REG - AIB Group PLC - AIB Group plc - Q3 2022 Trading Update

AIBAnnouncement

28/10/2022 07:00

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RNS Number : 4163E  AIB Group PLC  28 October 2022

 

 

 

 EMBARGO 07:00  28 October 2022

 

AIB Group pLC - Q3 2022 Trading update (UNAUDITED)

Strong Q3 performance - positive income trajectory and momentum in our
business

 

 

"I am pleased to report that the Group had a strong third quarter and with
momentum in our business, we are confident in our delivery for the remainder
of the year. Notwithstanding the global macro-economic uncertainty and
volatility, the Irish economy is demonstrating resilience supported by growth,
record levels of employment and low leverage. Against this backdrop, AIB
recorded robust new lending of €9 billion to September and as two banks exit
the Irish market, we are welcoming new customers with an 82% increase in the
number of accounts opened. While I am conscious of the cost of living
challenges, the Group is well-positioned to support our growing customer base
and the wider Irish economy. With upside potential to our >9% RoTE target,
we look forward to updating the market with our revised medium-term targets on
2 December 2022."

- Colin Hunt, Chief Executive Officer

 

 

Key highlights: (all comparisons to YTD September versus equivalent period
2021 unless otherwise stated)

·    Strong profitability and loan growth in Q3; confident in our delivery
for 2022 with upgraded income outlook

·    Total income increased 17% supported by the higher interest rate
environment

o  10% increase in net interest income; Other income increased 40%

o  Net interest income (NII) expected to grow by >15% in 2022

·    New lending of €9.0bn up 25%; €3.5bn in Q3

o  Mortgage market share of 31.2%((1)) with strong applications data

o  Green lending represented 24% of total new lending

·    Costs((2)) up 7%; increase of 2% on an underlying basis((3))

·    Small credit impairment charge in Q3

·    Gross loans increased to €60.5bn including €1.5bn of Ulster Bank
corporate and commercial loans

·    Non-performing exposures (NPEs) down to €2.4bn or 3.9% of gross
loans (Dec 21: €3.1bn or 5.4%)

·    Strong funding and capital:

o  Customer deposits of €97.3bn (Dec 21: €92.9bn); US$750m bond issued in
October

o  Fully loaded CET1 15.4% at end September 2022

·    Ongoing customer recruitment with c. 350,000 new accounts opened YTD,
an increase of 82%

·    In October, AIB announced an agreement with NTR plc to buy energy
from two new solar farms, providing 80% of AIB's energy requirements

 

 Financial Performance

 

The Group is trading well with good income trajectory and momentum in the
business.

 

In the nine months to September NII increased by 10% versus the equivalent
prior year period, reflecting the impact of the higher interest rate
environment. Net interest margin (NIM) for September YTD was 1.57% versus H1
2022 of 1.48% as official ECB rates turned positive. With rising interest
rates, we now expect NII to increase by >15% in full year 2022 (previous
guidance 10% increase).

 

Other income, inclusive of Goodbody, increased 40% on the equivalent prior
year period with strong performances across fee-based lines. Other income also
included a number of one off items such as gains from equity investments. We
expect full year 2022 other income of c. €700m.

 

Operating costs were up 2% on an underlying basis or up 7% inclusive of
Goodbody. This incorporates both the impacts of wage inflation and costs to
onboard new customers from those banks exiting the Irish market. Based on
these two factors coupled with general inflation, we now expect full year
costs to be c. €1.65bn (previous guidance c. €1.6bn).

 

Regulatory costs and levies for 2022 are expected to be c. €150m for the
full year.

 

In Q3, a small net credit impairment charge was recorded due to changes in the
economic outlook and the day 1 ECL charge related to the migrated Ulster Bank
corporate and commercial loans((4)). At this point, we continue to expect a
small ECL charge in FY22. We remain vigilant and will further assess
macroeconomic scenarios and post-model adjustments as part of the full year
credit impairment process with consideration of the potential impact of
inflation and the uncertain economic environment. We will maintain our
conservative, forward-looking and comprehensive ECL approach.

 

Exceptional costs are expected to be c. €300m in 2022 as previously guided.

 

Balance Sheet

 

Gross loans of €60.5bn were up €2.1bn (Dec 21: €58.4bn) driven by strong
new lending and the migration to date of €1.5bn Ulster Bank corporate and
commercial loans. We expect customer loans to grow by 5-6% in 2022.

 

Total new lending for the nine months to September was €9.0bn (up 25% versus
the equivalent prior year period) with positive trends across Retail Banking
and Capital Markets. Strong Q3 new lending of €3.5bn (up 33% versus Q3 2021)
was recorded with continuing momentum in our pipeline as we enter the final
months of the year.

 

The Irish mortgage market continues to perform strongly in 2022. In the nine
months to September our drawdowns were up 60% on the equivalent prior year
period.  Our new mortgage lending in Ireland was €1.3bn in the quarter, up
37% on the previous quarter. With market share of 31.2%, we are optimistic for
the remainder of the year given our strong applications data and the increased
inbound switching activity we are experiencing.  New personal lending in
Retail Banking was up 16% reflecting a recovery in consumer credit demand.

 

New lending in Capital Markets increased by 25% on the equivalent prior year
period with a particularly strong performance in real estate finance. With
ongoing economic uncertainty, SME credit demand in Ireland remains subdued and
new lending was in line with the equivalent prior year period.

 

In AIB UK, there was some pick up in new lending in Q3, however reflecting our
decision to exit the GB SME market and our reduced credit appetite against the
backdrop of a more challenging UK economic outlook, new lending to September
was down 9%.

 

We continue to support our customers with the transition to a lower-carbon
economy and green lending accounted for 24% of new lending whilst our green
mortgage product represented 26% of new ROI mortgage lending.

 

NPEs at the end of September were €2.4bn or 3.9% of gross loans (Dec 21:
€3.1bn or 5.4%). We are well progressed towards our medium-term target of
c.3%. Asset quality remains resilient with no signs of distress to date.
However, we remain vigilant with careful management of the loan book,
particularly in those sectors impacted by inflationary pressures and rising
interest rates.

 

Funding & Capital

 

The loan to deposit ratio was 61% at the end of September. Strong funding and
capital ensure the Group is well-positioned for further sustainable growth.
Customer deposits of €97.3bn increased by 5% (Dec 21: €92.9bn) reflecting
inflows from the exiting banks and increased customer savings. This increase,
together with €10bn drawn TLTRO, contributed to cash placed at the ECB of
€39.0bn and BOE of €5.1bn.

 

Capital remains robust at the end of September with a fully loaded CET1 of
15.4% which is well ahead of our minimum regulatory requirements. The main
movements since June (CET1: 15.3%) are organic capital generation offset by
increased risk-weighted assets (RWAs) as a result of organic balance sheet
growth and a dividend accrual((5)). We expect the acquisition of the c.
€5.7bn Ulster Bank performing tracker mortgage portfolio to reduce CET1 by
c. 60bps reflecting increased risk-weighted assets of c. €2.5 billion.

 

Strategic progress & Sustainability

 

Update on strategic initiatives

·    At end September 2022, €1.5bn of Ulster Bank corporate and
commercial customer loans had migrated to AIB; full transfer of loans and
customers expected by H1 2023

·    The agreed acquisition of c. €5.7bn Ulster Bank performing tracker
mortgages is currently undergoing the CCPC approval process

·    AIB has opened c. 350,000 new accounts YTD, an 82% increase on 2021
with c. 50% of accounts opened by 20-40 year olds

·    We continue to make progress on our transformation programme while
remaining conscious of the opportunity to onboard new customers and grow our
loan book through acquisitions as we balance priorities and resources

·    Progress on enhancing our wealth management proposition continues
with Goodbody now integrated and our joint venture with Great-West LifeCo set
to launch by year end

·    Strategic planning process is advancing with update of medium-term
targets on 2 December 2022.

 

Sustainability highlights

Environmental:

·    Signed a Corporate Power Purchase Agreement (CPPA) with NTR plc to
source energy generated from two solar farms NTR will construct in County
Wexford. AIB is the first Irish company to conclude such an agreement, helping
it deliver on its commitment to source 100% of its power requirements from
certified renewable energy sources by 2030((6)).

·    Partnered with the Strategic Banking Corporation of Ireland (SBCI) on
the SBCI Energy Efficiency Loan Scheme (EELS). The scheme supports qualifying
Irish businesses, including primary producers, by providing access to
affordable medium to long-term finance, so that they can invest in the energy
efficiency upgrade of their enterprise.

 

Social:

·    Announced the recipients of the AIB €1m Community Fund to support
70 local charities.

·    Agreed a country-wide initiative with TASC, the think tank for action
on social change to undertake 'People's Transition' studies over the next
three years. The 'People's Transition' gives people and communities a voice
in, and ownership of, the transition to a zero-carbon society. It aims to
enhance public support for climate action by tackling inequality and raising
standards of living through the delivery of climate solutions.

·    €50,000 donation to the Irish Red Cross 'Creeslough Community
fund'.

 

Governance:

·    AIB has become the first bank and the largest employer in Ireland to
be awarded the 'Investors in Diversity' Gold accreditation by the Irish Centre
for Diversity.

·    Over 6,000 people joined our sixth annual AIB Sustainability
Conference - No Time to Waste - held on 17 October 2022 as part of AIB's
sponsorship of Climate Finance Week Ireland.

 

Outlook & Guidance

 

Given the changing banking landscape, evolving operating environment and
rising interest rates, our medium-term targets are under review. With upside
potential to our >9% RoTE((7)) target, we will update the market on 2
December 2022.

 

With a strong third quarter performance and momentum in the business, we are
confident for the remainder of the year and update guidance as follows:

 

·    NII to increase by >15%

·    Other income of c. €700m

·    Costs to be c. €1.65bn incorporating higher inflation, agreed
salary increases and cost of onboarding new customers

·    We continue to expect a small ECL charge in FY22 as we maintain our
conservative, forward-looking and comprehensive ECL approach

·    Regulatory costs and bank levies are expected to be c. €150m

·    Exceptional costs are expected to be c. €300m

·    Customer loans to grow by 5-6%

 

All guidance is for 2022 and includes the impact of inorganic initiatives

 

***

 

Analyst conference call

Colin Hunt, CEO, and Donal Galvin, CFO, will host a conference call today @
08:30 IST, details as follows:

 

 Analyst call @ 08:30 IST 28 October                         Playback 28 October 12:30 - 4 November 23:59
 Ireland:                    01 582 2023                     International:        +44 (0) 20 3433 3849

 International         +44 (0) 20 3481 4247                  USA:                         1 (609) 800 9909

 Conference ID:     7834773                                  Conference ID:     7834773

 

 

Note: Figures presented above may be subject to rounding

 

Abbreviations:

TLTRO: Targeted longer-term refinancing operations

CCPC: Competition and Consumer Protection Commission

 

(1)      Source: Mortgage drawdowns BPFI September 2022

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

(3)      Excluding Goodbody

(4)      Migrated loans at end August 2022

(5)      Article 2 Regulation (EU) No 241/2014 requires a foreseeable
charge, being the maximum dividend pay-out ratio under the Group's internal
dividend policy, to be deducted from equity

(6)      For further information see
https://aib.ie/content/dam/aib/group/Docs/Press%20Releases/2022/cppa-announcement.pdf
(https://aib.ie/content/dam/aib/group/Docs/Press%20Releases/2022/cppa-announcement.pdf)

(7)      RoTE = (PAT - AT1) / (CET1 @ 13.5% of RWAs)

 

For further information, please contact:

 Niamh Hore / Siobhain Walsh                              Paddy McDonnell / Graham Union
 Investor Relations                                       Media Relations
 AIB Group                                                AIB Group
 Dublin                                                   Dublin
 Tel: +353-86-3135647 / +353-87- 3956864                  Tel: +353-87-7390743 / +353-85 2088343
 email: niamh.a.hore@aib.ie (mailto:niamh.a.hore@aib.ie)  email:   paddy.x.mcdonnell@aib.ie

             siobhain.m.walsh@aib.ie
 (mailto:siobhain.m.walsh@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 Principal risks on pages 28 to 30 of the Annual Financial Report
2021 and updated on page 37 of the Half-Yearly Financial Report 2022. In
addition to matters relating to the Group's business, future performance will
be impacted by the direct and indirect impacts of the COVID-19 pandemic, the
direct and indirect consequences of the Russia-Ukraine War on European and
global macroeconomic conditions, the impact of higher inflation on customer
sentiment and by Irish, UK and wider European and global economic and
financial market considerations. 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 28 to 30 of the Annual
Financial Report 2021 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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