REG - AIB Group PLC - 2023 Annual Financial Results Announcement

AIBAnnouncement

06/03/2024 07:00

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RNS Number : 7274F  AIB Group PLC  06 March 2024

 

 EMBARGO 07:00  6 March 2024

 

AIB Group plc announces full year 2023 profit after tax of over €2 billion
and €1.7 billion proposed distributions

"AIB delivered an exceptionally strong financial performance in 2023 with
profit after tax of €2 billion, a RoTE significantly ahead of target and
proposed distributions of €1.7 billion. 2023 was a landmark year for AIB as
we concluded our 2021-2023 strategic cycle by enhancing the suite of products
and services we provide to our record customer base of 3.3 million as well as
transforming the business throughout a period of extraordinary change both
globally and domestically.

 

During 2023, the Group returned to majority private ownership and we are keen
to return further capital to the State with proposed distributions of c.
€1.3 billion, including a €1 billion directed share buyback for which
discussions are underway.

 

Supporting the transition to a lower-carbon economy is a strategic priority
for AIB and in 2023 we provided €3.7 billion of new green lending which
represented 30% of our total new lending of €12.3 billion. We also tripled
our climate-action fund to €30 billion and have established a dedicated
'Climate Capital' segment, to further our progress in financing renewable
energy and infrastructure development.

 

As we embark on our next three-year strategic cycle, we do so with a
transformed, reshaped, and revitalised Group. Our priorities for 2024 and
beyond include an enhanced focus on our customers, further greening of our
loan book and driving greater operational efficiency. Delivering this strategy
will ensure we meet our customers' needs, play our role in the economy and
deliver sustainable profits and returns for our shareholders. With a new set
of medium-term targets, including an upgraded RoTE target of 15%, we look to
the future with confidence."

- Colin Hunt, Chief Executive Officer

 

KEY HIGHLIGHTS

 

Financial highlights (all comparisons versus 2022 unless otherwise stated)

·    Strong financial performance ahead of expectations:

o  Profit after tax €2,058m; EPS 75.7c; RoTE 25.7%((1))

·    Total income increased 64% to €4,741m

o  83% increase in net interest income (NII) to €3,841m

o  13% increase in other income to €900m

o  2024 income guidance: NII >€3.65bn and other income >€700m

·    Proposed distributions of €1.7bn or 64.8c per share

o  €0.7bn cash dividend or 26.6c per share

o  €1bn regulatory approved buyback; directed buyback discussions underway

o  Payout ratio 82% of profit after tax

o  Above-policy payout commences return of excess capital

·    Fully loaded and post-proposed distributions CET1 of 15.8% (Dec 22:
16.3%)

·    Costs((2)) increased 10% to €1,826m, with a cost income ratio (CIR)
of 39% (2022: 57%)

·    ECL charge of €172m (2022: €7m charge) equating to 27bps of gross
loans; 2.3% ECL cover

·    Gross loans increased 9% to €67.0bn (Dec 22: €61.2bn) including
€4.7bn of Ulster Bank loans

o  New lending of €12.3bn including green lending of €3.7bn

o  Circa 3% NPE target achieved at 2.96% of gross loans (Dec 22 at 3.5%);
NPEs €2.0bn

·    Strong funding with 2% increase in customer accounts to €104.8bn

·    Returned to majority private ownership as the State's shareholding
reduced to c.40%

 

Strategic highlights

·    Significant progress made over 2021-2023 strategic cycle demonstrates
the transformation of AIB and positions the Group well for the future

o  Enhanced product suite in fee-based wealth management with AIB life and
Goodbody

o  Record customer base of 3.3m customers (2020: 2.8m customers)

o  Successful Ulster Bank loan book acquisitions; €6.8bn migrated to date;
€1bn due in 2024

·    Leader in green lending and ESG bond issuances

o  €11.6bn cumulative green lending since 2019

o  €5.75bn ESG bonds issued to date

·    Continuous c. €300m p.a. investment in progressive modern technology

o  2.19m digitally-active customers compared to 1.72m in 2020, an increase of
27%

o  Enhanced mobile banking for our business customers through AIB Business
(iBB) app

·    The Group begins its next strategic cycle with refreshed 2026
medium-term targets:

o  RoTE((1)) 15%

o  CET1((3)) >14% with a buffer over MDA of at least 250bps

o  Absolute cost((2)) <€2bn with a CIR ratio of <50%

 

FINANCIAL PERFORMANCE

 

The Group delivered an exceptional financial performance driven by increased
income which contributed to profit after tax of €2,058m and a RoTE of 25.7%.

 

Net interest income of €3,841m (2022: €2,095m restated((4)) from
€2,159m) increased by 83% due to the changed interest rate environment and
higher average customer loan volumes. The Group operated in a negative
interest rate environment in H1 2022 and since July 2022 the ECB has increased
euro interest rates on a graduated basis by 450 basis points, exiting 2023
with an ECB deposit rate at 4%. Net interest margin (NIM) for 2023 was 3.11%
(2022: 1.69% restated from 1.74%) and the Q4 2023 exit NIM was 3.30%. For 2024
we expect NII of >€3.65bn based on rate assumptions of an ECB deposit
rate of 2.75% and a BOE rate of 4.50% at December 2024.

 

Other income increased by 13% to €900m (2022: €800m restated from €736m)
and includes a gain of €223m (2022: €62m) related to a forward contract
for the acquisition of Ulster Bank loans. Net fee and commission income
increased by 8% to €633m (2022: €588m) primarily reflecting higher card
income and transaction volumes which included the full year impact of
customers onboarded from banks exiting the Irish market. We expect 2024 other
income of >€700m.

Operating costs were €1,826m (2022: €1,659m), an increase of 10% on the
prior period. This increase incorporates the impacts of wage and general
inflation, an allowance for limited variable remuneration payable in 2024
(following the relaxation of some pay constraints) and increased cost to
service an enlarged Group and customer base. At December 2023 FTEs were 10%
higher than the previous year at 10,551 (Dec 2022: 9,590). We expect costs to
increase by 6-7% in 2024.

Overall credit quality remains robust against the backdrop of inflation and
higher interest rates. There was a net credit impairment charge of 27bps or
€172m in 2023 (2022: €7m charge) driven by a €327m charge (mainly
property-related) partially offset by a €155m writeback in the corporate
& SME portfolio reflecting strong credit performance and repayments in
Covid-impacted sectors. Our approach remains conservative, comprehensive and
forward-looking and is reflected in an ECL coverage rate of 2.3%. For 2024, we
expect CoR at the lower end of a 20-30bps range.

 

Bank levies and regulatory fees of €185m in 2023 increased by €30m (2022:
€155m) primarily due to a higher Deposit Guarantee Scheme (DGS) fee. The DGS
fee for 2023 reflected an industry wide increase in the funding rate to
facilitate the build-up of the DGS Contributory Fund to the target level. For
2024 we expect bank levies and regulatory fees to be c. €145m including an
increase in the Irish Bank levy to c. €100m.

 

Exceptional items in the year were €150m, mostly recognised in H1 and
primarily relate to costs for Belfry((5)) investment property funds and
inorganic transaction costs. Exceptional costs are expected to be c. €100m
in 2024.

CUSTOMER LOANS

 

Gross loans of €67.0bn increased by €5.8bn (Dec 2022: €61.2bn) driven by
the acquisition of loans from Ulster Bank and new lending exceeding
redemptions. The Group completed the migration of a further € 0.9bn of
Ulster Bank corporate and commercial loans in 2023 bringing the total fair
value of loans migrated to €3.0bn. The Group also migrated Ulster Bank
tracker (and linked) mortgages with a fair value of €3.8bn with the
remaining c. €1bn loans to migrate in 2024.

 

Total new lending was €12.3bn (2022: €12.6bn) with a strong second half in
which new lending grew by 22% versus H1 2023.

Mortgage market share was 33%((6)) reflecting a strong performance in a market
characterised by lower switching levels when compared with the prior year. New
mortgage lending in Ireland was €4bn. Personal lending was up 23% to
€1.2bn reflecting our enlarged customer base, an increase in consumer credit
demand and our market-leading digital proposition with 89% of personal loan
applications completed online. New lending to SMEs in Ireland increased by 3%
to €1.6bn and early reaction to our new online business loan application
process has been positive.

New lending in Capital Markets increased by 3% to €4.8bn with strong new
lending in corporate, renewable energy & infrastructure partially offset
by lower property lending reflecting reduced activity in the commercial real
estate sector.

New lending in AIB UK was £1.2bn compared to £1.3bn in 2022 as we continue
to focus on our chosen market sectors.

We continue to support our customers as we transition to a lower-carbon
economy and new green lending of €3.7bn accounted for 30% of total new
lending whilst our green mortgage products represented 45%((7)) of new
mortgage lending.

Reducing NPEs has been a longstanding priority for the Group and we have
achieved our target of c. 3% with NPEs of €2.0bn or 2.96% gross loans (Dec
2022: €2.2bn or 3.5% gross loans). The 9% reduction reflects redemptions of
€0.7bn and NPEs disposals of €0.3bn partially offset by new NPEs of
€0.9bn. Asset quality remains resilient and we continue to carefully manage
the loan book, particularly in those sectors impacted by inflationary
pressures and higher interest rates.

 

We expect customer loans to grow by 2% in 2024.

 

 

FUNDING & CAPITAL

 

Strong funding and capital ensure AIB is well positioned for sustainable
growth. Customer accounts increased by €2.4bn to €104.8bn with 77% in our
Retail Banking segment (Dec 22: 74%). The Group continues to have strong
funding and liquidity ratios with LDR of 63%, LCR of 199% and NSFR of 159% at
December 2023 which compare to 58%, 192% and 164% respectively at December
2022.

 

The Group completed three MREL issuances in 2023 including a €750m social
bond, a US$1bn bond and a €750m green bond bringing our MREL ratio at Dec
2023 to 34.0% of RWAs, well in excess of our target of 29.7% for 1 January
2024. Total proceeds raised from ESG bonds to date stand at €5.75bn. On
average we expect three debt issuances per annum over the next three years.

 

Ratings: The Group is rated at investment grade with Moody's and Standard
& Poor's (S&P). In June 2023 S&P upgraded the AIB Group plc senior
rating to BBB from BBB- following an upgrade of Ireland's sovereign debt
rating. Moody's revised the outlook for AIB Group plc upwards from Stable to
Positive in December due to strong financial performance and improved asset
quality.

 

Capital remains robust and ahead of minimum regulatory requirements. The
Pillar 2 requirement decreased from 2.75% to 2.60% for 2024. The fully-loaded
CET1 at Dec 2023 was 15.8% (Dec 22: 16.3%). The main drivers of the CET1
movement were strong organic capital generation (+370bps) offset by the
completed 2023 share buyback (-40bps), the proposed dividend (-130bps),
proposed share buyback (-180bps), other capital movements (+50bps) and RWA
increases (-120bps) mainly from the full impact of the Ulster Bank loan
acquisitions, increased operational risk RWAs and IRB model impacts. We are
progressing RWA optimisation measures such as a significant risk transfer
(SRT) transaction.

 

Shareholder distributions of €1.7bn are proposed and this above-policy
payout marks the commencement of the return of excess capital. A cash dividend
of 26.568c per share, equating to €696m, has been proposed and regulatory
approval received for a share buyback of €1bn. Discussions with the
Department of Finance in relation to a potential directed buyback of ordinary
shares from the Minister for Finance are currently underway. Given the size of
the potential related party transaction Shareholder approval will be required
and it is our intention to seek approval at our AGM on 2 May 2024.

 

        SUSTAINABILITY

 

Progressing our Sustainability agenda is a strategic priority for AIB. We
continue to play our part to ensure a greener tomorrow by backing those
building it today. The summary below shows some of the highlights of 2023
across each of the ESG categories/criteria:

 

Environmental

•    The Group exceeded the 2023 €10bn Climate Action Fund, with
€11.6bn((7)) cumulative green lending since 2019. The Group has tripled its
Climate Action Fund to €30bn by 2030 to help build the green infrastructure
of the future

•    AIB has aligned its activities into a new segment called Climate
Capital to expand our capability and capacity as a leader in financing energy
transition and infrastructure focusing on established renewables technology in
Europe, UK and North America

•    Our virtual Corporate Power Purchase Agreement will provide up to 80%
of AIB's estimated electricity needs certified to a fully traceable renewable
solar energy source

 

Social

•    The Group has issued €5.75bn in ESG bonds for large-scale projects
with environmental, social and climate action benefits in communities across
Ireland in the areas of healthcare, education and social and affordable energy
efficient housing

•    AIB Community €1m Fund provided direct support to 80 charities
primarily around Ireland but also in the United Kingdom. Recipients of the AIB
Community €1m Fund are those charity organisations nominated by our
customers, employees and the general public, and in 2023, such nominations
nearly trebled

•    Our annual Sustainability conference attended by 600 people in person
and more than 8,600 online offered real meaning and direction from thought
leaders in sustainability, helping everyone understand how they can take
practical action in their sustainability journey

•    We are supporting customers' financial wellbeing and bringing
enhanced ESG advisory capabilities to our customers through Goodbody

 

Governance

•    The Group returned to majority private ownership in June 2023 with
the State's shareholding down from c. 57% at Dec 2022 via a number of
mechanisms including accelerated book-builds, trading plan and a directed
buyback to its current level of c. 40%

•    Our remuneration policy was updated to reflect our intention to
provide healthcare benefits from 2024 and variable remuneration based on
financial and non-financial performance in 2023, payable in 2024

 

For more information please see the Detailed Sustainability Report on our
website (aib.ie/sustainability (http://www.aib.ie/sustainability) ).

 

NEW STRATEGIC TARGETS, OUTLOOK & GUIDANCE

 

Against an evolving Irish banking landscape, AIB Group is transformed,
reshaped and revitalised. We delivered an enhanced product suite, embedded
inorganic initiatives, transformed our operating model with increased
digitalisation, welcomed new customers and led the ESG agenda. We closed
Strategy 2023 as a leading financial services group well-positioned for the
future. 2024 marks the beginning of a new three-year strategic cycle for the
Group. Our purpose is empowering people to build a sustainable future, and
over the next three years, we will develop deeper more enduring relationships
with our customers, by better serving their financial needs. To do this,
aligned to our existing strategic pillars, we have clearly set out
three strategic areas of focus; Customer First, Greening the Loan Book and
Operational Efficiency.

 

With this in mind, we have taken the opportunity to review the Group structure
with greater emphasis on our customers and green finance with the creation of
both a new Chief Customer Officer ExCo position and a dedicated Climate
Capital segment to build on our track record in financing renewable energy
projects both nationally and internationally.

 

As Ireland's largest financial services provider, AIB continues to be a
driving force in the Irish economy. Our reshaped Group is generating
sustainable profits and is well-positioned to support our 3.3 million
customers, our shareholders and the wider economy now and into the future.

 

Notwithstanding the challenges of global uncertainty and an evolving operating
environment, our strategy has positioned us well for the future. 2023 was an
exceptional year for the Group and we are entering the next strategic cycle in
a position of strength. The 2026 financial targets reflect our priorities and
consideration of our stakeholders and are as follows:

·    Sustainable returns: RoTE of 15%

·    Prudent capital management: CET1 >14% with a buffer over MDA of at
least 250bps

·    Focus on efficiency: Absolute cost <€2 billion with a CIR of
<50%.

 

With 2023 proposed distributions of €1.7bn and an above-policy payout we
have now commenced the process of returning excess capital as we move towards
our medium-term CET1 target.

 

The Group has had a good start to 2024 with both income and asset quality
demonstrating resilience. We are optimistic about our business and look
forward to AIB delivering sustainable returns for our shareholders over the
years ahead.

Guidance full year 2024:

·    NII is expected to be >€3.65bn

·    Other income is expected to be >€700m

·    Costs are expected to increase by 6-7%

·    We expect a CoR at the lower end of a 20-30bps range

·    Bank levies and regulatory fees are expected to be c.€145m

·    Exceptional costs are expected to be c. €100m

·    Customer loans are expected to grow by 2%

 

 

Further detail is provided in the 2023 annual financial report which can be
found on aib.ie/investorrelations (https://aib.ie/investorrelations) or click
here to
view: http://www.rns-pdf.londonstockexchange.com/rns/7274F_1-2024-3-6.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/7274F_1-2024-3-6.pdf)

Notes:

1)        2023 RoTE = (PAT - AT1) / (CET1 @ 13.5% of RWAs); medium-term
target RoTE= (PAT - AT1) / ( CET1 @ 14% of RWAs)

2)        Costs before bank levies and regulatory fees and exceptional
items

3)        CET1 fully loaded

4)        Net interest income includes a voluntary change in accounting
policy whereby the interest income and expense on certain derivatives held
with hedging intent, but for which hedge accounting is not applied (economic
hedges) is now included within the applicable components of net interest
income with all other fair value movements recognised in net trading income.
Figures for the prior year have been restated on a comparative basis resulting
in an increase in other income in 2022 by €64m and a corresponding decrease
in net interest income of €64m

5)        Belfry relates to a series of investment property funds which
were sold to individual investors during the period 2002 to 2006. Further
information is available on pages 278 to 279 of the 2023 Annual Financial
Report

6)        Source: Mortgage drawdowns BPFI for FY 2023

7)        In H2 2023, our new green lending definition was expanded to
include new mortgage lending to energy efficient homes (BER A1-B2/ EPC A-B),
aligned to our Sustainable Lending Framework (SLF). Our green mortgage
products may include lending to homes with a B3 BER rating

 

Figures presented above may be subject to rounding and thereby may differ to
the 2023 Annual Financial Report

 

 

- ENDS -

 

 

For further information, please contact:

 

 Donal Galvin                  Niamh Hore                  Paddy McDonnell
 Chief Financial Officer       Head of Investor Relations  Head of Media Relations
 Tel: +353-1-6418300           Tel: +353-86-3135647        Tel: +353-87-7390743
 email: donal.j.galvin@aib.ie  email: niamh.a.hore@aib.ie  email: paddy.x.mcdonnell@aib.ie

 

 

Forward Looking Statements

This document contains certain forward looking statements with respect to the
financial condition, results of operations and business of AIB Group and
certain of the plans and objectives of the Group. These forward looking
statements can be identified by the fact that they do not relate only to
historical or current facts. Forward looking statements sometimes use words
such as 'aim', 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan',
'goal', 'believe', 'may', 'could', 'will', 'seek', 'continue', 'should',
'assume', or other words of similar meaning. Examples of forward looking
statements include, among others, statements regarding the Group's future
financial position, capital structure, Government shareholding in the Group,
income growth, loan losses, business strategy, projected costs, capital
ratios, estimates of capital expenditures, and plans and objectives for future
operations. Because such statements are inherently subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward looking information. By their nature, forward looking
statements involve risk and uncertainty because they relate to events and
depend on circumstances that will occur in the future. There are a number of
factors that could cause actual results and developments to differ materially
from those expressed or implied by these forward looking statements. These are
set out in the Principal risks on pages 27 to 30 in the 2023 Annual Financial
Report. In addition to matters relating to the Group's business, future
performance will be impacted by the Group's ability along with governments and
other stakeholders to measure, manage and mitigate the impacts of climate
change effectively, the impact of higher inflation on customer sentiment and
by Irish, UK and wider European and global economic and financial market
considerations. Future performance will further be impacted by the direct and
indirect consequences of the Russia-Ukraine War on European and global
macroeconomic conditions. Any forward looking statements made by or on behalf
of the Group speak only as of the date they are made. The Group cautions that
the list of important factors on pages 27 to 30 of the 2023 Annual Financial
Report is not exhaustive. Investors and others should carefully consider the
foregoing factors and other uncertainties and events when making an investment
decision based on any forward looking statement.

 

 

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