Bank of Ireland. Joint Oireachtas Committee on Finance, Public Expenditure and Reform 29 April 2015

Transcription

1 Bank of Ireland Joint Oireachtas Committee on Finance, Public Expenditure and Reform 29 April 2015 Information disclosed or capable of being disclosed to market generally

2 Forward looking statement This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934 and Section 27A of the US Securities Act of 1933 with respect to certain of the Bank of Ireland Group s (the Group ) plans and its current goals and expectations relating to its future financial condition and performance, the markets in which it operates, and its future capital requirements. These forward-looking statements often can be identified by the fact that they do not relate only to historical or current facts. Generally, but not always, words such as may, could, should, will, expect, intend, estimate, anticipate, assume, believe, plan, seek, continue, target, goal, would, or their negative variations or similar expressions identify forward-looking statements, but their absence does not mean that a statement is not forward looking. Examples of forward-looking statements buy include to among let others, statements regarding the Group s near term and longer term future capital requirements and ratios, level of ownership by the Irish Government, loan to deposit ratios, expected impairment charges, the level of the Group s assets, the Group s financial position, future income, business strategy, projected costs, margins, future payment of dividends, the implementation of changes in respect of certain of the Group s pension schemes, estimates of capital expenditures, discussions with Irish, United Kingdom, European and other regulators and plans and objectives for future operations. Such forward-looking statements are inherently subject to risks and uncertainties, and hence actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the following: geopolitical risks, such as those associated with crises in the Middle East and increasing political tensions in respect of the Ukraine, which could potentially adversely impact the markets in which the Group operates; concerns on sovereign debt and financial uncertainties in the EU and in member countries and the potential effects of those uncertainties on the Group; general and sector specific economic conditions in Ireland, the United Kingdom and the other markets in which the Group operates; the ability of the Group to generate additional liquidity and capital as required; the effects of extensive asset quality review and stress tests being conducted in advance of the European Central Bank assuming responsibility for supervision and any further capital or other assessments undertaken by regulators; property market conditions in Ireland and the United Kingdom; the potential exposure of the Group to various types of market risks, such as interest rate risk, foreign exchange rate risk, credit risk and commodity price risk; deterioration in the credit quality of the Group s borrowers and counterparties, as well as increased difficulties in relation to the recoverability of loans and other amounts due from such borrowers and counterparties, have resulted in significant increases, and could result in further significant increases, in the Group s impaired loans and impairment provisions; implications of the Personal Insolvency Act 2012 and measures introduced by the Central Bank of Ireland to address mortgage arrears on the Group s distressed debt recovery and impairment provisions; the performance and volatility of international capital markets; the effects of the Irish Government s stockholding in the Group (through the NPRFC) and possible changes in the level of such stockholding; the impact of downgrades in the Group s or the Irish Government s credit ratings or outlook; the stability of the eurozone; changes in the Irish and United Kingdom banking systems; changes in applicable laws, regulations and taxes in jurisdictions in which the Group operates particularly banking regulation by the Irish and United Kingdom Governments together with implementation of the Single Supervisory Mechanism and establishment of the Single Resolution Mechanism and the conduct and outcomes of asset quality reviews and stress tests; the exercise by regulators of powers of regulation and oversight in Ireland and the United Kingdom; the introduction of new government policies or the amendment of existing policies in Ireland or the United Kingdom; the outcome of any legal claims brought against the Group by third parties or legal or regulatory proceedings or any Irish banking inquiry more generally, that may have implications for the Group; the development and implementation of the Group s strategy, including the implications of the continuing obligations components of the Group s revised EU Commission restructuring plan and the Group s ability to achieve net interest margin increases and cost reductions; the responsibility of the Group for contributing to compensation schemes in respect of banks and other authorised financial services firms in Ireland, the United Kingdom and the Isle of Man that may be unable to meet their obligations to customers; the inherent risk within the Group s life assurance business involving claims, as well as market conditions generally; potential further contributions to the Group sponsored pension schemes if the value of pension fund assets is not sufficient to cover potential obligations; the exposure of the Group to NAMA losses in the event that NAMA has an underlying loss at the conclusion of its operations, which could adversely impact the Group s capital and results of operations; the impact of the continuing implementation of significant regulatory developments such as Basel III, Capital Requirements Directive (CRD) IV, Solvency II and the Recovery and Resolution Directive; and the Group s ability to address weaknesses or failures in its internal processes and procedures including information technology issues and equipment failures and other operational risks. Nothing in this document should be considered to be a forecast of future profitability or financial position and none of the information in this document is or is intended to be a profit forecast or profit estimate. Any forward-looking statement speaks only as at the date it is made. The Group does not undertake to release publicly any revision to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date hereof. The reader should however, consult any additional disclosures that the Group has made or may make in documents filed or submitted or may file or submit to the US Securities and Exchange Commission. 2

3 Contents 1. Executive Summary Key Highlights from Economic Overview 8 3. Bank of Ireland Group Annual Results Regulatory Change Supporting Owner Occupier Mortgage Holders in Financial Difficulty Insolvency Service of Ireland Our Experience Owner Occupier Mortgages in Difficulty Relative Performance Factors that Inform our Pricing Decisions Governance Conclusion

4 1 Executive Summary Key Highlights from 2014

5 2014 Key highlights Underlying profit of 921 million with all trading divisions profitable an improvement of 1.5 billion over billion of new lending an increase of over 50% Largest lender to the Irish economy during 2014, UK mortgage lending more than doubled A funding cost lead sustainable increase in our NIM to 2.11% during 2014 Reduced defaulted loans by 2.8 billion to 14.3bn; 22% below their peak Increased transitional Core Equity Tier 1 capital ratio by 250bps to 14.8% Fully loaded Core Equity Tier 1 capital ratio of 9.3% Passed ECB stress test with substantial capital buffers Increased Tangible Net Asset Value per share by 13% 5 5

6 2014 Leading bank in a growing Irish economy #1 or #2 positions in Ireland across all principal product lines Providing 1 in every 3 Irish home mortgages 27% share of the Irish cash savings market; deposit pay rates lower Irelands only bancassurer - 24% share of the life assurance market Ireland s #1 business bank; greater than 50% share of business/agri lending Ireland s #1 corporate bank; greater than 30% market share; leading share of new Foreign Direct Investment relationships 2014 International: Providing further attractive opportunities for growth With our Post Office partner, a leading UK challenger consumer bank with c.3 million customers Maintaining #1 position in consumer FX in the UK In mortgages, new lending more than doubled reflecting investments in our Post Office partnership and widening of distribution network including Legal & General and others Strong performance from our international Acquisition Finance business Northern Ireland business returns to modest profit 6 6

7 Bank of Ireland continuing to proactively support and benefit from Irish economic growth >50,000 business loan applications approved c.120,000 new current accounts opened and being used >24,000 acres of agricultural land for which we approved funding -8.6% default. loans c. 500m paid out by New Ireland under customer protection products in the past 5 years >27,000 vehicles financed in 2014 >11,000 c. 4.8bn customers supported in buying a new home largest lender to the Irish economy during 2014 c.220 customer interactions processed every minute of every day >9,000 people working in our businesses in Ireland Integral part of the Irish economy supporting customers, enterprise and communities Integral part of the Irish economy supporting customers, enterprise and communities 7 7 7

8 2 Economic Overview Ireland April 2015

9 9 9

10 3 Bank of Ireland Group Annual Results 2014

11 Favourable macroeconomic environment and outlook ROI GDP and unemployment UK GDP and unemployment 13.1% 11.3% 4.8% 10.0% 4.2% 8.8% 3.8% 7.6% 6.3% 5.6% 5.4% 0.2% 1.7% 2.8% 2.6% 2.4% (f) 2016(f) Annual real GDP growth Unemployment rate (annual average) (f) 2016 (f) Annual real GDP growth Unemployment rate (annual average) ROI residential property prices UK residential property prices 47% 50% 46% 38% 16.3% 8.4% 7.2% (16.7%) (4.5%) 6.4% 1.0% (1.0)% National change; Dec on Dec National, decline from peak National change: Dec on Dec 11

12 2014 Progress Delivering on strategic priorities Customers u Increased new lending by >50% to 10bn u Largest lender ( 5.7bn) to the Irish economy during 2014; doubled UK mortgage lending u Reduced defaulted loans to 14.3bn; a reduction of 4bn from peak Profitability u Underlying profit of 921m; c. 1.5bn improvement over 2013 u Improved average NIM to 2.11% u Increased TNAV per share by 13% Capital u Increased CET 1 ratio by 250bps to 14.8% u Passed ECB Comprehensive Assessment with substantial capital buffers u Fully loaded CET 1 ratio of 9.3% at Dec 14 12

13 Improved Underlying PBT by 1.5bn Net interest margin 1.84% 2.11% Total income 2,646m 2,974m Operating expenses Bank levy ( 1,576m) - ( 1,635m) ( 38m) Impairments Customer loans NAMA bonds ( 1,665m) - ( 542m) 70m Share of associates /JVs 31m 92m Underlying (loss) / profit before tax ( 564m) 921m 13 13

14 Net interest income Increased Q4 Net Interest Margin to 2.22% Net interest margin trend +50bps Net interest income - 2,358m Delivered net interest income growth of 225m (11%), driven by higher NIM, partially offset by lower average interest earning assets NIM 2.03% 2.05% 2.15% Full year 2014 NIM improved to 2.11% reflecting lower funding costs an positive impact of new lending volumes; partially offset by impact of ECB rate cuts in Nov 13, Jun 14 and Sep % Q4 NIM was 2.22% H H H H Net interest margin 2.17% 3.13% 3.23% 3.16% 3.14% 1.6% 1.65% 1.26% 1.15% 1.03% From here, expect NIM to grow further, albeit at a more modest pace than 2014 Positive impacts from new lending and lower funding costs, partially offset by; Impact of low interest rate environment Average interest earning assets Reduced to 109bn in 2014 (2013: 115bn) Lower net loan assets of 84bn (2013: 88bn) Lower liquid assets of 25bn (2013: 27bn) Liquid assets expected to decline modestly over time H H H H Asset Yield Cost of Funds 14

15 Loans and advances to customers Group new lending up >50% to 10bn +46% New lending volumes 5.7bn 3.9bn 3.4bn 2.1bn 0.6bn 0.9bn Irish businesses UK businesses Acquisition Finance New lending volumes by key business line Increase vs ROI Mortgages >40% ROI Business >20% ROI Corporate >100% UK Mortgages >110% Acquisition Finance >50% 15

16 SME & Corporate loans: 20.3bn 2.9bn ROI SME 9.6bn 2.7bn 2.7bn 2.5bn UK SME 1.9bn/ 2.5bn Corporate - 8.2bn 1.1bn 1.3bn 1.4bn 1.4bn 1.3bn 553m 476m 241m 238m 344m 327m 152m 145m 0.4bn 0.6bn 0.2bn 0.7bn 0.3bn 0.5bn 0.2bn Jun 13 Dec 13 June 14 Dec 14 Jun 13 Dec 13 Jun 14 Dec 14 Jun 13 Dec 13 Jun 14 Dec 14 Defaulted Loans Provision Stock Defaulted Loans Provision Stock Defaulted Loans Provision Stock Dec 13 Jun 14 Dec 14 Dec 13 Jun 14 Dec 14 Dec 13 Jun 14 Dec 14 Impairment charge (6-month) 138m 64m 63m Impairment charge / reversal (6-month) 50m 17m ( 3m) Impairment charge (6-month) 63m 44m 30m Coverage ratio 50% 51% 51% Coverage ratio 50% 44% 44% Coverage ratio 41% 38% 54% General improvements in economic and trading conditions in the Irish SME sector, however certain sectors still muted Resolution strategies agreed with more than 9 out of 10 challenged customers; > 90% of restructured customers meeting their new arrangements Portfolio benefitting from further improvement in macroeconomic conditions 2013 charge reflected a small number of large individual exposures and case specific events; since resolved Domestic Irish and international corporate portfolios continuing to benefit from improving economic conditions 16

17 Strong organic capital generation Increased CET 1 ratios by bps Dec 13 Dec 14 Customer loans (net) 84.5bn 82.1bn Defaulted Defaulted loans loans loans 17.1bn 14.3bn CET 1 CET ratios CET 1 ratio 1 ratio Transitional Transitional Fully loaded (incl prefs) fully loaded, excl prefs) Fully loaded (excl prefs) fully loaded, excl prefs) 12.3% 9.0% 6.3% 14.8% 11.9% 9.3% Total capital ratio 14.1% 18.3% TNAV per share 19.1c 21.6c 17

18 Reimbursing and rewarding taxpayers support c. 1.6bn, 13.95% Shareholding % default. loans c. 6.0bn Cash invested by the State c. 4.8bn Cash returned to date Cash invested by the State 1 Based on closing price of 0.35 cents on 21 April

19 BOI Overview Ireland: Leading bank in a growing economy with a well structured market Comprehensive multi-channel distribution platform c.250 branches c.1,750 Self-service devices c.57% of customers are active online and mobile channel c.300k active mobile customers 24 x 7 Market leading positions Consumer Banking c.1 out of every 3 new mortgages in 2014 Wealth Management incl. New Ireland c. 24% market share in life assurance Business Banking c.50% market share of new lending Corporate Banking >30% market share 19 19

20 BOI Overview Attractive international franchises provide further opportunities for growth Challenger consumer banking franchise in GB Challenger consumer bankig franchise in GB Trusted brand, established customer base and expanding product range Savings Mortgages Savings Mortgages Retail FX Credit Cards Insurance Retail FX Credit Cards Insurance Current Accounts c.1.6m accounts c.200k customers Market leader c.540k customers c.575k policies Trial underway More branches than other retail banks combined in GB c.11,500 Post Office Branches c.2,550 Post Office / BOI ATMs >40m online visitors each year Telephone 24 / 7 New mobile app for FX Full service bank in Northern Ireland Acquisition finance Universal offering through (36) branches and product specialists Well recognised lead arranger / underwriter with c. 3.6bn in credit facilities 20 20

21 4 Regulatory Change

22 Regulatory Change Banking Union Key components of Banking Union I. Single Supervisory Mechanism II. Single Resolution Mechanism Single Supervisory Mechanism (SSM) ECB assumed banking supervision responsibilities for 130 banks (including Bank of Ireland) on 4 November 2014 In advance, ECB conducted comprehensive assessment to assess resilience under base and stress economic scenarios Exercise based on uniform methodology and harmonised definitions Scale of exercise unprecedented Bank of Ireland passed the comprehensive assessment with substantial capital buffers 22 22

23 ECB Comprehensive Assessment Results 26 October 2014 BOI Announcement The overall result for Bank of Ireland confirms that the Group has passed the ECB Comprehensive Assessment, with substantial capital buffers over the threshold capital ratios in both the baseline and adverse stress test scenarios as follows: BOI Threshold Buffer Baseline scenario 12.43% 8% 4.43% Adverse scenario 9.31% 5.5% 3.81% 23 23

24 5 Supporting Owner Occupier Mortgage Holders in Financial Difficulty

25 Introduction and Key Messages 9 out of 10 Owner Occupier customers fully up to date on their mortgage 9 out of 10 Owner Occupier customers who requested forbearance and through an SFS demonstrated they were in financial difficulty, were offered a sustainable solution 9 out of 10 Owner Occupier customers are meeting the terms of their forbearance arrangement The following principles summarise BoI s approach to helping our customers who may face difficulties with regard to their contracted mortgage repayments. All of our activities in, and approach to, this area recognise the fundamental importance of the family home. We are focussed on supporting customers with financial challenges, providing a comprehensive range of sustainable restructuring solutions legal action is a last resort. We assess all forbearance requests on a case-by-case basis, taking due consideration of the personal circumstances of the borrower. We bear in mind our responsibilities to all of our stakeholders including customers fully meeting their contracted mortgage repayments, our depositors, our shareholders (which include the taxpayers), and the wider economy which requires viable banks able to support economic development. The forbearance strategies adopted by Bank of Ireland seek to maximise recoveries while providing suitable and sustainable solutions that are supportive of customers in challenged financial circumstances. Bank of Ireland is and will continue to be a very important part of the Irish mortgage market. Bank of Ireland understands the need for balanced and proportionate responses across sometimes conflicting objectives. The bank currently has c.112,000 customers with Owner Occupier mortgages (OO). We are actively seeking new mortgage business and have a 32% share of new business written during At December 2014, we had a restructured stock of 16,284 Owner Occupier mortgage accounts (up from 14,135 in 2013) and our restructures are working with 9 out of 10 customers meeting the terms of their new arrangement. We seek to ensure that any forbearance measures on the part of the bank are balanced to assist continued responsible action on the part of our customers. Our approach is informed by our management of mortgage arrears in Ireland and our extensive experience in the highly regulated UK market, both with respect to the housing market correction in the early 1990s and more recent experience

26 Introduction and Key Messages The management and resolution of mortgage arrears is a key priority for Bank of Ireland, and we continue to make very significant progress: At February 2015, Owner Occupier accounts in arrears had reduced by 33% from peak levels in May At December 2014, 5.5% of Bank of Ireland Owner Occupier accounts were greater than 90 days in arrears, compared to an industry average (excluding BoI) of 11.6%. This means that the percentage of Bank of Ireland Owner Occupier accounts greater than 90 days in arrears is 47% of the industry average. Our performance against the industry average has improved each year since At January 2015, Bank of Ireland Owner Occupier accounts in arrears greater than 90 days had fallen by 29.2% since the Department of Finance started producing monthly industry statistics in August According to the Department s statistics the fall for the rest of the industry was 25.8% for the same period. The Bank of Ireland Owner Occupier balance of accounts in arrears greater than 720 days fell to 3.6% in Q The industry (excluding BOI) rose to 8.8%. On this basis, Bank of Ireland is at 41% of the industry average. In 2014, we offered a sustainable solution for 9 out of 10 Owner Occupier customers who requested forbearance and, through an SFS, demonstrated they were in financial difficulty. Bank of Ireland lodged 517, or just 6%, of the total of 8,282 Civil Bills lodged with County Registrars in Bank of Ireland had 144 Owner Occupier repossessions in 2014 of which c. 2/3 were voluntary. In Bank of Ireland we anticipate no more than 300 repossessions in 2015 which is circa half the anticipated number of possessions for 2015 in our high quality UK mortgage business which is of a similar size to our ROI business

27 Bank of Ireland and ROI owner occupier mortgage market Total 2014 New Lending ( ) BoI Rest of Industry 68% 32% Bank of Ireland: Provided 32% of new Owner Occupier mortgage lending in the Republic of Ireland (ROI) in 2014 Total Mortgages at Dec '14 ( ) BoI Rest of Industry 79% 21% Provided 21% of the stock of ROI mortgages at Dec 2014 (Owner Occupier stock: 19%) Total Owner Occupier Mortgage Arrears at Dec 14 ( ) BoI Rest of Industry 90% 10% Accounts for 10% of the stock of ROI Owner Occupier mortgages in arrears at Dec 2014 Owner Occupier Mortgages >720 DPD at Dec 14 ( ) BoI Rest of Industry 91% 9% Accounts for 9% of the stock of ROI Owner Occupier mortgages >720 DPD at Dec 2014 Civil Bills Lodged in 2014 (Number) 6% Accounts for 6% of the Civil Bills issued nationally in 2014 BoI Rest of Industry 94% Bank of Ireland a major provider of mortgages to the market yet consistently a much smaller part of the overall level of mortgage arrears and legal proceedings 27 27

28 Significant reduction in Bank of Ireland Owner Occupier defaulted loans during 2014 Owner Occupier 2.2bn 2.1bn 1.7bn Jun 13 Dec 13 Dec 14 Bank of Ireland Owner Occupier mortgage book was 19.9bn at December 2014 Defaulted loan balances fell by 18% to 1.7bn in 2014 Arrears accounts are at <50% of industry average 1 ; 9 out of 10 accounts up to date 51% or 10.2bn of mortgages are ECB trackers Defaulted Loans 1) At Dec 2014, BoI owner occupier arrears level (based on number of accounts >90 days in arrears) was 5.5% compared to 11.6% for industry excl BoI 28 28

29 How Bank of Ireland helps our mortgage customers in financial difficulty Supporting our customers in financial difficulty is a key priority for Bank of Ireland and as our progress shows we are responsible, consistent, professional and effective in this difficult task. Comprehensive and effective customer engagement processes are in place. Circa 500 staff (central Arrears Support Unit and regional locations) to support customers who are facing financial difficulty or already in arrears. Customers are encouraged to meet BoI mortgage specialists face-to-face or avail of assistance by BoI specialists over the phone to complete the Standard Financial Statement and discuss any issues arising and potential solutions. In 2014, we offered a sustainable solution to 9 out of 10 owner occupier customers who requested forbearance and were in financial difficulty as evidenced by a completed SFS. Suite of product options available for customers in negative equity who wish to move property. 29

30 How Bank of Ireland helps our mortgage customers in financial difficulty Customers who have not provided the Bank with financial information for us to make an assessment of their affordability have either been deemed non-cooperating under CCMA or are in the legal process. In our experience, the vast majority of our customers can be supported in a way that works for the customer and is commercially sensible. 9 out of 10 of our owner occupier customers are meeting the terms of their arrangement. The Bank has sufficient dedicated mortgage staff to seek and get engagement from our customers who may face or are in arrears and does not need to engage a 3rd party organisation to fulfil this function

31 Forbearance is considered by Bank of Ireland based on customer affordability Property Loan to Value or negative equity is not a driver of our decision whether or not to approve forbearance. Bank of Ireland assesses requests for forbearance on a case by case basis. The decision whether to provide forbearance and the type of forbearance is determined depending on the circumstances of the case, including whether the forbearance is necessary and whether the borrowers have the required repayment capacity. Repayment capacity is the single most important influencing factor in Bank of Ireland s assessment for forbearance to owner occupier borrowers. C.73% of forbearance solutions put in place for owner occupiers who are in positive equity

32 Bank of Ireland helping our mortgage customers in financial difficulty Owner Occupier Restructures BoI Industry Industry excl. BoI QoQ Change in Stock Q Q Q Q Q Q BoI CBI excl. BoI Full Interest 1,992 1,769 10,591 9,254 8,599 7,485-11% -13% Reduced Payment (< full interest) 0 0 3,424 3,158 3,424 3,158 n/a -8% Reduced Payment (> full interest) 2,895 2,711 13,434 13,535 10,539 10,824-6% 3% Payment Moratorium ,900 1,829 1,755 1,662 15% -5% Arrears Capitalisation 2,170 2,343 28,473 29,615 26,303 27,272 8% 4% Term Extension 5,041 5,099 16,945 17,070 11,904 11,971 1% 1% Split Mortgage 1,336 1,548 16,326 19,837 14,990 18,289 16% 22% Deferred Interest Scheme % -22% Permanent Interest Rate Reduction n/a 236% Trade Down Mortgage % 30% Other 2,248 2,580 14,457 15,108 12,209 12,528 15% 3% Temporary Interest Rate Reduction 0 0 4,256 5,134 4,256 5,134 n/a 21% Total Owner Occupier Restructures 15,899 16, , ,674 94,012 98,390 2% 5% Of which: Not in arrears 76% 77% 65% 68% 63% 67% 2% 7% 77% of BoI restructures were not in arrears at the end of 2014 versus 67% for the industry (excluding BoI). 88% of BoI restructures are meeting the terms of their arrangement versus 83% for the industry

33 How many owner occupier mortgage customers has Bank of Ireland helped to stay, or return to being, fully up to date on their mortgage? Owners of circa 9,400 properties have had their mortgages restructured by Bank of Ireland and remain fully up-to-date on their mortgage. Of these: Circa 5,200 were assisted by Bank of Ireland when they indicated that they anticipated difficulties with their mortgage repayments. Circa 1,350 were in early arrears and all are now in the up to date book. Circa 2,750 were in late arrears/material difficulties and all are now in the up to date book. As at end Dec 2014, all of these customers are fully meeting the terms of their revised arrangements. In addition, BoI has supported 1,030 of our customers who have family home mortgages with us and/or other lenders with a significant restructuring of their unsecured debt. In addition, BoI provided short-term forbearance to 9.2k OO properties of customers with short-term financial difficulties. These customers are no longer in forbearance and are fully up to date with their mortgage

34 Payment Profile of BoI Owner Occupier Borrowers > 720 DPD 1,119 Owner Occupier properties in legal process Payment Profile in (49%) made no payment during No Payment made > 0% > 25% > 50% > 75% 100% > 100% A further 413 (37%) made less than 50% of the expected payment during BOI analysis of >720 DPD owner occupier mortgage arrears cases identifies that the average contracted mortgage repayment from this cohort of 890 per month is less than the average rental per month of 950 for the average residential property. If the payment profile of this customer group represents repayment capacity, it is likely that a significant number of this population will require social housing. BOI lodged 517, or just 6%, of the total Civil Bills lodged with County Registrars in

35 6 Insolvency Service of Ireland Our Experience

36 BoI Participation in PIA & DSA Arrangements (ISI launch to Mar-15) BoI Participation in DSA and PIA launch to Mar-15 Comparison BoI % Yes Votes Vs. Total ISI Approval Rates Total Debt Settlement Arrangements (Numbers) Total Personal Insolvency Arrangements (Numbers) 67% (165) 63% (468) 33% (83) 37% (280) BOI Rest of Industry BOI Rest of Industry 100% 90% 80% 70% 60% 85% ISI - Total Approval Rate 89% BOI - % Voted 'Yes' Debt Settlement Arrangements (DSA) 72% ISI - Total Approval Rate 82% BOI - % Voted 'Yes' Personal Insolvency Arrangements (PIA) 76% ISI - Total Approval Rate Debt Relief Notices & Bankruptcy - launch to Mar-15 Total 84% BOI - % Voted 'Yes' ISI National Statistics BoI Participation Debt Relief No. of Cases (32%) Notices Issued Debt Covered n/a 0.8m No. of Cases (40%) Bankruptcy (ROI) Debt Covered m (9%) BoI has a participation rate of 36% of the total Protective Certs Issued (83 / 33% of DSA and 280 / 37% of PIA) since the launch of the Insolvency Service of Ireland (ISI). BoI has voted in favour of 89% DSA Arrangements, which is 4% higher than the 85% ISI total approval rate. BoI has voted in favour of 82% PIA Arrangements, which is 10% higher than the 72% ISI total approval rate

37 Summary of BoI Declined Personal Insolvency Arrangements where BoI a secured creditor Case Number Owner Occupier Explanation for decline 1. Borrowers income could not be fully substantiated and was largely aspirational. The proposal would not have met CBI sustainability guidelines. 2. Sale of land adjacent to the private residence by borrower had created a boundary / title issue. BoI indicated its support for the 1 year PIA subject to rectification of the boundary issue, by the borrower. This agreement was not forthcoming from the borrower and therefore the PIA proposal was not viable. 3. The Bank was supportive of a 6 year PIA, allowed for in PI legislation, based on the available evident sustainable borrowers income. However, the proposal was for a short term PIA which would have minimised the return to the Bank and was not acceptable. 4 & 5. The PIP proposal did not return the borrowers to solvency as there would have been insufficient household income to service the debt after the expiry of the PIA. 6. The granting of Mortgage to Rent (MTR), which had been proposed by the PIP, is the sole remit of the Local Authority, therefore the Bank was not in a position to approve the PIA. Commercial Property 7. Commercial property jointly owned with 3 rd parties. The PIP failed to obtain consent from all parties owning the property, and in the absence of same, the sale of the commercial property could not proceed, rendering the PIA unviable. 8. Borrower was already in a voluntary agreement with the Bank which was at an advanced stage. 9. Per borrower s Prescribed Financial Statement, significant underestimation attributed to value of successful trading business, at less than 10% of the value that had been independently confirmed. Allocation of the majority of Reasonable Living Expenses to the borrower where the spouse had a significant independent income and unencumbered assets. 10. The capacity of the borrower to generate the income to support the proposed PIA was questionable, as the borrower s business had operated at a loss for the previous 5 years and the PIP had provided projections that losses would continue. Available substantial assets being kept out of proposed arrangement including foreign property

38 Summary of BoI Declined Personal Insolvency Arrangements where BoI a secured creditor Case Number Buy To Let Explanation for decline 11. The Bank was supportive of a 6 year PIA (3 years proposed by PIP) providing for a greater borrower contribution, noting that the borrower had an established business and had the financial capability to sustain repayments over 6 years. However, no agreement could be reached with the PIP in this regard. 12. The Bank advised the PIP at pre-engagement proposal stage that the proposed terms, i.e. one year accelerated PIA, was unsatisfactory to the Bank as the borrower had the financial capability to enter a 6 year PIA. The Bank would have supported a longer term PIA however no agreement in this regard could be reached with the PIP. Combination (Owner Occupier & BTL) 13 & 14. A number of sustainable forbearance proposals with regard to the PDH had been made by the Bank but declined by the borrowers. Accordingly, the Bank declined the PIA as there were alternative viable, sustainable forbearance solutions which saw retention of the private residence and the mortgage repaid. 15 & 16. The mortgage could not be made sustainable in line with CBI Sustainability guidelines and the PIA proposal would not have returned the borrower to solvency. 17 & 18. The Bank had a concern regarding the recent transfer of significant business assets from personal name. PIA did not prove the solvency of the borrower past the period of the PIA

39 7 Owner Occupier Mortgages in Difficulty Relative Performance

40 As well as our significantly lower rate of owner occupier defaulted loans than the industry, the trend in Bank of Ireland share of industry defaults continues to reduce Bank of Ireland owner occupier arrears >90 DPD 1 are running significantly below the industry 2 average: 5.5% of Bank of Ireland owner occupier mortgage accounts are >90 DPD compared to an average of 11.6% for the total industry 2 at Dec This means that the % of Bank of Ireland owner occupier mortgage accounts >90 DPD was 47% of the total industry 2 average. BoI % of accounts in arrears as a % of the industry average 70% 65% 60% 55% 50% 45% 67% Rate of reduction -29% 47% The proportion of the Bank of Ireland owner occupier mortgage book >90 DPD continues to remain below the industry average and has been reducing consistently, from 67% of the industry average at Dec 2009 to 47% at Dec % Q Q Q Q Q Q Consistent with published quarterly CBI arrears statistics whereby impaired mortgages 90 DPD are excluded from the statistics. 2 Based on published Dec 2014 CBI Mortgage Arrears Statistics, excluding Bank of Ireland. Industry statistics exclude impaired mortgages 90 DPD

41 BoI Owner Occupier >720 DPD Arrears reducing and significantly lower than the rest of the industry 9% 7% 7.2% BOI 7.7% Industry excl. BOI 8.3% 8.5% 8.8% 5% 3% 3.2% 3.5% 3.7% 3.8% 3.6% Dec '13 Mar '14 Jun '14 Sep '14 Dec '14 Owner Occupier At Dec % of Bank of Ireland Owner Occupier mortgage balances are >720 DPD compared to an average of 8.8% for the industry. On this basis, Bank of Ireland is at 41% of the industry average (Q3 2014: BoI at 45% of the industry). In the year to Dec 2014, for BoI Owner Occupier the flow of accounts into >720 DPD reduced by 21% and the flow out increased 152%

42 Consistent significant progress versus the industry Mortgage Arrears defaulted loans (%) (number of accounts) 31 December June September December 2014 BoI Owner occupier mortgages 6.9% 6.3% 6.0% 5.5% Industry Owner occupier (number of accounts) % 13.3% 12.5% 11.6% Mortgage Arrears defaulted loans (%) (value) 31 December June September December 2014 BoI Owner occupier mortgages 9.5% 8.7% 8.4% 7.7% Industry Owner occupier (value) % 18.3% 17.4% 16.5% 1 Source: CBI Mortgage Arrears Statistics Report Dec 2014 adjusted to exclude BoI. At 31 December 2014, 5.5% of BoI Owner Occupier mortgage accounts were >90 DPD compared to 11.6% for the industry, i.e. BoI at 47% of the industry average. BoI Owner Occupier default rate very materially lower than the industry on a consistent basis

43 BoI is consistently increasing its overall Owner Occupier market share whilst significantly reducing its share of industry Owner Occupier defaults BoI has c. 1 in 5 Owner Occupier mortgage accounts in the market 1 whilst only accounting for c. 1 in 10 Owner Occupier mortgages >90 DPD 2 22% 20% BoI % market share of all OO mortgage accounts is increasing 18% 16% 14% BoI % of industry total OO mortgage accounts >90 DPD is decreasing BoI market share of all OO mortgage accounts BoI as % of all OO mortgage >90 DPD 12% 10% Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 BoI s share of the industry total OO mortgages increased from 20.1% to 20.8% whilst BoI s proportion of the industry total OO mortgages >90 DPD 2 decreased significantly from 14.4% to 11.1% for the period Dec 2009 to Dec Based on published quarterly CBI mortgage arrears statistics at a total industry level. 2 Consistent with published quarterly CBI arrears statistics whereby impaired mortgages 90 DPD are excluded from the statistics

44 BoI does not issue Civil Bills as a collections tactic Source: December 2014 data published by Court Service of Ireland and BoI data BoI Civil Bills County Registrar BoI % of Civil Bills lodged Industry Totals County Carlow 5 4% 116 Cavan 13 5% 250 Clare 21 11% 197 Cork 56 9% 627 Donegal 20 5% 386 Dublin 66 4% 1,673 Galway 22 5% 421 Kerry 9 5% 175 Kildare 14 3% 453 Kilkenny 12 10% 123 Laois 15 7% 226 Leitrim 4 5% 75 Limerick 26 8% 328 Longford 16 16% 100 Louth 18 6% 290 Mayo 6 3% 206 Meath 22 4% 607 Monaghan 6 4% 142 Offaly 13 8% 173 Roscommon 11 6% 198 Sligo 6 5% 121 Tipperary 18 5% 341 Waterford 11 5% 209 Westmeath 10 4% 226 Wexford 14 4% 331 Wicklow 16 6% 288 Other BoI 67 1% Total 517 6% 8,282 The Court Service of Ireland published 2014 Industry data including Civil Bills lodged with Country Registrars. Bank of Ireland accounted for c. 6% of the total cases. Hearings of Civil Bill cases for the counties highlighted were recently reported in the media and more detail is found on slide 36 in relation to industry comparisons. Bank of Ireland has over 500 staff directly involved in mortgage arrears management

45 Owner Occupied ROI Mortgages 31 December 2014 BOI, AIB including EBS (AIB) and PTSB BOI AIB PTSB Gross Loans bn Weighted Average LTV % 80% 84% 92% Negative Equity % Book 28% 31% 41% Negative Equity Balances bn Negative Equity Quantum* bn <=90 days in arrears bn <=90 days % of Gross Loans bn 2.3% 2.6% 3.1% >91 days (default) in arrears bn > 91 days (default) % of Book 8.4% 17.6% 25% > 0 days in arrears bn > 0 days % of Book 10.8% 20.1% 28% Provision Stock bn Impairment provision coverage % 40% 35% 39% *negative equity figures use midpoints per Annual Reports for AIB and PTSB 45 45

46 Owner Occupied ROI Mortgages 31 December 2014 BOI, AIB including EBS (AIB) and PTSB BOI AIB PTSB 8.4% 17.6% 25.0% 91.6% 82.4% 75.0% Not in Default Default and/or impaired 46 46

47 Owner Occupier ROI Mortgage Balances 31 December BOI as % of Total Owner Occupier Mortgages 2. BOI as % of Defaulted Owner Occupier Mortgages* 11% 19% BOI Rest of Industry BOI Rest of Industry 81% 89% 3. AIB/PTSB as % of Total Owner Occupier Mortgages 4. AIB/PTSB as % of Defaulted Owner Occupier Mortgages* 44% AIB/PTSB 40% AIB/PTSB 56% Rest of Industry 60% Rest of Industry *Industry default statistics do not include impaired loans less than or equal to 90 days past due (all quoted bank statistics include impaired loans less than or equal to 90 days past due) 47

48 State Owned banks the major contributor to recent media commentary on repossessions Recent media commentary has highlighted repossession cases in Cork, Limerick & Donegal. Repossession Cases Highlighted by Media BoI accounted for 6% of these cases, vs. state banks at 58% Irish Examiner - Over 400 repossession cases brought before Cork court since start of year BreakingNews.ie home repossessions before Limerick court today BOI 6% KBC 8% Other 13% Ulster Bank 15% State Owned 58% EBS 17% AIB 15% PTSB 26% Irish Independent - Some 271 people facing repossession in just one court sitting in Donegal court

49 BoI versus Industry PDH Concluded MART targets 31 December 2014 Under MART BoI has concluded significantly more PDH solutions than the industry (excluding BoI) Of BoI s concluded solutions, a significantly lower proportion involved loss of ownership 1 when compared to the industry (excluding BoI) Concluded PDH BoI Industry excluding BoI December 2014 % of PDH concluded solutions achieved 2 83% 61% Of which % Restructured mortgages 74% 66% % Loss of Ownership 26% 34% 26% 74% BoI Restructured mortgages Loss of ownership December 2014 % of PDH concluded solutions achieved Industry excluding BoI 83% 61% 34% 66% Restructured mortgages Loss of ownership BoI Industry excluding BoI 1 As defined in MART, a voluntary sale or surrender solution has been accepted by the customer, or repossession proceedings have progressed to Civil Bill or further along the legal process, or a Fixed Charge Receiver has been appointed. 2 MART 2014 solutions achieved are expressed as a function of the stock of accounts >90 DPD at December

50 8 Factors that inform our pricing decisions

51 The factors that inform our pricing decisions We keep the pricing of all or our products under active review. Products including mortgages are priced to reflect: The cost of funds to the Group The estimated potential loan losses from the portfolio Recovering our costs including our staff and infrastructure costs The capital required to support the products These are all factors that the bank - as a responsible lender must consider. In accordance with commercial realities and CBI/SSM guidance, and recent CBI/SSM macro prudential policy decisions, pricing is risk based using the LTV band as a proxy. We offer attractive fixed rate mortgages which mitigate risk for both the customer and the bank again in accordance with CBI/SSM guidance and international mortgage market characteristics. At each LTV band there is an attractive fixed rate available to both new and existing customers. The selection of a fixed or variable product is ultimately a customer decision

52 Bank of Ireland Mortgage Pricing SVR/Variable Rate Bank of Ireland Owner Occupier average book yield: H2/2014 SVR/Variable rate mortgages: UK 4.49% Ireland 4.31% Bank of Ireland Cost of funds: H % H % Movement -0.23% H % Bank of Ireland Owner Occupier Average book yield SVR mortgages H2/ % less the cost of funds (1.03%) = 3.28% gross margin before operating costs, cost of credit and contribution to capital. Bank of Ireland cost income ratio 2014 = 55%. Bank of Ireland SVR gross margin = 3.28% X 45% = 1.48% before cost of credit and contribution to capital

53 Reduction in Bank of Ireland Mortgage Fixed Rate Offers January 2015 Available for all new and existing customers LTV LTV < or = 75% Reduction in fixed rate LTV < or = 75% Difference from Variable LTV 61% - 80% rate (4.20%) LTV > or = 75% Reduction in fixed rate LTV > or = 75% Difference from Variable LTV > 80% rate (4.50%) 1 year fixed % 2 year fixed % 3 year fixed 3.85% - 4.0% 5 year fixed % (0.3%) (0.45%) (0.65%) (0.80%) (0.50%) (0.4%) (0.35%) (0.25%) (0.30%) (0.35%) (0.60%) (0.70%) (0.70%) (0.5%) (0.5%) (0.35%) 53 53

54 9 Governance

55 Strong Risk Governance confirmed by Independent Reviews 55 55

56 Bottom Up Risk Aggregation, Reporting, Escalation & Action Strong Risk Governance confirmed by Independent Reviews The Risk Governance enables and reconciles Top-down and Bottom-up Risk information flow and enhances strategy execution and decision-making by enabling the evaluation and challenge of Group risk appetite, the establishment and cascade of limits, the evaluation of activities creating or destroying value and optimising return versus risk throughout the business RISK GOVERNANCE PYRAMID ROLE KEY RESPONSIBILITIES RISK OVERSIGHT On the top of the risk pyramid, has the ultimate oversight and accountability for the risk and related control environment in the Group Court of Directors Court-Level Risk Committees (CRC & GAC) Senior Executive Risk Committee (GRPC) Group Functions (eg, GC&MR, GGR, etc.) Top Down Risk Appetite, Limit Setting and Monitoring NON-EXECUTIVE CHALLENGE RISK ESCALATION, DEBATE & ACTION RISK AGGREGATION & ANALYSIS Is responsible for reviewing and approving risk appetites, risk framework and policies Providing effective and independent risk oversight (eg, via Court Risk Report, Top 5 risks process, review & challenge, etc.) Scrutinising and challenging senior management risk committee actions and proposals Approval of ICAAP incorporating Solvency Stress Testing, Reverse Stress Testing, etc. Reviewing, debating and challenging risk information and escalation issues Using aggregated risk information to support decision making and drive management actions Aggregating, analysing and coordinating risk management activities and processes (eg, as represented in Divisional Risk Reports, Court Risk Report, etc.) Business Units RISK ASSESSMENT & OWNERSHIP Identifying, assessing and reporting risks inherent to the business in line with the group risk management framework and standards 56 56

57 10 Conclusion

58 Priorities for 2015 and beyond Customers u Continue to develop relationships with existing and new customers u Meet increasing Irish credit appetite as the economy continues to grow, with confidence returning u Support customers re-financing from other institutions u Significantly grow our PO partnership and our UK mortgage business u Continue to provide appropriate solutions to customers in financial difficulty u Continue our progress on reducing defaulted loans Profitability u Further increase our profitability u Continue to grow revenues u Maintain strong cost discipline whilst further investing in growth u Continue to reduce impairment charges to normalised levels Capital u Continue to effectively manage the developing regulatory environment u Continue to prioritise capital generated towards Prefs de-recognition in 2016 u Progress to dividend capacity thereafter Source: Bank of Ireland April BOI Classification: information Purple classification Highly Confidential : Purple & Market - confidential Sensitive 58