well, certainly for 2026, a lot of confidence on where they're going to be. On the asset side, we do see growth of 3%, and we are expecting a strong fourth quarter from lending. And then on the liability side, that has been really, really strong throughout the year. I think we started the year off with kind of a 2% growth target. It's more like more like 4% as we are now. November, December, normally quieter months for obvious reasons with respect to growth, but overall, a really, really strong outturn on deposits. I think that's going to have a natural follow-through into '26 and '27. We're not going to give guidance for '26 or '27. But I think if you take the '26 outturn, that is going to inevitably lead to a stronger performance for '26 and '27. And then you can adjust wherever you see ECB rate moves beyond that. But look, overall, very, very happy with the outturn for 2025. On the distribution side, as you know, our goal is always on the first of January to come in and deliver a strong performance as we possibly can. We're very pleased with the performance year-to-date, really strong capital appreciation. We also managed to resolve and agree with the government, the retiring of the warrants, which is a very -- I think that's positive news for us and for investors as well. Just having a potentially dilutive instrument off the balance sheet. And in Q4, we also have in early December, we're going to look to close a mortgage SRT transaction. So a lot of positive things still to come towards the back end of the year. Look, as you rightly say, we engage in conversations with both our Board and our regulator towards the back end of the year, and normally we will update the market as year-end results with respect to our distribution thoughts. You will see that we have throughout the year, not reported in your earnings really just to accrue those, and that's to give both the Board -- to give the Board maximum flexibility around its distribution deliberations. With respect to medium-term targets and reaching up 14 -- greater than 14% CET1 target, like all of our medium-term targets. These are very much key areas of focus for the organization, and we will drive towards exceeding and beating all of those targets.

Now we're going to take our next question and it comes from the line of Denis McGoldrick from Goodbody.

Just two please, if I may. One is just in relation to loan book growth. So that was up 1% year-to-date to the end of September. Maybe if you could talk us through the reasons why you're still comfortable that you can deliver the plus 3% this year and then the CAGR of 5% over the medium term? And then secondly, just on exceptional items in 2025. Obviously, that's been upgraded now to a credit of EUR 150 million. Maybe if you could again just talk us through the moving parts. Has the gain on Merchant Services landed a little bit higher than you expected?

On the loan book growth, Denis, on the loan book growth, like we've got 10 months activity now fully booked, and we have very clear line of sight to the end of the year. We're very comfortable with where the pipeline is and very comfortable with our expectation that we will deliver loan growth for the full year of the number that you alluded to earlier. So it's requiring less forecasting at this point of the year, as doubtless you're aware, but the pipeline is strong. And momentum into 2026 is going to be very good as well. So the business is in very big good shape, and we're very happy with where we're positioned across the various products.

Yes. And I mean I would add to that. I mean we had imagined we'd see growth of 5% in 2025 on a reported basis. We've adjusted that to 3% really to account for changes in foreign exchange of around 1%, and then we would have delevered some noncore assets, which had an effect of a 1% as well. But the underlying business areas, and the business growth and where we'd expect to see the growth is very much in line with our expectations, which is why we're very comfortable with the 3% for '25 and indeed, the 5% for '26 and '27. On the exceptional side, a couple of things. The gain on sale from AIB Merchant Services is obviously the main driver there. But as we would have talked about previously, we've put behind us a lot of the old legacy type of items that may have found their way through that line in the past. And so there's just very little costs coming through related to any of those legacy type of items. I wouldn't be imagining that there will be gains going forward, but certainly, given those big restitutions and legacy items are closed. Going forward, we don't expect to see charges coming through that line.

The next question comes from the line of Benjamin Toms from RBC.

The first one just in relation to your NII guidance going into next year. One of your peers has talked about or implied guidance implies a material pickup in competition impacting margins into next year. How are you currently thinking about the potential for the increase in competitive pressure as we go into 2026? And then secondly, you've reiterated your cost guidance of less than EUR 2 billion for next year. Consensus isn't quite there yet. What are your confidence levels on this guidance? And what are the moving parts here?

Okay, good morning, Benjamin. On the competitive pressure, like we -- obviously, we've seen very significant structural change in the Irish banking market in the past 5 years with the departures of KBC and Ulster. We put ourselves into a position where we were the lead consolidator for the market, welcoming roughly half of all the customers who were migrating from the departing banks. But the competitive landscape just doesn't include just 3 financial institutions. We have competition every single day from credit unions, from neobanks, from fintechs, from the post office. So we are living in a competitive environment, I would argue already, and I don't see a material change in terms of the competitive landscape as we move into 2026. It is important to note that we have a pretty consistent approach in this business about how we price products. We always maintain that we price them rationally, that we underwrite conservatively, and we're not driving our business forward on the back of significant temporary tightening of margins. We're very, very comfortable with where we stand, and we're very comfortable with the medium to long-term focus of our approach to pricing and underwriting.

Yes. Just coming in there on costs. Certainly, for 2025 between now and the end of the year, we're comfortable to hold that 3% number. Main driver really there is a slow gradual decrease in overall headcount, which you will have seen over the last number of quarters. That's obviously going to move into 2026 as well as we continue to automate and make our processes more efficient, we would expect to see headcount gains. What I would say though is against that, you're obviously going to have inflationary impacts, which remain quite volatile, and then investment in technology that we make in our business as well. So all of those things put together is making up the overall cost base. But look, our medium-term target is EUR 2 billion. And like all of our medium-term targets, we will look to achieve or beat all of those.

Now we're going to take our next question, and it comes from the line of Chris Cant from Autonomous.

I just wanted to ask about capital, please. So Donal, you mentioned an SRT transaction in fourth quarter. I think consensus has in 58% and change RWAs for full year '25. So with the SRT, is that the right place for us to be set, please? Just conscious, you were actually a bit below that in the first half. And I know there's a bit of back-end loaded growth, but if you could give us a steer because I think some banks have talked about op risk RWA inflation coming through in the fourth quarter, too, that would be helpful. And then just in terms of thinking about the capital ratio, if I take your 59% pro forma for the warrant, and I add in the year-to-date profits of 250 , you had a 46 bps interim dividend and then you've got another quarter of profit to come, it looks like you should be coming out somewhere around 18.7% in the fourth quarter and maybe a little bit higher if there's a meaningful impact from the SRT. If I think about where consensus is on an equivalent basis to kind of pre-distribution, it looks like consensus is about 18.5%, I think. But just, if you could comment on that because the capital, I understand why you've done the nonaccrual of profit, but it does make it quite difficult to track how the businesses capital position is trending relative to consensus, it looks to me like even with the warrant surprise, which is 70 bps rather than the 40 you guided earlier in the year, it looks like the business is probably 20 bps ahead of consensus at the year-end and maybe a touch higher given the SRT?