Allied Irish Banks, P.L.C. (AIBSF) CEO Colin Hunt on Q2 2020 Results – Earnings Call Transcript


Allied Irish Banks, P.L.C. (OTCPK:AIBSF) Q2 2020 Earnings Conference Call August 6, 2020 4:00 AM ET

Company Participants

Colin Hunt – Chief Executive Officer

Donal Galvin – Chief Financial Officer

Conference Call Participants

Stephen Lyons – Davy

Eamonn Hughes – Goodbody

Alastair Ryan – BofA Merrill Lynch

Aman Rakkar – Barclays

Chris Cant – Autonomous

Andrew Coombs – Citibank

Eoin Mullany – Berenberg

Martin Leitgeb – Goldman Sachs

Colin Hunt

Good morning everybody and welcome to Molesworth Street in the heart of Dublin for the Virtual Presentation of our Half One performance for 2020. Before I go into the presentation first of all, we’re required to show the forward-looking statement which I’m sure you’re all well familiar with at this stage. The results we present today are against the backdrop of an unprecedented global crisis. The arrival of COVID-19 on our shores has had a huge immediate and severe impact on health, on society, on economy, on citizens, and of course on business. It’s also had a huge impact on us.

And while, we delivered a pre-provision operating profit of €400 million for the half, this translates into a loss after tax of €700 million, thanks to a very significant expected credit loss. Over the course of the past number of months the organization moved with great agility, swiftly and supportively to protect our customers, our colleagues and the communities that we serve.

We introduced at pace changes to our policies, our procedures, our products and our ways of working to help our customers through the peak of this crisis issuing a total number of 75,000 payment breaks including 64,000 payment breaks here in our Retail Banking operations in the Republic of Ireland.

We are playing our role in aiding the protection of the economy and in driving its recovery. €4.4 of new lending in the half down from the performance by about 27% of the first half of 2019 with retail banking Ireland down by something of the order of 13%. We have seen an increase in our high-quality green lending of 36%, continuing the very, very successful performance enjoined by that important part of the bank in recent years.

We saw that loan book double in 2018 we saw a double — it was the fastest-growing part in 2018 and 2019 and we look forward to very significant growth over the years ahead. Notwithstanding that €1.2 billion credit loss. We believe that it is conservative. We believe it’s comprehensive. We believe it’s forward-looking. And we also believe it will substantially cover the expected full year charge on the basis of our current set of macroeconomic assumptions which sees the economy contracting by 7.5% in real terms as measured by GDP in calendar 2020.

Even after taking that charge we have a very strong capital base with our CET1 ratio standing at 16.4% at the end of the half or taking account of an expected TRIM impact of 80 basis points 15.6%. We continue to optimize evolving changes in regulatory capital requirements. And our capital efficiency was recently further underpinned and enhanced by a very successful AT1 issuance of €625 million which was 9x oversubscribed.

It is clear to us that COVID will have a long-term impact on our operation environment. But we are committed to our medium-term targets which we reiterate today and we will remain focused on our cost base and other strategic initiatives as we adjust our business to this evolving environment. And we also maintain our focus on dealing with legacy issues in particular closing out the Tracker Mortgage Examination and enforcement which we expect to conclude in the first half of next year.

We were there for our customers when they needed us most. We supported their cash flow needs. We implemented 75,000 payment breaks and we deferred and postponed fees. While at the same time, that we were adjusting our systems and fundamentally reshaping our product offering, we remained extraordinarily resilient operationally with minimum disruption to our services.

We’ve now moved to a point where 81% of our workforce are working seamlessly and remotely and securely. And that ability to have 81% of the team here at AIB working remotely was very much driven and underpinned by the investment in a modern IT infrastructure we have taken in recent years.

We’re pleased to be able to keep all our customer channels both physical and digital open and operational right through this crisis. Not withstanding the strain that our customers felt and indeed that the organization was under, we remained committed to our ESG agenda and our sustainable communities pinner as evidenced by the work the team here at AIB have done together to support our community investment program and our €2.4 million donation to support vital COVID-19 research at Trinity College Dublin.

We also introduced a range of nonfinancial measures to support our customers, our employees at this time of great uncertainty and stress. Ands I do now want to take the opportunity to thank all my colleagues on the team at AIB and in particular our people on the front line for a truly remarkable performance.

Looking at payment breaks as I said earlier with 75,000 payment breaks issued 64,000 of which were issued by our retail banking operations here in the Republic of Ireland covering our mortgages personal customers and our SME lending. Of that 64,000 roughly half — a little bit over half have now emerged from the first three months payment break.

And of that 52% a little bit over half returning to normal scheduled repayments of principal and interest a little bit less than half now rolling on to a second 3-month payment break. Within the mortgage market, we’re a little bit further advanced than that just shy of 70% now rolled off the first three months payment break. And again we’re seeing a similar experience roughly half returning to full repayment of principal and interest and roughly half rolling on to a second payment break.

We note the government’s recent July stimulus package of €7.4 billion which brings the total fiscal support offered by the Irish government to €24.5 billion which amounts to some 14% of gross national income which benchmarks very, very well when compared with the international support offered by other governments.

We are willing able and eager to support this stimulus package. We particularly welcome the income support extension to 2021, while also noting we’ve had a significant reduction in the number of total recipients receiving the pandemic unemployment payment.

We also are eager to support the business support schemes that have been introduced as a result of the July stimulus package €800 million for future loan growth scheme €200 billion — sorry €2 billion for the SBCI Credit Guarantee scheme and €2 billion in the ISIF fund for larger corporates. That’s the immediate opportunity that has been afforded on the back of the fiscal support package. But taking account of the new program for government, we believe we have a big role to play in reigniting the economy, in assisting the economy towards a lower carbon future, in driving the ongoing recovery of the housing market and in the enhanced digitization of our country.

And you’ll see here on the slides details of where we believe we can play an active and leading role on all those fronts. And today we were delighted to announce a new €300 million debt fund, which will fund 2,000 new social houses. And we’re open now for applications there, from approved housing bodies.

In terms of what’s happening in the economy, prior to the arrival of COVID, we were looking at a very positive economic outlook, for the next number of years. And COVID has the impact now we believe that it will force GDP to contract by something of the order of 7.5% in real terms, in calendar 2020. And while we will see a rebound, in 2021 and in 2022, we will be well into 2022, before we see the economy returning in real terms to the position it found itself in, at the end of February this year.

That said, the gradual reopening of the economy, the gradual ending of the enforced period of hibernation, has seen the unemployment rate falling back markedly from the 28% recorded in April, falling to an estimated 17%, by July. We expect that to continue to fall as the economy comes back to life and as the lockdowns begin to end.

Within the housing market, we expected in 2020 to see, the smallest gap between demand and supply in some years. But because of the lockdown of the construction sector, the estimated output of housing in the country will be markedly lower than we expected. Rather than being in the low 20,000s, it’s likely to be something of the order of 16,000.

And that is well shy of where we continue to estimate demand, somewhere in the region of 30,000. And we’ll be an important support for the market, over the course of the year. It does of course have a negative impact on the opportunity for mortgage lending, in 2020.

We’ve also seen confidence levels improve, having collapsed in April and business sentiment in Ireland, in both the services sector and the manufacturing sector, have now moved above the critical 50 mark, and are well ahead of the Eurozone Composite giving us some early indications, some early tentative signs of increasing optimism, about the near-term economic outlook.

Using our own data, we obviously collect any amount of data in relation to our customer behaviors. And we closely monitor the spend we’re seeing across our various cards, our debit and credit cards and also of course the activity we’re seeing in the mortgage market in particular. And I’m happy to share some of those data points with you today.

Our weekly card spend collapsed, as the economy shutdown, but it’s now running about 14% higher, than it was for the equivalent week in 2019, as people return to their spending habits. We’re seeing a very strong performance obviously in grocery. We’re seeing a strong performance in non-food retail.

And it’s clear that traffic has begun to return to our roads, because service stations are now reporting a 6% increase in card spend, compared to the same period last year. Parts of the economy of course remain in negative territory, most obviously bars, restaurants, hotels, hospitality. But they are enjoying a decent recovery from the very sharp shock that we saw in April, albeit they remain below the spend levels, we would have seen, in 2019.

In terms of weekly mortgage applications, they are now back to the level we would have experienced, in 2019. But we did lose a significant number of weeks, when we were well below the expectations, the early year expectations, for the performance of that business.

We’ve seen a very interesting shift, going on in terms of customer behaviors. And half-on-half, so including pre-COVID and the under COVID period, we saw a 38% reduction in the volume of ATM withdrawals. And a 66% increase in the volume of digital wallet payments.

The success of our digital offering is very, very well underpinned, by some data I’m going to share with you now, which is that we’re now seeing 34% of the value of digital mortgage journey applications or the value of mortgage applications, now being delivered online. And that very much reflects the strength of our digital offering. We have 1.5 million, digitally active customers.

As of now 820,000 customers use our mobile technology every single working day. That compares with a number of people crossing the thresholds of our branches of about 42,000 was 52,000 pre-COVID, now running at about 42,000 and that is a very, very useful reference point.

The preferred means of engaging with the bank, on the part of our customers, is clearly over our mobile technology. And we continue to invest, not only in the technology. But we continue to expand the range of products and services that are available on it. And 77% of all our personal loans were delivered digitally, in the first half.

New lending is lower. It was €4.4 billion, against a comparison for 2019 of €6 billion, but it remains — the reduction in retail Ireland was significantly lower than elsewhere. The outlook for new lending in the second half of the year is mixed. Obviously the mortgage market is going to be significantly lower, in terms of the opportunity for lending than we would have anticipated, at the start of the year.

We’re now expecting it to sit within a range of between €6 million and €7 billion. But we are seeing early indications, in terms of official government data and our own data of a rebound in retail sales, across multiple sectors as they reopen. And the positive PMIs that we reported earlier show encouraging improvement in overall business sentiment.

Within our corporate institutional & business banking sector, we are looking forward to the full rollout and our full participation, in the government’s credit guarantee scheme. And we’ll be releasing the product details in relation to that later on this month. We’re very committed to driving the housing recovery and supporting the transition to a green economy. And we continue to adopt a very cautious stance in relation to our Syndicated & International lending.

In the U.K. we’ve seen a good performance in difficult circumstances, with new lending strongly supported by government-backed schemes. And overall, we retain a very strong market share in key segments. And I’d like to draw your attention in particular, to the mortgage market share for the first half, 31% which is broadly unchanged, from the performance in the first half of 2020.

When we presented our results for 2019, the week before the country went into its forced lockdown, from this room. We said that our strategy for the future rested on simplifying, streamlining and strengthening the organization. And that strategy is underpinned by five strategic pillars, putting our customers first, ever-improving the simplicity and efficiency of our operations, managing our risks carefully and protecting our capital, promoting talent and then ever more open culture and enhancing the sustainability of the community that we all serve.

And notwithstanding the pressure the bank was under, notwithstanding the unrelenting focus on getting those payment breaks designed and into the hands of our customers, we continued to make very significant progress across all these pillars, as evidenced here in the boxes underneath.

So back in March, we presented our outlook on the back of a growing Irish economy, reflecting our style franchise and our robust balance sheet and we also presented an evolution of our proven and progressive strategy. COVID-19 has significantly changed the operating environment.

Even after it passes, in terms of its health impact and in terms of its immediate economic impact, it’s going to have a long-lasting impact. It’s going to impose a long-lasting change in terms of the environment in which we all conduct our lives and indeed conduct our business.

We believe that, at its core, it has led to a significant acceleration of long-term secular trends towards greater digitalization, towards greater flexibility in working and towards a greater emphasis on the sustainability agenda. And these are not new themes for us.

Look to our progress in advancing the digital agenda as Ireland’s leading digital bank. Consider the demonstrated agility of our workforce, with 81% of our team now working remotely. Reflect on the role we already play and our ambition in supporting the transition to a lower carbon future.

We believe these acceleration trends present opportunities for AIB in a post-COVID world. And we will harvest these trends, on the back of our proven operational resilience, the strength of our capital position, the quality of our franchise and the longevity of our customer relations.

We are strongly positioned to cope with the crisis and to support our customers and to drive the economic recovery in the interests of all our stakeholders. That underlying strength gives us the confidence today to reiterate our medium-term targets, a cost base of €1.5 billion, a CET1 ratio in excess of 14% and a return on tangible equity above 8%.

I’ll now hand you over to Donal, who will bring you through the financials in greater detail.

Donal Galvin

Okay. Thank you very much, Colin, and good morning, everyone. I’m going to run through the highlights of the first half of 2020 financial performance. Operating profit of €400 million, a loss after tax of €700 million. Obviously, a €1.2 billion expected credit loss being the main factor in this change.

Total income decreased 13% to €1.2 billion. And within that, net interest income of €967 million reduced 8% year-on-year and other income of €220 million reduced 31% from half one 2019. Costs of €747 million were well-managed and in line with half one 2019. Full-time employees reduced 5% or 6% year-on-year.

Performing loans of 56.8%, which is a decrease of around €2 billion or 3% from December 2019, as redemptions exceeded new lending. New lending of €4.4 billion is down 27% or €1.6 billion in 2019, but within that there’s some moving parts Retail Banking far less impacted 13% lower at €2.3 billion.

Our total amount of MREL issuance is now €5 billion which is the total amount of the requirement over the coming years. And within that we obviously have issued some AT1 recently, which has significantly improved the efficiency of our capital stack. Reported CET1, 16.4%, including the mortgage TRIM impact; that would be 15.6%, comfortably above all regulatory hurdles and obviously well above our 14% medium-term target.

On the income statement, I won’t reiterate the financial highlights that I’ve just gone through. I think from Q1 statements to today, what do we think has changed? I think the environment is perhaps slightly better than what we would have imagined. And I think it’s fair to say, the range of potential outcomes from a macro scenario have probably widened as well, which has led to rethinking on the ECL side, but overall pretty much in line.

Net interest income, down 8%, on half one 2019. At the year-end results, I think, I would have guided a €2 billion net interest income amount. So, obviously, the revised guidance of €1.9 billion is down 5% on that amount. And the items that make that up are variations of a very similar theme, which is lower interest rate environments, across the board, not just in the Eurozone and the impact of excess liquidity, predominantly in Republic of Ireland and then the impact that that has on our core business items.

So, customer deposits, we continue to see improvements there. We’re able to reprice the deposits lower. Obviously, as rates go lower. Customer loans are impacted just by that overall rate impact. Investment securities, obviously, as time goes by higher maturing bonds from prior years are replaced with lower yield in bonds. And you see the cost of excess liquidity here of 4 basis points. So that’s really representing the impact of having excess liquidity placed with the Central Bank, receiving a negative margin of 50 basis points.

So, overall, for the half year €967 million. We are taking a lot of measures to manage the liquidity position very proactively. Obviously, our negative deposit pricing strategy has been in place for a period of time. Looking at NBFIs, looking at larger corporates, that’s obviously going to continue to extend and negative pricing will be applied to other larger balances in business segments.

TLTRO III, we did not participate in the first round of that. We were working through some points of clarification with the SRB. But we do intend to participate in TLTRO III in the September window, for a quantum of between €4 billion and €6 billion. That is obviously going to be NII positive, given the fact, we are quite confident of hitting the new lending targets. But, again, it will have a distortionary impact on the net interest margin, which is why I’m really guiding towards net interest income, as opposed to net interest margin.

Other income €220 million, down 31% year-on-year, fees and commission income for the first half of the year, €192 million that’s down €38 million or 16% from half one, 2019, marginally better than where we would have seen things at Q1. But there are some parts of the fee structure in the fee commission area that still are unclear. Travel has not normalized. Expenditure has really moved to digital formats, obviously less ATM usage, less cash usage et cetera. Business travel has reduced. So overall, I think for the second half of the year fees and commissions we probably see somewhat similar to €192 million, a little bit too early to say anything more ambitious than that.

In other business income that obviously includes the NAMA subordinated bond dividend of €23 million. And just to be clear that that bond has now matured. €36 million from customer derivative positions. This is CVA, XVA. This effectively gets built up whereby you are if you buy bonds and you asset swap them you’re effectively taking a provision through the CVA or XVA line, but that normalizes and comes back over time. And then in terms of other items €36 million. We had some gains on some equity investments and some realizations on cash flows.

Costs are stable well managed half 1 2020 and pretty much in line with half 1 2019. Two moving parts here. Towards the back end of last year, we would have reduced our headcount by 5% or 6%. So we’re seeing the benefit of that coming through on the staff cost line. Depreciation has increased from €108 million up to €136 million which was previously guided and that really is just the depreciation expense of prior year investments and G&A very much in line. So the lot of moving parts on the costs at the moment, we’ve absorbed quite a lot of the COVID-19 related costs in our OpEx. So whether this is work from home, laptops technology et cetera to facilitate that security and branches, sanitization et cetera. So they’re all things that we’ve absorbed. There’s reductions. There’s no business travel. There no credit card expenditure is far less.

Exceptional items €75 million, €58 million of that related to restitution costs. €6 million of that is related to voluntary severance payments. And €10 million of that we’ve classified as being very much one-off in nature related to COVID-19. So that will be employing 200, 300 people in a short period of time to deal with surges in call centers or specific or explicit technology adjustments to implement those payment breaks, but just wanted to call out that quite clearly.

So we expect a 2% cost inflation on the year. And the reason for that is coming into the second year — second half of the year, we had previously said that we would open a voluntary severance program to continue the reduction in headcount. That is no longer going to happen predominantly in our FSG unit. We’re going to maintain all of our staff at the current levels to ensure that we have the bandwidth to help customers through payment breaks, whether it’s rolling on to payment breaks more importantly rolling off them.

In addition to that with the government announced measures on guarantee schemes, we need to mobilize and ensure we have all staff on hand to get liquidity from the bank to our customers to get through this very difficult time. So there’ll be a small adjustment on the staff line in the second half of the year and you’ll see a continued increase in the depreciation side.

Expected credit loss of €1.2 billion. We think this is conservative, forward-looking and comprehensive. At the quarter — Q1 results, I tried to outline the way that we were looking at ECLs which is firstly looking at the macros ensuring that we have a suitable view of the different outcomes that could be — could arise from COVID in the future. And we’ve implemented five new scenarios which we think reflect that those different range of outcomes. We would have identified from a very early stage what we believe to be high-risk sectors. We would have looked at larger exposures as well and on bottom-up case analysis to see what the credit standing was and implemented grading rules and approaches to ensure we had a consistent view for grading for some of these sectors. And over time, that obviously has had an impact on the staging.

Lastly, post model adjustments when we look across the entire balance sheet. We try to see the modeled outcomes with respect to ECLs and see if there’s any weaknesses or inherent weaknesses that we feel need to be adjusted for. The main one there which I’ll come on to later would be payment breaks. So for the half 1 2020, the charge represents 196 basis points cost of risk. We think that this is 80% to 90% of what we see for the full year, but that’s obviously predicated on the macro environment playing out no worse than how we see it today.

When we put it all together, I think there’s really two things that I would call out here. Firstly, is stage movements. So there’s been an increase in Stage 2 exposures of €6.5 billion and that’s one of the main impacts. Stage 3 exposures increased around €400 million. You can see here the breakout of those items impact of macro scenarios €700 million, Stage movements €400 million and post model adjustments €100 million. The macros really have the impact of increasing probabilities of default which increases coverage, particularly within stage. So overall on the portfolio coverage has increased from 2% to 4% in Stage 2 from 5% to 7%.

This is obviously an important slide to show management’s view of the macroeconomic scenario and how we see it playing out. So that’s the weighted assumptions that you can see on the bottom left. Irish GDP, down 7.8%; Irish unemployment, down 10.6%. So this is important to get an understanding of how we see the future. If there is changes in expected credit loss, we do believe that it would be driven by the macro environment from here. And we think the next six months is going to be very important in seeing what those proof points are, particularly around unemployment, GDP, house prices, commercial real estate index.

I’ll try to break it down here by asset class, really just showing the impact of the macros on the individual asset classes. Like I said, macros tend to increase probability of defaults which will increase in stage cover, but can also move assets from Stage 1 to Stage 2.

Stage migrations. Overall, like I said movements from Stage 1 to Stage 2 approximately €6.5 billion. We would have outlined at Q1 at a high level what we thought that the higher risk sectors were going to be. One of the reasons for doing that was to show what we believe were our high-risk sectors and by default some of the sectors that we were not in oil and gas, transport in any significant way. But for AIB, I would say that the main sectors which have been impacted by the stage moves have been in the corporate and SME world, not surprisingly hotels, bars, restaurants account for €1.2 billion. Retail wholesale, which is — call that nonfood retail. Syndicated and International Finance, €700 million and I point that out because we obviously would have moved some of those assets from Stage 1 to stage 2. That market has very — I would say recovered quite quickly given the overall Central Bank stimulus around the world.

And lastly I would draw your attention to property and construction. This is predominantly commercial real estate, retail in nature whether it’s shopping centers or just or other retail type activities, €1.9 billion of assets that have moved there from Stage 1 to stage 2. Stage 3 increased by around €400 million, which is 6% of the loan book in the first half of the year. Again you can see the impact from ECL on these different stage moves 1 to 2 transfer to Stage 3 and remeasurement were within stage €366 million.

So Colin walked through the statistics as we see them today for payment breaks, I just want to explain how we look at payment breaks from a provisioning perspective or from a risk perspective. So the regulatory guidance is very helpful with the payment break construct. In Ireland you can apply for a payment break up until September. And that does give quite an amount of latitude to individual borrowers depending on their cases to make sure that they’re not going to be overly negatively impacted by COVID.

The way we’ve treated the payment breaks particularly in the retail consumer world is that we’ve kept all of the payment breaks in stage as time goes by but what we’ve tried to do is look through the portfolio, make an estimation of what’s rolling off-prem break one, payment break two and what do we think at the end of this, which won’t be until Q1, Q2 2021, what do we think the impact of this is going to be.

So we’ve made an overlay of around €42 million to represent what that amount is. Obviously when we change macroeconomic factors all asset classes and all assets also within stage increase overall. So there’s an impact from the macros on the payment break cohort, it’s just we have kept them in stage.

But I think the value of the portfolio or the number of customers I think overall is trending very much in line with our expectations. And I would say that the new applications for payment breaks have reduced quite significantly. And overall what I would say the quantum’s are as we would have expected.

Balance sheet wise, I’m going to start on the liability side. We’ve talked about the asset side. You can see on customer accounts, an increase of €71.8 million up to €75.7 billion. Pre-COVID, I would say liquidity and liquidity buildup was already a feature on the balance sheet. But throughout COVID, that’s actually increased quite significantly, obviously, due to individuals’ and companies’ inability to actually spend money. So it comes onto the liability side of our balance sheet. And then you can see it transposing onto the asset side of the balance sheet. Balances with central banks have increased and also investment securities have increased as well as we try to put that excess liquidity to work at rates better than where we receive with the ECB.

Gross performing loans, I won’t really go through that too much down 3% year-on-year. Colin has gone through that. New lending, obviously, this is going to be something that we are looking at very closely for the second half of the year, down 27% year-on-year. We probably see new lending for the second half of the year for a similar quantum as the first half. Obviously the mortgage market we’ll wait to see what happens there. I think we do expect to see quite an amount of activity in the corporate and SME world.

In the U.K., we have already begun participation in the CBILS and BBLS program with around £200 million committed in that area. And obviously from an Irish perspective there’s around €2.5 billion to €3 billion of guarantee schemes in place from the government that’s now legislated for and we do expect that to be operationalized in the coming weeks. So we do think in the corporate and SME area in the second half of the year we’ll expect to see an amount of activity there.

NPEs €3.3 billion up to €3.8 billion and that’s an NPE ratio move from 5.4% to 6.3%. Many moving parts there, a small definition a default change in Q1, some small net flow into NPEs of €500 million. I wouldn’t categorize that into any particular area. It’s across retail. It’s across all portfolios. No single name items in there of note or sector-specific items in there of note, and obviously redemptions of €300 million. Obviously a lot of the focus of our FSG unit has been working with the business on the front line and implementing payment breaks. We’re really focused on ensuring that all of the customers who have availed of payment breaks we watch and we are able to work with very closely to ensure that we do not have a new flow to default from COVID impact.

But overall we’re very focused on NPEs. I think we have a very strong track record in managing NPEs. And we recognize that over time these will and this ratio will reduce quite considerably and considerably in the deep arrears portfolio. Funding and capital liquidity position very strong, I’ve talked about the liabilities before. Loan-to-deposit ratio of 77%, probably tell is one of the main stats there.

Okay. On capital, I’m just going to walk you through the impact of all the moving parts that we’ve witnessed in the first half of this year, so obviously starting. Our starting point was 17.3% on a fully loaded basis. In terms of the half year we had a profit and we have an ECL charge so the net impact of that is 130 basis points charge. Investment securities reserve of minus 30 basis points. That’s obviously reduced quite significantly from Q1, spreads generally are normalizing quite aggressively and that will continue to normalize over time.

Other capital adjustments of 40 basis points, a number of different items in there, AT1 coupons, some DTA and intangible effects. Obviously, the ordinary dividend for 2019 was canceled, which had a 40 basis point impact. And then lastly, given the lower balance sheet obviously there’s lower RWAs associated with that and that’s a 70 basis points impact, leaving us at 16.4%. So we’ve called out the mortgage TRIM here separately of 80 basis points for two reasons. Number one, we do expect by the end of the year that we will receive confirmation from the regulator that indeed, this needs to be taken into account. And number two, we previously guided that the impact of mortgage TRIM will be 90 basis points, obviously as we look at the portfolio at a later stage, we take into account things such as definition of defaults. That’s actually revised slightly better to 80 basis points. So that leaves us at 15.6% CET1 ratio.

So there’s obviously a lot going on in the regulatory environment with respect to buffers et cetera. So what I’m going to try to do here is run you through some of the headwinds and some of the tailwinds and an idea of the timing of these items. As already mentioned earlier, obviously Article 104a has a 1.31% benefit for AIB. We were reluctant to take that too early, given we had not issued any of the hybrid securities that would allow you to avail of this. But now obviously given we’ve issued the AT1 that gives us a little bit more comfort to bed that down. Obviously, in the third or fourth quarter of this year, we will look to call and replace some of the outstanding Tier 2.

Capital headwinds and tailwinds. I think the software intangibles benefit, we currently estimate to be around 30 basis points benefit and that will be a 2020 item. For SME 501, we think that that’s a 60 to 70 basis point benefit, but that will come over two years, so you should split that benefit evenly.

And then in terms of TRIM okay. And to be clear, we’re not talking about mortgage TRIM that’s already dealt with okay? Other TRIM items okay? We’ve talked about our corporate model previously and as guided we don’t think there will be any impact from that from TRIM. Our SME model, which has been under construction for the last couple of years we have completed. We have submitted it to the regulator and we do think that there will be an RWA effective impact of around 40 basis points and that will be a 2020 item.

And then lastly calendar provisioning. Previously, I wouldn’t have imagined that this was going to be something that we were going to be talking about again. But given COVID-19, given the refocus of the FSG unit given the deeper AIEA portfolio that still remains on our balance sheet, we think that that could be an 80 basis point cost in 2020, we’ll obviously benefits to that in future years as the deeper AIEA portfolio reduces.

So headwinds, tailwinds, overall, I would say they net one another off over a two-year period, but there will be different timing effects. I’ve mentioned the transitional capital benefits here from IFRS 9, just to show exactly what it is. But overall, I would say our transitional ratio is very high and almost double requirements. We’re very much focused and we manage our capital on a fully loaded basis and that’s not to say, if there’s regulatory allowances that we don’t take effect of them, but really we manage our business to a fully loaded number.

And to wrap it up, I gave guidance for 2020 along the way. I just want to wrap it up. Net interest income €1.9 billion; other income €420 million; cost inflation 2%; cost of risk 2.35 to 2.50; and new lending to reduce by 30% for 2020. Colin will already have said with respect to medium-term targets that we’re comfortable to reiterate them, €1.5 billion costs CET1 greater than 14% and a return on tangible equity greater than 8%.

So acknowledging the need for caution, we look forward with confidence as the fundamentals of AIB remain healthy and strong. Thank you.

Colin Hunt

And now, we’ll open the lines for questions.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Stephen Lyons. Please ask your question.

Stephen Lyons

Good morning. Just a couple of questions for me please. Firstly, just on your commentary around lending activity into H2 versus H1 and your intent to take down €4 billion to €6 billion of the TLTRO. That seems to imply a very high degree of confidence presumably in the pickup and take-up of the credit guarantee scheme et cetera. You previously talked to think about the addressable opportunity being I think €6 billion to €10 billion in the SME and corporate space. Can we infer though from kind of that similar H new lending number that you’re talking about in H2 versus H1 that maybe a lot of that activity might not actually drop until say the first quarter of next year?

And then, just separately as well, just a look at the lending rate in your average balance sheet, we’ve seen pretty stable lending rate in recent years. Now, there’s quite a fall in H1. I’m just wondering is that competitive pressures? Or is that just more hedging and Bank of England rate reductions? Thanks very much.

Donal Galvin

Hi Stephen, good morning, Donal here. I think on TLTRO overall, we’re certainly confident on the point-to-point meeting the requirement to have net growth. And that gives us the confidence to apply and participate in TLTRO. Obviously, we’re going to increase our liquidity even more, but we will look to transmit that liquidity into the system to support our customers and as far as we can.

I wouldn’t read into that but it’s a specific call out for a huge amount of unfulfilled credit demand that no one has seen. We’re just being upfront. We want to support our customers and we want to ensure that our capital and liquidity positions remain very strong.

With respect to lending rates, you’re absolutely right. The — if you look at the NII slide and the NIM slide, the impact that you’re seeing there on customer loans, it’s really from reduced interest rates or let’s say you have loans that are linked to benchmark rates as rates fall, there’s an impact there. In our headline rates, whether it be mortgages SME corporate, we don’t see excessive pressure. Obviously the mortgage market is its own beast that’s always quite competitive. But in the other core markets, we would see stable asset yields.

Colin Hunt

And just to add to that just in relation to the mortgage market, we have made a series of reductions in both — variable rate and fixed rates over the course of the past number of years. And we are very, very happy with the competitiveness and the range of products we currently bring to market. Just on the next question is — and that competitors of course is very uniquely underlined by the fact that we remain by margin the largest provider of Irish mortgages to Irish consumers with a market share of 31%. Next question is coming from Eamonn Hughes.

Eamonn Hughes

Good morning. So just maybe directed to Donal. You gave a little bit of color there in relation to the capital progression so appreciate that. But maybe just as an add-on, how should we think a little bit about – you haven’t seen the migration through the stages. You saw some – you mentioned stage two but that was from here clearly there will be more. So maybe how should we think about that in relation to RWA development? That’s the first one.

And then second just in relation to I think Colin, you finished with this and actually Donal yourself as well around commitment to the medium-term targets. And so if we just stand back and think about sort of four, five months ago, I know it’s kind of hard to – the world has clearly has changed. But a big moving part within those targets would have be hopefully, a better revenue environment. So I suppose – so indirectly, what I’m asking in relation to commitment to in particular the ROE target over the medium term. Presumably that means a bit more on the levers that you can control around the cost side. So maybe if there’s any color you can add to us in relation to that please that would be helpful?

Donal Galvin

Okay. I’ll take question one. RWAs for the second half of the year I think you’ve called out the moving parts. We’ll have to see what happens with the assets that are currently in stage two. I would point out that 72% of all of the assets that we currently have in stage two are within the strongest grades in the organization. So there’s nothing untoward there. So we do foresee that there’s going to be movement there, whether it’s from stage two to stage one or in future into – migrating into stage three.

I don’t think that’s going to be an H2 effect by the way. I think that will take a little bit longer. But on the asset side, if you think about the areas where we do see the potential growth, it’s going to be lending with government support schemes, which is all 0% or 20% risk-weighted type of activity which would be a lot lower than what you would typically see. So overall we probably see RWA flattish between here and the end of the year. So no significant inflation expected.

Colin Hunt

Okay. And just in relation to the medium-term targets. The primary target, the number one target, the North Star target for us is the RoTE. And COVID has had an obvious impact in relation to current activity. But as I said in my presentation, it’s going to have a very long-term impact in relation to the operating environment. I think in the RNS we use the word reshaped to describe what lies ahead for the business. But we are going to harvest the trends, the accelerated trends on the back of COVID that move towards greater digitization that move towards greater remote working and we’ll harvest them in ways that allow us to deliver on our medium-term targets with a particular focus as I said on that RoTE number. Now I understand Alastair Ryan is lined up to ask us the next question.

Operator

Alastair, your line is open.

Alastair Ryan

Sorry, yes, talking on mute to myself. Thank you. Just the €1.2 billion bad debt charge. It’s just such a big number sort of per capita it’s four, five times what the U.K. banks are providing. And Ireland’s very likely to have a better GDP outcome than the U.K. You tell us about the property market being pretty resilient. So clearly there’s areas of stress in the book. But really is there something you’ve learned about your book that you haven’t liked? Or do you just think that you’ve got a much more conservative provisioning? And I appreciate the disclosure but every bank is giving us numbers and they don’t all add up and sort of the hard fact is that you’re provisioning numbers are just bigger than anybody else’s so I’m just trying to get back to that? Thank you.

Donal Galvin

Yes. Look from Q1, I said that from the provisioning perspective, we were going to be comprehensive. We were going to look through our book. And we were going to take a conservative view and I did not want to be bleeding this out over a three- year period, okay?

So I think your comment on the comparators is fair, obviously. But the way in which we have looked at our provisioning, we think if we break down the stages or the macros staging and post model adjustments, I think that’s very sound. I think the difference frankly between AIB and let’s say U.K. banks is quite simply that our history is different and history is what drives models.

Is – do I think that our book is different now to what it was 10 years ago in the crisis? Absolutely. I think we had €20 billion of land in development. Now we have around € 1 billion of land in development. And it’s probably one of the strongest parts of the – of our overall lending book.

So I think it’s a very different environment. I think the lending that’s been done over the last number of years in key markets is much stronger, very much in line with how every other bank would lend but our history is just different, okay? And we don’t feel that we have seen enough of the macro environment to tell us categorically that it is different or the macro environment will play out materially different this time.

So the second half of the year is going to be very important, looking at unemployment, looking at GDP, and obviously looking at real asset prices, whether it be HPI or whether it be commercial real estate. But I don’t – our book is not different in form to other large domestic banks. Our lending to prime shopping centers is the same as every other banks’ around Europe, 60% LTV, et cetera. But our history is probably what is different.

Alastair Ryan

Okay. Donal. That’s really helpful.

Colin Hunt

Thank you, Alastair. Now the next question is coming from Aman of Barclays. Good morning, Aman.

Aman Rakkar

Good morning, gents. Thanks very much for taking my questions. So I just wanted to return to the ECL charge. I note your comments to Alastair, I think they’re fair enough. I mean I guess there’s one of your peer banks obviously operates in very similar markets, who had not overly dissimilar historical experience to you and did take a different charge.

I mean, I’d probably say yours is the different charge in terms of being quite a high one. It just – it does seem, as though you’ve got a slightly different view on the world. And I guess to be a bit more specific in relation to your comment next year about a normalized impairment charge, can I just probe into that? Are you talking about potentially a 20 to 30 basis points cost of risk next year? And then if so, could you help us kind of think about what the moving parts are to your P&L impairment charge next year? So obviously, any kind of stage three migration that you might incur any underlying losses? And then whatever reserve releases you expect to come through? I mean, back to the point on the UK, I think most of the banks have been talking about still an elevated charge next year or at least indicating to that effect. But it seems like you’re basically talking about unearthing a normalized cost of risk so that would be really helpful to understand that dynamic.

The second was just on — was on NII. So thanks very much for that guidance on TLTRO. Can I just check my quick maths on that then. So if you take the €5 billion midpoint range that you’re kind of talking about. If you get the 100 — it sounds like you expect to get the 100 basis points on that lending given the balance sheet expansion that you’re targeting. Is that a €50 million uplift to NII that we can reasonably expect next year assuming you choose to draw upon it?

And just the final is just on — one of your peer banks just talking about the impact of revolving credit facilities on NII and what it might mean for income next year as and when that unwinds. I mean is that a similar dynamic at play here? And if so could you call out kind of what the RCF drawdown in the first half of the year has been? And basically whether you expect that to reverse? Thank you.

Donal Galvin

Okay. A few good questions in there. I think the key on the macros what I’d say is in 2020 we want to ensure that we have taken the bulk of all potential future losses okay? The shape of the ECL charge in the future will be driven by the shape of the macro environment, okay? So I suppose what I’m saying is if you look at our weighted average assumptions okay? And if that comes to pass, we would expect this year to be 235 basis point, 250 basis points and end up being in a normalized cost of risk environment for 2021 and 2022. I’m not going to put a number around that because I mean it’s — what is the new norm in terms of cost of risk, but it is in the normalized vicinity okay? And that has been our approach and what I would have outlined from Q1 that we want to try and take and deal with the bulk of COVID-19 in 2020 okay?

Obviously, this is going to be something that plays out over a multiyear period. So I mean I’m not going to make any estimations over stage three flows and back to stage one flows. But overall, that we’re happy enough with that guidance with the proviso that the macro environment holds, okay? So that’s number one.

I’ll touch on the RCFs recently. We haven’t really called it out. It wasn’t a big bonanza gain for us in Q1 when everyone was getting drawn on facilities. So there wasn’t a big gain then. There wasn’t a big RWA inflationary impact from it. It was fairly benign. It’s in line with the kind of the customer profile that we have. We don’t really bank, let’s say, FTSE 100 or EURO STOXX 500 companies that have multibillion euro banking facilities. So that isn’t a huge feature for us.

The bulk of our contingent liabilities actually sits in the retail world okay? So it’s credit cards, it’s personal loans, it’s undrawn mortgages. And in fact what we’ve seen over COVID given that people have an amount of disposable cash is that they’re actually paying down these items. So from a risk perspective I think that’s fine. Obviously, it adds to the reduction in balance sheet year-on-year.

On TLTRO definitely don’t multiply your TLTRO numbers in the way that you just did. I think the CGS guarantee schemes and the government support schemes will be a multiyear event. A number of years ago, obviously, when Irish government bond deals were trading at something like 5% or 6%, I’ve been happy to let you close the gap there. But I think the way that we’re certainly looking at that is as a minimum we’ll be looking to gain the 50 basis points uplift. And overall then it will be a manager of — managing that excess liquidity as tightly as we can waiting for opportunities on the asset side. Go on?

Unidentified Analyst

Just to…

Donal Galvin

Go o. Go on…

Unidentified Analyst

Sorry, sorry just one quick follow-up on the IFRS 9 point then. So I mean is one perhaps very overly simplistic interpretation of your charge at H1 then assuming your view the macro is correct and the impacts on the balance sheet is perfect, which is heroic assumption yes so I understand. You think you’ve basically identified every problematic loan on your balance sheet or potentially problematic loan on your balance sheet. You’ve put them into Stage 2. You’ve taken a charge that covers migration from 2 to 3 so basically the charge that’s coming through next year is just an underlying cost of risk BAU normalized condition?

Donal Galvin

No, not exactly I mean you are going to see more flows from Stage 2 to Stage 3 over time, but you’re going to see flows from Stage 2 back to Stage 1 as well as things normalize. Stage 2 is just a staging post. So you’re either in good shape or you’re moving into forbearance and that’s going to take a while to play out. But as we sit here today with the information that I have that’s our estimation of what the future looks like.

Unidentified Analyst

Okay. Thank you.

Colin Hunt

Thank you, Aman. Our next question is from Chris Cant at Autonomous. Good morning, Chris.

Chris Cant

Thank you for taking my questions. One on provisions and then a couple on your capital guidance please. So on the provisions again just trying to sort of, contextualize it and understand it a bit more. Your first half charges over 40% of the three-year accumulative loss in the EBA stress test. And obviously that stress test is also presumably built on your history as an institution as you reference which isn’t great versus some others in Europe. But most other banks relative to their stress tests, which are presumably based on their history and are currently booking something under 25% or in the low 20s as a percentage of the three-year accumulative loss.

So your timing in terms of recognition of this stress seems to be incredibly front-loaded relative to others. And for context your largest domestic peer is somewhere around 30% of their three-year cumulative loss. So you’re a clear outlier. And I’m trying to understand how you’ve actually achieved this because I would have thought that the accounting rules allow for some variation, but you are clearly an outlier. How is it that you’re able to front-load so much more than others? Or is it the case that you think your book is markedly worse because from what you’re saying you don’t believe it is?

And then on capital please. You’ve given us a flurry of guidance items. I just wanted to clarify my understanding. So you’ve got a positive 30 bps software benefit in the second half of this year. You’ve got a 60 bps to 70 bps SME support factor benefit over a two-year period so call that 100 bps rolled together 90 bps to 100 bps. You’ve then said a negative 40 bps SME impact I think. I wasn’t sure whether that was positive or negative, but it was TRIM so I’m assuming it’s negative calendar provisioning of 80 and then you’ve got the mortgage TRIM of 80. So, just tossing that up it looks to me like, you’ve got 200 of negatives and 100 of positives. And your commentary was that, these things are largely offsetting. So am I missing something in the maths there please? Thanks.

Donal Galvin

No, Chris, you seldom miss items on the maths in your defense, perhaps I spoke poorly. If I take the starting point as being 15.6 that incorporates the 80 basis points of mortgage TRIM, okay? So just to clarify that. And then the benefits are as you outlined and the SME is our CGS model, but it is effectively the IRB model for our SME business, and we think that will have a negative impact of 40 basis points, okay? So when I’m saying that, the impacts were broadly net one another off, you’re talking about 80 basis points calendar provisioning in 2020, which will reduce going into 2021. 40 basis points obviously for CGS in 2020 60 to 70 basis points SME 501, which will be split between 2020 and 2021 and the software impact of 30 basis points in 2020.

Colin Hunt

And just on the capital guidance, this is very, very much driven by our read of the very uncertain environment that prevailed at the end of the first half of the year. It is driven by macroeconomic assumptions. It is obviously driven by staging movements rather than any particular concerns about any particular credits. So, it’s very, very much forward-looking. And we believe it’s appropriately conservative at this juncture given the array of uncertainties that we’re still grappling with globally and here in Ireland.

Chris Cant

Just on the calendar provisioning piece, and how this relates then to your provisions. Obviously, you booked a huge provision charge. Is the issue that, your booking provisions on assets, which are different to those covered by calendar provisioning? Because I would have thought that the calendar provisioning impact would be, if anything diminishing in isolation as you’re booking these huge charges yet you’re now talking about a bigger calendar provisioning impact. And I know you haven’t been able to do a book disposal this year. But 80 bps this year are you saying that there’s further negatives in 2021 from calendar provisioning? Because again that would make it seem that the impacts are not netting out? Or are you expecting some of the 80 bps to reverse in 2021?

Donal Galvin

It’s the latter. The calendar provisioning, okay, and I think rules are different for different banks certainly for AIB calendar provisioning impacts also for deeper our assets in arrears for seven years or longer whereby the provisioning level needs to – by the end of 2020 be up at 60%. Okay. So I’m not sure, if that’s the same or different to other banks. So, obviously for 2020 year-end, we are caught with the year-end whereby we have provided on assets to all the appropriate levels, but the calendar provisioning rules as you know are fairly blunt. And they come in effectively as a capital adjustment. But over time obviously, as you manage through your deep arrears portfolio, you will be writing back all of those difference. Provided you were adequately provided for in the first place, which we obviously believe we are.

Chris Cant

Okay. Thanks.

Colin Hunt

Thank you. The next question is from Andrew Coombs from Citibank. Andrew, good morning.

Andrew Coombs

Good morning, all. And a couple of questions for me. One just a follow-up, I’m afraid on the asset quality point, but more around slide 41 and looking at this from a slightly different angle. If I compare your ECL coverage to Bank of Ireland, I mean, mortgages personal property all are broadly similar. Corporate and SME is somewhat lower. I obviously don’t expect you to talk about it here. But perhaps the well where this question is if I look at the ECL coverage ratio it’s gone up across the board on slide 41 on all asset classes with the exception of corporate and SME where it’s stable at 32%. So, I guess, my first question would be, why do you feel comfortable keeping the coverage ratio static on the stage two exposures in the corporate and SME book? Why should the coverage ratio not be higher now versus where it was six months ago?

And then my second question would actually be on slide 17 on the other income. If I look at your guidance for $420 million for the full year, you’re implicitly saying that, the second half will be lower than the first half. And I appreciate that, there are some arguably one-off items in the first half in that you’ve got €21 million on the cash flow restructured €15 million other gain. But at the same time you’ve also a €36 million hit on derivative positions. And I’d have thought anything in fee and commission income should improve versus Q2. So just trying to work out why the conservatism is there in your guidance on other income? Thank you.

Donal Galvin

Okay. On the other income, I mean, really what I’m saying for H2 is that the fees and commission line will be very much in line. So, that’s obviously going to be around €385 million and then overall, you can consider the other items be, it’s hard to guide exactly where they’re going to be, but I did want to just give you an overall descriptor. So I think €420 million is probably the appropriate level there, just given the fact that some of those items are variable and move around market moves. That’s on the other income item.

Yeah, I think on page 41, I mean, overall the point I was making on our coverage levels is that across the board it would have increased. And I think in the corporate and SME world the coverage has increased from 2% to 4%. So there is an increase there. I think you’re talking about actually just the NPE coverage. The main point is okay on – it’s really in the stage two moves where you have seen effectively a doubling of coverage rates in the corporate and SME world from 2% to 4%. And that just – and that increase in coverage is primarily driven by the change in the macro factors, which adjust the probability of default.

So, if you want to talk about peer analysis, I think then what we will be doing obviously is looking at different asset classes and looking at the coverage levels in these different asset classes. And I expect that we will be very well provided for across all asset classes with respect to peer analysis.

Colin Hunt

Hey, thank you, Andrew. The next question is from Eoin Mullany at Berenberg. Good morning, Eoin.

Eoin Mullany

Good morning all, and thanks for the presentation. And just two quick ones for me. Just around the sort of normalized loan loss charge from next year onwards that you alluded to. At your presentation earlier this year, you gave sort of a medium-term target of 20 to 30 basis points. Should we be thinking in that range for next year and the year after? Or should we think maybe a little above that?

And then, just secondly, you’ve given very clear guidance on the loan losses this year and around the sort of capital headwinds and tailwinds you face. And it still looks like you’ll have capital well in excess of your 14% target. I mean what are your thoughts about applying to the regulator for a dividend for FY 2020? Thanks.

Donal Galvin

I think on the dividend, we have a dividend policy that says that we’ll pay out 40% to 60% of profit after tax. I think it’s fairly clear for the year that we will have a loss after tax, so we will not be accruing a dividend for 2020 given that would be outside of our dividend policy.

What we’re trying to do for 2021 is ensure that with the business flows that we foresee with the bulk of the expected credit loss taken in 2020 that we’re able to paint a picture for a more normalized environment in 2020 where we can get back into a more normalized situation profit after tax and dividending, et cetera. So, that’s the way that we are looking at that.

Colin Hunt

And the final question then from Martin at Goldman Sachs. Good morning, Martin.

Martin Leitgeb

Good morning. Good morning from my side. Just three questions and two follow-ups and one more broader. And the more broader question, I was just wondering how do you see the Irish banking sector evolving out of this pandemic? We see obviously there’s apparently too much stress being applied to P&L, so much higher loan loss provisions.

Does that feed through in any way of how in terms of pricing consideration on the loan side, whether that’s personal or whether that’s corporate that maybe some of the pricing assumptions move upwards? Is there anything in this number that you see? Or the other way around, if pricing wouldn’t improve would you see more pressure for some of the smallest to consolidate from here?

And the follow-up question is just one on how confident you are on NII on the back of your earlier comments. I was just wondering in terms of capital — I mean given the guidance and given the front-loading of risk costs, it seems like you would continue to accrue capital in 2021 and 2022.

Is there any consideration that there would be some room and scope at some point in those years to return excess capital to get it down closer to the 14% target range? Or should we just assume similar to consensus that the core Tier 1 ratios could hedge — could be at the higher level of 15% or higher for a prolonged period of time?

And on NII, I was just thinking in terms of 2021 NII, based on your comments earlier, should we think that of being broadly stable? So, negative impact from hedge being offset by new lending? Or would you see that risk of downward pressure in 2021? Thank you.

Colin Hunt

Okay, Martin. I’ll take the first question. The issue of potential consolidation of the Irish banking market is something of a perennial. It’s been speculated upon widely for many, many years. And it’s — what I can say to you is that I can see it. I can see the scope first. I don’t know what the driver of that consolidation will be.

But I can assure you that my strong belief is that we will not be a participant in any consolidation in the market. We have market-leading shares already, and we already have played our part in the past in taking over educational building society. I do not believe that we will be an actor in any future consolidation moves.

But again, I’d like to reference the simple fact that such moves have been speculated upon very freely for a very, very long period of time. My focus and the focus of all of us here is to ensure that we have a very competitive market offering that we have a compelling proposition that it is digitally enabled to the maximum extent.

That’s what we’re doing. We’re continuing to deliver very big competitive products onto a very, very strong franchise. And that’s what underpins the long-term stability and growth prospects of this institution. Donal?

Donal Galvin

Look, I think the question on capital, surplus capital, that is going to very much be dictated again by what happens over the next six or nine months. What is the new macroeconomic base case that is going to come to fold and why what has been the COVID-19 impact. So, I think until there’s clarity on that it is very, very hard for banks or for analysts or — to define what that quantum could in fact be at the end of the day.

I think with respect to surplus capital returns, items like that, definitely too early to be talking about that. But, I suspect that the decisions around things such as that will be driven more from a regulatory perspective, more than from boardrooms. And obviously, we do expect to get more updates from the SSM and the ECB as the year progresses.

Colin Hunt

Okay. There we are. Now, we’re coming up to 10:20. I think we’ve answered questions from all the analysts, and we can bring the meeting this morning to an end. Thank you for your attendance virtual and real. Take care.

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