AIB Group Plc — Interim / Quarterly Report 2020

Aug 10, 2020

Backing our Customers

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Half-Yearly Financial Report For the six months ended 30 June 2020

AIB Group plc

OUR PURPOSE IS TO BACK OUR CUSTOMERS TO ACHIEVE THEIR DREAMS AND AMBITIONS

AIB is a financial services group operating predominantly in Ireland and the United Kingdom. We provide a range of services to retail, business and corporate customers, with market-leading positions in key segments. AIB is our principal brand across all geographies. In Ireland, EBS is our challenger brand and Haven is our mortgage broker channel.

With over 2.8 million customers, we are committed to supporting the transition to a low-carbon economy and backing sustainable communities. In the first half of 2020, we introduced a range of supports for our customers impacted by COVID-19 and funded the COVID-19 Research Hub to help meet the challenges ahead.

ON OUR COVER

Ger Leahy, AIB customer and Tillage Farmer from Co. Tipperary. Featured as part of our Backing Brave campaign.

AIB Group plc Half-Yearly Financial Report 2020 1

Half-Yearly Financial Report

For the six months ended 30 June 2020

01 02 OVERVIEW BUSINESS REVIEW

02 Business performance 04 Chief Executive’s review 12 COVID-19 supports

16 Operating and financial review 31 Capital

03

04

RISK MANAGEMENT

FINANCIAL STATEMENTS

• 36 Update on risk management and governance

• 38 Credit risk

• 80 Additional credit quality and forbearance disclosures on loans and advances to customers

• 85 Funding and liquidity risk

90 Condensed consolidated interim financial statements

• 97 Notes to the condensed consolidated interim financial statements

• 142 Directors’ Responsibility Statement

• 143 Independent review report

• 144 Forward looking statements

This Half-Yearly Financial Report contains forward-looking statements with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. See page 144.

2 AIB Group plc Half-Yearly Financial Report 2020

BUSINESS PERFORMANCE

H1 2020 RESULTS

FINANCIAL PERFORMANCE

NET INTEREST INCOME €967m LOW INTEREST RATE ENVIRONMENT IMPACTING INCOME

€1,050m NET INTEREST €967m INCOME m LOW INTEREST RATE ENVIRONMENT IMPACTING INCOME Down 8% due to the low interest rate environment, lower H1 2020 H1 2019 investment securities income and reduced loan volumes partially offset by a decrease in the cost of customer accounts NET CREDIT IMPAIRMENT €1 216m €1,216m CHARGE , INCREASE IN PROVISION STOCK DUE TO DETERIORATION IN ECONOMIC OUTLOOK €9 m Impairment charge of €1,216m reflecting prudent provisioning H1 2020 H1 2019 approach given the revised economic outlook (LOSS)/PROFITBEFORE TAX (€909m) H1 2019 €436m IMPACTED BY IMPAIRMENT CHARGE H1 2020 Operating profit[1] of €377m, with operating income down 13% due to interest rates and sharp decline in economic activity, offset by (€909m) impairment charge of €1,216m and exceptional items of €75m NEW €6.0bn €4.4bn LENDING €4.4bn LOWER INTERNATIONAL LENDING, Q2 IMPACTED BY COVID LOCKDOWN New lending down 27% reflects lower syndicated H1 2020 H1 2019 and UK lending. Mortgage lending down 17% €58.2bn €60.9bn €58.2bn NET LOANS GROSS LOANS DOWN 3% TO €60.6BN DUE TO LOWER ECONOMIC ACTIVITY 30 Jun 31 Dec Net loans down €2.1bn (excluding FX impact) with redemptions 2020 2019 exceeding new lending and increase in provision stock NON-PERFORMING €3.8bn EXPOSURES[2] €3.8bn €3.3bn 6.3% OF GROSS LOANS Non-performing exposures (NPEs) increased by €0.5bn to 30 Jun 31 Dec €3.8bn primarily reflecting changes to definition of default 2020 2019

1. Operating profit before impairment losses and exceptional items.

2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €147m of off-balance sheet commitments. For further information see pages 52 and 53.

AIB Group plc Half-Yearly Financial Report 2020 3

In March 2020, in line with our strategy, we set a number of medium-term financial targets to 2022 along with long-term non-financial targets.

MEDIUM-TERM FINANCIAL TARGETS (END 2022)

TARGETS

OUTCOMES

€747m €744m €1.5bn Focussed cost discipline; controlling H1 2020 H1 2019 costs annually at €1.5bn by 2022 >8% n/a 4.5% Deliver sustainable returns; 30 Jun 31 Dec ROTE >8% by 2022 2020 2019 17.3% >14% 16.4%[5] Appropriate capital target; CET1 >14% needed to run the business 30 Jun 31 Dec 2020 2019[[6]] 34 50+ 25 30 Jun 31 Dec 2020 2019 HOMES: 60+ 54 53 65 60 SME: 70+ 30 Jun 31 Dec 2020 2019 1.34 1.30 million million >2 million 30 Jun 31 Dec 2020 2019 GENDER BALANCED 41% 41.5% 30 Jun 31 Dec 2020 2019

ABSOLUTE COST BASE[3]

Cost of running the business, excluding exceptional costs

Focussed cost discipline; controlling costs annually at €1.5bn by 2022

RETURN ON TANGIBLE EQUITY[4]

A measure of how well capital is deployed to generate earnings growth

Deliver sustainable returns; ROTE >8% by 2022

CET1 RATIO (FULLY LOADED)

Appropriate capital target; CET1 >14% needed to run the business

A measure of our ability to withstand financial stress and remain solvent

LONG-TERM NON-FINANCIAL TARGETS[[6]]

RELATIONSHIP NET PROMOTER SCORE (NPS)

A measure of our personal customers’ overall AIB relationship experience

TRANSACTION NET PROMOTER SCORE (NPS)

Measured after customer transactions for key touch points[7]

ACTIVE MOBILE USERS

Number of active users on mobile platform

DIVERSITY

Women as % of management

3. Before bank levies, regulatory fees and exceptional items. For exceptional items see pages 20 and 29.

4. For further information see the Capital section on page 31. The RoTE actual outcome is not reported for the 30 June 2020 as it would require the loss for the period

• to be annualised which is considered not appropriate at this stage.

5. Pro forma CET1 including TRIM indicative impact of 80bps is 15.6% - see page 32 for further information.

6. Long-term non-financial targets for Engagement, Reduction in Emissions and ESG Ratings are reported on an annual basis.

7. The Transactional NPS score for Homes is an aggregation of Mortgage Success, Mortgage Drawdown and Mortgage Decline customer journeys; the Transactional NPS score for SME comprises Loan Success, New Current Account, Asset Finance, Cashflow and Onboarding journeys.

4 AIB Group plc Half-Yearly Financial Report 2020

CHIEF EXECUTIVE’S REVIEW

RESILIENCE IN THE FACE OF ADVERSITY

Although it has been an extraordinary six months, AIB remains committed to supporting economic recovery while maintaining a strong and resilient balance sheet.

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COLIN HUNT
AIB’s Chief Executive Officer
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AIB Group plc Half-Yearly Financial Report 2020 5

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As I reflect on the first seven months of 2020, they are without doubt, unlike anything we have experienced in our lifetimes. The exceptional challenges caused by the COVID-19 pandemic are still unfolding in real time and their scale and ultimate impact, as yet, are impossible to measure at a public health, social and economic level domestically or globally. We are now compelled to adjust and acclimatise to meet, head-on, challenges few could have envisaged.

Because it is virus-led, the current recession is not a “conventional” one. The normal text book response has had to be rewritten in a short space of time as the demands now placed on the banking sector are unmatched. As an industry, we are responding with unprecedented flexibility and this extraordinarily severe crisis demands that we call on all our strength as a resilient financial force to support our customers and the economies in which we operate. The emergency has demanded that we respond rapidly and with agility to play a central role, in particular, in Ireland’s recovery. At the outset of COVID-19, I said the banking sector could be the difference between this country’s economy slipping from crisis to catastrophe and we will demonstrate by our actions that this assessment holds true.

There are striking differences between banks’ circumstances during the COVID-19 crisis and the collapse of the financial sector 12 years ago. In 2008, the country’s lenders were part of the problem and today banks are part of the solution. In March 2020, when the COVID-19 pandemic sent its first shockwaves through the economy, leading to widespread disruption to supply chains, jobs and incomes, AIB had the financial and technical wherewithal to rapidly implement exceptional

“WE STREAMLINED PROCESSES AND SYSTEMS TO IMPLEMENT A RANGE OF RELIEF MEASURES, INCLUDING A TOTAL OF C. 64,000 PAYMENT BREAKS”

containment measures to help individual customers, households and businesses. In essence, there is no comparison between our resilience levels now and back then.

When we felt the first effects of the pandemic, we moved swiftly to overcome operational challenges; we streamlined processes and systems to implement a range of relief measures, including

a total of c. 64,000 payment breaks on mortgages, small business and personal loans to customers impacted by COVID-19. These moratoria provided vital immediate liquidity to households and businesses; a deferral of fees and charges was also effected; the contactless card charge was waived and increased limits on cashless payments were facilitated in order to reduce health risks. All of these changes were effected whilst maintaining an open dialogue with the Minister for Finance, the Regulator and other stakeholders.

As customer calls to AIB’s contact centres increased significantly overnight, we reassigned staff and kept 99.4% of our branch network open. We introduced priority banking hours for those that needed it as well as a dedicated helpline for over 65s, to ensure safe service for all our customers. While adhering to the prudential rules of responsible lending, we ensured that credit facilities aimed at mitigating the impact of the coronavirus on businesses were released as quickly as possible.

Our sectoral teams worked assiduously to provide expert advice and assistance to our thousands of SME customers across the retail trade, hospitality, tourism, pubs and restaurants who were, at best, cast into uncertainty overnight and, at worst, temporarily forced to cease trading.

Like others globally, the Irish government has sought to cushion the impact of the shock on the economy through a series of measures including, most recently, the €7.4bn Stimulus Package announced in July. As an integral part of this raft of measures to reflate the economy, AIB is participating fully with the provision of low-cost loans to SMEs, the backbone of our national economy, through the €2.8bn Strategic Banking Corporation Ireland (SBCI) Credit Guarantee and Future Growth Schemes. The government’s decision to remove the portfolio cap[1] to provide an 80% guarantee allows the bank to discount versus our standard pricing and facilitates a quantum leap in the amount of businesses likely to draw down credit.

Financial Performance

We are announcing financial results that reflect the new COVID-19 economic reality and the acute deterioration in the macro-financial outlook. However, because of the measures the bank has taken over the last decade to replenish its capital, repair its balance sheet and reduce nonperforming loans, we now have capital in excess of €10bn in place, and our regulatory CET1 capital ratio is currently over three times stronger than before the last global financial crisis. This puts us in a strong position to absorb loan losses incurred in

1. The current Credit Guarantee Scheme has a portfolio cap in place for individual finance providers which limits the State’s exposure to 13% of the loan facilities included in the scheme. The Government decision removes any portfolio cap for credit facilities provided by each finance provider.

6 AIB Group plc Half-Yearly Financial Report 2020

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An AIB volunteer “gleaning”
on a potato farm for our charity
partner FoodCloud.
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CEO Colin Hunt joined Minister for Further and Higher Education,
Research, Innovation and Science Simon Harris for a visit to the AIB
COVID-19 Research Hub in Trinity College Dublin.
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the pandemic and to continue to write new loans to support our customers.

We are reporting a loss before tax of €909m for the first half of the year. This loss has been driven by the net impairment charge of €1,216m. The increase in provision stock reflects a prudent approach to provisioning given the deterioration in economic outlook. Further information on the charge is detailed on page 7. We have seen a reduction in our net interest income to €967m, which represents a decrease of €83m compared to the first half of 2019. This adverse outcome was principally due to the low interest rate environment, lower investment securities income and reduced loan volumes partially offset by a decrease in the interest expense on customer accounts.

Our total operating expenses remained stable at €747m for the first six months of the year. Cost management remains a priority for the Group with a continued focus on cost discipline aligning with our financial targets for 2022. Exceptional items of €75m include restitution costs as well as the incremental costs of implementing a large volume of payment breaks on home mortgages, personal and SME loans to customers impacted by COVID-19.

Gross loans and gross performing loans at €60.6bn and €56.8bn respectively have both decreased since 31 December 2019. As at June 2020, 87% of AIB’s loan book is of strong or satisfactory quality (down from 89% at 2019 year-end), with the reduction in quality due to the impact of COVID-19 on the back book. Maintaining the quality of new lending is critical, with more than 97% of our new lending being of strong or satisfactory credit quality in 2020 YTD.

The sharp reduction in economic activity has negatively impacted the demand for new credit across most business areas, with new lending of €4.4bn for the first six months of the year, 27% lower than the half year to June 2019. SME and corporate lending was 29% lower at €2.2bn primarily due to lower syndicated and UK lending, with property and construction lending 36% lower at €0.7bn. Mortgage lending was 17% lower at €1.1bn and personal lending was down 18% to €0.4bn.

The sustainability agenda is being accelerated as a result of the current crisis and for the last two years green lending has been the fastest-growing part of our balance sheet. Our Energy, Climate Action and Infrastructure portfolio continues to perform well against the backdrop of COVID-19 uncertainty with an increase in new lending of 36% compared to the first-half of 2019 with no payment break modifications made to this portfolio in the first half of 2020.

Addressing non-performing exposures (NPEs) in a sustainable way is a key priority for the Group and our core preference has always been to offer a range of sustainable solutions to our customers and to restructure customers in difficulty on a case by case basis. Non-performing loans as a percentage of gross loans to customers was 6.3% at 30 June 2020 compared to 5.4% at 31 December 2019. This increase primarily reflects a change in the definition of default. We remain focused on NPEs and their reduction must continue over time.

In terms of legacy issues, in our full year 2019 results published in March, we made additional provisions of €300m to cover the application of a Financial Services and Pensions Ombudsman

AIB Group plc Half-Yearly Financial Report 2020 7

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In May, our annual Future Sparks Festival went ahead online
as an eight-part series to inspire and educate students.
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(FSPO) decision to the wider customer group of c. 5,900 AIB customers who had an option of a prevailing tracker rate, together with related potential additional charges. These customers had previously received a €1,615 payment under the Tracker Mortgage Examination (TME) and

“FOR THE LAST TWO YEARS GREEN LENDING HAS BEEN THE FASTEST GROWING PART OF OUR BALANCE SHEET”

following the application of the FSPO decision to the wider group, we are on track to complete planned customer payments to this group by the end of August 2020. Also, following intervention by the Central Bank of Ireland (CBI), c. 300 of these customers, who rolled off their fixed rate very shortly after the tracker product was withdrawn in 2008, were deemed eligible for further review under the TME. Appropriate payments to this particular group will commence in August. As previously communicated, AIB identified a group of c. 1,000 EBS customers as part of the CBI’s tracker investigation process. These customers are also entitled to redress and compensation under the TME as the tracker rate applied was incorrect. We have taken an additional provision of €7m to cover these payments as well as other potential costs. We are continuing to engage and work closely with the CBI in relation to these tracker-related issues and associated enforcement investigations.

AIB continues to have strong funding and capital ratios and is well positioned to absorb the impact of COVID-19 on our balance sheet. As retail deposits

continued to increase, our Loan-to-Deposit Ratio was 77% and we continued to have strong liquidity metrics (Liquidity Coverage Ratio of 158% and Net Stable Funding Ratio of 136%).

In June 2020, AIB Group plc successfully issued €625m of AT1, bringing our MREL eligible issuance to €5bn. This transaction highlights the strong support that AIB has within credit markets with a nine times oversubscribed order book which included quality institutions across geographies. This transaction has allowed AIB to strengthen its capital position further and take advantage of recent European Central Bank (ECB) regulatory change which allows AIB to fill a portion of its Pillar 2 requirements from hybrid instruments. We have also taken this opportunity to buy back €202m of our existing Allied Irish Banks p.l.c. (OpCo) AT1 transaction which is callable in December 2020. AIB Group own funds and eligible liabilities are in excess of the estimated 2022 interim MREL requirement of 27.1% of risk weighted assets. We continue to focus on improving the efficiency of our capital structure.

We have a strong capital base with a robust pro forma fully-loaded CET1 ratio (reflecting indicative 80bps TRIM impact) of 15.6% at 30 June 2020, well in excess of regulatory requirements.

Expected credit losses

In the first half of 2020, the expected credit loss (ECL) was a charge of €1.2bn primarily due to the economic impact of COVID-19 on the economy. Of this, €0.7bn related to significant changes in factors associated with the macro-economic scenarios, namely GDP and unemployment, applied in the second quarter of 2020 compared to those used in the first quarter. These factors are also key drivers in the IFRS 9 models used for assessing probability of default (PD) and loss given default (LGD). The change in these factors has increased both PD and LGD, thus increasing ECL cover within stage and contributing to stage transfer. As such, €0.4bn of the total ECL charge was related to downward staging migration of exposures and credit deterioration within stage with the remaining €0.1bn related to post-model adjustments.

ECL coverage has increased across all stages with Stage 2 and 3 exposures rising by €6.5bn and €0.4bn respectively. The Stage 2 movements were primarily in the Commercial Real Estate, Corporate and SME sectors, those most vulnerable to the impact of the lockdown restrictions from March to May. Stage 3 increased by €0.4bn primarily due to a change in the definition of default. We are satisfied that the ECL approach applied is conservative, forward looking and comprehensive

8 AIB Group plc Half-Yearly Financial Report 2020

based on our current view of macro-economic scenarios. We anticipate that the ECL charge applied will substantially cover the expected COVID-19 credit impact and so represents the significant majority of the expected charge for the full-year.

Digital

Our digitally-active base now surpasses 1.5 million customers with an increase in the percentage of product sales being carried out on our online platforms. Thanks to our investment in technology in recent years, we have a modern, resilient and flexible IT infrastructure, making us, without question, and by a margin, the largest and the most digitally-enabled provider within the Irish banking market. This has been a critical element in assisting the delivery of our digital banking services while also enabling over 80% of our staff to work remotely during these extraordinary times. We remain open for business at every level and are available to our customers through all our channels, physical and digital.

COVID-19 has highlighted our customers’ willingness to adopt digital technology – there has been a notable decline in the use of cash with a 38% reduction in volume of ATM withdrawals and a 66% increase in uptake of Digital Wallet payments for the first six months of the year when compared to the half-year to June 2019. Furthermore, our digital strategy is being accelerated to further focus on the financing needs of our business customers and bring them in line with those available to personal customers. Continuous enhancement of our digital offering will remain a priority.

Culture and our people

When it comes to behaviour and culture we are determined to meet our stakeholders’ expectations. As a community-based retail bank in Ireland, AIB has a uniquely close relationship with the country. Our 9,500-strong workforce is drawn from the communities we serve and understands the needs and concerns of our 2.8 million customers. It is imperative that reliability, honesty and trust are the cornerstones of AIB’s relationship with these customers. We partner with them in managing their financial wellbeing and preserving their confidence in us as an institution is essential. To do

“OUR WELLBEING PROGRAMME WAS LAUNCHED IN JANUARY 2020 AND IS UNDERPINNED BY FOUR PILLARS: PHYSICAL, MENTAL, FINANCIAL AND SOCIAL”

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Our digitally-active base now
surpasses 1.5 million customers.
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that, we must communicate in a clear, transparent, straightforward way that allows them to believe the bank is operating in their best interests. The banking industry has been under pressure since the last financial crash to retrieve public trust and, ultimately, we are judged on our service to our customers. That customer service is at the core of our culture, our ethos and business philosophy.

It is extremely important that our employees feel they can operate in a stimulating work environment where they are respected and know their knowledge and opinions are valued.

In the first half of the year, as part of an extensive Culture Evolution Programme led by the Board and Executive Committee, we launched our new and evolved company values and behaviours – Drive Progress, Own the Outcome, Show Respect, Eliminate Complexity and Be One Team – which centre on our purpose to back our customers to achieve their dreams and ambitions.

The response of our people during the current crisis has been one of energy, creativity and resilience and has reinforced both our organisational purpose and evolved values. We have demonstrated collaboration, resilience, and agility in our ways of working.

Wellbeing has become of increasing importance as our employees’ working environment continues to evolve. Our Wellbeing Programme was launched in January 2020 and is underpinned by four pillars: Physical, Mental, Financial and Social. In response to COVID-19, we accelerated the rollout of the programme to ensure our people have the necessary supports available. Further initiatives are planned for the remainder of 2020 to sustain

AIB Group plc Half-Yearly Financial Report 2020 9

Over 70 schools took part in the virtual final of the AIB Build a Bank Challenge 2020.

the momentum of both the Culture Evolution and Wellbeing programmes.

We have seen a number of changes to the Board and Executive Committee in 2020. Tom Foley retired from the Board following our Annual General Meeting on 29 April 2020. Tom served on the Board for nearly eight years with great diligence and made many meaningful contributions to the Group during his tenure. Tom remains a director on a number of our subsidiary boards. Tom’s retirement from the Group Board led to a vacancy in the role of Senior Independent Director. Carolan Lennon has succeeded Tom in this role with effect from his retirement.

With regard to our Executive Committee, as detailed in the Annual Financial Report 2019, Geraldine Casey was appointed as Chief People Officer and member of the Executive Committee in January 2020. With effect from June 2020, Brendan O’Connor resigned from AIB Group and stepped down from the Executive Committee. Brendan had an exceptional career in AIB Group during his 35 year tenure, working across many areas such as Treasury, Corporate Banking, Business Banking and most recently, in his role as AIB UK Managing Director. Brendan was a huge support to me personally and the Executive Committee as a whole and we wish him well in his future endeavours. Robert Mulhall has assumed the role of AIB UK Managing Director and has already made a positive impact during this most unusual time for the business as a whole. On 30 July 2020 we announced that Tomás O’Midheach, Chief Operating Officer, Deputy CEO and Executive Director, had given notice of his resignation to take effect early in 2021 so that he can pursue another executive opportunity in Ireland. Tomás has shown

TheToughest campaign aimed to capture the emotion of the GAA, which AIB has backed for 30 years.

great commitment and leadership in his 14 years with the Group, is a highly valued colleague and we wish him the very best for his future.

Sustainable Communities

The core priorities of our refreshed strategy – to strengthen, streamline and simplify the Group’s operations, in the interests of all our stakeholders are more relevant today as we work through this current crisis. The importance that we ascribe to the environmental agenda, and also our commitment to be embedded in the communities that we serve was acknowledged with the addition of Sustainable Communities to our strategic pillars this year. Our ambition is to lead the financial market in Ireland’s response to climate change and social issues.

Our achievements to date in 2020 on this important area of focus include being awarded ‘A-‘ leadership status for our continued progress in corporate climate action and environment stewardship by CDP[2] as well as inclusion in the FTSE4Good Index Series which identifies companies that demonstrate strong environmental, social and governance practices measured against globally recognised standards.

In 2019 we became a Founding Signatory of the UNEP FI[3] Principles for Responsible Banking and also a Supporter of the Task Force on ClimateRelated Financial Disclosures. We are making strong progress in delivering on these commitments as we continue to embed environmental and social factors into our risk management processes with updated disclosures planned for the end of this year.

As articulated in our strategy, sustainability is broader than climate change and we are

2. CDP (formerly the Carbon Disclosure Project) runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts.

3. United Nations Environment Programme Finance Initiative.

10 AIB Group plc Half-Yearly Financial Report 2020

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Strong GDP growth expected in 2021, but off
a low base due to impact of COVID-19 in 2020
%
10
6.3 5.7 4.8
5 3.5 [4.5]
2020
0
2021 2022
-5
-10 -7.5 -6.8
-9
AIB CBI OECD
Source: AIB, OECD 'World Economic Outlook', CBI 'Q3 Quarterly Bulletin'
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Housing output continues to be
well below estimated demand
# of completions & commencements
40,000
30,000
20,000
10,000
0
2015 2016 2017 2018 2019 2020 (f)
Completions Commencements Estimated Demand
Source: CSO, Dept. of Housing
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Unemployment rate (COVID-adjusted) spikes to 28.2% in April, but falls to an estimated 17% by July

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30
25
20
15
10
5
0
JUL 18 JAN 19 JUL 19 JAN 20 ESTIMATE JUL 20
Unemployment rate (%)
Source: CSO
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Business sentiment rebounds, having hit low in April
PMI index
70
60
50
40
30
20
10
JUL 18 JAN 19 JUL 19 JAN 20 JUL 20
Irish Services Irish Manufacturing Eurozone Composite
Source: Markit via Thomson Datastream
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committed to making a positive contribution to society. As part of that commitment and as a further opportunity for us to give back and support communities in the area of youth and education, we pledged a €1m educational grant to Technical University Dublin to support increased participation in higher level education among students from areas and backgrounds of socio-economic disadvantage.

With the onset of COVID-19 we recognise the crucial role we play in the communities in which we operate and are proud to serve more than ever. As such we introduced a range of supports to help our communities impacted by the pandemic. Further details of these are contained in a later section of this report.

The programme for the newly-formed government focuses on rebooting the Irish economy, accelerating the green agenda and delivering solutions to the housing crisis. We recognise, as a financial institution at the heart of Ireland’s economy, that we are well positioned to be a key driver and supporter of the proposed initiatives.

Outlook

Prior to the onset of COVID-19, the Irish economy was performing strongly with growth evident across leading indicators. The global recession triggered by the pandemic has been like no other

due to the shock being so large and sudden as well as the fact that there is a continuing high degree of uncertainty about its duration and intensity. Notwithstanding concerns over a second wave of the virus, the most recent indicators published in July show early signs of rebound following the reopening of the Irish economy with continuing increases in the services, manufacturing and construction PMIs. Positive trends can also be seen in unemployment rates with the COVID-19 adjusted jobless rate down from a high of 28.2% in April to an estimated 17% in July. The number of Irish workers availing of the special Pandemic Unemployment Payment has fallen markedly from a peak of 598,000 on 5 May to 286,900 as of 27 July.

Before the crisis struck, housing completions rose by 17% in the first quarter of the year with the new housing supply for 2020 projected at c. 24,000 units. The ‘lost’ period of homebuilding activity is expected to reduce the overall level of completions to between 16,000 and 18,000 units. The shortfall in supply versus demand, estimated at c. 30,000 units a year, will offer some support to house prices this year, which will be put under pressure from the weak macroeconomic backdrop. Forecasts by market commentators suggest prices could fall by 5-10% over the course of 2020-21. The substantial reduction in new supply, combined with likely house price falls, will result in a significant decline

* Note that GDP can be distorted due to the impact of multi-national sector in Ireland.

AIB Group plc Half-Yearly Financial Report 2020 11

“WE WILL HAVE A STREAMLINED, APPROPRIATE COST BASE FOR A LEANER, SIMPLER AND MORE AGILE BUSINESS”

in new mortgage lending this year, as evidenced by the 16% year-on-year fall in the value of mortgage drawdowns in the first half of the year. In the same period, mortgage approvals for home purchases dropped by 37% year-on-year.

A year ago, our concerns were largely tied up with the prospect of Brexit and we could not have imagined how those would be overshadowed by an even greater crisis. The prospect of the EU and UK being unable to reach a trade deal, in effect a no-deal hard Brexit, will add complexity to an already uncertain future. Preparations for the UK’s exit from the EU in fact provided us with useful lessons in terms of dealing with disruption and, likewise, the experience of the pandemic is further informing our groundwork for Brexit.

Because of COVID-19, businesses are adapting to a new norm with some changes in consumer behaviours expected to persist for the long term. The impact of the coronavirus will most likely see the acceleration of three secular trends that predate the pandemic, namely, digitisation, flexible working and sustainability. We should see greater agility in terms of ways of working. The importance of digitisation of our processes and our products is going to be highlighted like never before and the sustainability agenda, which is becoming of greater importance globally, has been boosted further as a consequence of COVID-19. These three themes are going to become ever more important over the coming years and will have a meaningful impact on the execution of our refreshed strategy.

While our strategic priorities and medium-term financial targets remain unchanged, the challenge to achieve these is greater. As part of our annual business planning process this year we are considering the future shape of our business and our ways of working in order to adjust to the financial impact of COVID-19 so that AIB maintains a strong and resilient balance sheet, generates sustainable profits and returns capital to our shareholders. We are determined to be providing a customer experience that is characterised by excellence with highly competitive products and efficient processes and we will have a streamlined, appropriate cost base for a leaner, simpler and more agile business.

As the largest bank in Ireland we are one of the

principal institutions which is being relied upon to sustain economic wellbeing through this crisis and to support the rebooting of the economy. AIB is committed to being at the forefront of supporting and enabling our Irish SMEs access the increased funding announced in the Government’s July Stimulus Plan.

On the back of prudent lending decisions and balance sheet remediation in recent years, AIB entered this crisis in a position of capital strength. This, combined with our market-leading franchise, underpins our capacity to assist our customers and the economies in which we operate through this period of great uncertainty.

In addition, we aim to provide our investors, including our 71% State shareholder, with appropriate returns over the long term. We are obliged to meet our regulator’s benchmarks and to be seen by all of our stakeholders as a clear corporate leader that takes visible actions to contribute to a strong economy and a better society. As such, in advance of our Annual General Meeting on 29 April 2020, the Board of Directors announced its intention to withdraw the resolution to pay a dividend of 8 cent per share for 2019 respecting the recommendation from the ECB to all banks supervised and regulated by it. We will continue to monitor developments and work in the interests of all of our stakeholders.

I would like to thank my fellow Board and Executive Committee members, and all of my colleagues across the Group for their ongoing support, especially in these unprecedented circumstances. 2020 is undoubtedly proving to be a difficult year globally with a high level of uncertainty in the near term due to the risk of a ‘second wave’. The Group’s financial strength and robust business model will ensure that it can continue to support its customers. Acknowledging the need for caution, we proceed into the second half of 2020 with the same level of commitment, resilience and flexibility demonstrated in the early days of the crisis. I look forward to 2021 and beyond with confidence as the fundamentals of the AIB Group remain healthy and strong.

COLIN HUNT

Chief Executive Officer 5 August 2020

12 AIB Group plc Half-Yearly Financial Report 2020

COVID-19 SUPPORTS

BACKING OUR CUSTOMERS AND COMMUNITIES DURING COVID-19

We introduced a range of supports for our customers who have been impacted by the COVID-19 pandemic, helping our communities to meet the challenges ahead.

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OUR BRANCHES ARE OPEN

Throughout the pandemic, 99.4% of AIB branches and EBS offices have remained open to our customers across Ireland and the UK. We’re operating social distancing, have increased cleaning operations, and have dedicated priority hours for vulnerable customers from 10am to 11am every day.

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MOBILE AND ONLINE BANKING

As Ireland’s leading digitallyenabled bank, our customers can carry out their financial needs online and on our mobile app. They can even open a personal account on their smartphone – no trip to a branch required.

PAYMENT BREAKS

Recognising the extraordinary pressure on families, individuals, businesses and communities across Ireland and the UK, we offered payment breaks on home mortgages, personal and SME loans to customers impacted by COVID-19.

AIB Group plc Half-Yearly Financial Report 2020 13

‘s

SUPPORTING VULNERABLE CUSTOMERS

As part of our Vulnerable Customer Programme, which works with the HSE and Community Guards in Ireland, we introduced a dedicated helpline for over 65s and priority banking hours for those who need it. Our cocooning customers could nominate a trusted person to take out cash on their behalf. We made similar supports available for our customers in the UK.

AIB COVID-19 RESEARCH HUB

In April, we announced a collaboration with Trinity College Dublin (TCD) to establish a research hub that would accelerate TCD’s immunology project in tackling the COVID-19 pandemic. Our investment of €2.4m has enabled the launch of the AIB COVID-19 Research Hub.

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BACKING BRAVE

As well as payment breaks on business loans for impacted SME customers, AIB provided 48-hour decisions on business loans, working capital support, the rescheduling of loan payments, and deferral options for both Q1 and Q2 maintenance and transaction fees. We engaged with many stakeholder bodies across a wide range of industries in order to provide the most appropriate support.

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REFUNDING UNPAID ITEM CHARGES

Usually, €10 is charged for direct debits that cannot be paid due to insufficient funds in a customer’s account. To offer some relief, we refunded these charges in March and April.

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SUPPORTING OUR UK CUSTOMERS

AIB UK has helped thousands of personal customers with support for mortgage, loan and overdraft payments. And, as an accredited lender for the Bounce Back Loan Scheme (BBLS) and the Coronavirus Business Interuption Loan Scheme (CBILS), we have provided over £200m to business customers experiencing cashflow disruptions.

14 AIB Group plc Half-Yearly Financial Report 2020

COVID-19 SUPPORTS

COVID-19 CUSTOMER SUPPORT IN ACTION

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----- Start of picture text -----

WE KEPT WE ENABLED WE DEALT WITH A WE DEALT WITH A
99.4% 81% 35% 91%
OF OUR BRANCH OF OUR WORKFORCE INCREASE IN OUR INCREASE IN OUR
NETWORK OPEN TO WORK REMOTELY PHONE BANKING BUSINESS LINE
IN ROI & UK
----- End of picture text -----

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----- Start of picture text -----

24,326 22,166
PERSONAL MORTGAGE
LOAN PAYMENT PAYMENT BREAKS [1] 3,310 17,720
BREAKS [1] NEW BUSINESS LOAN
BUSINESS LOANS [1] PAYMENT BREAKS [1]
€50/£45 231,487
TAP LIMIT REFUNDS OF UNPAID
INCREASED ITEM CHARGES IN
MARCH AND APRIL [1]
147 £202M
ACCOUNTS WITH SUPPORT THROUGH
1,896 FEES DEFERRED BBLS AND CBILS [2]
CALLS TO DEDICATED FOR Q1 [1]
HELPLINE FOR OVER 65s
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----- Start of picture text -----

WE COMMITTED WE DONATED WE HAVE RAISED
€2.4M 450 €390K
TO TRINITY COLLEGE SO FAR FOR PIETA
AIB Together DUBLIN TO SET UP LAPTOPS HOUSE, FOODCLOUD,
THE AIB COVID-19 TO DEIS SCHOOL ALONE, SOAR, AGE NI
RESEARCH HUB STUDENTS AND AGE UK
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1. Retail Banking only as at 24 July 2020.

2. As at 24 July 2020.

AIB Group plc Half-Yearly Financial Report 2020 15

Business review

Page

1. Operating and financial review

2. Capital

16 31

16 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Basis of presentation

The operating and financial review is prepared using IFRS and non-IFRS measures to analyse the Group’s performance, providing comparability period on period. These performance measures are consistent with those presented to the Board and Executive Committee. Non-IFRS measures include management performance measures which are considered Alternative Performance Measures (“APMs”). APMs arise where the basis of calculation is derived from non-IFRS measures. A description of the Group’s APMs and their calculation is set out on page 29. These measures should be considered in conjunction with IFRS measures as set out in the condensed consolidated interim financial statements from page 90. A reconciliation between the IFRS and management performance summary income statements is set out on page 30.

Figures presented in the operating and financial review may be subject to rounding and thereby differ to the risk management section and the condensed consolidated interim financial statements.

Basis of calculation

Percentages are calculated on exact numbers and therefore may differ from the percentages based on rounded numbers. The impact of currency movements is calculated by comparing the results for the current reporting period to results for the comparative reporting period retranslated at exchange rates for the current reporting period.

The Group’s business has been adversely affected by the economic impact of policies designed to contain the spread of COVID-19 pandemic in the Group’s core markets. The impact to date has included a sharp decline in economic activity, which in combination with general uncertainty regarding the evolution of the pandemic, has resulted in substantial harm to the economies in which the Group operates. The impact on the Group’s financial performance is reflected in lower new lending, a reduction in income and a significant increase in the Group’s expected credit loss estimates due to the acute deterioration in the macroeconomic outlook. For further information see the Chief Executive’s Review on page 4 to 11 and the Risk management section on pages 35 to 88.

Half-year June 2020 Half-year June 2019 % Managementperformance – summary income statement € m € m change	Half-year June 2020 Half-year June 2019 % Managementperformance – summary income statement € m € m change	Half-year June 2020 Half-year June 2019 % Managementperformance – summary income statement € m € m change
Net interest income Business income Other items Other income(1)	967 184 36 220	1,050 -8 244 -24 75 -52 319 -31
Total operating income(1) Personnel expenses(1) General and administrative expenses(1) Depreciation, impairment and amortisation(1) Total operating expenses(1) Bank levies and regulatoryfees(1)	1,187 (368) (243) (136) (747) (63)	1,369 -13 (393) -6 (243) – (108) 26 (744) – (58) 7
Operating profit before impairment losses and exceptional items(1) Net credit impairment charge	377 (1,216)	567 -33 (9) –
Operating (loss)/profit before exceptional items(1) Associated undertakings	(839) 5	558 – 9 -46
(Loss)/profit before exceptional items(1) Restitution costs Covid product costs Termination benefits Property strategy Provision for regulatory fines Restructuring costs Gain on disposal of loan portfolios Total exceptional items(1)	(834) (58) (10) (6) (1) – – – (75)	567 – (102) – – – (7) – (3) – (43) – (10) – 34 – (131) –
(Loss)/profit before taxation Income tax credit/(charge)	(909) 209	436 – (75) –
(Loss)/profit for the period	(700)	361 –

(1) Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of performance period on period. The adjusted performance measure is considered an APM.

AIB Group plc Half-Yearly Financial Report 2020 17

Net interest income

Net interest income

€967m

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Half-year Half-year
June 2020 June 2019 %
Net interest income € m € m change
Interest income [(1)] 1,072 1,180 -9
Interest expense [(1)] (105) (130) -19
Net interest income 967 1,050 -8
Average interest earning assets 92,405 85,886 8
% % change
Net interest margin (NIM) 2.10 2.46 -0.36
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Net interest income

Net interest income of €967m

€ 967 million decreased by

€ 83 million compared to the half-year to June 2019.

Interest income

Interest income of € 1,072 million in half-year to June 2020 decreased by € 108 million compared to the half-year to June 2019 primarily due to:

• Reduced asset yields driven by the lower interest rate environment including decreases in sterling and dollar interest rates in March 2020.

• Lower income on investment securities due to maturities and disposals of higher yielding securities and reinvestment at lower yields.

Interest expense

Interest expense of € 105 million in the half-year to June 2020 decreased by € 25 million compared to the half-year to June 2019. The lower cost of customer accounts was offset by an increase in MREL-related costs following the issuances of Subordinated Tier 2 Notes in November 2019.

Net interest margin

NIM decreased 36 bps to 2.10% in the half-year to

2.10%

June 2020 compared to 2.46% in the half-year to June 2019 due to:

• Reduced interest income primarily due to the impact of the lower interest rate environment, decrease in investment security yields and lower customer loan volumes c. -23bps.

• Higher average interest earning assets driven by excess liquidity c. -18bps partly offset by:

• Lower interest expense on customer accounts c. +5bps.

Average interest earning assets of € 92.4 billion in the half-year to June 2020 increased by € 6.5 billion from half-year to June 2019 primarily due to funds placed with banks. This was driven by excess liquidity mainly due to higher customer account balances and proceeds from MREL-related issuances.

• Lower volumes on loans and advances to customers due to further deleveraging of non-performing loans.

Average balance sheet

Average balance sheet Assets		Half-year 30 June 2020 Interest(1) Average rate € m % 1,004 3.33 72 0.82 (4) (0.05) 1,072 2.33 1,072 3 0.57 36 0.18 39 1.19 20 3.15 7 3.21 105 0.43 105 967 2.10		Half-year 30 June 2019
	Average balance € m		Average balance € m	Interest(1) Average rate € m %
Loans and advances to customers Investment securities Loans and advances to banks Average interest earning assets Non-interest earning assets Total average assets Liabilities & equity	60,417 17,417 14,571		61,577 16,666 7,643	1,058 3.47 106 1.28 16 0.41
	92,405 7,649		85,886 7,932	1,180 2.77 1,180
	100,054		93,818
Deposits by banks Customer accounts Other debt issued Subordinated liabilities Lease liability Average interest earning liabilities Non-interest earning liabilities Equity Total average liabilities & equity Net interest income	999 39,819 6,567 1,299 419		885 38,670 6,090 796 448	6 1.43 60 0.31 41 1.37 16 4.00 7 3.10
	49,103 36,869 14,082		46,889 32,933 13,996	130 0.56 130
	100,054		93,818
				1,050 2.46

(1) Negative interest income on assets amounting to € 13 million in the half-year to June 2020 (half-year to June 2019: € 4 million) is offset against interest income. Negative interest expense on liabilities amounting to € 13 million in the half-year to June 2020 (half-year to June 2019: € 9 million) is offset against interest expense.

18 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Other income

Other income[(1)]

€220m

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Half-year June 2020 Half-year June 2019 % change
Business Other Business Other
income items Total income items Total Total
Other income [(1)] € m € m € m € m € m € m
Net fee and commission income 192 – 192 230 – 230 -16
Dividend income 25 – 25 25 – 25 –
Net trading loss (34) (6) (40) (12) (36) (48) -17
Net gain on equity investments (FVTPL) – 22 22 – 44 44 -49
Net gain on loans and advances to customers (FVTPL) – 21 21 – 28 28 -25
Other operating income 1 (1) – 1 39 40 –
Other income 184 36 220 244 75 319 -31
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Other income[(1)]

Other income of € 220 million decreased by € 99 million

€220m

compared to the half-year to June 2019 with decreased business income of € 60 million and other items of € 39 million.

Net trading loss of € 34 million in the half-year to June 2020 increased by € 22 million compared to the half-year to June 2019 mainly due to negative movements on derivative valuation adjustments (XVA).

Business income

Business income was

€184m

€ 184 million in the half-year to

June 2020 compared to € 244 million in the half-year to June 2019.

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Half-year Half-year
June 2020 June 2019 %
Net fee and commission income € m € m change
Customer accounts 90 107 -16
Card income 30 37 -20
Lending related fees 21 26 -19
Customer related foreign exchange 26 36 -26
Payzone 7 – –
Other fees and commissions 18 24 -24
Net fee and commission income 192 230 -16
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Other items

Other items were € 36 million in €36m the half-year to June 2020 compared to € 75 million in the half-year to June 2019.

Net income from equity investments of € 16 million in the half-year to June 2020 (half-year to June 2019: € 8 million) reflected the disposal and revaluation of equity investments. This comprises a net gain on equity investments (FVTPL) of € 22 million in the half-year to June 2020 (half-year to June 2019: € 44 million), offset by a net trading loss of € 6 million on a partial hedge of the equity investments (half-year to June 2019: € 36 million).

Net gain on loans and advances to customers (FVTPL) of € 21 million in the half-year to June 2020 (half-year to June 2019: € 28 million) represents income recognised on previously restructured loans carried at fair value through profit and loss.

Net fee and commission income of € 192 million in the half-year to June 2020 decreased by € 38 million compared to the half-year to June 2019 reflecting lower transactions volumes due to a sharp reduction in economic activity in recent months. Payzone income was € 7 million in the half-year to June 2020 following acquisition in late 2019.

Dividend income was € 25 million in the half-year to June 2020 including € 23 million received on NAMA subordinated bonds, which were redeemed in March 2020.

Other operating income was a loss of € 1 million in the half-year to June 2020 compared to a gain of € 39 million in the half-year to June 2019 which reflected a gain on disposal of investment securities.

IFRS basis

On an IFRS basis other income was € 220 million in the half-year to June 2020 compared to € 353 million including a net gain on exceptional items[(1)] of € 34 million in the half-year to June 2019.

(1) Other income before exceptional items. A net gain of € 34 million was reflected in exceptional items in the half-year to June 2019 which comprised; a Net gain on loans and advances to customers (FVTPL) € 6 million and Other operating income (gain on disposal of loan portfolios) € 28 million.

AIB Group plc Half-Yearly Financial Report 2020 19

Total operating expenses[(1)(2)]

€747m

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Half-year Half-year
June 2020 June 2019 %
Operating expenses [(1)(2)] € m € m change
Personnel expenses 368 393 -6
General and administrative expenses 243 243 –
Depreciation, impairment and
amortisation 136 108 26
Total operating expenses 747 744 –
Staff numbers at period end [(3)] 9,310 9,831 -5
Average staff numbers [(3)] 9,402 9,888 -5
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Total operating expenses[(1)(2)]

Total operating expenses of €747m € 747 million were broadly in line with the half-year to June 2019, with increased depreciation, impairment and amortisation of € 28 million offset by lower personnel expenses of € 25 million.

Cost income ratio[(1)(2)]

Costs of € 747 million and income of € 1,187 million

63%

resulted in a cost income ratio of 63% in the half-year to June 2020 compared to 54% in the half-year to June 2019.

Bank levies and regulatory fees

€63m

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Half-year Half-year
June 2020 June 2019
Bank levies and regulatory fees € m € m
– –
Irish bank levy
Deposit Guarantee Scheme 34 32
Single Resolution Fund 17 16
Other regulatory levies and charges 12 10
Bank levies and regulatory fees 63 58
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The Irish bank levy for financial institutions is payable in October each year.

Personnel expenses

Personnel expenses decreased by € 25 million compared to the half-year to June 2019 primarily due to the decrease in average staff numbers and lower retirement benefit costs, partly offset by salary inflation.

General and administrative expenses

General and administrative expenses were in line with the half-year to June 2019.

IFRS basis

On an IFRS basis total costs, including bank levies and regulatory fees of € 63 million and the cost of exceptional items[(2)] of € 75 million, were € 885 million in the half-year to June 2020 compared to € 967 million in the half-year to June 2019. This results in a cost income ratio (IFRS basis) of 75% in the half-year to June 2020, compared to 69% in the half-year to June 2019.

Depreciation, impairment and amortisation

Depreciation, impairment and amortisation increased by € 28 million compared to the half-year to June 2019 due to the increase in amortisation as assets created under investment programmes were commissioned to operational use.

(1)Before bank levies and regulatory fees and exceptional items.

(2) The cost of exceptional items of € 75 million in the half-year to June 2020 (half-year to June 2019: € 165 million) comprised: Personnel expenses € 12 million (half-year to June 2019: € 11 million), General and administrative expenses € 63 million (half-year to June 2019: € 145 million) and Depreciation, impairment and amortisation Nil (half-year to June 2019: € 9 million).

(3) Staff numbers are on a full time equivalent (“FTE”) basis. Staff numbers at 30 June 2020 include 94 FTEs following the acquisition of Payzone in late 2019.

20 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Net credit impairment charge

€1,216m

There was a net credit impairment charge of € 1,216 million[(1)] in the half-year to June 2020 comprising of a € 1,168 million charge on loans and advances to customers (net re-measurement of expected credit loss (“ECL”) allowance charge of € 1,202 million, offset by recoveries of amounts previously written-off of € 34 million) and a € 47 million charge for off-balance sheet exposures.

There was a net credit impairment charge of € 9 million in the half-year to June 2019 comprising of a € 19 million charge on loans and advances to customers and a € 10 million writeback for off-balance sheet exposures.

For further information see pages 38 to 84 in the Risk management section.

Income tax credit/(charge)

€209m

The effective rate was 23.0% in the half-year to June 2020 compared with 17.2% in the half-year to June 2019. The income tax credit recognised in in the half-year to June 2020 reflected the deferred tax asset recognised against losses in the period as well as a credit due to the set back of losses against tax for earlier years. It also reflected the release of previously recognised liabilities following resolution of a tax matter where uncertainty had existed in prior years.

For further information see note 13 ‘Taxation’ of the condensed consolidated interim financial statements.

Total exceptional items

€75m

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Half-year Half-year
June 2020 June 2019
Total exceptional items € m € m
Restitution costs (58) (102)
–
Covid product costs (10)
Termination benefits (6) (7)
Property strategy (1) (3)
–
Provision for regulatory fines (43)
–
Restructuring costs (10)
Gain on disposal of loan portfolios – 34
Total exceptional items (75) (131)
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These gains/costs were viewed as exceptional by management. Restitution costs include provision for customer redress and compensation in relation to the tracker mortgage examination of € 7 million, and other customer redress of € 14 million, along with € 37 million of associated costs.

Covid product costs reflect the incremental cost of implementing a large volume of payment breaks on home mortgages, personal and SME loans to customers impacted by COVID-19. Termination benefits relate to the cost of the voluntary severance programme.

Provision for regulatory fines included a provision for the impact of monetary penalties arising from the Central Bank of Ireland investigation in respect of tracker mortgages in June 2019. Restructuring costs for the half-year to June 2019 included the impairment of assets.

Gain on disposal of loan portfolios. The disposal of loan portfolios in the half-year to June 2019 resulted in a net gain of € 34 million.

(1) There was also a € 1 million charge on investment debt securities in the half-year to June 2020 (half-year to June 2019: Nil).

AIB Group plc Half-Yearly Financial Report 2020 21

Assets

Net loans to customers

New lending

€58.2bn €4.4bn

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30 June 31 Dec
2020 2019 %
Assets € bn € bn change
Gross loans to customers 60.6 62.1 -3
ECL allowance (2.4) (1.2) 90
Net loans to customers 58.2 60.9 -4
Investment securities 19.6 17.3 13
Loans and advances to banks 16.6 13.5 24
Other assets 7.0 6.9 2
Total assets 101.4 98.6 3
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Non-performing loans Non-performing loans ratio €3.8bn 6.3%

Non-performing loans increased by € 0.5 billion to € 3.8 billion at 30 June 2020 reflecting net flow to non-performing of € 0.8 billion, which included changes to the definition of default of € 0.3 billion, partially offset by redemptions of € 0.3 billion.

Non-performing loans ratio

Non-performing loans as a percentage of gross loans to customers was 6.3% at 30 June 2020 compared to 5.4% at 31 December 2019.

Net loans to customers

Net loans, excluding the impact of currency movements of

€58.2bn

€ 0.6 billion, decreased by € 2.1 billion compared to 31 December 2019 reflecting redemptions of € 5.3 billion exceeding new lending of € 4.4 billion and an increase in ECL allowance of € 1.2 billion from 31 December 2019.

ECL allowance €2.4bn	Non-performing loans cover
	32%

The ECL allowance of € 2.4 billion at 30 June 2020 increased from € 1.2 billion at 31 December 2019 reflecting the net credit impairment charge recognised in the half-year to June 2020 due to the deterioration in the macroeconomic outlook.

New lending

New lending of € 4.4 billion in €4.4bn the half-year to June 2020 was € 1.6 billion or 27% lower than the half-year to June 2019 driven by the sharp reduction in economic activity in recent months. Non-property lending was 29% lower at € 2.2 billion primarily due to lower syndicated and UK lending with property related lending 36% lower at € 0.7 billion. Mortgage lending was 17% lower at € 1.1 billion and personal lending down 18% to € 0.4 billion.

Non-performing loans cover

The ECL allowance cover rate on non-performing loans of 32% at 30 June 2020 compared to 27% at 31 December 2019.

New lending comprises € 3.6 billion term lending in the half-year to June 2020 (€ 5.1 billion in the half-year to June 2019) and € 0.8 billion transaction lending (€ 0.9 billion in the half-year to June 2019).

Summary of movement in loans to customers

The table below sets out the movement in loans to customers from 1 January 2020 to 30 June 2020.

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Performing Non-performing Loans to
loans loans customers
Loans to customers € bn € bn € bn
Gross loans (opening balance 1 January 2020) 58.8 3.3 62.1
New lending 4.4 – 4.4
Redemptions of existing loans (5.0) (0.3) (5.3)
– – –
Portfolio disposals
Write-offs and restructures – (0.1) (0.1)
Net movement to non-performing (0.8) 0.8 –
–
Foreign exchange movements (0.6) (0.6)
Other movements – 0.1 0.1
Gross loans (closing balance 30 June 2020) 56.8 3.8 60.6
ECL allowance (1.2) (1.2) (2.4)
Net loans (closing balance 30 June 2020) 55.6 2.6 58.2
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22 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Assets (continued)

The tables below summarise the credit profile of the loan portfolio by asset class and include a range of credit metrics that the Group uses in managing the portfolio. Further information on the Group’s risk profile and non-performing loans is available in the Risk management section on pages 35 to 88.

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Residential Other Property and Non-property
Loan portfolio profile mortgages personal construction business Total
30 June 2020 € bn € bn € bn € bn € bn
Gross loans to customers 31.0 2.7 7.2 19.7 60.6
Of which: Stage 2 2.5 0.4 2.4 5.2 10.5
Of which: Non-performing loans 2.2 0.2 0.6 0.8 3.8
Total ECL allowance 0.9 0.2 0.5 0.8 2.4
Total ECL allowance cover (%) 2.7% 8.8% 6.8% 4.0% 3.9%
ECL allowance cover Stage 2 (%) 4.6% 13.6% 8.1% 7.3% 7.1%
ECL allowance cover non-performing loans (%) 27.5% 60.5% 38.6% 31.6% 31.9%
31 December 2019 € bn € bn € bn € bn € bn
Gross loans to customers 31.5 3.0 7.3 20.3 62.1
Of which: Stage 2 2.2 0.3 0.4 1.1 4.0
Of which: Non-performing loans 2.3 0.2 0.4 0.4 3.3
Total ECL allowance 0.6 0.1 0.2 0.3 1.2
Total ECL allowance cover (%) 1.8% 5.9% 2.6% 1.5% 2.0%
ECL allowance cover Stage 2 (%) 2.4% 13.9% 5.9% 7.5% 5.1%
ECL allowance cover non-performing loans (%) 21.8% 59.6% 35.1% 32.1% 26.8%
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Residential Other Property and Non-property
Non-performing loans mortgages personal construction business Total
30 June 2020 € bn € bn € bn € bn € bn
Collateral disposals 0.1 0.0 0.1 0.0 0.2
Unlikely to pay (including > 90 days past due) 1.9 0.2 0.4 0.7 3.2
Non-performing loans probation 0.2 0.0 0.1 0.1 0.4
Total non-performing loans 2.2 0.2 0.6 0.8 3.8
Total non-performing loans/Total loans (%) 7.2% 8.4% 7.5% 4.1% 6.3%
31 December 2019 € bn € bn € bn € bn € bn
Collateral disposals 0.1 0.0 0.1 0.0 0.2
Unlikely to pay (including > 90 days past due) 1.9 0.2 0.3 0.3 2.7
Non-performing loans probation 0.3 0.0 0.0 0.1 0.4
Total non-performing loans 2.3 0.2 0.4 0.4 3.3
Total non-performing loans/Total loans (%) 7.4% 6.4% 5.1% 2.2% 5.4%
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Investment securities

Investment securities of € 19.6 billion, primarily held for liquidity purposes, have increased by € 2.3 billion from 31 December 2019.

Loans and advances to banks

Loans and advances to banks of € 16.6 billion, including € 14.7 billion of cash and balances at central banks, were € 3.1 billion higher than 31 December 2019. The increased placement with banks was due to excess liquidity driven by increased customer account balances and MREL-related issuances.

Other assets

Other assets of € 7.0 billion comprised:

• Deferred tax assets of € 2.7 billion[(1)] increased by € 0.1 billion compared to 31 December 2019.

• Derivative financial instruments of € 1.8 billion, € 0.5 billion increase from 31 December 2019 primarily reflecting interest rate and foreign exchange rate movements in the period.

• Remaining assets of € 2.5 billion, decreased € 0.5 billion from 31 December 2019 due to the settlement of proceeds from a loan portfolio disposal.

(1) For further information see note 1 Basis of preparation, accounting policies and estimates in the condensed consolidated interim financial statements.

AIB Group plc Half-Yearly Financial Report 2020 23

Liabilities & equity

Customer accounts Equity

€75.7bn €13.8bn

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30 June 31 Dec
2020 2019 %
Liabilities & equity € bn € bn change
Customer accounts 75.7 71.8 5
Deposits by banks 0.8 0.8 –
Debt securities in issue 6.3 6.8 -7
Subordinated liabilities 1.3 1.3 –
Other liabilities 3.5 3.7 -4
Total liabilities 87.6 84.4 4
Equity 13.8 14.2 -3
Total liabilities & equity 101.4 98.6 3
% % change
Loan to deposit ratio 77 85 -8
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Debt securities in issue

Debt securities of € 6.3 billion decreased by € 0.5 billion from 31 December 2019 following the maturity of medium term notes of € 0.5 billion.

Subordinated liabilities

Subordinated liabilities of € 1.3 billion were in line with 31 December 2019.

Other liabilities

Other liabilities of € 3.5 billion comprised:

• Derivative financial instruments of € 1.3 billion, in line with 31 December 2019.

• Remaining liabilities of € 2.2 billion, € 0.2 billion decrease from 31 December 2019.

Equity

Customer accounts

Customer accounts, excluding the impact of currency

€75.7bn

movements of € 0.8 billion, increased by € 4.7 billion compared to 31 December 2019 primarily reflecting higher levels of household and SME balances in the half-year to June 2020.

Loan to deposit ratio

The loan to deposit ratio decreased to 77% at 30 June 2020 compared to 85% at 31 December 2019 reflecting increased customer accounts and a reduction in net loans.

Deposits by banks

Deposits by banks of € 0.8 billion were in line with 31 December 2019.

Equity decreased by € 0.4 billion to € 13.8 billion compared to

€13.8bn

€ 14.2 billion at 31 December 2019.

The table below sets out the movements to 30 June 2020.

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Equity € bn
Opening balance (1 January 2020) 14.2
Loss for the period (0.7)
Issue of Additional Tier 1 securities 0.6
Buyback of Additional Tier 1 securities (0.2)
Other comprehensive income:
Cash flow hedging reserves 0.1
Investment securities reserves (0.2)
Closing balance (30 June 2020) 13.8
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The Group issued € 0.6 billion of Additional Tier 1 securities in June 2020 at a coupon rate of 6.25%.

24 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Segment reporting

Segment overview

Following changes to the Group’s operating model in the second half of 2019, performance is now managed and reported across the Retail Banking, Corporate, Institutional & Business Banking (“CIB”), AIB UK and Group segments. Figures for the half-year to June 2019 have been restated on a comparative basis, in line with the basis of segment reporting adopted in the Annual Financial Report 2019. Segment performance excludes exceptional items.

Retail Banking

Retail Banking comprises Homes & Consumer, SME and Financial Solutions Group (“FSG”) in a single integrated segment, focussed on meeting the current, emerging and future needs of our personal and SME customers.

• Homes & Consumer is responsible for meeting the homes needs of customers in Ireland across the AIB, EBS and Haven brands and delivering innovative and differentiated products, propositions and services to meet our customers’ everyday banking needs through an extensive range of physical and digital channels. Our purpose is to achieve a seamless, transparent and simple customer experience in all of our propositions across current accounts, personal lending, payments & credit cards, deposits, insurance and wealth to maintain and grow our market leading position.

• SME is a leading provider of financial services to micro and small SMEs through our sector-led strategy and local expertise with an extensive product and proposition offering across a number of channels. Our purpose is to help our customers create and build sustainable businesses in their communities.

• FSG is a standalone dedicated workout unit to which the Group has migrated the management of the majority of its non-performing exposures (NPEs), with the objective of delivering the Group’s strategy to reduce NPEs.

Corporate, Institutional & Business Banking (“CIB”)

CIB provides institutional, corporate and business banking services to the Group’s larger customers and customers requiring specific sector or product expertise. CIB’s relationship driven model serves customers through sector specialist teams including: corporate banking, real estate finance, business banking and energy, climate action & infrastructure. In addition to traditional credit products, CIB offers customers foreign exchange and interest rate risk management products, cash management products, trade finance, mezzanine finance, structured and specialist finance, equity investments and corporate finance advisory services, as well as Private Banking services and advice. CIB also has syndicated and international finance teams based in Dublin and in New York.

AIB UK

AIB UK offers retail and business banking services in two distinct markets, a sector-led corporate and commercial bank supporting businesses in Great Britain (“Allied Irish Bank (GB)”), and a retail and business bank in Northern Ireland (“AIB (NI)”).

Group

Group comprises wholesale treasury activities and Group control and support functions. Treasury manages the Group’s liquidity and funding positions and provides customer treasury services and economic research. The Group control and support functions include Business & Customer Services, Risk, Group Internal Audit, Finance, Legal & Corporate Governance, Human Resources and Corporate Affairs, Strategy & Sustainability.

Segment allocations

The segments’ performance statements include all income and directly related costs, excluding overheads which are managed centrally, the costs of which are included in the Group segment. Funding and liquidity income/charges are based on each segment’s funding requirements and the Group’s funding cost profile, which is informed by wholesale and retail funding costs. Income attributable to capital is allocated to segments based on each segment’s capital requirement.

AIB Group plc Half-Yearly Financial Report 2020 25

Retail Banking

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Half-year Half-year
Retail Banking June 2020 June 2019 %
contribution statement € m € m change
Net interest income 572 628 -9
Other income 161 190 -15
Total operating income 733 818 -10
Total operating expenses (445) (455) -2
Bank levies and regulatory fees (1) (1) –
Operating contribution before
impairments and exceptional items 287 362 -21
Net credit impairment (charge)/
writeback (491) 22 –
Operating contribution before
exceptional items (204) 384 –
Associated undertakings 4 8 -49
Contribution before exceptional items (200) 392 –
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Net interest income

€572m Net interest income has decreased by € 56 million compared to the half-year to June 2019 driven by the impact on income of the continued deleveraging of non-performing loans and lower liquidity income.

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30 June 30 June
Retail Banking 2020 2019 %
balance sheet metrics € bn € bn change
Mortgages 1.1 1.2
Personal 0.4 0.5
Property 0.1 0.1
Non-property business 0.4 0.5
New lending 2.0 2.3 -13
30 June 31 Dec
2020 2019
€ bn € bn
Mortgages 29.3 29.6
Personal 2.6 2.8
Property 0.8 0.9
Non-property business 3.2 3.3
Gross loans 35.9 36.6 -2
ECL allowance (1.5) (1.1) 41
Net loans 34.4 35.5 -3
Current accounts 28.1 25.5 10
Deposits 24.1 23.1 4
Customer accounts 52.2 48.6 7
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Other income

€161m Other income decreased by € 29 million compared to the half-year to June 2019, mainly due to lower net fee and commission income reflecting lower transactions volumes due to a sharp reduction in economic activity in recent months and lower income recognised on previously restructured loans. Net fee and commission income includes income of € 7 million following the acquisition of Payzone in late 2019.

Total operating expenses

€445m Total operating expenses decreased by € 10 million compared to the half-year to June 2019 driven by reductions in personnel costs due to lower average staff numbers and lower general and administration costs. The reductions were partially offset by an increase in depreciation and amortisation as assets created under the investment programme were commissioned to operational use and the amortisation of intangible assets created following the acquisition of Payzone.

Net credit impairment (charge)/writeback

€(491)m There was a net credit impairment charge of € 491 million in the half-year to June 2020 comprising of a € 482 million charge on loans and advances to customers and a € 9 million charge for off-balance sheet exposures. The € 482 million charge comprises net re-measurement of ECL allowance charge of € 513 million, offset by recoveries of amounts previously written-off of € 31 million. There was a net credit impairment writeback of € 22 million in the half-year to June 2019.

New lending

€2.0bn New lending was 13% lower at € 2.0 billion reflecting lower economic activity. Mortgage market share was stable at 31.3% for the half-year to June 2020.

Net loans

€34.4bn Net loans decreased by € 1.1 billion mainly reflecting redemptions exceeding new lending and an increase in expected credit loss allowance.

ECL allowance

€1.5bn The ECL allowance of € 1.5 billion at 30 June 2020 increased by € 0.4 billion from € 1.1 billion at 31 December 2019 reflecting the net credit impairment charge recognised in the half-year to June 2020 due to the deterioration in the macroeconomic outlook.

Customer accounts

€52.2bn Customer accounts increased by € 3.6 billion compared to 31 December 2019 reflecting higher levels of household and SME balances.

26 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Corporate, Institutional & Business Banking (“CIB”)

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Half-year Half-year
June 2020 June 2019 %
CIB contribution statement € m € m change
Net interest income 219 225 -3
Other income 45 46 –
Total operating income 264 271 -2
Total operating expenses (64) (60) 7
Operating contribution before
impairments and exceptional items 200 211 -5
Net credit impairment charge (538) (10) –
Operating contribution before
exceptional items (338) 201 –
Associated undertakings – (1) –
Contribution before exceptional items (338) 200 –
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30 June 30 June
2020 2019 %
CIB balance sheet metrics € bn € bn change
Mortgages 0.0 0.0
Personal 0.0 0.0
Property 0.4 0.6
Non-property business 1.1 1.8
New lending 1.5 2.4 -35
30 June 31 Dec
2020 2019
€ bn € bn
Mortgages 0.6 0.6
Personal 0.1 0.1
Property 4.4 4.3
Non-property business 10.9 11.2
Gross loans 16.0 16.2 -1
ECL allowance (0.6) 0.0
Net loans 15.4 16.2 -5
Investment securities 0.9 0.7 29
Current accounts 8.3 7.4 12
Deposits 3.6 3.9 -7
Customer accounts 11.9 11.3 5
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Net interest income

€219m Net interest income was broadly in line with the half-year to June 2019 with higher average asset volumes offset by lower liquidity income and the impact of the lower interest rate environment.

New lending

€1.5bn New lending of € 1.5 billion was € 0.9 billion lower than the half-year to June 2019. The reduction was driven by lower syndicated, property and corporate lending partly offset by an increase in lending to the energy, climate action and infrastructure sectors.

Other income

€45m Other income was broadly in line with the half-year to June 2019. There was an increase in net income from equity investments in the half-year to June 2020 which was offset by lower net fee and commission income and a reduction in income from loan disposals.

Net loans

€15.4bn Net loans of € 15.4 billion at 30 June 2020 decreased by € 0.8 billion driven by increase in expected credit loss allowance and the impact of lower syndicated lending.

ECL allowance

Total operating expenses

€64m Total operating expenses increased by € 4 million compared to the half-year to June 2019 mainly due to increased personnel costs.

€0.6bn The ECL allowance of € 0.6 billion at 30 June 2020 increased by € 0.6 billion from 31 December 2019 reflecting the net credit impairment charge recognised in the half-year to June 2020 due to the deterioration in the macroeconomic outlook.

Net credit impairment charge

€538m There was a net credit impairment charge of € 538 million in the half-year to June 2020 comprising of a € 507 million charge on loans and advances to customers and a € 31 million charge for off-balance sheet exposures. There was a net credit impairment charge of € 10 million in the half-year to June 2019.

Investment securities

€0.9bn Investment securities of € 0.9 billion were € 0.2 billion higher than 31 December 2019.

Customer accounts

€11.9bn Current accounts of € 8.3 billion were € 0.9 billion higher than 31 December 2019. Deposits of € 3.6 billion decreased by € 0.3 billion compared to 31 December 2019.

AIB Group plc Half-Yearly Financial Report 2020 27

AIB UK

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Half-year Half-year
June 2020 June 2019 %
AIB UK contribution statement £ m £ m change
Net interest income 100 118 -16
Other income 17 33 -46
Total operating income 117 151 -22
Total operating expenses (73) (74) -3
Operating contribution before
impairments and exceptional items 44 77 -41
Net credit impairment charge (164) (18) –
Operating contribution before
exceptional items (120) 59 –
Associated undertakings 1 1 –
Contribution before exceptional items (119) 60 –
Contribution before exceptional items
€ m (135) 68 –
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Net interest income

£100m Net interest income decreased by £ 18 million compared to the half-year to June 2019 primarily due to the UK base rate cuts in March 2020.

Other income

£17m Other income decreased by £ 16 million compared to the half-year to June 2019 driven by a decrease of £ 12 million in net fee and commission income and negative movements on derivative valuation adjustments (XVA).

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30 June 30 June
2020 2019 %
AIB UK balance sheet metrics £ bn £ bn change
AIB GB 0.6 1.1 -42
AIB NI 0.2 0.1 16
New lending 0.8 1.2 -35
30 June 31 Dec
2020 2019
£ bn £ bn
AIB GB 5.6 5.6 1
AIB NI 2.2 2.2 -3
Gross loans 7.8 7.8 –
ECL allowance (0.3) (0.1) 146
Net loans 7.5 7.7 -2
Current accounts 6.2 5.8 8
Deposits 3.0 3.0 -2
Customer accounts 9.2 8.8 5
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New lending

£0.8bn New lending of £ 0.8 billion in the half-year to June 2020 decreased by £ 0.4 billion compared to the half-year to June 2019 driven by a general slowdown of new business activity due to Brexit uncertainty and lower economic activity in recent months.

Net loans

£7.5bn Net loans of £ 7.5 billion decreased £ 0.2 billion compared to 31 December 2019 driven by an increase in expected credit loss allowance.

Total operating expenses

£73m Total operating expenses were broadly in line with the half-year to June 2019.

Net credit impairment charge

£164m There was a net credit impairment charge of £ 164 million in the half-year to June 2020. There was a net credit impairment charge of £ 18 million in the half-year to June 2019.

ECL allowance

£0.3bn The ECL allowance of £ 0.3 billion at 30 June 2020 increased by £ 0.2 billion from 31 December 2019 reflecting the net credit impairment charge recognised in the half-year to June 2020 due to the deterioration in the macroeconomic outlook.

Customer accounts

£9.2bn Customer accounts of £ 9.2 billion at 30 June 2020 were £ 0.4 billion higher compared to 31 December 2019.

28 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Group

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Half-year Half-year
June 2020 June 2019 %
Group contribution statement € m € m change
Net interest income 62 62 –
Other income (6) 46 –
Total operating income 56 108 -49
Total operating expenses (155) (144) 8
Bank levies and regulatory fees (62) (57) 9
Contribution before exceptional items (161) (93) 75
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30 June 31 Dec
2020 2019 %
Group balance sheet metrics € bn € bn change
Gross loans 0.1 0.1 -3
Investment securities 18.7 16.6 13
Customer accounts 1.5 1.5 3
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Net interest income

€62m Net interest income was in line with the half-year to June 2019.

Investment securities

€18.7bn Investment securities of € 18.7 billion primarily held for liquidity purposes increased by € 2.1 billion from 31 December 2019.

Other income

€(6)m Other income decreased by € 52 million compared to the half-year to June 2019 due to a decrease in other operating income and negative movements on derivative valuation adjustments (XVA). Other operating income for the half-year to June 2019 reflected a gain on disposal of investment securities of € 39 million.

Customer accounts

€1.5bn Customer accounts were in line with 31 December 2019.

Total operating expenses

€155m Total operating expenses of € 155 million increased by € 11 million compared to the half-year to June 2019 primarily due to an increase in depreciation and amortisation as assets created under the investment programme were commissioned to operational use.

Bank levies and regulatory fees

€62m Bank levies and regulatory fees of € 62 million in the half-year to June 2020 include the Deposit Guarantee Scheme of € 33 million, the Single Resolution Fund € 17 million, and other regulatory levies and charges of € 12 million.

AIB Group plc Half-Yearly Financial Report 2020 29

Alternative performance measures

The following is a list, together with a description, of APMs used in analysing the Group’s performance, provided in accordance with the European Securities and Markets Authority (“ESMA”) guidelines.

Average rate	Interest income/expense for balance sheet categories divided by corresponding average balance.
Average balance	Average balances for interest-earning assets are based on daily balances for all categories with
	the exception of loans and advances to banks, which are based on a combination of daily/monthly
	balances. Average balances for interest-earning liabilities are based on a combination of daily/monthly
	balances, with the exception of customer accounts which are based on daily balances.
Absolute cost base	Total operating expenses excluding exceptional items, bank levies and regulatory fees.
Cost income ratio	Total operating expenses excluding exceptional items, bank levies and regulatory fees divided by total
	operating income excluding exceptional items.
Cost income ratio (IFRS basis)	Total operating expenses divided by total operating income.
Exceptional items	Performance measures have been adjusted to exclude items viewed as exceptional by management
	and which management view as distorting comparability of performance period on period.
	The adjusted performance measure is considered an APM. A reconciliation between the IFRS and
	management performance summary income statements is set out on page 30. Exceptional items
	include:
	– _Restitution costs_include provision for potential customer redress and compensation in relation to
	the tracker mortgage examination and other customer redress along with associated costs.
	– _Covid product costs_reflect the incremental cost of implementing a large volume of payment
	breaks on home mortgages, personal and SME loans to customers impacted by COVID-19.
	– _Termination benefits_reflect costs associated with the reduction in employees arising from the
	voluntary severance programme.
	– _Property strategy_relates to the implementation of the Group property strategy including the exit
	from Bankcentre and the acquisition and development of various office locations across Dublin.
	– _Restructuring costs_for the half-year to June 2019 included the impairment of assets.
	– _(Loss)/gain on disposal of loan portfolios_includes net (loss)/gain on disposals and net gain on
	loans and advances to customers measured at FVTPL.
	– _Provision for regulatory fines_includes a provision for the potential impact of monetary penalties
	arising from the Central Bank of Ireland investigation in respect of tracker mortgages.
Loan to deposit ratio	Net loans and advances to customers divided by customer accounts.
Net interest margin	Net interest income divided by average interest-earning assets.
Non-performing exposures	Non-performing exposures as defined by the European Banking Authority, include loans and advances
	to customers (Non-performing loans) and off-balance sheet commitments such as loan commitments
	and financial guarantee contracts.
Non-performing loans cover	ECL allowance on non-performing loans as a percentage of non-performing loans.
Non-performing loans ratio	Non-performing loans as a percentage of total gross loans.
Return on Tangible Equity (RoTE)	Details of the Group’s RoTE is set out in the Capital Section on page 34.
Management performance –	The following line items in the management performance summary income statement are considered
summary income statement	APMs:
	• Other income • Operating profit before impairment losses and
	• Total operating income exceptional items
	• Personnel expenses • Operating (loss)/profit before exceptional items
	• General and administrative expenses • Profit on disposal of property
	• Depreciation, impairment and amortisation • Profit before exceptional items
	• Total operating expenses • Total exceptional items
	• Bank levies and regulatory fees

30 AIB Group plc Half-Yearly Financial Report 2020

Business review – 1. Operating and financial review

Reconciliation between IFRS and management performance summary income statements

Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of performance period on period. The adjusted performance measure is considered an APM. A reconciliation of management performance measures to the directly related IFRS measures, providing their impact in respect of specific line items and the overall summary income statement, is set out below.

summary income statement, is set out below.
	Half-year	Half-year
	June 2020	June 2019
IFRS – summary income statement	€ m	€ m
Net interest income	967	1,050
Other income	220	353
Total operating income	1,187	1,403
Total operatingexpenses	(885)	(967)
Operating profit before impairment losses	302	436
Net credit impairment charge	(1,216)	(9)
Operating (loss)/profit	(914)	427
Associated undertakings	5	9
(Loss)/profit before taxation	(909)	436
Income tax credit/(charge)	209	(75)
(Loss)/profit for the period	(700)	361

Adjustments – between IFRS and management performance

Other income of which: exceptional items
Gain on disposal of loan portfolios –		– (34)	(34)
Total operating expenses of which: bank levies and regulatory fees		63	58
of which: exceptional items
Restitution costs 58		102
Covid product costs 10		–
Termination benefits 6		7
Property strategy 1		3
Provision for regulatory fines –		43
Restructuring costs –		75 10	165
Managementperformance – summary income statement	Half-year June 2020 Half-year June 2019 € m € m
Net interest income Other income(1)	967 1,050 220 319
Total operating income(1) Total operating expenses(1) Bank levies and regulatoryfees(1)	1,187 1,369 (747) (744) (63) (58)
Operating profit before impairment losses and exceptional items(1) Net credit impairment charge	377 567 (1,216) (9)
Operating (loss)/profit before exceptional items(1) Associated undertakings	(839) 558 5 9
(Loss)/profit before exceptional items(1) Total exceptional items(1)	(834) 567 (75) (131)
(Loss)/profit before taxation Income tax credit/(charge)	(909) 436 209 (75)
(Loss)/profit for the period	(700) 361

(1) Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of performance year on year. The adjusted performance measure is considered an APM.

AIB Group plc Half-Yearly Financial Report 2020 31

Business review – 2. Capital

Objectives

The objectives of the Group’s capital management policy are to at all times comply with regulatory capital requirements and to ensure that the Group has sufficient capital to cover the current and future risk inherent in its business and to support its future development. Detail on the management of capital and capital adequacy risk can be found in ‘Risk management 2.3’ on page 154 of the Group’s Annual Financial Report 2019.

Regulatory capital and capital ratios[(1)]

Regulatory capital and capital ratios(1)
		CRD lV transitional basis 30 June 2020 31 December 2019 € m € m 13,771 14,230 (1,410) (990) – (217) (805) (798) (573) (469) 943 251 (42) (31) (1,679) (1,334) – (8) (44) (45) (2,200) (2,434) 10,161 10,589 1,116 496 122 129 1,238 625 11,399 11,214 500 500 402 426 110 – (110) – 902 926 12,301 12,140 44,925 46,811 618 473 4,686 4,700 166 137 50,395 52,121 % % 20.2 20.3 22.6 21.5 24.4 23.3		CRD lV fully loaded basis
				30 June 2020 31 December 2019 € m € m
Equity Less: Additional Tier 1 Securities Proposed ordinary dividend(2) Regulatory adjustments: Intangible assets Cash flow hedging reserves IFRS 9 CET1 transitional add-back Pension Deferred tax Expected loss deduction Other		13,771 (1,410) – (805) (573) 943 (42) (1,679) – (44) (2,200)		13,771 (1,410) – (805) (573) – (42) (2,759) – (44) (4,223)	14,230 (990) (217)
					(798) (469) – (31) (2,667) (8) (45)
					(4,018)
Total common equity tier 1 capital Additional tier 1 capital Additional Tier 1 issuance Instruments issued by subsidiaries that are given recognition in additional tier 1 capital Total additional tier 1 capital		10,161 1,116 122 1,238		8,138 1,116 152 1,268	9,005
					496 159
					655
Total tier 1 capital		11,399		9,406	9,660
Tier 2 capital Subordinated debt Instruments issued by subsidiaries that are given recognition in tier 2 capital IRB Excess of provisions over expected losses eligible IFRS 9 Tier 2 transitional adjustment Total tier 2 capital		500 402 110 (110) 902		500 480 110 – 1,090
					500 507 – –
					1,007
Total capital		12,301		10,496	10,667
Risk-weighted assets Credit risk Market risk Operational risk Credit valuation adjustment		44,925 618 4,686 166		44,293 618 4,686 166	46,689 473 4,700 137
Total risk-weighted assets		50,395		49,763	51,999
Common equity tier 1 ratio Tier 1 ratio Total capital ratio		% 20.2 22.6 24.4		% 16.4 18.9 21.1	% 17.3 18.6 20.5

(1)Prepared under the regulatory scope of consolidation.

(2) On 30 March 2020, the Group announced, following the recommendation of the European Central Bank, that the Company did not intend to seek shareholder approval for the payment of a final dividend for 2019. Accordingly, the relevant Annual General Meeting (“AGM”) resolution was withdrawn and the proposed dividend cancelled.

32 AIB Group plc Half-Yearly Financial Report 2020

Business review – 2. Capital

Capital requirements

The table below sets out the capital requirements as at 1 January 2020, 30 June 2020 and the pro forma requirements for 31 December 2020. The table does not include Pillar 2 Guidance (“P2G”) which is not publicly disclosed.

A suite of measures have been introduced to support the financial sector through the current COVID-19 pandemic. These include the reduction in the Countercyclical capital buffer (“CCyB”) to zero by both the Central Bank of Ireland (“CBI”) and the Bank of England (“BOE”). Other measures include amendments to the transitional rules for IFRS 9 in respect of COVID-19 related losses.

On 1 January 2020 the Group’s Pillar 2 Requirement (“P2R”) reduced to 3% from 3.15% in 2019. Previously the P2R had to be met with CET1 only, post 8 April 2020 at least 56.25% of P2R (1.69% of RWA) must be CET1 and at least 75% (2.25% of RWA) must be Tier 1.

Capital ratios at 30 June 2020 Fully Loaded Ratio

The fully loaded CET1 ratio decreased to 16.4% at 30 June 2020 from 17.3% at 31 December 2019.

The decrease of 0.9% is due to a loss after tax of € 0.7 million (-1.3%) reflecting an ECL charge at 30 June 2020 of € 1.2 billion, a decrease in the investment securities reserve (-0.3%) and other capital movements (-0.4%). These are offset by lower RWAs (+0.7%) and the cancellation of the 2019 dividend (+0.4%).

The fully loaded total capital ratio increased to 21.1% from 20.5% at 31 December 2019. The increase in the ratio was due to a new € 625 million AT1 capital issuance in June 2020 (+1.2%), a Tier 2 IRB excess of provisions over expected losses (+0.2%) and lower RWAs (+0.9%) partially offset by the other CET1 movements outlined above.

Transitional Ratio

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Actual Pro forma
Regulatory Capital 1 January 30 June 31 December
Requirements 2020 2020 2020
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CET1 Requirements
Pillar 1	4.50%	4.50%	4.50%
Pillar 2 requirement (P2R)	3.00%	1.69%	1.69%
Combined buffer requirement	3.90%	3.00%	3.50%
Capital Conservation Buffer (CCB)	2.50%	2.50%	2.50%
O-SII buffer	0.50%	0.50%	1.00%
Countercyclical buffer
(CCYB) Impact
Irish exposures	0.70%	0.00%	0.00%
UK exposures	0.20%	0.00%	0.00%
CET1 Requirement	11.40%	9.19%	9.69%
Pillar 1 AT1/Tier 2	3.50%	3.50%	3.50%
P2R AT1/Tier 2	0.00%	1.31%	1.31%
Total Capital Requirement	14.90%	14.00%	14.50%

The Group’s minimum CET1 requirement is 9.19% at 30 June 2020 under Article 104a. In addition any shortfall in AT1 and Tier 2 must be held in CET1.

The Other Systemically Important Institution (“O-SII”) buffer of 0.5% will rise to 1.0% on 1 July 2020 and 1.5% on 1 July 2021 and accordingly will increase the minimum CET1 requirements.

The minimum requirement for the total capital ratio was 14.0% at 30 June 2020 and will increase to 14.5% by the end of 2020.

The transitional CET1 ratio decreased to 20.2% at 30 June 2020 from 20.3% at 31 December 2019. This decrease is mainly driven by the movements detailed above and an additional year’s phasing of the deferred tax asset deduction (-0.7%), offset by the increase in the IFRS 9 transitional addback (+1.3%) as part of the suite of measures to support the financial sector through the current COVID-19 pandemic.

At 30 June 2020 the transitional total capital ratio increased to 24.4% from 23.3% as at 31 December 2019.

Targeted Review of Internal Models (TRIM)

The table below shows the pro forma impact of the draft AIB mortgage TRIM outcome, which is not expected to be materially different from the final decision.

TRIM adjusted capital metrics	Expected Impact	30 June 2020 Pro Forma
Fully Loaded	€ m	€ m
CET1 impact	(57)	8,081
RWA impact	2,023	51,786
CET1 ratio impact	(0.8)%	15.6%

TRIM decisions are postponed due to the current COVID-19 pandemic.

The pro forma CET1 impact as at 30 June 2020 is 80 basis points which would reduce the fully loaded CET1 ratio to 15.6% from the reported 16.4% and the total capital ratio to 20.2% from the reported 21.1%.

AIB Group plc Half-Yearly Financial Report 2020 33

Leverage ratio

Based on the full implementation of CRD IV, the fully loaded leverage ratio, under the Delegated Act implemented in January 2015, was 9.2% at 30 June 2020 (9.7% at 31 December 2019).

Dividends

The final dividend in respect of 2019 was cancelled in line with regulatory guidance.

Ratings

Total leverage exposures (transitional) basis increased by € 3.4 billion in the six months to 30 June 2020, mainly driven by increases in cash and balances at central banks of € 2.7 billion and derivative financial instruments of € 0.5 billion.

AIB Group plc and Allied Irish Banks, p.l.c. are rated at investment grade with all three rating agencies, Moody’s, Fitch and Standard & Poor’s (S&P).

AIB Group plc

Leverage Ratio Metrics	30 June 2020 € m	31 December 2019 € m
Total Exposure (Transitional Basis)	104,538	101,126
Total Exposure(FullyLoaded)	102,425	99,548
Tier 1 Capital (Transitional Basis)	11,399	11,214
Tier 1 Capital(FullyLoaded)	9,405	9,660
Leverage Ratio (Transitional Basis)	10.9%	11.1%
Leverage Ratio(FullyLoaded)	9.2%	9.7%

Finalisation of Basel III

The Group continues to closely monitor regulatory developments to ensure that the Group maintains a strong capital position.

One of the key areas of regulatory development is the finalisation of Basel III reforms, exact implementation details will be confirmed once the finalised requirements are transposed into law. Initial assessments signal upward pressure on RWAs, mostly in relation to operational risk.

In relation to RWA floors, the Group’s high RWA density make it less likely to be severely impacted by their introduction.

Minimum Requirement for Own Funds and Eligible Liabilities (“MREL”)

The Group continued to work towards its MREL target in 2020 to ensure that there is sufficient loss absorption and re-capitalisation capability. The Group has now completed issuance of the € 5 billion MREL eligible liabilities needed to meet its MREL issuance target of which € 0.625 billion was issued in 2020.

The Single Resolution Board (“SRB”) has provided the Group with its default formula for the MREL target calibration under the new BRRD II legislative framework to be complied with by 1 January 2022. The Group has estimated its January 2022 intermediate binding target is 27.1% of RWA including the combined buffer requirement.

All three rating agencies re-affirmed their ratings in the six months to 30 June 2020 and changed the outlook to stable from positive (Moody’s) and to negative from stable (Fitch and S&P). The changed outlook reflects the expectation that the Irish and UK economies will contract as a result of the COVID-19 pandemic.

Long term Ratings	Moody’s	30 S&P	June 2020 Fitch
Long term	Baa2	BBB-	BBB
Outlook	Stable	Negative	Negative
Investment grade			
Long term Ratings	Moody’s	31 December 2019 S&P Fitch
Long term	Baa2	BBB-	BBB
Outlook	Positive	Stable	Stable
Investment grade			

Allied Irish Banks, p.l.c.

During the six months to 30 June 2020 S&P and Fitch reaffirmed the ratings and changed the outlook to negative from stable. This reflects the anticipated reduction in economic activity as a result of the COVID-19 pandemic. During the six months to 30 June 2020 Moody’s reaffirmed the ratings and outlook.

Long term Ratings	Moody’s	30 S&P	June 2020 Fitch
Long term	A2	BBB+	BBB+
Outlook	Stable	Negative	Negative
Investment grade			
Long term Ratings	Moody’s	31 December 2019 S&P Fitch
Long term	A2	BBB+	BBB+
Outlook	Stable	Stable	Stable
Investment grade			

At 30 June 2020 the Group had an actual MREL ratio of 30% of RWAs (inclusive of mortgage TRIM impact).

The Group continues to monitor changes in MREL requirements together with developments in the SRB’s MREL Policy which has the potential to impact on the Group’s MREL target.

34 AIB Group plc Half-Yearly Financial Report 2020

Business review – 2. Capital

Return on Tangible Equity (“RoTE”)*

As part of its strategy, the Group has now set a revised financial target for RoTE of greater than 8% in the medium term.

==> picture [236 x 35] intentionally omitted <==

----- Start of picture text -----

30 June 31 December
2020 2019
Return on Tangible Equity (RoTE) € m € m
----- End of picture text -----

(Loss)/profit after tax AT1 couponspaid	(700) 364 (32) (37)
Attributable earnings Average RWA RWA x 14% (CET1 target)	(732) 327
	52,993 51,631 7,419 7,228
Return on Tangible Equity	n/a(1) 4.5%

• RoTE is considered an Alternative Performance Measurement. RoTE includes the pro forma impact of TRIM.

(1) The RoTE actual outcome is not reported for the period as it would require the loss for the period to be annualised which is considered not appropriate at this stage.

AIB Group plc Half-Yearly Financial Report 2020 35

Risk management

		Page
Update on risk management and governance		36
Credit risk
–	Overview	38
–	Credit profile of the loan portfolio
	– Analysis of loan portfolio by segment, internal credit ratings and ECL staging	47
	– Internal credit grade profile by ECL staging	50
	– Non-performing exposures (“NPE”) to customers	52
	– Loans and advances to customers – Residential mortgages	54
	– Loans and advances to customers – Republic of Ireland residential mortgages	56
	– Loans and advances to customers – Asset class by segment	60
	– Gross loans and ECL movements	71
–	Investment securities	78
–	Credit ratings	79
–	Large exposures	79
Additional credit quality and forbearance disclosures on loans and advances to customers
–	Internal credit ratings and ECL staging of forborne loans and advances to customers	80
–	Republic of Ireland residential mortgages	81
–	Non-mortgage forbearance solutions	83
–	EBA Compliant Moratoria	84

Funding and liquidity risk

85

36 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Update on risk management and governance

This section provides an update on risk management and governance during the reporting period and should be read in conjunction with the risk management section of the Annual Financial Report 2019 on pages 71 to 170. During the reporting period there have been no significant changes to the Group’s Risk Management Framework, as set out on pages 72 to 78 of the Annual Financial Report 2019.

While the principal risks identified through the Material Risk Assessment process and reported in the Annual Financial Report 2019 on pages 79 to 170 covering the period for the next six months have not changed, the drivers of those risks have been reviewed in light of the global COVID-19 pandemic as described below.

COVID-19 pandemic

The most significant development in the reporting period has been in relation to the rapid spread of the COVID-19 pandemic and the associated health crisis. The public policy response, at a national and supranational level, has been rapid and far ranging. Notwithstanding this, there remain many uncertainties regarding the prevalence of COVID-19 and future course of the public health response. This makes it difficult to judge the duration, severity and long term economic implications arising from both the health crisis and the resultant economic downturn. Consequently, there are a wide range of possible outcomes for the economies in which the Group operates that will in turn affect the financial and operational performance of the Group.

Impact on the control environment and operational resilience

Since the onset of the crisis, the Group has focused on safeguarding the wellbeing of its employees and their families, helping its customers, and preserving its operational continuity. The governmental and banking industry response to the COVID-19 pandemic has caused the Group to modify its operational practices, ensuring social distancing in its branches and properties, facilitating the majority of its staff to work remotely and migrating the delivery of critical services to online and digital channels. In addition, the Group has implemented schemes to support affected customers through the unprecedented challenges presented by COVID-19.

Although the crisis has demanded certain changes to the operational processes, the Group has continued to operate in adherence with its Risk Management Framework and has maintained its internal control environment. During this period the Group invoked its operational contingency plan for a pandemic, which included daily meetings of the Executive Committee as well as more frequent Board meetings. Operational resilience has been demonstrated with the majority of its workforce enabled to work remotely from home and through the successful provision of customer services since March. During this period the Group kept its branch network open, with appropriate safeguards in place to protect customers and staff.

Impact of COVID-19 on principal risks

While the Group expects the impacts of COVID-19 to continue to evolve, the current assessment of the Group’s principal risks for the reported period are described below. The definition for each principal risk are included in the individual risk types section on pages 80 to 169 of the Annual Financial Report 2019.

AIB Group plc Half-Yearly Financial Report 2020 37

Credit Risk – The economic impact arising from COVID-19 has been significant and has given rise to a higher risk that the Group’s customers may be unable to meet their loan repayment commitments. Should the progression of COVID-19 be worse than anticipated or should there be a further deterioration in economic conditions beyond those included in the Group’s macroeconomic scenarios used for internal purposes, this may result in higher expected credit losses in future periods.

Further details on Credit Risk are set out on pages 38 to 84.

Funding and Liquidity Risk – The Group’s funding and liquidity has improved during the period. The substantial liquidity surplus which existed at the start of the year has been further enhanced by an increase in deposits. While the crisis initially resulted in increased market volatility and fluctuations in wholesale funding costs these have since reduced. The Group’s reliance on such sources of funding is not significant.

Further details on Funding & Liquidity Risk are set out on pages 85 to 88.

Business Model Risk – The business model risk has increased due to the direct and indirect impacts arising from COVID-19. The European Central Bank, Bank of England and Federal Reserve Bank have indicated that official interest rates are expected to remain low for a protracted period of time. In addition, loan growth is expected to be subdued in the coming six months, due to lower economic activity. In response to these factors, the Group is continuing to progress its digital strategy and will accelerate its sustainability and green lending agenda.

Regulatory Compliance Risk – The Group continues to interact proactively with its regulators with respect to the introduction of payment breaks and other restructuring arrangements to assist its customers in these unprecedented times. Notwithstanding this, there is a risk that the Group may not be able to respond appropriately to meet the additional regulatory obligations or expectations.

Financial Risk – The Group’s financial risk initially increased due to substantial volatility in global financial markets following the onset of the COVID-19 pandemic. The Group is exposed to market volatility through its investment securities portfolio, the trading book and the interest rate risk in the banking book (“IRRBB”). The financial risk profile has since reduced in line with market developments.

People and Culture Risk – The significant changes in work practices implemented across the Group has impacted the approach to its recruitment, retention and training. The Group’s employees have demonstrated strong resilience in response to the crisis during this period. While there will be continued agility in the ways of working, the Group has enhanced its Wellbeing Programme to ensure that employees have the necessary supports available to them. During the period, the Group launched new and evolved values and behaviours.

Model Risk – The Group’s model risk profile remains unchanged during the reporting period. However, the unique nature of COVID-19 means that model outputs may require adjustment and expert judgement. Consequently, there is increased model risk until the experience of the Group’s customers is fully reflected in its time series data.

Operational Risk – The COVID-19 pandemic has increased the operational risk profile, primarily due to changes in operational processes such as working from home, increased use of digital processes and additional measures to support customers affected by COVID-19. While cyber threats continue to increase, the Group’s cybersecurity defenses and controls have supported its business continuity and ensured the Group and its customers were protected during this period. While third party risk continues to be an area of focus, service delivery remained robust in the period. The Group continues to monitor its operational risk profile closely.

Conduct Risk – COVID-19 has increased conduct risk due to the rapid implementation of customer products for those affected by COVID-19. Additional controls and safeguards have been implemented to protect the Group’s customers and to provide appropriate support to those customers affected. The Group will continue to engage proactively with its customers, regulators and other stakeholders and consider the end-to-end customer lifecycle when considering conduct risk related matters.

Capital Adequacy Risk – The Group remains very well capitalised, despite the business performance being impacted by COVID-19 during the period. The capital adequacy of the Group has been considered under a variety of downside and stress scenarios. The Group continues to maintain strong levels of capital above its regulatory requirements.

Further details on Capital are set out on pages 31 to 34.

Withdrawal of the UK from the European Union

The risks around the United Kingdom’s exit from the European Union (“Brexit”) remains elevated. A range of different Brexit scenarios are possible. The Group continues to expect an arrangement to be concluded between the UK and the EU, while preparing for a no-deal scenario. Were the UK and EU not to conclude a comprehensive trade deal by December 2020, it would be likely to have a significant impact on the Group’s customers at a time when the effects of COVID-19 are still being felt. The potential consequences to the Group’s activities, while considerable, are expected to be within the range that has been prepared for. The Group’s Brexit planning approach remains consistent with its approach in 2019, that is a focus on securing the Group’s operational resilience while at the same time engaging actively with its customers to assist their preparedness. The Group continues to monitor the potential risks through four Brexit readiness and response working groups and will take necessary actions as appropriate.

38 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Overview

Details on the various aspects of the Group’s credit risk management are outlined on pages 79 to 100 of the Annual Financial Report 2019 with the Group’s accounting policies for financial assets included in note 1 to the consolidated financial statements on pages 254 to 256.

There have been no changes to the Group’s accounting policies for financial assets since 31 December 2019. In determining ECL allowances, the Group keeps under constant review its bases of measurement, methodologies and judgements as outlined on pages 88 to 98 of the Annual Financial Report 2019. There have been no changes to these bases of measurement, methodologies and judgements apart from the following:

Credit risk management response to COVID-19

The Group has adapted its credit risk management operating model, including its underlying credit processes, in response to COVID-19 to ensure proactive and appropriate management of the heightened credit risk in the portfolio, and particularly for those sectors believed to be most impacted by COVID-19. In adapting its credit operating model, the Group have also enabled the introduction and implementation of a number of customer support measures in a streamlined, agile and risk appropriate manner.

The Group’s focus continues to be on supporting its existing customers and ensuring they are provided with the appropriate measures taking account of the current and expected financial impact and recovery outlook. As part of the Group’s credit risk management response to COVID-19, a range of actions have been taken to ensure the appropriate measurement, classification, and reporting of its credit risk exposures during this time. These include:

• The development of a suite of additional guidance documents to support credit risk assessment and management activities, such as credit grading, staging, unlikely-to-pay testing, and taking account of COVID-19 sector risk and expected recovery outlook. This guidance supplements the Group’s existing credit risk policies and frameworks.

• Enhanced scope and frequency of portfolio asset quality monitoring, particularly focused on those sectors believed to be most impacted by COVID-19 (for example, hospitality, non-food retail, travel etc.).

• Proactive bottom-up reviews of individual cases, in addition to top-down portfolio/sector reviews, prioritising higher exposures and the more vulnerable segments of the balance sheet.

Notwithstanding the range of actions that have been taken, significant uncertainty remains with regard to the extent of the direct and indirect impacts of COVID-19 on the economy and the Group’s loan book and asset quality.

Macroeconomic scenarios and weightings*

The macroeconomic scenarios used by the Group for IFRS 9 purposes are subject to the same governance process covering the development and approval of macroeconomic scenarios used for planning and internal stress testing purposes. The macroeconomic scenarios and attached probabilities are approved by the Asset and Liability Committee (‘ALCo’). The parameters used within the Group’s ECL models include macroeconomic factors which have been established as drivers of the default risk and loss estimates. A different credit loss estimate is produced for each scenario. These credit loss estimates for each scenario are then weighted by the assessed likelihood of occurrence of the respective scenarios to yield the ECL outcome.

Macroeconomic scenarios

The onset of the COVID-19 pandemic and associated lockdown measures and restrictions on economic activity, means that the scenarios in use for the half-year 2020 have changed materially from those applied for the year-end 2019 outcomes. In order to reflect the significant uncertainty presented by the health crisis and associated economic downturn, as at the reporting date, there are five scenarios used for the purposes of the ECL calculation as compared to four at 31 December 2019. These five scenarios are comprised of a Base case scenario, along with four alternative scenarios, one upside scenario “Virus Eliminated” and three downside scenarios “Persistent Virus”, “Failed EU/ UK trade talks” and “Persistent Virus plus Second Wave”. The inclusion of extra downside scenarios was deemed necessary to ensure that the range of possible outcomes in relation to the ultimate recovery from the pandemic are captured. Non-linear effects are captured in the development of risk parameters as well as through the inclusion of both a single upside and three downside scenarios.

The Group’s Economic Research Unit (ERU) provide the scenario forecasts over five years. These are then independently reviewed and challenged, on both a quantitative and qualitative basis, by the Group’s Enterprise Risk Management (ERM) function. The Base case is benchmarked against the outlook available from official sources (e.g. IMF, Department of Finance, ESRI, Central Bank of Ireland, etc.). Upside and downside forecasts are provided for each scenario and represent expected outcomes under each scenario. For IFRS 9 purposes, longer term economic projections beyond five years are sourced from a reputable external provider with the internal scenarios converging on a linear basis towards the external forecasts from years 5 to 8. External long term forecasts represent long term base line forecasts for the parameter/economy in question. The forecasted scenarios are kept under review by the Group ALCo and approved at least on a quarterly basis at Group ALCo and by the Board prior to the publication of the Group’s financial results.

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 39

Credit risk – Overview

Macroeconomic scenarios and weightings (continued)

The scenarios are described below and reflect the views of the Group as at the reporting date.

Base case: The world economy experiences a very deep recession in 2020 that commenced in March in most countries. The recession is unique in terms of its suddenness and severity. The scale of the immediate impact on employment in particular is unprecedented in its speed and scale, with jobless rates soaring in the space of a few weeks. Under this scenario, each of the Group’s core economies (Ireland, UK, US, Eurozone) suffer very significant contractions in the first half of 2020 as lockdowns dramatically reduce activity.

It is assumed that COVID-19 begins to fade during the second half of 2020 coinciding with a return to more normalised levels of activity, but that economic momentum does not gather speed until 2021. This is highly dependent on the efficacy of fiscal and central bank supports in mitigating the more serious scarring effects on the economies. In the Base case, economic activity does not return to pre-pandemic levels of activity until late 2022 in Ireland and mid-2023 in the UK. Unemployment, in all economies, remains significantly higher than the preCOVID-19 level until 2024 and beyond. In the Irish and UK markets, house prices are forecast to decline by up to 10% over the 2020 to 2021 period. Property prices in the Base case are assumed to return to slow growth thereafter.

This scenario assumes that, in terms of the EU/UK trade negotiations, the transition period is extended by one year due to delays in the negotiations caused by the COVID-19 pandemic. It is assumed that a EU/UK free trade agreement is finalised in 2021 and that it comes into effect at the start of 2022. This is expected to reduce growth in Ireland and the UK by c. 0.5% per annum over the 2022-2024 period.

Downside scenario (‘Persistent virus’): Under this scenario, measures to contain COVID-19, the prevalence of which proves more persistent than expected, are required to remain in place for a longer period of time than assumed in the Base case and extend well into the second half of 2020. This results in a larger decline in output in 2020 than in the Base case. As a result, additional scarring effects in 2021 are assumed, with further negative impact on business and consumer confidence, lower economic growth and more business failures, tighter financial conditions and a higher rate of unemployment (one to three percentage points higher than the Base case through to 2024). In this scenario, economic activity does not return to pre-pandemic levels of activity until 2023 in Ireland and 2025 in the UK. This scenario assumes the same outcome to the EU/UK trade negotiations as in the Base case.

Downside scenario (‘Failed EU/UK trade talks’): Under this scenario, COVID-19 and economy evolves as per the Base case but it becomes clear in late 2020 that the EU/UK trade talks will end in failure, as the UK remains unwilling to adhere to EU rules in return for favourable access to the Single Market. In this scenario, the UK falls back to trade under World Trade Organisation (WTO) rules, involving tariffs, customs checks, new regulatory controls etc. from the start of 2021.

Under such a scenario it is assumed that the failed trade talks result in an end to the nascent recovery in economic activity seen in the second half of 2020 in a Base case. Growth is assumed to remain sluggish from 2021 to mid-2023, with activity only picking up again in the second half of 2023. In this scenario, economic activity does not return to pre-pandemic levels of activity until 2024 in Ireland and 2027 in the UK.

It is assumed there is a sharp decline in trade between the UK and EU and outflow of investment from the UK, especially from the financial sector, as well as a decline in foreign direct investment. Unemployment remains at an elevated level over the forecast period.

The combination of the COVID-19 recession in 2020 followed by a hard Brexit at the start of 2021 results in sharp falls in Irish and UK property prices. The price declines are more significant in the UK than in Ireland as the recession in 2020 is followed by a long period of stagnation in property markets.

Downside scenario (‘Persistent virus plus second wave’): Under this scenario, it is assumed that COVID-19 proves more persistent than expected and a second outbreak of COVID-19 occurs in 2021. However, lessons learnt from the first outbreak are implemented such as containment measures and testing. Nevertheless, in such a scenario there are renewed lockdowns, financial conditions tighten and confidence suffers a further blow, all of which weighs on economic activity in 2021. In this scenario, economic activity does not return to prepandemic levels of activity until 2025 in Ireland and 2027 in the UK. Unemployment returns to very high levels during the second lockdown, peaking in 2021 but only slowly reducing through to 2024. This scenario assumes the same outcome to the EU/UK trade negotiations as in the Base case.

Given that the recession under this scenario is very deep and extends into 2021 and unemployment is at very high levels, there are large property price falls in Ireland and the UK in both residential and commercial property sectors.

40 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Overview

Macroeconomic scenarios and weightings (continued)

Upside scenario (‘Virus eliminated’): Under this scenario, COVID-19 is essentially eliminated in the second half of 2020 due to the success of social distancing and self-isolation measures. As a result, there is a much quicker rebound in activity than assumed under the Base case, which is supported by significant fiscal and monetary supports. There is still falling growth in 2020 but GDP returns to pre-pandemic levels of activity in the second half of 2021. Given Ireland’s exposure to international trade, a better than expected performance by its key trading partners would have a positive knock-on impact on its exports and in turn, on the rate of growth of the economy. This results in the 2021 rebound in Irish GDP being stronger than other economies. In this scenario, economic activity returns to pre-pandemic levels of activity in mid-2021 in both Ireland and the UK. As a result, employment growth is strong and unemployment is consistently 1%-2% lower than in the Base case. This scenario assumes the same outcome to the EU/UK trade negotiations as in the Base case.

While property prices fall as a result of the effects of containment measures on economic activity, the declines are more moderate. In addition, prices start to increase from mid-2021 onwards, as greater demand returns to the market.

The table below sets out the five year forecast for each of the key macroeconomic variables that are required to generate the scenarios or are material drivers of the ECL under each scenario at 30 June 2020:

Macroeconomic factor	Base 2020 % 2021 % 2022 % 2023 % 2024 % (7.5) 6.3 3.5 3.0 2.7 (5.5) (4.5) 4.0 3.5 3.0 10.0 9.0 7.1 6.3 6.0 (9.5) (5.5) 6.0 3.0 2.0 (4.6) 2.4 3.3 2.1 1.8 (15.5) 9.9 6.0 1.1 0.8 (6.5) 4.0 2.3 1.7 1.5 (5.0) (4.0) 3.5 3.5 3.5 7.5 6.0 5.5 5.3 5.0 (8.5) (5.0) 5.0 3.0 3.0	Downside Scenario (‘Persistent Virus’) 2020 % 2021 % 2022 % 2023 % 2024 % (9.5) 4.5 4.0 3.0 2.7 (7.5) (6.5) 1.0 4.5 3.5 12.8 12.0 9.6 8.3 7.6 (11.5) (7.5) 2.0 4.0 3.0 (7.6) 1.9 3.9 2.6 2.2 (18.9) 7.8 7.2 1.8 1.4 (9.0) 2.5 2.8 1.7 1.5 (7.0) (6.0) 1.0 4.0 3.0 9.5 8.0 7.0 6.5 6.0 (11.0) (8.0) 3.0 4.0 3.0	Downside Scenario (‘Failed EU/UK trade talks’)
			2020 % 2021 % 2022 % 2023 % 2024 %
Republic of Ireland GDP growth Residential property price growth Unemployment rate Commercial property price growth Employment growth Average disposable income growth United Kingdom GDP growth Residential property price growth Unemployment rate Commercial property price growth			(7.5) 3.5 1.5 1.8 2.5 (5.5) (8.0) (7.0) (1.0) 1.5 10.0 10.6 10.1 9.6 9.0 (9.5) (9.0) (5.5) (2.5) – (4.6) 0.3 1.5 1.4 1.7 (15.4) 6.5 3.1 0.9 1.2 (6.5) 1.8 – 0.3 1.3 (5.0) (7.5) (9.0) (6.5) 1.0 7.5 7.5 8.0 9.0 8.8 (8.5) (11.0) (9.5) (6.5) 1.5

Macroeconomic factor	Downside Scenario (‘Persistent Virus plus Second Wave’) 2020 % 2021 % 2022 % 2023 % 2024 % (9.5) (5.0) 8.5 3.5 3.0 (7.5) (14.0) (6.0) 3.0 4.0 12.8 14.5 12.0 9.8 9.0 (11.5) (16.0) (6.0) 3.0 4.0 (7.6) (1.2) 4.0 3.7 2.3 (18.8) (8.0) 17.4 3.1 1.7 (9.0) (5.0) 8.0 2.3 1.7 (7.0) (14.0) (6.0) 3.0 4.0 9.5 11.5 8.5 7.5 6.5 (11.0) (15.5) (5.5) 3.5 4.0	Upside Scenario (‘Virus eliminated’)
		2020 % 2021 % 2022 % 2023 % 2024 %
Republic of Ireland GDP growth Residential property price growth Unemployment rate Commercial property price growth Employment growth Average disposable income growth United Kingdom GDP growth Residential property price growth Unemployment rate Commercial property price growth		(5.0) 7.3 4.0 3.0 2.7 (4.0) – 4.0 3.0 3.0 9.1 7.4 6.0 5.3 5.0 (7.5) (1.0) 4.0 3.0 3.0 (3.5) 3.1 2.8 2.1 1.8 (12.2) 10.8 5.4 1.1 0.8 (4.0) 5.0 2.8 1.7 1.5 (4.0) 0.5 3.5 3.0 3.0 6.5 5.0 4.5 4.2 4.0 (7.0) (1.0) 3.5 3.0 3.0

AIB Group plc Half-Yearly Financial Report 2020 41

Credit risk – Overview

Macroeconomic scenarios and weightings (continued)

The key changes to the scenario forecasts in the reporting period are driven by the COVID-19 pandemic. The extent of contagion and the wider economic impact of COVID-19 was not foreseen at 31 December 2019. The severe and sudden shock to all economies has resulted in a significant re-assessment of the forecasts. The 5 year average forecasts that applied at December 2019 is outlined on page 94 of the Annual Financial Report 2019.

The five scenarios detailed above are used to reflect a representative sample of possible outcomes. The ECL allowance reflects a weighted average of the credit loss estimates under the five scenarios.

Similar to the scenario forecasts, the probability weighting assigned to each scenario is proposed by the ERU, supported with reference to external market information, with a review and challenge from ERM.

These weightings are reviewed regularly during the reporting period. Given the significant change in the forecasts, comparing the weightings to previous reporting periods is less useful than normal. The key drivers of the weightings are:

• The much larger aggregate downside weighting (35%) versus the upside weighting (10%) reflects the Group’s view that risks are skewed to the downside in view of the fact that, in many countries, efforts at containing the spread of COVID-19 (notably the Americas) are proving unsuccessful, as at the reporting date. This is consistent with external commentary that COVID-19 related risks remain to the downside.

• The ‘Persistent Virus’ scenario reflects the fact that the virus is likely to prove difficult to bring under control with the consequence that the economic recovery may be delayed or weaker than in the Base case. This has been assigned the highest downside weighting (20%).

• The ‘Failed EU/UK Trade Talks’ scenario has been assigned the next highest weighting (10%) reflecting the fact that an agreement here lies within the power of governments and so, while negotiations may continue to be fraught, the likelihood of a deal remains high.

• The downside scenario ‘Persistent Virus plus Second Wave’ is seen as a particularly unlikely event as, in the event of a ‘second wave’, we expect that lockdown measures will be more focussed (i.e. confined to a locality, or to specific sectors) than for the first lockdown, thus mitigating a significant element of the economic risks. It is assigned a 5% weighting.

The weightings that have been applied as at the reporting date are below. The weights applied at December 2019 is outlined on page 95 of the Annual Financial Report 2019.

Scenario	Weighting
	30 June 2020
Base	55%
Downside Scenario (‘Persistent Virus’)	20%
Downside Scenario (‘Failed EU/UK trade talks’)	10%
Downside Scenario (‘Persistent Virus plus Second Wave’)	5%
Upside Scenario (‘Virus eliminated’)	10%

In assessing the adequacy of the ECL allowance, the Group has considered available forward looking information as of the balance sheet date in order to estimate the future expected credit losses. The Group, through its risk management processes (including the use of expert credit judgement and other techniques) assesses its ECL allowance for events that cannot be captured by the statistical models it uses and for other risks and uncertainties. The assessment of ECL at the balance sheet date does not reflect the worst case outcome, but rather a probability weighted outcome of the five scenarios. Should the credit environment deteriorate beyond the Group’s expectation, the Group’s estimate of ECL would increase accordingly.

42 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Overview

Sensitivities*

The Group’s estimates of expected credit losses are responsive to varying economic conditions and forward looking information. These estimates are driven by the relationship between historic experienced loss and the combination of macroeconomic variables. Given the co-relationship of each of the macroeconomic variables to one another and the fact that loss estimates do not follow a linear path, a sensitivity to any single economic variable is not meaningful. As such, the following sensitivities are provided which indicate the approximate impact on the current ECL allowance before the application of probability weights to the forward looking macroeconomic scenarios. The sensitivities provide an estimate of ECL movements driven by both changes in model parameters and quantitative ‘significant increase in credit risk’ (“SICR”) staging assignments.

Relative to the base scenario, for the 100% downside scenarios ‘Persistent Virus’, ‘Failed EU/UK Trade Talks’ and ‘Persistent Virus plus Second Wave’ scenario, the ECL allowance increases by 28%, 21% and 55% respectively. In the 100% upside scenario, the ECL allowance declines by 13%, showing that the ECL impact in the three downside scenarios is greater than that of the upside scenario. For 30 June 2020, a 100% downside ‘Persistent Virus’, ‘Failed EU/UK Trade Talks’ and ‘Persistent Virus plus Second Wave’ scenario sees a higher ECL allowance sensitivity of € 638 million, € 466 million and € 1,249 million respectively compared to base (€ 467 million, € 295 million and € 1,078 million respectively compared to reported). Reasonably similar relative impacts are observed for the AIB UK portfolio.

Loans and advances to customers	ECL allowance at 30 June 2020
	Reported Base Downside Scenario (‘Persistent Virus’) Downside Scenario (‘Failed EU/UK trade talks’) Downside Scenario (‘Persistent Virus plus Second Wave’) Upside Scenario (‘Virus eliminated’) Total Total Total Total Total Total € m € m € m € m € m € m
Residential mortgages Other personal Property and construction Non-property business	836 785 926 962 1,146 726 237 228 259 252 292 215 490 455 677 557 824 356 790 726 935 866 1,117 623
Total Loan commitments Financial guarantee contracts	2,353 2,194 2,797 2,637 3,379 1,920 55 47 73 65 97 38 33 29 38 34 43 26
Of which: AIB UK segment	2,441 2,270 2,908 2,736 3,519 1,984
	302 286 358 372 447 239

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 43

Credit risk – Overview

Management judgements*

The Group reflects reasonable and supportable information that is available at the reporting date, in the risk measurement of ECLs.

Management adjustments may be required to increase or decrease ECLs to reflect available reasonable and supportable information to include risk factors that have not been included in the risk measurement process or where there is insufficient time to appropriately incorporate relevant new information. Such adjustments should be temporary in nature. If an ongoing adjustment is required, the risk measurement methodology should be updated to eliminate the adjustment. Adjustments are directionally consistent with forward looking forecast, supported by appropriate documentation and subject to appropriate governance processes. Experienced credit judgement is used to incorporate the expected impact of all reasonable and supportable forward looking information, including macroeconomic factors, on ECLs.

As a result, the calculation of the ECL allowance on loans and advances to customers at 30 June 2020 includes the following management adjustments as outlined below:

1. ROI PDH mortgage post model adjustments

Mortgage (PDH) post model adjustment

The Group’s strategy is to deliver sustainable long term solutions and to work with customers through their financial difficulties. This has primarily been through work-out arrangements with customers, including arrears capitalisations, split mortgages, low fixed interest rate, voluntary sale for loss, negative equity trade down and positive equity solution or through loan recovery following realisation of collateral. The mortgage LGD model is based on empirical internal data for such resolved cases, and represents the Group’s expected loss based on those expected work-out strategies. However, it is recognised that alternative recovery strategies, such as portfolio sales, also need to be considered which were not envisaged at the time of model development. Accordingly, a post model adjustment has been applied to a cohort of Stage 3 loans to reflect the potential resolution outcomes not currently considered within the modelled outcome.

The post model adjustment is calculated on a range of alternative recovery assumptions (including portfolio sales). An independent external benchmark exercise has been undertaken to provide information to support the range of alternative recovery outcomes with reference to collateral values underpinning the loans and the underlying market conditions. The cohort of loans to which the post model adjustment applies continues to be primarily those PDH loans in Stage 3 and in deep arrears (greater than 180 days past due) and certain loans within the 90 to 180 days past due category.

The ECL allowance of € 800 million for residential mortgages in Ireland at 30 June 2020 includes € 250 million as a result of this management adjustment. At 31 December 2019, the ECL allowance of € 552 million included a management adjustment of € 208 million. The main driver of the movement in the post model adjustment in the six months to 30 June 2020 is the impact of COVID-19 on the market outlook and the revised economic scenarios used for modelling. This has resulted in an additional income statement charge of € 67 million.

Forbearance product post model adjustment

An element of forborne loans in Stage 3 were identified in 2019 which required an alternative treatment at loan expiry in line with the Group’s current mortgage resolution strategy. This alternative treatment is not currently captured within the modelled ECL outcome for this product. Management have considered that a proportion of this cohort (€ 152 million, 31 December 2019: € 160 million) may require an alternative treatment. The range of quantitative outcomes in determining the estimated loss amounts at loan expiry has resulted in a post model adjustment of € 18 million as at 30 June 2020 (31 December 2019: € 20 million).

Lifetime interest only post model adjustment

A cohort of non-defaulted lifetime interest only mortgages were identified in 2019 for individual assessment to confirm likeliness to pay (31 December 2019: € 103 million). In the six months to 30 June 2020, this cohort of loans has reduced to € 101 million, of which € 44 million has migrated to Stage 2 and € 5 million to Stage 3. The remaining loans within this cohort (€ 52 million) have been allocated to Stage 2, pending individual assessment, reflecting management’s qualitative judgement of a significant increase in credit risk given the additional end of term risk not fully incorporated into modelled outcomes. This has resulted in a post model adjustment of € 11 million as at 30 June 2020 (31 December 2019: € 9 million).

Further information on the above overlays is not provided as the Group believes that such information could compromise the resolution outcomes given the underlying nature of the portfolios.

*Forms an integral part of the condensed consolidated interim financial statements

44 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Overview

Management judgements _(continued)*_

2. COVID-19 modifications post model adjustment

The performing mortgage and personal loans which have been granted COVID-19 short term modifications (e.g. payment breaks) have been identified as requiring a temporary ECL post model adjustment due to the heightened risk of downward stage migration on the expiry of payment breaks. The short term payment breaks for temporary liquidity support as a result of COVID-19, have been deemed to not automatically trigger significant increase in credit risk or loan default. This treatment is in line with regulatory and accounting guidance.

The post model adjustment increases the ECL allowance on existing € 2,841 million Stage 1 and Stage 2 residential mortgage and € 178 million Stage 1 other personal loans which have received a COVID-19 modification. It reflects the risk that on expiry of the temporary payment breaks, some of these loans will require further support, e.g. forbearance, as these borrowers would otherwise be unable to return to their prior contractual loan repayments. Therefore, the ECL post model adjustment allows for early recognition of anticipated downward stage migration on expiry of the temporary COVID-19 modifications.

The post model adjustment amounts to € 42 million ECL at 30 June 2020 and is based on stage migration assumptions which take into account (i) the risk associated with the borrowers employment sector and the extent to which it has been impacted by COVID-19, (ii) high level analysis of impact on the borrowers income and (iii) expert management judgement. The post model adjustment is temporary in nature and will be unwound upon expiry of the temporary COVID-19 modifications when greater clarity will exist whether significant increases in credit risk or unlikeliness to pay have occurred.

3. Property and construction portfolio post model adjustment

A review of the ECL model for the property and construction portfolio in Ireland determined that the historically observed relationships between default rates and macroeconomic factors in the model are not fully reflective of expectations for a portion of the portfolio. While the modelled outcome suggested that certain cases had moved to Stage 2, expert credit judgement determined that a significant increase in credit risk had not occurred and that these cases, amounting to € 839 million, be retained in Stage 1. This resulted in € 34 million of modelled ECL being reversed.

4. Syndicated lending portfolio post model adjustment

A detailed review of the ECL model for the syndicated lending portfolio in the CIB business segment was carried out in late 2019 and it was determined that historically observed relationships between default rates and macroeconomic factors in the model needed to be revised. As a result, a post model adjustment for this portfolio of € 37 million (increase on Stage 1: € 11 million and Stage 2: € 26 million) has been applied at 30 June 2020 to increase the ECL allowance to € 118 million. At 31 December 2019, a post model adjustment of € 16 million was applied to increase the ECL allowance to € 20 million (Stage 1: € 15 million and Stage 2: € 5 million). The post model adjustment increased modelled probabilities of default based on more recent observed experience.

5. UK management post model adjustment

For the UK segment, £ 47 million of post model adjustments have been applied, increasing Stage 1 by £ 28 million, Stage 2 by £ 7 million and Stage 3 by £ 12 million.

At 31 December 2019, a management overlay of £ 15 million was applied to the UK ECL allowance to take account of the political and economic uncertainties that existed and that were not adequately captured in the output from the macroeconomic scenarios and weightings. The £ 47 million post model adjustment also addresses these issues, therefore, the net impact is £ 32 million.

Stage 1 and Stage 2 adjustments followed in-depth reviews performed with UK sector experts to understand in more detail the anticipated account behaviour during the COVID-19 pandemic, and subsequent periods, to project future cover rates.

For Stage 3, an adjustment is required to reflect the forward looking macroeconomic environment and incorporate the anticipated economic downturn as a result of COVID-19.

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 45

Credit risk – Overview

ECL governance*

The Board has put in place a framework, incorporating the governance and delegation structures commensurate with a material risk, to ensure credit risk is appropriately managed throughout the Group.

The key governance points in the ECL approval process during 2020 were:

• Model Risk Committee;

• Asset and Liability Committee;

• Business level ECL Committees;

• Group Credit Committee; and

• Board Audit Committee.

For ECL governance, the Group management employs its expert judgement on the adequacy of ECL. The judgements are supported by detailed information on the portfolios of credit risk exposures, and by the outputs of the measurement and classification approaches described above, coupled with internal and external data provided on both short term and long term economic outlook. Business segments and Group management are required to ensure that there are appropriate levels of cover for all of its credit portfolios and must take account of both accounting and regulatory compliance when assessing the expected levels of loss.

Assessment of the credit quality of each business segment is initially informed by the output of the quantitative analytical models but may be subject to management adjustments. This ECL output is then scrutinised and approved at individual business unit level (ECL Committee) prior to onward submission to the Group Credit Committee (GCC). GCC reviews and challenges ECL levels for onward recommendation to the Board Audit Committee.

*Forms an integral part of the condensed consolidated interim financial statements

46 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Overview

Credit risk exposure derives from standard on-balance sheet products such as mortgages, loans, overdrafts and credit cards. In addition, credit risk arises from other products and activities including, but not limited to: “off-balance sheet” guarantees and commitments; the trading portfolio (e.g. bonds and derivatives); investment securities; asset backed securities; and the failure/partial failure of a trade in a settlement or payments system.

The following table summarises financial instruments in the statement of financial position:*

		30 June 2020 Half-year 30 June 2020 Statement of financial position Income statement ECL allowance Carrying amount Net credit impairment (charge)/ writeback € m € m € m – 14,666 – – 50 – – 1,970 – 2,353 58,140 (1,168) n/a 76 n/a 2,353 58,216 (1,168) 1 19,264 (1) (55) (55) (37) (33) (33) (10) (1,216)	30 June 2020 Half-year 30 June 2020 Statement of financial position Income statement ECL allowance Carrying amount Net credit impairment (charge)/ writeback € m € m € m – 14,666 – – 50 – – 1,970 – 2,353 58,140 (1,168) n/a 76 n/a 2,353 58,216 (1,168) 1 19,264 (1) (55) (55) (37) (33) (33) (10) (1,216)		31 December 2019 Statement of financial position ECL allowance Carrying amount € m € m – 11,982 – 57 – 1,478 1,238 60,811 n/a 77 1,238 60,888 – 16,516 (19) (19) (23) (23)	31 December 2019 Statement of financial position ECL allowance Carrying amount € m € m – 11,982 – 57 – 1,478 1,238 60,811 n/a 77 1,238 60,888 – 16,516 (19) (19) (23) (23)	Half-year 30 June 2019	Half-year 30 June 2019
	Exposure € m 14,666 50 1,970			Exposure € m 11,982 57 1,478				Income statement
		ECL allowance € m			ECL allowance € m			Net credit impairment (charge)/ writeback € m
Cash and balances at central banks Items in course of collection Loans and advances to banks Loans and advances to customers: at amortised cost at FVTPL Investment debt securities(1)		– – –			– – –			– – –
	60,493 76	2,353 n/a	58,140 76	62,049 77	1,238 n/a	60,811 77		(19) n/a
	60,569 19,265 11,741 696	2,353 1		62,126 16,516 11,539 711	1,238 –			(19) – – 10
Loan commitments		(55)			(19)
Financial guarantee contracts Total		(33)			(23)
								(9)

(1) ECL allowance amounting to € 4 million (31 December 2019: € 4 million) included in carrying amount of investment securities at FVOCI. There is also an ECL allowance of € 1 million on investment debt securities at amortised cost.

There was a € 1,216 million net credit impairment charge in the six months to 30 June 2020. This comprised of a € 1,168 million charge on loans and advances to customers (net re-measurement of ECL allowance charge of € 1,202 million, offset by recoveries of amounts previously written off of € 34 million) and a € 47 million charge for off-balance sheet exposures. There was also a € 1 million charge on investment debt securities measured at amortised cost.

For further details on the net credit impairment charge in the six months to 30 June 2020, see note 12 ‘Net credit impairment charge’ in the condensed consolidated interim financial statements.

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 47

Credit risk – Credit profile of the loan portfolio

The Group’s customer loan portfolio comprises loans (including overdrafts), instalment credit and finance lease receivables. An overdraft provides a demand credit facility combined with a current account. Borrowings occur when the customer’s drawings take the current account into debit. The balance may, therefore, fluctuate with the requirements of the customer. Although overdrafts are contractually repayable on demand (unless a fixed term has been agreed), provided the account is deemed to be satisfactory, full repayment is not generally demanded without notice.

The following table analyses loans and advances to customers at amortised cost by segment, internal credit ratings and ECL staging:

Amortised cost

Amortised cost
Gross carrying amount
	Retail Banking € m		CIB € m		AIB UK € m		Group € m
Residential mortgages Other personal Property and construction Non-propertybusiness	29,280 2,528 784 3,266		629 63 4,314 10,948		1,118 108 2,038 5,300		– 8 – 109
Total Analysed by internal credit ratings(1)	35,858		15,954		8,564		117
Strong Satisfactory	24,520 5,719		8,238 6,435		4,706 3,119		24 93		37,488 15,366
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	30,239 1,779 754 2,533 3,086		14,673 820 101 921 360		7,825 330 32 362 377		117 – – – –
Gross carrying amount Analysed by ECL staging	35,858		15,954		8,564		117
Stage 1 Stage 2 Stage 3 POCI	28,882 3,905 2,880 191		10,272 5,404 278 –		6,989 1,198 377 –		117 – – –
Total 35,858 ECL allowance – statement of financialposition	35,858		15,954		8,564		117
Stage 1 Stage 2 Stage 3 POCI	178 283 974 40		129 388 72 –		112 73 104 –		– – – –
Total ECL allowance coverpercentage	1,475		589		289		–
	%		%		%		%
Stage 1 Stage 2 Stage 3 POCI	0.6 7.2 33.8 20.8		1.3 7.2 25.7 –		1.6 6.1 27.7 –		– – – –
Income statement
	€ m		€ m
Net re-measurement of ECL allowance Recoveries of amountspreviouslywritten-off	513 (31)		507 –
Net credit impairment charge/(writeback)	482		507
	%		%
Net credit impairment charge/(writeback) on average loans – annualised	2.67		6.30

(1) Further analysis of internal credit grade profile by ECL staging is set out on pages 50 and 51. Further details on the internal credit ratings are outlined on pages 82 and 83 of the Annual Financial Report 2019.

*Forms an integral part of the condensed consolidated interim financial statements

48 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio

The following table analyses loans and advances to customers at FVTPL by segment and internal credit ratings:

FVTPL Carrying amount				30 June 2020 Group Total € m € m – 76 – 76 – 76 – – – 76 – – – – – – – – – 76	30 June 2020 Group Total € m € m – 76 – 76 – 76 – – – 76 – – – – – – – – – 76				31 December 2019	31 December 2019
	Retail Banking € m	CIB € m	AIB UK € m	Group € m		Retail Banking € m	CIB € m	AIB UK € m	Group € m	Total € m
Property and construction	–	76	–	–		–	77	–	–	77
Total Analysed by internal credit ratings	–	76	–	–		–	77	–	–	77
Strong Satisfactory	– –	76 –	– –	– –	76 –	– –	77 –	– –	– –	77 –
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	–	76	–	–		–	77	–	–	77
	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –
	– –	– –	– –	– –		– –	– –	– –	– –	– –
Total	–	76	–	–		–	77	–	–	77

Gross loans and advances to customers

Gross loans and advances to customers reduced by € 1.6 billion in the six months to 30 June 2020. Of the total portfolio of € 60.6 billion, € 60.5 billion is measured at amortised cost with the remaining € 0.1 billion being measured at fair value through profit or loss. The reduction in the period was primarily driven by redemptions/repayments net of interest credited and foreign exchange transactions exceeding new lending activity. The level of new lending activity in the six months to 30 June 2020 of € 4.4 billion has been impacted by the COVID-19 pandemic. As a result, new lending activity is € 1.6 billion lower than the comparable period in 2019 (30 June 2019: € 6.0 billion), as reduced demand has been experienced across all asset classes. However, despite the reduced demand, € 4.3 billion of new lending activity is in the strong/satisfactory credit quality category. Overall, from a segment perspective, the reduction was primarily due to Retail Banking which decreased by € 0.7 billion and AIB UK which decreased by € 0.6 billion.

Of the total loans to customers of € 60.6 billion, € 52.9 billion or 87% are rated as either ‘strong’ or ‘satisfactory’ which is a decrease of € 2.4 billion (31 December 2019: € 55.3 billion or 89%), and was evidenced across all segments. The ‘criticised’ classification includes ‘criticised watch’ of € 2.9 billion and ‘criticised recovery’ of € 0.9 billion, the total of which has increased by € 0.4 billion in the six months to 30 June 2020. The total performing book has decreased by € 2.0 billion to € 56.8 billion or 94% of gross loans and advances to customers (31 December 2019: € 58.8 billion and 95%).

The COVID-19 pandemic has also had a significant negative impact on the credit quality of the total portfolio. Stage 2 loans have increased by € 6.5 billion to € 10.5 billion. The increase was driven by net transfers to Stage 2 of € 8.1 billion, predominately from Stage 1, which was slightly offset by redemptions/repayments net of interest credited of € 0.5 billion. The transfers to Stage 2 reflect the downward revision of the macroeconomic forecasts and the contraction of the economy as a result of the COVID-19 pandemic and cases migrating to Stage 2 following case assessments.

Stage 3 loans have increased by € 0.4 billion to € 3.5 billion. The increase was primarily as a result of net transfers to Stage 3 of € 0.5 billion which was slightly offset by redemptions/repayments net of interest credited of € 0.2 billion. The transfers to Stage 3 were impacted by cases migrating from Stage 2 to Stage 3, particularly those identified as directly impacted by COVID-19 in the non-property portfolio.

Non-performing loans are aligned to the Group’s definition of default and Stage 3 credit impaired with the exception of those originating in Stage 1 (€ 0.1 billion) and POCI (€ 0.2 billion). Non-performing loans have increased by € 0.5 billion to € 3.8 billion or 6.3% of gross loans and advances to customers (31 December 2019: € 3.3 billion and 5.4%). The increase reflects an additional € 0.3 billion following amendments made to the definition of default in the period (of which € 0.1 billion originating in Stage 1 and € 0.2 billion impacting Stage 3) and € 0.2 billion of net underlying flow to non-performing loans.

AIB Group plc Half-Yearly Financial Report 2020 49

Credit risk – Credit profile of the loan portfolio

ECL allowance

The ECL allowance on loans and advances to customers has increased by € 1.1 billion to € 2.4 billion in the six months to 30 June 2020. Stage 1 and Stage 2 were the key drivers, as the ECL allowance increased by € 0.3 billion to € 0.4 billion and € 0.5 billion to € 0.7 billion respectively. These increases were primarily as a result of the downward revision of the macroeconomic forecasts which impacted Stage 1 by € 0.2 billion and Stage 2 by € 0.4 billion. Stage 3 ECL allowance increased by € 0.3 billion to € 1.2 billion and was also impacted by the macroeconomic changes and the increase in the mortgage PDH post model adjustment. The total ECL cover rate has increased from 2.0% at 31 December 2019 to 3.9% at 30 June 2020.

Income Statement

There was a € 1,216 million net credit impairment charge in the six months to 30 June 2020 (30 June 2019: € 9 million net credit impairment charge).

This comprised of a € 1,168 million charge on loans and advances to customers and a € 47 million charge for off-balance sheet exposures (30 June 2019: credit impairment charge of € 19 million and a writeback of € 10 million respectively). There was also a € 1 million charge on investment debt securities measured at amortised cost.

The € 1,168 million charge comprised a € 1,202 million ECL re-measurement allowance offset by € 34 million of recoveries of amounts previously written-off (30 June 2019: € 19 million charge comprising € 66 million charge offset by € 47 million of recoveries).

There were a number of key drivers which contributed to the € 1,202 million charge, the most significant were; the change in macroeconomic factors and probability weightings across economic scenarios used in ECL reporting, stage migration from credit downgrades in highly impacted sectors as a result of COVID-19, and post model adjustments to appropriately reflect expected COVID-19 impacts as outlined under the management judgements section. The ECL allowance movements are outlined on page 72.

The onset of the COVID-19 pandemic and associated lockdown measures and restrictions on economic activity has resulted in a material change in the macroeconomic scenarios used for the purpose of ECL calculation. There are now five scenarios compared to four at 31 December 2019. Details on the changes to the macroeconomic scenarios and weightings are outlined on pages 38 to 41. The revision of the macroeconomic factors and probability weightings throughout the six months to 30 June 2020 has led to significant changes in the probability of default across the Group’s loan portfolio. This has resulted in a € 705 million charge. The impact was mainly observed in Stage 2 (€ 391 million) and Stage 1 (€ 216 million) with a € 90 million impact in Stage 3. The property (€ 267 million), non-property (€ 233 million) and mortgage (€ 166 million) asset classes were predominately impacted.

Stage migration from individual case assessment of exposures in high impacted COVID-19 sectors also impacted the ECL charge. Throughout the second quarter of 2020, case reviews were conducted across the CIB portfolio which led to a number of credit downgrades contributing to a further charge of € 209 million. € 154 million was as a result of exposures migrating from Stage 1 to Stage 2 and € 55 million to Stage 3. Borrowers in the non-property asset class were particularly impacted, accounting for € 134 million of the total € 209 million charge. There was also a further € 162 million charge due to net ECL re-measurements within each stage.

As outlined under the management judgements section, the impact of the changes to the PDH mortgage post model adjustment resulted in an additional € 67 million charge in Retail Banking. Similarly within Retail Banking, a post model adjustment in relation to COVID-19 modified loans within the mortgages and other personal portfolio which were adjusted to cater for the higher likelihood of default for those seeking modifications resulted in an impact of € 38 million and € 4 million respectively. The UK post model adjustment also resulted in an additional £ 32 million charge reflecting managements view of likely sector specific default rates as a result of COVID-19.

Recoveries of amounts previously written-off of € 34 million (30 June 2019: € 47 million) included € 25 million recoveries (30 June 2019: € 29 million) which reflects cash recoveries against legacy non-performing exposures in line with the Group’s resolution strategies. The remaining € 9 million (30 June 2019: € 18 million) relates to interest received as a result of loans curing from Stage 3.

50 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio

Internal credit grade profile by ECL staging

The table below analyses the internal credit grading profile by ECL staging for loans and advances to customers:

Amortised cost				30 June 2020 POCI Total € m € m 2 37,488 – 15,366 2 52,854 1 2,929 8 887 9 3,816 180 3,823 191 60,493 (40) (2,353) 151 58,140 2 23,829 – 3,327 2 27,156 1 1,084 8 540 9 1,624 180 2,247 191 31,027 (40) (836) 151 30,191 – 1,230 – 1,027 – 2,257 – 169 – 53 – 222 – 228 – 2,707 – (237) – 2,470 – 3,819 – 2,380 – 6,199 – 299 – 104 – 403 – 534 – 7,136 – (490) – 6,646*	30 June 2020 POCI Total € m € m 2 37,488 – 15,366 2 52,854 1 2,929 8 887 9 3,816 180 3,823 191 60,493 (40) (2,353) 151 58,140 2 23,829 – 3,327 2 27,156 1 1,084 8 540 9 1,624 180 2,247 191 31,027 (40) (836) 151 30,191 – 1,230 – 1,027 – 2,257 – 169 – 53 – 222 – 228 – 2,707 – (237) – 2,470 – 3,819 – 2,380 – 6,199 – 299 – 104 – 403 – 534 – 7,136 – (490) – 6,646*				31 December 2019*	31 December 2019*
	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m		Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m
Total Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing
	35,531 9,785	1,955 5,581	– –	2 –	37,488 15,366	42,123 11,346	329 1,452	– –	2 –	42,454 12,798
	45,316	7,536	–	2		53,469	1,781	–	2	55,252
	813 23	2,115 856	– –	1 8	2,929 887	1,111 119	1,163 1,048	– –	1 8	2,275 1,175
	836 108	2,971 –	– 3,535	9 180		1,230 24	2,211 –	– 3,140	9 183	3,450 3,347
Gross carrying amount ECL allowance	46,260 (419)	10,507 (744)	3,535 (1,150)	191 (40)		54,723 (141)	3,992 (202)	3,140 (864)	194 (31)	62,049 (1,238)
Carrying amount Analysis by asset class Residential mortgages Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	45,841	9,763	2,385	151		54,582	3,790	2,276	163	60,811
	23,290 2,628	537 699	– –	2 –	23,829 3,327	23,766 2,795	162 610	– –	2 –	23,930 3,405
	25,918	1,236	–	2		26,561	772	–	2	27,335
	314 6	769 526	– –	1 8	1,084 540	405 4	668 704	– –	1 8	1,074 716
	320 3	1,295 –	– 2,064	9 180		409 3	1,372 –	– 2,143	9 183	1,790 2,329
Gross carrying amount ECL allowance	26,241 (101)	2,531 (117)	2,064 (578)	191 (40)		26,973 (10)	2,144 (52)	2,143 (476)	194 (31)	31,454 (569)
Carrying amount Other personal Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	26,140	2,414	1,486	151		26,963	2,092	1,667	163	30,885
	1,145 843	85 184	– –	– –	1,230 1,027	1,312 1,074	29 106	– –	– –	1,341 1,180
	1,988	269	–	–		2,386	135	–	–	2,521
	71 1	98 52	– –	– –	169 53	117 –	103 50	– –	– –	220 50
	72 1	150 –	– 227	– –		117 1	153 –	– 192	– –	270 193
Gross carrying amount ECL allowance	2,061 (42)	419 (57)	227 (138)	– –		2,504 (21)	288 (40)	192 (114)	– –	2,984 (175)
Carrying amount Property and construction Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	2,019	362	89	–		2,483	248	78	–	2,809
	2,805 1,328	1,014 1,052	– –	– –	3,819 2,380	4,983 1,313	78 166	– –	– –	5,061 1,479
	4,133	2,066	–	–		6,296	244	–	–	6,540
	118 3	181 101	– –	– –	299 104	114 86	115 68	– –	– –	229 154
	121 93	282 –	– 441	– –		200 9	183 –	– 367	– –	383 376
Gross carrying amount ECL allowance	4,347 (121)	2,348 (190)	441 (179)	– –		6,505 (31)	427 (26)	367 (132)	– –	7,299 (189)
Carrying amount	4,226	2,158	262	–		6,474	401	235	–	7,110

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 51

Credit risk – Credit profile of the loan portfolio

Internal credit grade profile by ECL staging (continued)

				30 June 2020 POCI Total € m € m – 8,610 – 8,632 – 17,242 – 1,377 – 190 – 1,567 – 814 – 19,623 – (790) – 18,833*				31 December 2019*	31 December 2019*
	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m
Non-property business Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	8,291 4,986 13,277 310 13 323 11	319 3,646 3,965 1,067 177 1,244 –	– – – – – – 803	– – – – – – –	12,062 6,164 18,226 475 29 504 11	60 570 630 277 226 503 –	– – – – – – 438	– – – – – – –
									12,122 6,734
									18,856
									752 255
									1,007 449
Gross carrying amount ECL allowance	13,611 (155)	5,209 (380)	803 (255)	– –	18,741 (79)	1,133 (84)	438 (142)	– –	20,312 (305)
Carrying amount	13,456	4,829	548	–	18,662	1,049	296	–	20,007

*Forms an integral part of the condensed consolidated interim financial statements

52 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio

Non-performing exposures (“NPE”) to customers

The table below analyses non-performing loans and advances to customers by asset class:

Non-performing loans	30 June 2020
	Residential mortgages Other personal Property and construction Non-property business Total € m € m € m € m € m
At amortised cost Collateral disposals Unlikely to pay (including > 90 days past due) Non-performingloansprobation	120 8 59 18 205 1,917 198 352 686 3,153 210 22 123 110 465
Totalgross carrying amount at amortised cost	2,247 228 534 814 3,823
Total carrying amount at FVTPL	– – – – –
Total non-performing loans and advances to customers Total ECL allowance on non-performing loans and advances to customers Non-performing loans as % of total loans and advances to customers Non-performing loans	2,247 228 534 814 3,823
	618 138 206 257 1,219
	7.2% 8.4% 7.4% 4.2% 6.3%
	31 December 2019
	Residential mortgages Other personal Property and construction Non-property business Total € m € m € m € m € m
At amortised cost Collateral disposals Unlikely to pay (including > 90 days past due) Non-performingloansprobation	128 10 67 21 226 1,931 168 248 345 2,692 270 15 61 83 429
Totalgross carrying amount at amortised cost	2,329 193 376 449 3,347
Total carrying amount at FVTPL	– – – – –
Total non-performing loans and advances to customers Total ECL allowance on non-performing loans and advances to customers Non-performing loans as % of total loans and advances to customers	2,329 193 376 449 3,347
	507 115 132 144 898
	7.4% 6.4% 5.1% 2.2% 5.4%

Non-performing loans have increased by € 0.5 billion to € 3.8 billion in the six months to 30 June 2020. The increase reflects an additional € 0.3 billion following amendments made to the Group’s definition of default exit criteria, and alignment of arrears days past due (DPD) count methodology to the European Banking Authority (EBA) convention, and € 0.2 billion of net underlying flow to non-performing loans.

AIB Group plc Half-Yearly Financial Report 2020 53

Credit risk – Credit profile of the loan portfolio

Summary of movements on ECL allowance

The following table summarises the movements on the ECL allowance on loans and advances to customers:

	30 June 2020*
	Residential mortgages Other personal Property and construction Non-property business Total € m € m € m € m € m
At 1 January 2020 Net re-measurement of ECL allowance – customers Changes in ECL allowance due to write-offs Changes in ECL allowance due to disposals Exchange translation adjustments/other	569 175 189 305 1,238 294 84 314 510 1,202 (25) (21) (14) (12) (72) – – – (2) (2) (2) (1) 1 (11) (13)
At 30 June 2019	836 237 490 790 2,353
	31 December 2019*
	Residential mortgages Other personal Property and construction Non-property business Total € m € m € m € m € m
At 1 January 2019 Net re-measurement of ECL allowance – customers Changes in ECL allowance due to write-offs Changes in ECL allowance due to disposals Exchange translation adjustments/other	713 253 480 593 2,039 129 32 (27) (17) 117 (188) (39) (100) (35) (362) (86) (68) (180) (231) (565) 1 (3) 16 (5) 9
At 31 December 2019	569 175 189 305 1,238

For detailed analysis of ECL allowance movements, see pages 72 to 75.

*Forms an integral part of the condensed consolidated interim financial statements

54 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Residential mortgages

Residential mortgages amounted to € 31.0 billion at 30 June 2020, with the majority (96%) relating to residential mortgages in the Republic of Ireland and the remainder relating to the United Kingdom. This compares to € 31.5 billion at 31 December 2019, of which 96% related to residential mortgages in the Republic of Ireland. The split of the residential mortgage portfolio was owner-occupier € 28.7 billion and buy-to-let € 2.3 billion (31 December 2019: owner-occupier € 29.0 billion and buy-to-let € 2.5 billion).

At 30 June 2020, a € 0.8 billion ECL allowance was held against the Group’s residential mortgages portfolio, or 2.7% total cover rate.

During the six months to 30 June 2020, there was a net credit impairment charge of € 279 million to the income statement. This was primarily as a result of the revised macroeconomic assumptions due to COVID-19 (€ 166 million) and a further € 123 million charge on post model adjustments as outlined under the management judgements section on pages 43 and 44. In addition, the Group recovered € 15 million on loans previously written-off.

Residential mortgages – page 55

• Residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging

Republic of Ireland residential mortgages – pages 56 to 59

• By ECL staging

Residual debt, which is now unsecured following the disposal of property on which the residential mortgage was secured, is included in the residential mortgage portfolio and as such, is included in the tables within this section.

AIB Group plc Half-Yearly Financial Report 2020 55

Credit risk – Credit profile of the loan portfolio – Asset class analysis Loans and advances to customers – Residential mortgages

The following table analyses the residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging:

Gross carrying amount
	Retail Banking € m	CIB € m	AIB UK € m	Group € m
Owner occupier Buy-to-let	27,224 2,056	462 167	1,031 87	– –
Total Analysed by internal credit ratings	29,280	629	1,118	–
Strong Satisfactory	22,659 2,921	549 57	621 349	– –	23,829 3,327
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	25,580	606	970	–
	1,026 524	12 8	46 8	– –	1,084 540
	1,550 2,150	20 3	54 94	– –
Gross carrying amount Analysed by ECL staging	29,280	629	1,118	–
Stage 1 Stage 2 Stage 3 POCI	24,707 2,415 1,967 191	563 63 3 –	971 53 94 –	– – – –
Total 29,280 ECL allowance – statement of financial position	29,280	629	1,118	–
Stage 1 Stage 2 Stage 3 POCI	82 112 562 40	1 3 – –	18 2 16 –	– – – –
Total ECL allowance cover percentage	796	4	36	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	0.3 4.6 28.6 20.8	0.2 4.6 – –	1.8 5 16.8 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off	269 (14)	3 –
Net credit impairment charge/(writeback)	255	3
	%	%
Net credit impairment charge/(writeback) on average loans – annualised	1.73	0.95

*Forms an integral part of the condensed consolidated interim financial statements

56 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Republic of Ireland residential mortgages

The following table analyses the Republic of Ireland residential mortgage portfolio at amortised cost by ECL staging:

	30 June 2020 Owner- occupier Buy-to-let Total € m € m € m 27,686 2,223 29,909 23,705 1,565 25,270 2,097 381 2,478 1,698 272 1,970 186 5 191 27,686 2,223 29,909 75 8 83 85 30 115 494 68 562 37 3 40 691 109 800 26,995 2,114 29,109 % % % 0.3 0.5 0.3 4.1 7.7 4.6 29.1 25.3 28.6 19.8 54 20.8 Half-year to 30 June 2020 € m € m € m 243 29 272 (11) (3) (14) 232 26 258 % % % 1.67 2.27 1.72**	31 December 2019*
		Owner- occupier Buy-to-let Total € m € m € m
Gross carrying amount Analysed as to ECL staging		27,825 2,372 30,197
Stage 1 Stage 2 Stage 3 POCI		24,132 1,756 25,888 1,748 333 2,081 1,757 277 2,034 188 6 194
Total ECL allowance – statement of financial position		27,825 2,372 30,197
Stage 1 Stage 2 Stage 3 POCI		8 1 9 34 17 51 397 64 461 28 3 31
Total Republic of Ireland residential mortgages at amortised cost ECL allowance cover percentage		467 85 552
		27,358 2,287 29,645
		% % %
Stage 1 Stage 2 Stage 3 POCI		– 0.1 – 2.0 5.0 2.5 22.6 23.1 22.7 14.9 55.0 16.1
Income statement		Half-year to 30 June 2019*
		€ m € m € m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off		41 (4) 37 (9) (6) (15)
Net credit impairment charge/(writeback)		32 (10) 22
		% % %
Net credit impairment charge/(writeback) on average loans – annualised		0.32 (0.91) 0.20

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 57

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Republic of Ireland residential mortgages (continued)

Residential mortgages in Ireland amounted to € 29.9 billion at 30 June 2020 compared to € 30.2 billion at 31 December 2019. The decrease in the portfolio was primarily due to loan repayments offset by new lending. Total drawdowns in the six months to 30 June 2020 were € 1.1 billion (30 June 2019: € 1.3 billion), of which 98% were by owner occupiers, whilst the weighted average indexed loan-to-value for new residential mortgages was 68%. New lending in the period decreased by 16% impacted by COVID-19 movement restrictions, the prevailing uncertainty and precautionary consumer behaviour.

The split of the Irish residential mortgage portfolio is 93% owner-occupier and 7% buy-to-let and comprises 26% tracker rate, 48% variable rate and 26% fixed rate mortgages.

Non-performing loans remained stable at € 2.2 billion at 30 June 2020 compared to 31 December 2019. However, a material amount of the mortgage portfolio received COVID-19 support payment moratoria.

Income statement

There was a net credit impairment charge of € 258 million to the income statement in the first half of 2020 compared to a net credit impairment charge of € 22 million in the same period in 2019 mainly driven by the revised macroeconomic assumptions due to COVID-19. € 105 million of the total € 258 million charge specifically related to the Mortgage PDH (€ 67 million) and COVID-19 modifications (€ 38 million) post model adjustments.

The ECL allowance provision cover level at 30 June 2020 for the Irish residential mortgage portfolio is 2.7% (31 December 2019: 2%). For the Stage 3 element of the Irish residential mortgage portfolio, € 0.6 billion of ECLs are held providing Stage 3 cover of 29% (31 December 2019: € 0.5 billion and 23% respectively).

Residential mortgage arrears

Total loans in arrears (including non-performing loans) by value decreased by 27% during the six months to 30 June 2020, a decrease of 31% in the owner-occupier portfolio but an increase of 1% in the buy-to-let portfolio. The total decrease in arrears was impacted by the alignment of the arrears days past due count methodology to the EBA convention.

The number of loans in arrears (based on number of accounts) greater than 90 days was 4.6% at 30 June 2020 and remains below the industry average of 6.5 %[(1)] . For the owner-occupier portfolio, the number of loans in arrears greater than 90 days at 4.3% were below the industry average of 5.6%[(1)] . For the buy-to-let portfolio, loans in arrears greater than 90 days at 6.8% were below the industry average of 13.3%[(1)] .

(1) Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and Repossessions Statistics as at 31 March 2020, based on numbers of accounts.

Forbearance

Irish residential mortgages subject to forbearance measures decreased by € 0.2 billion from € 2.5 billion at 31 December 2019 to € 2.3 billion at 30 June 2020. A key feature of the forbearance portfolio is the level of advanced forbearance solutions driven by the Group’s strategy to deliver sustainable long term solutions to customers and support customers in remaining in their family home.

Details of forbearance measures are set out on pages 80 to 83.

58 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Republic of Ireland residential mortgages – aged analysis

The following table provides an age profile of the Republic of Ireland residential mortgage portfolio by ECL staging:

Owner-occupier	30 June 2020 At amortised cost Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m 23,703 2,062 683 155 26,603 2 20 21 2 45 – 4 8 1 13 – 11 11 1 23 – – 77 4 81 – – 86 2 88 – – 812 21 833 23,705 2,097 1,698 186 27,686 1,562 342 112 4 2,020 3 5 5 – 13 – 2 2 – 4 – 32 5 – 37 – – 8 – 8 – – 10 – 10 – – 130 1 131 1,565 381 272 5 2,223 25,265 2,404 795 159 28,623 5 25 26 2 58 – 6 10 1 17 – 43 16 1 60 – – 85 4 89 – – 96 2 98 – – 942 22 964 25,270 2,478 1,970 191 29,909 (83) (115) (562) (40) (800) 25,187 2,363 1,408 151 29,109	31 December 2019
		At amortised cost
		Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
Not past due 1 - 30 days 31 - 60 days 61 - 90 days 91 - 180 days 181 - 365 days Over 365 days		24,057 1,490 575 143 26,265 75 195 91 14 375 – 47 66 4 117 – 16 56 4 76 – – 119 4 123 – – 114 4 118 – – 736 15 751
Total Buy-to-let		24,132 1,748 1,757 188 27,825
Not past due 1 - 30 days 31 - 60 days 61 - 90 days 91 - 180 days 181 - 365 days Over 365 days		1,751 307 108 5 2,171 5 20 9 – 34 – 5 7 – 12 – 1 3 – 4 – – 11 – 11 – – 12 – 12 – – 127 1 128
Total Total		1,756 333 277 6 2,372
Not past due 1 - 30 days 31 - 60 days 61 - 90 days 91 - 180 days 181 - 365 days Over 365 days		25,808 1,797 683 148 28,436 80 215 100 14 409 – 52 73 4 129 – 17 59 4 80 – – 130 4 134 – – 126 4 130 – – 863 16 879
Total gross carrying amount of residential mortgages ECL allowance Carrying amount		25,888 2,081 2,034 194 30,197
		(9) (51) (461) (31) (552)
		25,879 2,030 1,573 163 29,645

AIB Group plc Half-Yearly Financial Report 2020 59

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Republic of Ireland residential mortgages – properties in possession[(1)]

The Group seeks to avoid repossession through working with customers. However, in situations where an agreement cannot be reached, the Group proceeds with the repossession of the property or the appointment of a receiver. The Group uses external agents to realise the maximum value as soon as is practicable. Where the Group believes that the proceeds of sale of a property will comprise only part of the recoverable amount of the loan against which it was being held as security, the customer remains liable for the outstanding balance and the remaining loan continues to be recognised on the statement of financial position.

The number (stock) of properties in possession is set out below:

The number (stock) of properties in possession is set out below:
	30 June 2020 Stock Balance outstanding € m 457 106 18 3 475 109	31 December 2019
		Stock Balance outstanding € m
Owner-occupier Buy-to-let		492 112 23 5
Total		515 117

(1)The number of residential properties in possession relates to those held as security for residential mortgages only.

The stock of residential properties in possession decreased by 40 properties in the six months to 30 June 2020 (31 December 2019: 78 properties). This decrease relates to the disposal of 61 properties (31 December 2019: 231 properties) which were offset by the addition of 30 properties (31 December 2019: 180 properties), the majority of which were voluntary surrenders or abandonments. In addition, a further 9 properties were removed from the stock in the six months to 30 June 2020 (31 December 2019: 27 properties).

The disposal of 61 residential properties in the Republic of Ireland resulted in a total loss on disposal of € 4 million at 30 June 2020 (before ECL allowance) and compares to 31 December 2019 when 231 residential properties were disposed of resulting in a total loss of € 28 million. Losses on the sale of such properties are recognised in the income statement as part of the net credit impairment losses.

60 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Other personal

The following table analyses other personal lending at amortised cost by segment, internal credit ratings and ECL staging:

Gross carrying amount
	Retail Banking € m		CIB € m		AIB UK € m		Group € m
Credit cards Loans/overdrafts	505 2,023		4 59		22 86		– 8
Total Analysed by internal credit ratings	2,528		63		108		8
Strong Satisfactory	1,119 977		32 21		79 21		– 8		1,230 1,027
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	2,096 161 50 211 221		53 6 2 8 2		100 2 1 3 5		8 – – – –
Gross carrying amount Analysed by ECL staging	2,528		63		108		8
Stage 1 Stage 2 Stage 3 POCI	1,943 365 220 –		24 37 2 –		86 17 5 –		8 – – –
Total 2,528 ECL allowance – statement of financial position	2,528		63		108		8
Stage 1 Stage 2 Stage 3 POCI	42 55 135 –		– 1 1 –		– 1 2 –		– – – –
Total ECL allowance cover percentage	232		2		3		–
	%		%		%		%
Stage 1 Stage 2 Stage 3 POCI	2.2 15.1 61.4 –		– 2.7 50.0 –		– 5.9 40.0 –		– – – –
Income statement
	€ m		€ m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off	83 (5)		1 –
Net credit impairment charge/(writeback)	78		1
	%		%
Net credit impairment charge/(writeback) on average loans – annualised	5.95		2.57

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 61

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Other personal

At 30 June 2020, the other personal lending portfolio of € 2.7 billion comprises of € 2.2 billion in loans and overdrafts and € 0.5 billion in credit card facilities (31 December 2019: total € 3.0 billion and € 2.3 billion and € 0.7 billion respectively). The credit quality of the portfolio has been negatively impacted by COVID-19 during the period, with 17% categorised as less than satisfactory, of which defaulted loans amounted to € 0.2 billion and have increased by 18% in the period (31 December 2019: 16% and € 0.2 billion).

The demand for personal loans, which accounts for the largest portion of the portfolio, reduced significantly in April and May due to COVID-19. June volumes indicate a return to pre-COVID-19 application activity. This has resulted in a decrease in new lending of € 0.1 billion or 18% to € 0.4 billion for the six months to 30 June 2020 versus the level of lending experienced in the six months to 30 June 2019 (€ 0.5 billion).

Stage 3 loans, predominately in Retail Banking increased by € 35 million in the six months to 30 June 2020, primarily due to downward grade migration due to COVID-19. At 30 June 2020, the ECL allowance cover was 9% with Stage 3 cover at 61% (31 December 2019: 6% and 60% respectively).

The net credit impairment charge in the income statement amounted to € 79 million in the six months to 30 June 2020 compared to a an € 8 million charge in the same period in 2019. The charge was mainly driven by the revised macroeconomic assumptions due to COVID-19 which accounted for € 39 million and net transfers between stages which resulted in a further € 26 million charge.

62 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Property and construction

The following table analyses property and construction lending at amortised cost by segment, internal credit ratings and ECL staging:

Gross carrying amount
	Retail Banking € m	CIB € m	AIB UK € m	Group € m
Investment: Commercial investment Residential investment Land and development: Commercial development Residential development Contractors Housing associations
	433 124	2,984 445	733 674	– –	4,150 1,243
	557	3,429	1,407	–
	90 57	241 564	33 129	– –	364 750
	147 80 –	805 80 –	162 136 333	– – –
Total Analysed by internal credit ratings	784	4,314	2,038	–
Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing
	138 188	2,590 1,415	1,091 777	– –	3,819 2,380
	326	4,005	1,868	–
	127 38	98 53	74 13	– –	299 104
	165 293	151 158	87 83	– –
Gross carrying amount Analysed by ECL staging	784	4,314	2,038	–
Stage 1 Stage 2 Stage 3 POCI	314 188 282 –	2,335 1,903 76 –	1,698 257 83 –	– – – –
Total 784 ECL allowance – statement of financial position	784	4,314	2,038	–
Stage 1 Stage 2 Stage 3 POCI	11 19 114 –	91 159 27 –	19 12 38 –	– – – –
Total ECL allowance cover percentage	144	277	69	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	3.4 10.4 40.5 –	3.9 8.3 35.6 –	1.1 4.6 45.5 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off	39 (6)	241 –
Net credit impairment (writeback)/charge	33	241
	%	%
Net credit impairment charge/(writeback) on average loans – annualised	8.29	11.37

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 63

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Property and construction

The property and construction portfolio consists of € 7.1 billion in loans and advances to customers measured at amortised cost together with € 0.1 billion of loans measured at FVTPL (total € 7.2 billion).

The portfolio measured at amortised cost amounted to 12% of total loans and advances. The portfolio comprised of 76% investment loans (€ 5.4 billion), 16% land and development loans (€ 1.1 billion) and 8% other property and construction loans (€ 0.6 billion). The CIB and AIB UK segments continue to account for the majority of this portfolio at 60% and 29% respectively.

The portfolio reduced by € 0.2 billion or 2% during the six months to 30 June 2020, though within this, land and development had increased by € 0.1 billion. The reduction was mainly due to foreign exchange adjustments of € 0.2 billion as new lending was largely offset by redemptions/repayments. New lending of € 0.7 billion was predominately in the CIB segment (€ 0.4 billion) and is primarily to provide senior secured funding. At 30 June 2020, € 6.2 billion of the portfolio was in a strong/satisfactory grade, which is a reduction of € 0.3 billion in the period. The level of non-performing loans has increased by € 0.2 billion in the six months to 30 June 2020 as the effects of COVID-19 were felt across the portfolio.

Property and construction loans measured at FVTPL reduced by € 1 million to € 76 million in the six months to 30 June 2020.

There was a net credit impairment charge of € 307 million to the income statement in the six months to 30 June 2020. This was driven by a net re-measurement charge of € 314 million and by recoveries of previously written-off loans of € 7 million. The net re-measurement charge of € 314 million was mainly driven by the revised macroeconomic assumptions due to COVID-19 which accounted for € 267 million. In addition, re-measurements within stage accounted for a further € 42 million charge.

The portfolio held € 0.5 billion of ECL allowances which provide ECL allowance cover of 7%, reflecting the € 1.9 billion net migration into Stage 2. For the Stage 3 portfolio, the ECL allowance cover is 41% (31 December 2019: € 0.2 billion, 3% and 36% respectively). Retail shopping centres, in particular, have been adversely impacted by COVID-19, with 76% of the Group’s € 1.4 billion exposure to this sector now designated Stage 2 or Stage 3, with an associated ECL of € 151 million.

Investment

Investment property loans amounted to € 5.4 billion at 30 June 2020 (31 December 2019: € 5.6 billion) of which € 4.2 billion related to commercial investment. The geographic profile of the investment property portfolio remained predominately in the Republic of Ireland (€ 3.5 billion) and the United Kingdom (€ 1.5 billion).

At 30 June 2020, there was a net credit impairment charge of € 243 million to the income statement on the investment property element of the property and construction portfolio (30 June 2019: € 12 million writeback).

Land and development

At 30 June 2020, land and development loans amounted to € 1.1 billion (31 December 2019: € 1.0 billion) of which € 0.1 billion related to loans in the Retail Banking segment, € 0.8 billion in the CIB segment and € 0.2 billion in the AIB UK segment. Whilst construction activity had stalled on both residential and commercial sites during the COVID-19 lockdown phases of the crisis, nearly all development sites to which the Group provides development finance have subsequently reopened.

The income statement net credit impairment charge for the six months to 30 June 2020 was € 42 million (30 June 2019: € 11 million writeback).

Contractors

At 30 June 2020, loans to contractors have remained unchanged in the six months to 30 June 2020 at € 0.3 billion (31 December 2019: € 0.3 billion). However, there was a net credit impairment charge of € 21 million in the six months to 30 June 2020 (30 June 2019: € 19 million charge).

64 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Non-property business

The following table analyses non-property business lending at amortised cost by segment, internal credit ratings and ECL staging:

Gross carrying amount
	Retail Banking € m	CIB € m	AIB UK € m	Group € m
Agriculture Distribution: Hotels Licensed premises Retail/wholesale Other distribution Other services Other: Energy Financial Manufacturing Transport	1,236	375	102	–
	148 199 500 86	1,248 218 1,127 236	848 103 315 168	– – – –	2,244 520 1,942 490
	933 636	2,829 3,025	1,434 1,903	– –
	18 16 201 226	625 358 2,463 1,273	910 242 304 405	– 109 – –	1,553 725 2,968 1,904
	461	4,719	1,861	109
Total Analysed by internal credit ratings	3,266	10,948	5,300	109
Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing
	604 1,633	5,067 4,942	2,915 1,972	24 85	8,610 8,632
	2,237	10,009	4,887	109
	465 142	704 38	208 10	– –	1,377 190
	607 422	742 197	218 195	– –
Gross carrying amount Analysed by ECL staging	3,266	10,948	5,300	109
Stage 1 Stage 2 Stage 3 POCI	1,918 937 411 –	7,350 3,401 197 –	4,234 871 195 –	109 – – –
Total 3,266 ECL allowance – statement of financialposition	3,266	10,948	5,300	109
Stage 1 Stage 2 Stage 3 POCI	43 97 163 –	37 225 44 –	75 58 48 –	– – – –
Total ECL allowance coverpercentage	303	306	181	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	2.3 10.3 39.7 –	0.5 6.6 22.1 –	1.8 6.7 24.8 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amountspreviouslywritten-off	122 (6)	262 –
Net credit impairment (writeback)/charge	116	262
	%	%
Net credit impairment charge/(writeback) on average loans – annualised	7.00	4.70

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 65

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Non-property business

The non-property business portfolio includes small and medium enterprises (“SMEs”) which are reliant on the domestic economies in which they operate. In addition to SMEs, the portfolio also includes exposures to larger corporate and institutional borrowers which are impacted by global economic conditions. The majority of the portfolio exposure is to Irish borrowers with the UK and USA being the other main geographic concentrations. The portfolio decreased by 3% (€ 0.7 billion) to € 19.6 billion in the six months to 30 June 2020. The reduction was primarily due to redemptions/repayments exceeding new drawdowns due to reduced demand for credit across all segments resulting in new lending of € 2.2 billion (30 June 2019: € 3.1 billion). The non-property business portfolio amounted to 32% of total Group loans and advances at 30 June 2020 (31 December 2019: 33%).

COVID-19 has had a material negative impact on the asset quality of the non-property business portfolio. Timing of recovery is dependent on sector specific dynamics. Loans graded as strong/satisfactory decreased in the six months to 30 June 2020 from 93% to 88%, as repayments exceeded new drawdowns coupled with downward grade migration mainly due to the impact of COVID-19 pandemic. The downward grade migration has resulted in an increase in the level of less than satisfactory grades (including defaulted loans) from € 1.5 billion at 31 December 2019 to € 2.4 billion at 30 June 2020.

Additional disclosures on the non-property business portfolio are outlined on the following page.

The following are the key themes within the main sub-sectors of the non-property business portfolio:

• The agriculture sub-sector represents 9% of the portfolio at € 1.7 billion. Initial COVID-19 impact on most agricultural sectors resulted in price reductions due to reduced demand and closure of key markets. However, global demand and prices have stabilised with signs of recovery in dairy, beef and sheep sectors. There has been no significant disruption to the supply chain while reduced input costs are assisting in maintaining margins. For tillage, the sustained dry weather throughout much of March into early June has impacted crop growth in many parts of the country and yields are expected to be impacted;

• The hotels sub-sector comprises 11% of the portfolio at € 2.2 billion. This sector has been severely impacted by the Government measures to contain the COVID-19 pandemic. In Ireland and the UK, hotels were closed or operating at significantly reduced occupancy from mid-March to the end of June. Key operating metrics are expected to be weaker for 2020. Phased re-openings have commenced, and occupancy is expected to be slow to recover to pre-COVID-19 levels, particularly for those most reliant on international tourism;

• The licensed premises sub-sector comprises 3% of the portfolio at € 0.5 billion. Similar to hotels, this sector has been severely negatively impacted by the Government measures to contain the COVID-19 pandemic. Licensed premises were closed in Ireland from mid-March. Phased re-opening has commenced for licensed premises with food offering from 29 June 2020. Current social distancing measures will reduce capacity and may impact demand. Licensed premises without food offering remain closed at this time;

• The retail/wholesale sub-sector comprises 10% of the portfolio at € 1.9 billion. Many non-grocery retailers have also been severely negatively impacted by COVID-19. There has been an increase in online purchasing during this period which has accelerated this competitive challenge to ‘Brick and Mortar Retail’. Consumer confidence may be slow to recover. Grocery retail/wholesale continued to operate with some businesses experiencing increases in revenue and profitability despite some increases in costs;

• The other services sub-sector comprises 28% of the portfolio at € 5.6 billion, which includes businesses such as solicitors, accounting, audit, tax, computer services, research and development, consultancy, hospitals, nursing homes and plant and machinery. Performance across this sub-sector has been mixed depending on COVID-19 impact to specific sub-sectors in the six months to 30 June 2020; and

• The category titled ‘Other’ totalling € 7.2 billion (36% of the portfolio) includes a broad range of sub-sectors such as manufacturing (€ 3.0 billion), energy (€ 1.6 billion), transport (€ 1.9 billion) and financial (€ 0.7 billion).

There was a net credit impairment charge of € 503 million to the income statement in the six months to 30 June 2020. This was driven by a net re-measurement charge of € 510 million and by recoveries of previously written-off loans of € 7 million. The net re-measurement charge of € 510 million was mainly driven by the revised macroeconomic assumptions due to COVID-19 which accounted for € 233 million. In addition, net stage transfers and re-measurements within stage accounted for further charges of € 134 million and € 115 million respectively.

The portfolio held € 0.8 billion in ECL allowances which provides ECL allowance cover of 4%. For the Stage 3 portfolio, the ECL allowance cover is 32% (31 December 2019: € 0.3 billion, 2% and 32% respectively).

66 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Non-property business

Additional disclosures

The following table provides further analysis by industry sector of the non-property business portfolio, by gross carrying amount and ECL allowance. Given the international profile of the Syndicated International Finance (SIF) business, all exposures within this business unit are reported separately.

							30 June 2020	30 June 2020	30 June 2020	30 June 2020
		**Analysed by ECL stage **		profile Stage 3 € m	Gross carrying amount € m 1,687 2,106 520 1,614 313 4,553 4,004 1,516 508 1,679 1,294 4,997 15,241 4,382 19,623		Analysed by ECL stage profile ECL allowance Stage 1 Stage 2 Stage 3 € m € m € m € m
		Stage 1 € m	Stage 2 € m				Stage 1 € m	Stage 2 € m
Agriculture Distribution: Hotels Licensed premises Retail/Wholesale Other distribution Other services Other: Energy Financial Manufacturing Transport		1,083 798 235 966 220 2,219 3,112 1,382 395 926 970 3,673	502 1,215 217 507 64 2,003 748 105 110 696 278 1,189	102 93 68 141 29 331 144 29 3 57 46 135			16 24 8 20 4 56 39 13 3 9 7 32	22 75 22 51 7 155 45 7 4 45 12 68	35 13 21 45 18 97 59 2 2 34 10 48	73
										112 51 116 29
										308 143
										22 9 88 29
										148
Total SIF Total		10,087	4,442	712			143	290	239	672
		3,524	767	91			12	90	16	118
		13,611	5,209	803			155	380	255	790

							31 December 2019	31 December 2019	31 December 2019	31 December 2019
		Analysed byECL stageprofile Stage 1 Stage 2 Stage 3 € m € m € m			Gross carrying amount € m 1,707 2,089 532 1,648 322 4,591 4,269 1,455 564 1,756 1,239 5,014 15,581 4,731 20,312		Analysed byECL stageprofile ECL allowance Stage 1 Stage 2 Stage 3 € m € m € m € m
		Stage 1 € m	Stage 2 € m				Stage 1 € m	Stage 2 € m
Agriculture Distribution: Hotels Licensed premises Retail/Wholesale Other distribution Other services Other: Energy Financial Manufacturing Transport		1,452 1,865 448 1,351 275 3,939 3,940 1,436 552 1,568 1,174 4,730	177 203 56 183 37 479 236 15 9 131 35 190	78 21 28 114 10 173 93 4 3 57 30 94			7 8 7 12 2 29 14 4 2 5 3 14	10 10 12 19 1 42 14 1 1 8 3 13	23 7 8 28 6 49 36 2 2 24 6 34	40
										25 27 59 9
										120 64
										7 5 37 12
										61
Total SIF Total		14,061	1,082	438			65	79	142	286
		4,680	51	–			15	5	–	20
		18,741	1,133	438			79	84	142	305

The Syndicated International Finance (SIF) business unit, which is a specialised lending unit within CIB, is involved in participating in the provision of finance to US and European corporations for mergers, acquisitions, buy-outs and general corporate purposes. The SIF non-property lending portfolio totalled € 4.4 billion at 30 June 2020 (31 December 2019: € 4.8 billion of which € 0.1 billion property and construction). The portfolio has reduced by € 0.3 billion in the period through a combination of asset sales and net loan repayments. At 30 June 2020, 80% of the SIF lending portfolio is in a strong/satisfactory grade (31 December 2019: 99%).

93% of the SIF portfolio is rated by S&P, with 68% rated B+ or above, 19% rated B and 6% rated B- or below. The majority of the loans (72%) are to large borrowers with EBITDA > € 250 million. Exposures are well diversified by name and sector with the top 20 borrowers accounting for 21% of total exposure. 67% of the customers in this portfolio are domiciled in the USA, 3% in the UK, and 30% in the Rest of the World (31 December 2019: 65% in the USA, 4% in the UK and 31% in the Rest of the World (primarily Europe) respectively).

At 30 June 2020, there was a net credit impairment charge of € 106 million on the SIF portfolio. The charge was driven by downward grade migration of € 0.7 billion to Stage 2 and € 0.1 billion to Stage 3. The SIF post model adjustment as outlined on page 44 also increased by € 21 million in the period.

AIB Group plc Half-Yearly Financial Report 2020 67

Risk management

Credit risk – Credit profile of the loan portfolio

The following tables set out the concentration of credit by industry sector and geography for loans and advances to customers and loan commitments and financial guarantee contracts issued together with the related ECL allowance analysed by the ECL stage profile:

Gross exposures to customers

Gross exposures to customers
Concentration by industry sector	30 June 2020
	At amortised cost Gross carrying amount Analysed by ECL stage profile Loans and advances to customers Loan commitments and financial guarantees issued Total Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m € m € m € m 1,713 584 2,297 1,538 652 107 – 2,297 1,553 679 2,232 2,071 123 38 – 2,232 2,968 1,559 4,527 3,312 1,127 88 – 4,527 7,136 1,717 8,853 5,778 2,590 485 – 8,853 5,196 1,217 6,413 3,317 2,713 383 – 6,413 1,904 487 2,391 1,979 350 62 – 2,391 725 452 1,177 1,023 151 3 – 1,177 5,564 2,176 7,740 6,121 1,417 202 – 7,740 31,027 635 31,662 26,856 2,538 2,077 191 31,662 2,707 2,931 5,638 4,813 589 236 – 5,638 60,493 12,437 72,930 56,808 12,250 3,681 191 72,930 46,142 9,943 56,085 43,340 9,437 3,118 190 56,085 8,836 2,204 11,040 9,065 1,524 451 – 11,040 2,982 64 3,046 2,355 610 81 – 3,046 2,533 226 2,759 2,048 679 31 1 2,759 60,493 12,437 72,930 56,808 12,250 3,681 191 72,930	At FVTPL
	Gross carrying amount Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 1,713 584 2,297 1,553 679 2,232 2,968 1,559 4,527 7,136 1,717 8,853 5,196 1,217 6,413 1,904 487 2,391 725 452 1,177 5,564 2,176 7,740 31,027 635 31,662 2,707 2,931 5,638 60,493 12,437 72,930 46,142 9,943 56,085 8,836 2,204 11,040 2,982 64 3,046 2,533 226 2,759 60,493 12,437 72,930
		Total € m
Agriculture Energy Manufacturing Property and construction Distribution Transport Financial Other services Personal: Residential mortgages Other		– – – 76 – – – – – –
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		76
		76 – – –
		76

ECL allowance

ECL allowance
Concentration by industry sector		30 June 2020
	ECL allowance Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 73 3 76 22 2 24 110 7 117 490 32 522 357 17 374 32 3 35 13 1 14 183 16 199 836 – 836 237 7 244 2,353 88 2,441 1,872 73 1,945 310 13 323 81 1 82 90 1 91 2,353 88 2,441	Analysed by ECL stage profile
		Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
Agriculture Energy Manufacturing Property and construction Distribution Transport Financial Other services Personal: Residential mortgages Other		17 24 35 – 76 14 8 2 – 24 16 62 39 – 117 132 195 195 – 522 61 210 103 – 374 11 13 11 – 35 4 8 2 – 14 50 84 65 – 199 101 117 578 40 836 45 60 139 – 244
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		451 781 1,169 40 2,441
		311 553 1,041 40 1,945 119 94 110 – 323 9 58 15 – 82 12 76 3 – 91
		451 781 1,169 40 2,441

(1)Based on country of risk.

68 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio

Gross exposures to customers

Concentration by industry sector	31 December 2019	31 December 2019
	At amortised cost Gross carrying amount Analysed by ECL stage profile Loans and advances to customers Loan commitments and financial guarantees issued Total Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m € m € m € m 1,741 547 2,288 1,993 213 82 – 2,288 1,490 633 2,123 2,104 15 4 – 2,123 3,143 1,461 4,604 4,352 180 72 – 4,604 7,299 1,646 8,945 8,054 460 431 – 8,945 5,257 1,307 6,564 5,840 532 192 – 6,564 1,936 576 2,512 2,438 41 33 – 2,512 764 497 1,261 1,248 9 4 – 1,261 5,981 1,953 7,934 7,514 295 125 – 7,934 31,454 866 32,320 27,816 2,151 2,158 195 32,320 2,984 2,764 5,748 5,119 429 200 – 5,748 62,049 12,250 74,299 66,478 4,325 3,301 195 74,299 46,893 9,496 56,389 49,820 3,424 2,951 194 56,389 9,589 2,253 11,842 10,735 777 330 – 11,842 3,192 120 3,312 3,249 61 2 – 3,312 2,375 381 2,756 2,674 63 18 1 2,756 62,049 12,250 74,299 66,478 4,325 3,301 195 74,299	At FVTPL
	Gross carrying amount Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 1,741 547 2,288 1,490 633 2,123 3,143 1,461 4,604 7,299 1,646 8,945 5,257 1,307 6,564 1,936 576 2,512 764 497 1,261 5,981 1,953 7,934 31,454 866 32,320 2,984 2,764 5,748 62,049 12,250 74,299 46,893 9,496 56,389 9,589 2,253 11,842 3,192 120 3,312 2,375 381 2,756 62,049 12,250 74,299
		Total € m
Agriculture Energy Manufacturing Property and construction Distribution Transport Financial Other services Personal: Residential mortgages Other		– – – 77 – – – – – –
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		77
		77 – – –
		77

ECL allowance

ECL allowance
Concentration by industry sector		31 December 2019
	ECL allowance Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 40 2 42 7 1 8 41 3 44 189 20 209 125 4 129 14 1 15 6 – 6 72 5 77 569 – 569 175 6 181 1,238 42 1,280 1,087 34 1,121 125 7 132 15 – 15 11 1 12 1,238 42 1,280	Analysed by ECL stage profile
		Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
Agriculture Energy Manufacturing Property and construction Distribution Transport Financial Other services Personal: Residential mortgages Other		8 11 23 – 42 4 1 3 – 8 8 12 24 – 44 34 26 149 – 209 34 45 50 – 129 6 3 6 – 15 3 1 2 – 6 24 17 36 – 77 10 52 476 31 569 23 43 115 – 181
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		154 211 884 31 1,280
		103 173 814 31 1,121 35 29 68 – 132 9 6 – – 15 7 3 2 – 12
		154 211 884 31 1,280

(1)Based on country of risk.

AIB Group plc Half-Yearly Financial Report 2020 69

Credit risk – Credit profile of the loan portfolio

Aged analysis of contractually past due loans and advances to customers

The following table shows aged analysis of contractually past due loans and advances to customers by industry sector analysed by ECL staging and segment:

At amortised cost Industry sector	30 June 2020
	1–30 days 31–60 days 61–90 days 91–180 days 181–365 days > 365 days Total € m € m € m € m € m € m € m
Agriculture Energy Manufacturing Property and construction Distribution Transport Financial Other services Personal: Residential mortgages Credit cards Other	14 3 2 7 9 22 57 – – – – – 4 4 7 – 2 4 7 16 36 53 10 51 28 25 180 347 67 39 43 40 10 38 237 50 6 – 10 1 8 75 2 – – – – 2 4 53 3 6 11 8 26 107 64 18 62 94 102 1,001 1,341 5 3 2 6 7 5 28 29 7 13 23 32 95 199
Total gross carrying amount ECL staging	344 89 181 223 201 1,397 2,435
Stage 1 Stage 2 Stage 3 POCI	79 – – – – – 79 162 54 85 – – – 301 101 34 95 220 198 1,375 2,023 2 1 1 3 3 22 32
Segment	344 89 181 223 201 1,397 2,435
Retail Banking CIB AIB UK Group	166 64 122 190 181 1,289 2,012 127 12 47 12 8 5 211 51 13 12 21 12 103 212 – – – – – – –
As a percentage of total gross loans at amortised cost	344 89 181 223 201 1,397 2,435
	% % % % % % %
At FVTPL Industry sector	0.57 0.15 0.3 0.37 0.33 2.31 4.03
	€ m € m € m € m € m € m € m
Property and construction	– – – – – – –
Total at FVTPL Segment	– – – – – – –
	€ m € m € m € m € m € m € m
Retail Banking	– – – – – – –
As a percentage of total gross loans at FVTPL	– – – – – – –
	% % % % % % %
	– – – – – – –

The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.

70 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio

Aged analysis of contractually past due loans and advances to customers (continued)

At amortised cost

At amortised cost
Industry sector	31 December 2019
	1–30 days 31–60 days 61–90 days 91–180 days 181–365 days > 365 days Total € m € m € m € m € m € m € m
Agriculture Energy Manufacturing Property and construction Distribution Transport Financial Other services Personal: Residential mortgages Credit cards Other	29 2 2 3 6 12 54 4 – – – – 4 8 7 1 3 3 4 7 25 33 15 3 12 12 141 216 37 4 2 5 7 31 86 3 1 – 1 1 4 10 1 – – – 1 2 4 26 3 4 10 8 20 71 416 136 86 141 141 912 1,832 19 6 3 5 14 – 47 63 15 13 22 28 71 212
Total gross carrying amount ECL staging	638 183 116 202 222 1,204 2,565
Stage 1 Stage 2 Stage 3 POCI	196 – – – – – 196 300 90 33 – – – 423 127 89 79 198 217 1,187 1,897 15 4 4 4 5 17 49
Segment	638 183 116 202 222 1,204 2,565
Retail Banking CIB AIB UK Group	551 164 106 185 200 1,114 2,320 41 2 – – 1 – 44 46 17 10 17 21 90 201 – – – – – – –
As a percentage of total gross loans at amortised cost	638 183 116 202 222 1,204 2,565
	% % % % % % %
At FVTPL Industry sector	1.03 0.29 0.19 0.33 0.36 1.94 4.14
	€ m € m € m € m € m € m € m
Propertyand construction	– – – – – – –
Total at FVTPL Segment	– – – – – – –
	€ m € m € m € m € m € m € m
Retail Banking	– – – – – – –
As a percentage of totalgross loans at FVTPL	– – – – – – –
	% % % % % % %
	– – – – – – –

In order to fully align to EBA guidelines on default, DPD materiality thresholds and DPD day count conventions, the aged analysis of the contractually past due loans at 30 June 2020 have been prepared under a newly implemented EBA DPD counter. The comparable analysis for 31 December 2019 was prepared under the Basel DPD counter. The new EBA DPD counter reflects changes to materiality threshold and count methodology.

In the six months to 30 June 2020, total loans past due reduced by € 0.2 billion to € 2.4 billion or 4.0% of total loans and advances to customers (31 December 2019: € 2.6 billion or 4.1%). The reduction was predominately in the 1-30 days past due category which decreased by € 0.3 billion as a result of the new EBA DPD counter, however, this also resulted in a € 0.2 billion increase in the greater than 365 days category.

Residential mortgage loans which were past due at 30 June 2020 amounted to € 1.3 billion. This represents 55% of total loans which were past due (31 December 2019: € 1.8 billion or 71%). The reduction in the level of residential mortgage loans in early arrears (less than 30 days past due) reflects continued active management of cases and the aforementioned new EBA DPD counter.

Non-property business loans which were past due represent 21% or € 0.5 billion (31 December 2019: 10% or € 0.3 billion), with property and construction at 14% or € 0.3 billion (31 December 2019: 8% or € 0.2 billion), and other personal at 9% or € 0.2 billion (31 December 2019: 10% or € 0.3 billion).

All loans past due by 90 days or more on any material obligation are considered non-performing/defaulted.

AIB Group plc Half-Yearly Financial Report 2020 71

Credit risk – Credit profile of the loan portfolio

Gross loans[(1)] and ECL movements

The following tables set out the movements in the gross carrying amount and ECL allowance for loans and advances to customers by ECL staging.

Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed on page 89 of the Annual Financial Report 2019) and that subsequently reverted within the period to their original stage, are excluded from ‘Transferred from Stage 1 to Stage 2’ and ‘Transferred from Stage 2 to Stage 1’. The Group believes this presentation aids the understanding of the underlying credit migration.

Gross carrying amount movements – total

Gross carrying amount movements – total
	30 June 2020*
	Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
At 1 January 2020 Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 New loans originated/top-ups Redemptions/repayments Interest credited Write-offs Derecognised due to disposals Exchange translation adjustments Impact of model, parameter and overlay changes Other movements	54,723 3,992 3,140 194 62,049 (9,777) 9,777 – – – 1,352 (1,352) – – – (160) (544) 704 – – 65 180 (245) – – 4,127 – – – 4,127 (4,937) (609) (234) (7) (5,787) 789 116 36 5 946 – – (70) (2) (72) (94) (32) – – (126) (553) (91) (26) – (670) 839 (839) – – – (114) (91) 230 1 26
At 30 June 2020	46,260 10,507 3,535 191 60,493

	31 December 2019*
	Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
At 1 January 2019 Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 New loans originated/top-ups Redemptions/repayments Interest credited Write-offs Derecognised due to disposals Exchange translation adjustments Impact of model, parameter and overlay changes Other movements	51,693 5,290 5,541 236 62,760 (3,287) 3,287 – – – 3,070 (3,070) – – – (254) (655) 909 – – 120 447 (567) – – 12,110 – – 2 12,112 (11,124) (1,111) (790) (17) (13,042) 1,736 169 83 9 1,997 – – (357) (5) (362) (326) (47) (1,673) (6) (2,052) 521 40 17 – 578 333 (333) – – – 131 (25) (23) (25) 58
At 31 December 2019	54,723 3,992 3,140 194 62,049

(1)Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.

*Forms an integral part of the condensed consolidated interim financial statements

72 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio

Gross loans and ECL movements (continued)

ECL allowance movements – total

								30 June 2020*	30 June 2020*	30 June 2020*
		Stage 1 € m		Stage 2 € m		Stage 3 € m		POCI € m		Total € m
At 1 January 2020		141		202		864		31		1,238
Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 Net re-measurement New loans originated/top-ups Redemptions/repayments Impact of model and overlay changes Impact of credit or economic risk parameters		(52) 30 (6) 4 17 19 (9) 65 216		244 (68) (65) 16 51 – (15) (7) 391		– – 147 (41) 91 – – 73 90		– – – – 3 – – – 8		192 (38) 76 (21) 162 19 (24) 131 705
Income statement net credit impairment charge/(writeback) Write-offs Derecognised due to disposals Exchange translation adjustments Other movements		284 – (1) (6) 1		547 – (1) (5) 1		360 (70) – (6) 2		11 (2) – – –		1,202 (72) (2) (17) 4
At 30 June 2020		419		744		1,150		40		2,353

								31 December 2019*	31 December 2019*	31 December 2019*
		Stage 1 € m		Stage 2 € m		Stage 3 € m		POCI € m		Total € m
At 1 January 2019		171		271		1,566		31		2,039
Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 Net re-measurement New loans originated/top-ups Redemptions/repayments Impact of model and overlay changes Impact of credit or economic risk parameters		(33) 59 (10) 10 (73) 40 (14) (4) 1		235 (211) (93) 21 (22) – (15) 5 10		– – 203 (86) (17) – – 72 32		– – – – 2 – (1) 3 3		202 (152) 100 (55) (110) 40 (30) 76 46
Income statement net credit impairment charge/(writeback) Write-offs Derecognised due to disposals Exchange translation adjustments Other movements		(24) – (4) 2 (4)		(70) – (2) 2 1		204 (357) (557) 5 3		7 (5) (2) – –		117 (362) (565) 9 –
At 31 December 2019		141		202		864		31		1,238

Total exposures to which an ECL applies decreased during the period by € 1.6 billion from € 62.1 billion at 1 January 2020 to € 60.5 billion at 30 June 2020.

The updated macroeconomic forecasts and scenario probability weightings resulted in a charge of € 0.7 billion consisting of € 0.5 billion due to re-measurement within stage and € 0.2 billion movement due to stage transfer. This ECL movement is presented separately within ‘impact of credit or economic risk parameters’. These impacts were most significant within the property and non-property business portfolios accounting for an increase in ECL stock of € 0.3 billion and € 0.2 billion respectively.

Stage transfers are a key component of ECL allowance movements (i.e. Stage 1 to Stage 2 to Stage 3 and vice versa) in addition to the net re-measurement of ECL due to change in risk parameters within a stage.

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 73

Credit risk – Credit profile of the loan portfolio

Gross loans and ECL movements (continued)

The gross loan transfers from Stage 1 to Stage 2 of € 9.8 billion are due to underlying credit activity where a significant increase in credit risk occurred at some point during the period through either the quantitative or qualitative criteria for stage movement and incorporates loans which transferred due to the impact of the updated macroeconomic forecasts. The main driver of the total movements to Stage 2 was the doubling of PDs, subject to 50bps (85bps for the ROI Mortgage portfolio). 28% of the movements relied on a qualitative or backstop indicator of significant increase in credit risk (e.g. forbearance or movement to a watch grade) of which 1% was caused solely by the backstop of 30 days past due. Of the € 9.8 billion which transferred from Stage 1 to Stage 2 in the period, approximately € 8.2 billion is reported as Stage 2 at 30 June 2020.

Where a movement to Stage 2 is triggered by multiple drivers simultaneously these are reported in the following order: quantitative; qualitative; backstop.

Similarly, transfers from Stage 2 to Stage 1 of € 1.4 billion represent those loans where the triggers for significant increase in credit risk no longer apply or loans that have fulfilled a probation period. These transfers include loans which have been upgraded through the normal credit management process.

Transfers from Stage 2 to Stage 3 of € 0.5 billion represent those loans that defaulted during the period. These arose in cases where it was determined that the customers were unlikely to pay their credit obligations in full without the realisation of collateral regardless of the existence of any past due amount or the number of days past due. In addition, transfers also include all credit obligors that are 90 days or more past due on a material obligation. Of the transfers from Stage 2 to Stage 3, € 0.2 billion had transferred from Stage 1 to Stage 2 earlier in the period.

Transfers from Stage 3 to Stage 2 of € 0.2 billion were mainly driven by resolution activity with the customer, through either restructuring or forbearance previously granted and which subsequently adhered to default probation requirements. As part of the credit management practices, active monitoring of loans and their adherence to default probation requirements is in place. Transfers from Stage 3 to Stage 1 of € 0.1 billion primarily reflect curing events from default where no forbearance measure was required.

The enhancement of the Group’s definition of default, including the alignment of arrears DPD count methodology to EBA convention, resulted in an increase of Stage 3 gross loans of € 0.2 billion and a reduction within both Stage 1 and Stage 2 gross loans of € 0.1 billion which are reflected within other movements.

Further detail on the impacts due to model and overlay changes is outlined within the management judgements section on pages 43 and 44.

In summary, the staging movements of the overall portfolio were as follows:

Stage 1 loans decreased by € 8.5 billion in the period to € 46.3 billion with an ECL of € 0.4 billion and resulting cover of 0.9% (31 December 2019: 0.3%). The decrease in gross loans was primarily on foot of transfers to Stage 2 while the increase cover was primarily due to the impact of the updated macroeconomic forecasts and scenario probability weightings.

Stage 2 loans increased by € 6.5 billion in the period to € 10.5 billion with an ECL of € 0.7 billion and resulting cover of 7.1% (31 December 2019: 5.1%). This was driven by the recognition of loans for which a significant increase in credit risk had occurred either through underlying credit activity or due to the updated macroeconomic forecasts and scenario probability weightings.

Stage 3 exposures increased by € 0.4 billion in the period with the ECL cover increasing from 27.5% to 32.5%. The key drivers were the recognition of loans which were deemed unlikely to pay without realisation of security, loans which had reached 90 days past due and loans impacted by enhancements to the Group’s definition of default. The increase in cover reflects the impact of the updated macroeconomic forecasts and scenario probability weightings and the increase in ECL attributable the Mortgage (PDH) post management adjustment.

Further details on stage movements by asset class are set out in the following tables.

74 AIB Group plc Half-Yearly Financial Report 2020

30 June 2020	Non-property business	Stage 2 Stage 3 Total	€ m € m € m	1,133 438 20,312	4,973 – –	(258) – –	(266) 399 –	45 (75) –	– – 2,083	(299) (64) (2,577)	52 11 330	– (12) (12)	(32) – (126)	(66) (12) (414)	– – –	(73) 118 27	5,209 803 19,623	31 December 2019	Non-property business	Stage 2 Stage 3 Total	€ m € m € m	1,036 988 19,566	1,265 – –	(639) – –	(233) 341 –	70 (129) –	– – 6,054	(416) (143) (5,509)	45 20 725	– (35) (35)	(7) (569) (824)	28 2 378	(23) – –	7 (37) (43)	1,133 438 20,312
		Stage 1	€ m	18,741	(4,973)	258	(133)	30	2,083	(2,214)	267	–	(94)	(336)	–	(18)	13,611			Stage 1	€ m	17,542	(1,265)	639	(108)	59	6,054	(4,950)	660	–	(248)	348	23	(13)	18,741
	Property and construction	Stage 3 POCI Total	€ m € m € m	367 – 7,299	– – –	– – –	102 – –	(34) – –	– – 511	(37) – (602)	4 – 105	(14) – (14)	– – –	(6) – (162)	– – –	59 – (1)	441 – 7,136		Property and construction	Stage 3 POCI Total	€ m € m € m	1,187 2 7,804	– – –	– – –	194 – –	(90) – –	– – 1,897	(272) – (2,077)	18 – 229	(100) – (100)	(594) (2) (657)	8 – 124	– – –	16 – 79	367 – 7,299
		Stage 2	€ m	427	3,018	(123)	(95)	15	–	(87)	18	–	–	(18)	(839)	32	2,348			Stage 2	€ m	415	438	(220)	(90)	49	–	(156)	14	–	(14)	5	(3)	(11)	427
		Stage 1	€ m	6,505	(3,018)	123	(7)	19	511	(478)	83	–	–	(138)	839	(92)	4,347			Stage 1	€ m	6,200	(438)	220	(104)	41	1,897	(1,649)	197	–	(47)	111	3	74	6,505
	Other personal	Stage 3 Total	€ m € m	192 2,984	– –	– –	56 –	(14) –	– 411	(22) (752)	5 114	(21) (21)	– –	– (8)	– –	31 (21)	227 2,707		Other personal	Stage 3 Total	€ m € m	343 3,075	– –	– –	97 –	(25) –	– 1,043	(66) (1,207)	9 230	(39) (39)	(128) (147)	– 9	– –	1 20	192 2,984
		Stage 2	€ m	288	373	(103)	(51)	12	–	(92)	18	–	–	(1)	–	(25)	419			Stage 2	€ m	398	387	(276)	(85)	22	–	(145)	31	–	(5)	2	(4)	(37)	288
		Stage 1	€ m	2,504	(373)	103	(5)	2	411	(638)	91	–	–	(7)	–	(27)	2,061			Stage 1	€ m	2,334	(387)	276	(12)	3	1,043	(996)	190	–	(14)	7	4	56	2,504
	Residential mortgages	Stage 1 Stage 2 Stage 3 POCI Total	€ m € m € m € m € m	At 1 January 2020 26,973 2,144 2,143 194 31,454	Transferred from Stage 1 to Stage 2 (1,413) 1,413 – – –	Transferred from Stage 2 to Stage 1 868 (868) – – –	Transferred to Stage 3 (15) (132) 147 – –	Transferred from Stage 3 14 108 (122) – –	New loans originated/top-ups 1,122 – – – 1,122	Redemptions/repayments (1,607) (131) (111) (7) (1,856)	Interest credited 348 28 16 5 397	Write-offs – – (23) (2) (25)	Derecognised due to disposals – – – – –	Exchange translation adjustments (72) (6) (8) – (86)	Impact of model, parameter and overlay changes – – – – –	Other movements 23 (25) 22 1 21	At 30 June 2020 26,241 2,531 2,064 191 31,027		Residential mortgages	Stage 1 Stage 2 Stage 3 POCI Total	€ m € m € m € m € m	At 1 January 2019 25,617 3,441 3,023 234 32,315	Transferred from Stage 1 to Stage 2 (1,197) 1,197 – – –	Transferred from Stage 2 to Stage 1 1,935 (1,935) – – –	Transferred to Stage 3 (30) (247) 277 – –	Transferred from Stage 3 17 306 (323) – –	New loans originated/top-ups 3,116 – – 2 3,118	Redemptions/repayments (3,529) (394) (309) (17) (4,249)	Interest credited 689 79 36 9 813	Write-offs – – (183) (5) (188)	Derecognised due to disposals (17) (21) (382) (4) (424)	Exchange translation adjustments 55 5 7 – 67	Impact of model, parameter and overlay changes 303 (303) – – –	Other movements 14 16 (3) (25) 2	At 31 December 2019 26,973 2,144 2,143 194 31,454

AIB Group plc Half-Yearly Financial Report 2020 75

30 June 2020	Non-property business	Stage 2 Stage 3 Total	€ m € m € m	84 142 305	144 – 120	(23) – (15)	(33) 76 37	6 (16) (8)	53 51 115	– – 8	(7) – (13)	18 2 33	143 16 233			301 129 510	– (12) (12)	(1) – (2)	(4) (3) (11)	– (1) –	380 255 790	31 December 2019	Non-property business	Stage 2 Stage 3 Total	€ m € m € m	132 368 593	103 – 86	(110) – (71)	(42) 85 39	7 (28) (15)	8 (19) (60)	– – 17	(11) – (19)	(3) (1) 2	1 2 4			(47) 39 (17)	– (35) (35)	(1) (229) (231)	2 – 4	(2) (1) (9)	84 142 305
		Stage 1	€ m	79	(24)	8	(6)	2	11	8	(6)	13	74			80	–	(1)	(4)	1	155			Stage 1	€ m	93	(17)	39	(4)	6	(49)	17	(8)	6	1			(9)	–	(1)	2	(6)	79
	Property and construction	Stage 3 POCI Total	€ m € m € m	132 – 189	– – 20	– – (3)	31 – 24	(3) – (3)	17 – 42	– – 4	– – (8)	3 – (29)	9 – 267			57 – 314	(14) – (14)	– – –	(2) – (4)	6 – 5	179 – 490		Property and construction	Stage 3 POCI Total	€ m € m € m	403 – 480	– – 17	– – (24)	47 – 32	(16) – (11)	(39) – (44)	– – 6	– – (7)	1 – –	2 – 4			(5) – (27)	(100) – (100)	(177) – (180)	4 – 4	7 – 12	132 – 189
		Stage 2	€ m	26	31	(9)	(7)	–	12	–	(6)	(33)	178			166	–	–	(1)	(1)	190			Stage 2	€ m	36	21	(28)	(10)	3	2	–	(2)	(1)	2			(13)	–	–	–	3	26
		Stage 1	€ m	31	(11)	6	–	–	13	4	(2)	1	80			91	–	–	(1)	–	121			Stage 1	€ m	41	(4)	4	(5)	2	(7)	6	(5)	–	–			(9)	–	(3)	–	2	31
	Other personal	Stage 3 Total	€ m € m	114 175	– 29	– (9)	27 9	(7) (3)	24 11	– 6	– (2)	– 4	2 39			46 84	(21) (21)	– –	– –	(1) (1)	138 237		Other personal	Stage 3 Total	€ m € m	172 253	– 66	– (36)	46 13	(12) (7)	16 (8)	– 16	– (2)	1 (9)	(1) (1)			50 32	(39) (39)	(67) (68)	– –	(2) (3)	114 175
		Stage 2	€ m	40	35	(12)	(18)	4	(7)	–	(1)	–	16			17	–	–	–	–	57			Stage 2	€ m	52	76	(48)	(32)	4	(8)	–	(1)	(2)	–			(11)	–	(1)	–	–	40
		Stage 1	€ m	21	(6)	3	–	–	(6)	6	(1)	4	21			21	–	–	–	–	42			Stage 1	€ m	29	(10)	12	(1)	1	(16)	16	(1)	(8)	–			(7)	–	–	–	(1)	21
	Residential mortgages	Stage 1 Stage 2 Stage 3 POCI Total	€ m € m € m € m € m	At 1 January 2020 10 52 476 31 569	Transferred from Stage 1 to Stage 2 (11) 34 – – 23	Transferred from Stage 2 to Stage 1 13 (24) – – (11)	Transferred to Stage 3 – (7) 13 – 6	Transferred from Stage 3 2 6 (15) – (7)	Net re-measurement (1) (7) (1) 3 (6)	New loans originated/top-ups 1 – – – 1	Redemptions/repayments – (1) – – (1)	Impact of model and overlay changes 47 8 68 – 123	Impact of credit or economic risk parameters 41 54 63 8 166		Income statement net credit	impairment charge/(writeback) 92 63 128 11 294	Write-offs – – (23) (2) (25)	Derecognised due to disposals – – – – –	Exchange translation adjustments (1) – (1) – (2)	Other movements – 2 (2) – –	At 30 June 2020 101 117 578 40 836		Residential mortgages	Stage 1 Stage 2 Stage 3 POCI Total	€ m € m € m € m € m	At 1 January 2019 8 51 623 31 713	Transferred from Stage 1 to Stage 2 (2) 35 – – 33	Transferred from Stage 2 to Stage 1 4 (25) – – (21)	Transferred to Stage 3 – (9) 25 – 16	Transferred from Stage 3 1 7 (30) – (22)	Net re-measurement (1) (24) 25 2 2	New loans originated/top-ups 1 – – – 1	Redemptions/repayments – (1) – (1) (2)	Impact of model and overlay changes (2) 11 71 3 83	Impact of credit or economic risk parameters – 7 29 3 39		Income statement net credit	impairment charge/(writeback) 1 1 120 7 129	Write-offs – – (183) (5) (188)	Derecognised due to disposals – – (84) (2) (86)	Exchange translation adjustments – – 1 – 1	Other movements 1 – (1) – –	At 31 December 2019 10 52 476 31 569

76 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Credit profile of the loan portfolio

Movements in off-balance sheet exposures

The following tables set out the movements in the nominal amount and ECL allowance for loan commitments and financial guarantees by ECL staging:

Nominal amount movements

Nominal amount movements
		30 June 2020*
	Loan commitments Stage 1 Stage 2 Stage 3 Total € m € m € m € m 11,098 323 118 11,539 (1,294) 1,294 – – 140 (140) – – (37) (11) 48 – 21 5 (26) – 223 11 (32) 202 10,151 1,482 108 11,741	Financial guarantees
		Stage 1 Stage 2 Stage 3 Total € m € m € m € m
At 1 January 2020 Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 Net movement		657 11 43 711 (251) 251 – – 2 (2) – – (1) (1) 2 – 2 2 (4) – (11) (1) (3) (15)
At 30 June 2020		398 260 38 696

		31 December 2019*
	Loan commitments Stage 1 Stage 2 Stage 3 Total € m € m € m € m 10,688 296 123 11,107 (241) 241 – – 170 (170) – – (39) (7) 46 – 11 4 (15) – 509 (41) (36) 432 – – – – 11,098 323 118 11,539	Financial guarantees
		Stage 1 Stage 2 Stage 3 Total € m € m € m € m
At 1 January 2019 Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 Net movement Derecognised due to disposals		691 31 58 780 (5) 5 – – 16 (16) – – (3) – 3 – – – (1) (1) (44) (9) (26) (79) 2 – 9 11
At 31 December 2019		657 11 43 711

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 77

Credit risk – Credit profile of the loan portfolio

Movements in off-balance sheet exposures (continued)

ECL allowance movements

ECL allowance movements
												30 June 2020*
				Loan commitments Stage 2 Stage 3 Total € m € m € m 8 1 19 24 – 22 (11) – (9) – 1 1 – – – 5 – 23 18 1 37 – – – – – (1) 26 2 55								Financial guarantees
		Stage 1 € m		Stage 2 € m		Stage 3 € m				Stage 1 € m		Stage 2 € m		Stage 3 € m		Total € m
At 1 January 2020		10		8		1				3		2		18		23
Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 Net re-measurement		(2) 2 – – 18		24 (11) – – 5		– – 1 – –		22 (9) 1 – 23		– – – – 2		10 (1) – – –		– – – – (1)		10 (1) – – 1
Income statement (credit)/charge Derecognised due to disposals Other movements		18 – (1)		18 – –		1 – –				2 – –		9 – –		(1) – –		10 – –
At 30 June 2020		27		26		2				5		11		17		33

												31 December 2019*	31 December 2019*	31 December 2019*	31 December 2019*	31 December 2019*
						Loan commitments Stage 3 Total € m € m 1 25 – 20 – (18) 1 (1) – – – (7) 1 (6) – – (1) – 1 19						Financial guarantees
		Stage 1 € m		Stage 2 € m		Stage 3 € m				Stage 1 € m		Stage 2 € m		Stage 3 € m		Total € m
At 1 January 2019		13		11		1				3		1		29		33
Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 Net re-measurement		(4) 8 – – (6)		24 (26) (2) – (1)		– – 1 – –		20 (18) (1) – (7)		– 1 – – (2)		1 (1) – – –		– – – – (4)		1 – – – (6)
Income statement (credit)/charge Derecognised due to disposals Other movements		(2) – (1)		(5) – 2		1 – (1)				(1) – 1		– – 1		(4) (5) (2)		(5) (5) –
At 31 December 2019		10		8		1				3		2		18		23

The internal credit grade profile of loan commitments and financial guarantees is set out in the following table:

	30 June	31 December
	2020*	2019*
	€ m	€ m
Strong	8,030	8,230
Satisfactory	3,953	3,642
Criticised watch	298	197
Criticised recovery	9	19
Default	147	162
Total	12,437	12,250

Non-performing off-balance sheet commitments

Total non-performing off-balance sheet commitments amounted to € 147 million (31 December 2019: € 162 million).

*Forms an integral part of the condensed consolidated interim financial statements

78 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk – Investment securities

The following table analyses the carrying value of investment securities by major classifications:

	30 June 2020 Carrying value € m 5,747(1) 1,332 180 931 221 95 5,202 1,630 417 93 15,848 2,300 91 55 175 645 88 23 39 3,416 – 379 19,643*	31 December 2019*
		Carrying value € m
Debt securities at FVOCI Irish Government securities Euro government securities Non Euro government securities Supranational banks and government agencies Collateralised mortgage obligations Other asset backed securities Euro bank securities Non Euro bank securities Euro corporate securities Non Euro corporate securities		5,296 1,538 212 1,034 222 106 5,343 1,654 375 101
Total debt securities at FVOCI		15,881
Debt securities at amortised cost Irish Government securities Euro government securities Non Euro government securities Supranational banks and government agencies Asset backed securities Euro bank securities Euro corporate securities Non Euro corporate securities		– – – – 591 – 14 30
Total debt securities at amortised cost		635
Equity securities Equity investments at FVOCI Equity investments at FVTPL		458 357
Total investment securities		17,331

(1) Includes € 1,806 million in Euro commercial paper issued by the Irish Government.

Debt securities at FVOCI include unrealised gross gains of € 532 million (31 December 2019: € 577 million) and unrealised gross losses of € 19 million (31 December 2019: € 10 million).

Equity investments at FVOCI included unrealised gross gains of € 414 million at 31 December 2019. Equity investments at FVTPL include unrealised gross gains of € 171 million (31 December 2019: € 147 million) and unrealised gross losses of € 6 million (31 December 2019: € 4 million).

For further details on investment securities, see note 21 ‘Investment securities’ in the condensed consolidated interim financial statements.

Debt securities and related ECL analysed by IFRS 9 staging

	30 June 2020 Stage 1 Stage 2 Stage 3 Total € m € m € m € m 3,397 20 – 3,417 – (1) – (1) 3,397 19 – 3,416 15,806 42 – 15,848 (4) – – (4) 19,203 61 – 19,264*	31 December 2019*
		Stage 1 Stage 2 Stage 3 Total € m € m € m € m
At amortised cost – gross ECL allowance		635 – – 635 – – – –
At amortised cost – carrying value		635 – – 635
At FVOCI – carrying value ECL allowance (included in carrying value)		15,881 – – 15,881 (4) – – (4)
Total carrying value		16,516 – – 16,516

*Forms an integral part of the condensed consolidated interim financial statements

AIB Group plc Half-Yearly Financial Report 2020 79

Credit risk

Credit ratings

External credit ratings of financial assets*

The following table sets out the credit quality of financial assets based on external credit ratings. These include loans and advances to banks, investment debt securities and trading portfolio financial assets. Information on the external credit ratings for loans and advances to customers where an external credit rating is available is disclosed on page 66.

		30 June 2020	30 June 2020
	At amortised cost Bank Corporate Sovereign Other Total € m € m € m € m € m 807 – 263 423 1,493 1,239 – 2,320 212 3,771 12 – 38 10 60 – 62 – – 62 – – – – – 2,058 62 2,621 645(1) 5,386 2,058 52 2,621 635 5,366 – 10 – 10 20 – – – – –	At FVOCI Bank Corporate Sovereign Other Total € m € m € m € m € m 5,108 36 1,134 316 6,594 1,324 237 5,782 – 7,343 400 209 1,274 – 1,883 – 28 – – 28 – – – – – 6,832 510 8,190(2) 316 15,848 6,832 468 8,190 316 15,806 – 42 – – 42 – – – – –	Total
			€ m
AAA/AA A/A- BBB+/BBB/BBB- Sub investment Unrated			8,087 11,114 1,943 90 –
Total Of which: Stage 1 Stage 2 Stage 3			21,234
			21,172 62 –

		31 December 2019	31 December 2019
	At amortised cost Bank Corporate Other Total € m € m € m € m 840 – 383 1,223 592 – 198 790 45 – 10 55 1 44 – 45 – – – – 1,478 44 591(1) 2,113 1,478 44 591 2,113 – – – – – – – –	At FVOCI Bank Corporate Sovereign Other Total € m € m € m € m € m 5,257 31 1,277 328 6,893 1,396 209 5,420 – 7,025 344 208 1,383 – 1,935 – 28 – – 28 – – – – – 6,997 476 8,080(2) 328 15,881 6,997 476 8,080 328 15,881 – – – – – – – – – –	Total
			€ m
AAA/AA A/A- BBB+/BBB/BBB- Sub investment Unrated			8,116 7,815 1,990 73 –
Total Of which: Stage 1 Stage 2 Stage 3			17,994
			17,994 – –

(1)Relates to asset backed securities.

(2)Includes supranational banks and government agencies.

Large exposures

The Group Large Exposure Policy sets out maximum exposure limits to, or on behalf of, a customer or a group of connected customers.

At 30 June 2020, the Group’s top 50 exposures amounted to € 4.7 billion, and accounted for 7.7% (31 December 2019: € 4.7 billion and 7.6%) of the Group’s on-balance sheet total gross loans and advances to customers. In addition, these customers have undrawn facilities amounting to € 886 million (31 December 2019: € 485 million). No single customer exposure exceeded regulatory requirements.

*Forms an integral part of the condensed consolidated interim financial statements

80 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk

Additional credit quality and forbearance disclosures on loans and advances to customers Forbearance

The Group’s forbearance initiatives are detailed on pages 135 to 144 in the ‘Risk management’ section of the Annual Financial Report 2019. The following table sets out the internal credit ratings and ECL staging of forborne loans and advances to customers:

Analysed by internal credit ratings										30 June 2020	30 June 2020	30 June 2020
				At amortised cost						Total € m – – – – 932 932 2,446 3,378 131 901 2,159 187 3,378 60,493	At FVTPL
	Residential mortgages € m			Other personal Property and construction € m € m				Non- property business € m				Total € m
Strong Satisfactory		– –		– –		– –		– –		– –		– –
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing		– – 560 560 1,799		– – 53 53 94		– – 110 110 268		– – 209 209 285				–
												– –
												– –
Gross carrying amount Analysed by ECL staging		2,359(1)		147		378		494				–
Stage 1 Stage 2 Stage 3 POCI		8 547 1,617 187		2 52 93 –		97 106 175 –		24 196 274 –				– – – –
Total Total gross carrying amount of loans and advances to customers		2,359(1)		147		378		494				–
		31,027		2,707		7,136		19,623				76

Analysed by internal credit ratings										31 December 2019	31 December 2019	31 December 2019
				At amortised cost						Total € m – – – – 1,176 1,176 2,275 3,451 143 1,048 2,069 191 3,451 62,049		At FVTPL
	Residential mortgages € m			Other personal Property and construction € m € m				Non- property business € m				Total € m
Strong Satisfactory		– –		– –		– –		– –		– –		– –
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing		– – 716 716 1,867		– – 51 51 80		– – 154 154 156		– – 255 255 172				–
												– –
												– –
Gross carrying amount Analysed by ECL staging		2,583(1)		131		310		427				–
Stage 1 Stage 2 Stage 3 POCI		7 704 1,681 191		1 50 80 –		95 68 147 –		40 226 161 –				– – – –
Total Total gross carrying amount of loans and advances to customers		2,583(1)		131		310		427				–
		31,454		2,984		7,299		20,312				77

(1)Republic of Ireland € 2,310 million (31 December 2019: € 2,541 million) and United Kingdom € 49 million (31 December 2019: € 42 million).

AIB Group plc Half-Yearly Financial Report 2020 81

Credit risk

Additional credit quality and forbearance disclosures on loans and advances to customers Forbearance

Republic of Ireland residential mortgages

The Group has a Mortgage Arrears Resolution Strategy (“MARS”) for dealing with mortgage customers in actual or apparent financial difficulty, which builds on and formalises the Group’s Mortgage Arrears Resolution Process. The core objectives of MARS are to ensure that arrears solutions are sustainable in the long term and that they comply with the spirit and the letter of all relevant regulatory requirements. MARS includes long term forbearance measures which have been devised to assist existing Republic of Ireland primary residential mortgage customers in financial difficulty.

Under the definition of forbearance, which complies with that prescribed by the European Banking Authority, facilities subject to forbearance measures remain in forbearance stock for a minimum period of two years from the date forbearance is granted regardless of the forbearance type. Therefore, cases that receive a short term forbearance measure, such as interest only and return to a full principal and interest repayment schedule at the end of the interest only period, will remain in the stock of forbearance for at least two years.

Residential mortgages subject to forbearance measures by type of forbearance

The following table analyses, by number of accounts and loan balance, type of forbearance and staging, residential mortgages based on current forbearance measures in the Republic of Ireland:

Total		30 June 2020	30 June 2020
	Total Number Balance € m 5,263 615 1,128 160 1,955 247 107 11 553 21 6,636 744 711 66 604 78 503 10 1,118 159 1,462 147 353 52 20,393 2,310 4,370 553 16,023 1,757 4,543 523 933 129 1,614 203 5 2 210 10 6,081 671 617 53 587 75 325 6 1,111 158 1,440 145 297 40 17,763 2,015	Gross at amortised cost Stage 1 Stage 2 Stage 3 POCI Balance Balance Balance Balance € m € m € m € m – 103 497 15 – 20 140 – – 96 150 1 2 – 9 – – 2 19 – – 260 449 35 – 25 39 2 – 24 53 1 – – 2 8 – 1 34 124 – 5 142 – 6 4 41 1 8 540 1,575 187 6 540 – 7 2 – 1,575 180 – 88 420 15 – 10 119 – – 83 119 1 1 – 1 – – 1 9 – – 233 403 35 – 21 30 2 – 24 51 – – – 1 5 – 1 34 123 – 5 140 – 6 4 29 1 7 470 1,356 182
			ECL allowance
			Balance € m
Interest only Reduced payment Payment moratorium Fundamental restructure Restructure Arrears capitalisation Term extension Split mortgages Voluntary sale for loss Low fixed interest rate Positive equity solutions Other			177 50 45 2 10 156 15 16 8 27 29 11
Total forbearance Of which: Performing Non-performing Of which: Owner-occupier			546
			41 505
Interest only Reduced payment Payment moratorium Fundamental restructure Restructure Arrears capitalisation Term extension Split mortgages Voluntary sale for loss Low fixed interest rate Positive equity solutions Other			158 44 34 – 4 145 12 15 6 27 28 10
Total			483

82 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk

Additional credit quality and forbearance disclosures on loans and advances to customers Forbearance

Republic of Ireland residential mortgages (continued)

Residential mortgages subject to forbearance measures by type of forbearance (continued)

Total		31 December 2019	31 December 2019
	Total Number Balance € m 5,414 651 1,301 195 954 104 138 15 531 21 7,772 961 864 88 829 117 541 10 1,192 173 1,489 152 383 54 21,408 2,541 5,433 711 15,975 1,830 4,574 541 1,065 153 782 85 6 1 190 9 7,093 865 727 68 807 113 345 7 1,184 172 1,468 150 312 41 18,553 2,205	Gross at amortised cost Stage 1 Stage 2 Stage 3 POCI Balance Balance Balance Balance € m € m € m € m – 140 507 4 – 36 159 – – 29 75 – 2 – 13 – – 4 17 – – 390 532 39 – 36 50 2 – 51 65 1 – – 1 9 – 1 37 135 – 3 149 – 5 9 39 1 7 699 1,644 191 4 699 – 8 3 – 1,644 183 – 112 425 4 – 21 132 – – 26 59 – – – 1 – – 1 8 – – 346 480 39 – 27 39 2 – 50 62 1 – – 1 6 – 1 37 134 – 3 147 – 5 9 26 1 5 596 1,417 187
			ECL allowance
			Balance € m
Interest only Reduced payment Payment moratorium Fundamental restructure Restructure Arrears capitalisation Term extension Split mortgages Voluntary sale for loss Low fixed interest rate Positive equity solutions Other			137 46 23 2 8 127 13 18 10 19 28 8
Total forbearance Of which: Performing Non-performing Of which: Owner-occupier			439
			20 419
Interest only Reduced payment Payment moratorium Fundamental restructure Restructure Arrears capitalisation Term extension Split mortgages Voluntary sale for loss Low fixed interest rate Positive equity solutions Other			120 39 14 – 3 117 10 17 7 19 28 6
Total			380

A key feature of the forbearance portfolio is the level of advanced forbearance measures (split mortgages, low fixed interest rate, voluntary sale for loss, negative equity trade down and positive equity solutions) driven by the Group’s strategy to deliver sustainable long term solutions to customers. Advanced forbearance solutions at € 0.4 billion accounted for 18% of the total forbearance portfolio at 30 June 2020 (31 December 2019: € 0.5 billion,18%). Following restructure, loans are reported as defaulted for a probationary period of at least 12 months.

Other permanent standard forbearance measures are term extensions and arrears capitalisation (which often include a term extension). Permanent forbearance measures are reported within the stock of forbearance for at least two years. These include loans where a subsequent interest only or other temporary arrangement had expired at 30 June 2020, but where an arrears capitalisation or term extension was awarded previously.

Arrears capitalisation continues to be the largest category of forbearance solutions at 30 June 2020, accounting for 32% by value of the total forbearance portfolio (31 December 2019: 38%). A high proportion of the arrears capitalisation portfolio (60% by value) is in Stage 3 at 30 June 2020.

AIB Group plc Half-Yearly Financial Report 2020 83

Credit risk

Additional credit quality and forbearance disclosures on loans and advances to customers Forbearance

Non-mortgage subject to forbearance measures by type of forbearance

The Group has developed treatment strategies for customers in the non-mortgage portfolio who are experiencing financial difficulties. The approach is based on assessing customer affordability and applying treatment strategies that deliver a sustainable solution for the customer and the Group. Further information on non-mortgage forbearance is included on page 142 of the Annual Financial Report 2019.

Non-retail customers in difficulty may have exposures across a number of asset classes including SME debt, associated property exposures and residential mortgages. The following table sets out an analysis of non-mortgage forbearance solutions:

Amortised cost

Other personal		30 June 2020 At amortised cost Stage 1 Stage 2 Stage 3/ POCI(1) ECL allowance Balance Balance Balance Balance € m € m € m € m – 3 8 5 – 1 4 3 – 12 16 12 – 3 5 3 – 14 22 14 2 1 5 2 – 18 31 23 – – 2 1 – – – – 2 52 93 63 64 8 30 31 – 5 4 3 – 12 22 9 – 1 6 2 – 20 28 8 15 2 32 16 – 16 34 16 – – 6 2 18 42 13 12 97 106 175 99 – 5 19 8 – 3 7 5 – 60 58 32 – 3 4 2 – 29 32 12 24 15 58 27 – 77 72 45 – – 3 2 – 4 21 5 24 196 274 138 123 354 542 300 18 354 – 58 105 – 542 242		31 December 2019	31 December 2019
		At amortised cost		At amortised cost
	Total Balance € m 11 5 28 8 36 8 49 2 – 147 102 9 34 7 48 49 50 6 73 378 24 10 118 7 61 97 149 3 25 494 1,019 372 647	Stage 1 Stage 2 Stage 3/ POCI(1) Balance Balance Balance € m € m € m – 3 8 – 1 4 – 12 16 – 3 5 – 14 22 2 1 5 – 18 31 – – 2 – – – 2 52 93 64 8 30 – 5 4 – 12 22 – 1 6 – 20 28 15 2 32 – 16 34 – – 6 18 42 13 97 106 175 – 5 19 – 3 7 – 60 58 – 3 4 – 29 32 24 15 58 – 77 72 – – 3 – 4 21 24 196 274 123 354 542 18 354 – 105 – 542	Total Balance € m 11 5 16 6 28 9 53 3 – 131 34 10 7 7 47 51 132 8 14 310 35 17 5 2 71 94 116 4 83 427 868 460 408	Stage 1 Stage 2 Stage 3/ POCI(1) Balance Balance Balance € m € m € m – 3 8 – 2 3 – 6 10 – 2 4 – 12 16 1 1 7 – 24 29 – – 3 – – – 1 50 80 – 6 28 – 5 5 – 3 4 – 4 3 – 20 27 10 9 32 84 15 33 – – 8 1 6 7 95 68 147 – 21 14 – 6 11 – 1 4 – 1 1 – 49 22 22 33 39 – 57 59 – – 4 18 58 7 40 226 161 136 344 388 116 344 – 20 – 388	ECL allowance
					Balance € m
Interest only Reduced payment Payment moratorium Arrears capitalisation Term extension Fundamental restructure Restructure Asset disposals Other					4 2 7 2 10 3 20 1 –
Total Property and construction					49
Interest only Reduced payment Payment moratorium Arrears capitalisation Term extension Fundamental restructure Restructure Asset disposals Other					11 2 1 1 8 14 18 3 3
Total Non-property business					61
Interest only Reduced payment Payment moratorium Arrears capitalisation Term extension Fundamental restructure Restructure Asset disposals Other					7 5 2 – 9 20 24 2 5
Total Total non-mortgage forbearance at amortised cost Of which: Performing Non-performing					74
					184
					46 138

(1)POCI assets amounting to € 0.1 million are included in ‘Property and construction’ (31 December 2019: € 0.2 million ‘Property and construction’).

84 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Credit risk

Additional credit quality and forbearance disclosures on loans and advances to customers EBA Compliant Moratoria

Introduction

During the period, the Group introduced payment break options to support customers in response to COVID-19. The following information relates to loans and advances that meet the definition of EBA Guidelines (EBA – Compliant moratoria) and are not reported as having received forbearance. (Specific conditions that must be met so that a moratorium is considered a general payment moratorium include that a) it applies to a wide group of borrowers, b) the moratorium only changes the schedule of payments and c) the same conditions for changes to payment schedules are offered to all).

The table below analyses the total loans and advances that received EBA compliant moratoria, together with a maturity analysis of loans and advances that had remained on a payment break at 30 June 2020.

		30 June 2020
	Total € m 7,414 1,896 5,518 4,841 643 34	Main components
		Households of which: Residential Mortgages Other € m € m € m
Granted Expired		3,619 3,223 3,795 1,011 978 885
Remaining 30 June 2020 Maturity <= 3 months > 3 months <= 6 months > 6 months <= 9 months		2,608 2,245 2,910
		2,260 1,942 2,581 348 303 295 – – 34

The table below analyses the credit profile and ECL allowance for loans and advances that had remained on a payment break at 30 June 2020.

				30 June 2020
	Gross carrying amount € m 3,339 1,973 5,312 206 5,518	Main components Households of which: Residential Mortgages Other € m € m € m 1,950 1,705 1,389 537 430 1,436 2,487 2,135 2,825 121 110 85 2,608 2,245 2,910	ECL allowance € m 71 141 212 40 252	Main components
				Households of which: Residential Mortgages Other € m € m € m
Stage 1 Stage 2				38 27 33 30 18 111
Non-performing				68 45 144
				20 15 20
Total				88 60 164

AIB Group plc Half-Yearly Financial Report 2020 85

Funding and liquidity risk

Liquidity

Liquidity risk is the risk that the Group will not be able to fund its assets and meet its payment obligations as they fall due, without incurring unacceptable costs or losses. Funding is the means by which liquidity is generated, e.g. secured or unsecured, wholesale, corporate or retail. In this respect, funding risk is the risk that a specific form of liquidity cannot be obtained at an acceptable cost.

At 30 June 2020, the Group held € 42,960 million (31 December 2019: € 32,045 million) in qualifying liquid assets (QLA)[(1)] /contingent funding of which € 4,581 million (31 December 2019: € 2,617 million) was not available due to repurchase, secured loans and other restrictions. The available Group liquidity pool comprises the remainder and is held to cover contractual and stress outflows. At 30 June 2020, the Group liquidity pool was € 38,379 million (31 December 2019: € 29,428 million). During the six months to 30 June 2020, the liquidity pool ranged from € 29,176 million to € 39,772 million and the average balance was € 34,973 million.

(1) QLA is an asset that can be readily converted into cash, either with the market or with the monetary authorities, and where there is no legal, operational or prudential impediments to their use as liquid assets.

Composition of the Group liquidity pool

The following table shows the composition of the Group’s liquidity pool. The liquidity amounts shown in the table represent the clean prices after deduction of the ECB haircut.

				30 June 2020 High Quality Liquid Assets (HQLA)(1)in the liquidity pool Level 1 Level 2 € m € m 12,372(2) – 8,865 295 2,782 1,453 50 377 2,832 1,830 24,069 2,125				31 December 2019	31 December 2019
	Liquidity pool available (ECB eligible) Liquidity pool € m € m				Liquidity pool available (ECB eligible) Liquidity pool € m € m			High Quality Liquid Assets (HQLA)(1)in the liquidity pool
				Level 1 € m				Level 1 € m	Level 2 € m
Cash and deposits with central banks Total government bonds Other: Covered bonds Other(3) Total other		10,082(2) 9,160 4,726 14,411 19,137	– 8,473 3,906 11,196 15,102	12,372(2) 8,865 2,782 50 2,832		7,502(2) 6,506 4,576 10,844 15,420	– 5,444 3,761 8,007 11,768	9,897(2) 6,101 3,079 100 3,179	– 405
									1,409 356
									1,765
Total Of which: EUR GBP USD Other		38,379	23,575	24,069		29,428	17,212	19,177	2,170
		35,212 1,569 1,593 5				26,217 1,549 1,655 7

(1) Level 1 – High Quality Liquid Assets (“HQLAs”) include amongst others, domestic currency (euro) denominated bonds issued or guaranteed by European Economic Area (“EEA”) sovereigns, very highly rated covered bonds, other very highly rated sovereign bonds and unencumbered cash at central banks. Level 2 – HQLAs include highly rated sovereign bonds, highly rated covered bonds and certain other strongly rated securities.

(2) For Liquidity Coverage Ratio (“LCR”) purposes, assets outside the Liquidity function’s control can qualify as HQLAs in so far as they match outflows in the same jurisdiction. For the Group, this means that UK HQLAs (cash held with the Bank of England) can qualify up to the amount of 30 days UK outflows under LCR but are not included in the Group’s calculation of available QLA stocks.

(3) Includes unsecured bank bonds and self-issued covered bonds arising from the securitisation of residential mortgage assets.

Management of the Group liquidity pool

The Group manages the liquidity pool on a centralised basis. The composition of the liquidity pool is subject to limits set by the Board and the Risk function. These pool assets primarily comprise government guaranteed bonds, central bank reserves and internal and external covered bonds. The Group’s liquidity buffer increased in the six months to 30 June 2020 by € 8,951 million which was predominantly due to an increase in customer deposits in Ireland, proceeds from net retained covered bond and securitisation issuances, net proceeds from Additional Tier 1 (‘AT1s’) issuance and buy-back, proceeds from the portfolio sale of distressed loans during 2019 and customer loan redemptions during the period offset by the maturity of senior debt.

Other contingent liquidity

The Group has access to other unencumbered assets providing a source of contingent liquidity which are not in the Group’s liquidity pool. However, these assets may be monetised in a stress scenario to generate liquidity through use as collateral for secured funding or outright sale.

For further details of liquidity risk and its management, see pages 146 to 153 of the Annual Financial Report 2019.

86 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Funding and liquidity risk

Liquidity regulation

The Group is required to comply with the liquidity requirements of the Single Supervisory Mechanism/Central Bank of Ireland and also with the requirements of local regulators in jurisdictions in which it operates. In addition, the Group is required to carry out liquidity stress testing capturing firm specific, systemic risk events and a combination of both. The Group adheres to these requirements.

The following table outlines the LCR, Net Stable Funding Ratio (“NSFR”) and Loan to Deposit Ratio (“LDR”):

	30 June	31 December
	2020	2019
Liquidity metrics	%	%
Liquidity Coverage Ratio	158	157
Net Stable Funding Ratio	136	129
Loan to Deposit Ratio	77	85

The Group monitors and reports its current and forecast position against CRD IV and other related liquidity metrics and has fully complied with the minimum LCR requirement of 100% in the six months to 30 June 2020.

The calculated NSFR is based on the current Basel standard. The second Capital Requirements Regulation (CRR2), effective 27 June 2019, introduces a binding NSFR requirement of 100% and comes into force in June 2021.

AIB Group plc Half-Yearly Financial Report 2020 87

Funding and liquidity risk

Funding structure*

The Group’s funding strategy is to deliver a sustainable, diversified and robust customer deposit base at economic pricing and to further enhance and strengthen the wholesale funding franchise with appropriate access to term markets to support core lending activities. The strategy aims to deliver a solid funding structure that complies with internal and regulatory policy requirements and reduces the probability of a liquidity stress, i.e. an inability to meet funding obligations as they fall due.

Sources of funds	30 June 2020 € m % 75,678 78 62,838 11,026 1,685 129 367 – 453 1 3,025 3 3,312 3 15,070 15 97,905 100 3,536 101,441	31 December 2019 € m %	31 December 2019 € m %
Customer accounts Of which: Euro Sterling US dollar Other currencies Deposits by central banks and banks – secured – unsecured Asset covered securities (“ACS”) Senior debt Capital	75,678 62,838 11,026 1,685 129 367 453 3,025 3,312 15,070	71,803 58,507 11,316 1,803 177 294 529 3,025 3,806 15,529	76 – 1 3 4 16
Total source of funds Other	97,905 3,536 101,441	94,986 3,576 98,562	100

Customer deposits represent the largest source of funding for the Group with the core retail franchises and accompanying deposit base in both Ireland and the UK providing a stable and reasonably predictable source of funds. Customer accounts increased by € 3,875 million in the six months to 30 June 2020. This was mainly due to a € 4,331 million increase in Euro deposits, primarily in current and demand deposit accounts driven by government COVID-19 related supports in place since mid-March, the impact of reduced consumption and increased precautionary savings.

The other significant currencies of the Group’s deposit book are GBP and USD. In the six months to 30 June 2020, there was a decrease in the value of GBP deposits of € 799 million and an increase in the value of USD deposits of € 6 million due to currency movements. On a constant currency basis there was an increase in GBP deposits of € 509 million and a decrease in USD deposits of € 124 million.

The management of stable retail funds is paramount to the Group’s overall funding and liquidity strategy and will be a key factor in the Group’s capacity for future asset growth. The Group maintains access to a variety of sources of wholesale funds, including those available from money markets, repo markets and term investors.

In the six months to 30 June 2020, senior debt decreased € 494 million to € 3,312 million primarily due to a contractual maturity. Outstanding asset covered securities (ACS) at 30 June 2020 remained flat at € 3,025 million. For further details on debt securities, see ‘Debt securities in issue’ (note 28) in the condensed consolidated interim financial statements.

In the six months to 30 June 2020, capital decreased € 459 million to € 15,070 million primarily driven by a reduction in reserves (31 December 2019: € 15,529 million). Offsetting this, the Group issued € 625 million nominal value in June 2020 of AT1 Perpetual Contingent Temporary Write Down Securities. In addition, the Group redeemed € 202 million of the € 500 million AT1 Perpetual Contingent Temporary Write Down Securities issued in 2015. For further details on these capital items, see ‘Other equity interests’ (note 34) and ‘Non-controlling interests in subsidiaries’ (note 35) in the condensed consolidated interim financial statements.

*Forms an integral part of the condensed consolidated interim financial statements

88 AIB Group plc Half-Yearly Financial Report 2020

Risk management

Funding and liquidity risk

Composition of wholesale funding

At 30 June 2020, total wholesale funding outstanding was € 8,455 million (31 December 2019: € 8,953 million). € 1,796 million of wholesale funding matures in less than one year (31 December 2019: € 1,779 million). € 6,659 million of wholesale funding has a residual maturity of over one year (31 December 2019: € 7,174 million).

Outstanding wholesale funding comprised € 3,392 million in secured funding (31 December 2019: € 3,319 million) and € 5,063 million in unsecured funding (31 December 2019: € 5,634 million).

	30 June 2020
	< 1 month € m 1–3 months € m 3–6 months € m 6–12 months € m Total < 1 year € m 1–3 years € m 3–5 years € m > 5 years € m Total € m
Deposits by central banks and banks Senior debt ACS Subordinated liabilities and other capital instruments	480 66 – – 546 274 – – 820 – – – – – 500 2,312 500 3,312 750 – – 500 1,250 1,750 – 25 3,025 – – – – – – – 1,298 1,298
Total 30 June 2020 Of which: Secured Unsecured	1,230 66 – 500 1,796 2,524 2,312 1,823 8,455
	777 66 – 500 1,343 2,024 – 25 3,392 453 – – – 453 500 2,312 1,798 5,063
	1,230 66 – 500 1,796 2,524 2,312 1,823 8,455
	31 December 2019
	< 1 month € m 1–3 months € m 3–6 months € m 6–12 months € m Total < 1 year € m 1–3 years € m 3–5 years € m > 5 years € m Total € m
Deposits by central banks and banks Senior debt ACS Subordinated liabilities and other capital instruments	351 – 178 – 529 294 – – 823 – 500 – – 500 – 1,916 1,390 3,806 – – – 750 750 1,250 1,000 25 3,025 – – – – – – – 1,299 1,299
Total 31 December 2019 Of which: Secured Unsecured	351 500 178 750 1,779 1,544 2,916 2,714 8,953
	– – – 750 750 1,544 1,000 25 3,319 351 500 178 – 1,029 – 1,916 2,689 5,634
	351 500 178 750 1,779 1,544 2,916 2,714 8,953

Encumbrance

An asset is defined as encumbered if it has been pledged as collateral, and as a result is no longer available to the Group to secure funding, satisfy collateral needs or to be sold. The Group manages encumbrance levels to ensure that the Group has sufficient contingent collateral to maximise balance sheet flexibility.

The Group had an encumbrance ratio of 11% at 30 June 2020 (31 December 2019: 11%) with € 11,256 million of the Group’s assets encumbered (31 December 2019: € 11,572 million). The encumbrance level is based on the amount of assets that are required in order to meet regulatory and contractual commitments.

AIB Group plc Half-Yearly Financial Report 2020 89

Condensed consolidated interim financial statements (unaudited)

	Page
ndensed consolidated interim financial statements
Condensed consolidated income statement	90
Condensed consolidated statement of comprehensive income	91
Condensed consolidated statement of financial position	92
Condensed consolidated statement of cash flows	93
Condensed consolidated statement of changes in equity	94

Condensed consolidated interim financial statements

Notes to the condensed consolidated interim financial statements

		Page		Page
1	Basis of preparation, accounting policies and		24Deferred taxation	115
	estimates	97	25Retirement benefits	117
2	Segmental information	98	26Deposits by central banks and banks	119
3	Interest and similar income	102	27Customer accounts	120
4	Interest and similar expense	102	28Debt securities in issue	120
5	Dividend income	102	29Lease liabilities	121
6	Net fee and commission income	103	30Other liabilities	121
7	Net trading loss	103	31Provisions for liabilities and commitments	122
8	Net gain on other financial assets measured		32Subordinated liabilities and
	at FVTPL	103	other capital instruments	124
9	Net (loss)/gain on derecognition of financial		33Share capital	125
	assets measured at amortised cost	104	34Other equity interests	126
10	Other operating income	104	35 Non-controlling interests in subsidiaries	127
11	Operating expenses	104	36 Capital reserves, merger reserve and
12	Net credit impairment charge	105	capital redemption reserves	127
13	Taxation	105	37Memorandum items: contingent liabilities
14	Earnings per share	107	and commitments, and contingent assets	128
15	Distributions on equity shares and		38Off-balance sheet arrangements and
	other equity interests	108	transferred financial assets	129
16	Disposal groups and non-current assets		39Fair value of financial instruments	130
	held for sale	108	40Statement of cash flows	136
17	Derivative financial instruments	109	41Related party transactions	138
18	Loans and advances to banks	110	42Financial and other information	141
19	Loans and advances to customers	110	43Dividends	141
20	ECL allowance on financial assets	111	44Non-adjusting events after the reporting
21	Investment securities	112	period	141
22	Interests in associated undertakings	114	45Approval of financial statements	141
23	Other assets	114

90 AIB Group plc Half-Yearly Financial Report 2020

Condensed consolidated income statement (unaudited)

for the half-year ended 30 June 2020

Notes	Half-year 30 June 2020 € m	Half-year 30 June 2020 € m	Half-year 30 June 2019 € m
Interest income calculated using the effective interest method 3 Other interest income and similar income 3		1,060 38	1,155 38
Interest and similar income 3 Interest and similar expense 4		1,098 (131)	1,193 (143)
Net interest income Dividend income 5 Fee and commission income 6 Fee and commission expense 6 Net trading loss 7 Net gain on other financial assets measured at FVTPL 8 Net (loss)/gain on derecognition of financial assets measured at amortised cost 9 Other operating income 10 Other income		967 25 276 (84) (40) 43 (1) 1 220	1,050
			25 256 (26) (48) 78 28 40
			353
Total operating income Operating expenses 11 Impairment and amortisation of intangible assets Impairment and depreciation of property, plant and equipment Total operating expenses		1,187 (749) (88) (48) (885)	1,403
			(850) (70) (47)
			(967)
Operating profit before impairment losses Net credit impairment charge 12		302 (1,216)	436 (9)
Operating (loss)/profit Associated undertakings 22		(914) 5	427 9
(Loss)/profit before taxation Income tax credit/(charge) 13		(909) 209	436 (75)
(Loss)/profit for the period Attributable to: – Equity holders of the parent – Non-controllinginterests 35		(700)	361
		(718) 18	343 18
(Loss)/profit for the period Basic (loss)/earnings per share Basic (loss)/earnings per ordinary share 14(a) Diluted (loss)/earnings per share Diluted(loss)/earningsper ordinaryshare 14(b)		(700)	361
		(27.0)c (27.0)c	12.6c 12.6c

AIB Group plc Half-Yearly Financial Report 2020 91

Condensed consolidated statement of comprehensive income (unaudited) for the half-year ended 30 June 2020

Notes	Half-year 30 June 2020 Half-year 30 June 2019 € m € m
(Loss)/profit for the period Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Net actuarial losses in retirement benefit schemes, net of tax 13 Net change in fair value of equityinvestments at FVOCI, net of tax 13	(700) 361 — (5) (18) (15)
Total items that will not be reclassified subsequently to profit or loss	(18) (20)
Items that will be reclassified subsequently to profit or loss when specific conditions are met Net change in foreign currency translation reserves 13 Net change in cash flow hedges, net of tax 13 Net change in fair value of investment debt securities at FVOCI, net of tax 13	(86) (6) 104 265 (140) (4)
Total items that will be reclassified subsequently to profit or loss when specific conditions are met	(122) 255
Other comprehensive income for the period, net of tax	(140) 235
Total comprehensive income for the period Attributable to: – Equity holders of the parent – Non-controllinginterests	(840) 596
	(858) 578 18 18
Total comprehensive income for the period	(840) 596

92 AIB Group plc Half-Yearly Financial Report 2020

Condensed consolidated statement of financial position (unaudited)

as at 30 June 2020

Notes		30 June 2020 31 December 2019 € m € m	30 June 2020 31 December 2019 € m € m
Assets Cash and balances at central banks Items in course of collection Disposal groups and non-current assets held for sale 16 Derivative financial instruments 17 Loans and advances to banks 18 Loans and advances to customers 19 Investment securities 21 Interests in associated undertakings 22 Intangible assets and goodwill Property, plant and equipment Other assets 23 Current taxation Deferred tax assets 24 Prepayments and accrued income Retirement benefit assets 25		14,666 50 15 1,763 1,970 58,216 19,643 88 921 740 203 63 2,737 311 55	11,982 57 20 1,271 1,478 60,888 17,331 83 917 803 655 8 2,666 364 39
Total assets Liabilities Deposits by central banks and banks 26 Customer accounts 27 Derivative financial instruments 17 Debt securities in issue 28 Lease liabilities 29 Current taxation Deferred tax liabilities 24 Retirement benefit liabilities 25 Other liabilities 30 Accruals and deferred income Provisions for liabilities and commitments 31 Subordinated liabilities and other capital instruments 32		101,441	98,562
		820 75,678 1,322 6,337 404 2 60 55 858 286 549 1,298	823 71,803 1,197 6,831 429 70 109 60 869 339 503 1,299
Total liabilities Equity Share capital 33 Reserves Total shareholders' equity Other equity interests 34 Non-controllinginterests 35		87,669	84,332
		1,696 10,666 12,362 1,116 294
			1,696 11,543
			13,239 496 495
Total equity Total liabilities and equity		13,772	14,230
		101,441	98,562

AIB Group plc Half-Yearly Financial Report 2020 93

Condensed consolidated statement of cash flows (unaudited)

for the half-year ended 30 June 2020

		Half-year	Half-year
		30 June	30 June
		2020	2019
	Notes	€ m	€ m
Cash flows from operating activities
(Loss)/profit before taxation for the period		(909)	436
Adjustments for:
– Non-cash and other items	40	1,378	211(1)
– Change in operating assets	40	1,356	(218)
– Change in operating liabilities	40	4,036	1,436(1)
– Taxationpaid		(33)	(20)
Net cash inflow from operating activities		5,828	1,845
Cash flows from investing activities
Purchase of investment securities	21	(5,000)	(2,885)
Proceeds from sales, redemptions and maturity of investment securities	21	2,518	2,757
Additions to property, plant and equipment		(5)	(25)
Disposal of property, plant and equipment		7	–
Additions to intangible assets		(95)	(94)
Dividends received from associated undertakings	22	–	10
Net cash outflow from investing activities		(2,575)	(237)
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities	34	620	–
Redemption of capital instruments	35	(206)	–
Proceeds on issue of debt securities – MREL	28	–	1,640(1)
Dividends paid on ordinary shares	15	–	(461)
Distributions paid to other equity interests	15	(13)	–
Distributions paid to non-controlling interests	35	(19)	(18)
Repayment of lease liabilities		(28)	(33)
Interestpaid on debt securities – MREL		(53)	(23)(1)
Net cash inflow from financing activities		301	1,105
Change in cash and cash equivalents		3,554	2,713
Opening cash and cash equivalents		12,923	7,246
Effect of exchange translation adjustments		(289)	(7)
Closing cash and cash equivalents	40	16,188	9,952

(1) Half-year 30 June 2019 has been re-presented to align the balance sheet classification. MREL was previously presented in operating activities and is now presented in financing activities.

94 AIB Group plc Half-Yearly Financial Report 2020

Share capital Other equity interests Capital reserves Merger reserve Capital redemp- tion reserves Reval- uation reserves Invest- ment securities reserves Cash flow hedging reserves Revenue reserves Foreign currency translation reserves Total Non- controlling interests Total equity € m € m € m € m € m € m € m € m € m € m € m € m € m	At 1 January 2020 1,696 496 1,133 (3,622) 14 14 623 469 13,441 (529) 13,735 495 14,230 Total comprehensive income for the period Loss for the period – – – – – – – – (718) – (718) 18 (700) Other comprehensive income_(note 13)_ – – – – – – (158) 104 – (86) (140) – (140)	Total comprehensive income for the period – – – – – – (158) 104 (718) (86) (858) 18 (840)	Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the Group: Redemption of capital instruments_(note 35) – – – – – – – – (6) – (6) (200) (206) Issue of Additional Tier 1 Securities(note 34) – 620 – – – – – – – – 620 – 620 Distributions paid to other equity interests(note 15) – – – – – – – – (13) – (13) – (13) Distributions paid to non-controlling interests(note 35)_ – – – – – – – – – – – (19) (19)	Total contributions by and distributions to owners of the Group – 620 – – – – – – (19) – 601 (219) 382	Realised gains on equity shares held at fair value through other comprehensive income – – – – – – (344) – 344 – – – –	At 30 June 2020 1,696 1,116 1,133 (3,622) 14 14 121 573 13,048 (615) 13,478 294 13,772

AIB Group plc Half-Yearly Financial Report 2020 95

Attributable to equity holders of parent Share capital Other equity interests Capital reserves Merger reserve Capital redemp- tion reserves Reval- uation reserves Invest- ment securities reserves Cash flow hedging reserves Revenue reserves Foreign currency translation reserves Total Non- controlling interests Total equity € m € m € m € m € m € m € m € m € m € m € m € m € m	At 1 January 2019 1,696 494 1,133 (3,622) 14 14 676 285 13,763 (595) 13,858 – 13,858 Total comprehensive income for the period Profit for the period – – – – – – – – 343 – 343 18 361 Other comprehensive income_(note 13)_ – – – – – – (19) 265 (5) (6) 235 – 235	Total comprehensive income for the period – – – – – – (19) 265 338 (6) 578 18 596	Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the Group: Transferred to non-controlling interests_(notes 35) – (494) – – – – – – – – (494) 494 – Dividends paid on ordinary shares(note 15) – – – – – – – – (461) – (461) – (461) Distributions paid to non-controlling interests(note 15)_ – – – – – – – – – – – (18) (18)	Total contributions by and distributions to owners of the Group – (494) – – – – – – (461) – (955) 476 (479)	At 30 June 2019 1,696 – 1,133 (3,622) 14 14 657 550 13,640 (601) 13,481 494 13,975

96 AIB Group plc Half-Yearly Financial Report 2020

Attributable to equity holders of parent Share capital Other equity interests Capital reserves Merger reserve Capital redemp- tion reserves Reval- uation reserves Invest- ment securities reserves Cash flow hedging reserves Revenue reserves Foreign currency translation reserves Total Non- controlling interests Total equity € m € m € m € m € m € m € m € m € m € m € m € m € m	At 1 January 2019 1,696 494 1,133 (3,622) 14 14 676 285 13,763 (595) 13,858 – 13,858 Total comprehensive income for the year Profit for the year – – – – – – – – 327 – 327 37 364 Other comprehensive income – – – – – – (53) 184 (188) 66 9 – 9	Total comprehensive income for the year – – – – – – (53) 184 139 66 336 37 373	Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the Group: Transferred to non-controlling interests_(note 35) – (494) – – – – – – – – (494) 494 – Non-controlling interests on acquisition of subsidiary (note 35) – – – – – – – – – – – 1 1 Issue of Additional Tier 1 Securities(note 34) – 496 – – – – – – – – 496 – 496 Dividends paid on ordinary shares – – – – – – – – (461) – (461) – (461) Distributions paid to other equity interests – – – – – – – – – – – – – Distributions paid to non-controlling interests(note 35)_ – – – – – – – – – – – (37) (37)	Total contributions by and distributions to owners of the Group – 2 – – – – – – (461) – (459) 458 (1)	At 31 December 2019 1,696 496 1,133 (3,622) 14 14 623 469 13,441 (529) 13,735 495 14,230

AIB Group plc Half-Yearly Financial Report 2020 97

Notes to the condensed consolidated interim financial statements

1 Basis of preparation, accounting policies and estimates

Reporting entity

AIB Group plc (‘the parent company’ or ‘the Company’) is a company domiciled in Ireland. The address of the Company’s Registered Office was changed to 10 Molesworth Street, Dublin 2, Ireland on 16 June 2020 (previously Bankcentre, Ballsbridge, Dublin 4, Ireland). AIB Group plc is registered under the Companies Act 2014 as a public limited company under the company number 594283 and is the holding company of the Group.

The condensed consolidated interim financial statements for the six months ended 30 June 2020 comprise the parent company and its subsidiary undertakings, collectively referred to as ‘AIB Group’, and the Group’s interests in associated undertakings.

Comparative information was previously reported in the Half-Yearly Financial Report 2019 other than the following: Distributions of € 18 million were originally reported as ‘Other equity interests – distributions’ but is now disclosed as ‘Profit Attributable to Non-controlling interests’ and ‘Distributions paid to non-controlling interests’. These distributions related to AT1 Securities that were reported as ‘Other equity interests’ at 30 June 2019 but were subsequently classified in 2019 as ‘Non-controlling interests’, hence a representation in June 2019 income statement was appropriate.

Following a change in methodology of allocating proceeds from loan disposals, the amounts reported as income under ‘Net gain on other financial assets measured at FVTPL’ and ‘Net (loss)/gain on derecognition of financial assets measured at amortised cost’ has changed from € 92 million and € 14 million to € 78 million and € 28 million. This revised methodology was adopted for the full year financial statements in 2019 and hence a representation in June 2019 income statement was appropriate.

The consolidated financial statements of the Group for the year ended 31 December 2019 (‘the Annual Financial Report 2019’) are available upon request from the Company Secretary or at www.aib.ie.

Going concern

The financial statements for the six months ended 30 June 2020 have been prepared on a going concern basis as the Directors are satisfied, having considered the risks and uncertainties impacting the Group, that it has the ability to continue in business for the period of assessment. In making this assessment, the Directors have considered a wide range of information relating to present and future conditions, including internally generated stress scenarios. The period of assessment used by the Directors is 12 months from the date of approval of these half-yearly financial statements

Accounting policies

The condensed consolidated interim financial statements for the six months ended 30 June 2020 have been prepared in accordance with IAS 34 Interim Financial Reporting . These statements should be read in conjunction with the Annual Financial Report 2019, which was prepared in accordance with International Accounting Standards and International Financial Reporting Standards (collectively “IFRS”) as adopted by the European Union (“EU”). The condensed consolidated interim financial statements comprise the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows, and the condensed consolidated statement of changes in equity together with the related notes. These notes include certain risk related disclosures which are contained in the Risk management section of the Half-Yearly Financial Report. The relevant information in the Risk management section is identified as forming an integral part of the condensed consolidated interim financial statements.

There has been no significant changes to the accounting policies described on pages 245 to 272 of the Annual Financial Report 2019.

Critical accounting judgements and estimates

The preparation of the interim financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of certain assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Since management judgement involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period affected. The estimates that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are in the areas of impairment of financial assets; the recoverability of deferred tax; determination of the fair value of certain financial assets and financial liabilities; retirement benefit obligations; and provisions for liabilities and commitments.

98 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

1 Basis of preparation, accounting policies and estimates (continued)

Critical accounting judgements and estimates adopted by the Group are set out on pages 273 to 277 of the Annual Financial Report 2019 and while they remain appropriate, additional disclosures taking account of developments in the six months to 30 June 2020 are given as follows:

Deferred taxation: update on the significant judgement that is being made about the projection of long term future profitability because of the period over which recovery extends is given in note 24 – Deferred taxation.

Impairment of financial assets and ECL allowance: The calculation of the ECL allowance is highly complex and the process requires significant use of a number of accounting judgements, estimates and assumptions, some of which, by their nature, are highly subjective and very sensitive to risk factors such as economic conditions. This is particularly amplified at 30 June 2020 given the COVID-19 pandemic. The most significant judgements , i.e. relating to management adjustments to reflect all available information that have not been included in the risk measurement process modelled outcomes, are outlined on pages 43 and 44. Updated macroeconomic variables, a critical accounting estimate, used in models to calculate ECL allowances are set out on pages 38 to 41.

Provision for liabilities and commitments: An update on individual material estimates is given in note 31 – Provisions for liabilities and commitments.

Adoption of new accounting standards

During the half-year to 30 June 2020, the Group adopted amendments to standards and interpretations which had an insignificant impact on these financial statements.

Prospective accounting changes

Information on prospective accounting changes is set out on page 272 of the Annual Financial Report 2019. There are no standards that are not yet effective that would be expected to have a material impact on the Group in future reporting periods.

Statement of compliance

The condensed consolidated interim financial statements comply with IAS 34 Interim Financial Reporting , as issued by the IASB and as adopted by the EU.

The interim figures for the six months ended 30 June 2020 are unaudited but have been reviewed by the independent auditor, Deloitte Ireland LLP, whose report is set out on page 143. The financial information presented herein does not amount to statutory financial statements. The Half-Yearly Financial Report is a requirement of the Transparency (Directive 2004/109/EC) Regulations 2007.

The summary financial statements for the financial year ended 31 December 2019 as presented in the condensed consolidated interim financial statements, represent an abbreviated version of the Group’s full accounts for that year, on which the independent auditor, Deloitte Ireland LLP, issued an unqualified audit report and which are not annexed to these interim financial statements. The financial statements for the financial year ended 31 December 2019 have been filed in the Companies Registration Office.

2 Segmental information

Segment overview

Following changes to the Group’s operating model in the second half of 2019, performance is now managed and reported across the Retail Banking, Corporate, Institutional & Business Banking (“CIB”), AIB UK and Group segments. Figures for the half-year to 30 June 2019 have been restated on a comparative basis, in line with the basis of segment reporting adopted in the Annual Financial Report 2019. Segment performance excludes exceptional items.

For further information refer to the Operating and Financial Review on page 24.

Segment allocations

The segments’ performance statements include all income and directly related costs, excluding overheads which are managed centrally and the costs of which are included in the Group segment. Funding and liquidity income/charges are based on each segment’s funding requirements and the Group’s funding cost profile, which is informed by wholesale and retail funding costs. Income attributable to capital is allocated to segments based on each segment’s capital requirement.

AIB Group plc Half-Yearly Financial Report 2020 99

2 Segmental information (continued)

2 Segmental information(continued)
							Half-year 30 June 2020
	Retail Banking € m		CIB € m	AIB UK € m	Group € m	Total € m	Excep- tional items(1) € m	Total € m
Operations by business segment Net interest income Net fee and commission income* Other Other income		572 140 21 161	219 33 12 45	114 22 (2) 20	62 (3) (3) (6)	967 192 28 220	– – – –	967
								192 28
								220
Total operating income Other operating expenses Of which: Personnel expenses General and administrative expenses Depreciation, impairment and amortisation Bank levies and regulatoryfees		733 (445) (205) (154) (86) (1)	264 (64) (47) (12) (5) –	134 (83) (43) (28) (12) –	56 (155) (73) (49) (33) (62)	1,187 (747) (368) (243) (136) (63)	– 1,187 (75) (822) (12)(2)(3) (380) (63)(3)-(5) (306) – (136) – (63)
Total operating expenses Operating profit/(loss) before impairment losses Net credit impairment charge		(446) 287 (491)	(64) 200 (538)	(83) 51 (187)	(217) (161) –	(810) 377 (1,216)	(75) (885) (75) 302 – (1,216)
Operating loss Associated undertakings		(204) 4	(338) –	(136) 1	(161) –	(839) 5	(75) (914) – 5
Loss before taxation		(200)	(338)	(135)	(161)	(834)	(75) (909)

(1) Exceptional and one-off items are shown separately above. These are items that Management view as distorting comparability of performance from period to period. Exceptional items include:

(2)Termination benefits; (4)Property strategy; and

(3)Restitution costs; (5)Covid product costs.

For further information on these items see page 20.

*Analysis of net fee and commission income	Half-year 30 June 2020
	Retail Banking CIB AIB UK Group Total € m € m € m € m € m
Retail banking customer fees Foreign exchange fees Credit related fees Specialised payment services fees Other fees and commissions	104 11 13 9 137 15 10 5 (4) 26 5 9 7 – 21 70 – – – 70 24 4 – (6) (1) 22
Fee and commission income Specialised payment services expenses Other fee and commission expenses	218 34 25 (1) 276 (63) – – – (63) (15) (1) (3) (2) (21)
Fee and commission expense	(78) (1) (3) (2) (84)
	140 33 22 (3) 192

(1) Reflects the allocation of the Group’s segment fee and commission income to Retail Banking and CIB segments.

Further information on ‘Net fee and commission income’ is set out in note 6.

100 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

2 Segmental information (continued)

						Half-year 30 June 2019	Half-year 30 June 2019
	Retail Banking € m	CIB € m	AIB UK € m	Group € m	Total € m	Excep- tional items(1) € m	Total € m
Operations by business segment Net interest income Net fee and commission income* Other Other income	628 161 29 190	225 37 9 46	135 31 6 37	62 1 45 46	1,050 230 89 319	– – 34 34 (2)	1,050
							230 123
							353
Total operating income Other operating expenses Of which: Personnel expenses General and administrative expenses Depreciation, impairment and amortisation Bank levies and regulatoryfees	818	271	172	108	1,369	34	1,403
	(455) (231) (153) (71) (1)	(60) (42) (14) (4) –	(85) (44) (32) (9) –	(144) (76) (44) (24) (57)	(744) (393) (243) (108) (58)	(165) (909) (11)(3)(4) (404) (145)(4)-(7) (388) (9) (117) – (58)
Total operating expenses Operating profit/(loss) before impairment losses Net credit impairment writeback/(charge)	(456)	(60)	(85)	(201)	(802)	(165) (967)
	362 22	211 (10)	87 (21)	(93) –	567 (9)	(131) 436 – (9)
Operating profit/(loss) Associated undertakings	384 8	201 (1)	66 2	(93) –	558 9	(131) 427 – 9
Profit/(loss) before taxation	392	200	68	(93)	567	(131) 436

(1) Exceptional and one-off items are shown separately above. These are items that Management view as distorting comparability of performance from period to period. Exceptional items include:

(2)Gain on disposal of financial instruments;

(3)Termination benefits;

(5)Property strategy costs;

(6)Restructuring costs; and

(4)Restitution costs; (7)Provision for regulatory fines.

For further information on these items see page 20.

*Analysis of net fee and commission income	Half-year 30 June 2019
	Retail Banking CIB AIB UK Group Total € m € m € m € m € m
Retail banking customer fees Foreign exchange fees Credit related fees Other fees and commissions	126 14 17 9 166 19 10 6 1 36 6 9 11 – 26 30 5 – (7)(1) 28
Fee and commission income Fee and commission expense	181 38 34 3 256 (20) (1) (3) (2) (26)
	161 37 31 1 230

(1) Reflects the allocation of the Group’s segment fee and commission income to Retail Banking and CIB segments.

Further information on ‘Net fee and commission income’ is set out in note 6.

AIB Group plc Half-Yearly Financial Report 2020 101

2 Segmental information (continued)

Other amounts – statement of financial position

Other amounts–statement of financial position
	30 June 2020
	Retail Banking CIB AIB UK Group Total € m € m € m € m € m
Loans and advances to customers: – measured at amortised cost – measured at FVTPL	34,383 15,365 8,275 117 58,140 – 76 – – 76
Total loans and advances to customers Customer accounts	34,383 15,441 8,275 117 58,216 52,168 11,943 10,105 1,462 75,678
	31 December 2019
	Retail Banking CIB AIB UK Group Total € m € m € m € m € m
Loans and advances to customers: – measured at amortised cost – measured at FVTPL	35,526 16,095 9,069 121 60,811 – 77 – – 77
Total loans and advances to customers Customer accounts	35,526 16,172 9,069 121 60,888 48,636 11,347 10,364 1,456 71,803

Geographic information(1)(2)	Half-year 30 June 2020
	Ireland United Kingdom Rest of the World Total € m € m € m € m
Gross external revenue Inter-geographical segment revenue	903 260 24 1,187 166 (145) (21) –
Total revenue Geographic information(1)(2)	1,069 115 3 1,187
	Half-year 30 June 2019
	Ireland United Kingdom Rest of the World Total € m € m € m € m
Gross external revenue Inter-geographical segment revenue	1,121 261 21 1,403 98 (77) (21) –
Total revenue	1,219 184 – 1,403

Revenue from external customers comprises interest and similar income (note 3) and interest and similar expense (note 4), and all other items of income (notes 5 to 10).

Geographic Information	30 June 2020
	Ireland United Kingdom Rest of the World Total € m € m € m € m
Non-current assets(3)	1,573 83 5 1,661
Geographic Information	31 December 2019
	Ireland United Kingdom Rest of the World Total € m € m € m € m
Non-current assets(3)	1,608 107 5 1,720

(1)The geographical distribution of total revenue is based primarily on the location of the office recording the transaction.

(2)For details of significant geographic concentrations, see the Risk management section.

(3)Non-current assets comprise intangible assets and goodwill and property, plant and equipment.

102 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

	Half-year	Half-year
	30 June	30 June
	2020	2019
3 Interest and similar income	€ m	€ m
Interest on loans and advances to customers at amortised cost	966	1,020
Interest on loans and advances to banks at amortised cost	9	20
Interest on investment securities	72	106
	1,047	1,146
Negative interest on financial liabilities at amortised cost	13	9
Interest income calculated using the effective interest method	1,060	1,155
Interest income on finance leases and hire purchase contracts	37	37
Interest income on financial assets at FVTPL	1	1
Other interest income and similar income	38	38
Total interest and similar income	1,098	1,193

Interest income includes a credit of € 63 million (30 June 2019: a credit of € 59 million) transferred from other comprehensive income in respect of cash flow hedges which is included in ‘Interest on loans and advances to customers’.

The Group presents interest resulting from negative effective interest rates on financial liabilities as interest income rather than as offset against interest expense.

	Half-year	Half-year
	30 June	30 June
	2020	2019
4 Interest and similar expense	€ m	€ m
Interest on deposits by central banks and banks	3	7
Interest on customer accounts	48	68
Interest on debt securities in issue	39	41
Interest on lease liabilities	7	7
Interest on subordinated liabilities and other capital instruments	20	16
	117	139
Negative interest on financial assets at amortised cost	13	4
Negative interest on financial assets at FVOCI	1	–
Interest expense calculated using the effective interest method	131	143

Interest expense includes a charge of € 13 million (30 June 2019: a charge of € 18 million) transferred from other comprehensive income in respect of cash flow hedges which is included in ‘Interest on customer accounts’.

Interest expense reported above, calculated using the effective interest rate method, relates to financial liabilities not carried at fair value through profit or loss.

The Group presents interest resulting from negative effective interest rates on financial assets as interest expense rather than as offset against interest income.

	Half-year	Half-year
	30 June	30 June
	2020	2019
5 Dividend income	€ m	€ m
NAMA subordinated bonds at FVOCI	23	23
Equityinvestments at FVTPL	2	2
Total	25	25

AIB Group plc Half-Yearly Financial Report 2020 103

6 Net fee and commission income Half-year 30 June 2020 Half-year 30 June 2019 € m € m	6 Net fee and commission income Half-year 30 June 2020 Half-year 30 June 2019 € m € m	6 Net fee and commission income Half-year 30 June 2020 Half-year 30 June 2019 € m € m
Retail banking customer fees Foreign exchange fees Credit related fees Specialised payment services fees(1) Other fees and commissions(2) Fee and commission income Specialised payment services expenses(1) Other fee and commissions expenses(3) Fee and commission expense	137 26 21 70 22 276 (63) (21) (84)
		166 36 26 – 28
		256
		– (26)
		(26)
	192	230

(1) Specialised payment services: fee income and fee expenses in respect of services and prepaid credits for cellular phone and utilities sold to third parties.

(2) Other fees and commissions includes wealth commissions € 8 million (30 June 2019: € 12 million), insurance commissions € 7 million (30 June 2019: € 10 million), and other commissions € 7 million (30 June 2019: € 6 million).

(3) Other fee and commission expenses includes credit card commissions of € 16 million (30 June 2019: € 20 million), and ATM expenses of € 1 million (30 June 2019: € 2 million), both of which relate to ‘Retail banking customer fees’. This also includes € 4 million (30 June 2019: € 4 million) relating to ‘Other fees and commissions’.

Fees and commissions which are an integral part of the effective interest rate are recognised as part of interest and similar income (note 3) or interest and similar expense (note 4).

	Half-year	Half-year
	30 June	30 June
	2020	2019
7 Net trading loss	€ m	€ m
Foreign exchange contracts	(17)	(15)
Interest rate contracts and debt securities(1)	(14)	8
Credit derivative contracts	(2)	(8)
Equityinvestments, index contracts and warrants(2)	(7)	(33)
	(40)	(48)

(1)Includes a loss of € 19 million (30 June 2019: a gain of € 5 million) in relation to XVA adjustments.

(2)Includes a loss amounting to € 6 million on a total return swap, which is hedging equities measured at FVTPL (30 June 2019: loss of € 33 million).

The total hedging ineffectiveness on cash flow hedges reflected in the condensed consolidated income statement amounted to Nil (30 June 2019: Nil).

	Half-year	Half-year
	30 June	30 June
	2020	2019
8 Netgain on other financial assets measured at FVTPL	€ m	€ m
Loans and advances to customers(1)	21	34
Investment securities – equity(2)	22	44
Total	43	78

(1)Excludes interest income (note 3).

(2)Includes unrealised gain of € 6 million on equities hedged by a trading total return swap (30 June 2019: € 35 million).

104 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

9 Net (loss)/gain on derecognition of financial assets measured at amortised cost

	Half-year 30 June 2020
	Carrying value at derecognition Gain on derecognition Loss on derecognition Net loss on derecognition € m € m € m € m
Loans and advances to customers	124 – (1) (1) (1) (1)
	Half-year 30 June 2019
	Carrying value at derecognition Gain on derecognition Loss on derecognition Net gain on derecognition € m € m € m € m
Loans and advances to customers	738 200 (1) (172) (1) 28

(1)The (loss)/gain on derecognition has been based on the sales proceeds, net of costs, computed at a customer connection level.

In 2019, loans and advances to customers were derecognised mainly due to the sale of distressed loan portfolios.

	Half-year	Half-year
	30 June	30 June
	2020	2019
10 Other operating income	€ m	€ m
Gain on disposal of investment securities at FVOCI – debt	7	73
Loss on termination of hedging swaps(1)	(7)	(34)
Miscellaneous operatingincome	1	1
	1	40

(1) The majority of the loss on termination of hedging swaps relates to the disposal of debt securities at FVOCI. In addition, it includes a € 1 million charge transferred from other comprehensive income in respect of cash flow hedges.

11 Operating expenses	Half-year 30 June 2020 Half-year 30 June 2019 € m € m	Half-year 30 June 2020 Half-year 30 June 2019 € m € m	Half-year 30 June 2020 Half-year 30 June 2019 € m € m
Personnel expenses: Wages and salaries Termination benefits(1) Retirement benefits(2) Social security costs Other personnel expenses(3) Less: staff costs capitalised(4)		299 6 45 33 10 393 (13)
			310 7 55 35 9
			416 (12)
Personnel expenses General and administrative expenses Restitution and associated costs Bank levies and regulatoryfees		380 248 58 306 63	404
			286(5) 102
			388 58
Operating expenses		749	850

(1) Voluntary severance programme charge of € 6 million (30 June 2019: € 7 million).

(2) Comprises a defined contribution charge of € 39 million (30 June 2019: a charge of € 40 million), a charge of € 2 million in relation to defined benefit expense (30 June 2019: a charge of € 11 million), and a long term disability payments/death in service benefit charge of € 4 million (30 June 2019: a charge of € 4 million). For details of retirement benefits, see note 25.

(3)Other personnel expenses include staff training, recruitment and various other staff costs.

(4)Staff costs capitalised relate to intangible assets.

(5) Includes a provision for a regulatory fine of € 35 million for the CBI investigation with regard to the Tracker Mortgage Examination, created in the half-year 30 June 2019.

AIB Group plc Half-Yearly Financial Report 2020 105

12 Net credit impairment charge

The following table analyses the income statement net credit impairment charge on financial instruments.

Credit impairment charge on financial instruments	Half-year 30 June 2020 Measured at amortised cost Measured at FVOCI Total € m € m € m – – – (1,202) – (1,202) (37) – (37) (10) – (10) (1) – (1) (1,250) – (1,250) 34 – 34 (1,216) – (1,216)	Half-year 30 June 2019
		Measured at amortised cost Measured at FVOCI Total € m € m € m
Net re-measurement of ECL allowance Loans and advances to banks Loans and advances to customers Loan commitments Financial guarantee contracts Investment securities – debt		– – – (66) – (66) – – – 10 – 10 – – –
Credit impairment charge		(56) – (56)
Recoveries of amountspreviouslywritten-off		47 – 47
Net credit impairment charge		(9) – (9)

13 Taxation	Half-year 30 June 2020 Half-year 30 June 2019 € m € m	Half-year 30 June 2020 Half-year 30 June 2019 € m € m	Half-year 30 June 2020 Half-year 30 June 2019 € m € m
AIB Group plc and subsidiaries Corporation tax in Ireland Current tax on income for the period Adjustments in respect of prior periods Foreign tax Current tax on income for the period Adjustments in respect of prior periods		– 61 61 31 (1) 30
			(15) –
			(15)
			(15) –
			(15)
Deferred taxation Origination and reversal of temporary differences Adjustments in respect of prior periods Recognition of deferred tax assets in respect of current period losses Reduction in carrying value of deferred tax assets in respect of carried forward losses		91 (8) 21 109 (4) 118	(30)
			(17) – – (28)
			(45)
Total tax credit/(charge) for the period Effective tax rate		209	(75)
		23.0%	17.2%

Liabilities for current and deferred tax are recognised based on best estimates of the probable outcome, taking into account all available evidence and external advice, where appropriate. This necessarily involves some estimation because the tax law is uncertain and its application requires a degree of judgement, which authorities may dispute.

During the period, following resolution of a specific tax matter where uncertainty had existed relating to prior years, previously recognised net liabilities for this and related matters of € 81 million were released.

106 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

13 Taxation (continued)

Analysis of selected other comprehensive income

	Half-year 30 June 2020 Gross Tax Net € m € m € m – – – – – – – – – – – – – – – (86) – (86) (86) – (86) – – – (49) 6 (43) 168 (21) 147 119 (15) 104 (7) 1 (6) (153) 19 (134) (160) 20 (140) (21) 3 (18) (21) 3 (18)	Half-year 30 June 2019
		Gross Tax Net € m € m € m
Property revaluation reserves Net change inpropertyrevaluation reserves		– – –
Total Retirement benefit schemes Actuarial losses in retirement benefit schemes		– – –
		(5) – (5)
Total Foreign currency translation reserves Foreign currency translation losses transferred to income statement Change in foreign currency translation reserves recognised in other comprehensive income		(5) – (5)
		– – – (6) – (6)
Total Cash flow hedging reserves Amounts reclassified from the cash flow hedging reserves to the income statement as a reclassification adjustment: – amounts for which hedge accounting had previously been used, but for which the hedged future cash flows are no longer expected to occur – amounts that have been transferred because the hedged item has affected the income statement Hedging gains recognised in other comprehensive income		(6) – (6)
		– – – (41) 5 (36) 344 (43) 301
Total Investment debt securities at FVOCI reserves Fair value (gains) transferred to income statement Fair value(losses)/gains recognised in other comprehensive income		303 (38) 265
		(73) 9 (64) 68 (8) 60
Total Investment equity securities measured at FVOCI reserves Fair value(losses)recognised in other comprehensive income		(5) 1 (4)
		(17) 2 (15)
Total		(17) 2 (15)

AIB Group plc Half-Yearly Financial Report 2020 107

14 Earnings per share

The calculation of basic earnings per unit of ordinary shares is based on the (loss)/profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue, excluding own shares held.

The diluted earnings per share is based on the (loss)/profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares in issue, excluding own shares held, adjusted for the effect of dilutive potential ordinary shares.

(a) Basic		Half-year 30 June 2020 Half-year 30 June 2019 € m € m
(Loss)/profit attributable to equity holders of the parent Distributions on other equityinterests_(note 15)_		(718) 343 (13) –
(Loss)/profit attributable to ordinary shareholders of the parent Weighted average number of ordinary shares in issue during the period (Loss)/earnings per share – basic (b) Diluted		(731) 343
		Number of shares (millions) 2,714.4 2,714.4
	EUR(27.0)c EUR 12.6c
		Half-year 30 June 2020 Half-year 30 June 2019 € m € m
(Loss)/profit attributable to ordinary shareholders of the parent_(note 14 (a))_ Weighted average number of ordinaryshares in issue duringtheperiod		(731) 343
		Number of shares (millions) 2,714.4 2,714.4
Potential weighted average number of shares (Loss)/earnings per share – diluted		2,714.4 2,714.4
	EUR(27.0)c EUR 12.6c

The ordinary shares are included in the weighted average number of shares on a time apportioned basis.

Warrants

The Minister for Finance was issued warrants in 2017 to subscribe for 271,166,685 ordinary shares of AIB Group plc.

The warrants are exercisable during the period commencing 27 June 2018 and ending 27 June 2027. These warrants were not included in calculating the diluted earnings per share as they were antidilutive (see note 42 to the consolidated financial statements in the Annual Financial Report 2019 for further details).

108 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

15 Distributions on equity shares and other equity interests	Half-year 30 June 2020 Half-year 30 June 2019 € m € m
Ordinary shares – dividends paid Other equity interests – distributions	– 461
	13 –

Final dividends are not accounted for until they have been approved at the Annual General Meeting of shareholders or in the case of the interim dividend, when they become irrevocable having already been approved for payment by the Board of Directors. Interim dividends may be cancelled at any time prior to the actual payment.

On 30 March 2020, the Group announced, following the recommendation of the European Central Bank, that the Company did not intend to seek shareholder approval for the payment of a final dividend for 2019. Accordingly, the relevant Annual General Meeting (“AGM”) resolution was withdrawn and the proposed dividend cancelled.

Distributions amounting to € 13 million were paid in the period on the Additional Tier 1 Securities issued by AIB Group plc in 2019. In June 2019, payments of € 18 million relating to AT1 Securities were reported as ‘Other equity interests - distributions’. The AT1 Securities, issued by Allied Irish Banks, p.l.c., are now classified as non-controlling interests and the payments are therefore recorded as ‘Distributions paid to non-controlling interests’ – see note 35.

16 Disposalgroups and non-current assets held for sale	30 June 2020 31 December 2019 € m € m
Property and non-financial assets held for sale(1) Other	15 19 – 1
Total disposal groups and non-current assets held for sale	15 20

(1)Includes property surplus to requirements and repossessed assets which are expected to be disposed of within one year.

AIB Group plc Half-Yearly Financial Report 2020 109

17 Derivative financial instruments

The following table presents the notional principal amount of interest rate, exchange rate, equity and credit derivative contracts together with the positive and negative fair values attaching to those contracts:

	30 June 2020 31 December 2019 € m € m
Interest rate contracts(1) Notional principal amount Positive fair value Negative fair value	52,847 51,330 1,514 1,230 (1,229) (998)
Exchange rate contracts(1) Notional principal amount Positive fair value Negative fair value	8,551 6,710 239 36 (77) (180)
Equity contracts(1) Notional principal amount Positive fair value Negative fair value	199 354 2 5 – (6)
Credit derivatives(1) Notional principal amount Positive fair value Negative fair value	1,300 240 8 – (16) (13)
Total notional principal amount Total positive fair value(2) Total negative fair value	62,897 58,634
	1,763 1,271
	(1,322) (1,197)

(1)Interest rate, exchange rate, equity and credit derivative contracts are entered into for both hedging and trading purposes.

(2)At 30 June 2020, 26% of fair value relates to exposures to banks (31 December 2019: 30%).

The Group uses the same credit control and risk management policies in undertaking all off-balance sheet commitments as it does for on-balance sheet lending including counterparty credit approval, limit setting and monitoring procedures. In addition, derivative instruments are subject to the market risk policy and control framework as described in the ‘Risk management’ section of the Annual Financial Report 2019. There have been no significant changes to the Group’s derivative activity as set out in note 23 to the consolidated financial statements in the Annual Financial Report 2019. The marginal increase in derivatives volumes relates to an increase in hedging of the Group’s net interest income, liquidity and trading book activity.

110 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

18 Loans and advances to banks		30 June 2020 31 December 2019 € m € m	30 June 2020 31 December 2019 € m € m
At amortised cost Funds placed with central banks Funds placed with other banks ECL allowance		391 1,579 – 1,579	468
			1,010 –
			1,010
Total loans and advances to banks Amounts include: Reverse repurchase agreements		1,970	1,478
		851	151

Loans and advances to banks include cash collateral of € 531 million (31 December 2019: € 631 million) placed with derivative counterparties in relation to net derivative positions.

19 Loans and advances to customers	30 June 2020 31 December 2019 € m € m	30 June 2020 31 December 2019 € m € m
Amortised cost Loans and advances to customers Reverse repurchase agreements Amounts receivable under finance leases and hire purchase contracts ECL allowance	58,788 87 1,618 60,493 (2,353)
		60,359 87 1,603
		62,049 (1,238)
	58,140	60,811
Mandatorily at fair value through profit or loss Loans and advances to customers	76	77
Total loans and advances to customers Of which repayable on demand or at short notice Amounts include: Due from associated undertakings(1)	58,216	60,888
	3,034 1	3,147 1

(1)Undrawn commitments amount to € 126 million (31 December 2019: € 104 million) and are for less than one year.

Loans and advances to customers include cash collateral amounting to € 22 million (31 December 2019: € 18 million) placed with derivative counterparties.

Under reverse repurchase agreements, the Group has accepted collateral with a fair value of € 91 million that it is permitted to sell or repledge in the absence of default by the owner of the collateral.

For details of credit quality of loans and advances to customers, including forbearance, refer to the ‘Risk management’ section of this report.

AIB Group plc Half-Yearly Financial Report 2020 111

20 ECL allowance on financial assets

The following table shows the movements on the ECL allowance on financial assets. Further information is disclosed in the ‘Risk management’ section of this report.

	30 June 2020 31 December 2019 € m € m
At 1 January Exchange translation adjustments Net re-measurement of ECL allowance – investment securities-debt Net re-measurement of ECL allowance – banks Net re-measurement of ECL allowance – customers Changes in ECL allowance due to write-offs Changes in ECL allowance due to disposals Other	1,238 2,039 (17) 9 1 – – – 1,202 117 (72) (362) (2) (565) 4 –
At end of period Amounts include ECL allowance on: Investment securities-debt measured at amortised cost Loans and advances to banks measured at amortised cost Loans and advances to customers measured at amortised cost	2,354 1,238
	1 – – – 2,353 1,238
	2,354 1,238

112 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

21 Investment securities

The following table analyses the carrying value of investment securities by type and by measurement category:

	30 June		31 December
	2020		2019
	€ m		€ m
Debt securities at FVOCI
Irish Government securities	5,747	(1)	5,296
Euro government securities	1,332		1,538
Non Euro government securities	180		212
Supranational banks and government agencies	931		1,034
Collateralised mortgage obligations	221		222
Other asset backed securities	95		106
Euro bank securities	5,202		5,343
Non Euro bank securities	1,630		1,654
Euro corporate securities	417		375
Non Euro corporate securities	93		101
Total debt securities at FVOCI	15,848		15,881
Debt securities at amortised cost
Irish Government securities	2,300		–
Euro government securities	91		–
Non Euro government securities	55		–
Supranational banks and government agencies	175		–
Asset backed securities	645		591
Euro bank securities	88		–
Euro corporate securities	23		14
Non Euro corporate securities	39		30
Total debt securities at amortised cost	3,416		635
Equity securities
Equity investments at FVOCI	–		458
Equityinvestments at FVTPL	379		357
Total equity securities	379		815
Total investment securities	19,643		17,331

(1)Includes € 1,806 million in Euro commercial paper issued by the Irish Government.

Credit impairment losses recognised in the income statement at 30 June 2020 amounted to € 1 million (31 December 2019: Nil).

In addition to the existing business model Hold-to-Collect-and-Sell (“HTCS”) within Treasury, the Group introduced a new business model Hold-to-Collect (“HTC”). This business model reflects the updated strategy to invest in long term high quality bonds to maturity for yield enhancement purposes given the increasingly liability led nature of the balance sheet. On 1 January 2020, the Group transferred Irish Government securities with a fair value of € 614 million out of HTCS to HTC with an amortised cost of € 577 million which had met the criteria for inclusion under this business model. The HTC portfolio within Treasury at 30 June 2020 amounts to € 2,709 million of the total debt securities at amortised cost.

The fair value at 30 June 2020 of the assets that were reclassified on 1 January 2020, amounted to € 597 million (31 December 2019: € 614 million). If the reclassification had not been made, the Group’s statement of comprehensive income for the period ended 30 June 2020 would have included additional fair value gains on the reclassified investment securities assets of € 29 million.

AIB Group plc Half-Yearly Financial Report 2020 113

21 Investment securities (continued)

The following table sets out an analysis of movements in investment securities:

	30 June 2020
	Debt securities at FVOCI Debt securities at amortised cost Equity investments measured at Total FVOCI FVTPL € m € m € m € m € m
At 1 January Exchange translation adjustments Purchases/acquisitions New business model transfer Sales/disposals/redemptions Maturities Amortisation of discounts net of premiums Movement in unrealisedgains/(losses)	15,881 635 458 357 17,331 (54) (1) – – (55) 2,775 2,209 – 16 5,000 (614) 577 – – (37) (879) – (437) (16) (1,332) (1,186) – – – (1,186) (28) (4) – – (32) (47) – (21) 22 (46)
At 30 June Of which: Listed Unlisted	15,848 3,416 – 379 19,643
	15,848 3,416 – 55 19,319 – – – 324 324
	15,848 3,416 – 379 19,643
	31 December 2019
	Debt securities at FVOCI Debt securities at amortised cost Equity investments measured at Total FVOCI FVTPL € m € m € m € m € m
At 1 January Exchange translation adjustments Purchases/acquisitions Sales/disposals Maturities Amortisation of discounts net of premiums Movement in unrealised(losses)/gains	15,946 187 468 260 16,861 68 – – – 68 4,441 449 – 47 4,937 (2,192) – – (24) (2,216) (2,472) (1) – – (2,473) (62) – – – (62) 152 – (10) 74 216
At 31 December Of which: Listed Unlisted	15,881 635 458 357 17,331
	15,881 635 – 46 16,562 – – 458 311 769
	15,881 635 458 357 17,331

114 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

22 Interests in associated undertakings

Included in the income statement is the contribution net of tax from investments in associated undertakings as follows:

Income statement	Half-year 30 June 2020 Half-year 30 June 2019 € m € m
Share of results of associated undertakings	5 9
Share of net assets including goodwill	5(1) 9(1)
	30 June 2020 31 December 2019 € m € m
At 1 January Income for the period Dividends received from associated undertakings	83 90 5 20 – (27)(2)
At end of period(3) Of which listed on a recognised stock exchange	88 83
	– –

(1)Includes AIB Merchant Services € 5 million (30 June 2019: € 9 million).

(2)In 2019 a dividend of € 27 million was received from Merchant Services.

(3)Comprises the Group’s investment in AIB Merchant Services and Fulfil Holdings Limited.

	30 June	31 December
	2020	2019
23 Other assets	€ m	€ m
Proceeds due from disposal of loan portfolio	–	427(1)
Fair value of hedged positions	68	–
Other(2)	135	228
Total	203	655

(1)ECL – Nil.

(2)Includes items in transit € 40 million and sundry debtors € 52 million (31 December 2019: Items in transit € 75 million and sundry debtors € 67 million).

AIB Group plc Half-Yearly Financial Report 2020 115

24 Deferred taxation

24 Deferred taxation
Analysis of movements in deferred taxation	30 June 2020 31 December 2019 € m € m
At 1 January Exchange translation and other adjustments Deferred tax through other comprehensive income Income statement_(note 13)_	2,557 2,595 (6) (1) 8 44 118 (81)
At end of period Analysed as to: Deferred tax assets Deferred tax liabilities	2,677 2,557
	2,858 2,844 (181) (287)
Represented on the statement of financial position: Deferred tax assets Deferred tax liabilities	2,677 2,557
	2,737 2,666 (60) (109)
	2,677 2,557

At 30 June 2020, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities, totalled € 2,677 million (31 December 2019: € 2,557 million).

The Group accounting policy and the significant judgements made by management in relation to deferred taxation are set out in accounting policy (k) in note 1 and note 2 to the consolidated financial statements in the Annual Financial Report 2019. The following includes an update on these significant judgements as at 30 June 2020.

The amount of recognised deferred tax assets arising from unused tax losses amounts to € 2,789 million of which € 2,687 million relates to Irish tax losses and € 102 million relates to UK tax losses.

With regard to relevant Irish companies, using the Group’s latest financial forecast, which takes into account the potential impact of COVID-19 on future performance, as a base and a profit growth rate of 3% from 2025, it was assessed that it will take in excess of 25 years for the deferred tax asset (€ 2,687 million) to be utilised. In 2019, the Group reported that it expected that it would take in excess of 20 years for the deferred tax asset (€ 2,669 million) to be utilised.

Furthermore, under this scenario, it is expected that 66% of the deferred tax asset will be utilised within 20 years (31 December 2019: 77%) and 43% utilised within 15 years (31 December 2019: 51%).

For the Group’s principal UK subsidiary, the Group has concluded that the recognition of deferred tax assets be limited to the amount projected to be realised within a time period of 15 years. This is the timescale within which the Group believes that it can assess the likelihood of its profits arising as being more likely than not. The deferred tax asset for unutilised tax losses in the UK subsidiary amounts to £ 91 million at 30 June 2020 (31 December 2019: £ 87 million).

Following changes announced in the UK Budget in March 2020, a resolution was subsequently passed whereby the previously legislated reduction in the corporation tax rate from 19% to 17% from 2020 onwards was cancelled. Accordingly, a corporation tax rate of 19%, effective from 1 April 2020, has been substantially enacted in the period and this change has resulted in an increase of the Group’s UK deferred tax asset by c. £ 10 million.

In relation to the losses incurred in the half-year ended 30 June 2020, a deferred tax asset of £ 5 million has been recognised. Furthermore, the deferred tax asset for unutilised losses carried forward was written down by £ 11 million at 30 June 2020 as the expected profitability over the 15 years, has reduced in the period primarily by the impact of COVID-19 on business performance.

116 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

24 Deferred taxation (continued)

For certain other subsidiaries and branches, the Group has concluded that it is more likely than not that there will be insufficient profits to support full recognition of deferred tax assets.

Temporary differences recognised in other comprehensive income consist of deferred tax on financial assets at FVOCI, cash flow hedges and actuarial gains/losses on retirement benefit schemes. Temporary differences recognised in the income statement consist of provisions for expected credit losses on financial instruments, amortised income, assets leased to customers, and assets used in the course of the business.

Net deferred tax assets at 30 June 2020 of € 2,620 million (31 December 2019: € 2,504 million) are expected to be recovered after more than 12 months.

The Group has not recognised deferred tax assets in respect of: Irish tax on unused tax losses at 30 June 2020 of € 122 million (31 December 2019: € 122 million); overseas tax (UK and USA) on unused tax losses of € 3,171 million (31 December 2019: € 3,309 million); and foreign tax credits for Irish tax purposes of € 13 million (31 December 2019: € 13 million). Of these tax losses totalling € 3,293 million for which no deferred tax is recognised: € 20 million expires in 2032; € 39 million in 2033; € 26 million in 2034; and € 5 million in 2035.

The aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates for which deferred tax liabilities have not been recognised amounted to Nil (31 December 2019: Nil).

Deferred tax recognised directly in equity amounted to Nil (31 December 2019: Nil).

AIB Group plc Half-Yearly Financial Report 2020 117

25 Retirement benefits

The Group’s accounting policy for retirement benefit obligations is set out on pages 252 and 253 of the Annual Financial Report 2019. All defined benefit schemes operated by the Group were closed to future accrual no later than 31 December 2013 and employees who were members of a defined benefit scheme (including hybrid arrangements) transferred to a defined contribution (‘’DC’’) scheme.

Defined contribution schemes

The total cost in respect of defined contribution schemes for the half-year ended 30 June 2020 was € 39 million (30 June 2019: € 40 million).

Defined benefit schemes

The Group’s net pension surplus as at 30 June 2020 was Nil (31 December 2019: net pension deficit of € 21 million), comprising retirement benefit assets of € 55 million (31 December 2019: € 39 million) and retirement benefit liabilities of € 55 million (31 December 2019: € 60 million).

Financial assumptions

The following table summarises the financial assumptions adopted in the preparation of these financial statements in respect of the main schemes for the half-year ended 30 June 2020 and the year ended 31 December 2019. The assumptions have been set based upon the advice of the Group’s actuary.

advice of the Group’s actuary.
	30 June	31 December
	2020	2019
Financial assumptions	%	%
Irish scheme
Rate of increase of pensions in payment(1)	0.00	0.00
Discount rate	1.56	1.42
Inflation assumptions(2)	0.70	1.05
UK scheme
Rate of increase of pensions in payment	2.80	2.90
Discount rate	1.60	2.10
Inflation assumptions(RPI)	2.80	2.90

(1) Having taken actuarial and external legal advice, the Board determined that the funding of discretionary increases in pensions in payment is a decision to be made by the Board annually. Accordingly, the long term rate of increases of pensions in payment is Nil. This does not reflect the ability of the Trustee to grant increases at any point in the future when the financial position of the scheme would enable such an increase at that point in time.

(2)The inflation assumption applies to the revaluation of deferred members’ benefits up to their retirement date.

The demographic assumptions for retirement benefit obligations are set out in note 34 to the consolidated financial statements in the Annual Financial Report 2019.

Increases in pensions in payment 2020

As disclosed in the Annual Financial Report 2019, the Group deemed in 2020 that funding for increases in pensions in payment was not appropriate for 2020. The Trustees of certain Irish schemes did not award an increase in respect of pensions eligible for discretionary pension increases during the period.

Contributions

There were no contributions made to the Irish Scheme for the six months to 30 June 2020. Contributions of £ 21 million were made to the UK Scheme, as a result of the revised funding arrangement implemented in December 2019. See note 34 to the consolidated financial statements in the Annual Financial Report 2019 for further details.

Valuations

Independent actuarial valuations for the AIB Group Irish Pension Scheme (‘Irish scheme’) and the AIB Group UK Pension Scheme (‘UK scheme’) are carried out on a triennial basis by the Schemes’ actuary, Mercer. The most recent valuation of the Irish scheme was 30 June 2018 and reported the scheme to be in surplus and requiring no deficit funding at this time. The most recent valuation of the UK scheme was carried out at 31 December 2017. The Group and the Trustee of the UK scheme have agreed funding payments under a new arrangement agreed in December 2019 which is described in detail in note 34 to the consolidated financial statements in the Annual Financial Report 2019.

118 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

25 Retirement benefits (continued)

Movement in defined benefit obligation and scheme assets

The following table sets out the movement in the defined benefit obligation and scheme assets.

			30	June 2020					31 December 2019	31 December 2019
Defined		Fair	Asset	Net		Defined		Fair	Asset	Net
benefit		value of	ceiling/	defined			benefit	value of	ceiling/	defined
obligation		scheme	minimum	benefit		obligation		scheme	minimum	benefit
		assets	funding(1)	(liabilities)				assets	funding(1)	(liabilities)
				assets						assets
	€ m	€ m	€ m	€ m			€ m	€ m	€ m	€ m
At 1 January	(5,904)	6,474	(591)	(21)			(5,323)	6,136	(621)	192
Included in profit or loss
Past service cost	–	–		–			(12)	–		(12)
Settlement	–	–		–			3	(5)		(2)
Interest (cost) income	(45)	49	(4)	–			(119)	139	(14)	6
Administration costs	–	(2)		(2)			–	(3)		(3)
	(45)	47	(4)	(2)			(128)	131	(14)	(11)
Included in other comprehensive income
Re-measurements gain/(loss):
– Actuarial gain/(loss) arising from:
– Experience adjustments	(1)	–		(1)			(9)	–		(9)
– Changes in demographic assumptions	–	–		–			2	–		2
– Changes in financial assumptions	110	–		110			(620)	–		(620)
– Return on scheme assets excluding
interest income	–	(10)		(10)			–	332		332
– Asset ceiling/minimum funding
adjustments			(99)	(99)					44	44
				–(2)						(251)(2)
Translation adjustment on
non-euro schemes	75	(78)		(3)			(52)	58		6
	184	(88)	(99)	(3)			(679)	390	44	(245)
Other
Contributions by employer	–	26		26			–	43		43
Benefitspaid	111	(111)		–			226	(226)		–
	111	(85)		26			226	(183)		43
At end of period	(5,654)	6,348	(694)	–			(5,904)	6,474	(591)	(21)
			30	June 2020					31 December 2019
				€ m						€ m
Recognised on the statement of financial position		as:
Retirement benefit assets
UK scheme				48						32
Other schemes				7						7
Total retirement benefit assets				55						39
Retirement benefit liabilities
Irish scheme				–						–
EBS scheme				(32)						(35)
Other schemes				(23)						(25)
Total retirement benefit liabilities				(55)						(60)
Net pension surplus/(deficit)				–						(21)

(1) In recognising the net surplus or deficit on a pension scheme, the funded status of each scheme is adjusted to reflect any minimum funding requirement and any ceiling on the amount that the sponsor has a right to recover from a scheme.

(2)After tax Nil (31 December 2019: € 188 million), see page 106.

AIB Group plc Half-Yearly Financial Report 2020 119

26 Deposits by central banks and banks		30 June 2020 31 December 2019 € m € m	30 June 2020 31 December 2019 € m € m
Central Banks Securities sold under agreements to repurchase Borrowings – secured – unsecured Banks Securities sold under agreements to repurchase Other borrowings – unsecured		27 274 – 301 66 453 519
			– 294 178
			472
			– 351
			351
Amounts include: Due to associated undertakings		820	823
		–	–

Securities sold under agreements to repurchase with banks mature within six months and are secured by Irish Government bonds, other marketable securities and eligible assets. These agreements are completed under market standard Global Master Repurchase Agreements.

Deposits by central banks and banks include cash collateral at 30 June 2020 of € 412 million (31 December 2019: € 285 million) received from derivative counterparties in relation to net derivative positions and also from repurchase agreement counterparties.

Financial assets pledged

Financial assets pledged under existing agreements to repurchase, for secured borrowings, and providing access to future funding facilities with central banks and banks are detailed in the following table:

	30 June 2020 Central banks Banks Total € m € m € m 1,232 17 1,249 – 17 17 1,232 – 1,232	31 December 2019
		Central banks Banks Total € m € m € m
Total carrying value of financial assets pledged Of which: Government securities Other securities(1)		1,452 17 1,469 – 17 17 1,452 – 1,452

(1) The Group has issued covered bonds secured on pools of residential mortgages. Securities, other than those issued to external investors, have been pledged as collateral in addition to other securities held by the Group.

120 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

27 Customer accounts	30 June 2020 31 December 2019 € m € m
Current accounts Demand deposits Time deposits Other – non-controllinginterests(1)	43,805 40,283 18,928 17,742 12,922 13,755 23 23
Of which: Non-interest bearing current accounts Interest bearingdeposits, current accounts and short term borrowings	75,678 71,803
	35,590 32,544 40,088 39,259
Amounts include: Due to associated undertakings	75,678 71,803
	206 208

(1)Relates to long term loans from minority shareholders in Augmentum Limited, see note 35.

Customer accounts include cash collateral of € 125 million (31 December 2019: € 89 million) received from derivative counterparties in relation to net derivative positions (see note 46 to the consolidated financial statements in the Annual Financial Report 2019 for more information).

At 30 June 2020, the Group’s five largest customer deposits amounted to 1% (31 December 2019: 1%) of total customer accounts.

28 Debt securities in issue		30 June 2020 31 December 2019 € m € m	30 June 2020 31 December 2019 € m € m
Issued by AIB Group plc Euro Medium Term Note Programme Global Medium Term Note Programme Issued by subsidiaries Bonds and medium term notes: Euro Medium Term Note Programme Bonds and other medium term notes		1,749 1,563 3,312 – 3,025 3,025
			1,750 1,556
			3,306
			500 3,025
			3,525
Analysis of movements in debt securities in issue		6,337	6,831
		30 June 2020 31 December 2019 € m € m
At 1 January Issued during the period Matured Amortisation of discounts net of premiums Exchange translation adjustments/other		6,831 5,745 – 1,640 (500) (565) – – 6 11
At end of period		6,337 6,831

All the issuances by AIB Group plc are eligible to meet the Group’s MREL requirements. These instruments are redeemable for tax or for regulatory reasons, subject to the permission of the relevant regulation authority.

AIB Group plc Half-Yearly Financial Report 2020 121

29 Lease liabilities	30 June 2020 31 December 2019 € m € m
At end of period Maturity analysis – contractual undiscounted cash flows: Not later than one year Later than one year and not later than five years Later than fiveyears	404 429
	54 61 189 193 262 281
Total undiscounted lease liabilities at end of period 30 Other liabilities	505 535
	30 June 2020 31 December 2019 € m € m
Notes in circulation Items in transit Creditors Fair value of hedged liability positions Other(1)	174 213 53 94 37 46 204 113 390 403
	858 869

(1) Includes bank drafts € 161 million (31 December 2019: € 153 million), items in course of collection € 12 million (31 December 2019: € 14 million), the purchase of debt securities awaiting settlement € 15 million (31 December 2019: € 38 million).

122 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

31 Provisions for liabilities and commitments

31 Provisions for liabilities and	commitments
	30 June 2020
	Onerous contracts Legal claims ROU(1) commit- ments Other provisions ECLs on loan commit- ments ECLs on financial guarantee contracts Total € m € m € m € m € m € m € m
At 1 January 2020 Transfers in Charged to income statement Released to income statement Dilapidation provisions Provisions utilised Exchange translation adjustments	10 37 15 399 19 23 503 – (3) – 3 – – – – 1(2) – 29(2) 46(3) 14(3) 90 – (2)(2) – (7)(2) (9)(3) (4)(3) (22) – – – – – – – (1) (2) – (17) – – (20) – – – (1) (1) – (2)
At 30 June 2020	9 31 15 406 55 33 549(4)

	31 December 2019
	Onerous contracts Legal claims ROU(1) commit- ments Other provisions ECLs on loan commit- ments ECLs on financial guarantee contracts Total € m € m € m € m € m € m € m
At 31 December 2018 Impact of adopting IFRS 16 at 1 January 2019	65 39 – 57 25 33 219 (3) – 12 – – – 9
Restated balance at 1 January 2019 Transfers in Charged to income statement Released to income statement Dilapidation provisions Provisions utilised Unwind of discount	62 39 12 57 25 33 228 – (1) – 1 – – – 1 6 – 430 13 6 456 (1) (3) – (8) (19) (16) (47) – – 2 – – – 2 (52) (4) – (81) – – (137) – – 1 – – – 1
At 31 December 2019	10 37 15 399 19 23 503(4)

(1)Provisions for dilapidations included in measurement of right-of-use assets (‘ROU’).

(2)Included in ‘General and administrative expenses’ in note 11 ‘Operating expenses’.

(3) Included in ‘Net credit impairment charge’ (note 12).

(4) Excluding the ECLs on loan commitments and financial guarantee contracts, the total provisions for liabilities and commitments expected to be settled within one year amount to € 387 million (31 December 2019: € 380 million).

AIB Group plc Half-Yearly Financial Report 2020 123

31 Provisions for liabilities and commitments (continued)

(a) Other provisions

Includes the provisions for customer redress and related matters, other restitution provisions, and miscellaneous provisions.

FSPO Decision and Tracker Mortgage Examination related provisions

FSPO Decision: The provision at 30 June 2020 for customer redress and compensation and other related costs amounted to € 252 million (31 December 2019: € 265 million) in respect of certain mortgage customers - the ‘06-09 Ts & Cs[(1)] who never had a tracker’ cohort.

Following a complaint to the Financial Services and Pensions Ombudsman (‘FSPO’) by a customer from the ‘06-09 Ts &Cs who never had a tracker’ cohort, the Group received a preliminary decision in January 2020 which found that the Bank had breached the terms of the customer’s mortgage loan contract and directed it to remedy the matter in what the FSPO believed was a fair and proportionate manner. The Group considered this preliminary decision and recorded a provision of € 265 million as at 31 December 2019 based on an initial assessment of the likelihood that the same remedy may be due to all customers in this cohort.

The Group subsequently received the FSPO’s final decision and decided to accept the decision in full and furthermore decided to apply the remedy to all other customers within this cohort, with payments to customers commencing in July 2020. Following intervention by the Central Bank of Ireland, some of these customers were also deemed eligible for inclusion in the Tracker Mortgage Examination. This resulted in € 13 million of the original provision being reclassified accordingly, leaving a provision of € 252 million at 30 June 2020.

The Group continues to engage with stakeholders and a number of related issues also exists that have yet to be resolved. Accordingly, the provision remains appropriate given the uncertainties at this stage.

(1)Terms and conditions

Tracker Mortgage Examination: In respect of customer redress and compensation a provision of € 23 million is held for identified impacted accounts in the first half of 2020 under the Tracker Mortgage Examination and the ongoing appeals process. Provisions, including the € 13 million reclassified as noted earlier, amounting to € 201 million were created in the period 2015 to 30 June 2020 (€ 7 million in the six months to 30 June 2020). Over € 178 million of these provisions have now been utilised (€ 3 million in the six months to 30 June 2020).

The provision at 30 June 2020 for ‘Other costs’ amounted to € 5 million (31 December 2019: € 5 million). Provisions amounting to € 94 million were created in the period 2015 to 30 June 2020 (Nil in the six months to 30 June 2020). Over € 89 million of these provisions have now been utilised (Nil in the six months to 30 June 2020).

In March 2018, AIB and EBS were advised by the CBI of the commencement of investigations as part of an administrative sanctions procedure in connection with the Tracker Mortgage Examination. The investigations relate to alleged breaches of the relevant consumer protection legislation, principally, regarding inadequate controls or instances where AIB or EBS acted with a lack of transparency, unfairly or without due skill and care. The investigations are ongoing and AIB and EBS are co-operating with the CBI.

In this regard, the Group previously created a provision of € 70 million in 2019 for the impact of monetary penalties that is expected to be imposed on the Group by the CBI. However, this matter is still ongoing, and the Group has retained the provision of € 70 million, as it remains the Group’s best estimate. This is subject to uncertainty with a range of outcomes possible with the final outcome being higher or lower depending on finalisation of all matters associated with the investigation.

Further disclosures in relation to the wider impact of Tracker Mortgage Examination are contained in note 37: Memorandum items: contingent liabilities and commitments, and contingent assets in the section ‘Legal Proceedings’.

(b) Onerous contracts

Provisions for onerous contracts at 30 June 2020 amount to € 9 million and include the unavoidable cost of leases that the Group will exit in the short term.

124 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

32 Subordinated liabilities and other capital instruments

32 Subordinated liabilities and other capital instruments
		30 June 2020 31 December 2019 € m € m
Dated loan capital – European Medium Term Note Programmes: Issued by AIB Group plc € 500 million Subordinated Tier 2 Notes due 2029, Callable 2024 Issued by subsidiaries € 750 million Subordinated Tier 2 Notes due 2025, Callable 2020 € 500m Callable Step-up Floating Rate Notes due October 2017 – nominal value € 25.5 million (maturity extended to 2035 as a result of the SLO) £ 368m 12.5% Subordinated Notes due June 2019 – nominal value £ 79 million (maturity extended to 2035 as a result of the SLO) £ 500m Callable Fixed/Floating Rate Notes due March 2025 – nominal value £ 1 million (maturity extended to 2035 as a result of the SLO)		500 750 10 37 1 798	500
			750 10 38 1
			799
Maturity of dated loan capital		1,298	1,299
		30 June 2020 31 December 2019 € m € m
Dated loan capital outstanding is repayable as follows: 5years or more		1,298 1,299

For further details of subordinated liabilities and other capital instruments, see note 41 to the consolidated financial statements in the Annual Financial Report 2019.

AIB Group plc Half-Yearly Financial Report 2020 125

33 Share capital

	30 June 2020 Number of shares m € m 4,000.0 2,500 2,714.4 1,696	31 December 2019
		Number of shares m € m
Authorised Ordinary share capital Ordinary shares of € 0.625 each Issued and fully paid Ordinary share capital Ordinary shares of € 0.625 each		4,000.0 2,500 2,714.4 1,696

For further information, refer to note 42 to the consolidated financial statements in the Annual Financial Report 2019.

Movements in share capital

There were no movements in issued share capital for the half-year to 30 June 2020. For details of movements in share capital for the year to 31 December 2019, refer to note 42 to the consolidated financial statements in the Annual Financial Report 2019.

Structure of the Company’s share capital

The following table shows the structure of the Company’s share capital:

	30 June 2020 Authorised share capital % Issued share capital % 100 100	31 December 2019
		Authorised share capital % Issued share capital %
Class of share Ordinaryshare capital		100 100
Capital resources The following table shows the Group's capital resources:		30 June 2020 31 December 2019 € m € m
Equity Dated capital notes_(note 32)_		13,772 14,230 1,298 1,299
Total capital resources		15,070 15,529

126 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

		30 June	31 December
		2020	2019
34 Other equity interests		€ m	€ m
Issued by AIB Group plc
€ 500 million Additional Tier 1 Perpetual Contingent Temporary Write Down Securities issued 2019	(a)	496	496
€ 625 million Additional Tier 1 Perpetual Contingent TemporaryWrite Down Securities issued 2020	(b)	620	–
Total		1,116	496

These securities, which are accounted for as equity in the statement of financial position, are included in the Group’s capital base.

(a) For details of these securities, see note 43 to the consolidated financial statements in the Annual Financial Report 2019.

• (b) In June 2020, the Company issued € 625 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write Down Securities (‘AT1s’). The transaction costs incurred were € 5 million.

Interest on the securities, at a fixed rate of 6.250% per annum, is payable semi-annually in arrears on 23 June and 23 December, commencing on 23 December 2020. On the first reset date on 23 December 2025, in the event that the securities are not redeemed, interest will be reset to the relevant 5 year fixed rate plus a margin of 662.9 bps per annum. The interest payment is fully discretionary and non-cumulative and conditional upon the Company being solvent at the time of payment, having sufficient distributable reserves and not being required by the regulatory authorities to cancel an interest payment.

The securities are perpetual securities with no fixed redemption date. The Company may, in its sole and full discretion, subject to regulatory approval, redeem all (but not some only) of the securities on any day falling in the period commencing on (and including) 23 June 2025 and ending on (and including) the first reset date or on any interest payment date thereafter at the prevailing principal amount together with accrued but unpaid interest. In addition, the securities are redeemable at the option of the Company for certain regulatory or tax reasons, subject to regulatory approval.

The securities, which do not carry voting rights, rank pari passu with holders of other tier 1 instruments (excluding the Company’s ordinary shares). They rank ahead of the holders of ordinary share capital of the Company but junior to the claims of senior creditors and to Tier 2 capital of the Company.

Under the EU (Bank Recovery and Resolution) Regulations 2015, these securities are loss absorbing at the point of non-viability.

Furthermore, if the CET1 ratio of the Group at any time falls below 7%, subject to certain conditions, the Company shall write down the AT1s by the write-down amount and irrevocably cancel any accrued and unpaid interest up to (but excluding) the write-down date. To the extent permitted by regulatory capital requirements, the Company may reinstate any previously written down amount.

AIB Group plc Half-Yearly Financial Report 2020 127

35 Non-controlling interests in subsidiaries	30 June 2020 31 December 2019 € m € m
At 1 January Acquisition of subsidiary Non-controlling interests share of net (loss)/profit Redemption of Additional Tier 1 Securities issued by subsidiary Distributionspaid on Additional Tier 1 Securities issued bysubsidiary	495 494(1) – 1 18 37 (200) – (19) (37)
At end of period Of which: Equity interests in subsidiary Additional Tier 1 Securities issued bysubsidiary	294 495
	– 1 294 494

(1) Relates to a reclassification from ‘Other equity interests’ during 2019. For further details see note 44 to the consolidated financial statements in the Annual Financial Report 2019.

Additional Tier 1 Perpetual Contingent Temporary Write Down Securities issued by subsidiary

In 2015, Allied Irish Banks, p.l.c. issued € 500 million nominal value of Additional Tier 1 Perpetual Contingent Temporary Write Down Securities (‘AT1s’). Following a tender process in June 2020, € 202 million of the securities were redeemed for € 207 million (including accrued interest of € 1 million), leaving a nominal value outstanding at 30 June 2020 of € 298 million. The loss arising on the redemption amounted to € 6 million and was recognised directly in equity.

For further details of these securities see note 44 to the consolidated financial statements in the Annual Financial Report 2019.

Non-controlling interests in subsidiary undertaking

Augmentum Limited with issued share capital of 619,761 ordinary shares of € 1.25 each, is 75% owned by AIB and 25% owned by First Data Global Services Limited. Augmentum Limited, in turn, holds 96.77% of the equity share capital of Semeral Limited with non-controlling interests holding the residual.

Semeral/Payzone place of business: 4 Heather Road, Sandyford Industrial Estate, Dublin 18.

For details of the acquisition of the subsidiary, see note 31 to the consolidated financial statements in the Annual Financial Report 2019.

36 Capital reserves, merger reserve and capital redemption reserves

Capital reserves	30 June 2020 Capital contribution reserves Other capital reserves Total € m € m € m 955 (1) 178 1,133	31 December 2019
		Capital contribution reserves Other capital reserves Total € m € m € m
At beginning and end of period		955 (1) 178 1,133

(1)Relates to the acquisition of EBS d.a.c.

Merger reserve	30 June 2020 31 December 2019 € m € m
At beginning and end of period Capital redemption reserve	(3,622) (3,622)
	30 June 2020 31 December 2019 € m € m
At beginning and end of period	14 14

128 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

37 Memorandum items: contingent liabilities and commitments, and contingent assets

The following table gives the nominal or contract amounts of contingent liabilities and commitments:

The following table gives the nominal or contract amounts of contingent liabilities and commitments:
		Contract amount
		30 June 2020 31 December 2019 € m € m
Contingent liabilities(1)– credit related Guarantees and assets pledged as collateral security: Guarantees and irrevocable letters of credit Other contingent liabilities Commitments(2) Documentary credits and short term trade-related transactions Undrawn formal standby facilities, credit lines and other commitments to lend: Less than 1 year(3) 1 year and over(4)		596 100 696 91 8,406 3,244 11,741
			596 115
			711
			84 8,129 3,326
			11,539
		12,437	12,250

(1) Contingent liabilities are off-balance sheet products and include guarantees, standby letters of credit and other contingent liability products such as performance bonds.

(2) A commitment is an off-balance sheet product where there is an agreement to provide an undrawn credit facility. The contract may or may not be cancelled unconditionally at any time without notice depending on the terms of the contract.

(3)An original maturity of up to and including 1 year or which may be cancelled at any time without notice.

(4)An original maturity of more than 1 year.

For details of the internal credit ratings and geographic concentration of contingent liabilities and commitments, see pages 67 and 77 in the ‘Risk management’ section of this report.

Provisions for ECLs on loan commitments and financial guarantee contracts are set out in note 31.

Legal proceedings

The Group, in the course of its business, is frequently involved in litigation cases. However, it is not, nor has been involved in, nor are there, so far as the Group is aware, (other than as set out in the following paragraphs), pending or threatened by or against the Group any legal or arbitration proceedings, including governmental proceedings, which may have, or have had during the previous twelve months, a material effect on the financial position, profitability or cash flows of the Group.

Specifically, litigation has been served on the Group by customers that are pursuing claims in relation to tracker mortgages. Customers have also lodged complaints to the Financial Services and Pensions Ombudsman (‘’FSPO’’) in relation to tracker mortgages issues which are outlined in ‘Provisions for liabilities and commitments’ (note 31).

Further claims may also be served in the future in relation to tracker mortgages. The Group will also receive further rulings by the FSPO in relation to complaints concerning tracker mortgages.

Based on the facts currently known and the current stages that the litigation and the FSPO’s complaints process is at, it is not practicable at this time to predict the final outcome of this litigation/FSPO complaints, nor the timing and possible impact on the Group.

AIB Group plc Half-Yearly Financial Report 2020 129

38 Off-balance sheet arrangements and transferred financial assets

Under IFRS, transactions and events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. As a result, the substance of transactions with a special purpose entity (“SPE”) forms the basis for their treatment in the Group’s financial statements. An SPE is consolidated in the financial statements when the substance of the relationship between the Group and the SPE indicates that the SPE is controlled by the entity and meets the criteria set out in IFRS 10 Consolidated Financial Statements . The primary form of SPE utilised by the Group are securitisations and employee compensation trusts. Further details of SPEs are set out in note 49 to the consolidated financial statements in the Annual Financial Report 2019.

In addition, the Group enters into repurchase agreements and securities lending transactions in the normal course of business that do not result in the derecognition of the financial assets concerned. Details of these transactions are set out in note 49 to the consolidated financial statements in the Annual Financial Report 2019.

Securitisation activity in the six months to 30 June 2020

In 2020, the Group securitised c. € 4 billion of its residential mortgage portfolio held in two of its subsidiaries, EBS d.a.c. and Haven Mortgages Limited. These mortgages were transferred to a securitisation vehicle, Burlington Mortgages No. 1 DAC “Burlington”. In order to fund the acquired mortgages, Burlington issued twelve classes of notes to EBS d.a.c. and Haven in the same proportion as the mortgages securitised. The transferred mortgages have not been derecognised as the Group retains substantially all the risks and rewards of ownership and continue to be reported in the Group’s financial statements. Burlington is consolidated into the Group’s financial statements with all the notes being eliminated on consolidation.

The following table shows the financial assets (loans and advances) transferred but not derecognised, their current carrying value, and the liability due to external investors:

	30 June 2020
	Carrying amount of assets originally transferred Carrying amount of assets currently recognised Carrying amount of associated liabilities currently recognised € m € m € m
Loans and advances to customers	4,020 3,876 –

130 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

39 Fair value of financial instruments

39 Fair value of financial instruments
			30 June 2020
	Carrying amount € m 1,514 239 2 8 76 7,259 931 316 6,832 510 379 18,066 14,666 50 1,970 30,272 27,868 58,140 3,416 321 78,563 1,229 77 16 1,322 453 367 43,805 18,928 12,945 6,337 1,298 865 84,998		Fair Value
		Fair	value hierarchy Level 2 Level 3 € m € m		Total € m
		Level 1 € m	Level 2 € m
Financial assets measured at fair value Derivative financial instruments: Interest rate derivatives Exchange rate derivatives Equity derivatives Credit derivatives Loans and advances to customers at FVTPL Investment debt securities at FVOCI: Government securities Supranational banks and government agencies Asset backed securities Bank securities Corporate securities Equityinvestments at FVTPL		– – – – – 7,259 931 233 6,832 510 55	1,000 239 2 8 – – – 83 – – –	514 – – – 76 – – – – – 324	1,514 239 2 8 76 7,259 931 316 6,832 510 379
Financial assets not measured at fair value Cash and balances at central banks Items in the course of collection Loans and advances to banks Loans and advances to customers: Mortgages(2) Non-mortgages Total loans and advances to customers Investment debt securities measured at amortised cost Other financial assets		15,820	1,332	914	18,066
		543(1) – – – – – 2,855 –	14,123 – 391 – – – – –	– 50 1,579 30,822 27,986 58,808 640 321	14,666 50 1,970
					30,822 27,986
					58,808 3,495 321
Financial liabilities measured at fair value Derivative financial instruments: Interest rate derivatives Exchange rate derivatives Credit derivatives		3,398	14,514	61,398	79,310
		– – –	1,144 77 16	85 – –	1,229 77 16
Financial liabilities not measured at fair value Deposits by central banks and banks: Other borrowings Secured borrowings Customer accounts: Current accounts Demand deposits Time deposits Debt securities in issue Subordinated liabilities and other capital instruments Other financial liabilities		–	1,237	85	1,322
		– – – – – 6,507 1,226 –	– 301 – – – 36 66 –	453 66 43,805 18,928 12,984 – – 865	453 367 43,805 18,928 12,984 6,543 1,292 865
		7,733	403	77,101	85,237

(1)Comprises cash on hand.

(2)Includes residential and commercial mortgages.

AIB Group plc Half-Yearly Financial Report 2020 131

39 Fair value of financial instruments (continued)

			31 December 2019	31 December 2019	31 December 2019
	Carrying amount € m 1,230 36 5 77 7,046 1,034 328 6,997 476 458 357 18,044 11,982 57 1,478 30,972 29,839 60,811 635 890 75,853 998 180 6 13 1,197 529 294 40,283 17,742 13,778 6,831 1,299 1,004 81,760		Fair Value
		Fair	value hierarchy Level 2 Level 3 € m € m		Total € m
		Level 1 € m	Level 2 € m
Financial assets measured at fair value Derivative financial instruments: Interest rate derivatives Exchange rate derivatives Equity derivatives Loans and advances to customers at FVTPL Investment debt securities at FVOCI: Government securities Supranational banks and government agencies Asset backed securities Bank securities Corporate securities Equity investments at FVOCI Equityinvestments at FVTPL		– – – – 7,046 1,034 237 6,997 476 – 46	783 36 5 – – – 91 – – – –	447 – – 77 – – – – – 458 311	1,230 36 5 77 7,046 1,034 328 6,997 476 458 357
Financial assets not measured at fair value Cash and balances at central banks Items in the course of collection Loans and advances to banks Loans and advances to customers: Mortgages(2) Non-mortgages Total loans and advances to customers Investment debt securities measured at amortised cost Other financial assets		15,836	915	1,293	18,044
		659(1) – – – – – 45 –	11,323 – 468 – – – – –	– 57 1,010 30,890 29,943 60,833 590 890	11,982 57 1,478
					30,890 29,943
					60,833 635 890
Financial liabilities measured at fair value Derivative financial instruments: Interest rate derivatives Exchange rate derivatives Equity derivatives Credit derivatives		704	11,791	63,380	75,875
		– – – –	892 180 6 12	106 – – 1	998 180 6 13
Financial liabilities not measured at fair value Deposits by central banks and banks: Other borrowings Secured borrowings Customer accounts: Current accounts Demand deposits Time deposits Debt securities in issue Subordinated liabilities and other capital instruments Other financial liabilities		–	1,090	107	1,197
		– – – – – 7,060 1,281 –	178 294 – – – 36 84 –	351 – 40,283 17,742 13,813 – – 1,004	529 294 40,283 17,742 13,813 7,096 1,365 1,004
		8,341	592	73,193	82,126

(1)Comprises cash on hand.

(2)Includes residential and commercial mortgages.

132 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

39 Fair value of financial instruments (continued)

Details of the methodologies used for calculating fair value and the definition of terms are set out in note 51 to the consolidated financial statements in the Annual Financial Report 2019.

Significant transfers between Level 1 and Level 2 of the fair value hierarchy

There were no significant transfers between Level 1 and Level 2 of the fair value hierarchy.

Reconciliation of balances in Level 3 of the fair value hierarchy

The following table shows a reconciliation from the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy:

								30 June 2020	30 June 2020	30 June 2020
			Financial assets				Total € m 1,293 – 67 34 101 (21) – (21) 16 (453) – (22) 914	Financial liabilities
	Derivatives € m		Investment securities Loans and advances at FVTPL Equities at FVTPL Debt Equities at FVOCI € m € m € m € m					Derivatives € m		Total € m
At 1 January 2020 Transfers into/out of level 3(1) Total gains or (losses) in: Profit or loss: Net trading income Net change in FVTPL Other comprehensive income: Net change in fair value of investment securities Net change in fair value of cash flow hedges Purchases/additions Sales/disposals/redemptions Settlements Cash received: Principal		447 – 67 – 67 – – – – – – –	– – – – – – – – – – – –	458 – – – – (21) – (21) – (437) – –	77 – – 21 21 – – – – – – (22)	311 – – 13 13 – – – 16 (16) – –			107 – (22) – (22) – – – – – – –	107 –
										(22) –
										(22)
										– –
										– – – – –
At 30 June 2020		514	–	–	76	324			85	85

(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.

AIB Group plc Half-Yearly Financial Report 2020 133

39 Fair value of financial instruments (continued)

Reconciliation of balances in Level 3 of the fair value hierarchy (continued)

								31 December 2019	31 December 2019	31 December 2019
			Financial assets				Total € m 1,219 (8) 88 138 226 (10) – (10) 31 (78) (87) 1,293	Financial liabilities
	Derivatives € m		Investment securities Loans and advances at FVTPL Debt Equities at FVOCI € m € m € m			Equities at FVTPL € m		Derivatives € m		Total € m
At 1 January 2019 Transfers into/out of level 3(1) Total gains or (losses) in: Profit or loss: Net trading income Net change in FVTPL Other comprehensive income: Net change in fair value of investment securities Net change in fair value of cash flow hedges Purchases/additions Sales/disposals Cash received: Principal		359 – 88 – 88 – – – – – –	9 (9) – – – – – – – – –	468 – – – – (10) – (10) – – –	147 – – 66 66 – – – 5 (54) (87)	236 1 – 72 72 – – – 26 (24) –			122 – (15) – (15) – – – – – –	122 –
										(15) –
										(15)
										– –
										– – – –
At 31 December 2019		447	–	458	77	311			107	107

(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.

Net transfers out of Level 3 are a function of the observability of inputs into instrument valuations.

The table below sets out the total gains or losses included in profit or loss that is attributable to the change in unrealised gains or losses relating to those assets and liabilities held at 30 June 2020 and 31 December 2019:

	30 June	31 December
	2020	2019
	€ m	€ m
Net trading income – gains	113	155
Gains on equity investments at FVTPL	13	70
Gains on loans and advances at FVTPL	–	1
	126	226

134 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

39 Fair value of financial instruments (continued)

Significant unobservable inputs

The table below sets out information about significant unobservable inputs used in measuring financial instruments categorised as Level 3 in the fair value hierarchy:

Financial instrument	Fair value	Range of estimates
	30 June 2020 € m 31 December 2019 € m Valuation technique	Significant unobservable input 30 June 2020 31 December 2019
Uncollateralised customer derivatives	Asset 514 447 CVA Liability 85 107 FVA	LGD 57% – 73% 43% – 63% (Base 66%) (Base 53%)
		PD 0.5% – 1.7% 0.2% – 0.7% (Base 1.0%, 1year PD) (Base 0.4%, 1year PD)
		Fundingspreads (0.3%) to 0.4% (0.2%)to 0.3%
NAMA subordinated bonds	Asset n/a 458 Discounted cash flows	Discount rate n/a n/a 1% – 4% (Base 1.94%)
Visa Inc. Series B Preferred Stock	Asset 178 171 Quoted market price (to which a discount has been applied)	Final conversion rate 0% – 75% 0% – 75%
Loans and advances to customers measured at FVTPL	Asset 76 77 Discounted cash flows* Collateral values	Discount on market value (1%) to 5% (1%) – 7% Collateral changes n/a n/a

*Expected cash flows discounted at market rates, taking into consideration the fair value of collateral where relevant.

Uncollateralised customer derivatives

The fair value measurement sensitivity to unobservable inputs at 30 June 2020 ranges from (i) negative € 42 million to positive € 22 million for CVA (31 December 2019: negative € 29 million to positive € 14 million) and (ii) negative € 10 million to positive € 7 million for FVA (31 December 2019: negative € 7 million to positive € 5 million).

A number of other derivatives are subject to valuation methodologies which use unobservable inputs. As the variability of the valuation is not greater than € 1 million in any individual case or collectively, the detail is not disclosed here.

NAMA subordinated bonds

In early 2020, the NAMA subordinated bonds were fully redeemed. The fair value measurement sensitivity to unobservable discount rates at 31 December 2019 ranged from negative € 2 million to positive € 1 million.

Visa Inc. Series B Preferred Stock

In June 2016, the Group received Series B Preferred Stock in Visa Inc. with a fair value of € 65 million as part consideration for its holding of shares in Visa Europe. The preferred stock will be convertible into Class A Common Stock of Visa Inc. at some point in the future. The conversion is subject to certain Visa Europe litigation risks that may affect the ultimate conversion rate. In addition, the stock, being denominated in US dollars, is subject to foreign exchange risk.

• Valuation technique: Quoted market price of Visa Inc. Class A Common Stock to which a discount has been applied for the illiquidity and the conversion rate variability of the preferred stock of Visa Inc. 40% haircut (31 December 2019: 41%). This was converted at the year end exchange rate.

• Unobservable input: Final conversion rate of Visa Inc. Series B Preferred Stock into Visa Inc. Class A Common Stock.

• Range of estimates: Estimates range from (a) no discount for conversion rate variability with a discount for illiquidity only; to (b) 75% discount for conversion rate variability.

Loans and advances to customers measured at FVTPL

The fair value measurement sensitivity to unobservable collateral values and interest rates ranges from negative € 1 million to positive € 4 million at 30 June 2020 (31 December 2019: negative € 1 million to positive € 5 million).

Fair value is applied in respect of secondary facilities arising on restructured loans subject to forbearance measures, on the likelihood that additional cash flows, in excess of their primary facilitates, will be received from customers. Given the significant uncertainty with regard to such cash flows, the Group does not attribute a fair value unless it is reasonably certain that this value will be realised.

AIB Group plc Half-Yearly Financial Report 2020 135

39 Fair value of financial instruments (continued)

Sensitivity of Level 3 measurements

The implementation of valuation techniques involves a considerable degree of judgement. While the Group believes its estimates of fair value are appropriate, the use of different measurements or assumptions could lead to different fair values. The following table sets out the impact of using reasonably possible alternative assumptions in the valuation methodology.

	30 June 2020	30 June 2020
	Level 3
	Effect on income statement Favourable Unfavourable € m € m 28 (51) 45 (1) (103) (1) 4 (1) 77 (155) – – – –	Effect on other comprehensive income
		Favourable Unfavourable € m € m
Classes of financial assets Derivative financial instruments Investment securities – equity Loans and advances to customers measured at FVTPL		– – – – – –
Total Classes of financial liabilities Derivative financial liabilities		– –
		– –
Total		– –

	31 December 2019	31 December 2019
	Level 3
	Effect on income statement Favourable Unfavourable € m € m 19 (37) 46 (1) (99) (1) 5 (1) 70 (137) – – – –	Effect on other comprehensive income
		Favourable Unfavourable € m € m
Classes of financial assets Derivative financial instruments Investment securities – equity Loans and advances to customers measured at FVTPL		– – 1 (2) – –
Total Classes of financial liabilities Derivative financial liabilities		1 (2)
		– –
Total		– –

(1) Relates to the largest equity investment, the carrying value of which was € 178 million at 30 June 2020 (31 December 2019: € 171 million). Sensitivity information has not been provided for other equities as the portfolio comprises several investments, none of which is individually material.

Day 1 gain or loss:

No difference existed between the fair value at initial recognition of financial instruments and the amount that was determined at that date using a valuation technique incorporating significant unobservable data.

136 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

40 Statement of cash flows

Non-cash and other items included in (loss)/profit before taxation

40 Statement of cash flows Non-cash and other items included in (loss)/profit before taxation
	Half-year	Half-year
	30 June	30 June
	2020	2019
Non-cash items	€ m	€ m
Net (loss)/gain on derecognition of financial assets measured at amortised cost	1	(28)
Dividends received from equity investments	(25)	(25)
Dividends received from associated undertakings	–	(10)
Associated undertakings	(5)	(9)
Net credit impairment charge	1,250	56
Change in other provisions	21	120
Retirement benefits – defined benefit expense	2	11
Depreciation, amortisation and impairment	136	117
Interest on subordinated liabilities and other capital instruments	20	16
Interest on debt securities – MREL	50	34
Gain on disposal of investment securities	(7)	(73)
Loss on termination of hedging swaps	7	34
Amortisation of premiums and discounts	32	29
Net gain on equity investments at FVTPL	(22)	(40)
Net gain on loans and advances to customers at FVTPL	–	(1)
Change in prepayments and accrued income	51	100
Change in accruals and deferred income	(68)	(43)
Effect of exchange translation and other adjustments(1)	(64)	(79)
Total non-cash items	1,379	209
Contributions to defined benefit pension schemes	(26)	(23)
Dividends received from equityinvestments	25	25
Total other items	(1)	2
Non-cash and other items for the period	1,378	211

(1)The impact of foreign exchange translation for each line of the statement of financial position is removed in order to show the underlying cash impact.

AIB Group plc Half-Yearly Financial Report 2020 137

40 Statement of cash flows (continued)

40 Statement of cash flows(continued)
Change in operating assets(1)	Half-year 30 June 2020 Half-year 30 June 2019 € m € m
Change in items in course of collection Change in derivative financial instruments Change in loans and advances to banks Change in loans and advances to customers Change in other assets	7 (52) (41) (51) 51 99 813 (312) 526 98
Change in operating liabilities(1)	1,356 (218)
	Half-year 30 June 2020 Half-year 30 June 2019 € m € m
Change in deposits by central banks and banks Change in customer accounts Change in debt securities in issue Change in notes in circulation Change in other liabilities	17 173 4,636 1,838 (500) (500) (39) (65) (78) (10)
	4,036 1,436

(1)The impact of foreign exchange translation for each line of the statement of financial position is removed in order to show the underlying cash impact.

Analysis of cash and cash equivalents

For the purpose of the statement of cash flows, cash equivalents comprise the following balances with less than three months maturity from the date of acquisition:

the date of acquisition:
	Half-year	Half-year
	30 June	30 June
	2020	2019
	€ m	€ m
Cash and balances at central banks	14,666	9,278
Loans and advances to banks(1)(2)	1,522	674
	16,188	9,952

(1)Included in ‘Loans and advances to banks’ total of € 1,970 million (30 June 2019: € 1,286 million) set out in note 18.

(2)Includes € 4 million relating to restricted balances held in trust in respect of certain payables which are included in ‘Other liabilities’ (note 30).

The Group is required by law to maintain reserve balances with the Bank of England. At 30 June 2020, these amounted to € 391 million (30 June 2019: € 449 million).

There are certain regulatory restrictions on the ability of subsidiaries to transfer funds to the parent company in the form of cash dividends, loans or advances. The impact of such restrictions is not expected to have a material effect on the Group’s ability to meet its cash obligations.

138 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

41 Related party transactions

Other than as outlined below, there have been no related party transactions or changes therein since 31 December 2019 that have materially affected the Group’s financial position or performance in the six months ended 30 June 2020.

Transactions with Key Management Personnel

Key Management Personnel (“KMP”) as defined in IAS 24 Related Party Disclosures , comprise Executive and Non-Executive Directors and Senior Executive Officers.

As at 30 June 2020, the aggregate amounts outstanding, in respect of all loans, quasi loans and credit transactions between the Group and KMP, as defined above, together with members of their close families and entities controlled by them, amounted to € 2.0 million (31 December 2019: € 3.0 million).

Loans to KMP and their close family members are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar standing not connected with the Group, and do not involve more than the normal risk of collectability or present other unfavourable features.

During the period, no provision for doubtful debts has been recognised in respect of any loans or facilities above.

Relationship with the Irish Government

AIB’s relationship with the Irish Government is set out in note 53(g) to the consolidated financial statements in the Annual Financial Report 2019. As detailed, this relationship encompasses a number of dimensions, namely:

• Capital investments;

• Guarantee schemes;

• NAMA; and

• Relationship framework.

There were no significant changes to the various aspects of the relationship in the six months to 30 June 2020.

AIB Group plc Half-Yearly Financial Report 2020 139

41 Related party transactions (continued)

Balances held with the Irish Government and related entities

The following table outlines the balances held with Irish Government entities[(1)] together with the highest balances held at any point during the period.

	30 June 2020 Balance Highest(2) balance held € m € m 9,608 11,322 – – – 3 – 6 8,047 8,124 17,655 30 June 2020 Balance Highest(2) balance held € m € m – 19 287 1,094 – – 1 2 288	31 December 2019
		Balance Highest(2) balance held € m € m
Assets Cash and balances at central banks a Trading portfolio financial assets Derivative financial instruments Loans and advances to customers Investment securities b		6,953 7,934 – 43 – 5 6 6 5,754 7,327
Total assets		12,713 31 December 2019
		Balance Highest(2) balance held € m € m
Liabilities Deposits by central banks and banks Customer accounts c Trading portfolio financial liabilities Derivative financial instruments		– – 336 1,050 – 34 – 4 336
Total liabilities

(1) Includes all departments of the Irish Government located in the State and embassies, consulates and other institutions of the Irish Government located outside the State. The Post Office Savings Bank (“POSB”) and the National Treasury Management Agency (“NTMA”) are included.

(2) The highest balance during the period, together with the outstanding balance at the year end, is considered the most meaningful way of representing the amount of transactions that have occurred between AIB and the Irish Government.

• a Cash and balances at the central banks represent the minimum reserve requirements which AIB is required to hold with the Central Bank. Balances on this account can fluctuate significantly due to the reserve requirement being determined on the basis of the institution’s average daily reserve holdings over a one month maintenance period. The Group is required to maintain a monthly average Primary Liquidity balance which at 30 June 2020 was € 664 million (31 December 2019: € 622 million).

• b Investment securities at 30 June 2020 comprise € 8,047 million in Irish Government securities held in the normal course of business, and includes Euro Commercial Paper amounting to € 1,806 million (31 December 2019: € 5,296 million and NAMA subordinated bonds of € 458 million).

• c Includes € 150 million (31 December 2019: € 215 million) borrowed from the Strategic Banking Corporation of Ireland (“SBCI”), the ordinary share capital of which is owned by the Minister for Finance.

All other balances, both assets and liabilities are carried out in the ordinary course of banking business on normal terms and conditions.

140 AIB Group plc Half-Yearly Financial Report 2020

Notes to the condensed consolidated interim financial statements

41 Related party transactions (continued)

Relationship with the Irish Government

Local government[(1)]

During 2020 and 2019, AIB entered into banking transactions in the normal course of business with local government bodies.

These transactions include the granting of loans and the acceptance of deposits, and clearing transactions.

Commercial semi-state bodies[(2)]

During 2020 and 2019, AIB entered into banking transactions in the normal course of business with semi-state bodies. These transactions principally include the granting of loans and the acceptance of deposits as well as derivative transactions and clearing transactions.

(1) This category includes local authorities, borough corporations, county borough councils, county councils, boards of town commissioners, urban district councils, non-commercial public sector entities, public voluntary hospitals and schools.

(2) Semi-state bodies is the name given to organisations within the public sector operating with some autonomy. They include commercial organisations or companies in which the State is the sole or main shareholder.

Financial institutions under Irish Government control/significant influence

Certain financial institutions are related parties to AIB by virtue of the Government either controlling or having a significant influence over these institutions. The following institution is controlled by the Irish Government:

– Permanent tsb plc

The Government controlled entity, Irish Bank Resolution Corporation Limited (in Special Liquidation) which went into special liquidation during 2013, remains a related party for the purpose of this disclosure.

In addition, the Irish Government is deemed to have significant influence over Bank of Ireland.

Transactions with these institutions are normal banking transactions entered into in the ordinary course of cash management business under normal business terms. The transactions constitute the short term placing and acceptance of deposits, derivative transactions, investment debt securities and repurchase agreements.

The following balances were outstanding in total to these financial institutions:

	30 June	31 December
	2020	2019
	€ m	€ m
Assets
Derivative financial instruments	–	1
Loans and advances to banks(1)	–	2
Investment securities	162	284
Liabilities
Deposits by central banks and banks(2)	–	–
Derivative financial instruments	–	–

(1) The highest balance in loans and advances to banks amounted to € 30 million in respect of funds placed during the period (31 December 2019: € 43 million).

(2) The highest balance in deposits by central banks and banks by these financial institutions amounted to € 8 million in respect of funds received during the period (31 December 2019: € 48 million).

In connection with the acquisition by AIB Group of certain assets and liabilities of the former Anglo Irish Bank Corporation Limited (now Irish Bank Resolution Corporation Limited (in Special Liquidation) (“IBRC”)), IBRC had indemnified AIB Group for certain liabilities pursuant to a Transfer Support Agreement dated 23 February 2011. AIB Group had made a number of claims on IBRC pursuant to the indemnity prior to IBRC’s Special Liquidation on 7 February 2013. AIB Group served notice of claim and set-off on the Joint Special Liquidators of IBRC in relation to the amounts claimed pursuant to the indemnity and certain other amounts that were owing to AIB by IBRC as at the date of the Special Liquidation (c. € 81.3 million in aggregate).

While certain progress has been made in the current period, engagement continues between AIB Group and the Joint Special Liquidators in relation to the claim. AIB maintains its position that no financial loss is expected to occur.

AIB Group plc Half-Yearly Financial Report 2020 141

		Half-year	Half-year
		30 June	30 June
		2020	2019
42 Financial and other information		%	%
Operating ratios
Operating expenses/operating income		74.6	68.9
Other income/operatingincome		18.5	25.2
	Half-year	Half-year	Year
	30 June	30 June	31 December
Rates of exchange	2020	2019	2019
€/$*
Closing	1.1198	1.1380	1.1234
Average	1.1017	1.1297	1.1194
€/£*
Closing	0.9124	0.8966	0.8508
Average	0.8748	0.8735	0.8777

*Throughout this report, US dollar is denoted by $ and Pound sterling is denoted by £.

43 Dividends

On 30 March 2020, the Group announced, following the recommendation of the European Central Bank, that the Company did not intend to seek shareholder approval for the payment of a final dividend for 2019. Accordingly, the relevant Annual General Meeting (“AGM”) resolution was withdrawn and the proposed dividend cancelled.

On 3 May 2019, AIB Group plc paid a final dividend to its shareholders of € 0.17 per ordinary share amounting in total to € 461 million.

44 Non-adjusting events after the reporting period

No significant non-adjusting events have taken place since 30 June 2020.

45 Approval of financial statements

The Half-Yearly Financial Report was approved by the Board of Directors on 5 August 2020.

142 AIB Group plc Half-Yearly Financial Report 2020

Directors’ Responsibility Statement

for the half-year ended 30 June 2020

The Directors are responsible for preparing the Group Half-Yearly Financial Report in accordance with IAS 34 Interim Financial Reporting as issued by the IASB and adopted by the EU; the Transparency (Directive 2004/109/EC) Regulations 2007 and the Central Bank (Investment Market Conduct) Rules 2019.

The Directors are also responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors listed below confirm to the best of their knowledge and belief that the condensed set of financial statements have been prepared in accordance with IAS 34 and that they give a true and fair view of the assets, liabilities, financial position and loss of the Group and that as required by the Transparency (Directive 2004/109/EC) Regulations 2007, the Half-Yearly Financial Report includes:

• a fair review of the important events that have occurred during the first six months of the financial year, and their impact on the financial statements;

• a description of the principal risks and uncertainties for the remaining six months of the financial year;

• a fair review of related parties’ transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or the performance of the enterprise during the period; and

• any changes in the related parties’ transactions described in the last annual report, that could have a material effect on the financial position or performance of the enterprise in the first six months of the current financial year.

For and on behalf of the Board

Brendan McDonagh

Deputy Chair

Colin Hunt

Chief Executive Officer

Non-Executive Directors

Basil Geoghegan Sandy Kinney Pritchard Carolan Lennon (Senior Independent Director) Elaine MacLean Brendan McDonagh (Deputy Chair) Helen Normoyle Ann O’Brien Ranjit (Raj) Singh

Executive Directors

Colin Hunt (Chief Executive Officer)

Tomás O’Midheach (Chief Operating Officer and Deputy Chief Executive Officer)

AIB Group plc Half-Yearly Financial Report 2020 143

Independent review report to AIB Group plc

We have been engaged by AIB Group plc (“the Group”) to review the condensed set of financial statements included in the Half-Yearly Financial Report for the six months ended 30 June 2020 which comprises the condensed consolidated income statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of financial position, the condensed consolidated statement of cash flows, the condensed consolidated statement of changes in equity and the related notes 1 to 45 for the six month period then ended. We have read the other information contained in the Half-Yearly Financial Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated set of financial statements.

This report is made solely to the Group in accordance with International Standard on Review Engagements 2410 (UK and Ireland) “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council (“ISRE 2410”). Our work has been undertaken so that we might state to the Group those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group, for our review work, for this review report, or for the conclusions we have formed.

Directors’ responsibilities

The Half-Yearly Financial Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-Yearly Financial Report in accordance with International Accounting Standard 34, ‘‘Interim Financial Reporting’’, as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007, and the Central Bank (Investment Market Conduct) Rules 2019.

As disclosed in note 1 ‘Statement of compliance’, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). The condensed set of financial statements included in this Half-Yearly Financial Report has been prepared in accordance with International Accounting Standard 34, ‘‘ Interim Financial Reporting’’, as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Group a conclusion on the condensed set of financial statements in the Half-Yearly Financial Report based on our review.

Scope of review

We conducted our review pursuant to ISRE 2410. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the Half-Yearly Financial Report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34, ‘‘Interim Financial Reporting’’, as adopted by the European Union, the Transparency (Directive 2004/109/EC) Regulations 2007, and the Central Bank (Investment Market Conduct) Rules 2019.

John McCarroll For and on behalf of Deloitte Ireland LLP Chartered Accountants and Statutory Audit Firm Deloitte & Touche House, Earlsfort Terrace, Dublin 2

5 August 2020

144 AIB Group plc Half-Yearly Financial Report 2020

Forward looking statements

This document contains certain forward looking statements with respect to the financial condition, results of operations and business of AIB Group and certain of the plans and objectives of the Group. These forward looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward looking statements sometimes use words such as ‘aim’, ‘anticipate’, ‘target’, ‘expect’, ‘estimate’, ‘intend’, ‘plan’, ‘goal’, ‘believe’, ‘may’, ‘could’, ‘will’, ‘seek’, ‘continue’, ‘should’, ‘assume’, or other words of similar meaning. Examples of forward looking statements include, among others, statements regarding the Group’s future financial position, capital structure, Government shareholding in the Group, income growth, loan losses, business strategy, projected costs, capital ratios, estimates of capital expenditures, and plans and objectives for future operations. Because such statements are inherently subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward looking information. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward looking statements. These are set out in Principal risks on pages 40 to 43 in the Annual Financial Report 2019 and updated on pages 36 and 37 of this Half-Yearly Financial Report. In addition to matters relating to the Group’s business, future performance will be impacted by Irish, UK and wider European and global economic and financial market considerations. Any forward looking statements made by or on behalf of the Group speak only as of the date they are made. The Group cautions that the list of important factors on pages 40 to 43 of the Annual Financial Report 2019 is not exhaustive. Investors and others should carefully consider the foregoing factors and other uncertainties and events when making an investment decision based on any forward looking statement.

HALF-YEARLY FINANCIAL REPORT

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© AIB GROUP 2020

AIB Group plc 10 Molesworth Street, Dublin 2, D02 R126 +353 (1) 660 0311 aib.ie/investorrelations