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BACKING OUR CUSTOMERS

HALF-YEARLY FINANCIAL REPORT For the six months ended 30 June 2021

AIB Group plc

ENSURING A GREENER TOMORROW BY BACKING THOSE BUILDING IT TODAY.

AIB is a financial services group. Our main business activities are retail, business and corporate banking, as well as mobile payments and card acquiring. We are committed to supporting the transition to the low-carbon economy and backing sustainable communities.

Merchant Services

Beekeeper and AIB employee Kevin Power attending to his bees on the roof of our head office in Molesworth St, Dublin.

Half-Yearly Financial Report For the six months ended 30 June 2021

01 02 OVERVIEW BUSINESS REVIEW

2 Business performance 4 Chief Executive’s review 11 Our strategy 12 Highlights

16 Operating and financial review 31 Capital

RISK MANAGEMENT

FINANCIAL STATEMENTS

36 Update on risk management and governance 37 Credit risk 78 Funding and liquidity risk 82 Interest rate benchmark reform

84 Condensed consolidated interim financial statements

91 Notes to the condensed consolidated interim financial statements
131 Statement of Directors’ Responsibilities
132 Independent review report to AIB Group plc
133 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 133.

2 Business Performance AIB Group plc Half-Yearly Financial Report 2021

BUSINESS PERFORMANCE

H1 2021 RESULTS

FINANCIAL PERFORMANCE

NET INTEREST INCOME

€881m

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H1 2021 €881m
H1 2020 €967m
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Lower lending volumes and low interest rate environment impacting income

Down 9% due to reduced loan volumes, the low interest rate environment and lower investment securities income partially offset by a decrease in funding costs

NET CREDIT IMPAIRMENT WRITEBACK/(CHARGE)

€103m

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H1 2021 €103m
H1 2020 €(1,216)m
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Conservative, forward looking and comprehensive provisioning approach maintained

Writeback reflecting a more favourable economic environment with improved credit quality and updated macro economic assumptions partially offset by management judgements

PROFIT/(LOSS) BEFORE TAX

€291m

H1 2021 €291m H1 2020 €(909)m

Return to profitability with net credit impairment writeback

Operating profit[1] of €373m, in line with H1 2020, and impairment writeback of €103m partly offset by exceptional items of €191m

NEW LENDING

€4.5bn

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H1 2021 €4.5bn
H1 2020 €4.4bn
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New lending up 3%

Increase in property and renewable energy lending, some recovery in syndicated lending partly offset by subdued credit demand from consumer and those business sectors most impacted by COVID-19 restrictions

NET LOANS

€56.6bn

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30 Jun 2021 €56.6bn
31 Dec 2020 €57.0bn
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Net loans broadly stable at €56.6bn

Net loans down €0.9bn (excluding FX impact) with redemptions exceeding new lending and reflecting the disposal of non-performing loan portfolios

NON-PERFORMING EXPOSURES[2]

€3.8bn

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30 Jun 2021 €3.8bn
31 Dec 2020 €4.3bn
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6.5% of gross loans

Non-performing exposures (NPEs) decreased by €0.5bn to €3.8bn driven by disposal of non-performing loan portfolios

1. Operating profit before impairment losses and exceptional items.

2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs) and excludes €160m of off-balance sheet commitments.

AIB Group plc Half-Yearly Financial Report 2021

Business Performance

MEDIUM-TERM FINANCIAL TARGETS[3] (END 2023)

In December 2020, we communicated a set of medium-term targets to 2023. Against the backdrop of an improved economic outlook, the opportunity for further loan book and fee income growth together with progress on our strategy, including our inorganic activity, we have revised these targets.

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ABSOLUTE RETURN ON
COST BASE4 TANGIBLE EQUITY
Cost of running the business, A measure of how well capital is
excluding exceptional costs deployed to generate earnings growth
TARGET TARGET
<€1.475bn >9%
Focussed cost discipline; controlling Deliver sustainable returns;
costs annually at <€1.475bn by 2023 RoTE >9% by 2023
OUTCOME OUTCOME
H1 2021 €739m 30 Jun 2021 6.7% [5]
H1 2020 €747m 31 Dec 2020 -11.2%
Costs down 1% to €739m Improved RoTE on return to profitability
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CET1 RATIO (FULLY LOADED)

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

TARGET

>13.5%

Appropriate capital target of CET1 >13.5% needed to run the business OUTCOME 30 Jun 2021 16.4% 31 Dec 2020 15.6% Strong capital position with CET1 16.4%

NON-FINANCIAL PERFORMANCE

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GREEN FINANCE OUTCOMES
Amount of new lending H1 2021 €913m
per year for sustainability €913m
H1 2020 €479m [6]
purposes
OUTCOMES
DIGITALLY
ACTIVE CUSTOMERS 30 Jun 2021 1.78 million
Number of active users 1.78 million
31 Dec 2020 1.72 million
on digital channels
CUSTOMER SATISFACTION OUTCOMES
Transaction Net Promoter Score Measured after customer [7] 47 H1 2021 47
H1 2020 51
transactions for key touch points
OUTCOMES
DIVERSITY
H1 2021 41.6%
Women as % of
management 41.6% H1 2020 41%
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3. Revised medium term targets. 4. Before bank levies, regulatory fees and exceptional items. For exceptional items see pages 20 and 29.

5. Based on CET1 target of 14%. Using the revised CET1 target of 13.5% the RoTE is 7.0%. 6. Excludes UK Green Mortgage lending, which was launched during H1 2020.

7. Transactional Net Promoter Score (NPS) is an aggregation of 20 customer journeys across Homes, Personal, SME, Digital, Retail, Direct and Day-to-Day Banking.

4 Chief Executive’s Review AIB Group plc Half-Yearly Financial Report 2021

CHIEF EXECUTIVE’S REVIEW

WE ARE EXECUTING OUR STRATEGY AT PACE AS DEMONSTRATED BY THE SOLID PROGRESS MADE IN THE FIRST SIX MONTHS OF THE YEAR

AIB Group plc Half-Yearly Financial Report 2021

Chief Executive’s Review 5

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UNITED BY PURPOSE, DRIVEN BY AMBITION

With strong fundamentals, AIB Group has returned to profitability in 2021 and progressed our strategy to achieve long-term growth objectives.

INTRODUCTION

continue to support Ireland's economic recovery as we emerge from the COVID-19 pandemic. Further details on the initiatives that have already been delivered across each of our strategic pillars can be found on page 11.

Ireland is finally emerging from the global pandemic with the rapid roll out of highly effective vaccines allowing for the gradual lifting of restrictions imposed to control the spread of COVID-19. This paves the way for a robust recovery in economic activity. Against this backdrop, I am pleased to report a return to profitability for the Group for the first half of 2021 with the fundamentals of our business remaining strong, underpinned by our solid balance sheet and robust capital base.

In December 2020, we communicated a revised set of medium-term targets to the market. On the back of significant progress made in the delivery of our strategic plan since then, including our corporate development related activity, the opportunity for further loan book and fee income growth and an improved economic outlook, it is now timely to revise these targets again to ensure that we continue to deliver in the interests of all of our stakeholders. As such, in 2023 we commit to delivering a CET1 ratio of greater than 13.5%, a cost base of less than €1.475bn and a Return on Tangible Equity (RoTE) of greater than 9%.

We are proud to be Ireland’s leading digital bank and continue to hold a No.1 position across a number of product areas including current accounts, personal loans and credit cards. In addition, we continue to lead the sustainability agenda in financial services in Ireland by both enabling action and making meaningful progress in this space.

We are executing our strategy at pace as demonstrated by the solid progress made in the first six months of the year. We have entered into a binding agreement with Natwest Holdings Limited and Ulster Bank Ireland DAC for the acquisition of c.€4.2bn of performing Ulster Bank corporate and commercial loans. We announced our intention to acquire Goodbody, a leading provider of wealth management, corporate finance and capital markets services and we have also reached agreement to form a joint venture with Great-West LifeCo’s subsidiary Canada Life, all of which remain subject to regulatory approval. Combined, these moves will ensure that AIB is the market-leading, full service financial services provider in Ireland. As well as reinforcing our long-term growth objectives, these initiatives will also provide benefits for customers, employees and shareholders and enable us to

FINANCIAL PERFORMANCE

Reflecting the improving economic environment, we delivered a strong performance in the first half of this year achieving a profit before tax of €291m. This includes €373m operating profit before exceptional items and bank levies.

Our total income of €1,183m is in line with the first half of 2020. We have seen a reduction in our net interest income to €881m which represents a 9% decrease compared to the half-year to June 2020. This reduction was principally due to lower loan volumes, the low interest rate environment, lower investment securities income and the cost of excess liquidity partially offset by a decrease in interest expense. Other income increased by 37% to €302m when compared to the same period

6 Chief Executive’s Review AIB Group plc Half-Yearly Financial Report 2021

last year, mainly due to positive valuation movements and some recovery in net fees and commission income.

Our total operating expenses were €739m, cost management remains a priority and ongoing focus for the Group. Our newly revised medium-term target reflects the impact of the progress made in our strategic growth initiatives and is set to generate €230m cost savings by 2023.

With a more favourable economic environment, there was a net credit impairment writeback in the first half of 2021 of €103m reflecting improved credit quality and updated macroeconomic assumptions, partially offset by COVID-19 related management judgements. Our overall approach remains conservative, comprehensive and forward looking and is reflected in an expected credit loss coverage rate of 3.6%.

Exceptional items of €191m include provisions of €100m in respect of potential liabilities relating to a series of legacy investment property funds which were sold to individual investors during 2002-2006. The remaining €91m includes other restitution related costs, restructuring costs attributed to the implementation of the Group’s revised strategy and losses incurred on the disposal of loan portfolios.

In terms of other legacy items, where we identify an issue, our priority is to put things right for our customers who have been affected. We work closely with the Central Bank of Ireland, on an ongoing basis in relation to any tracker related issues and associated enforcement investigations.

New lending of €4.5bn in the half-year to June 2021 was 3% higher compared to the same period in 2020, with mixed trends across sectors. The mortgage market in Ireland performed strongly in the first half of 2021 with total drawdowns of €4.4bn up 26% on the same period in 2020. New mortgage lending in our ROI business was €1.1bn in the first six months. A solid rise in mortgage lending is expected with market estimates revised to c.€10bn for 2021. With a strengthened proposition, momentum continues in our applications and approvals data, giving us confidence in our fullyear performance.

The impact of COVID-19 restrictions continued to weigh on consumer credit demand and contributed to a 6% decline in new ROI personal lending. New lending in Corporate, Institutional and Business Banking increased 6%, driven by an increase in property and renewable energy lending coupled with some recovery in syndicate and international finance partially offset by a decrease in lending to those sectors most impacted by COVID-19 restrictions. New lending in the SME sector in Ireland increased by 11% as business sentiment improved supported by government schemes.

In the UK, new lending was broadly stable with increased new mortgage lending partially offset by a reduction in commercial lending as we exit the GB SME market.

We continue to support our customers as we collectively tackle the challenges of climate change. In the first half of 2021, green and transitional lending was €0.9bn and accounted for 20% of total new lending.

Gross loans and gross performing loans at €58.7bn and €54.9bn remained broadly stable when compared to 2020 year-end. Net loans were down €0.9bn (excluding FX impact) with redemptions exceeding new lending and reflecting the disposal of non-performing loan portfolios. As at 30 June 2021, 85% of AIB’s loan book is of strong or satisfactory quality. Maintaining the quality of new lending is critical, with >98% of our new lending being of strong or satisfactory credit quality in the first half of 2021.

Non-performing loans as a percentage of gross loans to customers was 6.5% at 30 June 2021 compared to 7.3% at 31 December 2020. This decrease primarily reflects the disposal of loan portfolios and redemptions, partially offset by net flow to non-performing. We remain committed to reducing non-performing exposures to c.3% of gross loans by 2023 given the impact on cost, capital requirements and balance sheet resilience.

AIB’s funding ratios remain robust. As deposits continue to accumulate up 8% to €88.3bn, our Loan to Deposit Ratio was 64% at the end of June 2021 and we continue to have strong liquidity metrics (Liquidity Coverage Ratio 201% and Net Stable Funding Ratio 149%).

In May we issued our second green bond to the market, raising €750m, the proceeds of which will contribute to financing projects with clear environmental and climate change benefits. Orders for the transaction peaked at €1.5bn, representing a twice oversubscribed book. This follows the successful issuance of our €1bn Green Tier 2 transaction in September 2020. With two full years of impact and allocation reporting available on our green bond pool showing strong carbon reduction figures, our green issuance attracted keen interest from committed socially responsible investors. Overall, there were 99 separate investors from 19 different countries. The deal further strengthens AIB’s funding position and brings the total quantum of MREL eligible instruments to €6.6bn.

We have a strong capital base with a CET1 ratio of 16.4% at 30 June 2021, well in excess of regulatory requirements and our revised medium-term target of greater than 13.5%.

AIB Group plc Half-Yearly Financial Report 2021

Chief Executive’s Review 7

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In May, AIB employees and their children
took part in No Litter Day as part of our
support for PickerPals, inspiring the next
generation of environmentalists
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We are creating an AIB woodland
of Irish trees. John Beckett,
Forestry Partners; David Feeney,
Land Solutions, Coillte with Mary
Whitelaw, AIB’s Director of Corporate
Affairs, Strategy & Sustainability
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82% OF PERSONAL LOAN APPLICATIONS WERE COMPLETED DIGITALLY IN THE FIRST HALF OF 2021

DIGITAL

Continued investment to enhance our technological capability remains a priority so that we provide our customers with secure banking systems, increased efficiency and ease of access. We are investing heavily in mitigating cyber risk so that our digital offering is secure, resilient and equipped with leading security features.

Digital adoption by our customers continues with digital wallet usage growing by a further 13% and the value of e-commerce purchases on debit cards increasing by 36% compared to the same period last year. Our digitally active base has grown to 1.78m customers and our mobile banking app is the channel of choice with one in three of all personal bank accounts now opened via this platform and an average of 870,000 customers logging on at least once a day. In addition, 82% of personal loan applications were completed digitally in the first half of 2021, an increase of 5% on the same period last year.

Digital investment is also critical to our ways of working now and into the future. In June, we launched ‘aib Connect ’, our new employee communications hub, to enable our people to digitally connect, communicate and collaborate across the organisation from any location.

CULTURE & OUR PEOPLE

The right culture is vital to the success of any business and at AIB, our culture is underpinned by five values and associated behaviours that

support the delivery of high quality service and fair customer outcomes. Recent results from the Irish Banking Culture Board survey demonstrated many of the positive steps we have taken to embed the customer at the heart of everything we do, while also outlining some areas that require further focus. The Board and Executive Committee remain committed to ensuring that the culture at AIB continues to evolve positively.

We know that it is our people who are the heartbeat of our business and in June, we launched our first Employee Values Awards to recognise some of those who truly bring our values to life every day. We continue to take a holistic approach to our wellbeing programme, and in April, to support our Right to Disconnect Policy and to recognise the commitment shown by all our people during the pandemic we announced a ‘Digital Disconnect & Refresh Day’, which is effectively an additional day’s leave for every AIB employee in 2021. We also hosted our first virtual AIB Wellbeing Festival to help our people create effective wellbeing habits, an inclusive environment and greater connectivity across the organisation.

We are committed to being representative of the diverse communities we serve and we recognise, as an employer, the key role we play in supporting social inclusion in society. That is why we have signed up to both the Business in the Community’s Elevate Pledge and Diversity Charter. These pledges signal our renewed commitment at an organisational level to advancing a diverse and inclusive workplace while also supporting the broader values of inclusion, equality and opportunity in the communities in which we operate.

8 Chief Executive’s Review AIB Group plc Half-Yearly Financial Report 2021

As previously reported in the Annual Financial Report 2020, a number of searches for Board positions were underway and have led to a series of appointments to the Board in 2021 to date. Andy Maguire joined the Board and the Board Risk Committee in March and Fergal O’Dwyer and Anik Chaumartin joined the Board and the Board Audit Committee in January and July 2021, respectively. In addition, our Chief Financial Officer, Donal Galvin joined the Board as an Executive Director in May 2021. There are a number of additional Board appointments in the course of the supervisory fitness and probity assessment process and announcements will be made in due course.

The process to identify a candidate for the position of Chair, which is being led by the Senior Independent Director, is well advanced and an announcement will be made as soon as circumstances permit. In the meantime, Deputy Chair Brendan McDonagh continues to fulfil the duties of the Chair role at the request of the Board.

SUSTAINABLE COMMUNITIES

As leader of the sustainability agenda in financial services in Ireland, we are fundamentally committed to supporting the transition to a low-carbon economy, reducing our own carbon footprint and helping our customers to do the same. Since the beginning of the year, we have made further advances on this agenda, which sits at the very heart of our strategy.

We have continued to embed Environmental, Social and Governance (ESG) considerations into our business processes through the introduction of an ESG Questionnaire for borrowers in sectors more exposed to climate risk as well as launching the AIB Sustainable Lending Framework, which

outlines clear criteria by which we will report our green, transition and social lending. These changes are critical building blocks in providing sustainable social infrastructure, achieving our sustainability ambition of 70% of our new lending to be green/transition lending by 2030, and also in understanding our exposure to ESG risk.

In supporting our customers' transition to a lowcarbon future, in the first seven months of the year we have cut interest rates on our green mortgages, further enhanced our green consumer loan offering as well as introducing a green mortgage through the Haven broker channel. In addition, our Energy, Climate Action & Infrastructure team continues to support large corporate investment, ensuring a greener tomorrow by backing those building it today with new lending increasing by c.40% in the first six months of this year.

Recognising the role of strategic partners, we have also recently announced a new partnership with the Teagasc Signpost series, a programme utilising 100 demonstration farms, aimed at supporting the sector on its transition to net zero emissions by 2050. To continue tackling the issue of food waste, in May we renewed our partnership with FoodCloud to 2023, with further investment of €1.5m. We have also pledged €1.25m to fund the First Chair of Sustainable Business in Ireland at University College Cork. Finally, we recognise the importance of biodiversity and we have committed to plant a tree for every new youth account opened. In addition, we continue to embed our Pledge to Do More across the Group and we will plant a tree for every colleague, creating an AIB woodland of native Irish trees.

We are proud to be the first Irish company to have committed to use World Economic Forum

THE BOARD AND EXECUTIVE COMMITTEE REMAIN COMMITTED TO ENSURING THAT THE CULTURE AT AIB CONTINUES TO EVOLVE POSITIVELY

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AIB CEO Colin Hunt with GAA President
Larry McCarthy and players launching
the AIB GAA All-Ireland Senior Football
Championship 2021. AIB has been
supporting GAA communities across
Ireland for 30 years.
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AIB Group plc Half-Yearly Financial Report 2021

Chief Executive’s Review 9

Stakeholder Capitalism metrics in our reporting, joining 80 other sustainability-focused companies globally. Additionally, we are the first Irish bank to join the UN Net Zero Banking Alliance.

Irish government has indicated that there will be continuing supports to help businesses and households get back on their feet.

Upward revisions to GDP forecasts[2]

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Our progress has been recognised independently and externally by both rating agencies and industry bodies. Most recently in April this year Sustainalytics ranked us 53rd out of 1,047 banks globally with a low risk ESG score of 14.5. This benchmarks very favourably compared to our peer group and demonstrates AIB’s significant progress in advancing the sustainability agenda.

OUTLOOK

The COVID-19 pandemic has cast a long shadow over everyday life across the world for the past 18 months. However, on the back of a successful vaccine rollout programme, the outlook for the Irish economy is increasingly positive with strong growth rates anticipated as sentiment improves with the easing of restrictions.

Sentiment improves as restrictions are eased[1]

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70
60
50
40
30
20
10
0
DEC JUN DEC JUN
2019 2020 2020 2021
Services PMI Manufacturing PMI Composite PMI
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As anticipated, economic activity rebounded strongly in the second quarter of 2021 in Ireland as restrictions were lifted. By June, the Purchasing Managers' Indexes (PMIs) for the manufacturing, services and construction sectors had hit record or near record highs. Core retail sales in May rose by 9% as the sector re-opened and new car sales rose by 21.6% in the first half of 2021. Also, consumer confidence hit a two year high in June, while government tax receipts were up by almost 10% at mid-year, well ahead of target. Unemployment is also now falling, which provides a positive platform for the economic recovery at all levels.

Expectations are for the strong rebound to continue over the second half of the year and into 2022, with many favourable factors at work. Accommodative monetary and fiscal policies are being kept in place as the economic recovery gathers momentum. Interest rates are set to remain very low, while the

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

% CBI FORECAST EC FORECAST
10
8.3
8
7.2
6 5.4 5.1
4.6
4 3.8 3.4 3.5
2
0
2021 2022 2021 2022
As at Jan 2021 As at Jun 2021
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The enormous build-up of household savings in the Irish economy since early 2020 points to considerable firepower to fuel a strong rebound in the domestic economy. Meanwhile, with a strong recovery underway in the global economy, Irish exports should continue to perform well. Recent forecasts from the Central Bank of Ireland and European Commission are for Irish GDP to grow by 8.3% and 7.2% respectively this year and over 5% in 2022, with growth in the domestic economy averaging 4.5–5.0% over the two years.

The pandemic and lockdowns have had a negative impact on housing supply. New house building will struggle to reach 20,000 units in 2021, well below estimated annual demand of c.30,000. This has been one of the factors putting marked upward pressure on house prices this year, although this is a notable feature of many economies and increasing housing supply is a key focus of government policy. Most encouragingly, there has been a surge in new housing commencements since the sector re-opened in April, which augurs well for future supply. We expect the mortgage market will grow strongly over the next number of years as more housing supply comes on stream.

Commencements increase as construction sector opens[3]

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ESTIMATED DEMAND
30,000
20,000
10,000
0
2018 2019 2020 2021 (f)
Completions Commencements
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1. Source: Markit via Thomson Datastream. 2. Source: CBI 'Quarterly Bulletin Q3 2021‘, EC ‘Economic Forecast Summer 2021’

3. Source: CSO, Dept. of Housing, AIB ERU

10 Chief Executive’s Review AIB Group plc Half-Yearly Financial Report 2021

Deposits surge as household deleveraging continues[4]

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

% €bn
220 130
200
110
180
90
160
70
140
120 50
Q1 2005 Q1 2007 Q1 2009 Q1 2011 Q1 2013 Q1 2015 Q1 2017 Q1 2019 Q1 2021
LHS: Debt to Disposable income RHS: Household deposits
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Overall, prospects on the Irish economy are quite favourable. However, there are potential economic headwinds on the horizon that will need to be navigated carefully such as risks posed by new COVID-19 variants, challenges in implementing the Trade and Co-Operation Agreement concluded by the EU and UK and expected changes to the global corporate tax regime.

As I mentioned previously, significant progress has already been made this year on the implementation of our strategic plans which will see our organisation transformed and delivering our newly revised medium-term targets – a CET1 ratio of greater than 13.5%, a cost base of less than €1.475bn, and a RoTE of greater than 9%. With these targets, we aim to generate sustainable profits and provide our investors with appropriate returns over the longer term. We continue to comply with the ECB’s recommendations in relation to the distribution of dividends. We will continue to monitor developments in this regard 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 extraordinary energy, care and resilience. We will remain alert to the economic uncertainties that exist as well as the evolution of the Irish banking landscape. We are firmly committed to maintaining momentum in the implementation of our strategy and will do so with increasing fervour and rigour. I look forward with confidence to the remainder of 2021 and beyond, focused on our revised medium-term targets, united by our purpose and driven by our ambition to be at the heart of our customers' financial lives.

COLIN HUNT

Chief Executive Officer 3 August 2021

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

We are fundamentally committed
to supporting our customers in the
transition to a low-carbon economy.
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4. Source: CSO, CBI, AIB ERU

AIB Group plc Half-Yearly Financial Report 2021

Our Strategy 11

OUR STRATEGY

PROGRESSING OUR STRATEGY AT PACE

Our strategy has been shaped by the emerging trends of Digitalisation, Ways of Working and Sustainability, as well as our continued focus to simplify, streamline and strengthen our business.

We will continue developing our digital capability, streamlining services, improving customer journeys and creating an inclusive and optimised employee experience. We will personalise our service offering, refocusing our branches where appropriate while maintaining our commitment to our local communities. We will broaden our products and

services, aligning our operating model and ways of working to ensure we can continue to serve our customers as their banking needs evolve.

Along with delivering our revised medium-term financial targets, we are progressing a number of initiatives in order to meet these strategic goals and ensure we remain at the heart of our customers' financial lives.

In the first six months of 2021, AIB has demonstrated that we are delivering our strategy at pace.

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

STRATEGIC PILLAR INITIATIVE H1 2021 UPDATE
• Announced intention to acquire Goodbody
PRODUCT
• Confirmed intention to form JV with Great West LifeCo
CUSTOMER GAPS;
• Acquisition of c.€4.2bn of performing Ulster Bank corporate and
FIRST INORGANIC
commercial loans agreed pending regulatory approvals
GROWTH
• Discussions are underway to extend our partnership with An Post
• Amalgamated AIB branches in 6 urban overlapping locations
REFOCUSED in Ireland, with 15 further amalgamations in urban centres
BRANCH planned in H2
SIMPLE NETWORK • Strategic review of Northern Ireland branch network complete with
& EFFICIENT 8 closures planned in H2 2021
CHANGE • Insourced 100 digital, data and change specialist roles; reducing
DELIVERY reliance on third party providers
• Exit of GB SME business process underway and progressing in line
AIB GB
with plan. Aim to conclude the exit by year-end 2021
BUSINESS
• New Corporate Banking model on target to be in place from
MODEL
September 2021
RISK
& CAPITAL • 2021 focus on centralising and simplifying credit, customer and
account management activities for SME customers. In parallel, design
END-TO-END
work mobilised to create our long-term end-to-end credit solution for
CREDIT
SME and Corporate customers, centred on increased digital and data
enablement, with implementation commencing in 2022
• Announced our phased Return to Office plan, commencing in
September 2021
TALENT FUTURE OF
• Design work underway on future long-term hybrid work model
& CULTURE WORK
• Physical exit completed of Burlington Road central office building
in Dublin
• Launched the AIB Personal Green Loan and Haven Green Mortgage
SUSTAINABLE
NET ZERO • First Irish bank to join the UN Net Zero Banking Alliance
COMMUNITIES
• Raised €750m on completion of our second green bond issuance
KEY: DIGITALISATION WAYS OF WORKING SUSTAINABILITY BUSINESS MODEL
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12 Highlights AIB Group plc Half-Yearly Financial Report 2021

HIGHLIGHTS

BACKING OUR CUSTOMERS

While many of us are still working remotely, AIB Group has continued to put our customers first in 2021.

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MARKET-LEADING GREEN MORTGAGE

In March, we announced a market-leading rate of 2.1% on our AIB Green Five Year Fixed Rate Mortgage where the loan represents less than 50% of the value (LTV) of an energy efficient home. We continue to support our customers to live in a more sustainable way by taking steps to reduce their own carbon footprint.

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INCREASING HOUSING SUPPLY

AIB is the primary lender on a number of live developments which will, over the life of the developments, deliver over 10,000 new sustainable homes, with more than 1,200 of these being Social Housing units.

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DATA INSIGHTS TO SUPPORT BUSINESSES

SUPPORTING BIODIVERSITY

In May, we partnered with Coillte Nature and top Irish DJ, Welshy, to launch our new Youth Reforestation Initiative to plant trees over the next three years on behalf of new AIB second-level student account holders. This, coupled with a similar initiative for every employee, will result in the creation of a woodland of 100,000 native Irish trees.

In May, AIB Merchant Services, Ireland’s largest payment solutions company, launched ‘Main Street Insights’, an online tool providing key customer analytics on spend, demographics and more. The tool is available to all AIB Merchant Services customers in Ireland, where it is the first of its kind.

AIB Group plc Half-Yearly Financial Report 2021 Highlights 13

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INORGANIC GROWTH

Aligned to our commitment to make selective investments to address product gaps in our customer offering and diversify our income, in H1 2021 we announced our intention to acquire Goodbody, which is progressing well. Subject to approvals, we also agreed to form a joint venture with Great-West LifeCo and acquired c.€4.2bn corporate and commercial loans from Ulster Bank.

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GREEN PERSONAL LOAN

AIB ALL TOGETHER

In March, we launched the AIB green personal loan, with a rate of just 6.25% on amounts up to €60,000. Customers can apply for a green loan on our app or over the phone.

On 25 June, teams across AIB completed 5km to raise funds for our partner charities. Every euro donated was matched through the AIB Together Fund, which raised €165,000 in H1 2021.

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€750M GREEN BOND ISSUANCE

In May, we raised €750m in our second green bond issuance in less than a year. It garnered an order book of more than €1.5bn at its peak, making it twice oversubscribed. The proceeds will contribute to the financing of projects with clear environmental and climate change benefits, and further strengthen AIB’s capital position.

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DRIVING TRANSPARENCY IN ESG

We are proud to be the first Irish company to have committed to use World Economic Forum Stakeholder Capitalism metrics in our reporting, joining 80 other sustainabilityfocused companies globally. These metrics are based on the four value-driven principles of People, Planet, Prosperity and Governance. In the first half of 2021, we also joined the United Nations Global Compact and were the first Irish bank to join the United Nations Net Zero Banking Alliance.

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#ITSWHOWEARE

Our first Employee Value Awards took place at the beginning of June, recognising our outstanding colleagues. And it launched EveryBody Festival – a month-long virtual wellbeing festival.

has meant that in the past three years 6,300 tonnes of surplus food were redistributed; the equivalent of 15.1 million meals provided to those in need, and 20,353 tonnes of CO2-eq avoided.

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backedbyAIB
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AIB Group plc Half-Yearly Financial Report 2021 Business Review 15

Business review

1. Operating and financial review

2. Capital

16 Business Review AIB Group plc Half-Yearly Financial Report 2021

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 84. 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.

Half-year June 2021 Half-year June 2020 % Managementperformance – summary income statement € m € m change	Half-year June 2021 Half-year June 2020 % Managementperformance – summary income statement € m € m change	Half-year June 2021 Half-year June 2020 % Managementperformance – summary income statement € m € m change
Net interest income Business income Other items Other income(1)	881 230 72 302	967 -9 184 25 36 99 220 37
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)	1,183 (360) (239) (140) (739) (71)	1,187 – (368) -2 (243) -2 (136) 3 (747) -1 (63) 13
Operating profit before impairment losses and exceptional items(1) Net credit impairment writeback/(charge)	373 103	377 -1 (1,216) –
Operating profit/(loss) before exceptional items(1) Associated undertakings	476 6	(839) – 5 29
Profit/(loss) before exceptional items(1) Restitution costs Restructuring costs Inorganic transaction costs Loss on disposal of loan portfolios Termination benefits Covid product costs Other Total exceptional items(1)	482 (124) (44) (16) (12) (2) – 7 (191)	(834) – (58) – – – – – – – (6) – (10) – (1) – (75) –
Profit/(loss) before taxation Income tax(charge)/credit	291 (17)	(909) – 209 –
Profit/(loss) for the period	274	(700) –

(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.

Business Review 17

AIB Group plc Half-Yearly Financial Report 2021

Net interest income

Net interest income

€881m

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Half-year Half-year
June 2021 June 2020 %
Net interest income € m € m change
Interest income [(1)] 911 1,072 -15
Interest expense [(1)] (30) (105) -71
Net interest income 881 967 -9
Average interest earning assets 107,158 92,405 16
% % change
Net interest margin (NIM) 1.66 2.10 -0.44
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Interest expense

Interest expense of € 30 million in the half-year to June 2021 decreased by € 75 million compared to the half-year to June 2020. The reduction in funding costs was primarily due to;

The lower cost of customer accounts which includes the impact from broadening the scope of accounts to which negative rates are applied.
Deposits by banks which includes TLTRO III funding benefit following verification that the relevant March 2021 lending benchmark has been achieved.
Lower cost of other debt issued.

Net interest income

Net interest income of € 881 million decreased by

€881m

€ 86 million or 9% compared to the half-year to June 2020.

Interest income

Interest income of € 911 million in the half-year to June 2021 decreased by € 161 million compared to the half-year to June 2020 primarily due to:

Lower volumes of loans and advances to customers as redemptions exceeded new lending and reflecting the disposal of non-performing loan portfolios.
Reduced asset yields driven by the lower interest rate environment.
Lower income on investment securities due to maturities and disposals of higher yielding securities and reinvestment at lower yields.
Higher volumes of excess liquidity held with the central bank at negative rates.

Net interest margin

NIM decreased 44 bps to 1.66% in the half-year to June 2021

1.66%

compared to 2.10% in the half-year to June 2020 due to:

Reduced interest income primarily due to lower customer loan volumes, the impact of the lower interest rate environment and decrease in investment security yields c. -30 bps;
Higher excess liquidity impacting average interest earning assets c. -25 bps partly offset by;
Lower interest expense on customer accounts and other debt issued c. +8 bps; and
Net TLTRO III income benefit of € 15 million c. +3 bps.

Average interest earning assets of € 107.2 billion in the half-year to June 2021 increased by € 14.8 billion from the half-year to June 2020 primarily due to funds placed with banks. This was driven by an increase in excess liquidity mainly due to higher customer account balances and TLTRO III funding drawdown.

Average balance sheet

Average balance sheet Assets			Half-year 30 June 2020
	Average balance € m	Average balance € m	Interest(1) Average rate € m %
Loans and advances to customers Investment securities Loans and advances to banks/others Average interest earning assets Non-interest earning assets Total average assets Liabilities & equity	57,823 18,762 30,573	60,417 17,417 14,571	1,004 3.33 72 0.82 (4) (0.05)
	107,158 6,325	92,405 7,649	1,072 2.33 1,072
	113,483	100,054

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	4,929 46,141 5,396 1,552 373	999 39,819 6,567 1,299 419	3 0.57 36 0.18 39 1.19 20 3.15 7 3.21
	58,391 41,712 13,380	49,103 36,869 14,082	105 0.43 105
	113,483	100,054

			967 2.10

(1) Negative interest income on assets amounting to € 49 million in the half-year to June 2021 (half-year to June 2020: € 13 million) is offset against interest income. Negative interest expense on liabilities amounting to € 50 million in the half-year to June 2021 (half-year to June 2020: € 13 million) is offset against interest expense.

18 Business Review AIB Group plc Half-Yearly Financial Report 2021

Business review – 1. Operating and financial review

Other income

Other income[(1)]

€302m

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Half-year June 2021 Half-year June 2020 % 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 212 – 212 192 – 192 10
Dividend income 1 – 1 25 – 25 -95
Net trading income/(loss) 17 (8) 9 (34) (6) (40) –
Net gain on equity investments (FVTPL) – 53 53 – 22 22 138
Net gain on loans and advances to customers (FVTPL) – 17 17 – 21 21 -19
Other operating income – 10 10 1 (1) – –
Other income 230 72 302 184 36 220 37
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Other income[(1)]

Other income of € 302 million increased by € 82 million

€302m

compared to the half-year to June 2020 with increased business income of € 46 million and other items of € 36 million.

Net trading income of € 17 million in the half-year to June 2021 increased by € 51 million compared to a net trading loss of € 34 million in the half-year to June 2020 mainly due to favourable movements on derivative valuation adjustments (XVA) and on non-customer foreign exchange contracts.

Business income

Business income was

€230m

€ 230 million in the half-year to

June 2021 compared to € 184 million in the half-year to June 2020.

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Half-year Half-year
June 2021 June 2020 %
Net fee and commission income € m € m change
Customer accounts 99 90 11
Card income 32 30 6
Lending related fees 26 21 22
Customer related foreign exchange 29 26 11
Payzone 7 7 -3
Other fees and commissions 19 18 4
Net fee and commission income 212 192 10
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Net fee and commission income of € 212 million in the half-year to June 2021 increased by € 20 million compared to the half-year to June 2020 primarily reflecting higher transaction volumes due to some recovery in economic activity and the removal of the exemption on customer account fees for customers that maintain a minimum credit balance.

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

Other items

Other items were € 72 million in €72m the half-year to June 2021 compared to € 36 million in the half-year to June 2020.

Net income from equity investments of € 45 million in the half-year to June 2021 (half-year to June 2020: € 16 million) reflected the revaluation and disposal of equity investments. This comprises a net gain on equity investments (FVTPL) of € 53 million in the half-year to June 2021 (half-year to June 2020: € 22 million), offset by a net trading loss of € 8 million (half-year to June 2020: € 6 million) on a partial hedge of the equity investments.

Net gain on loans and advances to customers (FVTPL) of € 17 million in the half-year to June 2021 (half-year to June 2020: € 21 million) represents income recognised on previously restructured loans carried at fair value through profit and loss.

Other operating income of € 10 million in the half-year to June 2021 primarily reflects a € 7 million gain on disposal of investment securities.

IFRS basis

On an IFRS basis other income, including a net loss of € 12 million on exceptional items[(1)] was € 290 million in the half-year to June 2021 compared to € 220 million in the half-year to June 2020.

(1) Other income before exceptional items. A net loss of € 12 million was reflected in exceptional items in the half-year to June 2021 relating to Other operating income (loss on disposal of loan portfolios) € 12 million.

Business Review 19

AIB Group plc Half-Yearly Financial Report 2021

Total operating expenses[(1)(2)]

€739m

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Half-year Half-year
June 2021 June 2020 %
Operating expenses [(1)(2)] € m € m change
Personnel expenses 360 368 -2
General and administrative expenses 239 243 -2
Depreciation, impairment and
amortisation 140 136 3
Total operating expenses 739 747 -1
Staff numbers at period end [(3)] 9,003 9,310 -3
Average staff numbers [(3)] 9,100 9,402 -3
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Total operating expenses[(1)(2)]

Total operating expenses of €739m € 739 million decreased by € 8 million compared to the half-year to June 2020, with lower personnel expenses of € 8 million and lower general and administrative expenses of € 4 million partly offset by increased depreciation, impairment and amortisation of € 4 million.

Cost income ratio[(1)(2)]

Costs of € 739 million and income of € 1,183 million

62%

resulted in a cost income ratio of 62% in the half-year to June 2021 compared to 63% in the half-year to June 2020.

Bank levies and regulatory fees

€71m

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Half-year Half-year
June 2021 June 2020 %
Bank levies and regulatory fees € m € m change
Irish bank levy – – –
Deposit Guarantee Scheme 39 34 14
Single Resolution Fund 21 17 26
Other regulatory levies and charges 11 12 -11
Bank levies and regulatory fees 71 63 12
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Bank levies and regulatory fees of € 71 million increased by € 8 million compared to the half-year to June 2020 due to higher Deposit Guarantee Scheme and Single Resolution Fund fees.

Personnel expenses

Personnel expenses decreased by € 8 million compared to the half-year to June 2020 primarily due to the decrease in average staff numbers.

The Irish bank levy for financial institutions is payable in October each year.

IFRS basis

General and administrative expenses

General and administrative expenses decreased by € 4 million compared to the half-year to June 2020 primarily due to savings on reduced travel and business expenses.

Depreciation, impairment and amortisation

Depreciation, impairment and amortisation increased by € 4 million compared to the half-year to June 2020 due to the increase in amortisation as assets created under investment programmes were commissioned to operational use.

On an IFRS basis total costs, including bank levies and regulatory fees of € 71 million and the cost of exceptional items[(2)] of € 179 million, were € 989 million in the half-year to June 2021 compared to € 885 million in the half-year to June 2020. This results in a cost income ratio (IFRS basis) of 84% in the half-year to June 2021, compared to 75% in the half-year to June 2020.

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

(2) The cost of exceptional items of € 179 million in the half-year to June 2021 (half-year to June 2020: € 75 million) comprised: Personnel expenses € 4 million (half-year to June 2020: € 12 million), and General and administrative expenses € 134 million (half-year to June 2020: € 63 million) and Depreciation, impairment and amortisation € 41 million (half-year to June 2020: Nil).

(3) Staff numbers are on a full time equivalent (“FTE”) basis.

20 Business Review AIB Group plc Half-Yearly Financial Report 2021

Business review – 1. Operating and financial review

Net credit impairment writeback

€103m

There was a net credit impairment writeback of € 103 million in the half-year to June 2021 reflecting a more favourable economic environment with improved credit quality and updated macroeconomic assumptions partially offset by new and enhanced post model adjustments.

The net credit impairment writeback of € 103 million reflected a € 106 million writeback on loans and advances to customers (net re-measurement of expected credit loss (“ECL”) allowance writeback of € 70 million and recoveries of amounts previously written-off of € 36 million) and a € 3 million charge for off-balance sheet exposures.

There was a net credit impairment charge of € 1,216 million in the half-year to June 2020 comprising of a € 1,168 million charge on loans and advances to customers and a € 47 million charge for off-balance sheet exposures.

For further information see pages 37 to 77 in the Risk Management section.

Income tax charge

€17m

The effective rate was 6% in the half-year to June 2021 compared with 23% in the half-year to June 2020.

The income tax charge recognised in the half-year to June 2021 reflects an increase in deferred tax assets in respect of carried forward losses due to an increase in the UK corporation tax rate.

For further information see note 12 ‘Taxation’ of the condensed consolidated interim financial statements.

Total exceptional items

€191m

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Half-year Half-year
June 2021 June 2020
Total exceptional items € m € m
Restitution costs (124) (58)
Restructuring costs (44) –
Inorganic transaction costs (16) –
Loss on disposal of loan portfolios (12) –
Termination benefits (2) (6)
Covid product costs – (10)
Other 7 (1)
Total exceptional items (191) (75)
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These gains/costs were viewed as exceptional by management.

Restitution costs includes provisions of € 100 million related to a series of investment property funds which were sold to individual investors during the period 2002 to 2006. See note 31 ‘Provisions for liabilities and commitments’ in the condensed consolidated interim financial statements for further information. It also includes the provision of € 1 million for customer redress and compensation in relation to the tracker mortgage examination and € 23 million of associated costs.

Restructuring costs reflect the implementation of the Group’s revised strategy (Strategy 2023) including costs associated with the exit of a Dublin office location, changes to the Retail network in ROI and the exit from the SME market in Great Britain.

Inorganic transaction costs includes costs associated with the proposed acquisition of c. € 4.2 billion of performing Ulster Bank corporate and commercial loans and the agreed creation of a joint venture with Great-West Lifeco Inc to provide life, pension and investment solutions.

Loss on disposal of loan portfolios reflects the loss from the disposals of loan portfolios.

Termination benefits relate to the cost of the voluntary severance programme.

Other reflects the writeback of a provision for regulatory fines in the half-year to June 2021. In the half-year to June 2020 it included costs relating to the Group’s property strategy.

Business Review 21

AIB Group plc Half-Yearly Financial Report 2021

Assets

Net loans to customers

New lending

€56.6bn

€4.5bn

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30 June 31 Dec
2021 2020 %
Assets € bn € bn change
Gross loans to customers 58.7 59.5 -1
ECL allowance (2.1) (2.5) -17
Net loans to customers 56.6 57.0 -1
Investment securities 16.5 19.5 -15
Loans and advances to banks 43.0 27.3 57
Other assets 6.8 6.6 2
Total assets 122.9 110.4 11
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Non-performing loans Non-performing loans ratio €3.8bn 6.5%

Non-performing loans decreased by € 0.5 billion to € 3.8 billion at 30 June 2021 primarily reflecting the disposal of loan portfolios of € 0.6 billion and redemptions of € 0.3 billion, partially offset by net flow to non-performing of € 0.4 billion.

Non-performing loans ratio

Non-performing loans as a percentage of gross loans to customers was 6.5% at 30 June 2021 compared to 7.3% at 31 December 2020.

Net loans to customers

Net loans, excluding the impact of currency movements of

€56.6bn

€ 0.5 billion, decreased by € 0.9 billion compared to 31 December 2020 reflecting redemptions of € 5.2 billion exceeding new lending of € 4.5 billion and the disposal of non-performing loan portfolios of € 0.3 billion (net).

ECL allowance Non-performing loans cover €2.1bn 27.5%

The ECL allowance of € 2.1 billion at 30 June 2021 decreased from € 2.5 billion at 31 December 2020 primarily reflecting the impact of the disposal of non-performing loan portfolios.

Non-performing loans cover

New lending

New lending of € 4.5 billion in €4.5bn the half-year to June 2021 was € 0.1 billion higher compared to the half-year to June 2020. Mortgage lending was 10% higher at € 1.2 billion with property related lending up 16% to € 0.8 billion. Non-property lending was 3% lower at € 2.1 billion with strong new lending in renewable energy, some recovery in syndicated lending and an increase in Irish SME lending (which benefited from government supported schemes) offset by a decrease in lending to those sectors most impacted by COVID-19 restrictions. Personal lending was down 4% to € 0.4 billion.

The ECL allowance cover rate on non-performing loans of 27.5% at 30 June 2021 compared to 32.4% at 31 December 2020.

New lending comprises € 4.0 billion term lending in the half-year to June 2021 (€ 3.6 billion in the half-year to June 2020) and € 0.5 billion transaction lending (€ 0.8 billion in the half-year to June 2020).

Summary of movement in loans to customers

The table below sets out the movement in loans to customers from 1 January 2021 to 30 June 2021.

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Performing Non-performing Loans to
loans loans customers
Loans to customers € bn € bn € bn
Gross loans (opening balance 1 January 2021) 55.2 4.3 59.5
New lending 4.5 – 4.5
Redemptions of existing loans (4.9) (0.3) (5.2)
Portfolio disposals – (0.6) (0.6)
Write-offs and restructures – – –
Net movement to non-performing (0.4) 0.4 –
Foreign exchange movements 0.5 – 0.5
Gross loans (closing balance 30 June 2021) 54.9 3.8 58.7
ECL allowance (1.1) (1.0) (2.1)
Net loans (closing balance 30 June 2021) 53.8 2.8 56.6
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22 Business Review AIB Group plc Half-Yearly Financial Report 2021

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 82.

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Residential Other Property and Non-property
Loan portfolio profile mortgages personal construction business Total
30 June 2021 € bn € bn € bn € bn € bn
Gross loans to customers 29.6 2.6 7.5 19.0 58.7
Of which: Stage 2 1.5 0.3 1.6 4.4 7.8
Of which: Non-performing loans 1.5 0.2 0.9 1.2 3.8
Total ECL allowance 0.5 0.2 0.4 1.0 2.1
Total ECL allowance cover (%) 1.7% 8.8% 4.8% 5.3% 3.6%
ECL allowance cover Stage 2 (%) 2.9% 14.3% 7.8% 13.1% 10.0%
ECL allowance cover non-performing loans (%) 27.8% 61.2% 19.8% 26.1% 27.5%
31 December 2020 € bn € bn € bn € bn € bn
Gross loans to customers 30.6 2.8 7.4 18.7 59.5
Of which: Stage 2 2.0 0.3 2.1 5.0 9.4
Of which: Non-performing loans 2.1 0.2 1.0 1.0 4.3
Total ECL allowance 0.9 0.2 0.4 1.0 2.5
Total ECL allowance cover (%) 2.8% 8.5% 5.4% 5.5% 4.2%
ECL allowance cover Stage 2 (%) 3.7% 15.4% 6.4% 11.6% 9.0%
ECL allowance cover non-performing loans (%) 33.9% 61.1% 22.0% 32.3% 32.4%
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Investment securities

Investment securities of € 16.5 billion, primarily held for liquidity purposes, have decreased by € 3.0 billion from 31 December 2020 due to sales and maturities exceeding purchases.

Loans and advances to banks

Loans and advances to banks of € 43.0 billion, including

€ 39.0 billion of cash and balances at central banks, were € 15.7 billion higher than 31 December 2020. The increased placement with banks was due to an increase in excess liquidity due to higher customer account balances and a further € 6 billion TLTRO III funding drawdown.

Other assets

Other assets of € 6.8 billion comprised:

Deferred tax assets of € 2.8 billion[(1)] increased € 0.1 billion from 31 December 2020.
Derivative financial instruments of € 1.0 billion, € 0.4 billion decrease from 31 December 2020 primarily reflecting interest rate and foreign exchange rate movements in the period.
Remaining assets of € 3.0 billion, increased € 0.5 billion from 31 December 2020 mainly due to securities borrowing transactions with non-bank financial counterparties of
€ 0.8 billion.

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

Business Review 23

AIB Group plc Half-Yearly Financial Report 2021

Liabilities & equity

Customer accounts Equity

€88.3bn €13.5bn

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30 June 31 Dec
2021 2020 %
Liabilities & equity € bn € bn change
Customer accounts 88.3 82.0 8
Deposits by banks 10.6 4.7 126
Debt securities in issue 5.7 5.5 5
Subordinated liabilities 1.6 1.6 -3
Other liabilities 3.2 3.2 -1
Total liabilities 109.4 97.0 13
Equity 13.5 13.4 –
Total liabilities & equity 122.9 110.4 11
% % change
Loan to deposit ratio 64 69 -5
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Debt securities in issue

Debt securities of € 5.7 billion increased by € 0.2 billion from 31 December 2020 following a further MREL related issuance of € 0.75 billion partly offset by the maturity of a covered bond of € 0.5 billion.

Subordinated liabilities

Subordinated liabilities of € 1.6 billion were in line with 31 December 2020.

Other liabilities

Other liabilities of € 3.2 billion comprised:

Derivative financial instruments of € 1.0 billion, € 0.2 billion decrease from 31 December 2020.
Remaining liabilities of € 2.2 billion, € 0.2 billion increase from 31 December 2020.

Customer accounts

Customer accounts, excluding the impact of currency

€88.3bn

movements of € 0.6 billion, increased by € 5.7 billion compared to 31 December 2020 reflecting substantially higher balances across all segments primarily due to COVID-19 related dynamics of increased savings and lower consumer consumption.

Equity

Equity increased by € 0.1 billion €13.5bn to € 13.5 billion compared to € 13.4 billion at 31 December 2020 driven by the profit for the period partly offset by movements in the cash flow hedging reserves.

Loan to deposit ratio

The loan to deposit ratio decreased to 64% at 30 June 2021 compared to 69% at 31 December 2020 primarily reflecting increased customer accounts.

Deposits by banks

Deposits by banks of € 10.6 billion increased by € 5.9 billion compared to 31 December 2020 driven by a further € 6.0 billion TLTRO III funding drawdown in June 2021 bringing total TLTRO III funding to € 10.0 billion.

24 Business Review AIB Group plc Half-Yearly Financial Report 2021

Business review – 1. Operating and financial review

Segment reporting

Segment overview

The Group’s performance is managed and reported across the Retail Banking, Corporate, Institutional & Business Banking (“CIB”), AIB UK and Group segments. Segment performance excludes exceptional items.

Retail Banking

Retail Banking comprises Homes & Consumer, SME and Financial Solutions Group (“FSG”) in a single integrated segment, focused 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 provides 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 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)”).

The Group’s revised strategy (Strategy 2023) entails changes to the AIB UK business model including the withdrawal from SME lending in Great Britain and a refocus on our corporate business, particularly in renewables, infrastructure, health and manufacturing.

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 Technology, Operations, Finance, Risk, Legal, Corporate Governance & Customer Care, Human Resources, Corporate Affairs, Strategy & Sustainability and Group Internal Audit.

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.

Business Review 25

AIB Group plc Half-Yearly Financial Report 2021

Retail Banking

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Half-year Half-year
Retail Banking June 2021 June 2020 %
contribution statement € m € m change
Net interest income 519 572 -9
Other income 174 161 8
Total operating income 693 733 -6
Total operating expenses (433) (445) -3
Bank levies and regulatory fees (1) (1) 11
Operating contribution before
impairments and exceptional items 259 287 -9
Net credit impairment
writeback/(charge) 55 (491) –
Operating contribution before
exceptional items 314 (204) –
Associated undertakings 4 4 7
Contribution before exceptional items 318 (200) –
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Net interest income

€519m Net interest income has decreased by € 53 million compared to the half-year to June 2020. This was primarily due to lower average loans, as redemptions exceeded new lending and the deleveraging of non-performing loans in 2021, as well as the increase in customer account volumes coupled with the impact of the negative interest rate environment partially offset by lower funding costs.

Other income

€174m Other income increased by € 13 million compared to the half-year to June 2020, mainly due to an increase in net fee and commission income driven by customer accounts and card income, partly offset by lower income recognised on previously restructured loans. Customer accounts income has benefited from the removal of the exemption on customer account fees for customers that maintain a minimum credit balance.

Total operating expenses

€433m Total operating expenses decreased by € 12 million compared to the half-year to June 2020 driven by reductions in personnel costs due to lower average staff numbers.

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30 June 30 June
Retail Banking 2021 2020 %
balance sheet metrics € bn € bn change
Mortgages 1.1 1.1
Personal 0.4 0.4
Property 0.1 0.1
Non-property business 0.4 0.4
New lending 2.0 2.0 2
30 June 31 Dec
2021 2020
€ bn € bn
Mortgages 27.9 29.0
Personal 2.5 2.6
Property 0.7 0.7
Non-property business 3.2 3.2
Gross loans 34.3 35.5 -3
ECL allowance (1.1) (1.5) -23
Net loans 33.2 34.0 -2
Current accounts 34.8 31.7 10
Deposits 26.4 25.2 5
Customer accounts 61.2 56.9 8
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New lending

€2.0bn New lending was in line with half-year June 2020 at € 2.0 billion. There was an increase in SME lending, which benefited from government supported schemes, partially offset by lower personal lending.

Net loans

€33.2bn Net loans decreased by € 0.8 billion mainly reflecting redemptions exceeding new lending and the disposal of non-performing loan portfolios.

ECL allowance

€1.1bn The ECL allowance of € 1.1 billion at 30 June 2021 decreased by € 0.4 billion compared to 31 December 2020 primarily reflecting the disposal of non-performing loan portfolios.

Customer accounts

€61.2bn Customer accounts increased by € 4.3 billion compared to 31 December 2020 reflecting reduced consumer spending and higher savings which elevated balances across all sectors.

Net credit impairment writeback

€55m There was a net credit impairment writeback of € 55 million in the half-year to June 2021 comprising of a € 52 million writeback on loans and advances to customers and a € 3 million writeback for off-balance sheet exposures. There was a net credit impairment charge of € 491 million in the half-year to June 2020.

26 Business Review AIB Group plc Half-Yearly Financial Report 2021

Business review – 1. Operating and financial review

Corporate, Institutional & Business Banking (“CIB”)

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Half-year Half-year
June 2021 June 2020 %
CIB contribution statement € m € m change
Net interest income 212 219 -4
Other income 64 45 39
Total operating income 276 264 4
Total operating expenses (65) (64) 2
Operating contribution before
impairments and exceptional items 211 200 4
Net credit impairment
writeback/(charge) 39 (538) –
Operating contribution before
exceptional items 250 (338) –
Associated undertakings 1 – –
Contribution before exceptional items 251 (338) –
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30 June 30 June
2021 2020 %
CIB balance sheet metrics € bn € bn change
Mortgages 0.0 0.0
Personal 0.0 0.0
Property 0.4 0.4
Non-property business 1.2 1.1
New lending 1.6 1.5 6
30 June 31 Dec
2021 2020
€ bn € bn
Mortgages 0.6 0.6
Personal 0.1 0.1
Property 4.7 4.7
Non-property business 10.1 9.9
Gross loans 15.5 15.3 1
ECL allowance (0.7) (0.8) -7
Net loans 14.8 14.5 2
Investment securities 1.2 1.1 16
Current accounts 9.9 9.0 9
Deposits 3.5 3.7 -5
Customer accounts 13.4 12.7 5
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Net interest income

€212m Net interest income decreased by € 7 million compared to the half-year to June 2020. This was primarily due to lower average loans, as redemptions exceeded new lending, and the impact of the lower interest rate environment partly offset by lower funding costs.

New lending

€1.6bn New lending of € 1.6 billion increased by € 0.1 billion compared to the half-year to June 2020 with strong new lending in renewable energy and some recovery in syndicated lending partially offset by a decrease in lending to those sectors most impacted by COVID-19 restrictions.

Other income

€64m Other income increased by € 19 million compared to the half-year to June 2020, reflecting an increase in net income from equity investments, loan disposals and higher lending related fees.

Net loans

€14.8bn Net loans of € 14.8 billion at 30 June 2021 increased by € 0.3 billion compared to 31 December 2020 primarily due to the impact of currency movements of € 0.1 billion and reduction in the ECL allowance.

Total operating expenses

€65m Total operating expenses were broadly in line with the half-year to June 2020.

ECL allowance

€0.7bn The ECL allowance of € 0.7 billion at 30 June 2021 decreased by € 0.1 billion compared to 31 December 2020.

Net credit impairment writeback

€39m There was a net credit impairment writeback of € 39 million in the half-year to June 2021 comprising of a € 40 million writeback on loans and advances to customers and a € 1 million charge for off-balance sheet exposures. There was a net credit impairment charge of € 538 million in the half-year to June 2020.

Investment securities

€1.2bn Investment securities of € 1.2 billion were € 0.1 billion higher than 31 December 2020.

Customer accounts

€13.4bn Current accounts of € 9.9 billion were € 0.9 billion higher than 31 December 2020. Deposits of € 3.5 billion decreased by € 0.2 billion compared to 31 December 2020.

Business Review 27

AIB Group plc Half-Yearly Financial Report 2021

AIB UK

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Half-year Half-year
June 2021 June 2020 %
AIB UK contribution statement £ m £ m change
Net interest income 91 100 -8
Other income 22 17 27
Total operating income 113 117 -3
Total operating expenses (75) (73) 4
Operating contribution before
impairments and exceptional items 38 44 -14
Net credit impairment
writeback/(charge) 8 (164) –
Operating contribution before
exceptional items 46 (120) –
Associated undertakings 1 1 37
Contribution before exceptional items 47 (119) –
Contribution before exceptional items
€ m 54 (135) –
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Net interest income

£91m Net interest income decreased by £ 9 million compared to the half-year to June 2020 primarily due to the Bank of England base rate cuts in March 2020.

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30 June 30 June
2021 2020 %
AIB UK balance sheet metrics £ bn £ bn change
AIB GB 0.6 0.6 -9
AIB NI 0.2 0.2 29
New lending 0.8 0.8 -1
30 June 31 Dec
2021 2020
£ bn £ bn
AIB GB 5.6 5.6 1
AIB NI 2.1 2.1 -4
Gross loans 7.7 7.7 -1
ECL allowance (0.2) (0.3) -12
Net loans 7.5 7.4 –
Current accounts 7.4 6.8 8
Deposits 3.1 3.0 3
Customer accounts 10.5 9.8 7
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New lending

£0.8bn

New lending of £ 0.8 billion in the half-year to June 2021 was in line with the half-year to June 2020. There was an increase in mortgage lending offset by a reduction in commercial lending.

Other income

£22m Other income increased by £ 5 million compared to the half-year to June 2020 mainly due to favourable movements on derivative valuation adjustments (XVA).

Net loans

£7.5bn Net loans of £ 7.5 billion increased by £ 0.1 billion compared to 31 December 2020 driven by a reduction in expected credit loss allowance.

Total operating expenses

£75m Total operating expenses increased £ 2 million compared to the half-year to June 2020.

ECL allowance

£0.2bn The ECL allowance of £ 0.2 billion at 30 June 2021 decreased by £ 0.1 billion from 31 December 2020.

Net credit impairment writeback

£8m There was a net credit impairment writeback of £ 8 million in the half-year to June 2021. There was a net credit impairment charge of £ 164 million in the half-year to June 2020.

Customer accounts

£10.5bn Customer accounts of £ 10.5 billion at 30 June 2021 were £ 0.7 billion higher compared to 31 December 2020.

28 Business Review AIB Group plc Half-Yearly Financial Report 2021

Business review – 1. Operating and financial review

Group

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Half-year Half-year
June 2021 June 2020 %
Group contribution statement € m € m change
Net interest income 45 62 -28
Other income 39 (6) –
Total operating income 84 56 52
Total operating expenses (155) (155) –
Bank levies and regulatory fees (70) (62) 13
Contribution before exceptional items (141) (161) 13
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30 June 31 Dec
2021 2020 %
Group balance sheet metrics € bn € bn change
Gross loans 0.0 0.1 -86
Investment securities 15.3 18.4 -17
Customer accounts 1.5 1.4 4
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Net interest income

€45m Net interest income of € 45 million decreased by € 17 million compared to the half-year to June 2020 reflecting the impact of the lower interest rate environment and lower income on investment securities.

Investment securities

€15.3bn Investment securities of € 15.3 billion primarily held for liquidity purposes decreased by € 3.1 billion from 31 December 2020 due to sales and maturities exceeding purchases.

Other income

€39m Other income increased by € 45 million compared to the half-year to June 2020 driven by net trading income from favourable movements on derivative valuation adjustments (XVA) and foreign exchange contracts, higher net income from equity investments and a gain on disposal of investment securities. The half-year to June 2020 included € 23 million of dividend income on NAMA subordinated bonds, which were redeemed in 2020.

Customer accounts

€1.5bn Customer accounts were € 1.5 billion at the half-year to June 2021 compared to € 1.4 billion at 31 December 2020.

Total operating expenses

€155m Total operating expenses of € 155 million were in line with the half-year to June 2020.

Bank levies and regulatory fees

€70m Bank levies and regulatory fees of € 70 million in the half-year to June 2021 include the Deposit Guarantee Scheme of € 39 million, the Single Resolution Fund € 21 million, and other regulatory levies and charges of € 10 million.

Business Review 29

AIB Group plc Half-Yearly Financial Report 2021

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.
	– _Restructuring costs_reflect the implementation of the Group’s revised strategy (Strategy 2023)
	including costs associated with the exit of a Dublin office location, changes to the Retail network in
	ROI and the exit from the SME market in Great Britain.
	– _Inorganic transaction costs_includes costs associated with the proposed acquisition of
	c. € 4.2 billion of performing Ulster Bank corporate and commercial loans and the creation of a
	joint venture with Great-West Lifeco Inc to provide life, pension and investment solutions.
	– _Loss on disposal of loan portfolios_reflects the loss from the disposals of loan portfolios.
	– _Termination benefits_relate to the cost of the voluntary severance programme.
	– _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.
	– _Other_reflects the writeback of a provision for regulatory fines in the half-year to June 2021. In the
	half-year to June 2020 it included costs relating to the Group’s property strategy.
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 exposures 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)	Profit after tax less AT1 coupons paid, divided by targeted CET1 capital on fully loaded basis.
	Details of the Group’s RoTE is set out in the Capital Section on page 33.
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 profit/(loss) before exceptional items
	• General and administrative expenses • Profit on disposal of property
	• Depreciation, impairment and amortisation • Profit/(loss) before exceptional items
	• Total operating expenses • Total exceptional items
	• Bank levies and regulatory fees

30 Business Review AIB Group plc Half-Yearly Financial Report 2021

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.

IFRS – summary income statement	Half-year June 2021 Half-year June 2020 € m € m	Half-year June 2021 Half-year June 2020 € m € m	Half-year June 2021 Half-year June 2020 € m € m
Net interest income Other income		881 290	967 220
Total operating income Total operatingexpenses		1,171 (989)	1,187 (885)
Operating profit before impairment losses Net credit impairment writeback/(charge)		182 103	302 (1,216)
Operating profit/(loss) Associated undertakings		285 6	(914) 5
Profit/(loss) before taxation Income tax(charge)/credit		291 (17)	(909) 209
Profit/(loss) for the period Adjustments – between IFRS and management performance		274	(700)

Other income of which: exceptional items
Loss on disposal of loan portfolios 12		12 –	–

Total operating expenses of which: bank levies and regulatory fees		71	63
of which: exceptional items
Restitution costs 124		58
Restructuring costs 44		–
Inorganic transaction costs 16		–
Termination benefits 2		6
Covid product costs –		10
Other (7)		179 1	75
Managementperformance – summary income statement	Half-year June 2021 Half-year June 2020 € m € m
Net interest income Other income(1)	881 967 302 220
Total operating income(1) Total operating expenses(1) Bank levies and regulatoryfees(1)	1,183 1,187 (739) (747) (71) (63)
Operating profit before impairment losses and exceptional items(1) Net credit impairment writeback/(charge)	373 377 103 (1,216)
Operating profit/(loss) before exceptional items(1) Associated undertakings	476 (839) 6 5
Profit/(loss) before exceptional items(1) Total exceptional items(1)	482 (834) (191) (75)
Profit/(loss) before taxation Income tax(charge)/credit	291 (909) (17) 209
Profit/(loss) for the period	274 (700)

Business Review 31

AIB Group plc Half-Yearly Financial Report 2021

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 156 of the Group’s Annual Financial Report 2020.

Regulatory capital and capital ratios[(1)]

Regulatory capital and capital ratios(1)
	CRD lV transitional basis 30 June 2021 31 December 2020 € m € m 13,479 13,422 (1,115) (1,115) (158) – (506) (485) (334) (540) 720 796 (21) (22) (1,943) (1,654) (243) (317) (33) (38) (2,360) (2,260) 9,846 10,047 1,115 1,115 1,115 1,115 10,961 11,162 1,500 1,500 22 19 123 131 (123) (131) 1,522 1,519 12,483 12,681 46,318 47,807 378 429 4,303 4,686 137 114 51,136 53,036 % % 19.3 18.9 21.4 21.0 24.4 23.9	CRD lV fully loaded basis
		30 June 2021 31 December 2020 € m € m
Equity Less: Additional Tier 1 Securities Foreseeable charges(2) Regulatory adjustments: Intangible assets Cash flow hedging reserves IFRS 9 CET 1 transitional add-back Pension Deferred tax Calendar provisioning(3) Other	13,479 (1,115) (158) (506) (334) 720 (21) (1,943) (243) (33) (2,360)		13,479 (1,115) (158) (506) (334) – (21) (2,753) (243) (33) (3,890)	13,422 (1,115) –
				(485) (540) – (22) (2,721) (317) (38)
				(4,123)
Total common equity tier 1 capital Additional tier 1 capital Additional Tier 1 issuance Total additional tier 1 capital	9,846 1,115 1,115		8,316 1,115 1,115	8,184
				1,115
				1,115
Total tier 1 capital	10,961		9,431	9,299
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	1,500 22 123 (123) 1,522		1,500 26 123 – 1,649
				1,500 24 131 –
				1,655
Total capital	12,483		11,080	10,954
Risk-weighted assets Credit risk Market risk Operational risk Credit valuation adjustment	46,318 378 4,303 137		45,905 378 4,303 137	47,350 429 4,686 114
Total risk-weighted assets	51,136		50,723	52,579
Common equity tier 1 ratio Tier 1 ratio Total capital ratio	% 19.3 21.4 24.4		% 16.4 18.6 21.8	% 15.6 17.7 20.8

(1)Prepared under the regulatory scope of consolidation.

(2) Article 2 Regulation (EU) No 241/2014 requires a foreseeable charge, being the maximum dividend payout ratio under the Group’s internal dividend policy, to be deducted from equity.

(3) Calendar provisioning is a Supervisory Review and Evaluation Process (“SREP”) recommendation to ensure minimum coverage levels on long term NPE exposures. The difference between the SREP recommended coverage levels and the IFRS 9 ECL coverage is taken as a CET1 deduction.

32 Business Review AIB Group plc Half-Yearly Financial Report 2021

Business review – 2. Capital

Capital requirements

The table below sets out the Group’s capital requirements from 1 July 2021 under Article 104a. In addition any shortfall in AT1 and Tier 2 must be held in CET1. The table does not include Pillar 2 Guidance (“P2G”) which is not publicly disclosed.

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Regulatory Capital Requirements
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CET1 Requirements
Pillar 1	4.50%
Pillar 2 requirement (P2R)	1.69%
Combined buffer requirement	4.00%
Capital Conservation Buffer (CCB)	2.50%
O-SII buffer	1.50%
Countercyclical buffer (CCYB) Impact	–%
CET1 Requirement	10.19%
Pillar 1 AT1/Tier 2	3.50%
P2R AT1/Tier 2	1.31%
Total Capital Requirement	15.00%

The Other Systemically Important Institution (“O-SII”) buffer increased from 1.0% to 1.5% on 1 July 2021.

Capital ratios at 30 June 2021

Fully Loaded Ratio

The fully loaded CET1 ratio increased to 16.4% at 30 June 2021 from 15.6% at 31 December 2020.

The increase of 0.8% is due to a profit after tax of € 0.3 billion (+0.5%) and RWA reductions (+0.6%) partially offset by foreseeable charges in respect of dividends (-0.3%) and a reduction in investment securities (-0.1%).

RWA reductions include increased application of Article 501/501A for SME exposures (+0.1%), Non-Performing Exposure (“NPE”) portfolio sales (+0.1%) and reduced operational risk RWAs (+0.1%). Loans and advances to customers drove the remaining reduction (+0.3%) through business mix, volumes and credit grade movements.

The fully loaded total capital ratio increased to 21.8% from 20.8% at 31 December 2020 primarily due to lower RWAs and the other CET1 movements outlined above.

Transitional Ratio

The transitional CET1 ratio increased to 19.3% at 30 June 2021 from 18.9% at 31 December 2020. The increase is mainly due to the fully loaded movements outlined above partially offset by an additional year’s phasing of the deferred tax asset deduction and further recognition of IFRS 9 provisions recorded in 2020 as per Regulation (EU) 2020/873 (“CRR Quick Fix” in response to the COVID-19 pandemic).

Acquisition of Ulster Bank corporate & commercial loans and Goodbody

Note 45 ‘Proposed acquisitions’ in the condensed consolidated interim financial statements sets out the details on the proposed transactions.

The Group estimates that if the Ulster Bank transaction had completed on 30 June 2021 the increase in the Group’s RWAs would have led to a reduction in CET1 of (c. -1.6%).

When the Goodbody transaction completes it will not materially impact the Group’s CET1 position (c. -0.15%).

Finalisation of Basel III

The Group continues to closely monitor regulatory developments to ensure that the Group maintains a strong capital position. The final Basel III requirements in respect of Counterparty Credit Risk have been implemented as part of CRR2.

Further regulatory developments in respect of the finalisation of Basel III are expected in the near term. Exact implementation details will be confirmed once the finalised requirements are transposed into law (i.e. the CRR is further updated). Initial assessments signal upward pressure on RWAs, mostly in relation to operational risk.

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

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

At 30 June 2021, the Group has an MREL ratio of 31.9% of RWAs.

The Group’s MREL ratio is in excess of the target for 2021 and there is currently sufficient loss absorption and re-capitalisation capability. The Group has now completed issuance of € 6.6 billion MREL eligible liabilities of which € 0.75 billion was issued in the first half of 2021. This provides capacity for some RWA growth through acquisitions.

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.

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.

At 30 June 2021 the transitional total capital ratio increased to 24.4% from 23.9% at 31 December 2020.

Business Review 33

AIB Group plc Half-Yearly Financial Report 2021

Ratings

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

On 13 July 2021, Moody’s upgraded the credit rating by one notch to Baa1 following the publication of their updated Banks Methodology. The Stable outlook was reaffirmed. S&P confirmed their ratings in June 2021.

Long term ratings	Moody’s	3 August 2021 S&P Fitch	3 August 2021 S&P Fitch
Long term	Baa1	BBB-	BBB
Outlook	Stable	Negative	Negative
Investment grade			

Long term ratings	Moody’s	31 December 2020 S&P Fitch
Long term	Baa2	BBB-	BBB
Outlook	Stable	Negative	Negative
Investment grade			

Allied Irish Banks, p.l.c.

Long term ratings	Moody’s	3 August 2021 S&P Fitch	3 August 2021 S&P Fitch
Long term	A2	BBB+	BBB+
Outlook	Stable	Negative	Negative
Investment grade			

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

Return on Tangible Equity (“RoTE”)*

The Group’s medium term financial targets as set out in the Annual Financial Report 2020 included a CET1 fully loaded capital ratio of more than 14% and a RoTE of greater than 8%. The RoTE below is based on these targets.

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30 June 31 December
2021 2020
Return on Tangible Equity (RoTE) € m € m
----- End of picture text -----

Profit/(loss) after tax AT1 couponspaid	274 (741) (33) (76)
Attributable earnings Average RWA RWA x 14% (CET 1 target)	241 (817)
	51,719 7,241 7,320
Return on Tangible Equity	6.7%(1) (11.2)%

RoTE is considered an Alternative Performance Measurement.

(1) Annualised RoTE

Following Board approval in August 2021, the Group is updating its CET1 target to > 13.5% and its RoTE target to > 9%. Applying a CET1 ratio of 13.5%, the proforma RoTE for the six months to 30 June 2021 is 7.0%.

34 Business Review

AIB Group plc Half-Yearly Financial Report 2021

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Risk Management 35

AIB Group plc Half-Yearly Financial Report 2021

Risk management

		Page
Update on risk management and governance		36
Credit risk
–	Overview	37
–	Credit profile of the loan portfolio
	– Analysis of loan portfolio by segment, internal credit ratings and ECL staging	46
	– Internal credit grade profile by ECL staging	49
	– Loans and advances to customers – Residential mortgages	51
	– Loans and advances to customers – Republic of Ireland residential mortgages	53
	– Loans and advances to customers – Asset class by segment	57
	– Gross loans and ECL movements	68
–	Credit ratings	75
–	Large exposures	75
–	Forbearance	76
Funding and liquidity risk		78
Interest rate benchmark reform		82

36 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Update on risk management and governance

The Group has implemented a robust risk management approach to protect its customers and safeguard the Group against the risks identified.

The Group’s Risk Management Framework ensures tools are in place to identify, assess and manage these risks, including emerging risks. The following is 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 2020 on pages 79 to 170.

The Group has followed its established risk management processes during the six months to 30 June 2021. The Group reviewed its principal risks and uncertainties, including the key emerging risk drivers in the second quarter of 2021 and there have been no changes to those set out on pages 50 to 53 in the Annual Financial Report 2020. The Group continues to monitor the principal risks and key emerging risks and is not expecting any significant changes to its principal risks for the remainder of 2021.

These principal risks should not be regarded as a complete and comprehensive statement of all potential risks/uncertainties. Other factors not yet identified, or not currently material, may adversely affect the Group.

Key Risk Developments in the first six months of 2021

Continued impact of COVID-19: The public health restrictions in place during the first six months of 2021 in Ireland and the UK were more severe than had been generally expected. Recognising the increased uncertainty, the Irish and UK Governments announced extensions of the COVID-19 supports. However, the pace of vaccine roll-out has also been faster than was widely anticipated at the end of 2020. The emergence of new variants has increased the risks of further restrictions being introduced or delays to the removal of public health restrictions.

The reduced uncertainty in the economic outlook in Ireland and the UK, due to a number of factors including the successful vaccine roll-out programmes and continued government supports, has driven a stabilisation of the credit profile of the Group’s exposures. The Group’s stress testing process during the first six months of 2021 has continued to incorporate risks related to the possibility of further public health restrictions being imposed, a slower pace of vaccine roll-out and lower efficacy of vaccines. The Group’s capital position remains strong under these various adverse scenarios.

Cyber risk and information security: The Group continues to invest significantly in its cyber security capability to prevent, detect and respond to an evolving cyber threat landscape, and continues to educate customers and staff on actions they can take to prevent cyberattacks. This includes detailed guidance on how to identify and prevent common fraud and threats such as the COVID-19 related scam that continued into 2021 where fraudsters leveraged publicity surrounding COVID-19 to pose as genuine organisations, including bank staff, government and health service officials in an attempt to get customers to disclose personal security credentials. Recognising the strength of wider collective effort in the fight against cyber-crime, the Group has also partnered with other banks across Europe through the Banking & Payments Federation of Ireland and the Cyber Defence Alliance, playing a role in fostering an open, knowledge-based and mutual protection culture that enhances the ability of all participants to protect against cyber threats.

Business model risks: The Group announced its strategy in December 2020 and confirmed a number of transactions during the first six months of the year in line with that strategy as set out in the CEO’s review on pages 4 to 10. Each of these transactions aim to strengthen the Group’s business model, the attainment of the expected benefits requires the successful integration into the Group and the achievement of the financial projections that are expected from these transactions. If the implementation risks are not mitigated successfully, or if financial performance was to deviate materially from expectations, then the business model risk profile of the Group would increase accordingly.

Sustainability and climate change: During the first half of 2021, the Group has updated its qualitative risk appetite statements for business model risk and credit risk, which are two of the Group’s principal risks, in relation to Environmental, Social and Governance (“ESG”) factors. These set out that the Group will take ESG considerations into account when formulating and implementing the Group’s strategy and in material lending decisions in high climate risk sectors.

To support the credit risk appetite the Group has updated its credit sanctioning policies and procedures across different sectors to require greater consideration of ESG factors in the credit process, at origination, particularly in relation to climate change. These have been supported by the development of a sectoral heatmap in order to identify the high climate risk sectors. A new ESG questionnaire has been developed to assist the Group’s credit processes and procedures in identifying and assessing the ESG risk during the lending process. This is being implemented for customers in high climate risk sectors in Ireland and the UK.

Risks for the remainder of 2021: The main risk to the Group’s outlook relates to the strength and sustainability of the recovery as the economy begins to emerge from COVID-19. Other key risks for the remainder of 2021 include the continued threat from cyber criminals, the implementation of the EU-UK Trading and Co-operation Agreement (TCA), the resolution of legacy customer claims and mortgage tracker enforcement proceedings.

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AIB Group plc Half-Yearly Financial Report 2021

Credit risk – Overview

Details on the various aspects of the Group’s credit risk management are outlined on pages 87 to 109 of the Annual Financial Report 2020 with the Group’s accounting policies for financial assets included in note 1 to the consolidated financial statements on pages 243 to 245.

There have been no changes to the Group’s accounting policies for financial assets since 31 December 2020. In determining ECL allowance, the Group keeps under constant review its bases of measurement, methodologies and judgements as outlined on pages 95 to 107 of the Annual Financial Report 2020. There have been no changes to these bases of measurement, methodologies and judgements apart from the following:

Ongoing credit risk management response to COVID-19

The Group has been proactive in terms of its credit risk management response to COVID-19 over the past 16 months, having adapted its credit risk management operating model including its underlying credit processes in response to COVID-19 and enabling the implementation of customer support measures in a streamlined, agile and risk appropriate manner.

The level of uncertainty relating to the impact of COVID-19 on the economy at 30 June 2021 has reduced to that at 31 December 2020 as restrictions on the economy are lifted and the vaccine roll-out continues. It is also noted that reliance on government supports has begun to reduce since 31 December 2020 and while government supports are being withdrawn, the support for sectors deemed high risk is expected to be continued should the reopening of the economy be delayed. Therefore, the risk of a sudden withdrawal of supports is considered unlikely.

Throughout the second half of the year, 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, with sectors believed to be most impacted by COVID-19 (for example, hospitality, non-food retail, travel etc.) being monitored very closely. The enhanced credit management practices which have been in place since the beginning of COVID-19 will continue to ensure that customers are dealt with in a proactive manner with appropriate customer solutions and a timely recognition of risk.

Macroeconomic scenarios and weightings*

The macroeconomic scenarios used by the Group for ECL allowance calculations have been developed in a consistent way with that set out in the Annual Financial Report 2020 and have been subject to the Group’s established governance process.

Macroeconomic scenarios

The key risk to the macroeconomic outlook continues to be the COVID-19 pandemic and associated public health measures and restrictions on economic activity during the reporting period. In order to reflect a reasonable range of possible outcomes as well as the significant uncertainty presented by the public health crisis and associated economic downturn, as at the reporting date, four scenarios have been used in the ECL calculation. These four scenarios consist of a Base case scenario, along with three alternative scenarios (comprising one upside and two downside scenarios considering differing paths for the virus and the consequent economic impacts). Non-linear effects are captured in the development of risk parameters as well as through the inclusion of both the single upside and two downside scenarios.

Base case: The scenario assumes that vaccine roll-out in developed economies continues through the remainder of 2021 and that public health restrictions are materially eliminated.

Economic activity in most economies is expected to gather strength in the second half of 2021 and into 2022. GDP growth returns to longer term trends from 2023 and beyond. In this scenario, economic activity returns to pre-pandemic levels of activity by the second half of 2021 in Ireland (as measured by modified domestic demand) and by the end of 2022 in the UK.

For Irish unemployment, the Group’s approach is to estimate the true underlying rate (i.e. the rate prevailing after the temporary government support schemes have ended). This estimate is within the range provided by the official unemployment rate and the Covid-adjustment unemployment rate published by the Central Statistics Office. In this scenario, unemployment remains relatively high over the coming years, persistently above the 2019 rate out to 2025.

House prices in both Ireland and the UK have continued to grow in the first half of 2021. In this scenario, growth in house prices is maintained out to 2025, at c. 3% p.a. in Ireland and c. 2% p.a. in the UK, while further falls in commercial property prices are expected in Ireland and the UK in 2021 before a rebound from 2022 onwards.

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

38 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Overview

Macroeconomic scenarios and weightings _(continued)*_

Downside 1 (‘Lower growth in 2021’): This scenario reflects a situation with limited recovery in terms of GDP growth in 2021 as extensive public health measures remain in place for a longer period of time than assumed in the Base case. This holds back economic growth in 2021 and the additional scarring effects as a result of this results in growth being between 2.5% and 3% lower, versus the Base case, across the main economies over the 2021-2025 period.

Unemployment is higher in 2021 versus the Base case in both Ireland and the UK and remains higher than in the Base case over the period to 2025.

House prices in both Ireland and the UK fall in 2021 and are c. 5% lower by end-2025 compared to the Base case.

Downside 2 (‘Extended high unemployment’): This scenario reflects a situation where the already high unemployment rate increases in 2022 and only recovers very slowly through to 2025. This is caused by more extensive public health measures than in the ‘Downside 1’ scenario, reducing confidence in an economic recovery which impacts on financial markets and causes a collapse in commodity prices. Precautionary savings continue to rise, while business investment weakens even more. This slows GDP growth significantly over 2021-2023, with cumulative growth over 2021-2025 being c. 6.5% lower than in the Base case for both Ireland and the UK.

Unemployment in Ireland peaks at 14% in 2022 but only slowly reducing to c. 9% in 2025, which is still c. 3 percentage points higher than the Base case. In the UK, unemployment peaks at 9%, reducing to 6% by 2025, which is still 1.7 percentage points higher than the Base case.

House prices in both Ireland and the UK suffer large falls in 2021 and 2022 with prices only picking up slowly from 2024. Under this scenario, house prices are between 21% and 22% lower by end-2025 than under the Base case.

Upside (‘Quick economic recovery’): This scenario reflects a much quicker economic recovery than outlined in the Base case as public health restrictions are removed quicker than expected with confidence returning to consumers and businesses. This results in GDP growing faster than in the Base case over 2021-2023, with Irish GDP c. 3.5% higher in 2025 versus the Base case.

In this scenario, unemployment remains higher than pre-Covid levels in the short term, by 2025 it is close to pre-Covid levels.

Under this scenario, house prices also grow more quickly as demand continues to be robust and by 2025 house prices are c. 7% higher than in the Base case in both Ireland and the UK.

The table below sets out the five year average forecast for each of the key macroeconomic variables that are required to generate the scenarios or are material drivers of the ECL under (i) Base, (ii) Downside 1, (iii) Downside 2 and (iv) Upside scenarios at 30 June 2021 (average over 2021-2025) and at 31 December 2020 (average over 2021-2025). Further detail on the scenarios as at 31 December 2020 can be found in the Annual Financial Report 2020 on pages 100 to 101.

Macroeconomic factor (%)	June 2021 5 year (2021-2025) average forecast Base Downside (‘Lower growth in 2021’) Downside (‘Extended high unemploy- ment’) Upside (‘Quick economic recovery’) 3.7 3.3 2.6 4.5 2.9 1.8 (1.8) 4.4 7.7 9.4 11.4 7.1 1.4 0.5 (2.6) 3.1 2.3 1.8 1.4 2.5 2.2 1.4 0.8 2.9 3.1 2.6 1.9 3.9 2.0 0.9 (2.6) 3.4 5.1 6.3 7.2 4.7 1.4 0.2 (2.9) 2.6	December 2020 5 year (2021-2025) average forecast
		Base Downside (‘Lower growth in 2021’) Downside (‘Extended high unemploy- ment’) Upside (‘Quick economic recovery’)
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		3.7 3.0 2.0 4.4 1.7 0.8 (3.6) 3.4 7.2 8.9 11.9 6.6 1.8 1.1 (3.8) 3.1 2.3 1.9 1.0 2.5 1.8 1.4 1.3 2.5 2.9 2.3 1.1 3.7 1.3 0.4 (4.4) 2.9 5.6 6.8 10.1 4.6 2.2 1.2 (3.9) 3.1

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

Risk Management 39

AIB Group plc Half-Yearly Financial Report 2021

Credit risk – Overview

Macroeconomic scenarios and weightings _(continued)*_

Additional information is provided in the table below which details the individual macroeconomic factor forecast for each year across the four scenarios, at 30 June 2021. This is because, due to the increased variability in the forecasts as the economy begins to emerge from COVID-19, the average for the five years 2021-2025 above does not provide sufficient insight for each factor across the impacted years. Page 102 in the Annual Financial Report 2020 provides the same detail for the 31 December 2020 scenarios.

Macroeconomic factor		30 June 2021
	Base 2021 % 2022 % 2023 % 2024 % 2025 % 3.0 5.5 4.0 3.2 3.0 3.0 3.0 3.0 3.0 2.5 11.0 8.2 6.9 6.3 6.0 (5.0) 5.0 3.0 2.0 2.0 0.4 4.4 2.8 2.1 1.8 (0.5) – 3.5 4.0 4.0 4.5 5.8 2.0 1.7 1.5 1.0 1.0 2.5 3.0 2.5 5.7 5.9 5.1 4.5 4.3 (6.0) 4.0 3.0 3.0 3.0	Downside 1 (‘Lower growth in 2021’)
		2021 % 2022 % 2023 % 2024 % 2025 %
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		0.2 4.5 4.5 4.0 3.2 (1.0) 0.5 3.5 3.0 3.0 12.2 10.6 9.0 7.9 7.3 (7.5) (0.5) 3.5 4.0 3.0 (1.4) 2.9 3.0 2.5 2.1 (2.0) (1.0) 2.5 3.5 3.8 1.7 4.0 3.2 2.2 1.8 (3.0) (1.5) 2.5 3.5 3.0 5.9 7.4 6.5 6.0 5.6 (8.0) (1.0) 3.0 4.0 3.0

Macroeconomic factor	Downside 2 (‘Extended high unemployment’) 2021 % 2022 % 2023 % 2024 % 2025 % (1.0) 3.0 3.5 4.0 3.5 (6.0) (10.0) – 4.0 3.0 13.0 14.0 11.3 9.8 8.9 (10.0) (13.0) 2.0 4.0 4.0 (2.4) (0.1) 4.3 2.9 2.3 (2.5) (2.5) 2.5 3.2 3.3 0.5 2.5 2.3 2.5 1.8 (8.0) (13.0) 1.0 4.0 3.0 6.3 9.5 7.7 6.7 6.0 (9.0) (15.0) 1.5 4.0 4.0	Upside 1 (‘Quick economic recovery’)
		2021 % 2022 % 2023 % 2024 % 2025 %
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		4.0 7.0 4.8 3.5 3.0 7.0 5.0 4.0 3.0 3.0 10.5 7.9 6.4 5.6 5.2 2.0 4.5 3.5 3.0 2.5 1.0 4.2 2.9 2.3 1.9 – 1.5 4.5 4.5 4.2 5.3 7.5 2.8 2.0 1.7 5.0 3.5 3.0 3.0 2.5 5.5 5.3 4.6 4.2 4.0 1.0 3.5 3.0 3.0 2.5

The key changes to the scenario forecasts versus December 2020 are driven by a stronger than expected performance in 2020 for the Irish economy, continuing growth in Irish and UK house prices and the pace and effectiveness of the vaccine roll-out, especially in the UK. Additionally, the longer than expected public health restrictions in place in the first six months of 2021, has resulted in a higher Irish unemployment rate in the scenarios compared to the December 2020 outlook.

The four 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 four scenarios.

The weights for the scenarios are derived based on expert judgement, with reference to external market information where possible. Given the unprecedented nature and impact of COVID-19, the standard quantitative approaches (such as statistical distribution analysis of Irish GDP growth over different time horizons informed by historic patterns in the economic data) used to assess scenario likelihoods are less informative than normal in this environment. As a result, they have not been a key driver of the weightings at the reporting date.

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

40 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Overview

Macroeconomic scenarios and weightings _(continued)*_

The equal weightings between the downside and upside scenarios reflects the Group’s view that risks have become more balanced as uncertainties have reduced. The key drivers for the increased upside weighting at 30 June 2021 are the successful vaccine roll-out, the significant extensions of fiscal supports that have been announced in the first 6 months and the ongoing resilience of a number of key sectors of the Irish economy. The continued significant downside weighting reflects that downside risks remain, including the potential for greater than expected economic scarring, the risk that government supports have only delayed and not prevented defaults and bankruptcies, and the potential that savings built up during the pandemic will be retained rather than spent, impacting on economic growth.

The weights that have been applied as at the reporting date are:

Scenario	Weighting	Weighting
	30 June	31 December
	2021	2020
Base	50%	50%
Downside 1 ('Lower growth in 2021’)	20%	25%
Downside 2 ('Extended high unemployment')	5%	5%
Upside ('Quick economic recovery')	25%	20%

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 four scenarios. Should the credit environment deteriorate beyond the Group’s expectation, the Group’s estimate of ECL would increase accordingly.

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

Risk Management 41

AIB Group plc Half-Yearly Financial Report 2021

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 that include changes in model parameters and quantitative ‘significant increase in credit risk’ (“SICR”) staging assignments.

Relative to the base scenario, in the 100% downside ‘Lower Growth in 2021’ and ‘Extended high unemployment’ scenarios, the ECL allowance increases by 12% and 31% respectively. In the 100% upside scenario, the ECL allowance declines by 5%, showing that the ECL impact in the downside scenarios is greater than that of the upside scenario. For 30 June 2021, a 100% downside ‘Lower Growth in 2021’ and ‘Extended high unemployment’ scenario sees a higher ECL allowance sensitivity of € 256 million and € 657 million respectively compared to base (€ 197 million and € 598 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 2021
	Reported 100% Base 100% Downside Scenario (‘Lower growth in 2021’) 100% Downside Scenario (‘Extended high unemployment’) 100% Upside Scenario (‘Quick economic recovery’) Total Total Total Total Total € m € m € m € m € m
Residential mortgages Other personal Property and construction Non-property business	501 490 526 602 477 232 228 245 272 223 357 345 416 537 291 1,001 973 1,091 1,243 937
Total Off-balance sheet loan commitments Financial guarantee contracts	2,091 2,036 2,278 2,654 1,928 57 54 65 83 50 30 29 32 39 27
Of which: AIB UK segment Loans and advances to customers	2,178 2,119 2,375 2,776 2,005
	288 279 314 347 264
	ECL allowance at 31 December 2020
	Reported 100% Base 100% Downside Scenario (‘Lower growth in 2021’) 100% Downside Scenario (‘Extended high unemployment’) 100% Upside Scenario (‘Quick economic recovery’) Total Total Total Total Total € m € m € m € m € m
Residential mortgages Other personal Property and construction Non-property business	843 832 869 990 804 234 229 245 271 223 396 383 444 529 337 1,037 1,011 1,113 1,257 950
Total Off-balance sheet loan commitments Financial guarantee contracts	2,510 2,455 2,671 3,047 2,314 54 51 62 82 45 29 28 31 39 25
Of which: AIB UK segment	2,593 2,534 2,764 3,168 2,384
	306 294 347 424 252

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

42 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Overview

Management judgements*

The Group reflects reasonable and supportable information that is available at the reporting date, in 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 into modelled outcomes. Experienced credit judgement may be used to determine the particular attributes of exposures that have not been adequately captured in the impairment models. Adjustments are required to be directionally consistent with forward looking forecasts, supported by appropriate documentation and subject to appropriate governance processes. If an ongoing adjustment is required, the risk measurement methodology should be updated to eliminate the adjustment, and as such, should be short term in nature, where appropriate.

As set out below certain post model adjustments applied at 31 December 2020 are no longer required at 30 June 2021 as the appropriate ECL is now reflected in the modelled outcomes following updated model inputs and the review of certain loans through the credit grading process. Furthermore new and enhanced management adjustments have been applied at 30 June 2021 as the modelled ECL did not reflect all of the underlying credit risk at that date.

The ECL allowance on loans and advances to customers at 30 June 2021 includes the following management adjustments as outlined below:

1. Mortgage post model adjustments – Loss given default incorporating alternative recovery strategies

The Group’s preferred strategy is to deliver sustainable long term solutions and to work with customers through their financial difficulties, achieved through different workout arrangements including arrears capitalisations, split mortgages, voluntary sale for loss, and negative equity trade down or through loan recovery following realisation of collateral.

However, the Group’s NPE reduction strategy has resulted in portfolio sales being a more likely outcome for NPE cohorts that are difficult to resolve through business as usual strategies.

The mortgage LGD model is based on empirical internal data assuming business as usual resolution. Given that the model does not account for portfolio sale outcomes, post model adjustments have been applied to reflect the potential outcomes, pending model redevelopment.

The post model adjustments are calculated based on a range of alternative recovery assumptions. 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, underlying market conditions and outcome of loan sales. The changed impact of certain macro factors (e.g. House Price Index) as a result of these recovery strategies, on both the performing and non-performing mortgages portfolio has also been considered.

Cohorts of loans have been identified which due to their current characteristics are likely to form part of future loans sales or other alternative recovery strategies not currently considered within the model. Such loans include primary dwelling house (PDH) loans in Stage 3 in deep arrears (i.e. greater than 180 days past due) and certain residential mortgage loans displaying zero or low days past due that will remain classified as non-performing.

The Mortgage ECL allowance of € 490 million for residential mortgages in ROI at 30 June 2021 includes € 254 million as a result of this management adjustment. At 31 December 2020, the ECL allowance of € 816 million included a management adjustment of € 433 million, with the reduction attributable to portfolio sales in the period.

2. Mortgage model employment growth post model adjustment

A review of the mortgage model ECL at 30 June 2021 identified that the year-on-year employment growth rate parameter, on this date, had a temporary spike resulting in a reduction of the ECL allowance. This temporary spike will reverse in the second half of 2021 as year-on-year employment levels are not as impacted by COVID-19 compared to the position at 30 June 2021. As a result, a post model adjustment of € 12 million has been applied to offset the impact of this parameter at 30 June 2021.

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

Risk Management 43

AIB Group plc Half-Yearly Financial Report 2021

Credit risk – Overview

Management judgements _(continued)*_

3. Lifetime interest only post model adjustment

As previously reported, a cohort of non-defaulted lifetime interest only mortgages were identified for individual assessment to confirm likeliness to pay. At 30 June 2021, the assessment for € 68 million of this cohort is pending and as a result these have been allocated to Stage 2 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. As a result, at 30 June 2021 a post model adjustment of € 3 million has increased the modelled ECL allowance (31 December 2020: € 77 million and € 9 million respectively).

4. COVID-19 government supports post model adjustment

A review of the performing Retail-ROI Mortgage, Personal and SME portfolios identified that where the borrower is in ongoing receipt of COVID-19 government payment supports[(1)] there is a heightened risk of downward stage migration and unlikeliness to pay following withdrawal of these government supports. This is not currently reflected within the customers’ credit grade or the probability of default assigned within the ECL model.

As a result, an ECL post model adjustment is required to reflect this heightened risk and results in an additional ECL allowance of € 89 million at 30 June 2021. This is split across Retail-ROI Mortgages € 27 million, Personal € 19 million and SME € 43 million (relating to € 1,238 million of Stage 1 ROI Mortgages, € 142 million of Stage 1 Personal and € 425 million of SME (Stage 1 € 300 million, Stage 2 € 125 million respectively)).

This post model adjustment supersedes the Retail element of the COVID-19 Modification Expiry post model adjustment at 31 December 2020 which focused on borrowers previously in receipt of COVID-19 payment breaks which amounted to € 48 million (ROI Mortgages: € 11 million, Personal: € 5 million, SME: € 32 million).

(1)(Mortgage/Personal: Pandemic Unemployment Payment (PUP)/Business: Employee Wage Subsidy Scheme (EWSS)).

5. Property and construction portfolio post model adjustment

A review of the ECL model for the Property and Construction portfolio in ROI 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 indicated 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 € 465 million should be retained in Stage 1. At 30 June 2021 this results in a € 4 million reduction in ECL. At 31 December 2020, a similar adjustment was required where certain cases amounting to € 519 million were retained in Stage 1 which resulted in a € 9 million ECL reduction.

6. CIB non-property portfolio post model adjustment

A review of the ECL model for the CIB non-property portfolio determined that the observed reduction in the modelled probability of default at 30 June 2021 needed to be revised.

Expert credit judgement considered it appropriate that the probability of default should be increased for a cohort of Stage 2 loans to customers operating in sectors highly impacted by COVID-19 (e.g. hospitality). As a result, a post model adjustment of € 68 million has increased the ECL allowance to € 200 million on € 910 million of loans at 30 June 2021.

In addition, € 220 million of loans were retained in Stage 2 despite a lower modelled probability of default as expert credit judgement determined that a significant increase in credit risk since origination had not reversed sufficiently for the loans to be classified as Stage 1. As a result, a post model adjustment of € 3 million has increased the ECL allowance to € 8 million.

At 31 December 2020, a post model adjustment was required due to the COVID-19 impact within the CIB SME portfolio which increased the ECL allowance by € 28 million. This post model adjustment is not required, at 30 June 2021, as the modelled ECL outcomes now reflect the underlying risks following focused case reviews in the period.

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

44 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Overview

Management judgements _(continued)*_

7. Syndicated lending portfolio post model adjustment

It was previously determined that historically observed relationships between default rates and macroeconomic factors in the modelled probabilities of default needs to be revised for this portfolio.

The requirement for this adjustment remains at 30 June 2021 and expert credit judgement has determined that modelled probabilities of default should be increased thus increasing ECL cover for both Stage 1 and Stage 2 assets.

The post model adjustment of € 51 million at 30 June 2021 increases the total ECL allowance, on the SIF portfolio, to € 133 million (31 December 2020: € 63 million was applied to increase the ECL allowance to € 144 million).

8. UK management post model adjustment

The Group has identified that a post model adjustment of £ 16 million is required for the AIB UK Segment at 30 June 2021 (£ 95 million at 31 December 2020).

This includes an £ 11 million adjustment (£ 18 million at 31 December 2020) to reflect a minimum LGD floor being applied to £ 534 million of Stage 3 loans (£ 451 million at 31 December 2020).

Included in the 31 December 2020 PMA of £ 95 million was £ 73 million relating to a requirement to align modelled outcomes for Stage 1 and Stage 2 loans to expected credit losses derived from an agreed consensus forecast that includes the impact of COVID-19 restrictions on the macroeconomic environment. At 30 June 2021, this requirement has reduced to £ 2 million as the modelled ECL outcomes substantially reflect the underlying risks.

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 the first half of 2021 were:

Model Risk Committee;
Asset and Liability Committee;
Business level ECL Committees;
Group Credit Committee; and
Board Audit Committee.

For ECL governance, the Group’s senior management employs its expert judgement on the adequacy of ECL allowance. 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 as the final approval authority.

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

Risk Management 45

AIB Group plc Half-Yearly Financial Report 2021

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 2021*	30 June 2021*		31 December 2020*	31 December 2020*	Half-year June 2020*
	Exposure € m 39,008 61 4,022	Statement of financial position		Exposure € m 25,550 43 1,799		Statement of financial position	Income statement
		ECL allowance € m	Carrying amount € m		ECL allowance € m	Carrying amount € 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 Securities borrowing – customers Investment debt securities(1)		– – –	39,008 61 4,022		– – – (2,510) n/a (2,510) – (1)	25,550 43 1,799	– – –
	58,447 256	(2,091) n/a	56,356 256	59,380 75	(2,510) n/a	56,870 75	(1,168) n/a
	58,703 760 16,270 13,326 701	(2,091) – (1)	56,612 760 16,269	59,455 – 19,279 12,504 722		56,945 – 19,278	(1,168) – (1) (37) (10)
Loan commitments		(57)	(57)		(54)	(54)
Financial guarantee contracts Total		(30)	(30)		(29)	(29)
							(1,216)

(1) ECL allowance amounting to € 3 million (31 December 2020: € 3 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 € 103 million net credit impairment writeback in the six months to 30 June 2021 (30 June 2020: € 1,216 million charge). This comprised of a € 106 million writeback on loans and advances to customers (net re-measurement of ECL allowance writeback of € 70 million and recoveries of amounts previously written-off of € 36 million) and a € 3 million charge for off-balance sheet exposures ((30 June 2020: € 1,168 million charge (net re-measurement charge € 1,202 million and recoveries € 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 writeback in the six months to 30 June 2021, see ‘Net credit impairment writeback/(charge)’ (note 11).

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

46 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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 Gross carrying amount
	Retail Banking € m	CIB € m	AIB UK € m	Group € m
Residential mortgages Other personal Property and construction Non-propertybusiness	27,892 2,468 680 3,266	578 40 4,435 10,144	1,147 119 2,116 5,543	– 1 – 18
Total Analysed by internal credit ratings(1)	34,306	15,197	8,925	19

Strong Satisfactory	22,120 7,701	8,213 4,603	4,602 2,820	5 14	34,940 15,138
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	29,821	12,816	7,422	19
	1,520 544	687 1,116	358 520	– –	2,565 2,180
	2,064 2,421	1,803 578	878 625	– –
Gross carrying amount Analysed by ECL staging	34,306	15,197	8,925	19

Stage 1 Stage 2 Stage 3 POCI	29,558 2,326 2,260 162	10,813 3,886 498 –	6,735 1,565 625 –	19 – – –
Total 34,306 ECL allowance – statement of financialposition	34,306	15,197	8,925	19

Stage 1 Stage 2 Stage 3 POCI	162 152 753 50	81 502 121 –	42 125 103 –	– – – –
Total ECL allowance coverpercentage	1,117	704	270	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	0.5 6.5 33.3 30.8	0.7 12.9 24.4 –	0.6 8.0 16.4 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amountspreviouslywritten-off	(18) (34)	(39) (1)
Net credit impairment (writeback)/charge	(52)	(40)
	%	%
Net credit impairment (writeback)/charge on average loans – annualised	(0.08)	(0.13)

(1) Further analysis of internal credit grade profile by ECL staging is set out on pages 49 and 50. Further details on the internal credit ratings are outlined on pages 90 and 91 of the Annual Financial Report 2020.

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

Risk Management 47

AIB Group plc Half-Yearly Financial Report 2021

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

FVTPL
Carrying amount				30 June 2021 Group Total € m € m – 256 – 256 – 75 – – – 75 – – – – – – – 181 – 256*				31 December 2020*
	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	–	256	–	–		–	75	–	–	75
Total Analysed by internal credit ratings	–	256	–	–		–	75	–	–	75

Strong Satisfactory	– –	75 –	– –	– –	75 –	– –	75 –	– –	– –	75 –
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	–	75	–	–		–	75	–	–	75
	– –	– –	– –	– –	– –	– –	– –	– –	– –	– –
	– –	– 181	– –	– –		– –	– –	– –	– –	– –
Total	–	256	–	–		–	75	–	–	75

Gross loans and advances to customers

Gross loans and advances to customers decreased by € 0.8 billion in the six months to 30 June 2021. Of the total portfolio of € 58.7 billion, € 58.4 billion is measured at amortised cost with the remaining € 0.3 billion being measured at FVTPL. The € 0.2 billion increase in loans measured at FVTPL relates to two defaulted customers whose loans were reclassified in the period following a restructure and changes to the terms and conditions relating to these loans. The reduction in the period was largely due to the non-performing mortgage portfolio sales which resulted in a € 0.6 billion reduction in non-performing loans. Overall, from a segment perspective, Retail Banking decreased by € 1.2 billion, however, this was offset by increases in CIB and AIB UK of € 0.2 billion and € 0.4 billion respectively. The level of new lending activity in the six months to 30 June 2021 of € 4.5 billion continues to be impacted by COVID-19. New lending activity remains lower than pre-pandemic levels (30 June 2019: € 6.0 billion), however, there was a € 0.1 billion increase versus the comparable period last year (30 June 2020: € 4.4 billion). New lending activity across the Business segments was in line with the same period last year with the slight increase driven by CIB.

Of the total loans to customers of € 58.7 billion, € 50.2 billion or 85% are rated as either ‘strong’ or ‘satisfactory’ which is a slight decrease of € 0.3 billion (31 December 2020: € 50.5 billion or 85%), primarily evidenced across Retail Banking. The ‘criticised’ classification includes ‘criticised watch’ of € 2.5 billion and ‘criticised recovery’ of € 2.2 billion, the total of which has increased by € 0.1 billion in the six months to 30 June 2021. The ‘criticised recovery’ portfolio increased by € 1.2 billion which was predominately driven by increased levels of customers in receipt of forbearance arrangements migrating from ‘criticised watch’. The total performing book has decreased by € 0.2 billion to € 54.9 billion or 94% of gross loans and advances to customers (31 December 2020: € 55.1 billion and 93%).

Despite the ongoing impact regarding the COVID-19 pandemic, the credit quality of the total portfolio has improved in the period. Stage 2 loans have decreased by € 1.6 billion to € 7.8 billion as Stage 1 loans increased by € 1.4 billion to € 47.1 billion. The reduction in Stage 2 loans was driven by the non-property portfolio which decreased by € 0.7 billion, while both the mortgage and property portfolios reduced by € 0.4 billion. Redemptions/repayments net of interest credited accounted for € 1.2 billion and net stage transfers from Stage 2 to Stage 1 resulted in a € 0.4 billion reduction.

Stage 3 loans have decreased by € 0.7 billion to € 3.4 billion. The decrease was primarily due to the mortgage portfolio sales completed in the period which accounted for € 0.6 billion. Net transfers to Stage 3 accounted for € 0.4 billion and were slightly offset by redemptions/ repayments net of interest credited of € 0.2 billion. Transfers to Stage 3 in the period predominately related to the non-property portfolio as a result of cases in this sector directly impacted by COVID-19.

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

48 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Credit profile of the loan portfolio

Non-performing loans

Total Group non-performing loans have decreased by € 0.5 billion to € 3.8 billion or 6.5% of total gross loans and advances to customers (31 December 2020: € 4.3 billion and 7.3%). The decrease reflects the non-performing mortgage portfolio sales completed in the period (€ 0.6 billion) offset by a net underlying increase to non-performing loans. The total Group non-performing portfolio consists of € 3.6 billion in loans and advances to customers measured at amortised cost together with € 0.2 billion of loans measured at FVTPL.

ECL allowance

The ECL allowance on loans and advances to customers has decreased by € 0.4 billion to € 2.1 billion in the six months to 30 June 2021. The reduction was predominately due to the non-performing mortgage portfolio sales as Stage 3 ECL allowance decreased by € 0.3 billion. The total ECL cover rate has decreased from 4.2% at 31 December 2020 to 3.6% at 30 June 2021.

Income Statement

There was a € 106 million net credit impairment writeback in the six months to 30 June 2021 which comprised a net re-measurement of ECL allowance writeback of € 70 million and recoveries of amounts previously written-off of € 36 million (30 June 2020: € 1,168 million charge comprising € 1,202 million charge offset by € 34 million of recoveries).

There were three components which contributed to the net re-measurement of ECL allowance writeback of € 70 million.

There was a € 91 million writeback comprising of a € 124 million ECL writeback occurring within stage, driven by loans fully repaid, reflecting overall improvements in credit quality and a charge of € 33 million due to net stage movements.

On review of ECL writebacks driven by improved credit quality and the impact of updated macroeconomic scenarios and weightings, it was considered that new and enhanced post model adjustments are required at 30 June 2021 to mitigate latent risk. The net impact of these updates is a € 36 million increase in ECL due to post model adjustments. Further details are outlined under the management judgements section on pages 42 to 44.

Updated macroeconomic scenarios and weightings applied at 30 June 2021 resulted in a € 15 million writeback.

Further details on the ECL allowance movements are outlined on page 69.

Recoveries of amounts previously written-off of € 36 million (30 June 2020: € 34 million) included € 27 million recoveries (30 June 2020: € 25 million) which reflects cash recoveries against legacy non-performing exposures in line with the Group’s resolution strategies. The remaining € 9 million (30 June 2020: € 9 million) relates to interest received as a result of loans curing from Stage 3.

Risk Management 49

AIB Group plc Half-Yearly Financial Report 2021

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 2021 POCI Total € m € m 4 34,940 3 15,138 7 50,078 2 2,565 2 2,180 4 4,745 151 3,624 162 58,447 (50) (2,091) 112 56,356 4 21,181 3 5,548 7 26,729 2 1,011 2 414 4 1,425 151 1,463 162 29,617 (50) (501) 112 29,116 – 1,266 – 966 – 2,232 – 122 – 32 – 154 – 242 – 2,628 – (232) – 2,396 – 3,907 – 2,117 – 6,024 – 198 – 273 – 471 – 736 – 7,231 – (357) – 6,874*	30 June 2021 POCI Total € m € m 4 34,940 3 15,138 7 50,078 2 2,565 2 2,180 4 4,745 151 3,624 162 58,447 (50) (2,091) 112 56,356 4 21,181 3 5,548 7 26,729 2 1,011 2 414 4 1,425 151 1,463 162 29,617 (50) (501) 112 29,116 – 1,266 – 966 – 2,232 – 122 – 32 – 154 – 242 – 2,628 – (232) – 2,396 – 3,907 – 2,117 – 6,024 – 198 – 273 – 471 – 736 – 7,231 – (357) – 6,874*				31 December 2020*	31 December 2020*
	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
	34,101 12,098	835 3,037	– –	4 3	34,940 15,138	35,341 9,411	1,257 4,384	– –	5 1	36,603 13,796
	46,199	3,872	–	7		44,752	5,641	–	6	50,399
	818 18	1,745 2,160	– –	2 2	2,565 2,180	834 27	2,814 953	– –	2 2	3,650 982
	836 90	3,905 –	– 3,383	4 151		861 100	3,767 –	– 4,075	4 174	4,632 4,349
Gross carrying amount ECL allowance	47,125 (285)	7,777 (779)	3,383 (977)	162 (50)		45,713 (281)	9,408 (845)	4,075 (1,315)	184 (69)	59,380 (2,510)
Carrying amount Analysis by asset class Residential mortgages Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	46,840	6,998	2,406	112		45,432	8,563	2,760	115	56,870

	20,965 5,206	212 339	– –	4 3	21,181 5,548	23,478 2,654	318 574	– –	5 1	23,801 3,229
	26,171	551	–	7		26,132	892	–	6	27,030
	440 7	569 405	– –	2 2	1,011 414	395 6	602 456	– –	2 2	999 464
	447 1	974 –	– 1,311	4 151		401 2	1,058 –	– 1,980	4 174	1,463 2,156
Gross carrying amount ECL allowance	26,619 (50)	1,525 (44)	1,311 (357)	162 (50)		26,535 (39)	1,950 (73)	1,980 (662)	184 (69)	30,649 (843)
Carrying amount Other personal Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	26,569	1,481	954	112		26,496	1,877	1,318	115	29,806

	1,229 847	37 119	– –	– –	1,266 966	1,243 885	51 154	– –	– –	1,294 1,039
	2,076	156	–	–		2,128	205	–	–	2,333
	58 1	64 31	– –	– –	122 32	70 2	84 43	– –	– –	154 45
	59 –	95 –	– 242	– –		72 1	127 –	– 233	– –	199 234
Gross carrying amount ECL allowance	2,135 (48)	251 (36)	242 (148)	– –		2,201 (41)	332 (51)	233 (142)	– –	2,766 (234)
Carrying amount Property and construction Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	2,087	215	94	–		2,160	281	91	–	2,532

	3,482 1,328	425 789	– –	– –	3,907 2,117	2,981 1,175	757 924	– –	– –	3,738 2,099
	4,810	1,214	–	–		4,156	1,681	–	–	5,837
	49 1	149 272	– –	– –	198 273	71 2	317 78	– –	– –	388 80
	50 84	421 –	– 652	– –		73 90	395 –	– 865	– –	468 955
Gross carrying amount ECL allowance	4,944 (65)	1,635 (128)	652 (164)	– –		4,319 (75)	2,076 (133)	865 (188)	– –	7,260 (396)
Carrying amount	4,879	1,507	488	–		4,244	1,943	677	–	6,864

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

50 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Credit profile of the loan portfolio

Internal credit grade profile by ECL staging (continued)

				30 June 2021 POCI Total € m € m – 8,586 – 6,507 – 15,093 – 1,234 – 1,461 – 2,695 – 1,183 – 18,971 – (1,001) – 17,970*				31 December 2020*	31 December 2020*
	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	8,425 4,717 13,142 271 9 280 5	161 1,790 1,951 963 1,452 2,415 –	– – – – – – 1,178	– – – – – – –	7,639 4,697 12,336 298 17 315 7	131 2,732 2,863 1,811 376 2,187 –	– – – – – – 997	– – – – – – –
									7,770 7,429
									15,199
									2,109 393
									2,502 1,004
Gross carrying amount ECL allowance	13,427 (122)	4,366 (571)	1,178 (308)	– –	12,658 (126)	5,050 (588)	997 (323)	– –	18,705 (1,037)
Carrying amount	13,305	3,795	870	–	12,532	4,462	674	–	17,668

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

Risk Management 51

AIB Group plc Half-Yearly Financial Report 2021

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

Loans and advances to customers – Residential mortgages

Residential mortgages amounted to € 29.6 billion at 30 June 2021, with the majority (96%) relating to residential mortgages in the Republic of Ireland and the remainder relating to the United Kingdom. This compares to € 30.6 billion at 31 December 2020, of which 96% related to residential mortgages in the Republic of Ireland. The split of the residential mortgage portfolio was owner-occupier € 27.6 billion and buy-to-let € 2.0 billion (31 December 2020: owner-occupier € 28.5 billion and buy-to-let € 2.1 billion).

The continued impact of COVID-19 on employment levels, mitigated by Government income support schemes, will become clearer as these supports are gradually withdrawn and businesses continue to re-open.

Income statement

There was a € 37 million net credit impairment writeback in the six months to 30 June 2021 compared to a € 279 million charge in the same period in 2020. This was driven by a net re-measurement of ECL allowance writeback of € 24 million and by recoveries of previously written-off loans of € 13 million.

There were three components which contributed to the net re-measurement of ECL allowance writeback of € 24 million.

There was a € 37 million writeback comprising of a € 45 million ECL writeback occurring within stage due to improved credit quality and a charge of € 8 million due to net stage movements.

On review of ECL writebacks driven by improved credit quality and the impact of updated macroeconomic scenarios and weightings, it was considered that new and enhanced post model adjustments are required at 30 June 2021 to mitigate latent risk. The net impact of these updates is a € 50 million increase in ECL due to post model adjustments. Further details regarding new/enhancements to post model adjustments are outlined under the management judgements section on pages 42 to 44.

Updated macroeconomic scenarios and weightings applied at 30 June 2021 resulted in a writeback of € 37 million.

At 30 June 2021, the ECL allowance for the Group’s residential mortgages portfolio totalled € 0.5 billion, or 1.7% total cover rate.

Residential mortgages – page 52

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

Republic of Ireland residential mortgages – pages 53 and 54

By ECL staging
Actual and weighted average indexed loan-to-value ratios by 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.

52 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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

Loans and advances to customers – Residential mortgages (continued)

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	26,150 1,742	440 138	1,065 82	– –
Total Analysed by internal credit ratings	27,892	578	1,147	–

Strong Satisfactory	20,157 4,987	360 196	664 365	– –	21,181 5,548
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	25,144	556	1,029	–
	946 398	13 5	52 11	– –	1,011 414
	1,344 1,404	18 4	63 55	– –
Gross carrying amount Analysed by ECL staging	27,892	578	1,147	–

Stage 1 Stage 2 Stage 3 POCI	25,038 1,440 1,252 162	531 43 4 –	1,050 42 55 –	– – – –
Total 27,892 ECL allowance – statement of financial position	27,892	578	1,147	–

Stage 1 Stage 2 Stage 3 POCI	48 40 350 50	– 2 – –	2 2 7 –	– – – –
Total ECL allowance cover percentage	488	2	11	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	0.2 2.8 28.0 30.8	– 3.2 – –	0.1 6.1 12.8 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off	(15) (12)	(4) –
Net credit impairment (writeback)/charge	(27)	(4)
	%	%
Net credit impairment (writeback)/charge on average loans – annualised	(0.05)	(0.34)

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

Risk Management 53

AIB Group plc Half-Yearly Financial Report 2021

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

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

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

	30 June 2021 Owner- occupier Buy-to-let Total € m € m € m 26,590 1,880 28,470 24,155 1,414 25,569 1,243 240 1,483 1,035 221 1,256 157 5 162 26,590 1,880 28,470 45 3 48 31 11 42 289 61 350 47 3 50 412 78 490 26,178 1,802 27,980 % % % 0.2 0.2 0.2 2.5 4.3 2.8 28.0 27.5 27.9 30.0 53.1 30.8 Half-year to 30 June 2021 € m € m € m 3 (22) (19) (9) (3) (12) (6) (25) (31) % % % (0.01) (0.64) (0.05)**	31 December 2020*
		Owner- occupier Buy-to-let Total € m € m € m
Gross carrying amount Analysed as to ECL staging		27,503 2,056 29,559

Stage 1 Stage 2 Stage 3 POCI		24,082 1,495 25,577 1,611 284 1,895 1,631 272 1,903 179 5 184
Total ECL allowance – statement of financial position		27,503 2,056 29,559

Stage 1 Stage 2 Stage 3 POCI		29 6 35 51 20 71 553 88 641 66 3 69
Total Republic of Ireland residential mortgages at amortised cost ECL allowance cover percentage		699 117 816
		26,804 1,939 28,743
		% % %
Stage 1 Stage 2 Stage 3 POCI		0.1 0.4 0.1 3.1 7.1 3.7 33.9 32.5 33.7 37.0 56.0 37.5
Income statement		Half-year to 30 June 2020*
		€ m € m € m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off		243 29 272 (11) (3) (14)
Net credit impairment (writeback)/charge		232 26 258
		% % %
Net credit impairment (writeback)/charge on average loans – annualised		1.67 2.27 1.72

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

54 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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 € 28.5 billion at 30 June 2021 compared to € 29.6 billion at 31 December 2020.

The decrease in the portfolio was primarily due to the non-performing mortgage portfolio sales (€ 0.6 billion) and redemptions/repayments of € 1.6 billion exceeding new lending of € 1.1 billion (30 June 2020: € 1.1 billion) for the six months to 30 June 2021. For new lending to 30 June 2021, 98% was to owner-occupiers, whilst the weighted average indexed loan-to-value for new residential mortgages was 66% (31 December 20: 69%). The weighted average indexed loan-to-value of the stock of residential mortgages at 30 June 2021 was 54% (31 December 2020: 57%) and Stage 3 residential mortgages was 58% (31 December 2020: 61%).

The split of the Irish residential mortgage portfolio is 93% owner-occupier and 7% buy-to-let and comprises 23% tracker rate, 42% variable rate and 35% fixed rate mortgages.

Non-performing loans decreased from € 2.1 billion at 31 December 2020 to € 1.4 billion at 30 June 2021, primarily due to the non-performing mortgage portfolio sales.

Income statement

There was a net credit impairment writeback of € 31 million to the income statement for the six months to 30 June 2021 compared to a net credit impairment charge of € 258 million in the same period in 2020.

The net re-measurement of ECL allowance writeback of € 19 million was driven by improvements in the grade profiles within stage and ECL release associated with redemptions. The charges associated with the new/enhanced post model adjustments were largely offset by writebacks due to the revised macroeconomic scenarios and weightings assumptions. In addition, the Group also recovered € 12 million on loans previously written-off.

The ECL allowance provision cover level at 30 June 2021 for the Irish residential mortgage portfolio is 1.7% (31 December 2020: 2.8%). For the Stage 3 element of the Irish residential mortgage portfolio, € 0.4 billion of ECLs are held providing Stage 3 cover of 28% (31 December 2020: € 0.6 billion and 34% respectively).

Residential mortgage arrears

Total loans in arrears (including non-performing loans) by value decreased by 52% during the six months to 30 June 2021, a decrease of 56% in the owner-occupier portfolio and a decrease of 29% in the buy-to-let portfolio. The reduction in arrears was also due to the non-performing mortgage portfolio sales.

The number of loans in arrears (based on number of accounts) greater than 90 days was 2.3% at 30 June 2021 and remains below the industry average of 6.1%[(1)] . For the owner-occupier portfolio, the number of loans in arrears greater than 90 days at 2.0% were below the industry average of 5.2%[(1)] . For the buy-to-let portfolio, loans in arrears greater than 90 days at 6.0% were below the industry average of 12.7%[(1)] .

(1) Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and Repossessions Statistics as at 31 March 2021, based on numbers of accounts.

Forbearance

Details of forbearance measures are set out on pages 76 and 77.

Risk Management 55

AIB Group plc Half-Yearly Financial Report 2021

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:

	30 June 2021 At amortised cost Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m 25,564 1,452 732 149 27,897 5 23 21 1 50 – 6 15 – 21 – 2 6 – 8 – – 54 2 56 – – 62 1 63 – – 366 9 375 25,569 1,483 1,256 162 28,470 (48) (42) (350) (50) (490) 25,521 1,441 906 112 27,980 24,151 1,218 626 146 26,141 4 17 18 1 40 – 6 12 – 18 – 2 5 – 7 – – 45 2 47 – – 58 1 59 – – 271 7 278 24,155 1,243 1,035 157 26,590	31 December 2020
		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		25,575 1,852 779 155 28,361 2 21 22 1 46 – 19 27 2 48 – 3 8 – 11 – – 39 1 40 – – 114 4 118 – – 914 21 935
Total gross carrying amount of residential mortgages ECL allowance		25,577 1,895 1,903 184 29,559 (35) (71) (641) (69) (816)
Carrying value Of which: Owner-occupier Not past due 1 - 30 days 31 - 60 days 61 - 90 days 91 - 180 days 181 - 365 days Over 365 days		25,542 1,824 1,262 115 28,743
		24,080 1,574 674 151 26,479 2 17 16 1 36 – 17 26 2 45 – 3 6 – 9 – – 35 1 36 – – 83 4 87 – – 791 20 811
Total		24,082 1,611 1,631 179 27,503

56 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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 2021 Stock Balance outstanding € m 128 24 11 4 139 28	31 December 2020
		Stock Balance outstanding € m
Owner-occupier Buy-to-let		432 100 16 3
Total		448 103

(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 309 properties in the six months to 30 June 2021 (31 December 2020: 67 properties). The overall decrease relates mainly to the non-performing portfolio sales of 284 properties (31 December 2020: 93 properties) and a further 36 properties disposed of in the six months to 30 June 2021 (31 December 2020: 13 properties). This was offset by the addition of 11 properties (31 December 2020: 39 properties), the majority of which were voluntary surrenders or abandonments.

The disposal of 36 residential properties in the Republic of Ireland resulted in a total loss on disposal of € 1 million at 30 June 2021 (before ECL allowance) and compares to 31 December 2020 when 93 residential properties were disposed of resulting in a total loss of € 7 million. COVID-19 continues to impact the closing of sales in 2021. Losses on the sale of such properties are recognised in the income statement as part of the net credit impairment losses.

Risk Management 57

AIB Group plc Half-Yearly Financial Report 2021

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	511 1,957	5 35	23 96	– 1
Total Analysed by internal credit ratings	2,468	40	119	1

Strong Satisfactory	1,172 914	16 17	78 34	– 1	1,266 966
Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing	2,086	33	112	1
	117 29	2 3	3 –	– –	122 32
	146 236	5 2	3 4	– –
Gross carrying amount Analysed by ECL staging	2,468	40	119	1

Stage 1 Stage 2 Stage 3 POCI	1,996 236 236 –	28 10 2 –	110 5 4 –	1 – – –
Total 2,468 ECL allowance – statement of financial position	2,468	40	119	1

Stage 1 Stage 2 Stage 3 POCI	48 35 145 –	– 1 1 –	– – 2 –	– – – –
Total ECL allowance cover percentage	228	2	2	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	2.4 14.8 61.4 –	– 5.9 50.8 –	– – 47.8 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off	9 (8)	(1) –
Net credit impairment charge/(writeback)	1	(1)
	%	%
Net credit impairment charge/(writeback) on average loans – annualised	0.02	(0.93)

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

58 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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

Loans and advances to customers – Other personal (continued)

At 30 June 2021, the other personal lending portfolio of € 2.6 billion comprises € 2.1 billion in loans and overdrafts and € 0.5 billion in credit card facilities (31 December 2020: total € 2.8 billion and € 2.2 billion and € 0.6 billion respectively). Despite the impact of COVID-19, the credit quality of the portfolio has remained stable during the period, with 15% categorised as less than satisfactory, of which defaulted loans amounted to € 0.2 billion. (31 December 2020: 16% and € 0.2 billion).

New lending totalled € 0.4 billion for the six months to 30 June 2021 (30 June 2020: € 0.4 billion). However, the demand for personal loans, which accounts for the largest portion of the portfolio, has reduced based on application activity volumes due to lockdown restrictions during the six months to 30 June 2021 compared to the same period in 2020.

Stage 3 loans, predominately in Retail Banking increased by € 9 million in the six months to 30 June 2021. At 30 June 2020, the ECL allowance cover was 9% with Stage 3 cover at 61% (31 December 2020: 8% and 61% respectively).

Income statement

There was a Nil net credit impairment charge to the income statement for the six months to 30 June 2021 compared to a € 79 million charge in the same period in 2020. There was a € 8 million net re-measurement charge primarily driven by enhancements approved to the COVID-19 government support post model adjustment (€ 15 million charge). This was offset against recoveries of € 8 million on loans previously written-off.

Risk Management 59

AIB Group plc Half-Yearly Financial Report 2021

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
	321 104	2,901 659	747 768	– –	3,969 1,531
	425	3,560	1,515	–
	102 50	283 472	35 109	– –	420 631
	152 103 –	755 30 90	144 121 336	– – –
Total Analysed by internal credit ratings	680	4,435	2,116	–

Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing
	115 205	2,712 1,069	1,080 843	– –	3,907 2,117
	320	3,781	1,923	–
	85 22	84 205	29 46	– –	198 273
	107 253	289 365	75 118	– –
Gross carrying amount Analysed by ECL staging	680	4,435	2,116	–

Stage 1 Stage 2 Stage 3 POCI	316 115 249 –	2,845 1,305 285 –	1,783 215 118 –	– – – –
Total 680 ECL allowance – statement of financial position	680	4,435	2,116	–

Stage 1 Stage 2 Stage 3 POCI	9 13 91 –	44 108 43 –	12 7 30 –	– – – –
Total ECL allowance cover percentage	113	195	49	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	2.9 10.9 36.5 –	1.6 8.3 15.2 –	0.7 3.6 25.2 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amounts previously written-off	(14) (8)	(6) –
Net credit impairment (writeback)/charge	(22)	(6)
	%	%
Net credit impairment (writeback)/charge on average loans – annualised	(1.58)	(0.07)

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

60 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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

Loans and advances to customers – Property and construction (continued)

The property and construction portfolio consists of € 7.2 billion in loans and advances to customers measured at amortised cost together with € 0.3 billion of loans measured at FVTPL (total € 7.5 billion).

The portfolio measured at amortised cost amounted to 12% of total loans and advances to customers. The portfolio comprised of 76% investment loans (€ 5.5 billion), 15% land and development loans (€ 1.0 billion) and 9% other property and construction loans (€ 0.7 billion). The CIB and AIB UK segments continue to account for the majority of this portfolio at 61% and 29% respectively.

The portfolio measured at amortised cost reduced marginally by € 0.1 billion during the six months to 30 June 2021. New lending in the period of € 0.8 billion was offset by redemptions/repayments net of interest credited of € 0.8 billion. New lending continues to be predominately in the CIB segment (€ 0.4 billion) and is primarily to provide senior secured funding. At 30 June 2021, € 6.0 billion of the portfolio was in a strong/satisfactory grade, which is an increase of € 0.2 billion in the period. The level of non-performing loans has reduced by € 0.2 billion in the six months to 30 June 2021, however, this reduction reflects two defaulted customers whose loans were reclassified as FVTPL in the period following a restructure and changes to the terms and conditions relating to these loans.

Property and construction loans measured at FVTPL have increased by € 181 million to € 256 million in the six months to 30 June 2021, as a result of the aforementioned two defaulted customers reclassified as FVTPL.

Income statement

There was a net credit impairment writeback of € 29 million to the income statement in the six months to 30 June 2021 compared to a € 307 million charge in the same period in 2020. This was driven by a net re-measurement writeback of € 21 million and by recoveries of previously written-off loans of € 8 million. The net re-measurement writeback of € 21 million was mainly driven by reductions in ECL due to redemptions/repayments (€ 12 million) and a further € 10 million writeback was due to post model adjustment releases.

The ECL allowance for the portfolio totalled € 0.4 billion providing ECL allowance cover of 5%. For the Stage 3 portfolio, the ECL allowance cover is 25%, the increase in cover was impacted by the removal of the defaulted customers reclassified as FVTPL. (31 December 2020: € 0.4 billion, 5% and 22% respectively).

Investment

Investment property loans amounted to € 5.5 billion at 30 June 2021 (31 December 2020: € 5.6 billion) of which € 4.0 billion related to commercial investment. The geographic profile of the investment property portfolio remained predominately in the Republic of Ireland (€ 3.6 billion) and the United Kingdom (€ 1.6 billion).

At 30 June 2021, there was a net credit impairment writeback of € 42 million to the income statement on the investment property element of the property and construction portfolio (30 June 2020: € 243 million charge).

Land and development

At 30 June 2021, land and development loans remained unchanged at € 1.0 billion (31 December 2020: € 1.0 billion) of which € 0.2 billion related to loans in the Retail Banking segment, € 0.7 billion in the CIB segment and € 0.1 billion in the AIB UK segment. In Ireland, the first half of 2021 saw a return of COVID-19 restrictions across the construction sector. Construction activity from January to March 2021 was limited to a small number of exempted schemes/activities in line with government restrictions. Activity subsequently increased as residential development reopened in April 2021 followed by commercial development in May 2021. All development sites to which the Group provides development funding have now recommenced activity.

The income statement net credit impairment charge for the six months to 30 June 2021 was € 9 million (30 June 2020: € 42 million charge).

Contractors

At 30 June 2021, loans to contractors have remained unchanged at € 0.3 billion (31 December 2020: € 0.3 billion). However, there was a net credit impairment charge of € 3 million in the six months to 30 June 2021 (30 June 2020: € 21 million charge).

Risk Management 61

AIB Group plc Half-Yearly Financial Report 2021

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 Energy Manufacturing Distribution: Hotels Licensed premises Retail/wholesale Other distribution Transport Financial Other services	1,262 19 197	323 916 2,101	108 1,244 271	– – –
	151 182 485 90	1,170 207 965 176	882 106 263 161	– – – –	2,203 495 1,713 427
	908 221 14 645	2,518 1,212 383 2,691	1,412 429 154 1,925	– – 18 –
Total Analysed by internal credit ratings	3,266	10,144	5,543	18

Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing
	676 1,595	5,125 3,321	2,780 1,578	5 13	8,586 6,507
	2,271	8,446	4,358	18
	372 95	588 903	274 463	– –	1,234 1,461
	467 528	1,491 207	737 448	– –
Gross carrying amount Analysed by ECL staging	3,266	10,144	5,543	18

Stage 1 Stage 2 Stage 3 POCI	2,208 535 523 –	7,409 2,528 207 –	3,792 1,303 448 –	18 – – –
Total 3,266 ECL allowance – statement of financialposition	3,266	10,144	5,543	18

Stage 1 Stage 2 Stage 3 POCI	57 64 167 –	37 391 77 –	28 116 64 –	– – – –
Total ECL allowance cover percentage	288	505	208	–
	%	%	%	%
Stage 1 Stage 2 Stage 3 POCI	2.6 12.1 31.9 –	0.5 15.5 37.3 –	0.7 8.9 14.2 –	– – – –
Income statement
	€ m	€ m
Net re-measurement of ECL allowance Recoveries of amountspreviouslywritten-off	2 (6)	(28) (1)
Net credit impairment (writeback)/charge	(4)	(29)
	%	%
Net credit impairment (writeback)/charge on average loans – annualised	(0.06)	(0.14)

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

62 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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

Loans and advances to customers – Non-property business (continued)

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 largest geographic concentration of the portfolio exposure is to Irish borrowers (47%) with the UK (30%) and USA (12%) being the other main geographic concentrations.

The portfolio increased by € 0.3 billion to € 19.0 billion in the six months to 30 June 2021 (31 December 2020: € 18.7 billion). The increase was primarily due to new lending of € 2.1 billion (30 June 2020: € 2.2 billion) and foreign exchange adjustments of € 0.4 billion exceeding redemptions/repayments net of interest credited of € 2.2 billion. The non-property business portfolio amounted to 32% of total Group loans and advances to customers at 30 June 2021 (31 December 2020: 32%).

COVID-19 continues to impact the asset quality of the non-property business portfolio. Timing of recovery is dependent on sector specific dynamics. Loans graded as strong/satisfactory decreased slightly in the six months to 30 June 2021 from 81% to 80%, due to downward grade migration. This downward grade migration also resulted in an increase in the level of less than satisfactory grades (including defaulted loans) from € 3.5 billion at 31 December 2020 to € 3.9 billion at 30 June 2021. This was specifically evident in the non-property forbearance portfolio as the criticised recovery category increased by € 1.1 billion to € 1.5 billion at 30 June 2021 (31 December 2020: € 0.4 billion).

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. The sector has proven to be resilient and robust through 2021 to date. Demand for credit to support on-farm investment is strong and above 2020 levels. The short term outlook remains positive with average farm incomes and margins expected to be above 2020 levels for most farms, as increased output prices offset increased input expenditure, assuming normalised weather conditions;
The energy sub-sector comprises 11% of the portfolio at € 2.2 billion. The increase of € 0.4 billion is driven by new lending to renewable energy initiatives. To date, this sub-sector is proving very resilient to COVID-19;
The manufacturing sub-sector comprises 14% of the portfolio at € 2.6 billion. To date, food manufacturing has adapted effectively to mitigate impact of COVID-19. Non-Food manufacturing had a positive first half of the year with increasing production and employment levels, however, supply challenges still exist for the sector due to Brexit and COVID-19;
The hotels sub-sector comprises 12% of the portfolio at € 2.2 billion. This sector has been severely impacted by Government measures to contain COVID-19. In Ireland and the UK, hotels were either closed or operating at significantly reduced occupancy from mid-March 2020 for a significant proportion of the year. The first half of 2021 saw prolonged lockdowns, the level of which had not been anticipated at year-end 2020. There has been material progress in the vaccination programme, however, ongoing threat of variants leads to continued uncertainty for this sector. A return to pre-COVID-19 occupancy levels is expected to be slow, particularly for those most reliant on international tourism;
The licensed premises sub-sector comprises 3% of the portfolio at € 0.5 billion. This sector has been severely negatively impacted by Government measures to contain COVID-19. Licensed premises were either closed or operating at significantly reduced capacity in Ireland from mid-March 2020, with some establishments unable to open during the year due to their lack of a food offering. The sector remains impacted, more acutely than hotels, as premises are not open for indoor custom. At the end of June 2021, outlook for the sector remains uncertain. In the UK, licensed premises have been fully re-opened since mid-May 2021;
The retail/wholesale sub-sector comprises 9% of the portfolio at € 1.7 billion and has experienced a varied impact during the pandemic, dependent on whether activity is essential or non-essential. There has been an increase in online purchasing during this period which has accelerated this competitive challenge to ‘Brick and Mortar Retail’. Grocery retail/wholesale continued to operate with some businesses experiencing increases in revenue and profitability despite some increases in costs;
The transport sub-sector comprises 10% of the portfolio at € 1.9 billion and consists primarily of logistic, storage and travel businesses. After initial negative impacts due to COVID-19 and Brexit, logistics and storage have rebounded due to increased demand for logistics and warehousing to deal with increased online retail purchasing. However, cost challenges remain due to border and custom delays. Travel sector continues to be severely impacted by COVID-19 due to international travel restrictions;
The financial sub-sector comprises 3% of the portfolio at € 0.6 billion. To date, this sub-sector is proving resilient to COVID-19 as companies have been able to operate virtually and many services provided remain essential during any economic backdrop;
The other services sub-sector comprises 28% of the portfolio at € 5.3 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 2021.

Income statement

There was a net credit impairment writeback of € 40 million to the income statement in the six months to 30 June 2021 compared to a € 503 million charge in the same period in 2020. This was driven by a net re-measurement writeback of € 33 million and by recoveries of previously written-off loans of € 7 million. The net re-measurement writeback of € 33 million was due to a € 40 million writeback comprising of a € 54 million ECL writeback driven by re-measurements within stage and ECL release associated with redemptions/repayments, and a charge of € 14 million due to net stage movements. Updates to the revised macroeconomic scenarios and weightings assumptions (€ 21 million charge) was largely offset by an ECL release relating to post model adjustments (€ 14 million writeback) which resulted in a further € 7 million charge.

The ECL allowance for the portfolio totalled € 1.0 billion in ECL providing ECL allowance cover of 5%. For the Stage 3 portfolio, the ECL allowance cover is 26% (31 December 2020: € 1.0 billion, 6% and 32% respectively).

Risk Management 63

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

Loans and advances to customers – Non-property business (continued)

Additional disclosures

The following table provides further analyses 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 2021	30 June 2021	30 June 2021	30 June 2021
	Analysed by ECL stage		profile Stage 3 € m	Gross carrying amount € m 1,664 2,132 1,555 2,121 495 1,470 302 4,388 1,305 321 4,070 15,435 3,536 18,971	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 Energy Manufacturing Distribution: Hotels Licensed premises Retail/Wholesale Other distribution Transport Financial Other services	1,265 2,047 1,257 77 110 1,098 217 1,502 954 302 3,233	304 53 244 1,670 211 260 57 2,198 275 15 617	95 32 54 374 174 112 28 688 76 4 220		11 10 6 5 5 21 4 35 5 2 28	15 7 21 273 30 34 8 345 29 1 47	32 3 20 45 57 32 11 145 24 2 80	58 20 47
								323 92 87 23
								525 58 5 155
Total SIF Total	10,560	3,706	1,169		97	465	306	868
	2,867	660	9		25	106	2	133
	13,427	4,366	1,178		122	571	308	1,001

					31 December 2020	31 December 2020	31 December 2020	31 December 2020
	Analysed byECL stageprofile Stage 1 Stage 2 Stage 3 € m € m € m			Gross carrying amount € m 1,642 1,762 1,552 2,117 501 1,602 288 4,508 1,326 411 3,908 15,109 3,596 18,705	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 Energy Manufacturing Distribution: Hotels Licensed premises Retail/Wholesale Other distribution Transport Financial Other services	1,183 1,700 1,050 321 113 1,017 200 1,651 878 373 2,948	365 47 431 1,573 242 442 69 2,326 379 29 767	94 15 71 223 146 143 19 531 69 9 193		13 10 6 9 6 20 2 37 5 2 30	20 3 29 237 39 51 9 336 18 2 63	32 2 25 40 53 46 12 151 35 4 70	65 15 60
								286 98 117 23
								524 58 8 163
Total SIF Total	9,783	4,344	982		103	471	319	893
	2,875	706	15		23	117	4	144
	12,658	5,050	997		126	588	323	1,037

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 has decreased by € 0.1 billion to € 3.5 billion at 30 June 2021 (31 December 2020: € 3.6 billion).

At 30 June 2021, 95% of the SIF lending portfolio is in a strong/satisfactory grade (31 December 2020: 96%). 89% of the SIF portfolio is rated by S&P, with 66% rated B+ or above, 20% rated B and 3% rated B- or below. The majority of the loans (66%) are to large borrowers with EBITDA > € 250 million. Exposures are well diversified by name and sector with the top 20 borrowers accounting for 24% of total exposure. 65% of the customers in this portfolio are domiciled in the USA, 3% in the UK, and 32% in the Rest of the World (primarily Europe) (31 December 2020: 63% in the USA, 3% in the UK and 34% in the Rest of the World (primarily Europe) respectively).

At 30 June 2021, there was a net credit impairment writeback of € 6 million on the SIF portfolio (30 June 2020: € 106 million charge). Details on the SIF post model adjustment are outlined on page 44 which resulted in a writeback of € 7 million in the period.

64 Risk Management AIB Group plc Half-Yearly Financial Report 2021

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

Concentration by industry sector	30 June 2021	30 June 2021
	At amortised cost At FVTPL 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 Total € m € m € m € m € m € m € m € m € m 1,693 612 2,305 1,817 388 100 – 2,305 – 2,179 940 3,119 3,026 53 40 – 3,119 – 2,569 1,662 4,231 3,668 497 66 – 4,231 – 4,838 1,411 6,249 2,828 2,695 726 – 6,249 – 1,862 571 2,433 2,035 316 82 – 2,433 – 569 554 1,123 1,041 78 4 – 1,123 – 5,261 2,236 7,497 6,296 948 253 – 7,497 – 7,231 2,016 9,247 6,752 1,799 696 – 9,247 256 29,617 1,114 30,731 27,717 1,530 1,322 162 30,731 – 2,628 2,911 5,539 4,830 455 254 – 5,539 – 58,447 14,027 72,474 60,010 8,759 3,543 162 72,474 256 44,486 10,696 55,182 46,290 6,078 2,652 162 55,182 256 9,253 2,742 11,995 9,446 1,863 686 – 11,995 – 2,311 183 2,494 2,102 385 7 – 2,494 – 2,397 406 2,803 2,172 433 198 – 2,803 – 58,447 14,027 72,474 60,010 8,759 3,543 162 72,474 256
	Gross carrying amount Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 1,693 612 2,305 2,179 940 3,119 2,569 1,662 4,231 4,838 1,411 6,249 1,862 571 2,433 569 554 1,123 5,261 2,236 7,497 7,231 2,016 9,247 29,617 1,114 30,731 2,628 2,911 5,539 58,447 14,027 72,474 44,486 10,696 55,182 9,253 2,742 11,995 2,311 183 2,494 2,397 406 2,803 58,447 14,027 72,474
		Total € m
Non-property business: Agriculture Energy Manufacturing Distribution Transport Financial Other services Property and construction Residential mortgages Otherpersonal		– – – – – – – 256 – –
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		256
		256 – – –
		256

ECL allowance

30 June 2021

ECL allowance	30 June 2021	30 June 2021
Concentration by industry sector	At amortised cost
	Gross carrying amount Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 59 3 62 21 1 22 72 11 83 573 23 596 63 2 65 28 1 29 185 11 196 357 29 386 501 – 501 232 6 238 2,091 87 2,178 1,648 67 1,715 285 17 302 55 2 57 103 1 104 2,091 87 2,178	Analysed by ECL stage profile
		Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
Non-property business: Agriculture Energy Manufacturing Distribution Transport Financial Other services Property and construction Residential mortgages Otherpersonal		12 17 33 – 62 12 7 3 – 22 15 46 22 – 83 41 408 147 – 596 10 30 25 – 65 4 23 2 – 29 41 75 80 – 196 71 134 181 – 386 50 44 357 50 501 50 40 148 – 238
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		306 824 998 50 2,178
		229 565 871 50 1,715 48 141 113 – 302 17 39 1 – 57 12 79 13 – 104
		306 824 998 50 2,178

(1)Based on country of risk.

AIB Group plc Half-Yearly Financial Report 2021 Risk Management 65

Credit risk – Credit profile of the loan portfolio

Gross exposures to customers

Concentration by industry sector	31 December 2020	31 December 2020
	At amortised cost Gross carryingamount Analysed byECL stageprofile 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 1,671 607 2,278 1,740 439 99 – 2,278 1,815 919 2,734 2,607 91 36 – 2,734 2,547 1,593 4,140 3,346 707 87 – 4,140 4,986 1,271 6,257 2,773 2,911 573 – 6,257 1,829 506 2,335 1,810 452 73 – 2,335 630 570 1,200 1,095 96 9 – 1,200 5,227 2,114 7,341 5,977 1,139 225 – 7,341 7,260 1,940 9,200 5,977 2,321 902 – 9,200 30,649 837 31,486 27,354 1,956 1,992 184 31,486 2,766 2,869 5,635 4,837 556 242 – 5,635 59,380 13,226 72,606 57,516 10,668 4,238 184 72,606 45,917 10,328 56,245 44,535 8,102 3,424 184 56,245 8,879 2,502 11,381 9,087 1,689 605 – 11,381 2,304 103 2,407 1,971 419 17 – 2,407 2,280 293 2,573 1,923 458 192 – 2,573 59,380 13,226 72,606 57,516 10,668 4,238 184 72,606	At FVTPL
	Gross carryingamount Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 1,671 607 2,278 1,815 919 2,734 2,547 1,593 4,140 4,986 1,271 6,257 1,829 506 2,335 630 570 1,200 5,227 2,114 7,341 7,260 1,940 9,200 30,649 837 31,486 2,766 2,869 5,635 59,380 13,226 72,606 45,917 10,328 56,245 8,879 2,502 11,381 2,304 103 2,407 2,280 293 2,573 59,380 13,226 72,606
		Total € m
Non-property business: Agriculture Energy Manufacturing Distribution Transport Financial Other services Property and construction Residential mortgages Other personal		– – – – – – – 75 – –
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		75
		75 – – –
		75

ECL allowance

Concentration by industry sector	31 December 2020	31 December 2020
	At amortised cost
	Gross carryingamount Loans and advances to customers Loan commitments and financial guarantees issued Total € m € m € m 66 4 70 15 2 17 84 8 92 590 17 607 63 2 65 22 1 23 197 12 209 396 30 426 843 – 843 234 7 241 2,510 83 2,593 2,000 67 2,067 322 12 334 61 2 63 127 2 129 2,510 83 2,593	Analysed byECL stageprofile
		Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
Non-property business: Agriculture Energy Manufacturing Distribution Transport Financial Other services Property and construction Residential mortgages Other personal		15 23 32 – 70 12 3 2 – 17 15 50 27 – 92 42 412 153 – 607 10 20 35 – 65 4 15 4 – 23 43 92 74 – 209 82 140 204 – 426 39 73 662 69 843 42 56 143 – 241
Total Concentration by location(1) Republic of Ireland United Kingdom North America Rest of the World		304 884 1,336 69 2,593
		214 609 1,175 69 2,067 61 130 143 – 334 15 43 5 – 63 14 102 13 – 129
		304 884 1,336 69 2,593

(1)Based on country of risk.

66 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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 2021	30 June 2021
	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
Non-property business: Agriculture Energy Manufacturing Distribution Transport Financial Other services Property and construction Residential mortgages Other personal		11 5 1 4 6 20 47 – – – – – 2 2 1 1 – 3 2 13 20 92 20 7 32 95 54 300 11 1 1 1 3 6 23 – – 1 – – 2 3 49 4 3 17 11 35 119 22 5 13 54 24 193 311 51 22 9 57 67 392 598 34 6 6 18 36 132 232
Total gross carrying amount ECL staging		271 64 41 186 244 849 1,655

Stage 1 Stage 2 Stage 3 POCI		102 – – – – – 102 65 28 24 – – – 117 103 36 16 184 243 841 1,423 1 – 1 2 1 8 13
Segment		271 64 41 186 244 849 1,655

Retail Banking CIB AIB UK Group		135 52 23 117 183 733 1,243 105 2 5 19 11 50 192 31 10 13 50 50 66 220 – – – – – – –
As a percentage of total gross loans at amortised cost		271 64 41 186 244 849 1,655
		% % % % % % %
At FVTPL Industry sector		0.46 0.11 0.07 0.32 0.42 1.45 2.83
		€ 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.

Risk Management 67

AIB Group plc Half-Yearly Financial Report 2021

Credit risk – Credit profile of the loan portfolio

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

At amortised cost Industry sector	31 December 2020	31 December 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
Non-property business: Agriculture Energy Manufacturing Distribution Transport Financial Other services Property and construction Residential mortgages Otherpersonal		18 6 1 3 7 17 52 – – – – – 2 2 2 8 1 3 1 14 29 103 73 23 43 37 40 319 4 7 7 3 1 6 28 1 1 – – – 2 4 17 22 10 11 13 29 102 26 18 8 15 63 172 302 49 51 11 42 124 968 1,245 37 12 9 19 42 117 236
Total gross carrying amount ECL staging		257 198 70 139 288 1,367 2,319

Stage 1 Stage 2 Stage 3 POCI		68 – – – – – 68 109 88 28 – – – 225 79 108 42 138 285 1,345 1,997 1 2 – 1 3 22 29
Segment		257 198 70 139 288 1,367 2,319

Retail Banking CIB AIB UK Group		165 111 40 102 216 1,275 1,909 23 46 5 9 48 7 138 69 41 25 28 24 85 272 – – – – – – –
As a percentage of total gross loans at amortised cost		257 198 70 139 288 1,367 2,319
		% % % % % % %
At FVTPL Industry sector		0.43 0.33 0.12 0.23 0.49 2.30 3.90
		€ m € m € m € m € m € m € m
Propertyand construction		– – – – – – –
Total at FVTPL Segment		– – – – – – –
		€ m € m € m € m € m € m € m
Retail Banking		– – – – – – –
As apercentage of totalgross loans at FVTPL		– – – – – – –
		% % % % % % %
		– – – – – – –

In the six months to 30 June 2021, total loans past due reduced by € 0.7 billion to € 1.6 billion or 2.8% of total loans and advances to customers (31 December 2020: € 2.3 billion or 3.9%).

The reduction is directly attributed to the non-performing mortgage portfolio sales completed in the period as the total residential mortgage loans past due reduced by € 0.6 billion. This reduction was predominately in the greater than 365 days past due category as the total residential mortgage loans past due at 30 June 2021 amounted to € 0.6 billion or 36% of total loans past due (31 December 2020: € 1.2 billion or 54%).

Non-property business loans which were past due represent 31% or € 0.5 billion (31 December 2020: 23% or € 0.5 billion), with property and construction at 19% or € 0.3 billion (31 December 2020: 13% or € 0.3 billion), and other personal at 14% or € 0.2 billion (31 December 2020: 10% or € 0.2 billion).

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

68 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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 between 1 January 2021 and 30 June 2021 and the corresponding movements for the year to 31 December 2020.

Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed on page 96 of the Annual Financial Report 2020) and that subsequently reverted within the year 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 2021*
	Stage 1 Stage 2 Stage 3 POCI Total € m € m € m € m € m
At 1 January 2021 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	45,713 9,408 4,075 184 59,380 (2,444) 2,444 – – – 2,885 (2,885) – – – (75) (502) 577 – – 36 154 (190) – – 4,659 – – – 4,659 (4,441) (1,311) (278) (6) (6,036) 662 138 38 3 841 – – (51) (1) (52) (21) (42) (654) (19) (736) 390 110 31 – 531 (274) 274 – – – 35 (11) (165) 1 (140)
At 30 June 2021	47,125 7,777 3,383 162 58,447

	31 December 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 (11,954) 11,954 – – – 2,534 (2,534) – – – (459) (1,483) 1,942 – – 105 352 (457) – – 8,578 – – – 8,578 (8,911) (2,224) (616) (17) (11,768) 1,471 285 72 8 1,836 – – (148) (3) (151) (221) (214) (86) – (521) (651) (120) (23) – (794) 519 (519) – – – (21) (81) 251 2 151
At 31 December 2020	45,713 9,408 4,075 184 59,380

(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

Risk Management 69

AIB Group plc Half-Yearly Financial Report 2021

Credit risk – Credit profile of the loan portfolio

Gross loans and ECL movements (continued)

ECL allowance movements – total

				30 June 2021*	30 June 2021*
	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m
At 1 January 2021	281	845	1,315	69	2,510
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	(37) 53 (6) 3 (32) 32 (14) 16 (11)	119 (124) (75) 16 (6) – (22) 2 18	– – 126 (42) (85) – – 23 (22)	– – – – 4 – (1) (5) –	82 (71) 45 (23) (119) 32 (37) 36 (15)
Income statement net credit impairment charge/(writeback) Write-offs Derecognised due to disposals Exchange translation adjustments Other movements	4 – – 3 (3)	(72) – (4) 9 1	– (51) (297) 8 2	(2) (1) (16) – –	(70) (52) (317) 20 –
At 30 June 2021	285	779	977	50	2,091

				31 December 2020*	31 December 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	(110) 78 (42) 10 (61) 82 (9) 74 129	305 (112) (197) 33 362 – (89) 144 227	– – 382 (83) 105 – – 187 37	– – – – – – – 33 8	195 (34) 143 (40) 406 82 (98) 438 401
Income statement net credit impairment charge Write-offs Derecognised due to disposals Exchange translation adjustments Other movements	151 – (5) (2) (4)	673 – (18) (8) (4)	628 (148) (34) (7) 12	41 (3) – – –	1,493 (151) (57) (17) 4
At 31 December 2020	281	845	1,315	69	2,510

Total exposures to which an ECL applies decreased during the period by € 1.0 billion from € 59.4 billion at 1 January 2021 to € 58.4 billion at 30 June 2021.

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. An ECL writeback of € 91 million due to stage transfers and net re-measurement within stage occurred due to underlying credit management activity and improvement in credit parameters which inform the modelled outcomes. ECL writeback on loans fully repaid was a feature of the impact within stage.

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

70 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Credit profile of the loan portfolio

Gross loans and ECL movements (continued)

The updated macroeconomic scenarios and weightings resulted in a release of € 15 million. This ECL movement is presented separately within ‘Impact of credit or economic risk parameters’. This release was most significant within the mortgage portfolio accounting for a release of € 37 million within the portfolio. This was driven by an improvement in macroeconomic forecasts specific to the residential property market and is largely offset by ECL charge resulting from model and overlay changes. Within the non-property business portfolio a charge of € 21 million was driven primarily by a higher Irish unemployment rate in the scenarios compared to the December 2020 outlook.

Model and overlay changes resulted in an ECL charge of € 36 million and further detail on the changes is outlined within the management judgements section on pages 42 to 44.

The gross loan transfers from Stage 1 to Stage 2 of € 2.4 billion are due to underlying credit management 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. 63% 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 5% was caused solely by the backstop of 30 days past due. Of the € 2.4 billion which transferred from Stage 1 to Stage 2 in the period approximately € 1.7 billion is reported as Stage 2 at 30 June 2021.

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 € 2.9 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 normal credit management process and incorporates loans which transferred due to the impact of the updated macroeconomic scenarios and weightings.

Transfers from Stage 2 to Stage 3 of € 0.5 billion represent those loans that defaulted during the year. 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 € 0.1 billion had transferred from Stage 1 to Stage 2 earlier in the year.

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.

In summary, the staging movements of the overall portfolio were as follows: Stage 1 loans increased by € 1.4 billion in the year to € 47.1 billion with an ECL of € 0.3 billion and resulting cover of 0.6% (31 December 2020: 0.6%).

Stage 2 loans decreased by € 1.6 billion in the year to € 7.8 billion with an ECL of € 0.8 billion and resulting cover of 10.0% (31 December 2020: 9.0%). This was primarily driven by loans returning to Stage 1 where the triggers for significant increase in credit risk no longer apply or loans that have fulfilled a probation period and repayments.

Stage 3 exposures decreased by € 0.7 billion in the year to € 3.4 billion with the ECL cover decreasing from 32.3% to 28.9%. Key driver was portfolio sales of distressed loans. The reduction in cover reflects the disposal of loans which carried a higher average ECL charge.

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

Risk Management

AIB Group plc Half-Yearly Financial Report 2021

2 3 4

Non-property business	Stage 2 Stage 3 Total	€ m € m € m	5,050 997 18,705	1,214 – –	(1,262) – –	(299) 334 –	52 (69) –	– – 2,166	(695) (100) (2,470)	77 16 279	– (11) (11)	(42) (19) (82)	95 17 376	191 – –	(15) 13 8	4,366 1,178 18,971	Non-property business	Stage 2 Stage 3 Total	€ m € m € m	1,133 438 20,312	6,515 – –	(402) – –	(673) 893 –	84 (140) –	– – 4,095	(1,328) (249) (5,239)	148 26 637	– (38) (38)	(214) (76) (511)	(100) (14) (589)	– – –	(113) 157 38	5,050 997 18,705
	Stage 1	€ m	12,658	(1,214)	1,262	(35)	17	2,166	(1,675)	186	–	(21)	264	(191)	10	13,427		Stage 1	€ m	18,741	(6,515)	402	(220)	56	4,095	(3,662)	463	–	(221)	(475)	–	(6)	12,658
Property and construction	Stage 3 POCI Total	€ m € m € m	865 – 7,260	– – –	– – –	53 – –	(19) – –	– – 861	(58) – (880)	10 – 99	(14) – (14)	(11) – (11)	9 – 98	– – –	(183) – (182)	652 – 7,231	Property and construction	Stage 3 POCI Total	€ m € m € m	367 – 7,299	– – –	– – –	626 – –	(56) – –	– – 1,172	(94) – (1,328)	12 – 212	(20) – (20)	(10) – (10)	(4) – (130)	– – –	44 – 65	865 – 7,260
	Stage 2	€ m	2,076	361	(449)	(40)	7	–	(430)	28	–	–	12	72	(2)	1,635		Stage 2	€ m	427	3,189	(265)	(431)	33	–	(479)	54	–	–	(14)	(519)	81	2,076
	Stage 1	€ m	4,319	(361)	449	(13)	12	861	(392)	61	–	–	77	(72)	3	4,944		Stage 1	€ m	6,505	(3,189)	265	(195)	23	1,172	(755)	146	–	–	(112)	519	(60)	4,319
Other personal	Stage 3 Total	€ m € m	233 2,766	– –	– –	50 –	(11) –	– 400	(28) (652)	5 103	(9) (9)	(1) (1)	– 5	– –	3 16	242 2,628	Other personal	Stage 3 Total	€ m € m	192 2,984	– –	– –	111 –	(28) –	– 841	(49) (1,272)	9 222	(33) (33)	– –	– (7)	– –	31 31	233 2,766
	Stage 2	€ m	332	162	(152)	(43)	9	–	(70)	13	–	–	1	1	(2)	251		Stage 2	€ m	288	438	(175)	(98)	25	–	(156)	33	–	–	(1)	–	(22)	332
	Stage 1	€ m	2,201	(162)	152	(7)	2	400	(554)	85	–	–	4	(1)	15	2,135		Stage 1	€ m	2,504	(438)	175	(13)	3	841	(1,067)	180	–	–	(6)	–	22	2,201
Residential mortgages	Stage 1 Stage 2 Stage 3 POCI Total	€ m € m € m € m € m	At 1 January 2021 26,535 1,950 1,980 184 30,649	Transferred from Stage 1 to Stage 2 (707) 707 – – –	Transferred from Stage 2 to Stage 1 1,022 (1,022) – – –	Transferred to Stage 3 (20) (120) 140 – –	Transferred from Stage 3 5 86 (91) – –	New loans originated/top-ups 1,232 – – – 1,232	Redemptions/repayments (1,820) (116) (92) (6) (2,034)	Interest credited 330 20 7 3 360	Write-offs – – (17) (1) (18)	Derecognised due to disposals – – (623) (19) (642)	Exchange translation adjustments 45 2 5 – 52	Impact of model, parameter and overlay changes (10) 10 – – –	Other movements 7 8 2 1 18	At 30 June 2021 26,619 1,525 1,311 162 29,617	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 (1,812) 1,812 – – –	Transferred from Stage 2 to Stage 1 1,692 (1,692) – – –	Transferred to Stage 3 (31) (281) 312 – –	Transferred from Stage 3 23 210 (233) – –	New loans originated/top-ups 2,470 – – – 2,470	Redemptions/repayments (3,427) (261) (224) (17) (3,929)	Interest credited 682 50 25 8 765	Write-offs – – (57) (3) (60)	Derecognised due to disposals – – – – –	Exchange translation adjustments (58) (5) (5) – (68)	Impact of model, parameter and overlay changes – – – – –	Other movements 23 (27) 19 2 17	At 31 December 2020 26,535 1,950 1,980 184 30,649

72 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Non-property business	Stage 2 Stage 3 Total	€ m € m € m	588 323 1,037	67 – 44	(69) – (41)	(44) 69 22	7 (20) (11)	(4) (41) (48)	– – 14	(12) – (20)	12 (12) (14)	21 (2) 21		(22) (6) (33)	– (11) (11)	(4) (5) (9)	9 4 15	– 3 2	571 308 1,001	Non-property business	Stage 2 Stage 3 Total	€ m € m € m	84 142 305	184 – 131	(40) – (3)	(97) 193 83	10 (28) (12)	347 46 373	– – 21	(46) – (60)	118 4 174	57 13 110		533 228 817	– (38) (38)	(18) (28) (51)	(7) (3) (12)	(4) 22 16	588 323 1,037
	Stage 1	€ m	126	(23)	28	(3)	2	(3)	14	(8)	(14)	2		(5)	–	–	2	(1)	122		Stage 1	€ m	79	(53)	37	(13)	6	(20)	21	(14)	52	40		56	–	(5)	(2)	(2)	126
Property and construction	Stage 3 POCI Total	€ m € m € m	188 – 396	– – 5	– – (7)	10 – 4	(4) – (2)	(8) – (6)	– – 6	– – (12)	(2) – (10)	(3) – 1		(7) – (21)	(14) – (14)	(5) – (5)	2 – 3	– – (2)	164 – 357	Property and construction	Stage 3 POCI Total	€ m € m € m	132 – 189	– – 6	– – (5)	90 – 16	(8) – (3)	31 – 86	– – 42	– – (28)	– – 10	(23) – 121		90 – 245	(20) – (20)	(6) – (6)	(3) – (4)	(5) – (8)	188 – 396
	Stage 2	€ m	133	11	(16)	(4)	1	10	–	(8)	(4)	6		(4)	–	–	–	(1)	128		Stage 2	€ m	26	39	(20)	(46)	4	60	–	(38)	3	107		109	–	–	(1)	(1)	133
	Stage 1	€ m	75	(6)	9	(2)	1	(8)	6	(4)	(4)	(2)		(10)	–	–	1	(1)	65		Stage 1	€ m	31	(33)	15	(28)	1	(5)	42	10	7	37		46	–	–	–	(2)	75
Other personal	Stage 3 Total	€ m € m	142 234	– 20	– (13)	26 7	(6) (3)	(1) (22)	– 11	– (2)	(4) 10	– –		15 8	(9) (9)	(1) (1)	– –	1 –	148 232	Other personal	Stage 3 Total	€ m € m	114 175	– 22	– (2)	50 15	(16) (9)	26 (3)	– 15	– (4)	– 9	2 49		62 92	(33) (33)	– –	– –	(1) –	142 234
	Stage 2	€ m	51	25	(20)	(18)	3	(5)	–	(1)	–	–		(16)	–	–	–	1	36		Stage 2	€ m	40	29	(5)	(34)	7	(11)	–	(2)	4	23		11	–	–	–	–	51
	Stage 1	€ m	41	(5)	7	(1)	–	(16)	11	(1)	14	–		9	–	–	–	(2)	48		Stage 1	€ m	21	(7)	3	(1)	–	(18)	15	(2)	5	24		19	–	–	–	1	41
Residential mortgages	Stage 1 Stage 2 Stage 3 POCI Total	€ m € m € m € m € m	At 1 January 2021 39 73 662 69 843	Transferred from Stage 1 to Stage 2 (3) 16 – – 13	Transferred from Stage 2 to Stage 1 9 (19) – – (10)	Transferred to Stage 3 – (9) 21 – 12	Transferred from Stage 3 – 5 (12) – (7)	Net re-measurement (5) (7) (35) 4 (43)	New loans originated/top-ups 1 – – – 1	Redemptions/repayments (1) (1) – (1) (3)	Impact of model and overlay changes 20 (6) 41 (5) 50	Impact of credit or economic risk parameters (11) (9) (17) – (37)	Income statement net credit	impairment charge/(writeback) 10 (30) (2) (2) (24)	Write-offs – – (17) (1) (18)	Derecognised due to disposals – – (286) (16) (302)	Exchange translation adjustments – – 2 – 2	Other movements 1 1 (2) – –	At 30 June 2021 50 44 357 50 501	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 (17) 53 – – 36	Transferred from Stage 2 to Stage 1 23 (47) – – (24)	Transferred to Stage 3 – (20) 49 – 29	Transferred from Stage 3 3 12 (31) – (16)	Net re-measurement (18) (34) 2 – (50)	New loans originated/top-ups 4 – – – 4	Redemptions/repayments (3) (3) – – (6)	Impact of model and overlay changes 10 19 183 33 245	Impact of credit or economic risk parameters 28 40 45 8 121	Income statement net credit	impairment charge 30 20 248 41 339	Write-offs – – (57) (3) (60)	Derecognised due to disposals – – – – –	Exchange translation adjustments – – (1) – (1)	Other movements (1) 1 (4) – (4)	At 31 December 2020 39 73 662 69 843

Risk Management 73

AIB Group plc Half-Yearly Financial Report 2021

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 2021*
	Loan commitments Stage 1 Stage 2 Stage 3 Total € m € m € m € m 11,259 1,113 132 12,504 (248) 248 – – 369 (369) – – (12) (5) 17 – 5 4 (9) – 921 (85) (14) 822 12,294 906 126 13,326	Financial guarantees
		Stage 1 Stage 2 Stage 3 Total € m € m € m € m
At 1 January 2021 Transferred from Stage 1 to Stage 2 Transferred from Stage 2 to Stage 1 Transferred to Stage 3 Transferred from Stage 3 Net movement		544 147 31 722 (24) 24 – – 71 (71) – – – (1) 1 – 1 – (1) – (1) (23) 3 (21)
At 30 June 2021		591 76 34 701

		31 December 2020*
	Loan commitments Stage 1 Stage 2 Stage 3 Total € m € m € m € m 11,098 323 118 11,539 (647) 647 – – 158 (158) – – (35) (12) 47 – 27 3 (30) – 658 310 (3) 965 11,259 1,113 132 12,504	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 (112) 112 – – 3 (3) – – (1) – 1 – 3 1 (4) – (6) 26 (9) 11
At 31 December 2020		544 147 31 722

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

74 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk – Credit profile of the loan portfolio

Movements in off-balance sheet exposures (continued)

ECL allowance movements

ECL allowance movements
						30 June 2021*
		Loan commitments Stage 2 Stage 3 Total € m € m € m 30 4 54 18 – 15 (19) – (15) (1) 1 – – – – 5 (1) 2 3 – 2 – – – 1 – 1 34 4 57				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 2021	20	30	4		3	8	18	29
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	(3) 4 – – (2)	18 (19) (1) – 5	– – 1 – (1)	15 (15) – – 2	(1) – – 1 (1)	4 (3) – – 2	– – – (1) –	3 (3) – – 1
Income statement (credit)/charge Derecognised due to disposals Other movements	(1) – –	3 – 1	– – –		(1) – –	3 – –	(1) – –	1 – –
At 30 June 2021	19	34	4		2	11	17	30

						31 December 2020*	31 December 2020*	31 December 2020*
			Loan commitments Stage 3 Total € m € m 1 19 – 11 – 2 2 1 – – 1 21 3 35 – – 4 54			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	(7) 10 – – 7	18 (8) (1) – 13	– – 2 – 1	11 2 1 – 21	(1) 2 – – (1)	6 (2) (1) 1 3	– – 2 (2) (3)	5 – 1 (1) (1)
Income statement (credit)/charge Other movements	10 –	22 –	3 –		– –	7 (1)	(3) 3	4 2
At 31 December 2020	20	30	4		3	8	18	29

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

	30 June	31 December
	2021*	2020*
	€ m	€ m
Strong	8,744	8,187
Satisfactory	4,635	4,445
Criticised watch	409	413
Criticised recovery	79	18
Default	160	163
Total	14,027	13,226

Non-performing off-balance sheet commitments

Total non-performing off-balance sheet commitments amounted to € 160 million (31 December 2020: € 163 million).

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

Risk Management 75

AIB Group plc Half-Yearly Financial Report 2021

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 of € 4,022 million (31 December 2020: € 1,799 million), securities borrowing – customers of € 760 million (31 December 2020: Nil), investment debt securities (at amortised cost of € 3,875 million (31 December 2020: € 3,603 million) and at FVOCI of € 12,394 million (31 December 2020: € 15,675 million)) and trading portfolio financial assets of Nil (31 December 2020: Nil). Information on the external credit ratings for loans and advances to customers where an external credit rating is available is disclosed on page 63.

		30 June 2021	30 June 2021
	At amortised cost Bank Corporate Sovereign Other Total € m € m € m € m € m 761 – 296 667 1,724 3,332 – 2,427 964 6,723 16 2 37 5 60 – 74 – – 74 – 64 – 12 76 4,109 140 2,760 1,648(1) 8,657 4,109 140 2,760 1,648 8,657 – – – – – – – – – –	At FVOCI Bank Corporate Sovereign Other Total € m € m € m € m € m 3,879 54 1,072 436 5,441 1,186 250 3,777 – 5,213 414 195 1,131 – 1,740 – – – – – – – – – – 5,479 499 5,980(2) 436 12,394 5,479 468 5,980 436 12,363 – 31 – – 31 – – – – –	Total
			€ m
AAA/AA A/A- BBB+/BBB/BBB- Sub investment Unrated			7,165 11,936 1,800 74 76
Total Of which: Stage 1 Stage 2 Stage 3			21,051
			21,020 31 –

		31 December 2020	31 December 2020
	At amortised cost Bank Corporate Sovereign Other Total € m € m € m € m € m 733 – 295 510 1,538 1,134 – 2,314 212 3,660 18 – 38 5 61 1 73 – – 74 – 69 – – 69 1,886 142 2,647 727(1) 5,402 1,886 142 2,647 722 5,397 – – – 5 5 – – – – –	At FVOCI Bank Corporate Sovereign Other Total € m € m € m € m € m 5,032 37 1,227 419 6,715 1,380 257 5,527 – 7,164 381 165 1,219 – 1,765 – 31 – – 31 – – – – – 6,793 490 7,973(2) 419 15,675 6,793 490 7,973 419 15,675 – – – – – – – – – –	Total
			€ m
AAA/AA A/A- BBB+/BBB/BBB- Sub investment Unrated			8,253 10,824 1,826 105 69
Total Of which: Stage 1 Stage 2 Stage 3			21,077
			21,072 5 –

(1)Of which: asset backed securities € 888 million and securities borrowing – customers € 760 million (31 December 2020: asset backed securities € 727 million).

(2)Includes supranational banks and government agencies.

Large exposures

The Group Connected Customers and Large Exposures Credit Policy sets out maximum exposure limits to, or on behalf of, a customer or a group of connected customers.

At 30 June 2021, the Group’s top 50 drawn exposures amounted to € 4.5 billion, and accounted for 7.8% (31 December 2020: € 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 € 927 million (31 December 2020: € 862 million). No single customer exposure exceeded regulatory requirements.

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

76 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Credit risk

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

The Group’s approach to forbearance initiatives are outlined on pages 144 to 146 in the ‘Risk management’ section of the Annual Financial Report 2020. The following tables set out the internal credit ratings and ECL staging of forborne loans and advances to customers:

Analysed by forbearance type			30 June 2021	30 June 2021	30 June 2021	30 June 2021
			At amortised cost
	Residential mortgages € m		Other personal Property and construction Non-property business € m € m € m			Total € m
Temporary forbearance Permanent forbearance		745 897	45 84	259 329	1,180 973	2,229(1) 2,283(2)
Analysed by internal credit ratings Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing		1,642	129	588	2,153	4,512
		– – – – 414 414 1,228	– – – – 32 32 97	– – – – 273 273 315	– – – – 1,461 1,461 692	– – – – 2,180 2,180 2,332
Gross carrying amount Analysed by ECL staging Stage 1 Stage 2 Stage 3 POCI		1,642	129	588	2,153	4,512
		8 405 1,076 153	1 31 97 –	85 272 231 –	14 1,452 687 –	108 2,160 2,091 153
Total ECL allowance		1,642	129	588	2,153	4,512
		368	61	151	480	1,060

Analysed by forbearance type			31 December 2020	31 December 2020	31 December 2020	31 December 2020
			At amortised cost
	Residential mortgages € m		Other personal Property and construction Non-property business € m € m € m			Total € m
Temporary forbearance Permanent forbearance		1,033 1,146	46 94	154 171	414 334	1,647(1) 1,745(2)
Analysed by internal credit ratings Strong Satisfactory Total strong/satisfactory Criticised watch Criticised recovery Total criticised Non-performing		2,179	140	325	748	3,392
		– – – – 466 466 1,713	– – – – 45 45 95	– – – – 80 80 245	– – – – 393 393 355	– – – – 984 984 2,408
Gross carrying amount Analysed by ECL staging Stage 1 Stage 2 Stage 3 POCI		2,179	140	325	748	3,392
		8 457 1,537 177	2 43 95 –	92 78 155 –	20 376 352 –	122 954 2,139 177
Total ECL allowance		2,179	140	325	748	3,392
		631	63	85	193	972

(1) Of which: interest only € 1,239 million, payment moratorium € 529 million, reduced payment € 146 million (31 December 2020: interest only € 1,002 million, payment moratorium € 413 million, reduced payment € 171 million).

(2) Of which: arrears capitalisation and term extension € 927 million, breach/adjustment of covenant € 472 million, restructure € 260 million (31 December 2020: arrears capitalisation and term extension € 898 million, restructure € 274 million, low fixed interest rate € 149 million).

Risk Management 77

AIB Group plc Half-Yearly Financial Report 2021

Credit risk

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

The Group’s focus continues to be on supporting its existing customers and ensuring they are provided with the appropriate forbearance measures, particularly in the current environment by providing support to customers impacted by COVID-19. The total forbearance portfolio has increased by € 1.1 billion to € 4.5 billion at 30 June 2021 (31 December 2020: € 3.4 billion). The increase in the first half of 2021 was predominately in the non-property business portfolio which increased by € 1.4 billion to € 2.1 billion (31 December 2020: € 0.7 billion) as short term temporary interest only forbearance requests were the most prevalent. The UK and CIB non-property forbearance portfolios both experienced increases of € 0.7 billion in the period. The increase reflects specific sectors in this portfolio which are highly impacted by COVID-19 such as hotels, licensed premises and retail. These sectors continue to be closely monitored by the Group.

Irish residential mortgages subject to forbearance measures decreased by € 0.5 billion from € 2.1 billion at 31 December 2020 to € 1.6 billion at 30 June 2021. The decrease in the forbearance portfolio was impacted by the non-performing mortgage portfolio sales. The Group continues to closely monitor the Irish residential mortgage portfolio for potential residual risk as the expiry of government supports and general payment moratoria, introduced via EBA Guidelines in 2020 to support customers during the initial impact of COVID-19, may be delaying the realisation of forbearance and affordability issues. The total Irish residential mortgage portfolio subject to forbearance consists of € 0.7 billion relating to short term temporary arrangements and € 0.9 billion relating to long term permanent solutions. Interest only and arrears capitalisation were the most prominent forbearance solutions availed of by customers.

78 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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. Liquidity risk arises from differences in timing between cash inflows and outflows and can increase due to the unexpected lengthening of maturities or non-repayment of assets, a sudden withdrawal of deposits or the inability to refinance maturing debt.

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. Funding risk can occur where there is an over-reliance on a particular type of funding, a funding gap or a concentration of wholesale funding maturities.

The objective of liquidity management is to ensure that, at all times, the Group holds sufficient funds to meet its contracted and contingent commitments to customers and counterparties at an economic price.

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 recommended by the Risk function and approved by the Board. The liquidity pool assets primarily comprise government guaranteed bonds, balances with central banks and internal and external covered bonds.

At 30 June 2021, the Group held € 63,956 million (31 December 2020: € 53,816 million) in qualifying liquid assets (QLA)[(1)] of which € 16,777 million (31 December 2020: € 10,028 million) was not available due to repurchase, secured loans and other restrictions. The available Group liquidity pool is held to cover contractual and stress outflows. At 30 June 2021, the Group liquidity pool was € 47,179 million (31 December 2020: € 43,788 million). During the six months to June 2021, the liquidity pool ranged from € 43,602 million to € 47,902 million and the average balance was € 45,456 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.

The Group’s liquidity pool increased in the six months to June 2021 by € 3,391 million which was predominantly due to an increase in customer deposits in Ireland, senior debt issuance, customer loan redemptions and proceeds from the portfolio sale of loans during the period offset by covered bond maturities and securities financing activities where cash was exchanged for non QLA.

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 2021 High Quality Liquid Assets (HQLA)(1)in the liquidity pool Level 1 Level 2 € m € m 35,394(2) – 1,589 443 4 960 – 74 4 1,034 36,987 1,477				31 December 2020	31 December 2020
	Liquidity pool (ECB eligible) Liquidity pool € m € m				Liquidity pool (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		32,467(2) 2,032 964 11,716 12,680	– 1,381 28 8,916 8,944	35,394(2) 1,589 4 – 4		19,973(2) 5,952 3,656 14,207 17,863	– 5,345 2,796 11,523 14,319	22,506(2) 5,582 2,206 50 2,256	– 370
									1,450 363
									1,813
Total Of which: EUR GBP USD Other		47,179	10,325	36,987		43,788	19,664	30,344	2,183
		45,055 799 1,322 3				41,274 1,247 1,263 4

(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.

Risk Management 79

AIB Group plc Half-Yearly Financial Report 2021

Funding and liquidity risk

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 147 to 155 of the Annual Financial Report 2020.

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.

	30 June	31 December
	2021	2020
Liquidity metrics	%	%
Liquidity Coverage Ratio	201	193
Net Stable Funding Ratio	149	148
Loan to Deposit Ratio	64	69

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 2021.

The calculated NSFR is based on the second Capital Requirements Regulation (CRR2), effective 27 June 2019, which came into force in June 2021. This introduced a binding NSFR requirement of 100% which the Group is in compliance with. The calculated NSFR reflected up to this point was based on the Group’s interpretation of the Basel Standard.

80 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

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 2021 € m % 88,299 74 72,668 13,426 2,021 184 10,487 9 103 – 1,775 1 3,971 3 15,030 13 119,665 100 3,223 122,888	31 December 2020 € m %	31 December 2020 € 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	88,299 72,668 13,426 2,021 184 10,487 103 1,775 3,971 15,030	81,972 67,998 12,207 1,561 206 4,473 217 2,275 3,175 14,971	77 4 – 2 3 14
Total source of funds Other	119,665 3,223 122,888	107,083 3,302 110,385	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 source of funds. Customer accounts increased by € 6,327 million in the six months to 30 June 2021 due to COVID-19 related dynamics of precautionary savings and lower consumer consumption. This was mainly reflected across the Groups three significant currencies (EUR, GBP, USD) primarily in current and demand deposit accounts. There was an increase in the value of both GBP and USD deposits of € 1,003 million due to currency movements coupled with an underlying increase in GBP and USD deposits of € 676 million on a constant currency basis.

The Group extended its participation in the ECB three year Targeted Long Term Refinancing Operation III (“TLTRO III”). These ECB operations are aimed at supporting the continued access of firms and households to bank credit by applying favourable interest rates to TLTRO III operations of participating banks subject to achieving prescribed lending targets and having the option of early repayment after the first year. Secured deposits by central banks and banks increased by € 6,014 million to € 10,487 million predominantly due to the Group’s € 6 billion June 2021 drawdown in TLTRO III operations.

In the six months to 30 June 2021, senior debt increased € 796 million to € 3,971 million primarily due to new debt issuance and foreign exchange translation adjustments. On 10 May 2021, the Group issued a € 750 million green bond issuance, the proceeds of which will contribute to the financing of projects with clear environmental and climate change benefits. Outstanding asset covered securities (“ACS”) at 30 June 2021 decreased € 500 million to € 1,775 million due to a contractual maturity. 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 2021, capital increased € 59 million to € 15,030 million primarily driven by an increase in reserves and foreign exchange translation adjustments (31 December 2020: € 14,971 million).

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

Risk Management 81

AIB Group plc Half-Yearly Financial Report 2021

Funding and liquidity risk

Composition of wholesale funding[(1)]

At 30 June 2021, total wholesale funding outstanding was € 17,889 million (31 December 2020: € 11,690 million). € 1,049 million of wholesale funding matures in less than one year (31 December 2020: € 912 million). € 16,840 million of wholesale funding has a residual maturity of over one year (31 December 2020: € 10,778 million).

Outstanding wholesale funding comprised € 12,262 million in secured funding (31 December 2020: € 6,748 million) and € 5,627 million in unsecured funding (31 December 2020: € 4,942 million).

	30 June 2021
	< 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	266 21 12 – 299 10,000 291 – 10,590 – – – – – 1,880 1,341 750 3,971 – – – 750 750 1,000 – 25 1,775 – – – – – – – 1,553 1,553
Total 30 June 2021 Of which: Secured Unsecured	266 21 12 750 1,049 12,880 1,632 2,328 17,889
	163 21 12 750 946 11,000 291 25 12,262 103 – – – 103 1,880 1,341 2,303 5,627
	266 21 12 750 1,049 12,880 1,632 2,328 17,889
	31 December 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	387 25 – – 412 4,278 – – 4,690 – – – – – 1,111 2,064 – 3,175 – 500 – – 500 1,750 – 25 2,275 – – – – – – – 1,550 1,550
Total 31 December 2020 Of which: Secured Unsecured	387 525 – – 912 7,139 2,064 1,575 11,690
	170 525 – – 695 6,028 – 25 6,748 217 – – – 217 1,111 2,064 1,550 4,942
	387 525 – – 912 7,139 2,064 1,575 11,690

(1)The maturity analysis has been prepared using the residual contractual maturity of the liabilities.

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 15% at 30 June 2021 (31 December 2020: 11%) with € 18,962 million of the Group’s assets encumbered (31 December 2020: € 12,971 million). The movement in encumbered assets is due to an increase in secured funding following the Groups extended participation in the TLTRO operations. The encumbrance level is based on the amount of assets that are required in order to meet regulatory and contractual commitments.

82 Risk Management AIB Group plc Half-Yearly Financial Report 2021

Risk management

Interest rate benchmark reform

Authorities and regulators are facilitating the market’s transition from interbank offered rates, referred to as “IBOR” benchmark rates (e.g. LIBOR), to alternative Risk Free Rates (RFRs) by the end of 2021. While it is expected that most reforms affecting the Group will be completed by the end of 2021, consultations and possible regulatory changes are still in progress. For further details of the Group’s Interest Rate Benchmark Reform Transition Programme and its activity see page 162 of the Annual Financial Report 2020.

During the six months to 30 June 2021, the Group made significant progress in the rollout of its communication strategy with impacted customers across all products and jurisdictions and a full suite of RFR products is now available. A robust plan is in place to transition all customers and to meet all regulatory milestones. Documentary processes have been updated to facilitate the move to RFR’s across the business and, significantly, contract agreements are already in place with many customers which will enable a smooth transition to occur throughout the second half of 2021. The Group is well progressed, in its project to repaper wholesale derivative contracts, as evidenced by the reduction in GBP LIBOR volumes compared to the position at 31 December 2020. From a hedge accounting perspective, the transition has not had a material impact on hedge effectiveness given the high correlation between Sonia and short-dated LIBOR tenors.

The following table sets out the significant exposures impacted by interest rate benchmark reform by balance sheet account, which have yet to transition, as at 30 June 2021:

	GBP LIBOR USD LIBOR Total € m € m € m
Non-derivative financial assets Loans and advances to customers at amortised cost Investment securities Debt securities at FVOCI Debt securities at amortised cost	6,302 2,431 8,733 187 412 599 – 288 288
Non-derivative financial assets	6,489 3,131 9,620

	GBP LIBOR USD LIBOR Total € m € m € m
Non-derivative financial liabilities Customer accounts	26 – 26
Non-derivative financial liabilities	26 – 26

	GBP LIBOR USD LIBOR Total € m € m € m
Derivative notional contract amount Interest rate derivatives – OTC Interest rate derivatives – OTC – central clearing	4,788 561 5,349 6,954 2,399 9,353
Non-derivative financial assets	11,742 2,960 14,702

AIB Group plc Half-Yearly Financial Report 2021 Financial Statements 83

Condensed consolidated interim financial statements (unaudited)

	Page
ndensed consolidated interim financial statements
Condensed consolidated income statement	84
Condensed consolidated statement of comprehensive income	85
Condensed consolidated statement of financial position	86
Condensed consolidated statement of changes in equity	87
Condensed consolidated statement of cash flows	90

Condensed consolidated interim financial statements

Notes to the condensed consolidated interim financial statements

		Page		Page
1	Basis of preparation, accounting policies		24Deferred taxation	107
	and estimates	91	25Retirement benefits	108
2	Segmental information	92	26Deposits by central banks and banks	110
3	Interest and similar income	96	27Customer accounts	111
4	Interest and similar expense	96	28Debt securities in issue	111
5	Dividend income	96	29Lease liabilities	112
6	Net fee and commission income	97	30Other liabilities	112
7	Net trading income/(loss)	97	31Provisions for liabilities and commitments	112
8	Net gain on other financial assets measured		32Subordinated liabilities and
	at FVTPL	97	other capital instruments	114
9	Other operating income	98	33Share capital	115
10	Operating expenses	98	34Other equity interests	115
11	Net credit impairment writeback/(charge)	99	35Non-controlling interests in subsidiaries	116
12	Taxation	99	36Capital reserves, merger reserve and
13	Earnings per share	101	capital redemption reserves	116
14	Distributions on equity shares and		37Contingent liabilities and commitments	117
	other equity interests	101	38Off-balance sheet arrangements and
15	Disposal groups and non-current assets		transferred financial assets	118
	held for sale	102	39Fair value of financial instruments	119
16	Derivative financial instruments	102	40Cash and cash equivalents	125
17	Loans and advances to banks	103	41Statement of cash flows	126
18	Loans and advances to customers	103	42Related party transactions	127
19	Securities borrowing – customers	104	43Financial and other information	130
20	ECL allowance on financial assets	104	44Dividends	130
21	Investment securities	105	45Proposed acquisitions	130
22	Interests in associated undertakings	106	46Non-adjusting events after the reporting period	130
23	Other assets	106	47Approval of the Half-Yearly Financial Report	130

84 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Condensed consolidated income statement (unaudited)

for the half-year ended 30 June 2021

Notes	Half-year 30 June 2021 € m	Half-year 30 June 2020 € m
Interest income calculated using the effective interest method 3 Other interest income and similar income 3	970 40	1,060 38
Interest and similar income 3 Interest and similar expense 4	1,010 (129)	1,098 (131)
Net interest income Dividend income 5 Fee and commission income 6 Fee and commission expense 6 Net trading income/(loss) 7 Net gain on other financial assets measured at FVTPL 8 Net loss on derecognition of financial assets measured at amortised cost Other operating income 9 Other income	881 1 289 (77) 9 70 (8) 6 290	967
		25 276 (84) (40) 43 (1) 1
		220
Total operating income Operating expenses 10 Impairment and amortisation of intangible assets Impairment and depreciation of property, plant and equipment Total operating expenses	1,171 (808) (95) (86) (989)	1,187
		(749) (88) (48)
		(885)
Operating profit before impairment losses Net credit impairment writeback/(charge) 11	182 103	302 (1,216)
Operating profit/(loss) Associated undertakings 22	285 6	(914) 5
Profit/(loss) before taxation Income tax(charge)/credit 12	291 (17)	(909) 209
Profit/(loss) for the period Attributable to: – Equity holders of the parent – Non-controllinginterests 35	274	(700)
	275 (1)	(718) 18
Profit/(loss) for the period Earnings per share Basic earnings/(loss) per ordinary share 13(a) Diluted earnings/(loss) per ordinaryshare 13(b)	274	(700)
	8.9c 8.9c	(27.0)c (27.0)c

AIB Group plc Half-Yearly Financial Report 2021 Financial Statements 85

Condensed consolidated statement of comprehensive income (unaudited)

for the half-year ended 30 June 2021

Notes	Half-year 30 June 2021 Half-year 30 June 2020 € m € m
Profit/(loss) for the period Other comprehensive income *Items that will not be reclassified subsequently to profit or loss:* Net actuarial gain in retirement benefit schemes, net of tax 12 Net change in fair value of equityinvestments at FVOCI, net of tax 12	274 (700) 6 – – (18)
*Total items that will not be reclassified subsequently to profit or loss*	6 (18)
*Items that will be reclassified subsequently to profit or loss* *when specific conditions are met* Net change in foreign currency translation reserves 12 Net change in cash flow hedges, net of tax 12 Net change in fair value of investment debt securities at FVOCI, net of tax 12	60 (86) (206) 104 (45) (140)
*Total items that will be reclassified subsequently to profit or loss* *when specific conditions are met*	(191) (122)
Other comprehensive income for the period, net of tax	(185) (140)
Total comprehensive income for the period Attributable to: – Equity holders of the parent – Non-controllinginterests	89 (840)
	90 (858) (1) 18
Total comprehensive income for the period	89 (840)

86 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Condensed consolidated statement of financial position (unaudited)

as at 30 June 2021

Notes	30 June 2021 31 December 2020 € m € m	30 June 2021 31 December 2020 € m € m
Assets Cash and balances at central banks 40 Items in course of collection Disposal groups and non-current assets held for sale 15 Derivative financial instruments 16 Loans and advances to banks 17 Loans and advances to customers 18 Securities borrowing – 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	39,008 61 12 1,013 4,022 56,612 760 16,528 107 929 643 110 38 2,765 250 30	25,550 43 14 1,424 1,799 56,945 – 19,479 98 937 725 235 57 2,711 339 29
Total assets Liabilities Deposits by central banks and banks 26 Customer accounts 27 Derivative financial instruments 16 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	122,888	110,385
	10,590 88,299 1,048 5,746 357 5 51 53 978 248 483 1,553	4,690 81,972 1,201 5,450 382 1 44 68 955 255 396 1,550
Total liabilities Equity Share capital 33 Reserves Total shareholders' equity Other equity interests 34 Non-controllinginterests 35	109,411	96,964
	1,696 10,666 12,362 1,115 –
		1,696 10,609
		12,305 1,115 1
Total equity Total liabilities and equity	13,477	13,421
	122,888	110,385

AIB Group plc Half-Yearly Financial Report 2021 Financial Statements

2 3 4

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 2021 1,696 1,115 1,133 (3,622) 14 14 206 540 12,923 (599) 13,420 1 13,421 Total comprehensive income for the period Profit for the period – – – – – – – – 275 – 275 (1) 274 Other comprehensive income_(note 12)_ – – – – – – (45) (206) 6 60 (185) – (185)	Total comprehensive income for the period – – – – – – (45) (206) 281 60 90 (1) 89	Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the Group: Distributions paid to other equity interests_(note 14)_ – – – – – – – – (33) – (33) – (33)	Total contributions by and distributions to owners of the Group – – – – – – – – (33) – (33) – (33)	At 30 June 2021 1,696 1,115 1,133 (3,622) 14 14 161 334 13,171 (539) 13,477 – 13,477

88 Financial Statements

AIB Group plc Half-Yearly Financial Report 2021

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 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 12)_ – – – – – – (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 – – – – – – – – (6) – (6) (200) (206) Issue of Additional Tier 1 Securities – 620 – – – – – – – – 620 – 620 Distributions paid to other equity interests_(note 14)_ – – – – – – – – (13) – (13) – (13) Distributions paid to non-controlling interests – – – – – – – – – – – (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

Financial Statements 89

AIB Group plc Half-Yearly Financial Report 2021

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 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 year Loss for the year – – – – – – – – (769) – (769) 28 (741) Other comprehensive income – – – – – – (73) 71 (38) (70) (110) – (110)	Total comprehensive income for the year – – – – – – (73) 71 (807) (70) (879) 28 (851)	Transactions with owners, recorded directly in equity Contributions by and distributions to owners of the Group Non-controlling interests in subsidiary_(note 35) – – – – – – – – – – – 2 2 Redemption of capital instruments – – – – – – – – (9) – (9) (494) (503) Issue of Additional Tier 1 Securities(note 34) – 619 – – – – – – – – 619 – 619 Distributions paid to other equity interests – – – – – – – – (46) – (46) – (46) Distributions paid to non-controlling interests(note 35)_ – – – – – – – – – – – (30) (30)	Total contributions by and distributions to owners of the Group – 619 – – – – – – (55) – 564 (522) 42	Realised gains on equity shares held at fair value through other comprehensive income – – – – – – (344) – 344 – – – –	At 31 December 2020 1,696 1,115 1,133 (3,622) 14 14 206 540 12,923 (599) 13,420 1 13,421

90 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Condensed consolidated statement of cash flows (unaudited)

for the half-year ended 30 June 2021

		Half-year	Half-year
		30 June	30 June
		2021	2020
	Notes	€ m	€ m
Cash flows from operating activities
Profit/(loss) before taxation for the period		291	(909)
Adjustments for:
– Non-cash and other items	41	331	1,378
– Change in operating assets	41	(1,185)	1,356
– Change in operating liabilities	41	11,072	4,036
– Taxation refund/(paid)		9	(33)
Net cash inflow from operating activities		10,518	5,828
Cash flows from investing activities
Purchase of investment securities		(1,367)	(5,000)
Proceeds from sales, redemptions and maturity of investment securities		4,302	2,518
Additions to property, plant and equipment		(6)	(5)
Disposal of property, plant and equipment		5	7
Additions to intangible assets		(85)	(95)
Investments in associated undertakings	22	(3)	–
Net cash inflow/(outflow) from investing activities		2,846	(2,575)
Cash flows from financing activities
Net proceeds on issue of Additional Tier 1 Securities	34	–	620
Redemption of capital instruments		–	(206)
Proceeds on issue of debt securities – MREL	28	750	–
Distributions paid to other equity interests	14	(33)	(13)
Distributions paid to non-controlling interests	35	–	(19)
Repayment of lease liabilities		(20)	(28)
Interest paid on debt securities – MREL		(49)	(53)
Interestpaid on subordinated liabilities and other capital instruments		(19)	–
Net cash inflow from financing activities		629	301
Change in cash and cash equivalents		13,993	3,554
Opening cash and cash equivalents		26,559	12,923
Effect of exchange translation adjustments		282	(289)
Closing cash and cash equivalents	40	40,834	16,188

AIB Group plc Half-Yearly Financial Report 2021 Financial Statements 91

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 is 10 Molesworth Street, Dublin 2, 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 2021 comprise the parent company and its subsidiary undertakings, collectively referred to as ‘AIB Group’, and the Group’s interests in associated undertakings.

The consolidated financial statements of the Group for the year ended 31 December 2020 (‘the Annual Financial Report 2020’) are available upon request from the Group Company Secretary or at www.aib.ie.

Going concern

The financial statements for the six months ended 30 June 2021 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. This includes capital forecasts and internally generated stress scenarios with additional scenarios to take account of the inorganic initiatives that the Group has committed to. The scenarios include the potential prolonged impacts of COVID-19 and Brexit. The period of assessment used by the Directors is twelve 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 2021 have been prepared in accordance with IAS 34 Interim Financial Reporting . These statements should be read in conjunction with the Annual Financial Report 2020, 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 changes in equity and the condensed consolidated statement of cash flows 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.

New and amended standards and interpretations

The accounting policies described on pages 234 to 260 in the Annual Financial Report 2020 have remained unchanged apart from the adoption of Interest Rate Benchmark Reform Phase 2 Amendments which are effective for annual periods beginning on or after 1 January 2021.

Interest Rate Benchmark Reform – Phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (“IBOR”) is replaced with an alternative nearly risk-free interest rate (‘RFR’). The amendments include a number of practical expedients which were set out on page 260 of the Annual Financial Report 2020. These amendments had no material impact on the condensed consolidated interim financial statements of the Group.

For further details of Interest Rate Benchmark Reform see page 82.

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 ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period affected. The judgements 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.

92 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

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 261 to 265 of the Annual Financial Report 2020 and while they remain appropriate, additional disclosures taking account of developments in the six months to 30 June 2021 are given as follows:

Note 31 ‘Provisions for liabilities and commitments’ to the interim consolidated financial statements includes details of the additional provision of € 75 million relating to the ongoing review of investments in Belfry funds and the anticipated cost of redress and other related costs that may be payable.

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 continues to be relevant at 30 June 2021 given the changing nature of 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 42 to 44. Updated macroeconomic variables, used in models to calculate ECL allowance are set out on pages 37 to 40.

Prospective accounting changes

Information on prospective accounting changes is set out on page 260 of the Annual Financial Report 2020. 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 2021 are unaudited but have been reviewed by the independent auditor, Deloitte Ireland LLP, whose report is set out on page 132. The financial information presented herein does not amount to statutory financial statements within the meaning of the Companies Act 2014. 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 2020 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 did not include a reference to any matters to which the statutory auditor drew attention by way of emphasis. The 31 December 2020 financial statements are not annexed to these interim financial statements. The financial statements for the financial year ended 31 December 2020 have been filed in the Companies Registration Office. Deloitte Ireland LLP have not performed an audit of any information subsequent to 1 January 2020.

2 Segmental information

Segment overview

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.

Financial Statements 93

AIB Group plc Half-Yearly Financial Report 2021

2 Segmental information (continued)

*2 Segmental information(continued)***
						Half-year 30 June 2021
	Retail Banking € m		CIB € m	AIB UK € m	Group € m	Total Excep- tional items(1) € m € m		Total € m
Operations by business segment Net interest income Net fee and commission income* Other Other income		519 156 18 174	212 37 27 64	105 20 5 25	45 (1) 40 39	881 212 90 302	– – (12)(2) (12)	881
								212 78
								290
Total operating income Other operating expenses Of which: Personnel expenses General and administrative expenses Depreciation, impairment and amortisation Bank levies and regulatoryfees		693 (433) *(194)* *(150)* *(89)* (1)	276 (65) *(46)* *(14)* *(5)* –	130 (86) *(47)* *(28)* *(11)* –	84 (155) *(73)* *(47)* *(35)* (70)	1,183 (739) *(360)* *(239)* *(140)* (71)	(12) (179) *(4)(3)(4) (134)(4)-(7) (41)*(5) –	1,171 (918) *(364)* *(373)* *(181)* (71)
Total operating expenses Operating profit/(loss) before impairment losses Net credit impairment writeback		(434) 259 55	(65) 211 39	(86) 44 9	(225) (141) –	(810) 373 103	(179) (191) –	(989) 182 103
Operating profit/(loss) Associated undertakings		314 4	250 1	53 1	(141) –	476 6	(191) –	285 6
Profit/(loss) before taxation		318	251	54	(141)	482	(191)	291

(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)Loss on disposal of loan portfolios;

(5)Restructuring costs;

(3)Termination benefits; (6)Inorganic transaction costs; and

(4)Restitution costs; (7)Other.

For further information on these items see page 20.

*Analysis of net fee and commission income	Half-year 30 June 2021
	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	116 10 12 8 146 17 10 3 (1) 29 5 13 8 – 26 65 – – – 65 25 5 – (7) (1) 23
Fee and commission income Specialised payment services expenses Other fee and commission expenses	228 38 23 – 289 (58) – – – (58) (14) (1) (3) (1) (19)
Fee and commission expense	(72) (1) (3) (1) (77)
	156 37 20 (1) 212

(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.

94 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

2 Segmental information (continued)

						Half-year 30 June 2020	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 costs; 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.

Financial Statements 95

AIB Group plc Half-Yearly Financial Report 2021

2 Segmental information (continued)

Other amounts – statement of financial position

Other amounts–statement of financial position
		30 June 2021
		Retail Banking CIB AIB UK Group Total € m € m € m € m € m
Loans and advances to customers: – measured at amortised cost – measured at FVTPL		33,189 14,493 8,655 19 56,356 – 256 – – 256
Total loans and advances to customers Customer accounts		33,189 14,749 8,655 19 56,612 61,194 13,386 12,262 1,457 88,299
		31 December 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		34,008 14,453 8,269 140 56,870 – 75 – – 75
Total loans and advances to customers Customer accounts		34,008 14,528 8,269 140 56,945 56,874 12,735 10,959 1,404 81,972
Geographic information(1)(2)		Half-year 30 June 2021
		Ireland United Kingdom Rest of the World Total € m € m € m € m
Gross external revenue Inter-geographical segment revenue		1,089 81 1 1,171 (72) 69 3 –
Total revenue Geographic information(1)(2)		1,017 150 4 1,171
		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		1,069 115 3 1,187

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 9).

Geographic Information	30 June 2021
	Ireland United Kingdom Rest of the World Total € m € m € m € m
Non-current assets(3)	1,498 70 4 1,572
Geographic Information	31 December 2020
	Ireland United Kingdom Rest of the World Total € m € m € m € m
Non-current assets(3)	1,587 71 4 1,662

(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.

96 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

	Half-year	Half-year
	30 June	30 June
	2021	2020
3 Interest and similar income	€ m	€ m
Interest on loans and advances to customers at amortised cost	883	966
Interest on securities borrowing – customers	–	–
Interest on loans and advances to banks at amortised cost	4	9
Interest on investment securities	33	72
	920	1,047
Negative interest on financial liabilities at amortised cost	50	13
Interest income calculated using the effective interest method	970	1,060
Interest income on finance leases and hire purchase contracts	37	37
Interest income on financial assets at FVTPL	3	1
Other interest income and similar income	40	38
Total interest and similar income	1,010	1,098

Interest income includes a credit of € 81 million (30 June 2020: a credit of € 63 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
	2021	2020
4 Interest and similar expense	€ m	€ m
Interest on deposits by central banks and banks	–	3
Interest on customer accounts	27	48
Interest on debt securities in issue	27	39
Interest on lease liabilities	6	7
Interest on subordinated liabilities and other capital instruments	20	20
	80	117
Negative interest on financial assets at amortised cost	46	13
Negative interest on financial assets at FVOCI	3	1
Interest expense calculated using the effective interest method	129	131

Interest expense includes a charge of € 10 million (30 June 2020: a charge of € 13 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
	2021	2020
5 Dividend income	€ m	€ m
NAMA subordinated bonds at FVOCI	–	23
Equityinvestments at FVTPL	1	2
Total	1	25

Financial Statements 97

AIB Group plc Half-Yearly Financial Report 2021

6 Net fee and commission income Half-year 30 June 2021 Half-year 30 June 2020 € m € m	6 Net fee and commission income Half-year 30 June 2021 Half-year 30 June 2020 € m € m	6 Net fee and commission income Half-year 30 June 2021 Half-year 30 June 2020 € 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	146 29 26 65 23 289 (58) (19) (77)
		137 26 21 70 22
		276
		(63) (21)
		(84)
	212	192

(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 € 11 million (30 June 2020: € 8 million), insurance commissions € 6 million (30 June 2020: € 7 million) and other commissions € 6 million (30 June 2020: € 7 million).

(3) Other fee and commission expenses includes credit card commissions of € 14 million (30 June 2020: € 16 million), and ATM expenses of € 1 million (30 June 2020: € 1 million), both of which relate to ‘Retail banking customer fees’. This also includes € 4 million (30 June 2020: € 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
	2021	2020
7 Net trading income/(loss)	€ m	€ m
Foreign exchange contracts	(7)	(17)
Interest rate contracts and debt securities(1)	25	(14)
Credit derivative contracts	(2)	(2)
Equityinvestments, index contracts and warrants(2)	(7)	(7)
	9	(40)

(1) Includes a gain of € 17 million (30 June 2020: loss of € 19 million) in relation to XVA adjustments. (XVA comprises counterparty valuation adjustments (“CVA”) and funding valuation adjustments (“FVA”)).

(2)Includes a loss of € 7 million on a total return swap, which is hedging equities measured at FVTPL (30 June 2020: loss of € 6 million).

The total hedging ineffectiveness on cash flow hedges reflected in the condensed consolidated income statement amounted to Nil (30 June 2020: Nil).

	Half-year	Half-year
	30 June	30 June
	2021	2020
8 Netgain on other financial assets measured at FVTPL	€ m	€ m
Loans and advances to customers(1)	17	21
Investment securities – equity(2)	53	22
Total	70	43

(1)Excludes interest income (note 3).

(2)Includes gain of € 29 million on equities hedged by a trading total return swap (30 June 2020: € 6 million).

98 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

	Half-year	Half-year
	30 June	30 June
	2021	2020
9 Other operating income	€ m	€ m
Gain on disposal of investment securities at FVOCI – debt	18	7
Loss on termination of hedging swaps(1)	(11)	(7)
Miscellaneous operatingincome	(1)	1
	6	1

(1) The majority of the loss on termination of hedging swaps relates to the disposal of debt securities at FVOCI. In the half-year to June 2020, it includes a charge of € 1 million transferred from other comprehensive income in respect of cash flow hedges.

10 Operating expenses	Half-year 30 June 2021 Half-year 30 June 2020 € m € m	Half-year 30 June 2021 Half-year 30 June 2020 € 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)	292 2 45 32 6 377 (13)
		299 6 45 33 10
		393 (13)
Personnel expenses General and administrative expenses Restitution and associated costs Bank levies and regulatoryfees	364 248 125(5) 373 71	380
		248 58
		306 63
Operating expenses	808	749

(1) Voluntary severance programme charge of € 2 million (30 June 2020: € 6 million).

(2) Comprises a defined contribution charge of € 39 million (30 June 2020: a charge of € 39 million), a charge of € 2 million in relation to defined benefit expense (30 June 2020: a charge of € 2 million), and a long term disability payments/death in service benefit charge of € 4 million (30 June 2020: 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)Relates primarily to the Belfry provisions (see note 31) and the associated costs related to the Tracker Mortgage Examination.

Financial Statements 99

AIB Group plc Half-Yearly Financial Report 2021

11 Net credit impairment writeback/(charge)

The following table analyses the income statement net credit impairment writeback/(charge) on financial instruments.

Credit impairment writeback/(charge) on financial instruments	Half-year 30 June 2021 Measured at amortised cost Measured at FVOCI Total € m € m € m – – – 70 – 70 (2) – (2) (1) – (1) – – – 67 – 67 36 – 36 103 – 103	Half-year 30 June 2020
		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		– – – (1,202) – (1,202) (37) – (37) (10) – (10) (1) – (1)
Credit impairment writeback/(charge)		(1,250) – (1,250)
Recoveries of amountspreviouslywritten-off		34 – 34
Net credit impairment writeback/(charge)		(1,216) – (1,216)

12 Taxation	Half-year 30 June 2021 Half-year 30 June 2020 € m € m	Half-year 30 June 2021 Half-year 30 June 2020 € 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	(5) 2 (3) (14) – (14)
		– 61
		61
		31 (1)
		30
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 Increase/(reduction) in carrying value of deferred tax assets in respect of carried forward losses	(17) (14) 2 4 8 –	91
		(8) 21 109 (4)
		118
Total tax (charge)/credit for the period Effective tax rate	(17)	209
	5.8%	23.0%

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.

Increase/(reduction) in carrying value of deferred tax assets in respect of carried forward losses includes a credit of € 26 million in relation to the change in the UK corporation tax rate with effect from 1 April 2023.

During the half-year to 30 June 2020, 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.

100 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

12 Taxation (continued)

Analysis of selected other comprehensive income

	Half-year 30 June 2021 Gross Tax Net € m € m € m – – – – – – 6 – 6 6 – 6 – – – – – – (69) 9 (60) 120 – 120 51 9 60 – – – (71) 9 (62) (165) 21 (144) (236) 30 (206) (18) 2 (16) (34) 5 (29) (52) 7 (45) – – – – – –	Half-year 30 June 2020
		Gross Tax Net € m € m € m
Property revaluation reserves Net change inpropertyrevaluation reserves		– – –
Total Retirement benefit schemes Actuarial losses in retirement benefit schemes		– – –
		– – –
Total Foreign currency translation reserves Amounts reclassified from the foreign currency translation 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 Recognised in other comprehensive income: – Net (losses) on net investment hedges – Exchange differences on translation of foreign operations		– – –
		– – – – – – – – – (86) – (86)
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 (losses)/gains recognised in other comprehensive income		(86) – (86)
		– – – (49) 6 (43) 168 (21) 147
Total Investment debt securities at FVOCI reserves Fair value (gains) transferred to income statement Fair value(losses)recognised in other comprehensive income		119 (15) 104
		(7) 1 (6) (153) 19 (134)
Total Investment equity securities measured at FVOCI reserves Fair value(losses)recognised in other comprehensive income		(160) 20 (140)
		(21) 3 (18)
Total		(21) 3 (18)

Financial Statements 101

AIB Group plc Half-Yearly Financial Report 2021

13 Earnings per share

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

The diluted earnings/(loss) per share is based on the profit/(loss) 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 2021 Half-year 30 June 2020 € m € m
Profit/(loss) attributable to equity holders of the parent Distributions on other equityinterests_(note 14)_		275 (718) (33) (13)
Profit/(loss) attributable to ordinary shareholders of the parent Weighted average number of ordinary shares in issue during the period Earnings/(loss) per share – basic (b) Diluted		242 (731)
		Number of shares (millions) 2,714.4 2,714.4
		EUR 8.9c EUR(27.0)c
		Half-year 30 June 2021 Half-year 30 June 2020 € m € m
Profit/(loss) attributable to ordinary shareholders of the parent_(note 14 (a))_ Weighted average number of ordinaryshares in issue duringtheperiod		242 (731)
		Number of shares (millions) 2,714.4 2,714.4
Potential weighted average number of shares Earnings/(loss) per share – diluted		2,714.4 2,714.4
		EUR 8.9c EUR(27.0)c

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 38 in the Annual Financial Report 2020 for further details).

14 Distributions on equity shares and other equity interests	Half-year 30 June 2021 Half-year 30 June 2020 € m € m
Ordinary shares – dividends paid Other equity interests – distributions	– –
	33 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.

No final dividend on ordinary shares was paid in respect of the financial year ended 31 December 2020.

Distributions amounting to € 33 million (30 June 2020: € 13 million) were paid in the period on the Additional Tier 1 Securities issued by AIB Group plc.

102 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

	30 June	31 December
	2021	2020
15 Disposalgroups and non-current assets held for sale	€ m	€ m
Propertyand non-financial assets held for sale(1)	12	14
Total disposal groups and non-current assets held for sale	12	14

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

16 Derivative financial instruments

The following table presents the notional principal amount and the fair value of derivative financial instruments analysed by purpose.

			31 December 2020
	Notional principal amount € m	Notional principal amount € m	Fair values
			Assets Liabilities € m € m
Derivatives held for trading Interest rate derivatives Foreign exchange derivatives Equity derivatives Credit derivatives	11,307 9,267 185 125	11,013 7,848 49 350	579 (590) 70 (46) – (1) 1 (9)
Total derivatives held for trading Derivatives held for hedging Derivatives designated as cash flow hedges Derivatives designated as fair value hedges Derivatives designated as net investment hedges	20,884	19,260	650 (646)
	20,555 18,825 1,506	20,308 19,109 –	556 (114) 218 (441) – –
Total derivatives held for hedging Total derivative financial instruments	40,886	39,417	774 (555)
	61,770	58,677	1,424 (1,201)

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 2020.

During the period, the Group hedged the currency risk of its net investment in the first £ 1.3 billion of net assets in AIB Group (UK) p.l.c. using forward exchange contracts. The effective portion of the gains or losses on the revaluation of the forward contracts, due to exchange rate risk, is recorded in equity to offset any gains or losses on translation of the first £ 1.3 billion of net investments in AIB Group (UK) p.l.c. The ineffectiveness in this hedge was Nil in 2021.

For further details on the Group’s derivative activity see note 20 in the Annual Financial Report 2020.

Financial Statements 103

AIB Group plc Half-Yearly Financial Report 2021

17 Loans and advances to banks	30 June 2021 31 December 2020 € m € m	30 June 2021 31 December 2020 € m € m
At amortised cost Funds placed with central banks Funds placed with other banks ECL allowance	382 3,640 4,022 –
		378 1,421
		1,799 –
Total loans and advances to banks Amount include: Reverse repurchase agreements Securities borrowings	4,022	1,799
	1,518 1,371	194 513

Loans and advances to banks include cash collateral of € 532 million (31 December 2020: € 445 million) placed with derivative counterparties in relation to net derivative positions and placed with repurchase agreement counterparties.

Under reverse repurchase agreements, the Group accepts collateral that it is permitted to sell or repledge in the absence of default by the owner of the collateral. At 30 June 2021, the collateral received consisted of non-government securities with a fair value of € 1,517 million (31 December 2020: € 194 million), none of which had been resold or repledged. These transactions were conducted under terms that are usual and customary to standard reverse repurchase agreements.

Under securities borrowings, the Group accepts collateral that it is permitted to sell or repledge in the absence of default by the owner of the collateral. At 30 June 2021, the collateral received consisted of non-government securities and equities with a fair value of € 1,369 million (31 December 2020: € 510 million), none of which had been resold or repledged. These transactions were conducted under terms that are usual and customary to standard securities borrowing agreements.

18 Loans and advances to customers	30 June 2021 31 December 2020 € m € m	30 June 2021 31 December 2020 € m € m
Amortised cost Loans and advances to customers Reverse repurchase agreements Amounts receivable under finance leases and hire purchase contracts ECL allowance	56,827 5 1,615 58,447 (2,091)
		57,684 104 1,592
		59,380 (2,510)
	56,356	56,870
Mandatorily at fair value through profit or loss Loans and advances to customers	256	75
Total loans and advances to customers Additional information: Amounts which are repayable on demand or at short notice Amounts due from associated undertakings(1)	56,612	56,945
	2,425 –	2,829 1

(1)Undrawn commitments amount to € 130 million and are for less than one year (31 December 2020: € 117 million).

Loans and advances to customers include cash collateral amounting to € 12 million (31 December 2020: € 14 million) placed with derivative counterparties.

Under reverse repurchase agreements, the Group has accepted collateral with a fair value of € 6 million (31 December 2020: € 107 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.

104 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

	30 June	31 December
	2021	2020
19 Securities borrowing – customers	€ m	€ m
At end of period	760	–

During the period, the Group entered into securities borrowing transactions with counterparties who were not classified as banks for the first time. As a result, a new consolidated statement of financial position line item “Securities borrowing – customers” has been introduced. Previously, the only counterparties to securities borrowing transactions were banks and these transactions continue to be reported within “Loans and advances to banks”.

Under securities borrowing with customers, the Group accepts collateral that it is permitted to sell or repledge in the absence of default by the owner of the collateral. At 30 June 2021, the collateral received consisted of non-government securities and equities with a fair value of € 761 million, none of which had been resold or repledged. These transactions were conducted under terms that are usual and customary to standard securities borrowing agreements. They are classified as Stage 1 and have an ECL of Nil.

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 2021 31 December 2020 € 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	2,511 1,238 20 (17) – 1 – – (70) 1,493 (52) (151) (317) (57) – 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	2,092 2,511
	1 1 – – 2,091 2,510
	2,092 2,511

Financial Statements 105

AIB Group plc Half-Yearly Financial Report 2021

21 Investment securities

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

	30 June	31 December
	2021	2020
	€ m	€ m
Debt securities at FVOCI
Irish Government securities(1)	3,557	5,421
Euro government securities	1,187	1,277
Non Euro government securities	108	95
Supranational banks and government agencies	1,128	1,180
Collateralised mortgage obligations	359	334
Other asset backed securities	77	85
Euro bank securities	3,934	5,173
Non Euro bank securities	1,545	1,620
Euro corporate securities	397	397
Non Euro corporate securities	102	93
Total debt securities at FVOCI	12,394	15,675
Debt securities at amortised cost
Irish Government securities	2,407	2,294
Euro government securities	90	90
Non Euro government securities	55	55
Supranational banks and government agencies	208	208
Asset backed securities	888	727
Euro bank securities	87	87
Euro corporate securities	104	107
Non Euro corporate securities	36	35
Total debt securities at amortised cost	3,875	3,603
Equity securities
Equityinvestments at FVTPL	259	201
Total equity securities	259	201
Total investment securities	16,528	19,479

(1)At 31 December 2020, this included € 1,804 million in Euro Commercial Paper issued by the Irish Government. This was Nil at 30 June 2021.

Debt securities at FVOCI include unrealised gross gains of € 398 million (31 December 2020: € 585 million) and unrealised gross losses of € 22 million (31 December 2020: € 1 million). Equity investments at FVTPL include unrealised gross gains of € 135 million (31 December 2020: € 84 million) and unrealised gross losses of € 5 million (31 December 2020: € 7 million).

Credit impairment losses recognised in the income statement for the period to 30 June 2021 amounted to Nil (2020: Nil).

106 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

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 2021 Half-year 30 June 2020 € m € m
Share of results of associated undertakings(1)	6 5
Share of net assets including goodwill	6 5
	30 June 2021 31 December 2020 € m € m
At 1 January Investments in associated undertakings(2) Income for theperiod	98 83 3 – 6 15
At end of period(3) Of which listed on a recognised stock exchange	107 98
	– –

(1)Includes AIB Merchant Services € 8 million (30 June 2020: € 5 million).

(2)In 2021, this includes an investment amounting to € 3 million in Synch Payments d.a.c.

(3)Comprises the Group’s investment in AIB Merchant Services, Fulfil Holdings Limited and Synch Payments d.a.c.

	30 June	31 December
	2021	2020
23 Other assets	€ m	€ m
Fair value of hedged asset positions(1)	1	80
Other(2)	109	155
Total	110	235

(1)The fair value of the hedged asset positions only relates to when the hedged item is at amortised cost.

(2)Includes items in transit € 43 million (31 December 2020: € 34 million) and sundry debtors € 54 million (31 December 2020: € 84 million).

Financial Statements 107

AIB Group plc Half-Yearly Financial Report 2021

24 Deferred taxation

24 Deferred taxation
Analysis of movements in deferred taxation	30 June 2021 31 December 2020 € m € m
At 1 January Exchange translation and other adjustments Deferred tax through other comprehensive income Income statement_(note 12)_	2,667 2,557 1 (3) 46 12 – 101
At end of period Analysed as to: Deferred tax assets Deferred tax liabilities	2,714 2,667
	2,859 2,836 (145) (169)
Represented on the statement of financial position: Deferred tax assets Deferred tax liabilities	2,714 2,667
	2,765 2,711 (51) (44)
	2,714 2,667

At 30 June 2021, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities, totalled € 2,714 million (31 December 2020: € 2,667 million). The most significant tax losses arise in the Irish tax jurisdiction and their utilisation is dependent on future taxable profits.

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 2021 of € 2,697 million (31 December 2020: € 2,646 million) are expected to be recovered after more than 12 months.

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.

Following changes announced in the UK budget, a resolution was subsequently passed that the UK Corporation Tax rate will increase from 19% to 25% from 1 April 2023. Accordingly, a corporation tax rate of 25% has been substantially enacted in the period and this change has resulted in an increase of the Group’s UK deferred tax asset for unutilised losses by € 26 million.

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.

The Group has not recognised deferred tax assets in respect of: Irish tax on unused tax losses at 30 June 2021 of € 161 million (31 December 2020: € 161 million); overseas tax (UK and USA) on unused tax losses of € 3,368 million (31 December 2020: € 3,270 million); and foreign tax credits for Irish tax purposes of € 13 million (31 December 2020: € 12 million). Of these tax losses totalling € 3,529 million for which no deferred tax is recognised: € 34 million expires in 2033; € 24 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 2020: Nil).

Deferred tax recognised directly in equity amounted to Nil (31 December 2020: Nil).

Additional information on the basis of recognition of deferred tax assets on unused tax losses is included in note 2 ‘Critical accounting judgements and estimates’ on pages 261 to 262 of the Annual Financial Report 2020.

108 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

25 Retirement benefits

The Group’s accounting policy for retirement benefit obligations is set out on pages 241 and 242 of the Annual Financial Report 2020. 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 2021 was € 39 million (30 June 2020: € 39 million).

Defined benefit schemes

The Group’s net pension deficit as at 30 June 2021 was € 23 million (31 December 2020: € 39 million), comprising retirement benefit assets of € 30 million (31 December 2020: € 29 million) and retirement benefit liabilities of € 53 million (31 December 2020: € 68 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 2021 and the year ended 31 December 2020. The assumptions have been set based upon the advice of the Group’s actuary.

advice of the Group’s actuary.
	30 June	31 December
	2021	2020
Financial assumptions	%	%
Irish scheme
Rate of increase of pensions in payment(1)	0.20	0.20
Discount rate	1.49	1.10
Inflation assumptions(2)	1.45	0.95
UK scheme
Rate of increase of pensions in payment	3.20	2.90
Discount rate	1.90	1.40
Inflation assumptions(RPI)	3.20	2.90

(1) Having taken actuarial advice the Group adopted a rate of 0.2% (31 December 2020: 0.2%) for the long term assumption for future discretionary increases in pension in payment reflecting an assessment of the ability of the Trustee to grant future discretionary increases without funding from the Group.

(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 30 in the Annual Financial Report 2020.

Contributions

There were no contributions made to the Irish Scheme for the six months to 30 June 2021. Contributions of £ 9.25 million were made to the UK Scheme, as a result of the revised funding arrangement implemented in December 2019. For further details on the agreed funding arrangement see note 30 in the Annual Financial Report 2020.

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. No deficit funding is required at this time as the Irish scheme meets the minimum funding standard. The next actuarial valuation of the Irish scheme as at 30 June 2021 is due to be completed by no later than 31 March 2022. The most recent valuation of the UK scheme was carried out at 31 December 2017. The next actuarial valuation of the UK scheme as at 31 December 2020 is due to be completed by no later than 31 December 2021.

Financial Statements 109

AIB Group plc Half-Yearly Financial Report 2021

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 2021				31 December 2020	31 December 2020
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	(6,226)	6,627	(440)	(39)		(5,904)	6,474	(591)	(21)
Included in profit or loss
Past service cost	–	–	–	–		(1)	–	–	(1)
Interest (cost)/income	(36)	38	(2)	–		(90)	98	(8)	–
Administration costs	–	(2)	–	(2)		–	(4)	–	(4)
	(36)	36	(2)	(2)		(91)	94	(8)	(5)
Included in other comprehensive income
Re-measurements gain/(loss):
– Actuarial gain/(loss) arising from:
– Experience adjustments	(7)	–	–	(7)		(11)	–	–	(11)
– Changes in demographic assumptions	–	–	–	–		3	–	–	3
– Changes in financial assumptions	259	–	–	259		(502)	–	–	(502)
– Return on scheme assets excluding
interest income	–	49	–	49		–	301	–	301
– Asset ceiling/minimum funding
adjustments	–	–	(295)	(295)		–	–	159	159
				6(2)					(50)(2)
Translation adjustment on
non-euro schemes	(54)	55	–	1		64	(63)	–	1
	198	104	(295)	7		(446)	238	159	(49)
Other
Contributions by employer	–	11	–	11		–	36	–	36
Benefitspaid	110	(110)	–	–		215	(215)	–	–
	110	(99)	–	11		215	(179)	–	36
At end of period	(5,954)	6,668	(737)	(23)		(6,226)	6,627	(440)	(39)
			30	June 2021				31 December 2020
				€ m					€ m
Recognised on the statement of financial position		as:
Retirement benefit assets
UK scheme				27					26
Other schemes				3					3
Total retirement benefit assets				30					29
Retirement benefit liabilities
Irish scheme				–					–
EBS scheme				(28)					(43)
Other schemes				(25)					(25)
Total retirement benefit liabilities				(53)					(68)
Net pension deficit				(23)					(39)

(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 € 6 million (31 December 2020: € 38 million), see page 100.

110 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

26 Deposits by central banks and banks	30 June 2021 31 December 2020 € m € m	30 June 2021 31 December 2020 € m € m
Central Banks Eurosystem refinancing operations Borrowings – secured – unsecured Banks Securities sold under agreements to repurchase Other borrowings – unsecured	10,000 303 – 10,303 184 103 287
		4,000 278 –
		4,278
		195 217
		412
Amounts include: Due to associated undertakings	10,590	4,690
	–	–

Eurosystem refinancing operations are credit facilities from the Eurosystem secured by a fixed charge over securities and relates to Targeted Long Term Refinancing Operation III (“TLTRO III”). For further details on TLTRO see note 42.

Securities sold under agreements to repurchase are secured by Irish Government bonds, other marketable securities and eligible assets. These agreements are completed under market standard Global Master Repurchase Agreements. There were € 184 million repurchase agreements outstanding at 30 June 2021 (31 December 2020: € 195 million).

Deposits by central banks and banks include cash collateral at 30 June 2021 of € 89 million (31 December 2020: € 204 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 2021 Central banks Banks Total € m € m € m 10,926 197 11,123 6,430 183 6,613 4,496 14 4,510	31 December 2020
		Central banks Banks Total € m € m € m
Total carrying value of financial assets pledged Of which: Government securities Other securities(1)		4,768 210 4,978 2,473 192 2,665 2,295 18 2,313

(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.

Financial Statements 111

AIB Group plc Half-Yearly Financial Report 2021

27 Customer accounts	30 June 2021 31 December 2020 € m € m
Current accounts Demand deposits Time deposits Securities sold under agreements to repurchase(1) Other – non-controllinginterests(2)	54,091 49,013 24,656 20,426 9,527 12,493 – 15 25 25
Of which: Non-interest bearing current accounts Interest bearingdeposits, current accounts and short term borrowings	88,299 81,972
	39,821 39,310 48,478 42,662
Amounts include: Due to associated undertakings	88,299 81,972
	265 277

(1) At 31 December 2020, the Group had pledged government investment securities with a fair value of € 16 million as collateral for these facilities. See note 42 in the Annual Financial Report 2020 for more information.

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

Customer accounts include cash collateral of € 78 million ( 31 December 2020: € 81 million) received from derivative counterparties in relation to net derivative positions (see note 42 in the Annual Financial Report 2020 for more information).

At 30 June 2021, the Group’s five largest customer deposits amounted to 1% (31 December 2020: 1%) of total customer accounts.

28 Debt securities in issue	30 June 2021 31 December 2020 € m € m	30 June 2021 31 December 2020 € m € m
Issued by AIB Group plc Euro Medium Term Note Programme Global Medium Term Note Programme Issued by subsidiaries Euro Medium Term Note Programme Bonds and other medium term notes	2,500 1,471 3,971 – 1,775 1,775
		1,750 1,425
		3,175
		– 2,275
		2,275
Analysis of movements in debt securities in issue	5,746	5,450
	30 June 2021 31 December 2020 € m € m
At 1 January Issued during the period Matured Exchange translation adjustments/other	5,450 6,831 750 – (500) (1,250) 46 (131)
At end of period	5,746 5,450

In May 2021, AIB Group plc issued € 750 million Senior Unsecured 0.50% Notes maturing on 17 November 2027. The notes bear interest on the outstanding nominal amount, payable annually in arrears on 17 November each year, commencing on 17 November 2021 up to and including the maturity date.

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.

112 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

29 Lease liabilities	30 June 2021 31 December 2020 € 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	357 382
	52 53 176 182 217 240
Total undiscounted lease liabilities at end of period	445 475

	30 June	31 December
	2021	2020
30 Other liabilities	€ m	€ m
Notes in circulation	120	145
Items in transit	83	81
Creditors	34	42
Fair value of hedged liability positions(1)	102	156
Other(2)	639	531
	978	955

(1) The fair value of the hedged liability positions only relates to when the hedged item is at amortised cost.

(2) Includes bank drafts € 279 million (31 December 2020: € 193 million), invoice discounting credit balances on customer accounts € 75 million (31 December 2020: € 96 million), items in course of collection € 19 million (31 December 2020: € 11 million) and the purchase of debt securities awaiting settlement € 53 million (31 December 2020: Nil).

31 Provisions for liabilities and commitments

31 Provisions for liabilities and	commitments
	30 June 2021
	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 2021 Charged to income statement Released to income statement Provisions utilised Exchange translation adjustments	2 34 15 262 54 29 396 – 27(2) – 79(2) 32(3) 8(3) 146 – (1)(2) – (9)(2) (30)(3) (7)(3) (47) – (2) – (13) – – (15) – – – 2 1 – 3
At 30 June 2021	2 58 15 321 57 30 483(4)

	31 December 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 Provisions utilised Exchange translation adjustments	10 37 15 399 19 23 503 – (3) – 3 – – – – 6 – 93 46 14 159 – (3) – (16) (11) (7) (37) (8) (3) – (216) – – (227) – – – (1) – (1) (2)
At 31 December 2020	2 34 15 262 54 29 396(4)

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

(2)Included in ‘General and administrative expenses’ in note 10 ‘Operating expenses’.

(3) Included in ‘Net credit impairment writeback/(charge)’ (note 11).

(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 € 343 million (31 December 2020: € 228 million).

Financial Statements 113

AIB Group plc Half-Yearly Financial Report 2021

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

Note 36 in the Annual Financial Report 2020 sets out the background in relation to the FSPO Decision and Tracker Mortgage Examination related provisions.

FSPO Decision:

The Group continues to engage with certain stakeholders and there remains a number of related issues that have yet to be resolved, including tax liabilities arising that the Group will be required to discharge on behalf of impacted customers. The level of provision required for these other costs has been assessed at € 80 million (31 December 2020: € 80 million).

These issues are subject to uncertainty with a range of outcomes possible with the final outcome being higher or lower depending on finalisation of such issues.

Tracker Mortgage Examination:

In respect of customer redress and compensation a provision of € 6 million is held at 30 June 2021 (31 December 2020: € 8 million) for the ongoing appeals process and any individual impacted accounts which may be identified under the Tracker Mortgage Examination.

The provision at 30 June 2021 for ‘Other costs’ amounted to € 8 million (31 December 2020: € 8 million).

The Group has retained the provision of € 70 million, as at 30 June 2021, for the impact of monetary penalties that is expected to be imposed on the Group by the CBI following the commencement of investigations as part of an administrative sanctions procedure in connection with the Tracker Mortgage Examination. While it remains the Group’s best estimate, it 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.

UK restructuring provision

A provision for restructuring costs in relation to the implementation of the revised strategy in the UK of € 28 million is held at 30 June 2021 (31 December 2020: € 28 million), primarily relating to the expected costs of termination benefits for staff impacted by the reorganisation.

(b) Belfry related provisions – legal claims/other provisions

During the period 2002 to 2006 the Group sold a series of investment property funds, known as Belfry, to c. 2,500 individual investors (c. £ 214 million invested). Following losses in those funds, c. 270 investors (who had invested c. £ 30 million) served claims against the Group which had been ongoing in the Courts since 2015. On 8 July 2021 the Group agreed to settle those claims. As a result, as at 30 June 2021, provisions were recorded under “legal claims” amounting to € 25 million, including amounts for all legal and settlement costs associated with these claims.

The Group has instigated a programme, which is ongoing, to review all investments in the Belfry funds on a case by case basis and to determine if redress may be due in certain instances. Based on an initial assessment, the Group has recorded an additional provision of € 75 million under “other provisions” above for the anticipated cost of redress and other related costs that may be payable under this programme.

Given that the principles and approach to the programme have yet to be established, the anticipated cost of redress and other related costs is subject to uncertainty, with a range of possible outcomes, with the final outcome being higher or lower depending on finalisation of such issues.

(c) ECLs on loan commitments and financial guarantee contracts

The ECL allowance on loan commitments and financial guarantee contracts are presented as a provision in the balance sheet (i.e. as a liability under IFRS 9) and separate from the ECL allowance on financial assets.

For details of the internal credit ratings and geographic concentration of contingent liabilities and commitments, see pages 64 and 74 in the ‘Risk management’ section of this report.

114 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

32 Subordinated liabilities and other capital instruments

32 Subordinated liabilities and other capital instruments
	30 June 2021 31 December 2020 € 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 € 1 billion Subordinated Tier 2 Notes due 2031, Callable 2026 Issued by subsidiaries € 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 1,000 11 41 1 53	500 1,000
		11 38 1
		50
Maturity of dated loan capital	1,553	1,550
	30 June 2021 31 December 2020 € m € m
Dated loan capital outstanding is repayable as follows: 5years or more	1,553 1,550

For further details of subordinated liabilities and other capital instruments, see note 37 in the Annual Financial Report 2020.

Financial Statements 115

AIB Group plc Half-Yearly Financial Report 2021

33 Share capital

33 Share capital
	30 June 2021 Number of shares m € m 4,000.0 2,500 2,714.4 1,696	31 December 2020
		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 38 in the Annual Financial Report 2020.

Movements in share capital

There were no movements in issued share capital for the half-year to 30 June 2021. For details of movements in share capital for the year to 31 December 2020, refer to note 38 in the Annual Financial Report 2020.

Structure of the Company’s share capital

The following table shows the structure of the Company’s share capital:

	30 June 2021 Authorised share capital % Issued share capital % 100 100	31 December 2020
		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 2021 31 December 2020 € m € m
Equity Dated capital notes_(note 32)_	13,477 13,421 1,553 1,550
Total capital resources 34 Other equity interests	15,030 14,971
	30 June 2021 31 December 2020 € m € m
Issued by AIB Group plc € 500 million Additional Tier 1 Perpetual Contingent Temporary Write Down Securities issued 2019 € 625 million Additional Tier 1 Perpetual Contingent TemporaryWrite Down Securities issued 2020	496 496 619 619
Total Other equity interests are included in the Group’s capital base.	1,115 1,115

For details of these securities, see note 39 in the Annual Financial Report 2020.

116 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

35 Non-controlling interests in subsidiaries	30 June 2021 31 December 2020 € m € m
At 1 January Additions 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	1 495 – 2 (1) 28 – (494) – (30)
At end of period Of which: Equityinterests in subsidiary	– 1
	– 1

Non-controlling interests in subsidiary undertaking

Augmentum Limited 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. During 2020, additional equity was contributed by the shareholders in Augmentum.

Semeral/Payzone place of business: 4 Heather Road, Sandyford Industrial Estate, Dublin 18.

36 Capital reserves, merger reserve and capital redemption reserves

Capital reserves	30 June 2021 Capital contribution reserves Other capital reserves Total € m € m € m 955 (1) 178 1,133	31 December 2020
		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 2021 31 December 2020 € m € m
At beginning and end of period Capital redemption reserve	(3,622) (3,622)
	30 June 2021 31 December 2020 € m € m
At beginning and end of period	14 14

Financial Statements 117

AIB Group plc Half-Yearly Financial Report 2021

37 Contingent liabilities and commitments

The following table gives the nominal or contract amounts of contingent liabilities and commitments:

37 Contingent liabilities and commitments The following table gives the nominal or contract amounts of contingent liabilities and commitments:
	Contract amount
	30 June 2021 31 December 2020 € 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)	649 52 701 125 8,895 4,306 13,326
		631 91
		722
		92 8,537 3,875
		12,504
	14,027	13,226

(1) Contingent liabilities are off-balance sheet products and include guarantees, irrevocable 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 credit ratings and geographic concentration of contingent liabilities and commitments, see pages 64 and 74 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.

118 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

37 Contingent liabilities and commitments (continued)

Chargeback risk

Note 43 to the Annual Financial Report 2020 sets out the background where in the unlikely event that First Merchant Processing (Ireland) dac (“FMPI”), a company that AIB Group has an indirect 49.9% interest, is unable to meet its obligations arising from chargeback risk, the exposure reverts to AIB Group (Allied Irish Banks p.l.c. and AIB Group (UK) p.l.c.) as the principal members of the card schemes for FMPI.

The gross exposure[(1)] to chargeback risk has not significantly reduced at 30 June 2021 from the € 4 billion exposure at 31 December 2020. FMPI management and Board of Directors continue to regularly monitor and assess the potential exposure arising from chargebacks and are of the view that FMPI has not needed to make any material provisions for this potential chargeback risk exposure as at 30 June 2021.

(1) Includes certain indirect exposures that initially reside with wholesale independent sales organisations.

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 forms of SPE utilised by the Group are securitisations and employee compensation trusts. Further details of SPEs are set out in note 45 in the Annual Financial Report 2020.

In addition, the Group enters into repurchase agreements and securities borrowing and lending transactions in the normal course of business. Further details are set out in note 45 in the Annual Financial Report 2020.

Financial Statements 119

AIB Group plc Half-Yearly Financial Report 2021

39 Fair value of financial instruments

39 Fair value of financial instruments
			30 June 2021
	Carrying amount € m 970 43 256 4,852 1,128 436 5,479 499 259 13,922 39,008 61 4,022 29,189 27,167 56,356 760 3,875 275 104,357 880 158 5 5 1,048 103 10,487 54,091 24,656 9,552 5,746 1,553 1,036 107,224		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 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		– – – 4,852 1,128 368 5,479 499 25	574 43 – – – 68 – – –	396 – 256 – – – – – 234	970 43 256 4,852 1,128 436 5,479 499 259
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 Securities borrowing – customers Investment debt securities measured at amortised cost Other financial assets		12,351	685	886	13,922
		547(1) – – – – – – 2,981 –	38,461 – 382 – – – – – –	– 61 3,640 29,228 27,267 56,495 760 943 275	39,008 61 4,022
					29,228 27,267
					56,495 760 3,924 275
Financial liabilities measured at fair value Derivative financial instruments: Interest rate derivatives Exchange rate derivatives Equity derivatives Credit derivatives		3,528	38,843	62,174	104,545
		– – – –	790 158 5 5	90 – – –	880 158 5 5
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		–	958	90	1,048
		– – – – – 5,954 1,638 –	– 10,303 – – – – – –	103 184 54,091 24,656 9,581 35 15 1,036	103 10,487 54,091 24,656 9,581 5,989 1,653 1,036
		7,592	10,303	89,701	107,596

(1)Comprises cash on hand.

(2)Includes residential and commercial mortgages.

120 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

39 Fair value of financial instruments (continued)

			31 December 2020	31 December 2020	31 December 2020
	Carrying amount € m 1,353 70 1 75 6,793 1,180 419 6,793 490 – 201 17,375 25,550 43 1,799 29,901 26,969 56,870 3,603 365 88,230 1,145 46 1 9 1,201 217 4,473 49,013 20,426 12,518 15 5,450 1,550 970 94,632		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 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 Equity investments at FVOCI Equityinvestments at FVTPL		– – – – 6,793 1,180 344 6,793 490 – 24	864 70 1 – – – 75 – – – –	489 – – 75 – – – – – – 177	1,353 70 1 75 6,793 1,180 419 6,793 490 – 201
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		15,624	1,010	741	17,375
		618(1) – – – – – 2,973 –	24,932 – 378 – – – – –	– 43 1,421 30,459 27,087 57,546 796 365	25,550 43 1,799
					30,459 27,087
					57,546 3,769 365
Financial liabilities measured at fair value Derivative financial instruments: Interest rate derivatives Exchange rate derivatives Equity derivatives Credit derivatives		3,591	25,310	60,171	89,072
		– – – –	1,065 46 1 9	80 – – –	1,145 46 1 9
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 Securities sold under agreements to repurchase Debt securities in issue Subordinated liabilities and other capital instruments Other financial liabilities		–	1,121	80	1,201
		– – – – – – 5,689 1,571 –	– 4,278 – – – – 36 68 –	217 195 49,013 20,426 12,561 15 – – 970	217 4,473 49,013 20,426 12,561 15 5,725 1,639 970
		7,260	4,382	83,397	95,039

(1)Comprises cash on hand.

(2)Includes residential and commercial mortgages.

Financial Statements 121

AIB Group plc Half-Yearly Financial Report 2021

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 47 in the Annual Financial Report 2020.

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 2021	30 June 2021	30 June 2021
			Financial assets				Total € m 741 – (93) 68 (25) – – – 200 (14) (16) 886	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 2021 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 Cash received: Principal		489 – (93) – (93) – – – – – –	– – – – – – – – – – –	– – – – – – – – – – –	75 – – 17 17 – – – 181(2) (1) (16)	177 – – 51 51 – – – 19 (13) –			80 – 10 – 10 – – – – – –	80 –
										10 –
										10
										– –
										– – – –
At 30 June 2021		396	–	–	256	234			90	90

(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.

(2) Relates to the reclassification of loans previously held at amortised cost following a restructure.

122 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

39 Fair value of financial instruments (continued)

Reconciliation of balances in Level 3 of the fair value hierarchy (continued)

								31 December 2020	31 December 2020	31 December 2020
			Financial assets				Total € m 1,293 – 42 70 112 (21) – (21) 30 (630) (43) 741	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 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 Cash received: Principal		447 – 42 – 42 – – – – – –	– – – – – – – – – – –	458 – – – – (21) – (21) – (437) –	77 – – 41 41 – – – – – (43)	311 – – 29 29 – – – 30 (193) –			107 – (27) – (27) – – – – – –	107 –
										(27) –
										(27)
										– –
										– – – –
At 31 December 2020		489	–	–	75	177			80	80

(1) Transfers between levels of the fair value hierarchy are recognised at the end of the reporting period during which the change occurred.

The table below sets out the amount of the total gains or losses included in profit or loss that is attributable to the change in unrealised gains or losses relating to assets and liabilities categorised as Level 3 in the fair value hierarchy held at 30 June 2021 and 31 December 2020:

	30 June	31 December
	2021	2020
	€ m	€ m
Net trading income – (losses)/gains	(103)	89
Gains on equity investments at FVTPL	51	23
Gains on loans and advances at FVTPL	–	–
	(52)	112

Financial Statements 123

AIB Group plc Half-Yearly Financial Report 2021

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 2021 € m 31 December 2020 € m Valuation technique	Significant unobservable input 30 June 2021 31 December 2020
Uncollateralised customer derivatives	Asset 396 489 CVA Liability 90 80 FVA	LGD 40% – 61% 58% – 74% (Base 53%) (Base 68%)
		PD 0.5% – 2.6% 0.4% – 1.9% (Base 1.2%, 1year PD) (Base 0.9%, 1year PD)
		Fundingspreads (0.2%) to 0.2% (0.2%)to 0.3%
Visa Inc. Series B Preferred Stock	Asset 60 31 Quoted market price (to which a discount has been applied)	Final conversion rate 0% – 90% 0% – 90%
Loans and advances to customers measured at FVTPL	Asset 256 75 Discounted cash flows* Collateral values	Discount on market value (1%) to 4% (1)% – 5% 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 2021 ranges from (i) negative € 25 million to positive € 11 million for CVA (31 December 2020: negative € 38 million to positive € 19 million) and (ii) negative € 3 million to positive € 2 million for FVA (31 December 2020: negative € 7 million to positive € 3 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.

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. over time, with the first partial conversion having occurred in 2020. The remaining 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 reduction has been applied for the litigation risk. 64% haircut (31 December 2020: 80%). This was converted at the period 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) 90% 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 € 3 million to positive € 11 million at 30 June 2021 (31 December 2020: negative € 1 million to positive € 4 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.

124 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

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 2021	30 June 2021
	Level 3
	Effect on income statement Favourable Unfavourable € m € m 13 (27) 41 (1) (43) (1) 11 (3) 65 (73) – (1) – (1)	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 2020	31 December 2020
	Level 3
	Effect on income statement Favourable Unfavourable € m € m 20 (43) 46 (1) (15) (1) 4 (1) 70 (59) 2 (2) 2 (2)	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		– –

(1) Relates to a significant equity investment, the carrying value of which was € 60 million at 30 June 2021 (31 December 2020: € 31 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.

Financial Statements 125

AIB Group plc Half-Yearly Financial Report 2021

40 Cash and cash equivalents

For the purposes of the statement of cash flows, cash and cash equivalents comprise the following balances with less than three months maturity from the date of acquisition:

	30 June	30 June
	2021	2020
	€ m	€ m
Cash and balances at central banks	39,008	14,666
Loans and advances to banks(1)(2)	1,826	1,522
Total	40,834	16,188

(1)Included in ‘Loans and advances to banks’ total of € 4,022 million (30 June 2020: € 1,970 million) set out in note 17.

(2)Includes € 4 million relating to restricted balances held in trust in respect of certain payables which are included in ‘Other liabilities’ (note 30).

Cash and balances at central banks (net of ECL allowance of Nil) comprise:

	30 June	30 June	31 December
	2021	2020	2020
	€ m	€ m	€ m
Central Bank of Ireland	31,891	9,608	19,256
Bank of England	6,402	4,360	5,522
Federal Reserve Bank of New York	168	155	154
Other(cash on hand)	547	543	618
Total	39,008	14,666	25,550

The Group is required to hold minimum reserve balances with the Central Bank of Ireland. For details see page 128.

The Group is also required by law to maintain reserve balances with the Bank of England. At 30 June 2021, these amounted to € 382 million (30 June 2020: € 391 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.

126 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

41 Statement of cash flows

Non-cash and other items included in profit/(loss) before taxation

41 Statement of cash flows Non-cash and other items included in profit/(loss) before taxation
Non-cash items	Half-year 30 June 2021 Half-year 30 June 2020 € m € m
Net loss on derecognition of financial assets measured at amortised cost Dividends received from equity investments Associated undertakings Net credit impairment (writeback)/charge Change in other provisions Retirement benefits – defined benefit expense Depreciation, amortisation and impairment Interest on subordinated liabilities and other capital instruments Interest on debt securities – MREL Gain on disposal of investment securities Loss on termination of hedging swaps Amortisation of premiums and discounts Net gain on equity investments at FVTPL Change in prepayments and accrued income Change in accruals and deferred income Effect of exchange translation and other adjustments(1)	8 1 (1) (25) (6) (5) (67) 1,250 96 21 2 2 181 136 20 20 47 50 (18) (7) 11 7 32 32 (53) (22) 90 51 (6) (68) 5 (64)
Total non-cash items	341 1,379
Contributions to defined benefit pension schemes Dividends received on equityinvestments	(11) (26) 1 25
Total other items	(10) (1)
Non-cash and other items for the period Change in operating assets(1)	331 1,378
	Half-year 30 June 2021 Half-year 30 June 2020 € 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 securities borrowing – customers Change in other assets	(18) 7 7 (41) (1,378) 51 917 813 (760) – 47 526
Change in operating liabilities(1)	(1,185) 1,356
	Half-year 30 June 2021 Half-year 30 June 2020 € 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	5,884 17 5,692 4,636 (500) (500) (25) (39) 21 (78)
	11,072 4,036

(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.

Financial Statements 127

AIB Group plc Half-Yearly Financial Report 2021

42 Related party transactions

Other than as outlined below, there have been no related party transactions or changes therein since 31 December 2020 that have materially affected the Group’s financial position or performance in the six months ended 30 June 2021.

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 2021, 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 € 1.50 million (31 December 2020: € 1.56 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.

Relationship with the Irish Government

AIB’s relationship with the Irish Government is set out in note 50(g) in the Annual Financial Report 2020. As detailed, this relationship encompasses a number of dimensions, namely:

Capital investments;
Guarantee schemes;
NAMA;
Funding support; and
Relationship framework.

There were no significant changes to the various aspects of the relationship in the six months to 30 June 2021 other than an additional drawdown of € 6 billion of TLTRO III funding.

128 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

42 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.

the period.
	30 June 2021 Balance Highest(2) balance held € m € m 31,891 32,324 – – 1 1 5,964 7,745 37,856 30 June 2021 Balance Highest(2) balance held € m € m 10,000 10,000 289 1,019 – 3 10,289	31 December 2020
		Balance Highest(2) balance held € m € m
Assets Cash and balances at central banks a Derivative financial instruments Loans and advances to customers Investment securities b		19,256 20,791 – 3 1 6 7,715 8,263
Total assets		26,972 31 December 2020
		Balance Highest(2) balance held € m € m
Liabilities Deposits by central banks and banks c Customer accounts d Derivative financial instruments		4,000 4,000 293 1,094 2 5 4,295
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 period 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 placements which the Group holds with the Central Bank. The Group is required to maintain minimum reserve balances with the Central Bank which can fluctuate due to the reserve requirement being determined on the basis of the institution’s average daily reserve holdings over a one month maintenance period. While the monthly average Primary Liquidity balance required by the Group was € 768 million at 30 June 2021 (31 December 2020: € 718 million), the balances reported reflect excess liquidity in the Group during the period.
b Investment securities at 30 June 2021 comprise € 5,964 million in Irish Government securities held in the normal course of business. There was no Euro Commercial Paper at 30 June 2021. (31 December 2020: € 7,715 million with Euro Commercial Paper of € 1,804 million).
c This relates to funding received from the ECB through the Central Bank.
d Includes € 120 million (31 December 2020: € 130 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.

Financial Statements 129

AIB Group plc Half-Yearly Financial Report 2021

42 Related party transactions (continued)

Relationship with the Irish Government

Local government[(1)]

During 2021 and 2020, 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.

(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.

Commercial semi-state bodies[(1)]

During 2021 and 2020, 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 and clearing transactions.

(1) 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 may include 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:

	June	31 December
	2021	2020
	€ m	€ m
Assets
Investment securities	85	117

During the period the highest balance in ‘deposits by central banks and banks’ held by these financial institutions amounted to € 26 million. There were no balances held during the period in ‘loans and advances to banks’ and ‘derivative financial instruments’.

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, 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.

130 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

Notes to the condensed consolidated interim financial statements

		Half-year	Half-year
		30 June	30 June
		2021	2020
43 Financial and other information		%	%
Operating ratios
Operating expenses/operating income		84.5	74.6
Other income/operatingincome		24.8	18.5
	Half-year	Half-year	Year
	30 June	30 June	31 December
Rates of exchange	2021	2020	2020
€/$*
Closing	1.1884	1.1198	1.2271
Average	1.2054	1.1017	1.1417
€/£*
Closing	0.8581	0.9124	0.8990
Average	0.8680	0.8748	0.8897

*Throughout this report, US dollar is denoted by $ and Pound sterling is denoted by £.

44 Dividends

No final dividend on ordinary shares was paid in respect of the financial year ended 31 December 2020.

45 Proposed acquisitions

Ulster Bank loans

On 28 June 2021, the Group confirmed that Allied Irish Banks, p.l.c. had entered into a binding agreement with NatWest Holdings Limited and Ulster Bank Ireland DAC for the acquisition of performing Ulster Bank corporate and commercial loans. The transaction remains subject to regulatory approvals following which the Group intends to acquire the loan book on a phased basis over a period of twelve to eighteen months.

The Group will acquire the portfolio of c. € 4.2 billion for a total consideration of c. € 4.1 billion, however, the exact size of the portfolio and consideration payable will depend on movements in the portfolio up to completion.

Goodbody

The Group announced on 2 March 2021 that it had reached agreement to acquire Goodbody, a leading Irish provider of wealth management, corporate finance and capital markets services. Under the terms of the agreement the Group will acquire the entire share capital for total consideration, including contingent consideration, of € 138 million reflecting c. € 82 million enterprise value and c. € 56 million of excess cash.

The Transaction remains subject to regulatory approval.

46 Non-adjusting events after the reporting period

No significant non-adjusting events have taken place since 30 June 2021.

47 Approval of Half-Yearly Financial Report

The Half-Yearly Financial Report was approved by the Board of Directors on 3 August 2021.

Financial Statements 131

AIB Group plc Half-Yearly Financial Report 2021

Statement of Directors’ Responsibilities

for the half-year ended 30 June 2021

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 profit 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 condensed 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 Group 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 Group 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

Anik Chaumartin Basil Geoghegan Sandy Kinney Pritchard Carolan Lennon (Senior Independent Director) Elaine MacLean Andy Maguire Brendan McDonagh (Deputy Chair) Helen Normoyle Ann O’Brien Fergal O’Dwyer Ranjit (Raj) Singh

Executive Directors

Colin Hunt (Chief Executive Officer) Donal Galvin (Chief Financial Officer)

132 Financial Statements AIB Group plc Half-Yearly Financial Report 2021

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 2021 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 changes in equity, the condensed consolidated statement of cash flows and the related notes 1 to 47 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 ‘Basis of preparation, accounting policies and estimates’, 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 in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity.” 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 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 2021 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

3 August 2021

Financial Statements 133

AIB Group plc Half-Yearly Financial Report 2021

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 50 to 53 in the Annual Financial Report 2020 and updated on page 36 of this Half-Yearly Financial Report. In addition to matters relating to the Group’s business, future performance will be impacted by direct and indirect impacts of the COVID-19 pandemic and by Irish, UK and wider European and global economic and financial market considerations. Any forward looking statements made by or on behalf of the Group speak only as of the date they are made. The Group cautions that the list of important factors on pages 50 to 53 of the Annual Financial Report 2020 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

Designed and produced by Originate. Print Management by Custodian Consultancy.

The paper used in this production has been sourced from a sustainably managed forest.

AIB Group plc 10 Molesworth Street, Dublin 2, D02 R126 +353 (1) 660 0311 aib.ie/investorrelations

AI assistant

AIB Group Plc — Interim / Quarterly Report 2021

1950_rns_2021-08-10_25fd56e2-ec64-4901-bfe5-20b4a37b1108.pdf

BACKING OUR CUSTOMERS

RISK MANAGEMENT

FINANCIAL STATEMENTS

BUSINESS PERFORMANCE

H1 2021 RESULTS

FINANCIAL PERFORMANCE

€103m

€291m

NEW LENDING

€4.5bn

New lending up 3%

NET LOANS

€56.6bn

Net loans broadly stable at €56.6bn

NON-PERFORMING EXPOSURES[2]

€3.8bn

6.5% of gross loans

MEDIUM-TERM FINANCIAL TARGETS[3] (END 2023)

CET1 RATIO (FULLY LOADED)

>13.5%

NON-FINANCIAL PERFORMANCE

UNITED BY PURPOSE, DRIVEN BY AMBITION

INTRODUCTION

FINANCIAL PERFORMANCE

82% OF PERSONAL LOAN APPLICATIONS WERE COMPLETED DIGITALLY IN THE FIRST HALF OF 2021

DIGITAL

CULTURE & OUR PEOPLE

SUSTAINABLE COMMUNITIES

Upward revisions to GDP forecasts[2]

OUTLOOK

Sentiment improves as restrictions are eased[1]

Commencements increase as construction sector opens[3]

Deposits surge as household deleveraging continues[4]

COLIN HUNT

OUR STRATEGY

PROGRESSING OUR STRATEGY AT PACE

HIGHLIGHTS

BACKING OUR CUSTOMERS

MARKET-LEADING GREEN MORTGAGE

INCREASING HOUSING SUPPLY

DATA INSIGHTS TO SUPPORT BUSINESSES

SUPPORTING BIODIVERSITY

INORGANIC GROWTH

GREEN PERSONAL LOAN

AIB ALL TOGETHER

€750M GREEN BOND ISSUANCE

DRIVING TRANSPARENCY IN ESG

#ITSWHOWEARE

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Business review

Page

1. Operating and financial review

2. Capital

Business review – 1. Operating and financial review

Basis of presentation

Basis of calculation

Net interest income

€881m

Interest expense

Net interest income

€881m

Interest income

Net interest margin

1.66%

Average balance sheet

Business review – 1. Operating and financial review

Other income

€302m

€302m

Business income

€230m

Other items

IFRS basis

€739m

62%

Bank levies and regulatory fees

€71m

AIB Group Plc Interim / Quarterly Report 2021

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