2019...dedication, professionalism and counsel. I would like to thank Neil Fuller for supporting us so well during the period he was interim Chief Executive Officer and would like

Bank of Ireland (UK) plcAnnual Report

2019

Annual Report UK 2019.qxp_Layout 1 06/03/2020 15:41 Page i

Annual Report UK 2019.qxp_Layout 1 06/03/2020 15:41 Page ii

Bank of Ireland (UK) plc (the ‘Bank'), together with its subsidiaryundertakings (which together comprise the ‘Group') is the principalUnited Kingdom retail and commercial banking business of theGovernor and Company of the Bank of Ireland (the ‘Parent').

Percentages throughout the document are calculated on the absoluteunderlying figures and so may differ from the percentages calculatedon the rounded numbers presented, where the percentages are notmeasured this is indicated by n/m.

Business Review 2

2019 key performance highlights 2

Chairman’s review 3

Chief Executive’s review 4

Strategic report 6

Risk Management 30

Risk management framework 31

Management of key risks 36

Capital management 55

Governance 58

Directors and other information 58

Report of the Directors 66

Financial Statements 67

Statement of Directors’ Responsibilities 67

Independent Auditors’ report 68

Financial statements 76

Other Information 165

Principal business units and addresses 165

Pillar 3 disclosures 165

Performance measures 166

Abbreviations 167

Contents

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Business Review

2019 key performance highlights

Financial Performance Growth

Transformation Capital

£155m(2018: £173m)

Statutory profit before tax

• £166 million underlying profit before tax1 (2018: £183 million)

• Statutory net interest margin 1.93% (2018: 2.11%)

• £100 million dividend paid to Parent in 2019

• Deferred tax charge of £44 million in 2019 including one-off

charge of £40 million

££ £1.5bn

(2018: £0.2bn)

Net lending growth

• Net lending growth £1.5 billion (2018: £0.2 billion)

• New gross lending £5.9 billion (2018: £5.1 billion)

• Supported c.17,000 new customers in 2019 to buy their own homes

£34m

Reduction in total operatingexpenses

14.5%(31 December 2018: 15.0%)

CET 1 ratio

• 3% reduction in cost income ratio on a statutory basis

• Disposal of consumer credit card portfolio

• Inaugural wholesale funding transaction for £350 million

• Maintained strong CET 1 ratio 14.5% (2018: 15%)

• Total capital ratio 19.9% (2018: 20.6%)

• Internal MREL - £300 million issued in December 2019

1 Underlying profit before taxation excludes non-core items which the Group believes obscure the underlying performance trends in the business. See page 8 for further details.


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Chairman’s review

Strategy & PurposeOur purpose in theUK is to enable ourcustomers,colleagues andcommunities tothrive, with astrategic focus onincreasing overallreturns. This isachieved through thedistribution ofconsumer products

via partnerships with the Post Office (PO),the Automobile Association (AA), a fullservice bank in Northern Ireland, andstrong niche businesses in attractivecustomer segments including car financein Northridge Finance, intermediarymortgages and currency exchange in FirstRate Exchange Services Limited (FRES).

We previously set out three clear businessobjectives which were to:• invest in businesses generating

sustainable returns;• improve the performance of existing

businesses with potential forincreased returns; and

• reposition those businesses which donot meet expected returns.

During 2019, we have made someprogress across all three objectives,demonstrating our strong execution focusand capability, whilst acknowledging wehave more to do. This progress includesthe extension of our financial services

partnership with the Post Office, the saleof our consumer credit card portfolio andrepositioning our ATM and Post Officecurrent account offerings.

The UK financial services sector faces anumber of challenges. The market ishighly competitive, economic growth hasslowed and Brexit uncertainty remainedthroughout 2019. Against this backdrop,the Bank of Ireland Group remainscommitted to the UK, as a large, attractiveand adjacent market, offering growth anddiversification opportunities.

Although our financial results reflect theimpact of the very competitive UK retailbanking market and the ongoing low baserate environment, I am pleased to reportthat 2019 has been a solid year for thebusiness, with reported statutory profitbefore tax of £155 million for 2019.

BoardWe review the Board’s composition anddiversity regularly and are committed toensuring we have the right balance ofskills and experience on the Board.

During 2019, Des Crowley retired as ChiefExecutive Officer, having held the positionsince 2012. I would like to personallythank Des for his exceptional contribution,dedication, professionalism and counsel.

I would like to thank Neil Fuller forsupporting us so well during the period hewas interim Chief Executive Officer and

would like to welcome Ian McLaughlin, ournew Chief Executive Officer. Ian joins thebusiness at an exciting time, as wecontinue to focus on delivering ourbusiness objectives. The Board and I lookforward to working with Ian to deliveragainst our strategic and financialambitions.

In addition to Des Crowley retiring as anExecutive Director of the Board, two of ourNon-Executive Directors, Donal Collinsand John Maltby, resigned in 2019. Iwould like to thank them for their support,commitment and direction as Boardmembers. I welcome Mark Spain as Non-Executive Director and look forward toworking with all our Directors in 2020.

OutlookThe Group operates in a highlycompetitive and challenging market, andwe expect historically low base rates willcontinue to impact on our business in thenear term. However, against thisbackdrop, we will continue to placeemphasis on generating efficiencies,managing growth and pricing to ensure weimprove returns, maintain the quality ofour lending, and deliver improvements toour customers’ experience with the Bank.

I would like to take this opportunity tosincerely thank all our colleagues for theirdedication, enthusiasm, support andcustomer focus. They are at the heart ofeverything we do and it is their energy andcommitment that enables us to succeed.

The Group has continued to make tangible progress against its business objectives,in a challenging UK financial services sector

Robert SharpeChairman

Robert SharpeChairman

2 March 2020


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Chief Executive’s review

The Group continues to deliver on our strategic ambition during 2019

Bank of Ireland (UK) plc has a unique heritage and I am honoured to join as CEO and to lead the next phasein the growth and development of our business. Since joining the Group in December 2019, I have engagedwith each of our businesses in the UK and met with many of my colleagues, our customers, our partners andour wider stakeholders. What has been very clear to me from the outset are the strengths that exist acrossour customer franchises and the commitment, loyalty and dedication of our people.

Ian McLaughlinChief Executive Officer and Executive Director

StrategyToday, Bank of Ireland (UK) plc serves c. 2.5 million customers. Our strategy isfocused on investing, improving orrepositioning our business portfolios toincrease performance and returns. Thisfocus will continue and intensify in 2020and beyond.

In 2019 we made tangible progress so inmy first set of results as CEO, I ampleased to be able to report the Group has • extended its long term financial

services partnership with the PostOffice;

• invested in new mortgage customerpropositions;

• optimised its cost of funding; • restructured the cost base and; and• sold its existing consumer credit card

portfolio.

Despite a highly competitive externalenvironment, these improvements meantwe delivered a solid financial performancein 2019.

Financial PerformanceOur statutory profit before tax of £155million was £18 million lower than our2018 reported profit of £173 million.Underlying profit before tax of £166 millionwas £17 million lower than 2018 andunderlying net interest margin decreasedby 13 basis points. Our CET1 ratioremains strong at 14.5% (2018: 15.0 %).

The Group’s total operating expensesreduced from £351 million to £317 millionreflecting the significant work undertakenin the credit cards and ATM portfolios.Underlying operating expenses remainedlargely in line with 2018 as we focused oncost efficiencies, while investing in ourtransformation programme and customerproduct journey. The Group delivered acost income ratio of 61% in 2019 (64% ona statutory basis).

Reducing our operating expenses willremain a key focus for the business in2020. Activity is underway to ensure thebusiness remains efficient andstreamlined, improving our processes andour systems.

The Group’s loan book increased in 2019by 8% to £21.2 billion, as the businessdelivered new lending volumes of £5.9billion. Our growth areas includedsupporting our customers to buy their ownhomes, including new mortgage productsfor professionals. The mortgage businessoperates in a highly competitive marketand is developing customer valuepropositions which place less focus on themainstream re-mortgage market. We arefocused on customer service andincreased retention with redemptions for2019 being £0.8 billion lower than 2018.

Personal lending and car finance volumesgrew in line with our strategic planexpectations, while we optimisedcommercial returns and took action tomanage risk outcomes in a dynamicmarket.

RepositioningIn June 2019, following a strategic review,we announced the sale of our existingconsumer credit card portfolio, to JajaFinance. The sale will generate animprovement to the Group’s RoTE andCET1 ratio. Separately the Group hasentered a long term agreement with Jajato become the Bank’s issuer of creditcards for the AA and Bank of Irelandconsumer credit cards.

In addition the Group has furthersimplified its product offering and nolonger provides Post Office brandedcurrent accounts. Following a review ofour ATM business, the Group has exitedover 200 machines supplied to the PostOffice which were out of contract.

Investing and improvingGiven the importance of our Post Officepartnership to our business I’m pleasedwe have agreed renewed contractualarrangements where we can worktogether to better serve our customersand grow our business.

Acknowledging the challenges within thecar industry, we continued to invest in ourcar finance business, Northridge Finance.The business recorded gross new lendingof c. £1.3 billion (+26% year on year) in ahighly competitive market. NorthridgeFinance also secured its first originalequipment manufacturer (OEM) schemewith SsangYong Motors UK.

We have also invested in our unsecuredpersonal lending business, where ourpersonal lending book across Post Office,AA and Bank of Ireland brands deliveredgross new lending of £0.8 billion, anincrease of 40% on 2018.

Our Northern Ireland (NI) franchise hasperformed well against a backdrop ofregional Brexit uncertainty. We lookforward to supporting our customers andthe NI economy through our Retail andCommercial propositions in 2020, and inhelping those customers manage the postBrexit period of transition uncertainty.

Deposits margins and funding costs havebeen broadly maintained during 2019,against the backdrop of a lower for longerinterest rate environment. In June 2019,the Group successfully completed its firstexternal wholesale term fundingtransaction, raising £350 million, for whichit has been nominated for a prestigiousindustry award.

Serving our customers brilliantlyOur customers are key to us achieving ourstrategic objectives.In February 2019, and in response tocustomers’ feedback, we increased the


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number of colleagues in our NorthernIreland branches, so that we could remainopen for longer. We continue to supportand empower our colleagues to exceedcustomer expectations and haveexpanded SMS and email updates tocustomers for various productapplications.

During 2019 we launched our newBereavement Unit, a dedicated team tosupport those who are recently bereaved,with a desired outcome that customerswill only have to ‘tell us once’. Wecontinue to drive reductions in complaintvolumes and to increase first point ofcontact resolution.

Enhancements have been made to ourdigital capabilities, including:• quicker payments for our personal

customers in Northern Ireland;• online loans distribution; and• a new mortgage customer site,

allowing existing customers to switchand manage their mortgage online.

Enabling our colleagues and ourcommunities to thriveI am encouraged to see ongoingimprovement in our overall employeeengagement scores, as measured throughour Open View engagement survey. Weare seeing improving trends in colleagues’awareness, understanding, belief anddemonstration of our purpose and values.Senior management acknowledge thatthere is always more that can be done,and are ensuring our focus remains onimproving our culture, which is critical tothe success of our business.

As we bring to a close our relationshipwith our flagship charity, Alzheimer’sSociety, I’m delighted that our three yearpartnership has provided the equivalent ofc.1,500 days of the Charity’s “Side bySide” programme. We will carry on

supporting the communities we serve andwill be launching our new approach tocommunity investment in 2020.

OutlookI am excited about the future potential forour business, as we continue to focus onour strategic priorities to serve ourcustomers brilliantly, transform the Bankand grow sustainable profits.

We are mindful of the ongoing challengesand uncertainties within the global and UKeconomy, however we are committed tomaking further progress in the year ahead.

The relationships we build and developwith new and existing customers arefundamental to our future success, and Iam committed to ensuring we exceed ourcustomers’ expectations of us.

Ian McLaughlinChief Executive Officer

2 March 2020


Strategic report

Index PageBasis of presentation 7

Group income statement 7

Group balance sheet 9

Capital 11

Income statement - by business unit 11

Our purpose and values 12

Our strategy 12

UK economic and market environment 15

Corporate social responsibility 16

Non-financial information statement 19

Governance structure 20

Stakeholder engagement 21

Principal risks and uncertainties 23

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Strategic report

Basis of presentation

The strategic report has been presentedon a consolidated basis for the yearsended 31 December 2019 and 31December 2018.

Percentages presented throughout thisdocument are calculated on the absoluteunderlying figures, so may differ frompercentage variances calculated on therounded numbers presented. Where

percentages are not measured this isindicated by n/m.

Bank of Ireland (UK) plc is a public limitedcompany incorporated in England andWales and domiciled in the UK.

References to the ‘Group’ throughout thisdocument should be taken to refer toBank of Ireland (UK) plc and its subsidiary

undertakings and the ‘Parent’ refers to theGovernor and Company of the Bank ofIreland.

Further details on the Group structure areshown in note 44.

The Group is regulated by the PrudentialRegulation Authority (PRA) and theFinancial Conduct Authority (FCA).

1 Underlying profit before taxation excludes non-core items which the Group believes obscure the underlying performance trends in the business. Refer to page 8 for furtherdetails.

2 Average interest earning assets are calculated on a twelve month average as defined on page 166.

Group income statement

2019 Non-Core items Strategic Underlying portfolio Restructuring Statutory basis1 divestments costs basisSummary consolidated income statement £m £m £m £m Net interest income 468 13 - 481Net other income (11) 31 - 20Total operating income 457 44 - 501Operating expenses (280) (37) - (317)Operating profit before net impairment gains/(losses) on financial instruments 177 7 - 184Net impairment (losses)/gains on financial instruments (41) 1 - (40)Share of profit after tax of joint venture 30 - 30Loss on disposal of business activities - (19) - (19)Profit before taxation 166 (11) - 155Taxation charge (58)Profit for the period 97

Net interest margin 1.92% 1.93%Average interest earning assets (£m)2 24,356 24,907Cost income ratio 61% 64%

2018 Non-Core items Strategic Underlying portfolio Restructuring Statutory basis1 divestments costs basisSummary consolidated income statement £m £m £m £m Net interest income 483 25 - 508Net other income (22) 39 - 17Total operating income 461 64 - 525Operating expenses (281) (53) (17) (351)Operating profit before net impairment gains/(losses) on financial instruments 180 11 (17) 174Net impairment (losses)/gains on financial instruments (30) (4) - (34)Share of profit after tax of joint venture 33 - - 33Loss on disposal of business activities - - - -Profit before taxation 183 7 (17) 173Taxation charge (22)Profit for the period 151

Net interest margin 2.05% 2.11%Average interest earning assets (£m)2 23,519 24,111Cost income ratio 61% 67%


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For further information on performancemeasures referred to in the strategic reportsee page 166.

The Group income statement on page 7provides a reconciliation between thestatutory profit before tax of £155 million(2018: £173 million) and the underlyingprofit before tax of £166 million (2018:£183 million).

Underlying performance excludes non-core items, which are those items that theGroup believes obscure the underlyingperformance trends of the business.Where the Group has made a strategicdecision to exit an area of the businessthe related income and expenses aretreated as non-core. The Group hastreated the following items as non-core inthe year ended 31 December 2019:

Strategic portfolio divestments• the income and costs of the ATM

business as the Group progresseswith its strategy to focus on selectedATM locations, primarily in NorthernIreland;

• the income and costs of the consumercredit card portfolio up to June 2019,when it was sold;

• the loss on disposal of this credit cardportfolio; and

• the income and costs associated withthe Post Office branded currentaccounts, which previously wereavailable in limited areas of the UK.

As a result, £44 million of operatingincome, £37 million of operating expensesand a £1 million impairment gain havebeen recognised as non-core for the yearended 31 December 2019.

At December 2018, the Group treated thefollowing items as non-core:

Restructuring Costs• £9 million of costs relating to the

strategic review of the ATM business;and

• £8 million of costs for the planneddisposal of the consumer credit cardsportfolio, which completed in 2019.

For comparative purposes, the 2018income statement is presented in aconsistent manner, to exclude theperformance of the non-core portfoliosdescribed above. This allows a review ofthe underlying business activities year onyear.

For further details on the disposal of theconsumer credit cards refer to note 13 andnote 21.

Statutory profit before tax of £155million in 2019 was £18 million, or 10%lower than 2018.

Underlying profit before tax of £166million in 2019 was £17 million or 9%lower than 2018.

The statutory net interest margindecreased by 18 basis points to 1.93%due to ongoing competitive marketpressures, back book deleveraging andmargin pressures, which were particularlyevident in the UK mortgage market.

The underlying net interest margin wascalculated by excluding the interestincome from the consumer credit cardportfolio and by adjusting the averageinterest earning assets accordingly. Theunderlying net interest margindecreased by 13 basis points to 1.92% for2019.

Statutory net interest income decreasedby £27 million or 5% compared to theprevious year. £12 million of this decreasewas attributable to the disposal during2019 of the non-core consumer creditportfolio. The remaining £15 milliondecrease was due to the impact ofcompetitive mortgage customer pricingand lower margins and changing customerbehaviours, combined with ongoingbackbook deleveraging. This was partiallyoffset by the impact of selected volumegrowth in the Group’s other consumerlending portfolios. Funding costs remainedrelatively unchanged year on year.

Statutory net other income of £20million, increased by £3 million in 2019.However, excluding the non-core incomerelated to credit cards and ATMs,underlying net other income increased by£11 million, primarily due lower fee andcommission expenses.

On a statutory basis total operatingexpenses reduced by £34 million, withstaff costs decreasing by £1 million whileadministration expenses decreased by£33 million. This was primarily due tolower costs incurred in the consumercredit card portfolio, due to its sale in July2019.

Underlying operating expenses of £280million were largely in line with theprevious year, as the Group positioneditself for the future, improving efficienciesand supporting investment in technologyand customer offerings. The majority ofthe Group’s cost base relates tooutsourced services, being the costs ofdistribution, product manufacture andsupport provided by the Parent undervarious contractual arrangements.

Net impairment losses on financialinstruments for the year ended31 December 2019 were £40 million, anincrease of £6 million on the previous year.Excluding the net impairment lossesrelated to the consumer credit cardportfolio, underlying net impairmentlosses increased by £11 million. The levelof impairment losses primarily reflectsvolume growth, particularly in the personallending portfolio along with ongoingresolution of non-performing exposures

Income from the joint venture relates tothe Group’s foreign exchange joint venturewith the Post Office, First Rate ExchangeServices Holdings Limited (FRESH).Income reduced in 2019 reflecting widereconomic uncertainty and thecorresponding impact on the UK traveland foreign exchange market. For furtherinformation refer to note 22.

Loss on disposal of business activitiesrelates to the loss on the sale of theconsumer credit card portfolio, which wasclassified as held for sale at 31 December2018. Refer to note 13 for further details.

The taxation charge for the Group was£58 million compared to £22 million for2018. Excluding:• the tax charge of £40 million arising

from the reassessment of the value oftax losses carried forward (refer tonote 14); and

• £30 million (2018: £33 million) ofincome from the Group’s joint venture;

the effective tax rate for the year ended 31December 2019 was 15% (year ended31December 2018: 16%). For furtherinformation on the taxation charge refer tonote 14.

The Group has disclosed its UK taxationpolicy in line with Schedule 19 of the UKFinance Act 2016 on its website,www.bankofirelanduk.com

Group income statement (continued)


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1 Return on assets is calculated on a statutory profit basis.2 Loan to deposit ratio includes the credit card assets classified as held for sale at 31 December 2018.

2019 2018 ChangeSummary consolidated balance sheet £m £m % Cash and balance with central banks 2,134 2,567 (17%)Loans and advances to banks 2,158 2,348 (8%)Loans and advances to customers 21,200 19,703 8%Debt securities at amortised cost 846 915 (8%)Assets classified as held for sale - 539 n/mTotal other assets 596 628 (5%)Total assets 26,934 26,700 1%

Deposits from banks 3,500 3,152 11%Customer accounts 19,075 19,769 (4%)Subordinated liabilities 290 290 n/mDebt securities in issue 607 - n/mTotal other liabilities 1,482 1,485 n/mTotal liabilities 24,954 24,696 1%

Equity attributable to owners of the parent 1,980 2,004 (1%)Total equity and liabilities 26,934 26,700 1%

Statutory return on tangible equity 5.0% 8.4%Return on assets1 0.36% 0.57%Loan to deposit ratio2 111% 102%Liquidity coverage ratio (LCR) 147% 158%Net stable funding ratio (NSFR) 133% 134%

Group balance sheet

2019 2018

% of % ofLoans and advances to customers £m book £m book Residential mortgages 16,610 78% 15,880 80%Non-property SME and corporate 1,327 6% 1,320 7%Commercial property and construction 412 2% 502 2%Consumer 2,997 14% 2,133 11%Loans and advances to customers (before impairment provisions) 21,346 100% 19,835 100%Impairment provisions (146) (132) Loans and advances to customers (after impairment provisions) 21,200 19,703

The Group’s cash and balances withcentral banks, which is cash placed withBank of England, decreased by £0.4 billionat 31 December 2019.

The Group’s loans and advances tobanks of £2.2 billion decreased by £0.2billion since 31 December 2018, primarilydue to reduction in amounts due from theParent.

Loans and advances to customers of£21.2 billion increased by £1.5 billionbeing gross new lending of £5.9 billionoffset by repayments £4.4 billion.

New residential mortgages originatedduring 2019 were £3.6 billion, offset by

repayments and redemptions on theexisting portfolio of £2.9 billion, resulting ina net increase in the mortgage portfolio of£0.7 billion.

In line with the Group’s selective growthstrategy the consumer lending portfolioshave grown by £0.9 billion during 2019, ofwhich Northridge Finance net lendingvolumes increased by £0.4 billion in theyear, with new lending of £1.3 billion, up26% on 2018.

New personal lending through the Group’spartners, the Post Office and the AA, was£0.8 billion, an increase of 40% on 2018which contributed c. £0.5 billion to theoverall net loan book growth.

Gross n ew commercial lending was £0.2billion in 2019, but was offset byrepayments and the continued deleverageof the GB Business Banking portfolio, witha net decrease of £0.1 billion.

The impairment provision on loans andadvances to customers of £146 million hasdecreased by £3 million compared to 31December 2018. Further details areincluded in note 19.

The consumer credit card portfolio wasdefined as assets held for sale at 31December 2018, with the sale completingduring July 2019. See note 21 for moredetails.


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Group balance sheet (continued)

Debt securities at amortised cost of£0.8 billion comprises £0.2 billion of UKGovernment treasury bills, £0.4 billion ofMultilateral Development Bank bonds and£0.2 billion of covered bonds at 31December 2019.

Customer accounts decreased by £0.7billion to £19.1 billion at 31 December2019 reflecting the Group’s strategy tooptimise its funding mix. This decrease incustomer deposits resulted in the LCRdecreasing to 147% at December 2019(31 December 2018: 158%).

Deposits from banks of £3.5 billion at 31December 2019 increased by £0.3 billionreflecting an increase in amounts due tothe Parent, refer to note 27.

Debt securities in issue were £607million at 31 December 2019 (2018:£nil). In

June 2019 the group raised £350 million ofterm funding through a successfulsecuritisation of prime UK residentialmortgages via Bowbells No.2 plc. Forfurther details refer to note 29.

In December 2019 the Group issued £300million of senior non-preferred notes to theParent, improving its capital and fundingposition ahead of full MREL requirementswhich are due in January 2022.

The Group’s equity of £2.0 billion is £24million lower than 2018. During 2019 theGroup restructured its equity by reducingshare capital by £596 million andcancelling the capital redemption reserveof £300 million, which increased retainedearnings by £896 million. Furtherinformation is included on page 57 in theCapital Management section and in note37. Other movements in retained earningsinclude a dividend payment of £100million, AT1 coupons of £24 million andprofit after tax of £97 million.

Statutory Underlying Statutory Underlying basis basis basis basis 2019 2019 2018 2018Return on tangible equity £m £m £m £m Profit for the period attributable to shareholders 97 97 151 151Coupon on AT1 securities, net of tax (18) (18) (18) (18)Amortisation of intangible assets, net of tax 5 5 5 5Reassessment of tax losses carried forward (see note 14) - 40 - -Non-core items, net of tax (see page 7) - 9 - 8Adjusted underlying profit after tax 84 133 138 146

Shareholders' equity, excluding AT1 capital 1,680 1,680 1,704 1,704Intangible assets and goodwill (48) (48) (54) (54)Shareholders’ tangible equity 1,632 1,632 1,650 1,650

Average shareholders’ tangible equity 1,695 1,695 1,645 1,645

Return on tangible equity 5.0% 7.9% 8.4% 8.9%

Statutory return on tangible equity(ROTE) is calculated as being profitattributable to shareholders (net of tax)divided by average shareholders’ equityless average intangible assets andgoodwill.

Underlying return on tangible equity iscalculated by adjusting the statutoryROTE to exclude non-core items (net oftax) and the impact of the reassessmentof tax losses carried forward.

2019 2018Customer accounts £m £m Bank of Ireland deposits and current accounts 4,849 4,826Post Office deposits 13,462 14,237AA deposits 764 706Total customer accounts 19,075 19,769


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Capital

The Group is strongly capitalised with atotal capital ratio on a regulatory basis of19.9% (2018: 20.6%). The decrease in thetotal capital ratio reflects an increase inregulatory capital resources of £7 millionoffset by growth in Risk Weighted Assets(RWA) of c.£0.4 billion.

Capital ratios have been presentedincluding the benefit of the retained profitin the period in accordance with Article 26(2) of the Capital Requirements Regulation(CRR).

Further details on the capital position ofthe Group are shown on pages 55 to 57 in

the Capital Management section and in theBank of Ireland (UK) plc Pillar III disclosurereport for the year end 31 December 2019,available on the Group’s website,www.bankofirelanduk.com.

31 December 2018 31 December 2019

Regulatory1 Fully loaded2 Regulatory1 Fully loaded2 % % % % Capital ratios3 15.0% 14.5% Common equity tier 1 14.5% 14.2% 17.8% 17.2% Tier 1 17.2% 16.9% 20.6% 20.2% Total capital 19.9% 19.5% 6.9% 6.7% Leverage ratio 6.9% 6.8%

1 Regulatory capital is reported including the IFRS 9 transitional adjustment.2 Fully loaded capital is reported excluding the IFRS 9 transitional adjustment.3 Capital ratios reflect the UK regulatory position of the BOI UK regulatory group which consists of the Bank, its subsidiary, NIIB Group Limited and the securitisation vehicle,

Bowbell No.2 plc.

Income statement - by business unit

2019 GB GB consumer Northern business Group Consolidated income statement - banking Ireland banking centre Totalunderlying profit / (loss) before taxation £m £m £m £m £m Operating income 294 137 12 14 457Operating expenses (123) (78) (2) (77) (280)Operating profit / (loss) before net impairment gains / (losses) on financial instruments 171 59 10 (63) 177Net impairment (losses) / gains on financial instruments (45) (2) 6 - (41)Share of profit of joint venture 30 - - - 30Underlying profit / (loss) before taxation 156 57 16 (63) 166

Non-core items (11)Profit before taxation 155

2018 GB GB consumer Northern business Group Consolidated income statement - banking Ireland banking centre Totalunderlying profit / (loss) before taxation £m £m £m £m £m Operating income 285 135 13 28 461Operating expenses (132) (79) (3) (67) (281)Operating profit / (loss) before net impairmentgains / (losses) on financial instruments 153 56 10 (39) 180Net impairment (losses) / gains on financial instruments (37) 7 - - (30)Share of profit of joint venture 33 - - - 33Underlying profit / (loss) before taxation 149 63 10 (39) 183

Non-core items (10)Profit before taxation 173


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Our purpose and values

Customers are at the heart of ourbusiness and always come first.

Colleagues keep our organisationworking, innovating and adapting to meetour customers’ needs.

Communities are where we live and workand also include other groups such as ourregulators and partners.

The Group has four key values, whichsupport our purpose and guide us ineverything we do:

• Customer focused We understand our customers well.We listen to them to ensure they feel

valued and use our insights toconsider how best to serve theirneeds. We take appropriate actions todeliver solutions to meet customers’changing requirements.

• One Group, One Team We know we work smarter when wecome together behind our commonpurpose. We learn from each otherand share ideas to expand ourthinking. We build open, trusting andsupportive environment and fasterdiversity of thought, ideas andexperiences to spark creativity andinnovation.

• AgileWe embrace change with an openmind and a can-do attitude. Werespond quickly and proactively seekdifferent perspectives. We challengeourselves to look for new andsimplified ways to efficiently deliverthe best solutions for customers.

• Accountable We are empowered to take ownershipand trusted to do the right thing tosupport our customers, colleaguesand communities. We lead by exampleand challenge ourselves and eachother to do our best work at all times.We learn from our mistakes andcelebrate our successes together.

Our purpose is to enable our customers, colleagues and communities to thrive.

Our strategy

In conjunction with its Parent, the Grouphas embarked on a multi-year programmeto transform the culture, systems andbusiness model to enable customers,colleagues and communities to thrive.

Transform the bankA strong internal culture improvesemployee engagement and creates greatcustomer outcomes, long-term customerrelationships, a reduced cost of risk andgrowth in sustainable revenue. The Groupcontinues to invest in transformingsystems to improve the customer

experience and simplify its processes.Agile ways of working have beenembedded throughout the business,enabling colleagues with greater flexibilityon where and when they work. The Grouphas reviewed its current business modeland as a result, exited from the consumercredit card business and reassessed theATM fleet strategy during 2019.

Serve customers brilliantlyThe Group in committed to building acustomer focused organisation, whichlistens to customers and responds to their

feedback. The way customers bank andthe services they expect are evolvingfaster than ever, with an expectation for24/7 banking. Along with its Parent theGroup continue to invest in improving thedigital experience for customers.

Grow sustainable profitsThe Group is focused on investing in theprofitable parts of the business to supportfurther growth and improving returns byreducing costs of funding, customerorigination and servicing.

To transform the bank, to serve customers brilliantly and to grow sustainable profits.

Income statement - by business unit (continued)

The business units are defined on page 13in the business operations section.

Great Britain Consumer BankingThe underlying profit of Great BritainConsumer Banking increased by £7 millioncompared to 2018. This is primarily due to:• new business growth in 2019 in the

mortgages, personal lending andNorthridge Finance portfolios in linewith the Group’s agreed strategy; and

• lower commission expenses;partially offset by

• reduced mortgage income givenproduct mix, customer behaviours andmargin impacts;

• reduced fees and commission income;and

• higher impairment charges primarilydue to increased new personal lendingbalances.

Northern IrelandThe underlying profit of the NorthernIreland business decreased by £6 million,10% compared to 2018 primarily reflectingthe impact of ongoing commercialdeleveraging, lower fee income andreduced funding income given the lowbase rate environment. A modestimpairment charge was realised in 2019,compared to an impairment gain in 2018.

GB Business BankingThe underlying profit in the GB BusinessBanking portfolio increased by £6 milliondue to impairment gains primarily as theGroup continues its strategy to deleveragethis legacy business.

Group CentreThe Group Centre underlying loss hasincreased by £24 million, 61% comparedto 2018, primarily due to costs incurred aspart of the strategic transformationprogramme and increased regulatorycosts.


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The Group’s three strategic priorities aresummarised as:• Investing in the growth of businesses

which provide attractive returns;• Improving those businesses with

potential, which need to deliver betterreturns; and

• Repositioning those parts of thebusiness where there is less certaintyabout achieving expectations.

Execution of these strategic objectives willenable the Group to:• generate an improved and sustainable

return;• reduce the cost income ratio; • continue to effectively manage the

cost of funds; and• grow the loan book selectively to meet

our customer needs.

Our strategic priorities

During 2019 the Group launched itsrevised mortgage strategy of focusing onareas which align with areas of expertiseand which produces better margins whilealso seeking to optimise returns andvolumes in mainstream mortgages, all in avery competitive market environment. Thishas been achieved whilst maintaining riskstandards and positioning for furtherimprovement in 2020. The Group deliverednew mortgage lending of £3.6 billion,compared to £3.3 billion in 2018. Theongoing investment in the mortgageplatform to advance the digital process forbrokers and customers, in particulararound switching and extending terms,has contributed to customer retentionincreasing significantly by c. 50%.

The investment in the customerexperience has once again beenacknowledged at the 2019 MoneyAgeMortgage awards, with four nominationsand success in winning both the FirstTime Buyer Lender of the year and OverallBank Lender of the year categories.

Northridge Finance has experiencedanother year of strong volume growth inline with risk appetite and won the BestIndependent Lender (Bank Owned) at theCar Finance Awards in June 2019.

Against this success the Groupacknowledges that the motor financemarket is undergoing a period ofuncertainty as climate change initiativesimpact upon consumer sentiment andresult in a change in demand towards

carbon efficient vehicles, as well as therisk associated with the residual values ofleased vehicles. The Group’s strategy andrisk assessment consider both thesefactors.

In October 2018 the FCA published itsconsultation paper CP 19/28 on MotorFinance Commission models andcommission disclosure and the Group iscommitted to ensuring compliance withthe regulations when they are introduced.

It has been another year of growth andinvestment for the Group’s personallending business. Working with the PostOffice and AA strategic partners, theGroup has improved propositions,distribution and customer experience.

Investing

During 2019, the financial servicespartnership with the Post Office wasrenewed and extended. This agreementenables the Group to continue to plan forthe long term and refine consumer

banking offerings. The partnership willcontinue to focus on providing anexclusive Post Office-branded range ofleading consumer savings, mortgages andpersonal loans with Post Office customers

in the UK.First Rate Exchange Services, the Group’sjoint venture with the Post Office,continues to be the market leader for FXtravel money with a market share of 24%.

The Group manages the businessoperations under four units:• GB Consumer Banking – offering

consumer banking products throughstrategic partnerships with the PostOffice, the AA and other intermediariesand the asset finance and leasingbusiness of Northridge Finance andMarshall Leasing;

• Northern Ireland - a full service retailbank operatingthrough a distribution network of 28branches and 6 business centres andvia direct channels (telephone, mobileand on-line). The Bank is also one offour banks authorised to issue banknotes in Northern Ireland;

• GB Business Banking – legacycommercial lending business which isundergoing a continued programme ofdeleveraging; and

• Group Centre – centralisedmanagement of risk and controlfunctions and the Group’s funding,liquidity and capital positions.

Strategic partnershipsThe Group’s financial services partnershipwith the Post Office has been extended to2026. This extension of the longstandingpartnership has further enhanced thealignment of both parties to drive mutualbenefits, in line with the Group’s strategyto improve returns in the UK business.

Together we offer a range of consumerproducts including savings, mortgagesand personal loans online and through thenetwork of Post Office branches.

The Group’s partnership with the AAcommenced in July 2015 with a minimumperiod of ten years. The AA is regarded asone of the best known and trusted brandsin the UK and the largest provider ofroadside assistance in the UK breakdownmarket. Under the AA brand theGroup offers savings and personal lendingproducts to customers.

Improving

Our business operations


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Repositioning

The Group continues to reposition the lessfavourable parts of the business and inJuly 2019 completed the sale of theconsumer credit card portfolio. At 31December 2018 the net book value of£539 million was classified as assets heldfor sale. Further details on the disposal of

the credit card portfolio are provided innote 13.

Following a strategic review in 2018, theGroup’s plan to reposition the ATMbusiness is progressing with c. 2,100 ATMmachines remaining at 31 December

2019.During 2019 the Group removed over 200ATMs which had completed their contractterms.

The Group managed its cost of fundseffectively during 2019, by optimising itsfunding mix, careful management ofdeposit pricing and by successfully raising£350 million of term funding through the

completion of its inaugural wholesale funding transaction via the securitisationof prime, UK residential mortgage loans.

The Group remains focused on reducing

its core operational costs whilst investingin strategic initiatives, technology andregulatory compliance.

Capital

The Group’s strategy is to optimise itscapital position and capital returns andseek new lending and other businessopportunities, in both the consumer andcommercial business, which are alignedwith its risk appetite.

In addition to the £100 million dividendpaid to the Parent in October 2019, theGroup obtained approval from the Board

in November 2019 and the Parent inDecember 2019 to repurchase 195 millionshares for £195 million, subject toobtaining regulatory approval. On 24February, the Group was granted approvalfrom the PRA to complete the repurchaseof shares and it plans to execute thetransaction in March 2020.

This will result in a reduction of theGroup’s CET1 ratio by c. 1.8%.

The Group maintained a strong capitalposition during 2019 with a regulatory CET1 ratio of 14.5% at 31 December 2019 (31December 2018: 15.0%). For furtherdetails on capital refer to the CapitalManagement section on page 55.

At 31 December 2019, the Groupcontinues to maintain a strong liquidityand funding position and is fully compliantwith all liquidity and funding obligations.At 31 December 2019 the Group had aloan to deposit ratio of 111% (2018:102%) and an LCR of 147% (2018:158%).

During 2019 the Group sought to diversifyits funding base by raising £350 million ofterm funding through the completion of its

inaugural wholesale funding transactionvia the securitisation of prime, UKresidential mortgage loans. This providescost efficient and longer term funding tothe Group and demonstrates progress intransforming its business and deliveringagainst its priority of improving returns.

The Group has £1.3 billion of borrowingsunder the Bank of England Term FundingScheme (TFS) which will mature during2020, and £200 million of funding from the

Bank of England Indexed Long TermRepo scheme.

The Group actively monitors its liquidityposition using various measures includingLCR and NSFR and considers these in thecreation, execution and review of itsfunding plans.

For further details on liquidity and fundingrisk refer to page 47 and note 39.

Our strategy (continued)

Liquidity

Improving (continued)


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UK economic and market environment

ReviewWhile the UK economy continued toexpand in 2019, a technical recession wasonly narrowly avoided in Q3 with the paceof GDP growth slowing to its weakest ratein a decade. This reflected a significantdecline in business investment andevidence that the UK’s productivityperformance has yet to recover to historictrends.

The consumer economy provedrelatively resilient during 2019, supportedby near record employment levels and arecovery in real incomes. Average paygrowth hit an 11 year high of 3.9% in thesummer while the inflation drifted belowthe official 2.0% target.

The pace of consumer lending growthremained steady at the more sustainablerates of between 4.0% and 5.0% in 2019,reflecting a more resilient performance ofthe household sector although by Q4 2019there were signs of greater caution ondiscretionary purchases. New car salesdeclined again in 2019 with the demandfor diesel vehicles falling sharply, while in contrast, the used car market, where theNorthridge Finance business focuses, heldup relatively well despite the macrouncertainties and the structural changesacross the auto industry.

The positive performance of the UK labourmarket during 2019, allied to the lowinterest rate environment forborrowers helped underpin credit quality

trends on consumer lending books,including personal lending.

Turnover in the UK housing marketremained relatively stable at the lower“new norm” levels of around 100,000transactions per month. Brexit-relateduncertainties cast a shadow and withaffordability still stretched in some areas, itwas a year when average prices acrossthe UK broadly remained flat. However,significant regional variations were againevident with average prices moving lowerin London and the South-East but withcontinued low single-digit percentagegrowth in other local markets, includingNorthern Ireland.

Gross mortgage lending in the UK rosewith strong competition for new loanorigination, supported by surplus liquidity.Coupled with a downward shift in theinterest rate yield curve, this had asignificant impact on net interest marginsacross the industry.

Competition in the retail funding marketsremained, although pricing strategiesvaried between lenders, in part a reflectionof size and scale, differences in balancesheet mix and varying requirements torefinance the Bank of England TermFunding Scheme.

Northern IrelandThe franchise business in Northern Irelandhad a solid 2019, despite ongoing politicaluncertainties in the absence of

a devolved Assembly and regional-specific concerns relating to possibleBrexit outcomes. Both factors appeared toslow momentum in the economy as theyear developed, with some investmentplans being postponed and reduceddemand for credit in the second half of2019. In a sign of a more cautiousapproach many businesses retainedhigher credit balances and deposits,awaiting greater clarity on future tradingrelationships.

The region’s labour and housing marketshave remained relatively positive despitethe wider macro and political uncertaintiesand remain key drivers of activity.

While the Withdrawal Agreement preparedthe way for the UK to leave the EU at theend of January 2020, the details of futureEast- West and North-South tradingrelationships have yet to be defined andmay present both challenges andopportunities for some of our customers.The encouraging return of the devolvedinstitutions in early 2020 came with thechallenge of delivering long-termstructural and economic reform.

A relentless focus on cost-efficientdelivery for customers, allied to vigilanceand monitoring of the risks from anevolving economic and political landscapewill be supportive of the Group’s overallperformance.

Key points:

• 2019 was a year of heightened political risks, prolonged Brexit-related uncertainties and an economy with momentumimpacted by domestic and global strains. After a decade of largely consumer-led growth, the UK also reflected some featuresof a recovery that appeared to be maturing.

• The general election outcome in December provided a measure of much-needed clarity, but uncertainties remain regarding theUK’s future relationship with the EU.

• The Group continues to execute its business and customer strategy, including targeted growth in key lending segments aimedat achieving an improved return on capital while remaining vigilant to ongoing macro risks, most notably relating to Brexituncertainties.

• The very competitive backdrop for UK retail banking remained in 2019 and significantly, 2019 also brought a shift in viewsabout the likely path for interest rates.


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Customers

As well as the investment in technologyand new propositions to meet the needsof our customers, the Group has investedin a number of initiatives to support itsstrategy to serve customers brilliantly.

UK Customer BoardThe UK Customer Board is the principalexecutive committee responsible for theoversight and delivery of the UK CustomerPlan. The Board is chaired by the UK ChiefExecutive Officer and includes seniorexecutives and business heads.

The UK Customer Board is responsible forthe delivery of the UK Customer Plan.There is a particular focus on;• enhancing customer experience;• complaint management and

resolution;• delivery and embedding of the UK

Vulnerable Customer Programme; and• insight from customer sentiment

surveys.

Customer satisfactionThe Group continues to enhance theinsights being received from customers,with a new surveying tool being rolled out.Whilst Customer Effort Scoring has beenimproving, management recognises theneed for continual improvement to meetthe changing needs of our customers andto act on the feedback received.

Following the first CMA survey in August2018, the business increased the numberof colleagues in branches in NorthernIreland. As a result our CMA surveypersonal satisfaction scores for “branchopening hours” increased 11% between

February and August 2019.

In 2020, the Group will continue to focuson becoming ‘easier’ to do business with,working to improve processes,communication and digital capability andensuring we respond to and action againstthe feedback from our customers.

Customer vulnerabilityRecognising the diversity of brands,products and service providers whosupport the Group’s overall business, todate, the UK business has progressedcustomer vulnerability under a programmebased approach. Working to empowercolleagues with the skills, knowledge andconfidence to support the needs ofcustomers is fundamental to thisapproach. Today we have a network of100 vulnerability Champions across ourbusiness.

A new centralised BereavementNotification ‘Tell us Once’ team is nowlive, providing a dedicated team focusedon supporting bereaved customers andrelatives. The Group has aligned probatelimits across its products and brands.

The Northern Ireland business wasawarded ‘JAM Card Friendly’ status. TheJAM Card Initiative, allows people withlearning difficulties, autism orcommunication barriers to tell others theyneed ‘Just A Minute’ discreetly and easily.

Complaint managementAn additional focus of the UK CustomerBoard is on complaint management andresolution, namely:

• Complaint Volume Reporting –reviewing the ManagementInformation on complaint volumes, keycomplaint categories and service levelachievement to ensure trends andissues are identified and addressedand that complaints are beingmanaged promptly and effectively.

• Complaint Handling Quality –reviewing reports from variousfunctions on the results of complainthandling quality assessments.

• Complaint Root Cause Analysis (RCA)– reviewing the RCA undertaken bythe product and distribution businessand ensure appropriate action is takento learn from complaints and put inplace appropriate actions to preventrecurrence.

Supporting our customers during BrexitThe Group’s focus is on how to assistcustomers through the uncertainty ofBrexit, the transition period and plan forthe future. Along with our Parent, theGroup developed a Brexit Portal on itswebsite to bring together insights,practical information and useful tools tohelp businesses prepare appropriately.

Our Parent established a £1.75 billion All-Ireland Brexit Fund to enhance ourcapacity to meet the needs of customersand support cross border andinternational trade. The fund strengthensthe Northern Ireland enterpriseprogramme which launched a partnershipwith the Centre of Competitiveness,delivering seminars urging businesses tolook beyond Brexit.

Colleagues

The second part of the Group’s purpose isto 'enable our colleagues to thrive'. TheGroup strives to ensure that colleaguesare engaged and have the skills andcapabilities to serve customers brilliantlyand help communities to thrive.

The current and future success of theGroup in achieving its strategic prioritiesdepends on having a continuous focus on:• talent and capability development;• engaging its workforce;

• managing business change; and• supporting the regulatory agenda.

The Group is committed to investing in itspeople to ensure they can effectivelysupport customers, deliver the Group’sstrategic priorities and develop theirindividual careers.

Responsible behaviourThe Group’s Code of Conduct outlines thestandards of behaviour which are

expected and reflects the four values, setout on page 12, which are embeddedthroughout the Group.

The Group Speak Up policy sets out thestandards and obligations in support ofcolleagues who are highlighting concernsof wrong doing or potential wrong doing. Itoutlines the open, transparentenvironment which is fully endorsed at thehighest levels of Bank of Ireland Group,and the key message is that it is always

Corporate social responsibility

The Group’s corporate responsibility is fully aligned to its purpose, with the focus on the three core pillars of its business, Customers,Colleagues and Communities.


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Colleagues (continued)

Communities

safe and acceptable to speak up.

The Group’s Anti-Bribery and Corruptionpolicy standard sets out the expectationthat all employees act with integrity andhonesty at all times in their dealings withcustomers and partners. The policyreiterates the Group’s ethical andregulatory obligations to effectivelymanage bribery and corruption risks. Allemployees complete mandatory onlinetraining to help them understand theirobligations.

Colleague wellbeingSupporting colleague wellbeing, the Groupis committed to the adoption of modernways of working; enabling colleagues towork remotely, increasing flexibility ofhours and all colleagues have beenencouraged to sign a Team WellbeingPledge.

Career developmentThe Group’s career developmentprogramme supports colleagues to takeownership of their professional wellbeing,through awareness, support andrecognition. Access to the Group’s onlineCareer Portal provides colleagues with awide range of resources to help them takeownership of their career development byplanning their career journey, accessingcourses, articles and tutorials. In 2019,

over 25,000 training hours werecompleted by UK employees via webbased and classroom courses.

In 2019 our Parent launched a revisedPeople Strategy, ensuring ongoingdevelopment of all staff. This includes aprogramme specifically for PeopleManagers, ‘You as a Manager’, andcolleagues participating in a pilot FemaleLeadership Programme, ‘Rise’. TheGraduate programme continues to attracthigh quality candidates from a variety ofbackgrounds.

Inclusion and diversityThe Group is committed to creating aninclusive and diverse place to work wherecolleagues can be themselves andperform to their full potential. The Groupwants to attract, promote and retaindiverse talent at all levels, to create a moreinnovative and high-performing businessthat can enable customers, colleaguesand communities to thrive. The inclusionand diversity strategy, ‘Many Voices: OneBank’, focuses on valuing and celebratingdiversity within the workforce, reflectingthe communities in which we operate, aninclusive culture, which values diversetalents and recognises the unique needsof colleagues, and an organisation thatmeets the needs of all customers.

Employee engagementThe Bank of Ireland groupwide employeeengagement survey ‘Openview’ is heldannually. The results show increasedlevels of employee engagement, alongwith heightened awareness,understanding and demonstration of theGroup’s values. Management will continueto address feedback received, with anumber of initiatives already in place.Further opportunities to take part in‘Openview’ will be available in 2020. TheGroup also participates in the externallybenchmarked Banking Standard BoardSurvey annually, which had 29participating UK banks and buildingsocieties in 2019.

Gender equalityThe Group remains committed to creatingbetter gender balance within themanagement and leadership population.In March 2018, the Group signed up to theWomen in Finance Charter and made acommitment to have 38% of managementpositions being held by women and that50% of management appointments will befemale by 31 December 2021. At end2019, the Group has a 58:42 female tomale ratio overall and the managementand leadership population is 36.3%female. The Group’s Gender Pay Gapreport is published on its website atwww.bankofirelanduk.com.

The Group wants to make a tangible andvisible commitment to the communitieswhere it operates, so they can flourish,prosper and progress. The Group’scommunity focus in 2019 has sought tobring its purpose to life, underpinned by anumber of important commitments andinitiatives.

Responsible and sustainable businessThe Group was included for the first timewithin the successful accreditation for theBusiness Working Responsibly Mark. ThisMark, which covers indicators acrossCommunity, Workplace, Marketplace,Environment and Governance, is anindependently audited standard forCorporate Social Responsibility andSustainability.

UN Principles for responsible bankingIn October 2019, our Parent signed theUnited Nations Environment Programme –Finance Initiative (UNEP FI) Principles forResponsible Banking. The UN Principles

help to align the banking sector with theobjectives of the UN SustainableDevelopment Goals and the 2015 ParisClimate Agreement. Signing the principlesis a key step in Bank of Ireland’sResponsible and Sustainable Businessjourney, signifying its commitment to bepart of the global drive for moreresponsible banking operations.

Our environmental impactBank of Ireland Group achieved re-certification and transition to the latestversion of the environmental and energystandards ISO 14001 and ISO 50001. Theachievement of these internationalcertifications is part of a broaderenvironmental programme, which has ledto the Group’s inclusion within ourParent’s commitment to reduce carbonemissions intensity by 50% by 2030. Anumber of initiatives have been put inplace during 2019 to reduce the Group’senergy consumption and the impact onthe environment. These initiatives include:

• Reduced office footprint in bothLondon and Bristol;

• Implementation of ‘no travel weeks’, • Installation of electric vehicle charging

points in our Temple Quay Bristol site;and

• Introduction of Keep Cups, resulting ina c.59% reduction in disposable cups.

Climate RiskThe Group recognises that climate changepresents both risks and opportunities toits business model and strategy. Theserisks and opportunities will emergethrough two channels:• physical, such as increased

severity/frequency of extreme weatherevents; and

• transitional, due to emergingregulation and technology to supportmarket preferences for greensolutions.

The Group is integrating climate risk into


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Communities (continued)

its risk framework and policies andexpects that it will be most relevant incredit risk, operational risk and reputationrisk. As such it is being integrated toleverage existing risk managementgovernance frameworks, policies andprocesses. In addition changes ingovernment policy, regulation and publicresponse in an effort to reduce emissionsand support the greening of the economy,may have an impact on the Group’sbusiness model and strategy whichremains under constant assessment.

In line with the recommendations of theTaskforce for Climate Related FinancialDisclosures (TCFD), the Group isidentifying activities and assets exposedto climate risks and assessing relatedfinancial impacts. The Groupacknowledges that performance measuresand ongoing monitoring and reporting ofclimate change risk needs to developedand expects to see further industryguidance in this area in 2020.

For further information on the Group’sprogress in 2019 refer to page 28.

New community strategy In 2019 our Parent undertook acomprehensive review of its communityactivities to understand what was workingwell, where it was having an impact, andhow it could increase and deepen thisimpact.

This review revealed that Bank of IrelandGroup has a strong heritage of giving andsupporting community investment. Overthe years, colleagues have shown theirsupport for a wide range of causes andthis is a source of great pride. However,while the Group invests significantly incommunities the impact is oftenfragmented across a wide range ofdifferent causes. The Group wants to bemore purposeful in its approach,supporting communities where it believesit can have the greatest impact.

In 2020, the Group will roll out a newapproach to community investment in theUK, “Bank of Ireland Begin Together”, anannual investment programme thatsupports community wellbeing andenterprise. Begin Together comprisesthree distinct, yet complementaryelements:

• The Begin Together Fund will providevaluable investment for communityinitiatives across Northern Ireland. Itwill support financial, mental andphysical wellbeing projects and will besupported by our volunteers andguided by expert partners.

• The Begin Together Awards willrecognise and honour the great workby those striving to lead theircommunities forward and empoweringlocal economies in Northern Ireland.This annual competition will run inpartnership with local authorities andcouncils.

• Begin Together Colleagues will enableall colleagues in the UK to deliverpractical, hands-on support through afund to support local financial,physical and mental wellbeinginitiatives suggested by them. It willalso support and encouragevolunteering activities, while the long-established payroll giving schemes willcontinue.

The UK Community Giving Fund willcontinue to provide grants to localcommunity organisations and charitieswhich support the provision of financial,physical and mental wellbeing projectswhich sustain and enrich localcommunities in Great Britain and NorthernIreland. In 2019, the total grants providedwas c. £80,000.

Charity support2019 saw the Group bring to a close itsrelationship with its flagship UK charity,Alzheimer’s Society. The three yearpartnership has seen tangible outcomesfor the Charity within the communitieswhere we work, including: • Over £310,000 funds raised by

colleagues and customers, providingthe equivalent of over 1,494 days ofthe Charity’s life-changing Side bySide Programme, which helps peoplewith dementia to keep doing thethings they love for longer; and

• Initiatives which have drawn on theskills and capabilities of ourcolleagues, including a pro-active‘thank you’ calling programme, onbehalf of Alzheimer’s Society, to c. 850fundraisers, who then went on todonate an additional £41,430 to theCharity.

Community support The Group supported a wide range ofactivities in 2019 to enable communities tothrive.

In Northern Ireland, the Group proudlysupports community-based, business andsporting activities, including: • Bank of Ireland Money Smarts

Challenge, a new secondary schoolcompetition that will see studentslearn essential financial skills; and

• Sponsorship of Invent 2019, an annualcompetition run by Catalyst Inc, whichattracts more than 100 entrepreneursand inventors from across NorthernIreland.

In Bristol, the Group’s long standingrelationship with Merchants Academy wasstrengthened, with the launch in July of a3-year programme of Personal FinanceDays to help prepare students for thefuture. The Group runs school assembliesto raise awareness of work experience,CVs, job applications and mock interviewsand sponsors The Bank of IrelandInnovation and Creativity Award. Inaddition, the Bank has invited more than320 pupils into its Temple Quay office tolearn about the wide range of roles and understand the qualifications needed.

In London, we support a number of localcommunity and charity initiatives,including the Lord Mayor’s City GivingDay.

Modern Slavery and Human Trafficking The Group strives to ensure that modernslavery or human trafficking does notsupport its supply chain or its businesses.This objective is explicit in its relevantpolicies and the approach to humanrights. In accordance with relevant UKlegislation, the Group has published itsstatement on Modern Slavery and HumanTrafficking for 2019. The Statement setsout the steps and measures the Group hastaken to seek to ensure that modernslavery and human trafficking does notoccur within its supply chain or in itsbusiness operations. A copy of thestatement is published on our Parentwebsite www.bankofireland.com.


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Environmental matters • Group Environment policy (ISO 14001)1 • Communities (page 17) • Environment and • Financial risks from Energy (page 26)

• Group Energy policy (ISO 50001)1 climate change (page 28)

Social and employee matters • Inclusion and Diversity policy • Customers (page 16) • Vulnerable customers (page 29) • Group Code of Conduct1 • Colleagues (page 16) • Inclusion and diversity (page 31) • Equal opportunities policy • Communities (page 17) • Learning (page 31) • Group Health and Safety policy • Conduct risk (page 54) • Wellbeing (page 30) • Employee Data Privacy • Business and strategy risk • Communities (page 32) (page 53) • Group Vulnerable Customers policy • People risk (page 112) • Group Learning policy

Respect for human rights • Modern slavery and • Operational Risk (page 52) • Information human trafficking statement1 security (page 29) • Group procurement policy • Operational risk (page 39) • Group data protection • Human trafficking (page 25) and privacy policy

Bribery and corruption • Group Code of Conduct1 • Colleagues (page 16) • Code of conduct (page 25) • Speak Up policy • Conduct risk (page 54) • Anti-bribery and corruption (page 25) • Group Anti-Money Laundering policy (AML) • Anti-Money Laundering (page 25) • Group Anti-bribery and Corruption policy • Conduct risk (page 150)

Diversity report • Board Diversity policy1 • Corportate governance • Corporate Governance arrangements (page 63) Statement (page 59)

Business model • Business operations (page 13) • Divisional Review (page 18)

Policies followed, • Risk management framework • Risk management due diligence and outcome (page 31) framework (page 121)

Description of principal risks • Principal risks and • Key risk types (page 39)and impact of business activity uncertainties (page 23) • Principal risks and uncertainties (page 111)

Non-financial key performance indicators • Key highlights (page 2) • Key highlights (page 3)

Risk and Management

Reporting Risk and Management Bank of Ireland Group

Requirement Policies Bank of Ireland (UK) plc Annual report

Non-financial information statement

The Group continues to develop disclosures in line with emerging recommendations and aims to comply with the non-financialreporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. The purpose of this table is to assiststakeholders in understanding our policies and management of key non-financial matters, and identify where they can find relevantinformation.

The Group and all employees are subject to the provisions of the Bank of Ireland Group policies included below. Further details can befound in the Bank of Ireland Group annual report at www.bankofireland.com.

1 These polices are available on the Bank of Ireland Group’s website, www.bankofireland.com. All other policies listed are not published externally.


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Governance structure

The Board’s role is to provide leadership of the Group within the boundaries of Risk Appetite and a framework of prudent and effectivecontrols which enable risk to be identified, assessed, measured and controlled.

The Board sets the Group’s strategic aims and risk appetite to support the strategy, ensuring that the necessary financial and humanresources are in place for the Group to meet its objectives. During 2019, the Board met 10 times. Further details are included in theGovernance section on page 58.

Robert Sharpe (A) (N) (RE) (RI)Chair, Non-Executive Director

Ian McLaughlinChief Executive Officer,Executive Director

Neil FullerChief Risk Officer, Executive Director

Thomas McAreaveyChief Financial Officer,Executive Director

Mark SpainNon-Executive Director

Jackie NoakesNon-Executive Director

Mimi Kung (N) (RE) (RI)Non-Executive Director

Philip Moore (A) (N) (RE) (RI)Non-Executive Director

John Baines (A) (RI)Non-Executive Director

Ian Buchanan (RI)Non-Executive Director

(A) Member of the Audit Committee.(N) Member of the Nomination Committee. (RE) Member of the Remuneration Committee.(RI) Member of the Risk Committee.

The Board is supported by a number ofCommittees:

Nomination Committee Robert Sharpe Chair

Responsible for leading the process forBoard, Board Committee and seniormanagement appointments and renewals.The Committee regularly reviewssuccession plans for the Board, and thesenior management team, and makesappropriate recommendations to theBoard. The Committee meets at leasttwice a year.

Remuneration Committee Philip Moore Chair

Holds delegated responsibility for settingremuneration strategy and policy forExecutive Directors and seniormanagement. The Committee meets atleast twice a year.

Audit Committee John Baines Chair

Monitors the integrity of the financialstatements, oversees all relevant matterspertaining to the external auditors andreviews the Group’s internal controls,including financial controls, and theeffectiveness of the internal auditfunction. The Committee meets at leastfour times a year.

Board Risk Committee (BRC) John Baines Interim Chair

Monitors risk governance and assists theBoard in discharging its responsibilities inensuring that risks are properly identified,reported, assessed, and controlled andthat strategy is cognisant of the Group’srisk appetite. The Committee meets atleast five times a year.

The Board Risk Committee is supportedby the Executive Risk Committee (ERC),which is chaired by the Chief Risk Officer.The ERC membership comprisesmembers of the Executive Committee andsenior executives. Further details on thegovernance structure are included onpage 31 of the Risk Management Report.


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Stakeholder engagement

The Board complies with section 172(1) of the Companies Act 2006 in a number of ways through engagement with its variousstakeholders, and has appointed accountable executives who are responsible for each of its key stakeholders.

The Group’s key stakeholders are those who most materially impact its strategy or are directly impacted by it. Engagement withstakeholders informs strategic decision-making and is key to ensuring that responsible balanced decisions are made.

The Group’s strategy has been informed by and its implementation continues to be informed by interaction with stakeholdersincluding with shareholders, customers and colleagues. It is the Group’s intention to act responsibly towards its stakeholders.

Principal Stakeholders and how we engage

Shareholder

The Group is focused on delivering sustainable returns for its shareholder. The Board regularly receives updates and reports fromthe Bank of Ireland Group Chief Executive Officer and has Bank of Ireland Group nominated NEDs to ensure that the shareholder’sviews and expectations are understood and considered. At the same time, the Group’s focus on costs and efficiency will continue.

Customers

The Group seeks to behave responsibly towards its customers, treating them fairly and equally so that they too may benefit from thesuccessful delivery of the Group’s strategy. This core Bank of Ireland Group value of being customer focused supports this

objective. The Board consistently reviews its customer strategy, receives updates on implementation and reviews progress. TheBoard’s understanding of customer perspectives is informed by deep dives on customer themes, customer complaints and visits by

Directors to customer call centres and branches to hear customer voices at first hand.

Communities

The Group seeks to enable communities to thrive, through a tangible and visible commitment that brings its purpose to life. The Bankof Ireland Group supports the wider community through charity and community activities and by playing an active role in society.

Employees are actively involved in fundraising and volunteering in charitable events across the UK for the Group’s flagship charity, theAlzheimer’s Society and a range of other local charities and community projects. Give Together is the Bank of Ireland Group’s charityand community initiative, through which employees lend their support to their nominated charities by fundraising, volunteering and

making donations.

People

The Group’s people are fundamental to the delivery of its strategy. The Group aims to be a responsible employer and is committedto enabling its people to thrive, ensuring they are engaged and have the skills and capabilities to serve customers brilliantly. TheBoard receives regular updates on the progress of the Culture Programme; receives regular People Updates; reviews the outputs

from the Group’s OpenView employee survey; and receives updates on progress in implementing actions in response to employeefeedback. In 2019, a Group Talent proposition was launched to develop sustainable, agile talent flows at all levels. The Board’s

understanding of employee perspectives is informed by individual director visits to Group locations throughout the UK.

Regulators

The Chairman and Chairs of Board committees regularly meet with regulators including the PRA, FCA and the Joint SupervisoryTeam. Core themes of discussion include regulation and supervision, risk governance and oversight, the future of the banking

industry, strategic challenges and culture. Key focus areas include Vulnerable Customers, Lending Responsibly, and OperationalResilience. Further detail on each of these areas is set out in the Corporate Social Responsibility (page 16), Principal Risks and

Uncertainties (page 23), Credit Risk (page 37), Conduct Risk (page 54) and Regulatory Risk (page 52) sections.

Suppliers

The Group assesses its suppliers across a number of key risk areas, at the on-boarding stage for all suppliers and annuallythereafter for suppliers providing services of high criticality and dependency to the Group. The Board requires the Group to seek

assurances (where appropriate) from its suppliers that they are complying with applicable laws and regulations including lawsrelating to minimum wages, working conditions, overtime, child labour and other applicable labour and environmental laws. This

ensures the Group selects only those suppliers who adhere to appropriate standards. The Group has adopted a risk basedapproach to review its supply chains that fall within industries that carry a high risk of modern day slavery. For further details, theBOI Group’s Modern Slavery Statement is available on the BOI Group’s website (https://www.bankofireland.com/about-bank-of-

ireland/corporate-governance/modern-slavery-human-trafficking-statement/).


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Ethics and valuesIt is the intention of the Board, to behave responsibly and ensure that management operates the Company in a responsible manner,operating within the high standards of business conduct and good governance expected for a business such as the Group. The Groupvalues - customer focused; one group one team; accountable and agile - aim to support this culture.

Monitoring The Nomination Committee reviews the Group’s stakeholders regularly and the Board sets the Group’s strategy on an annual andongoing basis, and considers all its stakeholders during the strategy setting process and throughout its implementation.

All material and strategic decisions taken by the Board are subject to a comprehensive risk assessment process which considers theimpacts to the Group’s stakeholders, as well as long term value creation and the implications for business resilience. Further details onthe material and strategic developments during the year are set out in the Business Review section.

For further details on stakeholder relationships and engagement, refer to Principle 6 of Corporate Governance arrangements, includedin the Report of the Directors.

Stakeholder engagement (continued)

Shareholder (continued)

Bank of Ireland (UK) plc is a partnership bank. Its strategy has been designed to enable its customers, colleagues andcommunities to thrive, with a strategic focus on increasing overall returns. This is achieved through the distribution of simple,

flexible, financial services to UK customers both directly and through partnerships with well-known UK brands. These include anexclusive financial services relationship and foreign exchange joint venture with the Post Office; a long-term financial servicespartnership with the Automobile Association (AA); a successful UK intermediary mortgage business; a full service retail and

commercial bank in Northern Ireland; a growing car and asset finance business throughout the UK, under the Northridge Financebrand and First Rate Exchange Services Limited (FRES).

Partners

The Group takes seriously its responsibility to manage its impact on the environment and to reduce that impact. In 2018, the Bankof Ireland Group signed up to the Low Carbon Pledge devised by the Business in the Community Corporate Social Network to

reduce participant organisation’s Scope 1 and Scope 2 carbon emissions intensity by 50% by 2030. The baseline year from whichthe reduction will be measured for Bank of Ireland Group is 2011. An independent assessment of the Bank of Ireland Group’s

performance to 2019 shows a 40% reduction in energy used. The Bank of Ireland Group is certified to ISO50001 EnergyManagement Standard across all sites and this drives continuous improvement while also ensuring regulatory compliance.Furthermore, in order to address the Bank of England’s Supervisory Statement SS 3/19 issued in April 2019, the Group has

established a working group to ensure that the risks in relation to climate change are considered and appropriately managed. TheBoard considers the risks of climate change seriously in setting the long term sustainable strategy for the Group, and has

delegated responsibility to the Board Risk Committee to oversee the plan for managing the financial risks from climate change inrelation to its overall business strategy and risk appetite, through regular risk reporting and other related exercises.

Environment


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Principal risks and uncertainties

Credit riskThe risk of lossresulting from acounterparty beingunable to meet itscontractualobligations to theGroup in respect ofloans or otherfinancial transactions.Credit risk includesdefault risk, recoveryrisk, counterparty risk,country risk, creditconcentration risk,settlement risk andresidual value risk.

Should commercial orconsumer customers orbanking / foreigncounterparties be unableto meet their obligationsin relation to borrowingsfrom the Group, theGroup may sufferincreased losses and thiswould have an adverseimpact on the Group’sfinancial position.

• Board approved Risk Appetite limits;• A Risk Appetite Framework is in place and aligned with the Group’s overall strategy;• Lending policies are fully aligned to risk appetite with formal governance to monitor and

ensure compliance with policies and limits;• Active credit management to maximise recoveries from impaired assets seeking the best

outcome in accordance with the Group’s Customer Charter;• Responsible lending practices and active portfolio management applied within clearly

defined Board approved risk appetite limits;• Active management of credit risk concentrations through risk appetite;• Regular monitoring of lending portfolios by senior management and the Credit Risk Portfolio

Committee (CRPC); • Reporting to the Executive Risk Committee (ERC), Board Risk Committee (BRC) and the

Board; • Minimum annual reviews of all individual commercial cases to monitor case specific risk;• Dedicated work-out teams focused on the management and reduction of non-performing

exposures;• External Mortgage Indemnity Guarantee for loans >90% LTV, providing protection against

future loss occurrence; and• Prudent residual value limits.

Key risks identified by the annual riskidentification process, together with keycontrols and mitigating factors are set outbelow.

The Group has taken steps to mitigate thenegative effects of Brexit such asimplementing measures to ensure thatcontracts will continue to be enforceable

and that it maintains all necessaryregulatory permissions. However, thereremains ongoing uncertainty in respect ofthe UK’s departure from the EuropeanUnion and the associated potentialeconomic impacts on the Group’sperformance.

This summary should not be regarded as a

complete and comprehensive statement ofall potential risks, uncertainties ormitigants, nor can it confirm that themitigants would apply to fully eliminate orreduce the corresponding key risks.

Additionally, other factors not yet identified,or not currently material, may adverselyaffect the Group.

Principal risks Potential risk impact Key controls and mitigating factors

Liquidity andfunding riskLiquidity risk is therisk that the Groupwill experiencedifficulty in financingits assets and / ormeeting itscontractual paymentobligations as they falldue, or will only beable to do so atsubstantially abovethe prevailing marketcost of funds.

Funding risk is therisk that the Groupdoes not havesufficiently stable anddiverse sources offunding or has aninefficient funding structure.

A loss of confidence in theGroup’s businessspecifically, the financialservices industry, the PostOffice brand, the AAbrand or the Group or theParent specifically, or as aresult of a systemic shockcould result inunexpectedly high levelsof customer depositwithdrawals or lead to areduction in the Group’sability to access fundingon appropriate terms.This in turn would have amaterially adverse effecton the Group’s results,financial condition andliquidity position.

• Board approved Risk Appetite limits;• A Liquidity and Funding Risk Management Framework (RMF), which is reviewed annually, is

in place. The Liquidity and Funding Risk Policy which governs management and monitoring,forms part of this framework;

• Daily monitoring and management of the liquidity position includes, but is not limited to,regulatory and internal liquidity stress testing, early warning signals, risk appetite metricsand a defined escalation process;

• Active management of the funding position to determine the amount of ongoing new retaildeposit acquisition and retention and wholesale funding required to fund the Group’s assetbase as well as forward analysis including stress testing;

• Regular reporting to the Asset and Liability Committee (ALCO), the ERC, the BRC and theBoard;

• Significant contingent liquidity collateral which is capable of being pledged againstborrowings from central banks or other external market participants;

• Comprehensive Internal Liquidity Adequacy Assessment Process (ILAAP) undertakenannually which sets out how the Group assesses, quantifies and manages key liquidity andfunding risks; and

• Recovery Plan in place, which specifies a range of processes and potential actions that canbe enacted, in the event of any unexpected shortfall in liquidity and / or funding.


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Principal risks and uncertainties (continued)

Market riskThe risk of loss arisingfrom movements ininterest rates, FXrates or other marketprices. Market riskarises from thestructure of thebalance sheet, theGroup’s business mixand discretionary risktaking. Additionally,market risk arisesthrough the conductof customer business,particularly in respectof fixed-rate lending.

Structural market riskarises from thepresence of non-interest bearingliabilities (equity andcurrent accounts) onthe balance sheet andchanges in thefloating interest ratesto which the Group’sassets and liabilitiesare linked (basis risk).

The effectivemanagement of marketrisk is essential to themaintenance of stableearnings, thepreservation of capitalresources and theachievement of theGroup’s strategicobjectives.

Ineffective managementcould have an adverseimpact on the Group’snet interest margin andprofitability.

• Board approved Risk Appetite limits;• A Market Risk Management Framework, which is reviewed annually, is in place and aligned

with the Group’s overall strategy to have no risk appetite for discretionary market risk andminimise its exposure to market risks in relation to Interest Rate Risk in the Banking Book(IRRBB) and FX. The Market Risk Policy, which governs market risk management andmonitoring, forms part of this framework;

• Daily hedging with the Parent, using derivatives or cash hedging deals;• Regular reporting to ALCO, the ERC, the BRC and the Board;• Daily monitoring and management of the market risk position including daily market risk

stress tests across all aspects of market risk (yield curve and repricing risk, basis risk,repayment risk, pipeline risk etc.);

• Extreme stress scenarios are produced and monitored in line with regulatory guidance andare reported to ALCO; and

• A product approval process incorporates review of product terms and conditions from amarket risk perspective, to ensure compliance with existing risk appetite, policy andprocess.


Regulatory riskThe risk of failure tomeet new or existingregulatory and / orlegislativerequirements anddeadlines or toembed requirementsinto processes.

The Group is exposedto regulatory risk as adirect and indirectconsequence of itsnormal businessactivities. These risksmay materialise fromfailures to complywith regulatoryrequirements orexceptions in the day-to-day conduct of itsbusiness, as anoutcome of riskevents in other keyrisk categories and /or from changes inexternal marketexpectations orconditions.

Non compliance withlegislative and regulatoryobligations may result infinancial penalties,directions from statutoryauthorities, regulatorysanction and reputationalrisk to the Group.

• The Group has no appetite for failure to comply with its regulatory or legislative obligations; • Regular and open communication with the FCA, PRA, European Central Bank (ECB) and

Competition and Markets Authority on all aspects of the Group’s activities;• Regular reporting to senior management, the Regulatory and Operational Risk Committee

(R&ORC), the ERC, the BRC and the Board;• Regular monitoring, assessment and reporting of regulatory change (current and proposed) to

ensure timely and appropriate response to regulatory change requirements at both a UK andEU level;

• Risk-based regulatory and compliance monitoring performed by an independent compliancemonitoring team; and

• Embedding of risk culture through the Risk Management Framework (RMF).


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Operational risk andfinancial crimeOperational risk is therisk of loss resultingfrom inadequate orfailed internalprocesses, peopleand systems, or fromexternal events.

The key sub-classesof operational risk aredefined as follows:Technology (includingtransformation risk),Information Securityand Cyber Security,Sourcing, Payments,Business Continuity,Financial Crime(incorporating the riskof facilitating moneylaundering, terroristfinancing, sanctionviolation and fraud),People, Legal andContractual, Model,Unauthorised Trading,Insurable, Disclosure,Regulatory Reportingand Data Quality andReliability Risk.

Risks to availability,resilience, stability andsecurity of Group's ITsystems; security ofGroup's sensitive andcustomer information;continuity of the Group'soperations and services;and risks arising from theGroup's outsourcingarrangements couldimpact the Group'soperational resilience andlead to disruption to theprovision of services tocustomers, financial lossand / or reputationaldamage.

Non-compliance withlegislative and regulatoryobligations may result infinancial penalties,regulatory sanction andreputational risk to theGroup.

People stretch andpotential loss of key staffcould have a detrimentalimpact on the Group'sability to achieve itsstrategic objectives.

Litigation proceedingswith adverse judgementscould result in materialimpact on the Group'sreputation.

• Board approved Risk Appetite limits;• A operational risk management framework (ORMF) which defines the Group’s approach to

identifying, assessing, managing, monitoring and reporting on operational risks. The ORMFconsists of processes and standards aimed at embedding adequate and effective riskmanagement practices within business units throughout the Group;

• Operation of a number of available strategies in controlling its exposure to operational risk,with the primary strategy being the maintenance of an effective control environment, coupledwith appropriate management actions;

• Specific policies and risk mitigation measures for material operational risks;• Enhancement and investment in its risk management processes including the identification of

and controls for potentially elevated / emerging risks such as, Information Technology,Information Security and Cyber Security, Business Disruption, Financial Crime and Fraud;

• Security programmes to protect the integrity and availability of the Group’s systems andmitigate the frequency and impacts of cyber-attacks. A staff education programme has beenimplemented on information protection and cyber security;

• Continued focus on and regular review of User Access Management to ensure user accessprivileges are appropriately aligned to role requirements;

• A comprehensive Model Risk Management Framework to ensure existing or emerging modelrisks are identified and mitigated effectively and efficiently. Quarterly MI updates are submittedto the ERC and the BRC;

• A robust AML risk management framework which includes automation of customer duediligence is in place;

• Outsourced arrangements with the Parent and third parties are managed through service levelagreements, service descriptions and KPIs, with a Sourcing Risk Policy Standard and UKgovernance fora in place;

• Business Continuity and Critical Incident frameworks ensure adequate planning is in place forany incidents impacting continuity of services. Processes were tested within the year;

• Processes in place to ensure its compliance with its legal obligations, together with clearcontrols in respect of the management and mitigation of such disputes, proceedings andinvestigations as may be instigated against the Group from time to time;

• A Board approved people strategy to enable the Group to retain appropriate numbers and / orcalibre of staff having regard to remuneration restrictions imposed by government, tax orregulatory authorities. These include Talent Board Reviews including succession planning, aPerformance Management Framework, and a Career and Reward Framework;

• Regular monitoring and reporting to the R&ORC, the ERC, the BRC and the Board;• UK Board review and approval of proposed IT change initiatives to ensure alignment with

agreed business strategy; and• UK Change team ongoing planning, prioritisation and monitoring of change initiatives

ensures that the aggregate plan is feasible from a customer and colleague perspective.



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Business and StrategicriskThe risk of volatility tothe Group’s projectedoutcomes, including theIncome Statement andBalance Sheet impactand / or damage to itsfranchise including thatof the Group’s jointventures. It includesvolatilities caused by (1)changes in the macroand competitiveenvironment, new marketentrants, arrears levelsetc and (2) failure/delaysin executing the Group’sstrategy for newproduct/customerofferings, cost reductiondelivery, or to anticipateor mitigate a related risk.

Failure to demonstratethat it is probable thatfuture taxable profits willbe available, or changesin government policy ortax legislation mayreduce the recoverableamount of the deferredtax asset currentlyrecognised in thefinancial statements.

BrexitOngoing uncertaintysurrounding the UK’sdeparture from theEuropean Union (EU)continues to affect themarkets in which theGroup operates includingpricing, partner appetite,consumer confidenceand credit demand,collateral values andcustomers’ ability tomeet their contractualobligations andconsequently theGroup’s financialperformance, balancesheet, capital anddividend capacity.

Other effects mayinclude changes inofficial interest ratepolicy in the UK.

Adverse change in theGroup's revenues and /or costs resulting inreduced profitability.

• A clearly defined strategic plan is developed within the boundaries of the Board approved riskappetite and risk identity, ensuring balanced growth in consumer lending and deposits with astable funding profile that is appropriate for the asset mix;

• Monitoring of impact, risks and opportunities of changing current and forecastmacroeconomic conditions on the likely achievement of its strategy and objectives, includingthe challenges and uncertainty associated with the ongoing negotiations regarding the natureand impact of the UK’s withdrawal from the EU;

• Review and monitoring ofthe Group’s competitive environment to identify marketdevelopments, using external research and economic updates as required;

• In the context of its Board approved strategy, the Group assesses and develops itscomplementary technology strategy which is reviewed and monitored on an ongoing basis;

• Clearly defined and regularly monitored KPIs are reviewed at both Executive and Boardcommittee level through regular reporting of business and strategic risks to ERC, BRC andBoard;

• A balanced scorecard is monitored, which considers key elements in the delivery andsuccessful execution of the Group’s strategic plan, including enhancing product returns,customer services levels, and the achievement of cost and efficiency targets, all within riskappetite parameters;

• The Group is strongly capitalised and self-funded predominantly through retail deposits andutilises low levels of wholesale funding from the Parent and market. The Group also hassignificant liquidity collateral which is capable of being pledged against borrowings fromcentral banks or other external market participants;

• Clearly defined tax compliance procedures to identify, assess, manage, monitor and reporttax risks and to ensure controls mitigating those risks are in place and operate effectively;

• Monitoring of the expected recovery period for deferred tax assets;• Potential changes to tax legislation or government policy and considers any appropriate

remedial action; • The Group has a longstanding Brexit programme to identify, monitor and mitigate risks

associated with various outcomes of Brexit. The Board and senior managment receivesregular updates on the progress of risk mitigation in this area;

• The Group’s distribution in the UK is largely through partner brands which reduces investmentin infrastructure and other fixed cost items; and

• Services received from the Group’s Parent company in Ireland are hedged to mitigate the riskof sterling/euro volatility in a hard Brexit scenario.



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Reputation riskThe risk to earningsor franchise valuearising from adverseperception of theGroup’s image onthe part ofcustomers,suppliers,counterparties,shareholders, staff,partners, legislatorsor regulators. Thisrisk typicallymanifests through aloss of business inthe areas affected.

Reputation riskarises as a direct orindirectconsequence of theGroup’s operationsand businessactivities.

Adverse public orindustry opinion,resulting from theactual or perceivedmanner in which theGroup conducts itsbusiness activities orfrom actual orperceived practicesin the bankingindustry (such asmis-selling financialproducts or moneylaundering), mayadversely impact theGroup’s ability tohave a positiverelationship with keystakeholders and / orstrategic partnersand / or keep andattract customers.

Ultimately this mayresult in an adverseimpact on theGroup’s business,financial conditionand prospects.

• Policies and procedures in place to minimise reputational risk; • The embedding and management of a positive customer conduct culture to ensure the

interests of consumers remain at the heart of the Group’s operation. Management decisionmaking aims to deliver an accurate, open and positive external view of the Group tocustomers, regulators and the wider public and community;

• Active management of all internal and external communications including social media andmedia monitoring which leads to escalation and, where required, management actions;

• Regular reporting to the ERC, the BRC and the Board; and• Regular and open dialogue with key stakeholders, partners, regulators and industry bodies.

LIBOR reformFollowing thefinancial crisis, thereform andreplacement ofbenchmark interestrates to alternativeor nearly risk-freerates has become apriority for globalregulators.The Group’sexposures tobenchmark interestrates will bereplaced orreformed as part ofthis market-wideinitiative. Transitionefforts inconnection withthese reforms arecomplex, withsignificant risks andchallenges.

• A formal Group-wide Benchmark Reform Programme has been mobilised since early 2018to manage the orderly transition to new regulatory compliant benchmarks;

• The Group Assets and Liabilities Committee provides oversight to the programme andupdates are provided to the Board Risk Committee ensuring close monitoring andmanagement of specific risks and challenges associated with same; and

• The Group has begun to transition to new Risk Free Rates where market liquidity allows.




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Financial Risksfrom ClimateChange (FRCC)Financial risks tothe firm’s businessmodel, strategy andthe overall riskprofile arising fromrisks related tophysical impacts ofclimate change(acute or chronicextreme weatherevents) andtransition to lower-carbon economy(changes ingovernment policy,low-carbontechnologies andmarket preferencestowards greenersolutions).

Climate change-relatedrisks could manifestthemselves throughcrystallisation of anumber of principalrisks such as credit,operational, orreputational risk as wellas having an impact onthe Group’s strategyand business model.

Credit Risk: Increasedcosts associated withphysical and transitionrisks may impactfinancial soundness ofhouseholds andbusinesses reducingtheir ability to servicedebt and impairingasset values, resultingin financial loss to thefirm through higherprobability of defaultand higher lossesgiven default.

Operational Risk:physical risks couldimpact continuity ofthe Group’s operationsor operations of itsmaterial suppliersresulting in sustaineddisruption of thesupply chain andultimately our ability toservice customers.

Reputational Risk:customer, communityand regulatoryexpectations of theGroup’s contribution tosupport transition tolower-carbon economyresulting in loss ofbusiness.

• In 2019, Bank of Ireland Group signed UN Principles for Responsible Banking as part of itsongoing responsible and sustainable business strategy;

• The Board, BRC and executive committees (ERC, CRPC and R&ORC) terms of referenceoutline their respective responsibilities in managing FRCC;

• An inaugural materiality and risk impact assessment of FRCC has been undertaken;• A risk appetite statement specific to FRCC has been adopted whereby the Group has, in the

medium to longer term, committed to reducing financing of carbon-intensive assets orassets susceptible to physical risks, supporting customers and businesses in their move toenvironmentally sustainable solutions; strengthening its operational resilience and that ofmaterial suppliers; and reducing its own climate change impact;

• FRCC forms part of product and strategy reviews;• FRCC is considered as part of the ICAAP and Reverse Stress Testing process; and• Regulatory, governmental or industry developments in relation to new climate change risk

related standards are being monitored on an ongoing basis.




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Conduct Risk Conduct risk is therisk of failure todeliver a product orservice in a mannerpromised orreasonably expectedby customers or totreat them fairly.

Conduct risk and / orpoor outcomes forcustomers could lead to customer remediation,loss of business, adversemedia coverage,financial penalties and /or other regulatorysanction.

• Board approved Risk Appetite limits;• A Group Conduct Risk Framework is in place which is reviewed annually and which sets out

the approach to conduct risk management;• Specific conduct risk policies are in place which set out the approach to management of

conduct risk across the Group; • Regular reporting, complaints oversight and root cause analysis reviewed at the R&ORC,

Customer Board, BRC and Board;• The Product & Services Approvals & Governance Committee (PSAGC) reviews, assesses

and approves material new products and services prior to introduction or withdrawal ormaterial change to an existing product or service. It also reviews the performance of existingproducts and services to ensure these remain appropriate; and

• A dedicated Customer Board to oversee the customer experience.


Capital adequacyriskThe risk that theGroup holdsinsufficient capital toabsorb extreme andunexpected losses,which couldeventually result ininsolvency.

The Group’s capitalratios would deterioraterelative to regulatoryrequirements as a resultof materially worse thanexpected financialperformance orunexpected increase inrisk weighted assets.

• Board approved Risk Appetite limits;• A capital management framework which is reviewed annually, is in place for the effective

management of capital adequacy risk and its capital position. The capital managementpolicy, which governs capital management and monitoring, forms part of this framework;

• Capital adequacy risk appetite is central to the strategic planning process. The Group’sappetite is to hold sufficient capital to achieve its strategic objectives, as well as to absorbextreme losses in a stress scenario;

• Comprehensive Internal Capital Adequacy Assessment Process (ICAAP) undertakenannually, assessing the Group’s capital adequacy and capital quality under plausible stressscenarios;

• Regular reporting to the ALCO, the ERC, the BRC and the Board; • Detailed capital plan continuously monitored and reviewed on a monthly basis, which

informs the capital position for the Group; and• Recovery plan in place which specifies a range of processes and potential actions that can

be enacted in the event of any unexpected shortfall in capital resources.

The Strategic report on pages 7 to 29 is approved by the Board of Directors and signed on its behalf by:

Thomas McAreaveyDirector

2 March 2020

Company number: 07022885


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Index Page

1 Risk management framework 31

1.1 Risk governance framework 31

1.2 Risk culture, strategy and principles 34

1.3 Risk identity and risk appetite 34

1.4 Risk identification, measurement and reporting 35

2 Management of key risks 36

2.1 Credit risk 37

2.2 Liquidity and funding risk 47

2.3 Market risk 51

2.4 Regulatory risk 52

2.5 Operational risk 52

2.6 Business and strategic risk 53

2.7 Reputation risk 54

2.8 Conduct risk 54

3 Capital management 55

The information below in sections or paragraphsdenoted as audited in sections 2 and 3 and all thetables (except those denoted unaudited) in the RiskManagement Report form an integral part of theaudited financial statements as described in theBasis of Preparation on page 82.

All other information in the Risk Management Reportis additional disclosure and does not form part of theaudited financial statements.

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Risk Management

1 Risk management framework

The Group follows an integrated approachto risk management to ensure that allmaterial classes of risk are taken intoconsideration and that the Group’s overallbusiness strategy and remunerationpractices are aligned within its risk andcapital management strategies. TheGroup’s formal governance process to riskmanagement is set out in the riskmanagement framework, which has the

objective of ensuring that risks aremanaged and reported in a consistentmanner across the Group. The Frameworkoutlines the approach for setting riskappetite, risk identification, assessment,measurement, monitoring and reporting.The review of the Framework takes intoconsideration any emerging factors, bothinternal (e.g. enhancements to capitalallocation) and external (e.g. regulatory

developments), as well as any lessonslearnt. The Framework is reviewed,approved and cascaded annually to allrelevant senior management in the Group,and is reviewed and approved by theBoard of Directors (the ‘Board’). The keycomponents of the Framework aredetailed below:

Key components of Group Risk Framework

Key risks

Credit Liquidity &Funding

Market RegulatoryOperational &

FinancialCrime

Business &

Strategic Reputation Conduct

CapitalAdequacy

Risk Management Process

Risk strategy and appetite

Risk identification and materiality assessment

Risk analysis and measurement

Risk monitoring and reporting

Risk governance Risk culture

1.1 Risk governance framework

1.1.1 Risk governance

The identification, assessment andreporting of risk in the Group is controlledwithin the Risk Governance Frameworkwhich incorporates the Board, RiskCommittees appointed by the Board (e.g.Board Risk Committee (BRC) and AuditCommittee (AC)), the Executive RiskCommittee (ERC) and its appointedcommittees (e.g. Regulatory & OperationalRisk Committee (R&ORC), Credit Risk

Portfolio Committee (CRPC), and Asset &Liability Committee (ALCO)).

The Board is responsible for ensuring thatan appropriate system of internal controlis maintained, and for reviewing itseffectiveness. Each of the RiskCommittees (including the BRC and AC)has detailed terms of reference, approvedby the Board or their parent committee,

setting out their respective roles andresponsibilities.

Further details outlining the keyresponsibilities of the Group’s Board Levelrisk committees can be found on page 20within the Corporate GovernanceArrangements.


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Board-level RiskCommitteesIndependent risk oversight,scrutinising and challengingERC actions and proposals(see page 20).

Non-ExecutiveChallenge

Executive Risk Committee (ERC)Senior Executive RiskCommitteesReviewing and challengingrisk information andescalation issues (see page33).

Risk Escalation,Debate and

Action

UK Risk Function

Group FunctionsAggregating, analysing andcoordinating riskmanagement activities andprocesses. Independentinternal audit function.

RiskAggregation and Analysis

CRPC ALCO R&ORC

Products &Services

Approvals &GovernanceCommittee

OutsourcedServices Executive

PartnershipCommittee

Other ERCappointed

Committees

Board of Directors - Bank of Ireland (UK) plc

Board of DirectorsUltimate oversight andaccountability for the riskand related controlenvironment (see page 20).

Risk Strategy & Appetite

Developmentand

Oversight

Business Units

Business UnitsIdentifying, assessing andreporting risks inherent tothe business in line with theGroup risk managementframework and standards.

RiskAssessment

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Audit Committee (AC)

Group Internal Audit

1 Risk management framework (continued)

1.1.1 Risk governance (continued)

The Executive Risk Committee (ERC) isthe most senior managementRisk Committee and reports to the BRC. Itis chaired by the UK CRO and itsmembership comprises members of theExecutive Committee (ExCo) and controlfunction executives. It met 15 times during2019.

The ERC is responsible for managing allrisk types (including the financial risks ofclimate change) across the Group,

including monitoring and reviewing theGroup’s risk profile and compliance withrisk appetite and other approved policylimits, approving risk policies and actionswithin discretion delegated to it by theBRC. The ERC reviews and makesrecommendations on risk matters wherethe Board and the BRC has reservedauthority. The BRC oversees the decisionsof the ERC through a review of the ERCminutes and reports from theCommittee Chairman. The ERC

delegates specific responsibility foroversight of the major classes of risk tocommittees that are accountable to it.

The relevant committees are set out in thefollowing table.


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Asset & Liability Committee ongoing review and monitoring of balance sheet, liquidity, funding, market risk and capital positions to ensure compliance with relevant Group RAS limits, ALCO owned metrics, regulatory requirements and industry best practice.

Credit Risk Portfolio overseeing the Group’s development, deployment and management of the Credit Risk framework and Committee corresponding risk appetite across all asset classes1.

Regulatory & Operational end-to-end management and oversight of Regulatory, Operational, Financial Crime and Conduct Risks within the Risk Committee Group1.

Products & Services Approvals reviews, assesses and approves significant and material new products and services across the UK prior to & Governance Committee introduction, the withdrawal or material changes, to an existing product / service; considers the performance of existing products and services to ensure they remain fit for purpose1.

Outsourced Services ensures alignment, resolves issues, acts as the top level of escalation and maintains an overall view of the Intra-Executive Partnership Forum Group outsourcing arrangement.

Three lines of defence approachThe Risk Governance Framework issupported by the Group’s managementbody, with risk responsibilities extendingthroughout the organisation based on athree lines of defence approach.

First line of defence – Primaryresponsibility and accountability for riskmanagement lies with line managementacross the business and front-linefunctions. They are responsible for theidentification and management of riskagainst risk appetite at a business unitlevel including the implementation ofappropriate controls and the reporting ofall major risk events. Business units areaccountable for the risks arising in theirbusinesses / functions, and are the firstline of defence for the Group in managingthese. This applies irrespective of whetheror not activities are outsourced to theParent or to external third parties includingstrategic partners such as the Post Officeand the AA.

In addition, the Group’s treasury functionis responsible for liquidity planning andmanagement, transfer pricing, balance

sheet management, cash and market riskmanagement and as part of the Group’sRecovery Plan, contingent capital andfunding management actions. The UKTreasurer reports directly to the CFO.

The Group’s operations team manages thedelivery of technology and operationalservices provided by the Parent and thirdparty service providers, and ensurescompliance with FCA SYSC8 and MiFIDrequirements as well as the Group’sSourcing Strategy, Framework, Policy andGuidance. The Operations Director reportsdirectly to the CEO.

Second line of defence – The SecondLine Risk Function is responsible formaintaining independent risk oversightand ensuring a risk control framework is inplace.

In order for the BRC, the ERC, and otherrisk committees to fulfil their delegatedrisk governance responsibilities, they aresupported by the Risk Function which isresponsible for establishing the RMF anddesigning risk policies and communicatingthese to all business units. The Risk

Function also provides independentoversight, monitoring, measurement,analysis and reporting of key risks. Thisincludes the monitoring and creditunderwriting of individually significantcredit exposures in the commercial loanbook.

Third line of defence – The Internal Auditfunction (GIA) provides independent andreasonable assurance to key stakeholderson the effectiveness of the Group’s riskmanagement and internal controlframework. GIA carries out risk basedassignments covering Group businessesand functions (including outsourcedservice providers), with ratings assignedas appropriate. Findings arecommunicated to senior management andother key stakeholders, with remediationplans monitored for progress againstagreed completion dates. The GroupCredit Review (GCR) function, anindependent function within Internal Audit,is responsible for reviewing the quality andmanagement of credit risk assets acrossthe Group.

1 Risk management framework (continued)

1.1.1 Risk governance (continued)

Committee Delegated responsibility

1 Including the financial risks of Climate change, as applicable.


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Risk cultureA strong risk culture is fundamental to theGroup’s management, with the Group’sRisk Culture Statement being approved bythe Board. The Group promotes a riskculture that is open and risk aware.Considerations about risk inform theBoard, day-to-day management decision-making and product development. Clearlydefined roles and responsibilities ensurerisk is owned and controlled effectivelyacross the organisation. A Speak Uppolicy protects employees who wish toraise concerns under whistleblowingarrangements.

The Board Risk Committee assesses aRisk Culture Review annually. The latestreview concluded that further progresshad been made in the establishment andembedding of frameworks and day-to-dayworking practices to support a strong riskculture. There were a number of indicatorsthat demonstrated appropriate riskawareness and good risk managementbehaviours and decisions which aresupported by the Risk ManagementFramework and Risk Governance. Whilstthere were specific areas which requirefurther action, it was recognised thatembedding a strong risk culture was anongoing and iterative process, which will

always require continued positivenurturing, enhancement andreinforcement.

Risk strategyThe Group’s Risk Strategy is to protect itsbalance sheet, customers and reputationas well as those of its strategic partners,and help the business to build profitability.The Group seeks to accomplish this by: • establishing Risk Appetite as the

boundary condition for the Group’sStrategic Plan and Annual OperatingPlan / Budget;

• defining and implementing a RiskManagement Framework to managerisk using an integrated approach;

• defining Risk Principles upon whichrisks may be accepted;

• allocating clear roles andresponsibilities / accountability for thecontrol of risk within the Group; and

• engendering a prudent riskmanagement culture.

Risk principlesRisk owners seeking to accept a risk attransaction, portfolio and Group level mustoperate in accordance with riskframeworks and policies includingbringing this to the attention of the ERCwhere required.

In general, risks may be accepted if:• they are aligned with the Risk Identity

and within Risk Appetite;• the risks represent an attractive

investment from a risk-returnperspective. It is imperative thatinvestment decisions achieve a returnon capital which are in excess of thepre-defined hurdle rates and are alsomanaged within formally approvedmandates;

• the Group has the resources and skillsto analyse and manage the risks;

• stress and scenario tests around therisks exist, where appropriate, andmitigants identified;

• appropriate risk assessment,governance and procedures havebeen observed as described in theappropriate documentation (e.g.frameworks, policies, processes,controls) pertaining to individual riskcategories or at an aggregate Group-level; and

• acceptance of the risk does not causeundue risk concentration in order toremain within the approved RiskAppetite portfolio limits and notdeviate from the Risk Identity.

1.2 Risk culture, strategy and principles

Risk IdentityThe Group’s purpose is to enable itscustomers, colleagues and communitiesto thrive by being the leading PartnershipBank.

To achieve its Risk Strategy, the Groupseeks to operate a strong riskmanagement framework and risk culturewhilst pursuing an appropriate return tothe risk taken.

Risk AppetiteRisk Appetite defines the amount andnature of risk that the Group is prepared toaccept in pursuit of its strategicobjectives. It is central to the strategicplanning process, forms a boundarycondition to strategy and guides theGroup in its risk-taking and relatedbusiness activities. The Risk Appetite

Statement (RAS) is defined in accordancewith the Group's RMF and is reviewed atleast annually by the Risk function andapproved by the Board on therecommendation of the BRC.

Risk Appetite is defined in qualitative andquantitative terms within a framework thatfacilitates discussion and monitoring bothat the Board and management levels. Atthe highest level, Risk Appetite is basedon the Group’s Risk Identity, whichqualitatively defines the relativepositioning of the Group's activities withina spectrum of business models andmarket opportunities. Quantitative riskappetite measures, which are consistentwith the Group’s risk identity, are thenused to inform the boundaries of theGroup’s strategy. These measures alsoinform individual risk limits and targets at

management and business unit level.

The Group tracks actual and forecastresults against these risk limits which aremonitored and reported regularly to seniormanagement as well as the ERC sub-committees; the ERC; the BRC and theBoard.

The Group strives to ensure it operateswithin its risk appetite and therefore itsrisk appetite and risk profile must bealigned. Where the Group has a risk profilethat is in excess of its risk appetite, it willtake action to realign the risk profilethrough increased risk mitigation activitiesand risk reduction. The key risk mitigatingactivities are set out on pages 23 to 29within the Strategic report.

1.3 Risk identity and risk appetite


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Risk identificationRisks facing the Group are identified andassessed through the Group’s riskidentification process. Risks that areconsidered material are included in theGroup’s RMF, owners are identified,appropriate policies are put in place, and aformalised measurement andmanagement process is defined andimplemented. The Group periodicallyreviews the RMF and risk managementpolicies and systems to reflect changes inmarkets, products and best marketpractice. The Group has identified risktypes that it believes could have a materialimpact on earnings, capital adequacy,liquidity and on its ability to trade in thefuture and these are covered in theprincipal risks and uncertainties that areset out on pages 23 to 29 of the Strategicreport.

Risk measurementRisk management systems are in place tofacilitate measurement, monitoring andanalysis of risk and ensure compliancewith regulatory requirements. In additionto the assessment of individual risks on acase-by-case basis, the Group alsomeasures its exposure to risk at anaggregate level using, among othertechniques, risk-adjusted return estimatesand stress testing.

The Group conducts stress tests in orderto assess the impacts of adversescenarios on the Group’s impairmentcharges on financial assets, earnings,capital adequacy, liquidity and financialprospects.

The results of stress tests are used toassess the Group’s resilience to adversescenarios and to aid the identification ofpotential areas of vulnerability. The testsare applied to the existing risk exposure ofthe Group and also consider changingbusiness volumes, as envisaged in theGroup’s business plans and strategies.Macroeconomic scenarios of differentlevels of severity are combined withassumptions on volume changes andmargin development.

Stress test results are presented to theBRC and the Board as an integral part ofthe ICAAP and the ILAAP, which assessthe risks and capital and liquidityrequirements of the Group.

The Group also performs reverse stresstesting, primarily a qualitative process toderive severe stress scenarios whichwould breach the Group’s ability to surviveunassisted, thus helping to define risktolerance boundaries for the business aswell as appropriate controls and mitigants.

Risk reportingRisks are measured, reported andmonitored by the Group on a daily, weekly,monthly and/or quarterly basis dependingon the materiality of the risk. The CEO andCRO Monthly Risk Report submitted toeach Board meeting provide an update onkey risk issues as well as an update onperformance against core risk appetitemetrics. Additionally, material risksidentified under the Group’s RMF areassessed and their status is reported inthe CRO/Monthly Risk Report (MRR) in thefirst instance. This report is submitted toboth the ERC and the BRC.

The format of this report is approved bythe BRC. The content of the MRR includesanalysis of, and commentary on, allmaterial risk types. It also addressesgovernance and control issues and theGroup’s capital position. In addition to theMRR, the BRC and the Board considerformal updates on other key risk areas asappropriate.

Data on the external economicenvironment and management’s view ofthe implications of this environment on theGroup’s risk profile is also reviewedregularly at management and Board level.The BRC also receives risk informationthrough the review of minutes from theERC.

1.4 Risk identification, measurement and reporting


2 Management of key risks

Index Page

2.1 Credit risk 37

2.1.1 Definition of credit risk 37

2.1.2 Credit risk management 38

2.1.3 Credit risk mitigation 39

2.1.4 Credit risk reporting and monitoring 39

2.1.5 Management of challenged assets 40

2.1.6 Asset quality - loans and advances to customers 41

2.1.7 Credit risk methodologies (audited) 43

Risk Management

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Key points:

• UK gross lending and property transactions were broadly in line with 2018, resulting from a lack of consumer confidence(largely attributed to Brexit uncertainty). Despite this resulting in muted overall demand for credit, it did not have a materialimpact on credit quality.

• At all times during the financial year the Group maintained appropriate credit controls reflecting and responding to thechanging dynamics of the UK market, in line with regulatory requirements.

• The Group concluded the year within all bank risk appetite measures.• The Group’s loans and advances to customers increased by £0.9 billion to £21.3 million at 31 December 2019 (2018 £20.4

billion), principally driven by sustained growth in the consumer and mortgage portfolios offset by the sale of the £0.5 billioncredit card portfolio.

• The Group’s overall asset quality trend has continued to improve. Total impaired loans reduced from £348 million to £280million (20%) reflecting a continued focus on the acquisition of good quality assets and effective management of the portfolio.

Definition Credit risk is the risk of loss resulting froma counterparty being unable to meet itscontractual obligations to the Group inrespect of loans or other financialtransactions. The risk includes but is notlimited to default risk, credit concentrationrisk, country risk, migration risk andcollateral risk. At portfolio level, credit riskis assessed in relation to the degree ofname, sector and geographicconcentration to inform the setting ofappropriate risk mitigation and transfermechanisms and to assess risk capitalrequirements. The manner in which theGroup’s exposure to credit risk arises, itspolicies and processes for managing it,and the methods used to measure andmonitor it, are set out below.

How credit risk arisesCredit risk arises from loans and advancesto customers. It also arises from thefinancial transactions the Group entersinto with financial institutions, sovereignsand state institutions. It comprises bothdrawn exposures and exposures theGroup has committed to extend. While theGroup could potentially suffer loss to anamount equivalent to its undrawncommitments, the Group does not expectto incur losses to that extent as mostconsumer related commitments can becancelled by the Group and non-consumer related commitments areentered into subject to the customercontinuing to achieve specific creditstandards. The Group is also exposed tocredit risk from its derivatives, debtsecurities and other financial assets.

Default RiskDefault risk is the risk that individuals,companies, financial institutions,sovereigns or state institutions will be

unable to meet the required payments ontheir debt obligations. Default may be as aresult of one or a number of factorsincluding, but not limited to:• deterioration in a borrower’s capacity

to service their credit obligation;• deterioration in macroeconomic or

general market conditions;• regulatory change, or technological

development that causes an abruptdeterioration in credit quality; and

• a natural or manmade disaster.

Country RiskCountry risk is the risk or othercounterparties within a country may beunable, unwilling or precluded fromfulfilling their obligations due to changingpolitical, financial or economiccircumstances such that a loss may arise.

Migration RiskMigration risk is the potential for loss dueto an internal / external ratings downgradewhich signals a change in the creditquality of the loan exposure.

Collateral RiskCollateral risk is the risk of loss arisingfrom a change in the value orenforceability of security held in respect ofa transaction with credit risk.

Credit concentration riskCredit concentration risk is the risk of lossdue to exposure to a single entity, orgroup of entities, engaged in similaractivities and having similar economiccharacteristics that would cause theirability to meet contractual obligations tobe similarly affected by changes ineconomic or other conditions. Undueconcentrations could lead to increased orunexpected volatility in the Group’sexpected financial outcomes.

The Group imposes risk control limits tomitigate significant concentration risk.These limits are formed by the Group’srisk appetite, and that of the Parent, andare set in the context of the Group’s riskstrategy. Monetary limits are reviewed byCRPC for recommendation through to theBRC or the Board. Single nameconcentrations are also subject to limits.

The Group’s primary market is the UK andloans originated and managed in the UKrepresent a material concentration ofcredit risk.

Maximum exposure limitsThe Group’s risk appetite statement, creditpolicy and regulatory guidelines set outthe maximum exposure limits to acustomer, or a group of connectedcustomers. The policy and regulatoryguidelines cover both exposures to theParent and other counterparties.Regulatory guidelines limit riskconcentration in individual exposures.

Loans and advances to banks at 31December 2019 of £2.2 billion include£0.5 billion due from the Parent, whiledeposits from banks at 31 December 2019of £3.5 billion include £2.0 billion due tothe Parent. At 31 December 2019, theGroup therefore has a net exposure due tothe Parent of £1.5 billion (2018: £0.7 billionnet exposure due to the Parent).At 31 December 2019, derivative assetsand derivative liabilities include £37 millionand £54 million respectively with theParent and therefore a net exposure dueto the Parent of £17 million (2018: £4million net exposure due to the Parent).

Credit related commitments (audited)The Group classifies and manages creditrelated commitments that are not reflected

2.1 Credit risk

2.1.1 Definition of credit risk (audited)


2.1.1 Definition of credit risk (audited) (continued)

Risk Management

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Credit risk management – retail andcommercial lending (audited)The management of credit risk is focusedon a detailed analysis at origination,followed by early intervention and activemanagement of accounts wherecreditworthiness has deteriorated. TheChief Credit Officer (CCO) hasresponsibility for credit management of theretail lending book, business banking bookand the Northridge book. Supported byDirectors / Heads of Retail Credit andCommercial Credit and the broader riskfunction, the CCO is responsible for overallcredit risk reporting to the ERC, the BRCand the Board. The CCO reports to theCRO, who reports directly to the CEO. Thebroader risk function, under themanagement of the CRO, providesindependent oversight and management ofthe Group’s credit risk strategy and creditrisk management information, as well asthe Group’s suite of credit risk policies.

Credit policyThe core values and principles governingthe provision of credit are contained in theCredit Policy and Credit Framework, whichare approved by the BRC. Individual sector/ portfolio-level credit policies define ingreater detail the credit approachappropriate to those sectors or portfolios.These policies take account of the Group’sRisk Appetite Statement, applicablesectoral credit limits, the markets in whichthe Group operates and the productsprovided. Each staff member involved indeveloping customer relationships and / orassessing or managing credit, has aresponsibility to ensure compliance withthese policies. Procedures for the approvaland monitoring of exceptions to policy areincluded in the policy documents.

Lending authorisation (audited)The Group’s credit risk managementsystems operate through a hierarchy oflending authorities, which are related tointernal customer loan ratings and limits. Insome consumer lending this includes theuse of credit decisioning models, whichare subject to strict governance processes.All exposures which exceed prescribedlevels require approval or ratification by theBRC.

Other exposures are approved bypersonnel according to a system of tieredindividual authorities, which reflect creditcompetence, proven judgement andexperience. Material lending proposals arereferred to credit underwriting units forindependent assessment and approval, orformulation of a recommendation andsubsequent adjudication by theappropriate approval authority.

All credit transactions are assessed atorigination for credit quality and theborrower is assigned a credit grade basedon a predefined credit rating scale. Therisk, and consequently the credit grade, isreassessed periodically. The use of internalcredit rating models, bespoke creditscoring tools and reference to extensiveperformance data from credit referenceagencies, enables measurement of therelative degree of risk inherent in lending tospecific counterparties and is central to thecredit risk assessment and ongoingmanagement processes in the Group.Details of these internal credit ratingmodels are outlined in the section on creditrisk methodologies on pages 43 to 46.

Counterparty credit riskThe continued weak international financialenvironment means that the Groupcontinues to be exposed to increased

counterparty risk. The Group has a numberof measures in place to mitigate thisincreased risk. These include:• reduced individual Group exposures

across a wider spread of bankinginstitutions;

• strict credit risk managementprocedures; and

• application of tight credit policycriteria, where required.

The Group’s net exposure to the Parent(disclosed gross within loans andadvances to banks, deposits from banks,derivative assets and derivative liabilities)is managed through a contractual masternetting agreement with the Parentwhereby, in the event of a default by eitherparty, all amounts due or payable will besettled immediately on a net basis. Inaddition, derivatives executed with theParent are subject to International Swapsand Derivatives Association (ISDA) andCredit Support Annex (CSA) standarddocumentation and therefore collateralrequirements are calculated daily andposted as required. The net exposure tothe Parent is measured and monitored ona daily basis and is maintained within theGroup’s large exposure limits.The BRC is responsible for establishing anappropriate policy framework for theprudential management of treasury creditrisk, including net exposure to the Parent.Credit counterparties are subject toongoing credit review and exposures arereported and monitored on a daily basis.

Loan impairmentThrough its ongoing credit reviewprocesses, the Group seeks earlyidentification of deteriorating loans, with aview to taking corrective action to preventthe loan becoming impaired. Typically,loans that are at risk of impairment are

2.1.2 Credit risk management (audited)

as loans and advances on the balancesheet, as follows:

Guarantees and irrevocable standbyletters of credit: irrevocable commitmentsby the Group to make payments at afuture date, in specified circumstances, onbehalf of a customer. These instrumentsare assessed on the same basis as loansfor credit approval and management.

Commitments: unused elements of

authorised credit in the form of loans,guarantees or letters of credit, where theGroup is potentially exposed to loss in anamount equal to the total unusedcommitments. The likely amount of loss isless than the total unused commitments,as most commitments are contingentupon customers maintaining specificcredit and performance standards. Theseinstruments are assessed on the samebasis as loans for credit approval andmanagement.

Letters of offer: where the Group hasmade an irrevocable offer to extend creditto a customer and the customer may, ormay not, have confirmed acceptance ofthe offer on the terms outlined and in thespecified timeframe. The exposure isassessed on the same basis as loans forcredit approval and management. Theultimate exposure to credit risk isconsiderably less than the face value ofoffer letters, as not all offers are accepted.


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An assessment of the borrower’s ability toservice and repay the proposed level ofdebt is undertaken for credit requests andis the primary component of the Group’sapproach to mitigating risk.

In addition, the Group mitigates credit riskthrough both the adoption of preventativemeasures (e.g. controls and limits) and thedevelopment and implementation ofstrategies to assess and reduce theimpact of particular risks, should thesematerialise. In the commercial portfolio,regular risk reassessments are conductedon larger cases in line with policy.

CollateralCredit risk mitigation includes therequirement to obtain collateral,

depending on the nature of the productand local market practice, as set out in theGroup’s policies and procedures. Thenature and level of collateral requireddepends on a number of factors,including, but not limited to:• the amount of the exposure; • the type of facility provided;• the term of the facility; • the amount of the borrower’s own

cash input; and• an evaluation of the level of risk or

probability of default (PD).

The Group takes collateral as a secondarysource of repayment which can be calledupon if the borrower is unable or unwillingto service and repay debt as originallyassessed.

A variety of types of collateral areaccepted, as follows:• residential and commercial real estate;• physical assets (motor vehicles, plant

and machinery, stock etc.);• financial assets (lien over deposits,

shares etc.); and• other assets (debentures, debtors,

guarantees, insurance etc.).

The Group’s requirements aroundcompletion, valuation and management ofcollateral are set out in appropriate Groupor business unit policies and procedures. Details of the valuation methodologies areset out in the credit risk methodologiessection on page 45.

managed by dedicated specialist units /debt collection teams focused on workingout loans.

The identification of loans for assessmentas impaired is driven by the Group’s creditrisk rating systems and by trigger eventsidentified in the Group’s credit andimpairment policies. It is the Group’spolicy to provide for impairment promptlyand consistently across the loan book. Forthose loans that become impaired, thefocus is on implementing appropriatework-out strategies, including

consideration of vulnerable customers,which minimise the loss that the Groupwill incur from such impairment. This mayinvolve entering into restructuringarrangements with borrowers, or takingaction to enforce security.

Other factors taken into consideration inestimating provisions include theeconomic climate, changes in portfoliorisk profile and the effect of any externalfactors, such as legal or regulatoryrequirements.

Under delegated authority from the Board,the Group’s impairment policy is approvedannually by the BRC.

The quantum of the Group’s impairmentcharge, impaired loan balances, andprovisions also reviewed by the ERC on ahalf-yearly basis, in advance of providing arecommendation to the Audit Committee.

An analysis of the Group’s impairment lossallowances at 31 December 2019 is setout on page 42 and notes 19 and 20.

2.1.3 Credit risk mitigation

It is Group policy to ensure that adequateup-to-date credit management informationis available to support the creditmanagement of individual accountrelationships and the overall loan portfolio.Information is produced on a timely basisand at a frequency interval that reflects thepurpose of the report. Credit riskinformation at a product / sector level isreported on a monthly basis to seniormanagement. This monthly reportingincludes detailed information on loan bookvolume, the quality of the loan book,concentrations and loan impairmentprovisions, including details of any largeindividual impaired exposures.

Performance against specified credit risklimits, as detailed in the risk appetitestatement, is monitored and reported tosenior management and to the BRC. Theformat of reports and commentaries areconsistent across the Group to enable anassessment of trends in the loan book.Along with the regular suite of monthlyand quarterly reporting, ad hoc reports aresubmitted to senior management and theBRC as required. GCR, an independentfunction within GIA, reviews the qualityand management of credit risk assetsacross the Group and provides an updateto the CRPC on a half yearly basis.

Regular portfolio review meetings coveringthe NI and GB commercial challengedportfolios are also conducted.Group risk personnel as well as businessand finance senior management reviewand confirm the appropriateness ofimpairment provisioning methodologiesand the adequacy of impairmentprovisions on a half yearly basis. Theirconclusions are reviewed by the BRC, theParent’s Credit Risk function and theParent’s Group Risk Policy Committee(GRPC).

2.1.4 Credit risk reporting and monitoring (audited)

2.1.2 Credit risk management (audited) (continued)


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A range of initiatives, dependent on thenature of the risk, are in place to deal withthe effects of the deterioration in the creditenvironment and decline in asset qualityincluding:• collections and recoveries processes;• utilisation of specialist management

teams to ensure early intervention invulnerable cases;

• intensive review cycles for ‘at risk’exposures and the management ofexcess positions;

• support from central teams inmanaging ‘at risk’ portfolios at abusiness unit level;

• modified and tighter lending criteriafor specific sectors;

• a reduction in certain individual bankexposures; and

• revised Risk Appetite Framework andStatement.

The segregation of certain challengedportfolios and the realignment ofresources to manage these assets allowsthe remaining portfolio managers to focuson the loan book classified as ‘acceptablequality’ or better and to work closely withthose customers.

Forbearance strategiesForbearance occurs when a borrower isgranted a concession or agreed change toa loan (‘forbearance measure’) for reasonsrelating to the actual or apparent financialstress or distress of that borrower. If theconcession or agreed change to a loangranted to a borrower is not related to theactual or apparent financial stress ordistress of that borrower, forbearance hasnot occurred. An exposure continues to beclassified as forborne until such time as itsatisfies conditions to exit forbearance inline with EBA guidance.

A range of forbearance strategies are usedby the Group for customers in arrears orfacing potential arrears on contracted loanrepayments, in order to arrange, whereviable, sustainable short term or longerterm repayment solutions as appropriate.

A forbearance strategy may include, but isnot necessarily limited to, one or more ofthe following measures:• term extension: an arrangement

where the original term of the loan isextended;

• adjustment to or non-enforcement ofcovenants: an arrangement wherebythe Group agrees to either waive anactual or expected covenant breachfor an agreed period, or adjust the

covenant(s) to reflect the changedcircumstances of the borrower;

• reduced payments (interest only): anarrangement where the borrower paysinterest only on the principal balance,on a temporary or longer term basis,with the principal balance unchanged,rather than repaying some of theprincipal as required under the originalfacility agreement;

• facilities in breach of terms beingplaced on demand: an arrangementwhereby the Group places a facility inbreach of its contractual terms on ademand basis as permitted under thefacility agreement rather thanenforcing, and pending a more longterm resolution;

• reduced payment (greater thaninterest only) incorporating someprincipal repayments: a temporary ormedium term arrangement where theborrower pays the full interest dueplus an element of principal due onthe basis that principal payments willincrease in the future; and

• capitalisation of arrears: anarrangement whereby arrears areadded to the loan principal balance,effectively clearing the arrears, witheither the repayments or the originalterm of the loan adjusted accordinglyto accommodate the increasedprincipal balance.

For business banking the monitoring offorbearance measures follows the normalreview cycle for individual customerexposures based on amount and creditgrade, as set out in the credit policy.

Mortgage accounts that are subject toforbearance are monitored and reviewedby way of monthly managementinformation reporting. This includestracking the aggregate level of defaultarrears that emerge on the forborneelements of the loan book. Theimpairment provisioning approach andmethodologies are set out in the Group’sImpairment Policy.

The forbearance strategies adopted by theGroup seek to maximise recoveries andminimise losses arising from nonrepayment of debt, while providingsuitable and sustainable restructureoptions that are supportive of customersin challenged circumstances. The Grouphas an operating infrastructure in place toassess and, where appropriate, implementsuch options on a case-by-case basis.Group credit policy outlines the core

principles and parameters underpinningthe Group’s approach to forbearance withindividual business unit policies defining ingreater detail the forbearance strategiesappropriate to each unit.

Forbearance requests are assessed on acase-by-case basis taking dueconsideration of the individualcircumstances and risk profile of thecustomer to ensure, where possible, themost suitable and sustainable repaymentarrangement is put in place (see also onpage 16 which further comments onvulnerable customers). Forbearance willalways be a trigger event for the Group toundertake an assessment of thecustomer’s financial circumstances andability to repay prior to any decision togrant a forbearance treatment. Thisassessment may result in a deterioration inthe credit grade assigned to the loan,potentially impacting how frequently theloan must be formally reviewed. Whereappropriate, and in accordance with theGroup’s credit risk management structure,forbearance requests are referred to creditunits for independent assessment prior toapproval by the relevant approvalauthority.

Forborne loans are reviewed in line withthe Group’s credit managementprocesses, which include monitoringborrower compliance with the revisedterms and conditions of the forbearancearrangement.

Borrower compliance with revised termsand conditions may not be achieved in allcases. Non-compliance could for examplearise because the individualcircumstances and risk profile of theborrower continue to deteriorate, or fail toshow an expected improvement, to theextent that an agreed reduced level ofrepayment can no longer be met. In theevent of non-compliance, a request forfurther forbearance may be considered. Itis possible that the Group, by virtue ofhaving granted forbearance to a borrower,could suffer a loss that might otherwisehave been avoided had enforcementaction instead been taken. This could forexample arise where the value of securityheld in respect of a loan diminishes overthe period of a forbearance arrangementwhich ultimately proves unsustainable.

2.1.5 Management of challenged assets


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2.1.6 Asset quality - loans and advances to customers (audited except where denoted unaudited)

Asset quality methodology

The Group has allocated financialinstruments into one of the followingcategories at the reporting date:

• Stage 1 – 12 month Expected CreditLosses (ECL) (not credit-impaired):Financial instruments which have notexperienced a significant increase incredit risk since initial recognition andare not credit-impaired. An impairmentloss allowance equal to 12-month ECLis recognised, which is the portion oflifetime ECL resulting from defaultevents that are possible within thenext 12 months.

• Stage 2 – Lifetime ECL (not credit-impaired):Financial instruments which haveexperienced a ‘significant increase incredit risk since initial recognition’ andare not credit-impaired. An impairmentloss allowance equal to lifetime ECL isrecognised, being the ECL resultingfrom all possible default events overthe expected life of the financialinstrument. ‘Credit risk’ in this contextrefers to the change in the risk of adefault occurring over the expectedlife of the financial instrument.

• Stage 3 – Lifetime ECL (credit-impaired):Credit-impaired financial instruments,other than purchased or originatedcredit-impaired financial assets. An

impairment loss allowance equal tolifetime ECL is recognised. Themanner in which the Group identifiesfinancial assets as credit-impairedresults in the Group’s population ofcredit-impaired financial assets beingconsistent with its population ofdefaulted financial assets (inaccordance with Article 178 of theCRR) in scope for the impairmentrequirements of IFRS 9. Thisencompasses loans where: (i) theborrower is considered unlikely to payin full without recourse by the Groupto actions such as realising security(including ‘forborne collateralrealisation’ loans); and / or (ii) theborrower is greater than 90 days pastdue and the arrears amount ismaterial.

• Purchased or originated credit-impaired financial asset (POCI): Financial assets that were credit-impaired at initial recognition. A POCIis not subject to any initial impairmentloss allowance but an impairment lossallowance is subsequently recognisedfor the cumulative changes in lifetimeECL since initial recognition. A POCIremains classified as such until it isderecognised, even if assessed as nolonger credit-impaired at asubsequent reporting date.

Further information on the approach toidentifying a ‘significant increase in creditrisk since initial recognition’ and in

identifying credit-impaired assets isoutlined in the credit risk methodologiessection on pages 43 to 46.

The Group continued to apply thefollowing classifications at the reportingdate.

Forborne loans: Loans where a forbearance measure hasbeen granted and where the criteria to exita forborne classification, in line with EBAguidance1, are not yet met. Loans thathave never been forborne or loans that areno longer required to be reported as‘forborne’ are classified as ‘non-forborne’.

‘Forborne collateral realisation’ loans(FCRs): Loans (primarily residential mortgages)which meet both of the following criteria: (i) not greater than 90 days past due;

and (ii) forbearance is in place and future

reliance on the realisation of collateralis expected for the repayment in full ofthe loan when such reliance was notoriginally envisaged. Such loans areconsidered credit-impaired andinclude Split Mortgages and certain‘Interest Only’ / ‘Interest Only plus’arrangements.

Quantitative information about credit riskwithin financial instruments held by theGroup can be found in the credit riskexposures note on page 119 in thefinancial statements.

1 Other/probationary loans, including forborne loans that have yet to satisfy exit criteria in line with EBA guidance to return to performing


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31 December 2019 Impairment loss Credit allowance impaired as % of Advances Credit loans Impairment credit (pre-impairment impaired as % of loss impairedTotal loans and advances to customers at loss allowance) loans advances allowance1 loansamortised cost - Composition and impairment £m £m % £m % Residential mortgages 16,610 165 1% 14 8%Non-property SME and corporate 1,327 40 3% 19 48%Property and construction 412 37 9% 12 32%Consumer 2,997 38 1% 26 68%Total2 21,346 280 1% 71 25%

31 December 2018 Impairment loss Credit allowance impaired as % of Advances Credit loans Impairment credit (pre-impairment impaired as % of loss impairedTotal loans and advances to customers at loss allowance) loans advances allowance1 loansamortised cost - Composition and impairment £m £m % £m % Residential mortgages 15,880 188 1% 18 10%Non-property SME and corporate 1,320 41 3% 16 39%Property and construction 502 79 16% 23 29%Consumer 2,697 40 1% 29 73%Total2 20,399 348 2% 86 25%

2.1.6 Asset quality - loans and advances to customers (continued)

Composition and impairmentThe table below summarises the composition, credit-impaired volumes and related impairment loss allowance of the Group’s loansand advances to customers at 31 December 2019 and at 31 December 2018.

At 31 December 2019, loans andadvances to customers (pre-impairmentloss allowance) of £21.3 billion were £0.9billion higher than 1 January 2019,reflecting the combined impacts of netnew lending the credit card disposal,utilisation of impairment loss allowanceand currency translation.

Credit impaired loans were £0.3 billion or1% of customer loans at 31 December2019 compared to £0.3 billion at 31December 2018.

The stock of impairment loss allowance oncredit-impaired loans decreased to £71million.

Impairment loss allowance as apercentage of credit-impaired loans is25% (25% at 31 December 2018) withreductions seen across the majority of theGroup’s loan portfolios in 2019 andreflecting a combination of the reductionin credit-impaired loans, impairment lossallowance utilisation and a net impairmentgain during the year.

Unaudited:Of the £3.0 billion UK Consumer lendingat 31 December 2019, £38 million iscredit-impaired, representing 1% of theportfolio (1% at 31 December 2018) and acredit-impaired loans impairment lossallowance coverage ratio of 68%. Highimpairment loss allowance cover reflectsthe unsecured nature of this lending.

1 Impairment loss allowance on credit impaired loans.2 Including assets classified as held for sale of £nil million (2018: £564 million). See note 21 for further details.


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2.1.7 Credit risk methodologies (audited)

The Group’s credit risk methodologies inrespect of impairment are as set outbelow. The Group’s approach to internalcredit rating models and rating systems isunchanged as set out below.

The Group’s credit risk methodologiesencompass internal credit rating modelsand scoring tools and impairment models.

Internal credit rating modelsThe use of internal credit rating modelsand scoring tools, which measure thedegree of risk inherent in lending tospecific counterparties, is central to thecredit risk assessment and ongoingmanagement processes within the Group.The primary model measures used are:• Probability of Default (PD): the

probability of a given counterpartydefaulting on any of its borrowingsfrom the Group within the next twelvemonths;

• Exposure at Default (EAD): theexposure the Group has to adefaulting borrower at the time ofdefault; and

• Loss Given Default (LGD): the lossincurred (after the realisation of anycollateral) on a specific transactionshould the borrower default,expressed as a percentage of EAD.

These form an essential component of theGroup’s operational and strategic creditrisk management and credit pricingpractices.

For the Group’s retail consumer andsmaller business portfolios, the credit riskassessment is grounded on applicationand behavioural scoring tools. For largercommercial and corporate customers, therisk assessment is underpinned bystatistical risk rating models whichincorporate quantitative information fromthe customer (e.g. financial statements)together with a qualitative assessment ofnon-financial risk factors such asmanagement quality and market / tradingoutlook. Lending to financial institutions isassigned an internal rating supported byexternal ratings of the major ratingagencies.

For the purposes of internal credit ratingmodels, estimates of PD on either or bothof the following bases are produced:• Through-the-Cycle (TtC) estimates are

estimates of default over an entireeconomic cycle, averaged to a twelvemonth basis. These are in effectaveraged expectations of PD for a

borrower over the economic cycle;and

• Cyclical estimates are estimates ofdefault applicable to the nextimmediate twelve months. Thesecyclical estimates partially capture theeconomic cycle in that they typicallyrise in an economic downturn anddecline in an economic upturn but notnecessarily to the same degree asdefault rates change in the economy.

Internal rating systemsThe Group has adopted the standardisedapproach to capital calculation for both itsretail and non-retail exposures. Under thisapproach supervisory risk weights areapplied to the EAD values varying byportfolio. The Group benefits from the useof internal models approved for theinternal ratings based approach. Thisfacilitates enhanced understanding of theunderlying credit risk than wouldotherwise be the case.

Uses of internal estimates The specific uses of internal estimatesdiffer from portfolio to portfolio, and forretail and non-retail approaches, buttypically include:• credit decisioning / automated credit

decisioning and borrower creditapproval;

• credit management;• calculation of RAROC;• internal reporting; and• internal capital allocation between

businesses of the Group.

Control mechanisms for credit ratingand impairment modelsThe Model Risk Policy and Model RiskStandards, as approved by the ERC, setout specific requirements for thedevelopment, validation and use of creditrating and impairment models. Impairmentmodels are described further below.

Internal credit models and impairmentmodels are subject to validation, atminimum, as part of any significantredevelopment, at the direction of modelgovernance forums or as part of a rollingthree year cycle.

When issues are raised on risk rating orimpairment models, plans are developedto remediate or replace such modelswithin an agreed timeframe.

In addition, GIA regularly reviews the riskcontrol framework, including policies andstandards, to ensure that these are being

adhered to, meet industry good practicesand are compliant with regulatoryrequirements.

Approach to measurement ofimpairment loss allowances Impairment is measured in a way thatreflects: (a) an unbiased and probability-weighted amount that is determined byevaluating a range of possible outcomes;(b) the time value of money; and (c)reasonable and supportable informationthat is available without undue cost oreffort at the reporting date about pastevents, current conditions and forecasts offuture economic conditions. Impairment ismeasured through the use of impairmentmodels, individual discounted cash flowanalysis and modelled loss rates; andsupplemented where necessary by Groupmanagement adjustments.

In general, a loss allowance is recognisedfor all financial instruments in scope forthe impairment requirements of IFRS 9.However this may not be the case for veryhighly collateralised loans, such asresidential mortgages at low loan to valueratios. There have been no significantchanges in the quality of collateral orcredit enhancements as a result ofchanges in the Group’s collateral policiesduring the year. The Group’smethodologies for valuation of propertycollateral are set out on page 45, notingfurther that Forward Looking Information(FLI) (see page 46) is applied to UKproperty collateral values in measuringimpairment loss allowances under IFRS 9.The Group’s critical accounting estimatesand judgements, including those withrespect to impairment of financialinstruments, are set out in note 2 to thefinancial statements.

An analysis of the Group’s impairment lossallowances and impairment gain or loss isset out in notes 20 and 11 of the financialstatements.

Impairment modelsThe Group has in place a suite of IFRS 9compliant impairment models which areexecuted on a monthly basis and whichallocate financial instruments to stage 1, 2or 3 and measure the appropriate 12month or lifetime ECL. The characteristicsof an exposure determine whichimpairment model is used, with influencingfactors including product type (e.g.residential mortgage, unsecured personalloan, business loan) and market segment(e.g. owner occupier, buy-to-let, general


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2.1.7 Credit risk methodologies (audited) (continued)

corporate lending, general businesslending).

ECLs are calculated as the sum of themarginal losses for each time period fromthe reporting date. The key components ofthe ECL calculation are Probability ofDefault (PD), Exposure at Default (EAD)and Loss Given Default (LGD, which isexpressed as a percentage of EAD) andare described below. Other components include discount rate and maturity. Thecurrent contractual rate is generally usedas the discount rate as it is considered asuitable approximation of the effectiveinterest rate determined at initialrecognition. For term lending includingcommitted revolving credit facilities,contractual maturity is used in the ECLcalculation. For other revolving facilities,behavioural life is generally used.

IFRS 9 PDWhere available, the ratings or underlyingscores from internal credit rating modelsare used as a starting point for IFRS 9 PDcalibration. While calibration techniquesare similar to those used for regulatorypurposes, the IFRS 9 PD differs fromthrough-the-cycle or cyclical estimate PDsas it is an unbiased point-in-time PDbased on current conditions and adjustedto reflect FLI.

A current point-in-time IFRS 9 PD iscalculated as the expected default rateover the next 12 months. This PD is usedin the calculation of 12-month ECL and asa starting point in the calculation oflifetime PD. Future point-in-time IFRS 9PDs are also calculated, being theexpected default rates for each year fromthe start of year 2 to maturity of thefinancial instrument. Transition matricesare used to determine how an exposuremoves between different PD bands overtime.

Together, the current point-in-time IFRS 9PD and future point-in-time IFRS 9 PDsare used to generate an IFRS 9 lifetime PDexpectation for each FLI scenario. Thescenario weighted averages are used togenerate an overall IFRS 9 lifetime PDexpectation. At origination of a newfinancial instrument, these expectationsare stored, together with prepaymentestimates where relevant, and allow forcomparison at future reporting dates asone of the key determinants as to whethera ‘significant increase in credit risk’ hasoccurred. As lifetime PD was notcalculated historically, the Group used

reasonable and supportable informationavailable without undue cost or effort toapproximate the residual IFRS 9 lifetimePD expectations at initial recognition formost financial instruments originated priorto the adoption of IFRS 9 on 1 January2018.

IFRS 9 EADCurrent point-in-time EAD is the expectedexposure at default were the borrower todefault within the next 12 months. Futurepoint-in-time EAD also incorporatesexpected contractual cash flows. IFRS 9EAD differs from regulatory EAD in that itincorporates expected contractual cashflows and caps the exposure at thecontractual limit.

IFRS 9 LGDCurrent point-in-time LGD is the loss thatwould be incurred should default occur inthe next 12 months. To facilitate thecalculation of lifetime ECL, future point-in-time LGDs are calculated for each yearfrom the start of year 2 to maturity of theexposure. The starting point for individualcomponents of the calculation is historicaldata. Cure rate is incorporated asappropriate into the calculation andrepresents the expected propensity ofborrowers to return to the non-defaultedbook without a loss having been realised.FLI is also incorporated into LGD whereUK property collateral is held. IFRS 9 LGDmay differ from regulatory LGD asconservatism and downward assumptionsare generally removed.

Individual discounted cash flowanalysisFor credit-impaired financial instrumentsin Business Banking, Corporate Bankingand certain other relationship-managedportfolios, the impairment loss allowanceis primarily determined by an individualdiscounted cash flow analysis completedby lenders in business units and subject toreview, challenge and, potentially, revisionby independent credit professionals inunderwriting units within Group Risk.

The expected future cash flows are basedon the lender’s assessment of futurerecoveries and include forecastedprincipal and interest payments (notnecessarily contractual amounts due) andexpected cash flows, if any, from therealisation of collateral / security held, lessrealisation costs.

Modelled loss ratesFor some smaller and / or lower risk

portfolios, impairment loss allowances aremeasured by applying modelled loss ratesto exposure amounts. Modelled loss ratesare generally determined on a componentbasis taking into account factors such asthe nature and credit quality of theexposures and past default and recoveryexperience on the portfolio or on portfolioswith similar risk characteristics. Generallya number of different loss rates will be setfor a portfolio to allow differentiation ofindividual financial instruments within theportfolio based on their credit quality.

Identifying a significant increase incredit risk The Group’s standard criteria to identifyfinancial instruments which have had a‘significant increase in credit risk sinceinitial recognition’ are applied to the vastmajority of loans and advances tocustomers. ‘Credit risk’ in this contextrefers to the change in the risk of a defaultoccurring over the expected life of thefinancial instrument. Unless credit-impaired or a POCI, a financial instrumentis generally allocated to stage 2 if any ofthe following criteria are met at thereporting date:• remaining lifetime PD is more than

double and more than 50 basis pointshigher than the remaining lifetime PDat the reporting date as estimatedbased on facts and circumstances asat initial recognition (adjusted whererelevant for changes in prepaymentexpectations);

• a contractual payment is greater than30 days past due; and / or

• the exposure is a forborne loan or anon-performing exposure.

The above criteria are automaticallyapplied as part of the monthly executionof the Group’s impairment models. Inaddition, management considers whetherthere is reasonable and supportableinformation that would not otherwise betaken into account that would indicatethat a significant increase in credit risk hadoccurred.

Where a financial asset has been modifiedbut not derecognised, the quantitativeassessment of ‘significant increase incredit risk’ continues to be based on theremaining lifetime PD at the reporting dateas estimated based on facts andcircumstances as at initial recognition(adjusted where relevant for changes inprepayment expectations).

The effectiveness of the staging criteria is


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assessed semi-annually, taking intoaccount considerations such as the extentto which: (i) exposures have moveddirectly from stage 1 to stage 3; (ii)exposures have moved to stage 3, havingspent only a short period in stage 2; (iii)exposures have moved frequentlybetween stages 1 and 2; and (iv) there ispotential over-reliance on backstop orqualitative criteria in identifying stage 2exposures.

The Group applies the low credit riskexpedient to most debt securities in scopefor the impairment requirements of IFRS 9and similarly to loans and advances tobanks, central banks and investmentfirms. ‘Low credit risk’ encompasses PDgrades 1 to 5 on the Group’s internal PDrating system, which broadly aligns withratings of AAA to BBB- for the externalmajor rating agencies. Such financialinstruments are allocated to stage 1.

For some smaller and / or low riskportfolios, the Group identifies asignificant increase in ‘credit risk sinceinitial recognition’ solely by reference towhether a contractual payment is greaterthan 30 days past due.

Identifying defaulted assets and credit-impaired assetsThe Group’s definition of default forimpairment purposes (i.e. for the purposesof allocating financial instruments to‘stages’ and for measuring impairmentloss allowances under IFRS 9) isconsistent with its application of thedefinition of default in Article 178 of theCRR noting that IFRS 9 requires the Groupto use a definition which is consistent withthat used for internal credit riskmanagement purposes. The manner inwhich the Group identifies financial assetsas credit-impaired results in the Group’spopulation of credit-impaired financialassets being consistent with its populationof defaulted financial assets in scope forthe impairment requirements of IFRS 9.The Group considers certain events asresulting in mandatory default and credit-impaired classification without furtherassessment. These include:• greater than 90 days past due and the

past due amount is material;• a forbearance arrangement is put in

place where future reliance onrealisation of collateral is expected forrepayment in full when this was notoriginally envisaged;

• legal action is underway by the Groupto enforce repayment or realise

security;• the Group or a receiver takes security

into possession; and • the Group has formally sought an

insolvency arrangement in respect ofthe borrower.

Certain other events necessitate a lenderassessment and, if the outcome of thelender assessment is that the contractualamount of principal and interest will not befully repaid in what is assessed to be themost likely cash flow scenario, default andcredit-impaired classification ismandatory. For larger value cases(typically greater than £850,000), thelender assessment involves production ofan individual discounted cash flowanalysis. The events differ by portfolio andinclude those set out below.

All portfolios:• a forbearance measure has been

requested by a borrower and formallyassessed;

• the non-payment of interest (e.g. viainterest roll-up, arrears capitalisationetc.) as a result of the terms ofmodification of loans, includingrefinancing and renegotiation offacilities where during therenegotiation process, the lenderbecomes aware that the borrower isunder actual or apparent financialdistress;

• evidence of fraudulent activity by theborrower or another party connectedwith the loan;

• the contractual maturity date haspassed without repayment in full; or

• it becomes known that the borrowerhas formally sought an insolvencyarrangement.

Residential mortgage portfolios:• offer of voluntary surrender of security

or sale of security at a possibleshortfall; or

• it becomes known that the borrowerhas become unemployed with nocomparable new employmentsecured.

Larger SME / corporate and propertyloans:• internal credit risk rating, or external

credit rating, has been downgradedbelow a certain level;

• financial statements or financialassessment indicates inability of theborrower to meet debt serviceobligations and / or a negative netassets position;

• the borrower has ceased trading;• a fall in the assessed current value of

security such that the loan to valueratio is greater than or equal to 120%(property and construction only);

• a fall in net rent such that it isinadequate to cover interest with little/ no other income to support debtservice capacity (investment propertyexposures only); or

• a fall in the assessed grossdevelopment value such that saleproceeds are no longer expected tofully repay debt (developmentexposures only).

Review of credit-impaired loansIt is Group policy to review credit-impairedloans above agreed thresholds semi-annually or on receipt of material newinformation, with the review including areassessment of the recovery strategy andthe continued appropriateness of a credit-impaired classification. The minimumrequirements for a credit-impaired loan toreturn to non credit-impaired status arethat the borrower must not be greater than90 days past due on a material amount,the borrower must be considered likely topay in full without recourse by the Groupto actions such as realising security andthere must be no forbearancearrangement in place where future relianceon realisation of collateral is expected forrepayment in full when this was notoriginally envisaged. Typically, an updatedassessment of the borrower’s currentfinancial condition and prospects forrepayment is required with the borrower tohave satisfactorily met repaymentsrequired under the original or modifiedagreement regularly for a reasonableperiod of time.

Methodologies for valuation of propertycollateralThe Group’s approach to thedetermination of property collateral valuesis set out in a CRPC-approved GroupProperty Collateral Valuation Policy,supported by the Group PropertyCollateral Valuation Guidelines, and issummarised below. The Group’s approachto applying Forward Looking Informationto those values for the purposes ofmeasuring impairment loss allowance forthe year ended 31 December 2019 is setout in the BRC approved GroupImpairment Policy and is described below.

Individual valuations are undertaken aspart of the initial credit assessmentprocess using either an automated


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valuation model or through physicalinspection of the collateral. Retail UKmortgage loan book property values aredetermined by reference to the original orlatest property valuations held indexed tothe Nationwide UK house price index.

Commercial property valuations mayinclude formal written valuations fromexternal professionals or internallyassessed valuations. Internally assessedvaluations are informed by the mostappropriate sources available for theassets in question. This may includeproperty specific information /characteristics, local market knowledge,comparable transactions, professionaladvice (e.g. asset management reports) ora combination thereof, in line with moredetailed guidance and metrics which areapproved at least annually by the CRPC.These guidelines and metrics are informedby both internal and externally sourcedmarket data / valuation information,including input from the Group’s RealEstate Advisory Unit (REAU).Internally assessed valuations are subjectto review, challenge and, potentially,revision by experienced independentcredit professionals in underwriting unitswithin the Group Risk function and areapproved as part of the normal creditprocess.

Typically, more frequent valuations arerequired for properties held as security fornon-performing exposures with an annualvaluation required for non-performingexposures in excess of £250,000. During2019, the Group completed an exercise toensure that recent external valuationswere held for all non-performingexposures in excess of £250,000.

Forward Looking Information (FLI)FLI refers to probability-weighted futuremacroeconomic scenarios approvedsemi-annually by the ERC and used in theassessment of ‘significant increase incredit risk’ and in the measurement ofimpairment loss allowances under IFRS9.The Group generally uses three UK FLIscenarios, being a central scenario, anupside scenario and a downside scenario,all extending over a five year forecastperiod. In each case the central scenariois based on internal and externalinformation and management judgement.The Group keeps under review the needfor FLI for other economies.

The Group’s FLI model uses the centralscenario, recent actual observed valuesand historical data to generate manyscenarios distributed around the centralscenario. The central scenario is at the50th percentile of the distribution ofscenarios (meaning that there is a 50%likelihood of the expected ECL outcomebeing better and a 50% likelihood of itbeing worse) and the upside anddownside scenarios are at chosen lowerand higher percentiles respectively. Theprobability weightings attached to thescenarios are a function of the chosenpercentiles, with lower probabilityweightings attached to scenarios whichare at percentiles more distant from thecentral scenario.

Typically, one or two macroeconomicvariables are incorporated into eachimpairment model, being thosedetermined through macro regressiontechniques to be most relevant toforecasting default of the credit riskexposures flowing through that model.

The lifetime PD expectation for anexposure generated under each of thescenarios, weighted by the probability ofeach scenario occurring, is used togenerate the lifetime PD expectationsused for the assessment of ‘significantincrease in credit risk’. Forecasts ofresidential and commercial property pricegrowth are incorporated as appropriateinto the LGD component of the ECLcalculation. The overall ECL for anexposure is determined as a probability-weighted average of the ECL calculatedfor each scenario, weighted by theprobability of each scenario occurring.

Beyond the forecast period, default ratesare assumed to revert over time to anobserved long run average and the valueof property collateral for LGD purposes isassumed to grow at an observed long-runrate.

The overall ECL for an exposure isdetermined as a probability-weightedaverage of the ECL calculated for eachscenario, weighted by the probability ofeach scenario occurring.

Beyond the forecast period, default ratesare assumed to revert over time to anobserved long run average and the valueof property collateral for LGD purposes isassumed to grow at an observed long-runrate.

The following table shows the meanaverage forecast values for some of thekey macroeconomic variables under eachscenario for the five year forecast period2019-2023 together with the associatedpercentiles and probability weightings.

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FLI is generally not applied to exposuresto which the low credit risk expedient hasbeen applied given factors such as a lackof internal default history to inform macroregression and that applying FLI would beunlikely to have a material impact givenlow PDs and that exposures are subject to12-month rather than lifetime ECL.

Group management adjustmentTo ensure that the measurement ofimpairment reflects reasonable andsupportable information that is availablewithout undue cost or effort at thereporting date about past events, currentconditions and forecasts of futureeconomic conditions, the need for a

‘Group management adjustment’ to theoutputs of the Group’s staging andimpairment measurement methodologiesis considered at each reporting date inarriving at the final impairment lossallowance. Such a need may arise, forexample, due to a model limitation or late-breaking event.

Downside Central Upside Percentile 85th 50th 15thScenario probability weighting 29.5% 39.9% 30.6%GDP growth 0.9% 1.5% 2.1%Unemployment rate 5.1% 4.2% 4.0%Residential property price growth (2.0%) 0.7% 3.4%Commercial property price growth (3.7%) (0.1%) 2.6%



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Key points:

• At all times during the financial year the Group maintained appropriate levels of unencumbered liquid resources and anappropriate liquidity position, in line with regulatory and internally set requirements and limits.

• The Group held liquid assets of £3.1 billion at 31 December 2019 (31 December 2018: £3.7 million) which was in excess ofregulatory liquidity requirements and within the Group’s internal risk appetite. This represented a prudent liquidity position.

• The Group’s loan to deposit ratio increased from 102% at 31 December 2018 to 111% at 31 December 2019, which reflectsfurther diversification of the funding base through increased wholesale funding from the Parent and externally through thesecuritisation of residential mortgages.

• The Group’s LCR at 31 December 2019 was 147% (31 December 2018:158%). The Group’s NSFR at 31 December 2019 was133% (31 December 2018:134%)

2.2 Liquidity and funding risk

Definition (audited)Liquidity risk is the risk that the Group willexperience difficulty in financing its assetsand / or meeting its contractual paymentobligations as they fall due, or will only beable to do so at substantially above theprevailing market cost of funds.

Liquidity risk arises from differences intiming between cash inflows and outflows.Cash inflows for the Group are driven by,among other things, the maturity structureof loans held by the Group, while cashoutflows are primarily driven by outflowsfrom customer deposits and lendingorigination.

Liquidity risk can increase due to theunexpected lengthening of maturities,non-repayment of assets or a suddenwithdrawal of deposits.

Funding risk is the risk that the Groupdoes not have sufficiently stable anddiverse sources of funding or has aninefficient funding structure.

Liquidity and funding risk management(audited)The liquidity and funding risk appetitestatement is set by the Board and isreviewed on an annual basis and sets outthe level of liquidity and funding risk thatthe Board has deemed acceptable. TheGroup has established a liquidity andfunding RMF, that is aligned to the Group’srisk appetite and which is aligned with itsoverall strategy to be primarily a self-funded business, with fundingdiversification through the use ofwholesale funding.

The Group’s liquidity and funding RMF isdesigned to ensure that the Groupmanages and monitors its liquidity inaccordance with the defined liquidity andfunding risk appetite statement. Theoperational oversight and adherence torisk appetite is delegated to the ALCO, anexecutive subcommittee of the ERC.

The Group’s ILAAP sets out how theGroup assesses, quantifies and managesthe key liquidity and funding risks anddetails the Group’s approach todetermining the level of internal liquidityresources required to be maintained bythe Group, for both business-as-usual andstressed scenarios ranging in severity,nature and duration.

Liquidity and funding management in theGroup consists of two main activities:• Tactical liquidity management - which

focuses on monitoring current andexpected future daily cash flows, toensure that the Group’s liquidity needscan be met ; and

• Structural liquidity management -which focuses on assessing theoptimal balance sheet structure onboth a short term and long term basistaking account of the behavioural andcontractual maturity profile of assetsand liabilities.

A number of measures are used by theGroup to monitor and manage liquidityand funding risk including ratios, depositoutflow triggers, stress scenarios andearly warning signals.

Liquidity risk is measured using stresstesting and scenario analysis. The Groupruns a number of internal liquidity stressscenarios based on market-wide stressevents, Group specific stress events and acombination of market-wide andidiosyncratic stress events. These stressscenarios are also performed across anumber of outflow time bands. The dailycashflows resulting from the stressscenarios are compared against theholding of liquid assets. Under the Group’sliquidity risk appetite, the Group musthave unencumbered liquidity resourcesavailable which will be in excess of 100%of the stressed cashflows, from all stressscenarios performed.

Funding risk is measured by applying andmonitoring specific metrics that determinethe amount and type of ongoing new retaildeposit acquisitions / retentions that arerequired to fund the Group's asset baseacross various maturity categories, thewholesale funding requirement, the loan todeposit ratio alongside other fundingmetrics1.

Bank of England Term Funding Scheme(TFS)The Group’s funding structure alsoincludes the utilisation of the Bank ofEngland TFS. The TFS is designed toreinforce the transmission of bank ratecuts to the Group’s lending and depositinterest rates and provide a cost effectivesource of funding to support additionallending to the real economy. This allowsthe Group to borrow central bank reservesin exchange for eligible collateral over afour year term. Further details are includedin note 27 to the financial statements.

The Group’s funding from the TFS was£1.3 billion at 31 December 2019.

Other wholesale fundingIn order to further diversify the fundingbase and provide terming, the Groupissued its first residential mortgagebacked security and borrowed funds fromthe Parent. The longer term refinancingprofile of these borrowings is beingcarefully managed alongside depositrefinancing.

Customer depositsThe Group's funding strategy is focused,in particular, on maintaining a stable retaildeposit base providing an appropriatebasis to fund customer lending. £13.5 billion of deposits at 31 December2019 relates to Post Office brandeddeposits which decreased by £0.7 billionduring the year. The AA deposit portfolioincreased by £58 million, as matchedfunding for the AA unsecured lendinggrowth.

1 Funding stress scenarios are also performed regularly across a number of longer term outflow timebands.


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The Group's loan to deposit ratio, asdefined on page 166, increased from102% at 31 December 2018 to 111% at31 December 2019, as a result of plannedmanagement actions.

Liquid assetsThe Group maintains an unencumberedliquid asset portfolio, comprising cashplacements and securities that can beused to raise liquidity, either by sale orthrough secured funding transactions.As at 31 December 2019, the portfoliocomprised cash balances with the Bank ofEngland, UK Government Gilts,Supranational and Agency bonds, UKcovered bonds and interbank placements.

The composition of the portfolio is set outabove. Interbank placements comprisedboth placements with external banks andthe Parent.

Liquidity and funding risk monitoringThe Group’s daily, weekly and monthlyliquidity and funding reporting (including acomprehensive suite of liquidity earlywarning signals) is produced for use bythe Group’s Treasury function, to assessand manage the Group’s current andfuture liquidity and funding risk position.Daily reports, including daily liquiditystress test results, are reported andreviewed by the Treasury, Finance andRisk functions and by the Group's seniormanagement. These reports include a

series of limits and triggers which, iftriggered, are reported regularly to theALCO. MI is also reported to the ALCO,the ERC, the BRC and the Board.

The Group's liquidity position is supportedby its unencumbered liquid asset portfolio,the contingent liquidity collateral availableand by the various management actionsdefined in its recovery plan.

Balance sheet encumbrance (unaudited)The Group treats an asset as encumberedif it has been pledged or if it is subject toany form of arrangement to secure,

collateralise or credit enhance anytransaction from which it cannot be freelywithdrawn. It is Group policy to maximisethe amount of assets available forsecuritisation / pledging through thestandardisation of loan structures anddocumentation.

At 31 December 2019 and 2018, theGroup had the following encumberedassets.

2.2 Liquidity and funding risk (continued)

2019 2018Customer accounts (unaudited) £m £m Bank of Ireland deposits and current accounts 4,849 4,826Post Office deposits 13,462 14,237AA deposits 764 706Total 19,075 19,769

Average in year Year end

Composition of the liquid 2019 2018 2019 2018asset portfolio (unaudited) £m £m £m £m Balances with central banks 2,166 2,236 2,097 2,538Government bonds 345 421 261 415Other listed securities 592 515 585 500Interbank placements 169 223 140 200Total 3,272 3,395 3,083 3,653


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2019 2018

Encumbered and Encumbered1 Unencumbered Total Encumbered1 Unencumbered Totalunencumbered assets £m £m £m £m £m £m Cash and balances with central banks - 2,134 2,134 - 2,567 2,567Mandatory deposits with central banks 1,281 25 1,306 1,285 25 1,310Loans and advances to other banks2 75 225 300 75 33 108Loans and advances to banks - related party transactions 15 537 552 2 928 930Loans and advances to customers 2,556 18,644 21,200 2,989 16,714 19,703Assets classified as held for sale - - - - 539 539Debt securities at amortised cost 59 787 846 - 915 915Other assets - 596 596 - 628 628Total assets 3,986 22,948 26,934 4,351 22,349 26,700

Encumbered cash and balanceswith central banks:

Note cover3 1,217 1,227 Cash ratio and other mandatory deposits 64 58 1,281 1,285


Contingent liquidityThe Group holds significant contingentliquidity collateral, comprised of raw loanspre-positioned in Bank of Englandfacilities. The securitisation vehicle,Bowbell No 2 plc was established during2019, with £0.35 billion of notes beingissued to external investors and the Groupretaining £1.7 billion of notes for use ascontingent liquidity collateral. Thiscontingent liquidity collateral can bepledged against borrowings from centralbanks and other external marketparticipants.

External ratingsThe Group is rated by both Moody’s andFitch. Given the Group’s funding strategyand in particular its focus on growing andretaining retail deposits as its primary

funding mechanism, the direct impact onliquidity risk of movements in the Group’scredit rating is limited.

2019 2018Bank of Ireland UK ratings(unaudited) £m £m Moody’s Baa1 stable outlook Baa2 positive outlookFitch BBB stable outlook BBB stable outlook

1 Included in the encumbered assets at 31 December 2019 is £15 million (31 December 2018: £2 million) of collateral placed with the Parent in respect of derivative liabilities.2 Encumbered assets includes assets that are segregated in order to meet the Financial Resilience requirements of the PRA’s Supervisory Statement 9/16 “Operational Continuity

in Resolution”.3 Note cover relates to mandatory collateral with the Bank of England in respect of banknotes in circulation in Northern Ireland.


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2019 Up to 3 3-12 1-5 Over 5Maturity analysis of financial assets Demand months months years years Totaland liabilities (discounted basis) (unaudited) £m £m £m £m £m £m Financial assetsCash and balances with central banks 2,134 - - - - 2,134Derivative financial instruments 1 9 5 9 17 41Loans and advances to banks 240 1,328 38 - - 1,606Loans and advances to banks - related party transactions 348 5 183 16 - 552Debt securities at amortised cost - 40 39 767 - 846Loans and advances to customers (before impairment loss allowance)1 434 797 1,954 7,385 10,776 21,346Total assets 3,157 2,179 2,219 8,177 10,793 26,525

Financial liabilities Deposits from banks 44 - 200 1,276 - 1,520Deposits from banks - related party transactions 224 3 863 880 10 1,980Lease Liabilities - 1 2 12 5 20Customer accounts 13,757 1,575 2,480 1,263 - 19,075Derivative financial instruments 1 4 9 40 5 59Debt securities in issue - - - 307 300 607Subordinated liabilities - - - - 290 290Total liabilities 14,026 1,583 3,554 3,778 610 23,551

Net total assets and liabilities (10,869) 596 (1,335) 4,399 10,183 2,974Cumulative net assets and liabilities (10,869) (10,273) (11,608) (7,209) 2,974 2,974

Maturity analysis of financial assets andliabilitiesThe following tables summarise thecontractual maturity profile of the Group’sfinancial assets and liabilities, at 31December 2019 and 31 December 2018,based on the contractual discountedrepayment obligations. The Group doesnot manage liquidity risk on the basis ofcontractual maturity, instead the Group

manages liquidity risk by adjusting thecontractual cash inflows and outflows ofthe balance sheet to reflect them on abehavioural basis. This includes theincorporation of the inherent stabilityevident in the retail deposit book.

Customer accounts include a number ofterm ISA accounts that contain accessfeatures which allow customers to access

a portion of, or all of, their deposit,notwithstanding that this withdrawal couldresult in a financial penalty being paid bythe customer. For such accounts, thebalances have been classified demand inthe following table.

2018 Up to 3 3-12 1-5 Over 5Maturity analysis of financial assets Demand months months years years Totaland liabilities (discounted basis) (unaudited) £m £m £m £m £m £m Financial assetsCash and balances with central banks 2,567 - - - - 2,567Derivative financial instruments - 10 7 12 3 32Loans and advances to banks 48 1,332 38 - - 1,418Loans and advances to banks - related party transactions 367 - 273 281 9 930Debt securities at amortised cost - 55 245 615 - 915Loans and advances to customers (before impairment loss allowance)1 445 1,306 1,597 6,559 10,492 20,399Total assets 3,427 2,703 2,160 7,467 10,504 26,261

Financial liabilities Deposits from banks 25 - 200 1,276 - 1,501Deposits from banks - related party transactions 371 1 1,026 235 18 1,651Customer accounts 14,503 1,696 2,261 1,309 - 19,769Derivative financial instruments 1 6 5 23 8 43Subordinated liabilities - - - - 290 290Total liabilities 14,900 1,703 3,492 2,843 316 23,254

Net total assets and liabilities (11,473) 1,000 (1,332) 4,624 10,188 3,007Cumulative net assets and liabilities (11,473) (10,473) (11,805) (7,181) 3,007 3,007

1 Including assets classified as held for sale £nil million (2018: £564 million). See note 21 for further details.


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Key points:

• The Group does not engage in speculative trading for the purposes of making profits as a result of anticipation of movementsin financial markets. Therefore, no discretionary risk is taken by the Group.

• During 2019, the Group continued to manage interest rate and foreign exchange exposure at acceptable levels, by seekingnatural hedge solutions within the balance sheet and by hedging remaining exposures with the Parent as the hedgingcounterparty.

• Basis risk continued to be hedged through the netting of asset and liability positions and the execution of fixed versus floatingterm swaps during 2019.

• The Group’s structural risk continued to be re-hedged continuously within defined risk limits.

2.3 Market risk

Definition (audited)Market risk is the risk of loss arising frommovements in interest rates, FX rates orother market prices. Market risk arisesfrom the structure of the balance sheetand the Group’s business mix anddiscretionary risk taking.

The Group recognises that the effectivemanagement of market risk is essential tothe maintenance of stable earnings, thepreservation of capital resources and theachievement of the Group’s strategicobjectives.

Market risk management (audited)The management of market risk in theGroup is governed by the Group’s RiskAppetite Statement and by the GroupMarket Risk Policy. The Group has anestablished governance structure formarket risk that involves the Board, theBRC, the ERC, and the ALCO, which hasprimary responsibility for the oversight ofmarket risk in the Group within theconfines of the risk appetite set by theBoard.

The Group has no risk appetite for theholding of proprietary market riskpositions or the running of material openbanking book market risk exposures. TheGroup therefore, hedges open bankingbook exposure to deminimus levels.However, the Group does have customerderivative foreign exchange forwardcontracts, which are considered held fortrading, as hedge accounting is notapplied. These transactions are hedgedwith the Parent.

The Group manages its interest rate riskposition by hedging with the Parent. Theoverall market risk hedging approach isprioritised as follows:

(i) naturally hedge within the balancesheet;

(ii) execute derivative hedging contractswith the Parent; or

(iii) execute gross cash hedges.

Derivatives executed for hedgingpurposes are executed with the Parentonly and are subject to ISDA and CSAstandard documentation. Collateralrequirements are calculated daily andposted as required. The Group usesderivative contracts with the Parent forhedging purposes only and seeks to applyhedge accounting where possible.

The Group continues to maintain ademinimis limit for interest rate risk toreflect operational requirements only. Thislimit is monitored by the ALCO andapproved by the Board. The Group’slending and deposits are almost wholly(>95%) denominated in sterling. Anyforeign currency transactions are hedgedto acceptable levels with the Parent. It isthe Group’s policy to manage structuralinterest rate risk, by investing its net non-interest bearing liabilities in a portfolio offixed rate assets, with an average life of3.5 years and a maximum life of 7 years.This has the effect of mitigating the impactof the interest rate cycle on the netinterest margin.

Market risk measurement andsensitivity (audited)The Group’s interest rate risk position ismeasured and reported daily. The daily

interest rate risk position is calculated byestablishing the contractual andbehavioural repricing of assets, liabilitiesand off-balance sheet items on theGroup's balance sheet, before modellingthese cash flows and discounting them atcurrent yield curve rates.

In addition to this, the Group runs a seriesof stress tests, including parallel and non-parallel yield curve stress scenarios acrossall tenors, in order to further monitor andmanage yield curve and repricing risk inthe banking book. The Group also appliesmarket risk stress scenarios to manageand monitor the impact of stress events inrelation to interest rate option risk, basisrisk and net interest income sensitivity.

A dual purpose of the Group’s market riskstress testing is to meet regulatoryrequirements and to ensure thatappropriate capital is held by the Group.

The impact on the Group’s economicvalue from an immediate and sustained 50basis points shift, up or down, in thesterling yield curve applied to the bankingbook at 2019 and 2018, is shown below.

The sensitivity is indicative of themagnitude and direction of exposures butis based on an immediate and sustainedshift of the same magnitude across theyield curve (parallel shift).

2019 2018(audited) £m £m + 50 basis points (0.63) (0.06)- 50 basis points 0.63 0.06


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Key points:

• The Group continues to maintain no appetite for failure to comply with its regulatory or legislative obligations and managesregulatory risk through its Risk Management Framework.

• During the year the FCA introduced a wide range of new measures and reforms which have affected the Group’s technologycapabilities as it undertakes its significant IT transformation.

• The Group have also been developing a cohesive approach to Operational Resilience in recognition of the risks inherent incomplex supply chains and a significant dependence on technology in meeting customer demand for 24/7, 365 bankingservices.

2.4 Regulatory risk

DefinitionRegulatory risk is the risk of failure to meetnew or existing regulatory and / orlegislative requirements and deadlines orto embed requirements into processes.The associated risk of regulatory changeis the risk that a change in laws andregulations that govern the Group willmaterially impact the Group’s business,profitability, capital, liquidity, products ormarkets; that the Group fails to take timelyaction; and/or that the Group fails toeffectively manage the regulatory changeprocess.

Risk management and measurementThe Group manages regulatory risk underits Risk Management Framework. TheFramework identifies the Group’s formalgovernance process around risk, includingits framework for setting risk appetite and

its approach to risk identification,assessment, measurement, managementand reporting. This is implemented byaccountable executives and monitored bythe R&ORC, the ERC, the BRC and Boardin line with the overall risk governancestructure outlined in section 1.1. Theeffective management of regulatory risk isprimarily the responsibility of businessmanagement and oversight is provided bythe Compliance & Conduct Risk function.As detailed in its RAS, the Group has noappetite for failure to comply with itsregulatory or legislative obligations.However, it acknowledges that instancesmay occur as a consequence of being inbusiness.

Risk mitigationRisk mitigants include the earlyidentification, appropriate assessment and

measurement and reporting of risks. Theprimary risk mitigants for regulatory riskare the existence of appropriate controlsin place throughout the business and theeffective planning for, and execution of,regulatory change.

Risk reportingThe current status of regulatory changeprogrammes is reported to seniorexecutives and Board members throughthe CRO/Monthly Risk Report. The Headof Compliance & Conduct reports to theR&ORC on the status of regulatory risk inthe Group, including the status of the topregulatory risks, the progress of riskmitigation plans, issues and breaches, andsignificant regulatory interactions.

Key points:

• The Group seeks to operate an effective framework for the identification, assessment, mitigation and control of operationalrisk.

• Following delivery of a suite of risk improvement programmes through 2017 and 2018, the Group continues to enhance itsoperational risk management practices and to further embed the effective use of the operational risk management frameworktools, in line with regulatory expectations. Plans are now in place to enhance control and certification testing, business processmapping and forward looking risk management processes .

2.5 Operational risk

DefinitionOperational risk is the risk of loss resultingfrom inadequate or failed internalprocesses, people and systems, or fromexternal events.

The key sub-classes of operational riskare defined as follows:Technology (including transformation risk),Information Security and Cyber Security,Sourcing, Payments, Business Continuity,Financial Crime (incorporating the risk of

facilitating money laundering, terroristfinancing, sanction violation and fraud),People, Legal and Contractual, Model,Unauthorised Trading, Insurable,Disclosure, Regulatory Reporting and DataQuality and Reliability Risk.

Risk managementThe primary goal of operational riskmanagement is to ensure the sustainabilityand integrity of the Group's operationsand to protect its reputation by mitigating,

controlling or transferring the impact ofoperational risk.

The objective of operational riskmanagement is not to eliminateoperational risk altogether but to manageit within appetite, taking into account thecost of mitigation and the level ofreduction in the operational risk exposurethat can be achieved in a cost effectivemanner.


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Key points:

• On an annual basis the Board reviews the Group’s strategic objectives to confirm that the strategic shape and focus of theGroup remains appropriate. Longer term viability is monitored through its ICAAP and 5-year planning processes.

• In 2019, the Group delivered a statutory profit before tax of £97 million.• While the UK economy continued to grow in 2019, uncertainty over the effects of the UK’s planned departure from the

European Union continues to mean 2020 forecasts for the macroeconomic environment are challenging.• The Competitive environment in the UK banking sector remains intense with increasing pressure on margins affecting banks’

ability to generate profitability. The Group’s current cost base adversely affects its competitiveness and acts as a drag onbusiness performance.

2.6 Business and strategic risk

DefinitionBusiness and Strategic Risk is defined asthe risk of volatility to the Group’sprojected outcomes, including incomestatement and Balance Sheet impact and/ or damage to the franchise, includingthat of the Group’s joint ventures.

The risk may arise from a change in thecompetitive environment, new marketentrants, new products, or a failure toanticipate or mitigate a related risk, and abreakdown / termination of a relationshipwith, or a significant underperformance of,a distribution partner.

Risk management, measurement andreporting Business units are responsible for deliveryof their business plans and managementof such factors as pricing, businessvolumes, operating expenses and other

factors that can introduce earningsvolatility.

The risk is overseen monthly through theCRO/Monthly Risk Report withcommentary on the economy, marketdevelopment and competition, margintrends, direct and indirect costs, staffturnover and transformation risk. Businessand Strategic Risk is reported on anongoing basis to the ERC, the BRC andthe Board.

Risk mitigationThe Group mitigates business risk throughbusiness planning methods, such as thediversification of revenue streams, costbase management and oversight ofbusiness plans which are informed byexpectations of the external environmentand the Group’s strategic priorities.

At an operational level, the Group’s annualbudget process sets expectation at abusiness unit level for volumes andmargins. The regular tracking of actualand forecast volumes and margins againstbudgeted levels, is a key financialmanagement process in the mitigation ofbusiness risk.

Strategic risk is mitigated through theICAAP and 3-year plan as well as updatesto the Board on industry developments,regular updates on the keymacroeconomic environment affecting theGroup’s activities and a review of thecompetitive environment and strategies atboth Group and business unit level.

The Group's Annual Strategy and PlanningProcess includes a review of the Group'sbusiness model.

2.5 Operational risk (continued)

The Group operates an Operational RiskManagement Framework (ORMF) whichdefines its approach to managingoperational risk and consists of, inter alia: • Group operational risk appetite; • Group operational risk policies and

policy standards which specify theminimum control standards and staffobligations;

• Group's risk identification, assessmentand treatment approaches, includingminimum requirements for controltesting and key indicators;

• Group's incident, event and issuemanagement processes;

• Operational risk oversight, monitoringand independent assurance;

• Operational risk management

information and reporting; and • Operational risk training.

The Group undertakes an annual InternalCapital Adequacy Assessment Process(ICAAP) in order to determine theappropriate level of capital it must hold toprotect itself against extreme but plausibleoperational risk exposures. The Group'sregulatory minimum capital requirement(Pillar l) is determined by using thestandardised approach (TSA). The Groupuses scenario analysis and capitalmodelling to test the adequacy of Pillar 1capital and set the overall (Pillar 1 andPillar 2a) capital requirement foroperational risk.

Risk reporting The Group utilises an operational riskmanagement system to record the outputsof risk and control self assessments,operational risk events (including financiallosses, near misses and instances of non-compliance), issues, outcomes of controlstesting, performance of key indicators,and other data.


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Key points:

• The Group’s reputation continues to be influenced and shaped by a range of factors including: macroeconomic and politicalenvironment, media, public and customer commentary and general sector developments. More specifically, the Group’sdecisions and actions in pursuit of its strategic and tactical business objectives and its interaction with the externalenvironment will also influence its reputation.

• Throughout 2019, the Group continued to actively manage, measure and report on its reputation risk and to take this intoaccount in its strategic decision making.

2.7 Reputation risk

DefinitionReputation risk is defined as the risk toearnings or franchise value arising fromadverse perception of the Group’s imageon the part of customers, partners,suppliers, counterparties, shareholders,investors, staff, legislators or regulators.

This risk typically materialises through aloss of business in the areas affected.Reputation is not a standalone risk butoverlaps with other risk areas and may

often arise as a consequence of externalevents or operational risk related issues.

Risk management, measurement andreportingReputation risk indicators are monitoredon an ongoing basis.

These indicators are:• media monitoring;• market trends and events; • stakeholder engagement and

monitoring; and

• risk events which may have thepotential to impact the Group.

The Group reviews reputation risk as partof the annual risk identification process.Regular updates are reported to the ERC,the BRC and the Board.

Risk mitigationThe Group’s reputation is taken intoaccount in decision-making and this isparamount in mitigating against reputationrisk.

Key points:

• The Group recognises the importance of fairness and is committed to placing customers at the heart of its strategic andoperational decision-making.

• In 2019, the Group continued to embed, develop and enhance its conduct risk management tools and processes, includingstrengthening its treatment of vulnerable customers.

2.8 Conduct risk

DefinitionConduct risk is the risk that the Group orits staff undertake business in aninappropriate or negligent manner thatleads to customer harm.

Customer ExperienceThe Group continues to focus on itsstrategic priority to serve customersbrilliantly and to help enable customers,colleagues and communities to thrive.The Group is taking steps to improvecustomer service through enhancementsto digital platforms including the launch ofa new mobile banking application. Theindustry continues to make adjustments tocater for the needs of vulnerablecustomers including ensuring they aretreated fairly. The Group has in place anapproach to vulnerable customers, whichsets out desired outcomes and standardsexpected of business units and third partyoutsourced service providers in thetreatment of those consumers that may bevulnerable and who are thereforesusceptible to detriment in the event thatthe Group does not act with theappropriate level of care.

Risk managementThe Group has no appetite for customerdetriment and seeks to be fair, accessible

and transparent in the provision ofproducts and services to its customers atall times.

To ensure the Group's exposure toconduct risk is clearly defined,understood, measured, managed asappropriate and regularly reported upon,the Group has established risk appetitemeasures, underpinned by policies,procedures and reports to allow theidentification and remediation of conductrisk.

Conduct risk policyThe Group’s exposure to conduct risk isgoverned by a policy approved by theBRC in accordance with the Boardapproved risk appetite and within theoverall Group risk governance structureoutlined on pages 31 to 33.

In addition to day-to-day control measuresimplemented by business units,monitoring of conduct risks and controls isundertaken using a risk-based approachby an independent internal monitoringteam within the Compliance and Conductfunction.

Conflicts of interestThe Group has a conflicts of interestpolicy which guides staff on what should

be reported and assessed by the Bank.The policy is underpinned by training toalert staff to activities or situations whichmay create an actual or potential conflictof interest. Whenever a conflict of interestis identified appropriate measures must betaken to either remove it or mitigate it; thepolicy reminds all those subject to it thatfailure to comply with the policy mayconstitute serious misconduct and may besubject to disciplinary measures.

There is a Group Speak Up Policy inplace, which provides support tocolleagues in raising concerns ofwrongdoing or potential wrongdoing,including whistleblowing.

Risk reportingConduct risk management information isreported on a regular basis to relevantsenior governance committees, includingpresentations on issues for considerationor approval that relate to remediation orimprovement programmes, and othercustomer related programmes andinitiatives. The Board has overallresponsibility for conduct risk oversight.Key conduct risk matters are included inthe CRO Monthly Risk Report as well asupdates on material conduct risk mattersrequiring escalation.


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Key points:

• At all times during the financial year the Group maintained appropriate capital resources in line with regulatory requirements.• CET 1 ratio is 14.5% at 31 December 2019 (31 December 2018: 15.0%) under the transitional basis and 14.2% (31 December

2018: 14.5%) under the fully loaded basis.• The Group at 31 December 2019 was required to hold CET1 capital requirements of 9.5%.• Sustained strong capital position enabled the payment of the equity dividend of £100 million to the Parent in October 2019. • The leverage ratio is 6.9% at 31 December 2019 under the transitional basis and 6.8% under the fully loaded basis.

3 Capital management

Capital adequacy riskCapital adequacy risk is the risk that theGroup holds insufficient capital to absorbextreme and unexpected losses, whichcould eventually result in the Group notbeing able to continue operating.

Capital management objectives andpoliciesThe Group manages its capital position toensure that it has sufficient capital tocover the risks of its business, support itsstrategy and to comply at all times withregulatory capital requirements.Capital adequacy and its effectivemanagement is critical to the Group’sability to operate its businesses, groworganically and pursue its strategy. TheGroup’s business and financial conditioncould be adversely affected if it is not ableto manage its capital effectively or if theamount or quality of capital held isinsufficient. This could arise in the case ofa materially worse than expected financialperformance (including, for example,reductions in profits and retained earningsas a result of impairment losses or writedowns and increases in RWA.

ICAAPThe ICAAP is carried out by the Group onan annual basis. This process facilitatesthe Board and senior management inadequately identifying, measuring andmonitoring the Group’s risk profile.Underpinning the ICAAP process, theGroup prepares detailed financialprojections. Base case projections areprepared using consensusmacroeconomic forecasts together withGroup specific assumptions, and thestress case is prepared based on a severebut plausible stress macroeconomicscenario.

The ICAAP process demonstrates that theGroup has sufficient capital under both thebase and stress case scenarios to supportits business and achieve its objectiveshaving regard to Board approved RiskAppetite and Strategy, and to meet itsregulatory capital requirements.

The Board approved ICAAP Report and

supporting documentation is submitted tothe PRA and is subject to regulatoryreview as part of the SREP.

Stress testing and capital planningThe Group uses stress testing as a keyrisk management tool to gain a betterunderstanding of its risk profile and itsresilience to internal and external shocks.In addition, stress testing provides a keyinput to the Group's capital assessmentsand related risk management andmeasurement assumptions.The Group's stress testing is designed to:• confirm the Group has sufficient capital resources;• inform the setting of capital risk appetite measures; and• ensure the alignment between the Group's RMF and senior management decision making.

The Group regularly assesses its existingand future capital adequacy under a rangeof scenarios of sufficient severity, using acombination of quantitative and qualitativeanalysis in the ICAAP. The ICAAP, whichacts as a link between the Group’sstrategy, capital and risk under stress, isapproved annually by the Board.

The Group also undertakes reverse stresstesting on an annual basis which informs,enhances and integrates with the stresstesting framework by considering extremeevents that could cause the Group to fail.This testing also improves riskidentification and risk management andthe results are also approved by theBoard, as part of the Group's ICAAP.The Group's capital planning processincludes a review of the Group’s expectedcapital position which is reviewed and

challenged on a monthly basis by seniormanagement.

The Group's capital plan (which isapproved at least annually by the Board)also includes sensitivities to ensure thecontinued resilience of the underlyingassumptions under adverse conditionsand changes to the regulatory landscape.

Capital requirements and capitalresources The Group complied with all its regulatorycapital requirements throughout 2019.The Group manages its capital resourcesto ensure that the overall amount andquality of resources exceeds the Group’scapital requirements. Capital requirementsare determined by the CRD IV, the CRRand firm specific requirements imposed bythe PRA. The minimum requirementsare typically driven by credit risk, marketrisk and operational risk, and also requirestress-absorbing buffers.

Additional firm-specific buffers reflect thePRA’s view of the systemic importance ofa bank and also internal capital adequacywhich is determined by stresstesting as part of the ICAAP.

An additional firm-specific countercyclicalbuffer is also required, reflecting thecountercyclical buffer rates applicable tothe exposures held by the Group.The Group’s regulatory requirements aresummarised in the table below whichshows the minimum CET 1 regulatoryrequirements of the Group. Theserequirements do not include the PRAbuffer, which is not disclosed in line withregulatory preference.

Group CET 1 Capital Requirement (unaudited)2019 Set by: % Pillar 1 CRR 4.5Pillar 2A PRA 1.5Capital Conservation Buffer CRD 2.5UK Countercyclical Buffer FPC 1.0Total minimum CET 1 Regulatory Requirement 9.5


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3 Capital management (continued)

The FPC announced in December 2019that the countercyclical buffer rate for UKexposures will increase from 1% to 2%.The Group’s capital plan, prepared as partof ICAAP, considers proposed changes tothe regulatory capital requirements of theGroup.

Capital management reportingThe Group monitors and reports thecapital position daily, monthly andquarterly. Reporting includes a suite ofearly warning signals and measurementagainst risk appetite and is reviewed bythe Prudential Risk team, the CapitalManagement Forum and the ALCO. Thecapital management information is alsoreviewed by ALCO, the ERC, the BRCand the Board.

CRD IV DevelopmentsCRD IV continues to evolve throughamendments to current regulations andthe adoption of new technical standards.On 7 June 2019, the amendments to theexisting CRD and the CapitalRequirements Regulation (CRR), as well asthe related EU BRRD and the SRMRegulation were published in the OfficialJournal of the EU and entered into forceon 27 June 2019. The majority of thechanges impacting capital contained inthe amended CRR (e.g. binding leveragerequirement and amended SMEsupporting factor) will become applicablefrom 28 June 2021.

In December 2017, the Basel Committeeannounced revisions to the BaselFramework. The revisions focus on thestandardised and internal ratings based(IRB) approaches to measuring credit riskand include the introduction of anaggregate output floor to ensure banks’RWAs calculated via internal models areno lower than 72.5% of RWAs calculatedunder the standardised approach.

The revised standards will take effect from1 January 2022, with a phase-in period offive years for the aggregate output floor.The Group is currently assessing theimpact of these revisions although any

impact will depend on the implementationat EU level.

The Group actively monitors thesedevelopments and seeks to effectivelycomply with the new requirements whenfinalised.

In addition to the new Basel rules, thereare a number of changes to ECB/EBAregulatory requirements planned for thecoming years that will impact the Bank’sregulatory capital and RWA. These includenew ECB and EBA NPL guidelines andEBA standard and guidelines on definitionof default.

Minimum Requirements for Own Fundsand Eligible Liabilities (MREL)MREL is focused on ensuring thatbanking groups have sufficient liabilities toabsorb losses to allow them to return tobusiness as usual following a recovery orresolution event and without recourse totaxpayer funds. The Bank of Englandissued a statement of Policy on MREL inJune 2018 and as a result the Groupis subject to an internal MREL requirementon transitional basis from 1 January 2020.

In order to meet indicative MRELrequirements, the Group issued £300million of non preferred senior debt inDecember 2019.

End-state MREL requirements will beeffective from 1 January 2022. The Groupconsiders the impact of MREL as part ofthe strategic and capital planning process,noting that the Parent as the soleshareholder and provider of capital is alsoexpected to provide any future core MRELrequirements.

IFRS 9 Capital ImpactThe Group has elected to apply thetransitional arrangements which, on aregulatory basis, partially mitigates theinitial and future impacts in the period to2022. This involves a capital add back of aportion of the increase in impairment lossallowance on transition to IFRS 9 and alsosubsequent increase in the stage 1 and 2

loss allowances at future reporting dates.The transitional addback allowed in 2019was 85%, reducing to 70%, 50% and25% in subsequent years.

The fully loaded capital ratios exclude theimpact of these transitional arrangements.

Regulatory capital and key capital andleverage ratiosThe Group is strongly capitalised with atotal capital ratio on a regulatory basis of19.9% at 31 December 2019 (2018:20.6%).

Total regulatory capital resourcesincreased by £7 million during 2019 to£2.2 billion due to:• profit after tax for 2019 of £96

million1;• a reduction in regulatory adjustments

of £31 million primarily due to thereduction in the deferred tax asset of£42 million, intangible assets decreaseof £5 million offset by the reduction inthe IFRS 9 transitional adjustment of£13 million;

• a dividend payment of £100 millionpaid to the Parent;

• additional tier 1 coupons of £24 millionpaid to the Parent; and

• an increase in other reserves of £4 million.

RWAs increased from £10.5 billion to£10.9 billion reflecting growth in theconsumer portfolios, offset by the disposalof the credit card portfolio.

The Group’s leverage ratio on a regulatorybasis has increased from 6.6% to 6.9% at31 December 2019 which is in excess ofthe Basel Committee minimum leveragerequirement of 3% and the FPC minimumrequirement of 3.25%. The EuropeanCommission has proposed theintroduction of a binding leveragerequirement of 3% as part of the CRD Vpackage proposals. It will be applicablefrom 8 June 2021.

1 The profit after tax of the BOI UK regulatory groups is £96 million, compared to £97 million for the statutory group.


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2018 2019 Regulatory Fully loaded Regulatory1 Fully loaded2

£m £m £m £m 851 851 Ordinary share capital 255 255 566 566 Capital contribution and capital redemption reserve fund 266 266 208 208 Retained earnings 1,076 1,076 7 7 Other reserves 11 11 1,632 1,632 Total equity 1,608 1,608 (55) (99) Regulatory adjustments (24) (55) (72) (72) Deferred tax assets relying on future profitability (30) (30) (15) (15) Intangible assets (10) (10) (6) (6) Cashflow hedge reserve (7) (7) (6) (6) Retirement benefit asset (8) (8) (-) (-) Prudent valuation adjustment - - 44 (-) IFRS 9 transitional adjustment 31 - 1,577 1,533 Common equity tier 1 capital 1,584 1,553 Additional tier 1 Subordinated perpetual contingent conversion 300 300 additional tier 1 securities 300 300 1,877 1,833 Total tier 1 capital 1,884 1,853

Tier 2 290 290 Dated loan capital 290 290 290 290 Total tier 2 capital 290 290 2,167 2,123 Total capital 2,174 2,143 10,522 10,550 Total risk weighted assets (unaudited) 10,939 10,971 27,335 27,377 Total leverage ratio exposures (unaudited) 27,317 27,317

1 Regulatory capital is reported including the IFRS 9 transitional adjustment.2 Fully loaded capital is reported excluding the IFRS 9 transitional adjustment.3 The BOI UK regulatory capital group consists of the Bank, its subsidiary, NIIB Group Limited and the securitisation vehicle, Bowbell No.2 plc.

3 Capital management (continued)

On 4 June 2019 the UK High Court of Justice approved the Bank’s application to reduce its share capital by £596 million from £851million to £255 million, by means of a reduction in the nominal value of each share from £1 to £0.30, thereby increasing the distributionreserves and to cancel the capital redemption reserve of £300 million. These reductions gave rise to an increase of £896 million inretained earnings.


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Chairman Mr. Robert Sharpe (RI) (A) (N) (RE)

Non-Executive Directors Ms. Mimi Kung (RI) (N) (RE)Mr. Philip Moore (RI) (A) (N) (RE) Mr. John Baines (RI) (A) Mr. Ian Buchanan (RI)Ms. Jacqueline Noakes Mr. Mark Spain (appointed 3 December 2019)

Executive Directors Mr. Ian McLaughlin (appointed 2 December 2019)Mr. Neil Fuller Mr. Thomas McAreavey (RI) Member of the Risk Committee(A) Member of the Audit Committee(N) Member of the Nomination Committee(RE) Member of the Remuneration Committee

Company SecretaryHill Wilson Secretarial Limited

Registered OfficeBow Bells House,1 Bread Street,London,EC4M 9BE.

Registered Number07022885

Independent AuditorsKPMG LLPChartered Accountants and Statutory Auditors15 Canada Square,London,E14 5GL.

Governance

Directors and other information

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Robert SharpeChair and Non-Executive Director

Term of Office: Appointed in April 2016

Independent: Yes

External AppointmentsChair and Non-Executive Director ofHoneycomb Investment Trust Ltd Chair and Non-Executive Director ofHampshire Trust Bank plc

ExperienceAppointed Chair of Bank of Ireland (UK)plc in April 2016, bringing over 35 yearsof Senior Executive and Board experienceto the role, primarily in Retail Banking.

Robert worked extensively in the MiddleEast, where he held several Non-Executive Directorships at banks in theUAE, Oman and Turkey. Prior to this,Robert led the transformation andturnaround at West Bromwich BuildingSociety as Chief Executive Officer, havingformerly been Chief Executive at thePortman Building Society and ChiefExecutive of Bank of Ireland’s business inthe UK. His previous Non-ExecutiveDirector roles include Barclays BankPension Board, Chair of Vaultex (UK) Ltd,George Wimpey plc, LSL Properties plc,the RIAS Group Ltd, Aldermore Bank plcand Al Rayan Bank plc.

Ian McLaughlinChief Executive Officer

Term of Office: Appointed in December 2019

Independent: No

External AppointmentsNone

ExperienceAppointed Chief Executive Officer of Bankof Ireland (UK) plc in December 2019.

Ian has over 25 years of financial servicesexperience, having joined the Group fromRoyal Bank of Scotland, where he heldroles of Managing Director, Home Buyingand Ownership, and Managing Director,Specialist Banking. Prior to that, Ian helda number of senior management roles atLloyds Banking Group and ZurichFinancial Services. Ian is a graduate ofQueen’s University Belfast.

Neil Fuller Chief Risk Officer

Term of Office: Appointed in October 2015

Independent: No


ExperienceAppointed Chief Risk Officer of Bank ofIreland (UK) plc in October 2015. Neil hasover 35 years of retail bankingexperience, including roles as Chief RiskOfficer for GE Capital UK and Chief RiskOfficer / Risk Director for NatWest / RBSUK Retail Division. He has undertakensenior management roles in NatWest /RBS UK Retail Banking across Credit,Enterprise & Operational Risk and has 20years’ experience in front line retailbanking roles. In 2018, he took onExecutive responsibility for Culture,Inclusion & Diversity and Agility on behalfof the Group and undertook the role ofInterim Chief Executive Officer for Bank ofIreland (UK) plc in 2019.

Neil is also a Director of First RateExchange Services Limited, the foreignexchange joint venture with the PostOffice.

The Board of Directors


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Thomas McAreaveyChief Financial Officer

Term of Office: Appointed in March 2017

Independent: No


ExperienceAppointed Chief Financial Officer of Bankof Ireland (UK) plc in March 2017. Thomashas over 20 years’ experience in the Bankof Ireland Group, having held varioussenior management positions withinFinance, including leading a range ofstrategic projects. Prior to that, he held amanagement position withinPricewaterhouseCoopers LLP. Thomas isa Fellow Chartered Accountant.

Thomas is also a Director of a number ofBank of Ireland Group subsidiaries,including NIIB Group Limited.

Mark SpainChief Strategy Officer- Bank of Ireland Group plc

Term of Office: Appointed in December 2019

Independent: No


ExperienceAppointed Non-Executive Director ofBank of Ireland (UK) plc in December2019. Mark is the Chief Strategy Officerreporting directly to the Bank of IrelandGroup Chief Executive Officer. He bringsover 20 years’ experience to this rolesince joining Bank of Ireland Group in1998 as Director of IBI CorporateFinance. He has since held seniorleadership roles as Director of GroupInvestor Relations, Director of GroupFinance and UK Commercial Director. Hehas extensive experience and expertise inmarkets, accounting and finance,commercial strategy, mergers andacquisitions, and complex projectmanagement.

Jackie Noakes Group Chief Operating Officer- Bank of Ireland Group plc

Term of Office: Appointed in October 2018

Independent: No


ExperienceAppointed Non-Executive Director ofBank of Ireland (UK) plc in October 2018.Jackie joined Bank of Ireland Group plcas a Group Chief Operating Officer inAugust 2018. In her role as ChiefOperating Officer Jackie oversees a rangeof services across technology,infrastructure and operations. Jackie hasheld a number of senior positions in thefinancial services sector, most recently atLegal & General (UK) as Chief ExecutiveOfficer of Mature Savings. Jackie alsoheld the roles of Managing Director ofLegal & General’s Savings business, aswell as Group IT & Shared ServicesDirector and Chief Operating Officer forthe Firm’s largest operating entity, Legal &General Assurance Society.

The Board of Directors (continued)


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Mimi Kung Non-Executive Director

Term of Office: Appointed in November 2017

Independent: Yes

External AppointmentsNon-Executive Director at Poste ItalianeNon-Executive Director at PrysmianGroup

ExperienceAppointed to the Board of Bank of Ireland(UK) plc in November 2017 and memberof the Nomination, Remuneration andRisk Committees. Mimi attended theBoston University School of Management(1998) and Oxford University (2003). Mimihas held various senior positions atAmerican Express since 1995 includingthat of Chief Financial Officer of AmericanExpress Europe and, most recently, thatof Senior Vice-President, Head of the“Card Services Central Europe &International Currency Cards” function,and country manager for Italy.

Philip MooreNon-Executive Director

Term of Office: Appointed in April 2018

Independent: Yes

External AppointmentsTrustee and Chair of the FinanceCommittee of the Royal British LegionNon-Executive Director of Codan A/S andCodan Forsikring A/S

ExperienceAppointed to the Board of Bank of Ireland(UK) plc in April 2018, Philip is Chair ofthe Remuneration Committee and amember of the Nomination, Audit andRisk Committees. Philip has enjoyed anover 35-year international career infinancial services comprising nearly 20years as a CFO. Until 2017 he was GroupFinance Director of LV=. Other previousexecutive roles have included GroupFinance Director and subsequently ChiefExecutive at Friends Provident and aPartner at Pricewaterhouse Coopers LLPbased in London and then Hong Kong.Philip’s past Non-Executive director roleshave included F&C Asset Management,RAB Capital, Wealth Wizards andTowergate. Philip is also a Governor ofHart Learning Group.



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John BainesNon-Executive Director

Term of Office: Appointed in May 2018

Independent: Yes

External AppointmentsNon-Executive Director at State Bank ofIndia (UK) Ltd Chair and Non-Executive Director atDistribution Finance Capital Ltd Non-Executive Director at InteractiveInvestor Limited (and its subsidiaryAlliance Trust Savings Ltd.)

ExperienceAppointed to the Board of Bank of Ireland(UK) plc in May 2018, John is Chair of theAudit Committee and interim Chair of theRisk Committee. John qualified as aChartered Accountant in 1987 and hassubsequently spent his entire careerworking in financial services, initially ininvestment banking, before moving intowealth management and then retail andcommercial banking. John has been theFinance Director of Aldermore Bank andalso of the Co-operative Bank and has saton the Boards of both businesses.

Ian BuchananNon-Executive Director

Term of Office: Appointed in September 2018

Independent: No

External AppointmentsNon-Executive Director of OpenworksHoldings Ltd.

ExperienceAppointed Non-Executive Director ofBank of Ireland (UK) plc in September2018. Ian is also a Non-Executive Directorfor the Board of Bank of Ireland Group plcand the Court of The Governor andCompany of Bank of Ireland. He waspreviously the Group Chief InformationOfficer for Barclays plc and ChiefOperating Officer for Barclaycard until2016. Before joining Barclays in 2011, Ianwas Chief Information Officer for SociétéGénérale Corporate and InvestmentBanking (2009-2011), a member of thepublic board and Group ManufacturingDirector of Alliance & Leicester plc (2005-2008), and a member of the executivecommittee and Chief Operations &Technology Officer of NomuraInternational (1994-2005). Ian’s earliercareer was spent at Credit Suisse,Guinness and BP.



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Corporate Governance Arrangements 2019

A. The BoardThe Board is responsible for ensuring thebusiness is able to take decisions, operateindependently and run in a way thatpromotes the long term success of theGroup, creating and delivering sustainablevalue. The Group has independentgovernance arrangements which takeaccount of industry best practice.

The Board’s role is to provide leadershipof the Group within the boundaries of RiskAppetite and a framework of prudent andeffective controls which enable risk to beidentified, assessed, measured andcontrolled.

The Board sets the Group’s strategic aimsand Risk Appetite to support the strategy,ensuring that the necessary financial andhuman resources are in place for theGroup to meet its objectives. The Boardhas established a set of matters reservedfor the Board and an annual rolling agendato ensure control over key decisionmaking. In the course of 2019, the Boardreviewed and approved a number ofstrategic initiatives including an extensionto the Group’s long term financial servicespartnership with the UK Post Office, theannual operating plan, capital and liquidityassessments, provided oversight of theculture programme and the customerplan, and played a key role in all materialdecisions. During 2019 the Board met 10times.

The Board comprises a mix of ExecutiveDirectors; independent Non-ExecutiveDirectors; and Non-Executive Directorsfrom the Parent. The Board considers aBoard size of 10 Directors appropriate tomeet the requirements of the businessand allows for a good balance betweenhaving the full range of skills necessary onthe Board, and to populate its committeesand retain a sense of accountability byeach Director for Board decisions.

B. Board Committees The Board is assisted in the discharge ofits duties by a number of Boardcommittees, whose purpose it is toconsider, in greater depth than would bepracticable at Board meetings, matters forwhich the Board retains responsibility. TheBoard is supported by the followingCommittees:

Board Audit CommitteeThe Committee is comprised ofindependent Non-Executive Directors, and

is chaired by John Baines.

Meetings are attended by management, atthe invitation of the Committee Chairman,including the Chief Executive Officer, ChiefFinancial Officer, Chief Risk Officer, ChiefInternal Auditor and the Group’s externalauditors.

The principal role and responsibilities ofthe Committee are set out in its terms ofreference. Overall, the Committeemonitors the integrity of the financialstatements, oversees all relevant matterspertaining to the external auditors andreviews the Group’s internal controls,including financial controls, and theeffectiveness of the internal audit function.The Committee met five times in 2019.The Terms of Reference for thisCommittee can be found here(https://www.bankofirelanduk.com/about/corporate-governance/documents/).

Board Nomination CommitteeThe Committee is comprised ofindependent Non-Executive Directors, andis chaired by Robert Sharpe.

Meetings are attended by management, atthe invitation of the Committee Chairman,including the Chief Executive Officer andHuman Resources Director.

The principal role and responsibilities ofthe Committee are set out in its terms ofreference. Responsibility has beendelegated by the Board to the NominationCommittee for ensuring an appropriatebalance of experience, skills andindependence on the Board. Non-Executive Directors are appointed so as toprovide strong, effective leadership andappropriate challenge to Executivemanagement. It is responsible for leadingthe process for Board, Board committeeand senior management appointmentsand renewals. The Committee regularlyreviews succession plans for the Board,and the senior management team, andmakes appropriate recommendations tothe Board. The Committee met five timesin 2019. The Terms of Reference for thisCommittee can be found here(https://www.bankofirelanduk.com/about/corporate-governance/documents/).

Board Remuneration CommitteeThe Committee is comprised ofindependent Non-Executive Directors andis chaired by Philip Moore.

Meetings are attended by management, atthe invitation of the Committee Chairman,including the Chief Executive Officer andHuman Resources Director.

The principal role and responsibilities ofthe Committee are set out in its terms ofreference and include delegatedresponsibility for setting remunerationstrategy and policy for Executive Directorsand senior management. The Committeemet three times in 2019. The Terms ofReference for this Committee can befound here(https://www.bankofirelanduk.com/about/corporate-governance/documents/).

Board Risk CommitteeThe Committee is comprised ofindependent directors (including one fromthe Parent). Meetings are attended bymanagement, at the invitation of theCommittee Chair, including the ChiefExecutive Officer, Chief Financial Officer,Chief Risk Officer and Chief InternalAuditor.

The principal role and responsibilities ofthe Committee are set out in its terms ofreference. Overall the Committee monitorsrisk governance and assists the Board indischarging its responsibilities in ensuringthat risks are properly identified, reported,assessed, and controlled and that strategyis cognisant of the Group’s risk appetite.The Committee met seven times in 2019.The Terms of Reference for thisCommittee can be found here(https://www.bankofirelanduk.com/about/corporate-governance/documents/).

The Board Risk Committee is supportedby the Executive Risk Committee (ERC),which is chaired by the Chief Risk Officer.The ERC membership comprisesmembers of the Executive Committee andSenior Executives.

C. Board Governance and Policies The Board is accountable to itsshareholder for the overall direction andcontrol of the Company. It is committed tohigh standards of governance designed toprotect the interests of its shareholder andall other stakeholders while promoting thehighest standards of integrity,transparency and accountability. A keyobjective of the Group’s governanceframework is to ensure compliance withapplicable legal and regulatoryrequirements.


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Corporate Governance Arrangements 2019 (continued)

The Board is provided with varioustechnical and business training sessionsduring the course of the year.

The Group ensures that individualDirectors of the Board have sufficient timeto dedicate to their duties, having regardto applicable regulatory limits on thenumber of directorships held by anyindividual Director.

D. Board Diversity by Gender andIndependence 2019 The Board recognises and embraces thebenefits of diversity among its ownmembers, including diversity of skills,experience, background, gender and otherqualities and is committed to achievingthe most appropriate blend and balance ofdiversity possible over time. The Boardhas retained its gender diversity target of33% of female Directors by the end of2022.

E. Nomination ProceduresThe Board is committed to identifying thepeople best qualified and available toserve on the Board and is responsible forthe appointment of Directors. On therecommendation of the NominationCommittee the Board regularly reviewsboard composition, tenure and successionplanning. In accordance with the BoardDiversity Policy, which is available here(https://www.bankofirelanduk.com/about/corporate-governance/documents/), allappointments are made on merit againstobjective criteria (including the skills andexperience the Board as a whole requiresto be effective) with due regard for thebenefits of diversity on the Board. Uponappointment, each Director receives adetailed and tailored induction, including abriefing on directors’ duties.

Prior to the appointment of a Director, theNomination Committee assesses the timecommitment involved and identifies theskills and experience required for the role,having regard to Board successionplanning. The recruitment process forNon-Executive Directors is supported byan experienced third party professionalsearch firm which develops an appropriatepool of candidates and providesindependent assessments of thecandidates. The Nomination Committeethen shortlists candidates, conductsinterviews and completes comprehensivedue diligence. The Nomination Committeethen makes a recommendation to theBoard.

During 2019, the Nomination Committeereviewed and updated its DirectorAssessment Policy and Board DiversityPolicy.

F. Corporate Governance ArrangementsThe Group has adopted the WatesPrinciples of Corporate Governance forLarge Private Companies as its preferredcorporate governance code. While theParent fully complies with the UKCorporate Governance Code 2018 (inaddition to a number of other codes ofcorporate governance), the WatesPrinciples are complementary to thegovernance arrangements of the Parent,and compliance with the Wates Principlesfor large private companies by the Grouphas been consistent with Bank of IrelandGroup good governance practice. In 2019,in order to comply with the Principles, theGroup carried out the following activities:

Principle 1: Purpose and leadership• The Bank of Ireland Group has

adopted the following purpose:“Enabling our customers, colleaguesand communities to thrive”, andrequires management to operatewithin it.

• The Audit Committee leads on theestablishment of transparent policiesin relation to raising concerns aboutmisconduct and unethical practices(Speak-Up).

• The Board engages with customersand employees using offsite visits torelay the Group’s stated purpose anddiscusses any issues or items ofconcern directly with them. The NEDsthen discuss their views andobservations with the rest of theBoard. Processes for engagementwith customers and employees arekept under review to ensure theyremain effective.

• The Board regularly reviews itsmaterial suppliers and outsourcingarrangements, and works to ensurecompliance with the GeneralOutsourcing Requirements of the FCAHandbook (SYSC 8).

• The Group has adopted the followingBank of Ireland Group wide values: • Customer focused: we

understand our customers well.We listen to them to ensure theyfeel valued. We use our insights toconsider how best to serve theirneeds. We take appropriateactions to deliver solutions tomeet customers' changing

requirements.• One Group, one team: we know

we work smarter when we cometogether behind our commonpurpose. We learn from eachother and share ideas to expandour thinking. We build an open,trusting and supportiveenvironment and foster diversityof thought, ideas and experiencesto spark creativity.

• Accountable: we are empoweredto take ownership and trusted todo the right thing to support ourcustomers, employees andcommunities. We lead by exampleand challenge ourselves and eachother to do our best work at alltimes. We learn from our mistakesand celebrate our successestogether.

• Agile: we embrace change withan open mind and a can-doattitude. We respond quickly andproactively seek differentperspectives. We challengeourselves to look for new andsimplified ways to efficientlydeliver the best solutions for ourcustomers.

• The Group’s strategic priorities areconsistent with those of the Parent:• Transform the Bank by improving

culture, systems and businessmodel;

• Serve customers brilliantly; and • Grow sustainable profits through

growing our revenue andoptimising our cost base.

• The Group has deployed a number ofways to communicate its purpose andvalues including holding values inactions workshops and working tointegrate its values into the widerpeople strategy.

. Principle 2: Board composition• The roles of the Chairman and CEO

are separate to ensure a balance ofpower and effective decision-making.

• A Board Diversity Policy is in place tosupport appointments to the Boardand succession planning. The policyincludes targets and aspirationspromoted by Government andindustry initiatives.

• The Nomination Committee regularlyconsiders the Board size and structureso that it is appropriate to meet thestrategic needs and challenges of theCompany and enables effectivedecision-making.


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Corporate Governance Arrangements 2019 (continued)

• Each year the Board reviews itseffectiveness (including committeeeffectiveness) and seeks to find waysto improve its operation. It is theBoard’s practice to have an externalreview every three years.

Principle 3: Director responsibilities • The Nomination Committee has

adopted an internal governance policywhich governs the internal affairs ofthe Company.

• The Board has adopted terms ofreference that sets out mattersreserved for the Board.

• The Board has adopted a Conflicts ofInterest Policy setting out howconflicts should be identified andmanaged at Board level.

• Board papers and supportinginformation are accurate, clear,comprehensive and up to date; paperscontain a broad range of informationsources; a summary of the contents;inform the Directors what is expectedof them on each issue; and whereverpossible are issued in good timeahead of Board meetings.

Principle 4: Opportunity and risk• The Board holds Strategy Days for the

identification of future opportunitiesfor innovation and entrepreneurship.

• There is a Board approved RiskAppetite Statement.

• The Board has a process for ensuringthat new business opportunities of acertain value are considered andapproved at Board level.

• The Board is responsible foroverseeing the Group’s riskmanagement and internal controlsystems, which are designed tofacilitate effective and efficientoperations and to ensure the quality ofinternal and external reporting andcompliance with applicable laws andregulations, and to review the

effectiveness of the same. For furtherdetails on the main features of theinternal control and risk managementsystems, refer to the Risk GovernanceReport.

• The Board has an agreed approach toreporting, including frequency ofreporting and the points at whichdecisions are made and escalated

Principle 5: Remuneration• The Remuneration Committee takes a

broad view of pay and conditionsacross the Group during all itsdeliberations and decision making.

• The Remuneration Committeeoversees the annual review of theGroup Remuneration Policy.

• Remuneration for all employees andDirectors are aligned withperformance, behaviours, and theachievement of company purpose,values and strategy.

• The Bank of Ireland GroupRemuneration Committee isresponsible for the oversight of theGroup-wide Remuneration Policy withspecific reference to the Chair,Directors and senior managementacross the Group and thoseemployees whose activities have amaterial impact on the Bank of IrelandGroup’s risk profile.

• The Bank of Ireland Group is currentlyoperating under a number ofremuneration restrictions, which coverall Directors, senior management,employees and certain serviceproviders across the Bank of IrelandGroup. For further information, referto the Remuneration Report of theBank of Ireland Group plc.

Principle 6: Stakeholders relationshipsand engagement• The Board notes the accountable

executives responsible for each of itsmain stakeholders. In this respect, the

Senior Manager and CertificationRegime in the UK has driven greateraccountability of responsibilities.

• Senior management teams from eachof the strategic partnerships of theGroup attend Board meetingsregularly to present business updates.

• Talent and visibility sessions formanagers in the layers below theExecutive Committee are heldregularly.

• A Customer Board has beenestablished to identify challenges,opportunities, and to ensure that theGroup delivers its customer plan.

• Annual Board site visits are held in keylocations and include customer andemployee immersion sessions for allDirectors.

• Employees have access to a Speak-Up Policy, and are activelyencouraged to report any concerns orworries, either internally or externallyvia confidential, externally facilitatedadvice line. The Board monitors thesereports and follows up actionsregularly through the Audit Committee.

• Employees are actively involved infundraising and volunteering incharitable events across the UK forthe flagship charity, the Alzheimer’sSociety and a range of other localcharities and community projects.

• Give Together is the Group’s charityand community initiative, throughwhich employees lend their support totheir nominated charities byfundraising, volunteering and makingdonations.

• The Group continues to support awide range of Northern Ireland basedcommunity, business and sportingactivities through sponsorship eachyear.


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Report of the Directors

The Directors of the Group present theirconsolidated audited report and financialstatements for the year ended 31December 2019. The financial statementsare prepared in accordance withInternational Financial ReportingStandards (IFRS), as adopted by the EU,in accordance with the provisions of theCompanies Act 2006. Directors are listedin the Governance section on pages 59 to62. The Group’s structure is set out in note44 to the financial statements and thefuture developments of the Group areincorporated in the strategic report.

Principal activitiesThe Bank is an ‘authorised institution’under the Financial Services and MarketsAct 2000 and is regulated by the FCA andthe PRA. The principal activities of theGroup are the provision of an extensiverange of banking and other financialservices in Great Britain and NorthernIreland.

Financial performanceThe Group’s profit for the year ended 31December 2019 was £97 million (2018:£151 million). There was no profit or lossattributable to non-controlling interests forthe year ended 31 December 2019 (2018:£nil). An analysis of performance is set outin the strategic report on pages 7 to 12.

DividendsOn 24 October 2019 a dividend paymentof £100 million was paid to the Parent.

Board membershipThe following Directors were appointedduring the year and up to the date ofsigning:• Myles O’Grady, Non-Executive, 9 July

2019;• Mark Spain, Non-Executive, 3

December 2019; and• Ian McLaughlin, Executive, 2

December 2019.The following Directors resigned duringthe year and up to the date of signing:• Donal Collins, Non-Executive, 1 May

2019; • John Maltby, Non-Executive, 30

August 2019;• Des Crowley, Executive, 31 October

2019; and • Myles O’Grady, Non-Executive, 17

December 2019.

Corporate governanceThe Group has adopted the WatesPrinciples of Corporate Governance forLarge Private Companies as its preferredcorporate governance code. While theBank of Ireland Group fully complies withthe UK Corporate Governance Code 2018(in addition to a number of other codes ofcorporate governance), compliance withthe Wates Principles for Large PrivateCompanies by the Group has been

consistent with Bank of Ireland Group-wide good governance practice. Bank ofIreland (UK) plc is a wholly ownedsubsidiary of the Governor and Companyof the Bank of Ireland, a companyincorporated by charter in the Republic ofIreland. The ultimate parent is Bank ofIreland Group plc. The ConsolidatedAnnual Report of Bank of Ireland Groupplc details the Corporate Governanceframework applicable to the Group and itssubsidiaries. Bank of Ireland Group plcfinancial statements are available onwww.bankofireland.com or at Bank ofIreland, Head Office, 40 Mespil Road,Dublin 4.

Corporate responsibilityThe Group strives to make a positivecontribution to the economy bysupporting its customers and investing inthe communities in which it operates. TheGroup participates in a number of Parentinitiatives including Give Together, acommunity giving initiative under whichemployees are supported in raising moneyand volunteering days for good causes.The Group is also conscious of its impacton the environment and has taken stepsto reduce energy consumption at highusage locations that provide services tothe Group.

Further details on the Group’scommitment to corporate socialresponsibility can be found in the strategicreport.

Risk managementThe Group’s principal risks anduncertainties are discussed in thestrategic report on pages 23 to 29.

Additional risk disclosures for the Groupcan be found in the Risk Managementsection.

EmployeesFor the year ended 31 December 2019,the Group had an average of 277 directemployees (2018: 318 direct employees)and 384 employees (2018: 406employees) who work under long-termsecondment arrangements from theParent.

The Group is committed to employmentpractices and policies which recognise thediversity of the Group’s workforce and arebased on equal opportunities for allemployees. In recruitment andemployment practices, the Group doesnot discriminate against individuals on thebasis of any factor which is not relevant toperformance including an individuals’ sex,race, colour, disability, sexual orientation,marital status or religious beliefs.

The Group has a number of programmesto support colleagues who become

disabled or acquire a long-term healthcondition.

To support continued employment andtraining, career development andpromotion of all employees, the Groupprovides a suite of learning anddevelopment activities which arefacilitated in conjunction with the Parent.Through the Group’s ongoing employeeperformance monitoring and appraisalprocess, incorporating frequent linemanager and employee discussions,individual employees are encouraged andsupported to pursue their own personaldevelopment.

The Group also endeavours to ensure thatemployees are provided with informationon matters of concern to them andencourages active involvement ofemployees to ensure that their views aretaken into account in reaching decisions.To facilitate this, there is regularconsultation with employees or theirrepresentatives, through regular meetings,bulletins and the use of the Group’sintranet, which provides a flexiblecommunication channel for employees.

Political donationsNo political donations were made duringthe year ended 31 December 2019 or inthe year ended 31 December 2018.

Voting RightsVoting at any general meeting is by ashow of hands or by poll. The AnnualGeneral Meeting of the Group isscheduled to take place on 24 March2020, and a copy of the Notice of theMeeting will be available on the Group’swebsite when it is issued. The Group is awholly owned subsidiary of the Governorand Company of the Bank of Ireland.Details of the Parent’s shareholding canbe found in the Notes to the Accounts innote 36.

Going concern The Directors have considered theappropriateness of the going concernbasis in preparing the financialstatements, for the year ended 31December 2019, on page 82 which formspart of the Report of the Directors.

Third party indemnity provisionA qualifying third party indemnity provision(as defined in Section 234 of theCompanies Act 2006) was, and remains,in force for the benefit of all Directors ofthe Group and former Directors who heldoffice during the year. The indemnity isgranted under article 137 of the Bank’sArticles of Association.

Post balance sheet eventsThese are described in note 47 to thefinancial statements.


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The Directors are responsible forpreparing the Annual Report, StrategicReport, the Directors’ Report and theGroup and Bank financial statements inaccordance with applicable law andregulations.

Company law requires the Directors toprepare Group and Bank financialstatements for each financial year. Underthat law they have elected to prepare theGroup financial statements in accordancewith International Financial ReportingStandards as adopted by the EU (IFRSsas adopted by the EU) and applicable lawand have elected to prepare Bank financialstatements in accordance with UKaccounting standards and applicable law(UK Generally Accepted AccountingPractice), including FRS 101 ReducedDisclosure Framework.

Under company law the Directors mustnot approve the financial statementsunless they are satisfied that they give atrue and fair view of the state of affairs ofthe Group and Bank and of their profit orloss for that period. In preparing each ofthe Group and Bank financial statements,the Directors are required to:• select suitable accounting policies and

then apply them consistently;

• make judgements and estimates thatare reasonable, relevant and reliable;

• state whether Group financialstatements have been prepared inaccordance with IFRSs as adopted bythe EU;

• state whether, for Bank financialstatements, applicable UK accountingstandards have been followed, subjectto any material departures disclosedand explained in the financialstatements;

• assess the Group and Bank’s ability tocontinue as a going concern,disclosing, as applicable, mattersrelated to going concern; and

• use the going concern basis ofaccounting unless they either intend toliquidate the Group or the Bank or tocease operations, or have no realisticalternative but to do so.

The Directors are responsible for keepingadequate accounting records that aresufficient to show and explain the Bank’stransactions and disclose with reasonableaccuracy at any time the financial positionof the Bank and enable them to ensurethat its financial statements comply withthe Companies Act 2006. They areresponsible for such internal control asthey determine is necessary to enable the

preparation of financial statements thatare free from material misstatement,whether due to fraud or error, and havegeneral responsibility for taking such stepsas are reasonably open to them tosafeguard the assets of the Group and toprevent and detect fraud and otherirregularities.The D irectors are responsible for themaintenance and integrity of the corporateand financial information included on thecompany’s website. Legislation in the UKgoverning the preparation anddissemination of financial statements maydiffer from legislation in other jurisdictions.

Audit confirmationIn accordance with Section 418 of theCompanies Act 2006, the Directors Reportshall include a statement in the case ofeach Director in office at the date theDirector’s report is approved, that:(a) So far as the Director is aware, there is

no relevant audit information of whichthe Group’s auditors are unaware; and

(b) He / she has taken all the steps thathe / she ought to have taken as aDirector in order to make himself /herself aware of any relevant auditinformation and to establish that theGroup’s auditors are aware of thatinformation.

As approved by the Board and signed on its behalf by:

Thomas McAreaveyDirector2 March 2020

Company Number: 07022885

Financial StatementsStatement of Directors’ Responsibilities


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Independent auditor’s report to the member of Bank of Ireland (UK) plc

We have audited the financial statements of the Bank of Ireland (UK) plc (“the Bank”) and its subsidiaries (“the Group”) for the yearended 31 December 2019 which comprise the consolidated and Bank balance sheets, consolidated and Bank income statements,consolidated and Bank statements of other comprehensive income, consolidated and Bank statements of changes in equity,consolidated cash flow statement and the related notes, including the accounting policies in note 1.

In our opinion:• the financial statements give a true and fair view of the state of the Group’s and of the Bank’s affairs as at 31 December 2019 and

of the Group’s and Bank’s profit for the year then ended;• the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards as

adopted by the European Union (IFRSs as adopted by the EU);• the Bank financial statements have been properly prepared in accordance with UK accounting standards, including FRS 101

Reduced Disclosure Framework; and• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Ourresponsibilities are described below. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for ouropinion. Our audit opinion is consistent with our report to the audit committee.

We were first appointed as auditor by the Directors on 1 May 2018. The period of total uninterrupted engagement is for the twofinancial years ended 31 December 2019. We have fulfilled our ethical responsibilities under, and we remain independent of the Groupin accordance with, UK ethical requirements including the FRC Ethical Standard as applied to public interest entities. No non-auditservices prohibited by that standard were provided.

Materiality £8.0 million (2018: £8.9 million)Group financial statements as a whole 4.8% of profit before tax from continuing operations

Coverage 98% of group profit before tax

Key audit matters vs 2018

Recurring risksThe impact of uncertainties due to the UK exiting the European Union on our audit

Expected credit losses under IFRS 9 Financial Instruments (IFRS 9) on loans and advances to customers

Revenue Recognition – Impact of prepayment estimates on the determination of the effective interest rate on mortgages and fair value unwind on the acquired mortgage portfolio

The impact of IT access controls on the effectiveness of the control environment

New riskRecoverability of deferred tax assets n/a

1. Our opinion is unmodified

Overview


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2. Key audit matters: our assessment of risks of material misstatement

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financialstatements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us,including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing theefforts of the engagement team. We summarise below the key audit matters, in arriving at our audit opinion above, together with ourkey audit procedures to address those matters and, as required for public interest entities, our results from those procedures. Thesematters were addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, ouraudit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, andwe do not provide a separate opinion on these matters.

Key audit matter Our response

The impact of uncertainties due to the UKexiting the European Union on our audit

Refer to page 26 (principal risks)

This is relevant to both the Group and Bankfinancial statements

The risks

Unprecedented levels of uncertainty

All audits assess and challenge thereasonableness of estimates, in particular asdescribed in the expected credit losses underIFRS 9, revenue recognition and therecoverability of the deferred tax asset andrelated disclosures and the appropriateness ofthe going concern basis of preparation of thefinancial statements. All of these depend onassessments of the future economicenvironment and the Group’s future prospectsand performance.

Brexit is one of the most significant economicevents for the UK and its effects are subject tounprecedented levels ofuncertainty ofconsequences, with the full range of possibleeffects unknown.

Our procedures included:

We developed a standardised firm-wideapproach to the consideration of theuncertainties arising from Brexit in planning andperforming our audits.

• Our Brexit knowledge: We considered theDirectors’ assessment of Brexit-relatedsources of risk for the Group’s business andfinancial resources compared with our ownunderstanding of the risks. We consideredthe Directors’ plans to take action tomitigate the risks.

• Sensitivity analysis: When addressingexpected credit losses under IFRS 9,revenue recognition and the recoverabilityof the deferred tax asset and other areasthat depend on forecasts, we compared theDirectors’ analysis to our assessment of thefull range of reasonably possible scenariosresulting from Brexit uncertainty and, whereforecast cash flows are required to bediscounted at a rate other than the originaleffective interest rate, consideredadjustments to discount rates for the levelof remaining uncertainty.

• Assessing transparency: As well asassessing individual disclosures as part ofour procedures on expected credit lossunder IFRS 9, revenue recognition and therecoverability of the deferred tax asset andgoing concern, we considered all of theBrexit related disclosures together,including those in the strategic report,comparing the overall picture against ourunderstanding of the risks.

Our results:

As reported under expected credit losses underIFRS 9, revenue recognition and therecoverability of the deferred tax asset, we foundthe resulting estimates and related disclosures ofthe changes in estimate that occurred during theperiod and the sensitivity disclosures anddisclosures in relation to going concern to beacceptable.

However, no audit should be expected to predictthe unknowable factors or all possible futureimplications for a company and this isparticularly the case in relation to Brexit.


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Expected credit lossesunder IFRS 9 on loans andadvances to customers

£146 million and £131 millionfor Group and Bankrespectively (2018: £159million and £149 million)

Refer to pages 86–88(accounting policy) and pages97–98 (critical accountingestimates and judgements)and pages 112–132 (financialdisclosures)

This is relevant to both theGroup and Bank financialstatements

The risk

The calculation of the IFRS 9 expected creditloss (ECL) allowance involves a number ofcomplex, judgemental and highly sensitiveassumptions. The key areas where weidentified greater levels of managementjudgement and therefore increased levels ofaudit focus in the Group’s and Bank’sfinancial statements are:

Model estimations

The calculation of ECLs uses complex andinherently judgemental modelling techniques,in particular the Probability of Default (PD)models which are key drivers of the Group’sand Bank’s ECL calculation and therefore oneof the most significant judgemental aspectsof the impairment allowance on loans andadvances to customers.

Economic scenarios and related postmodel adjustments

Economic scenarios have a direct impact onthe proportion of the loans in stage 2, certainstage 3 loans and the resultant ECL (mostsignificant for mortgage loans).

In addition, to address known impairmentmodel limitations and/or emerging trends(most significantly Brexit and UK economicuncertainty), management raised a postmodel adjustment for the mortgage loansmodelled ECL and therefore one of the mostsignificant judgemental aspects of the ECL.

Stage 3 loans expected credit loss

The estimation of the ECLs involves theapplication of significant judgement in thedetermination of the realisable cash flowsfrom recovery strategies. These are mostsignificant for the Business Banking loans.

The effect of these matters is that, as part ofour risk assessment, we determined that theimpairment of loans and advances tocustomers has a high degree of estimationuncertainty, with a potential range ofreasonable outcomes greater than ourmateriality for the financial statements as awhole, and possibly many times that amount.

The Bank of Ireland Group plc (Parent) adopts a centralised approach tomodelling ECL, thus our work was performed in conjunction with the auditorsof the Parent (Parent auditors).


• Controls testing: We performed end to end process walkthroughs toidentify the key systems, applications and controls used in the ECLprocesses, utilising the work performed by the Parent auditors where theprocess is centralised. The Parent auditors also tested the general ITcontrols over key systems used in the process to provide data andcalculate the ECL provisions as well as tested relevant IT access andchange controls including controls over the model storage applications.Key aspects of our controls testing involved the following:

- For the relevant portfolios, testing the design and operatingeffectiveness of the key controls over the completeness and accuracyof the key data elements into the IFRS 9 impairment models;

- Evaluating controls over the modelling process, including modelmonitoring, validation and approval;

- Testing key controls relating to selection and implementation ofmaterial economic variables and the controls over the scenarioselection and probabilities; and

- Evaluating controls over model outputs and authorisation and reviewof post model adjustments.

• Financial risk modelling expertise: For the relevant portfolios examined,the Parent auditors involved specialists to assist in evaluating theappropriateness and accuracy of the IFRS 9 models.

• Other tests of details: Key aspects of testing performed by the Parentauditors and our team involved:

- Sample testing over key data elements impacting ECL calculations;- Involving our economic specialists to assess the reasonableness of the

economic forecasts and weights applied;- Reperforming key aspects of the Group’s SICR calculations and

selecting samples of financial instruments to determine whether aSICR was appropriately identified;

- Reperforming key elements of model calculations and assessingbacktesting results;

- Evaluating post model adjustments and management overlays in orderto assess the reasonableness of the adjustments by challenging keyassumptions and inspecting the calculation; and

- For a sample of stage 3 Business Banking loans, where relevant, weexamined the forecasts of future cash flows prepared by managementto support the calculation of the impairment allowance and challengedthe assumptions through comparing estimates to external supportwhere available. Where appropriate, this work involved consideringthird party valuations of collateral, internal valuation guidelines derivedfrom benchmark data and/or externally prepared reports in assessingthe valuation methodologies.

In respect of both controls and tests of detail performed by Parent auditors,we were involved in the planning of their work, we had regular discussionsthroughout the audit and have reviewed the work that they have performed.

Our review of the Parent auditors work included reviews performed by financialrisk modelling and economic specialists.

• Assessing transparency: We assessed whether the disclosuresappropriately disclose and address the uncertainty which exists whendetermining the expected credit losses. As a part of this, we assessed thesensitivity analysis that is disclosed. In addition, we assessed whether thedisclosure of the key judgements and assumptions made was sufficientlyclear.

Our results:

We consider the ECL charge and provision to be acceptable.


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Revenue Recognition

Impact of prepaymentestimates on thedetermination of the effectiveinterest rate on mortgagesand fair value unwind on theacquired mortgage portfolio

Effective interest rateadjustment to interest income:£13 million (2018: £27million)

Fair value unwind:£26 million (2018: £41 million)

Refer to page 84 (accountingpolicy), page 100 (criticalaccounting estimates andjudgements) and page 101financial disclosures)


The risk

Interest earned and fees earned and incurredon loans and advances to customers arerecognised using the effective interest rate(EIR) method that spreads directlyattributable expected income over theexpected lives of the loans. This requiresmanagement to apply judgement inestimating the expected lives of themortgage portfolios.

This judgement is informed by past customerbehaviour of when loans are repaid, with theEIR balance and amount recognised in theIncome Statement being highly sensitive tominor changes in assumptions. In recentyears, mortgage prepayment trends havevaried significantly across the UK mortgagemarket although the key trend has beentowards reducing expected lives. As such,we identified greater levels of managementjudgement and have placed increased levelsof audit focus on these assumptions for theoriginated mortgage portfolio.

These assumptions impact both the acquiredmortgage portfolio, as this was acquired at adiscount, with any change in the expectedlife requiring the discount to be adjusted andspread over the remaining expected life, andthe portfolio which has been originated sincethe incorporation of the Bank. The expectedlife assumptions utilise repayment profileswhich represent how customers are expectedto repay.

The effect of these matters is that, as part ofour risk assessment we determined theimpact of prepayment estimates has a highdegree of estimation uncertainty, with apotential range of reasonable outcomes thatcould be greater than our materiality in theestimation of the EIR balance and unwindingof the fair value on the acquired mortgageportfolio.


• Controls testing: We performed an end to end process walkthrough toidentify the key applications and process controls. We tested design,implementation and operating effectiveness of key controls relating toauthorisation and review of management assumptions regarding EIRassets and liabilities.

Test of details:

- We critically assessed the expected customer lives and methodologyused to make the estimate against our own knowledge of industryexperience and trends, as well as independently modelling theredemption curve used by the Bank for originated mortgages only.

- We performed sensitivity analysis using parameters determined by usfor judgemental assumptions, including expected customer lives, tocritically assess which of these the EIR asset is most sensitive to.

- We tested the accuracy of the inputs to the EIR model by agreeingback to source systems.

- We reviewed the fees included and excluded from the EIR model toensure compliance with accounting standards.

- We engaged our modelling specialists to assess the modelmethodology.

- We also considered the adequacy of the Bank’s disclosures about thechanges in estimate that occurred during the period and the sensitivitydisclosures across the key loan portfolios.

Our results:

We consider the EIR adjustments to be acceptable.

Recoverability of thedeferred tax asset

Risk of error relating to therecognition and measurementof deferred tax assets£45 million and £40 million forthe Group and Bankrespectively (2018: £90 millionand £83 million)

Refer to pages 94–95(accounting policy), pages 98–99 (critical accountingestimates and judgements)and pages 138–139 (financialdisclosures)


The risk

The recoverability of the deferred tax asset(DTA) relies on judgements relating to theprobability, timing and sufficiency of futuretaxable profits, which in turn is based onassumptions concerning future economicconditions, business performance andcurrent legislation governing the use ofhistorical trading losses carried forward.

The amount of the Bank's annual taxableprofits that can be offset by trading lossescarried forward is restricted to 25%. Theimpact of this legislation is that it increasesthe period over which the DTA is realised.

Given the level of estimation uncertainty fromsuch a period, management has restrictedthe recoverability of the DTA to 10 years thisyear.

The recoverability of the DTA is mostsensitive to the changes in the five year initialplanning period.

The effect of these matters is that, as part ofour risk assessment, we determined that therecoverability of the deferred tax asset has ahigh degree of estimation uncertainty, with apotential range of reasonable outcomesgreater than our materiality for the financialstatements as a whole.


• Controls testing: We evaluated and tested the design andimplementation of key controls over the determination and approval of theforecast taxable profits used to support the recognition of the deferred taxassets.

Test of details:

- We assessed management’s ability to estimate future taxable income,considering past performance versus past projections.

- We challenged the reasonableness of management’s assumptions andcompared them against our knowledge of the industry outlook and ourunderstanding of the Group’s strategy and the wider economy.

- We engaged our tax specialists to assess the accuracy of the deferredtax calculations.

- We assessed the adequacy and transparency of the disclosures inrelation to the assumptions and judgements around the estimation offorecast cash flows and determination of the deferred tax asset.

Our results:

We consider the recognition and recoverability of the deferred tax asset to beacceptable.


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The impact of IT accesscontrols on theeffectiveness of thecontrol environment


The risk

As with many banks, the Group is highlydependent on IT systems for the processingand recording of significant volumes oftransactions. Our audit approach reliesextensively on automated controls andtherefore on the effectiveness of controlsover IT systems.

In common with many UK banks, the Grouphas been improving its IT user accesscontrols in recent years. The Parent Grouphas an ongoing risk management programmein place to identify, rate, mitigate and reporton risk including user access controls. Weregard this area as a key audit matter owingto the high level of IT dependency within theGroup as well as the associated complexityand the risk that automated controls are notdesigned and operating effectively.

In particular we consider IT user accessmanagement controls to be critical inensuring that only approved changes toapplications and underlying data areauthorised and made appropriately.Moreover, appropriate access controlscontribute to mitigating the risk of potentialfraud or error as a result of changes toapplications and data. The Group has acomplex IT environment and operates a largenumber of applications, many of which arelegacy systems.

The Parent adopts a centralised approach to IT access controls, thus ourwork has been performed in conjunction with the Parent auditors.


• Controls testing:

- We obtained an understanding of the Group's IT environment havingparticular regard for developments with respect to the Group'sIntegrated IT plan.

- We evaluated the design and operating effectiveness of the controlsover the continued integrity of the IT systems that are relevant tofinancial reporting.

- We examined the design of the governance framework associated withthe Group’s IT architecture. We tested relevant general IT controls forIT applications we considered relevant to the financial reportingprocess, including access management, performance developmentand change management.

- We also tested the design, implementation and operating effectivenessof key IT application controls, including the configuration, security andaccuracy of end user computing controls.

Test of details:

- Where IT controls could not be relied upon, we conducted additionaltests of detail and where relevant, we determined whethercompensating controls were effective mitigates for any design oroperating deficiencies.

- In respect of both controls and tests of detail performed by Parentauditors, we were involved in the planning of their work, we have hadregular discussions throughout the audit and have reviewed the workthat they have performed.

Our results:

While we identified certain design and operating effectiveness deficiencieswith user access controls, the combination of our controls and substantivetesting provided us with sufficient evidence to rely on the operation of theGroup’s IT systems for the purposes of our audit.


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Materiality for the Group financialstatements as a whole was set at £8.0million (2018: £8.9 million), determinedwith reference to a benchmark of Groupprofit before tax from continuingoperations, normalised to exclude theeffects of strategic portfolio divestmentsas disclosed in the strategic report onpages 7 and 8 and notes 13 and 21 whichare non-recurring (2018: benchmark ofprofit before tax), of which it represents4.8% (2018: 5%). Materiality for the Bankfinancial statements as a whole was set at£7.6 million (2018: £8.3m), determinedwith reference to a benchmark of profitbefore tax from continuing operations,normalised to exclude the effects ofstrategic portfolio divestments asdisclosed in the strategic report on pages7 and 8 and notes 13 and 21 which arenon-recurring (2018: benchmark of profitbefore tax) of which it represents 4.9%(2018: 5%).

We agreed to report to the AuditCommittee any corrected or uncorrectedidentified misstatements exceeding £0.4million, in addition to other identified

misstatements that warranted reporting onqualitative grounds.

Of the Group’s eight reportingcomponents, we subjected three to fullscope audits for group purposes and oneto specified risk focused audit procedures.The latter were not individually financiallysignificant enough to require a full scopeaudit for Group purposes, but did presentspecific individual risks that needed to beaddressed.

The components within the scope of ourwork accounted for the percentagesillustrated below.

For the residual components, weperformed analysis at an aggregatedGroup level to re-examine our assessmentthat there were no significant risks ofmaterial misstatement within these.

The components for which we performedwork other than audits for Group reportingpurposes were not individually significantbut were included in the scope of ourGroup reporting work in order to provide

further coverage over the group's results.

The Group audit team instructedcomponent auditors as to the significantareas to be covered, including the relevantrisks detailed above and the information tobe reported back. The Group teamapproved the component materialities,which ranged from £1.9 million to £7.6million, having regard to the mix of sizeand risk profile of the Group across thecomponents. The work on two of the fourcomponents was performed bycomponent auditors and the rest,including the audit of the Bank, wasperformed by the Group team.

The Group audit team visited threecomponent auditor locations. Telephoneconference meetings were also held withthese component auditors. At these visitsand telephone conference meetings, anassessment was made of audit risk andstrategy, the findings reported to theGroup audit team were discussed in moredetail, key working papers were inspectedand any further work required by theGroup audit team was then performed bythe component auditor.

3. Our application of materiality and an overview of the scope of our audit

PBTCO

Profit before tax from continuingoperations (PBTCO)

£166 million(2018: Profit before tax, £173 million)

Group revenue

94100

94%(2018: 100%)

Group profit before taxGroup total assets

Group Materiality£8.0 million (2018: £8.9 million)

£8.0 millionWhole financial statementsmateriality (2018: £8.9 million)

£7.6 million(Largest component materiality)

Range of materiality at 4 components:£1.9–£7.6 million (2018: £2.0–£8.3 million)

£0.4 millionMisstatements reported to the auditcommittee (2018: £0.5 million)

Group materiality

Full scope for group audit purposes (2019)

Residual components (in any year)

Specified risk-focused audit procedures (2019)

Full scope for group audit purposes (2018)

Specified risk-focused audit procedures (2018)

6 6

94%(2018: 100%)

224

98%(2018: 100%)

9698

9894


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The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Bank or theGroup or to cease their operations, and as they have concluded that the Bank’s and the Group’s financial position means that this isrealistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability tocontinue as a going concern for at least a year from the date of approval of the financial statements (“the going concern period”).

Our responsibility is to conclude on the appropriateness of the Directors’ conclusions and, had there been a material uncertaintyrelated to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditionsand as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they weremade, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Group or the Bank willcontinue in operation.

In our evaluation of the Directors’ conclusions, we considered the inherent risks to the Bank’s and Group’s business model andanalysed how those risks might affect the Bank’s and Group’s financial resources or ability to continue operations over the goingconcern period. The risks that we considered most likely to adversely affect the Bank’s and Group’s available financial resources overthis period were:

• availability of funding and liquidity in the event of a market wide stress scenario including the impact of Brexit, and• impact on regulatory capital requirements in the event of an economic slowdown or recession.

As these were risks that could potentially cast significant doubt on the Bank’s and the Group's ability to continue as a going concern,we considered sensitivities over the level of available financial resources indicated by the Bank’s and Group’s financial forecasts takingaccount of reasonably possible (but not unrealistic) adverse effects that could arise from these risks individually and collectively andevaluated the achievability of the actions the Directors consider they would take to improve the position should the risks materialise.

Based on this work, we are required to report to you if we have concluded that the use of the going concern basis of accounting isinappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of atleast a year from the date of approval of the financial statements.

We have nothing to report in these respects, and we did not identify going concern as a key audit matter.

4. We have nothing to report on going concern

The Directors are responsible for the strategic report and the Directors’ report. Our opinion on the Group financial statements does notcover those reports and we do not express an audit opinion thereon.

Our responsibility is to read the strategic report and the Directors’ report and, in doing so, consider whether, based on our financialstatements audit work, the information therein is materially misstated or inconsistent with the financial statements or our auditknowledge. Based solely on that work:

• we have not identified material misstatements in those reports;• in our opinion the information given in the strategic report and the Directors’ report for the financial year is consistent with the

financial statements; and• in our opinion those reports have been prepared in accordance with the Companies Act 2006.

5. We have nothing to report on the strategic report and the Directors’ report

Under the Companies Act 2006, we are required to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been receivedfrom branches not visited by us; or

• the parent Company financial statements are not in agreement with the accounting records and returns; or• certain disclosures of Directors’ remuneration specified by law are not made; or• we have not received all the information and explanations we require for our audit.

We have nothing to report in these respects.

6. We have nothing to report on the other matters on which we are required to report by exception


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This report is made solely to the Bank’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Ouraudit work has been undertaken so that we might state to the Bank’s members those matters we are required to state to them in anauditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyoneother than the Bank and the Bank’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

8. The purpose of our audit work and to whom we owe our responsibilities

Jonathan Bingham(Senior Statutory Auditor) for and on behalf of KPMG LLP, Statutory AuditorChartered Accountants15 Canada SquareLondon, E14 5GL

2 March 2020

Directors’ responsibilitiesAs explained more fully in their statement set out on page 67, the Directors are responsible for: the preparation of the financialstatements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enablethe preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Groupand Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the goingconcern basis of accounting unless they either intend to liquidate the Group or the Bank or to cease operations, or have no realisticalternative but to do so.

Auditor’s responsibilitiesOur objectives are to obtain reasonable assurance about whether the Group financial statements as a whole are free from materialmisstatement, whether due to fraud or other irregularities (see below), or error, and to issue our opinion in an auditor’s report.Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) willalways detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities or error and areconsidered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of userstaken on the basis of the financial statements.

A fuller description of our responsibilities is provided on the FRC’s website at www.frc.org.uk/auditorsresponsibilities

Irregularities – ability to detectWe identified areas of laws and regulations that could reasonably be expected to have a material effect on the financial statementsfrom our general commercial and sector experience, through discussion with the Directors and other management (as required byauditing standards), from inspection of the Group’s regulatory and legal correspondences and discussed with the Directors and othermanagement the policies and procedures regarding compliance with laws and regulations. We communicated identified laws andregulations throughout our team and remained alert to any indications of non-compliance throughout the audit. This includedcommunication from the group to component audit teams of relevant laws and regulations identified at group level.

The potential effect of these laws and regulations on the financial statements varies considerably.

Firstly, the Group is subject to laws and regulations that directly affect the financial statements including financial reporting legislation(including related companies legislation), distributable profits legislation and taxation legislation. We assessed the extent ofcompliance with these laws and regulations as part of our procedures on the related Group financial statement items.

Secondly, the Group is subject to many other laws and regulations where the consequences of non-compliance could have a materialeffect on amounts or disclosures in the Group financial statements, for instance through the imposition of fines or litigation or the lossof the Group’s licence to operate. We identified the following areas as those most likely to have such an effect: specific areas ofregulatory capital and liquidity, conduct, money laundering, sanctions list and financial crime, recognising the financial and regulatednature of the Group’s activities. Auditing standards limit the required audit procedures to identify non-compliance with these laws andregulations to enquiry of the Directors and other management and inspection of regulatory and legal correspondence, if any. Theselimited procedures did not identify actual or suspected non-compliance.

Owing to the inherent limitations of an audit, there is an unavoidable risk that we may not have detected some material misstatementsin the Group financial statements, even though we have properly planned and performed our audit in accordance with auditingstandards. For example, the further removed non-compliance with laws and regulations (irregularities) is from the events andtransactions reflected in the Group financial statements, the less likely the inherently limited procedures required by auditing standardswould identify it. In addition, as with any audit, there remained a higher risk of non-detection of irregularities, as these may involvecollusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. We are not responsible for preventingnon-compliance and cannot be expected to detect non-compliance with all laws and regulations.

7. Respective responsibilities


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Financial Statements

Income statement (for the year ended 31 December 2019)

Group Bank

2019 2018 2019 2018 Note £m £m £m £m Interest income calculated using the effective interest method 3 624 630 653 656Interest income on finance leases and hire purchase receivables 3 82 65 - -Total interest income 706 695 653 656Interest expense 4 (225) (187) (223) (188)Net interest income 481 508 430 468Other leasing income 5 54 46 - -Other leasing expense 5 (46) (37) - -Net leasing income 8 9 - -Fee and commission income 6 95 104 95 103Fee and commission expense 6 (89) (110) (89) (109)Net trading income / (expense) 7 4 5 4 5Other operating income 8 2 9 54 72Total operating income 501 525 494 539Operating expenses 9 (317) (351) (298) (332)Operating profit before impairment charges on financial assets 184 174 196 207Net impairment losses on financial instruments 11 (40) (34) (32) (32)Operating profit 144 140 164 175Share of profit after tax of joint venture 12 30 33 - -Loss on disposal of business activities 13 (19) - (19) -Profit before taxation 155 173 145 175Taxation charge 14 (58) (22) (51) (17)Profit for the year 97 151 94 158

Statement of other comprehensive income (for the year ended 31 December 2019)

Group Bank

2019 2018 2019 2018 Note £m £m £m £m Profit for the year 97 151 94 158

Items that may be reclassified to profit or loss in subsequent periods

Net change in cash flow hedge reserve (net of tax)1 1 (17) 1 (17)Total items that may be reclassified to profit or loss in subsequent periods 1 (17) 1 (17) Items that will not be reclassified to profit or loss in subsequent periods

Net actuarial (loss) / gain on defined benefit schemes2 33 1 (1) - -Net change in revaluation reserve, net of tax 1 1 1 1Total items that will not be reclassified to profit or loss in subsequent periods 2 - 1 1 Other comprehensive expense for the year, net of tax 3 (17) 2 (16)Total comprehensive income for the year, net of tax 100 134 96 142

1 Net of tax charge £0.4 million (2018: credit £6 million).2 Net of tax £nil million (2018: £0.1 million).


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Balance sheet (as at 31 December 2019)

Group Bank

2019 2018 2019 2018 Note £m £m £m £m Assets Cash and balances at central banks 15 2,134 2,567 2,134 2,567Items in the course of collection from other banks 144 168 144 168Derivative financial instruments 16 41 32 41 32Loans and advances to banks 17 2,158 2,348 1,935 2,331Debt securities at amortised cost 18 846 915 846 915Loans and advances to customers 19 21,200 19,703 21,321 19,860Assets classified as held for sale 21 - 539 - 539Investment in subsidiaries - - 8 8Interest in joint venture 22 64 62 2 2Intangible assets and goodwill 23 48 54 9 14Property, plant and equipment 24 138 117 41 24Other assets 25 111 102 107 97Deferred tax assets 26 41 85 36 80Retirement benefit asset 33 9 8 - -Total assets 26,934 26,700 26,624 26,637 Equity and liabilities Deposits from banks 27 3,500 3,152 3,496 3,148Customer accounts 28 19,075 19,769 19,192 19,824Items in the course of transmission to other banks 95 106 95 106Derivative financial instruments 16 59 43 59 43Debt securities in issue 29 607 - 300 -Current tax liabilities 3 4 1 2Other liabilities 30 1,272 1,318 1,253 1,298 Lease liabilities 46 20 - 20 -Provisions 31 30 7 30 6Loss allowance provision on loan commitments and financial guarantees 32 3 7 3 7Subordinated liabilities 34 290 290 290 290Total liabilities 24,954 24,696 24,739 24,724 Equity Share capital 36 255 851 255 851Retained earnings 1,149 279 1,054 188Other reserves 276 574 276 574Other equity instruments 38 300 300 300 300Total equity attributable to owners of the Bank 1,980 2,004 1,885 1,913Total equity and liabilities 26,934 26,700 26,624 26,637

The financial statements on pages 76 to 164 were approved by the Board on 2 March 2020 and were signed on its behalf by:

Thomas McAreaveyDirector2 March 2020

Company Number: 07022885


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Statement of changes in equity (for the year ended 31 December 2019)

Group Bank

2019 2018 2019 2018 Note £m £m £m £m Share capital Balance at 1 January 851 851 851 851Reduction in share capital transferred to retained earnings 37 (596) - (596) -Balance at 31 December 255 851 255 851 Retained earnings Balance at 1 January 279 217 188 118Profit for the year attributable to equity holders of the Bank 97 151 94 158Dividend on ordinary shares (100) (70) (100) (70)Distribution on other equity instruments - Additional tier 1 coupon1 (24) (18) (24) (18)Transferred from share capital 37 596 - 596 -Transferred from capital redemption reserve fund 37 300 - 300 -Remeasurement of the net defined benefit pension liability 1 (1) - - Balance at 31 December 1,149 279 1,054 188

Other equity instruments Balance at 1 January 300 300 300 300Balance at 31 December 300 300 300 300 Other reserves:

Revaluation reserve - property Balance at 1 January 2 1 2 1Revaluation of property 1 1 1 1Balance at 31 December 3 2 3 2

Cash flow hedge reserveBalance at 1 January 6 23 6 23Changes in fair value 7 (11) 7 (11)Transfer to income statement (pre tax) (6) (12) (6) (12)Deferred tax on reserve movements2 - 6 - 6Balance at 31 December 7 6 7 6

Capital contribution Balance at 1 January 266 266 266 266Balance at 31 December 266 266 266 266

Capital redemption reserve fund Balance at 1 January 300 300 300 300Transferred to retained earnings 37 (300) - (300) -Balance at 31 December - 300 - 300

Total other reserves 276 574 276 574Total equity 1,980 2,004 1,885 1,913

Included in the above:Total comprehensive income attributable to owners of the Bank 100 134 96 142 Total comprehensive income for the year 100 134 96 142

1 The Additional tier 1 coupon paid to the Parent was £24 million in 2019 and 2018. The 2019 coupon is presented gross, with the related tax shown in the income statement,while the 2018 coupon is presented in equity net of the related tax of £6 million (comprising £5 million related to current tax and £1 million relating to deferred tax).

2 Deferred tax is £0.4 million for the year ended 31 December 2019.



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Consolidated cash flow statement (for the year ended 31 December 2019)

2019 2018 Note £m £m Cash flows from operating activities Profit before taxation 155 173Interest expense on subordinated liabilities and other capital instruments 4 14 13Interest expense on lease liabilities 46 1 -Depreciation and amortisation 9,18, 26 38 31Loss on disposal of business activities 13 19 -Net impairment (gains) / losses on financial instruments 11 40 34Share of results of joint venture 12 (30) (33)Net change in prepayments and interest receivable 25 - 10Net change in accruals and interest payable 30 38 9Charge for provisions 31 - 5Other non-cash items 6 10Cash flows from operating activities before changes in operatingassets and liabilities 281 252

Net change in items in the course of collection to / from banks 13 22Net change in derivative financial instruments (9) (36)Net change in loans and advances to banks 363 350Net change in loans and advances to customers including assets classified as held for sale1 (1,486) (327)Net change in deposits from banks 348 (409)Net change in customer accounts (699) 807Net change in debt securities in issue 607 -Net change in provisions (10) (11)Net change in retirement benefit obligation (1) (2)Net change in other assets and other liabilities (91) 70Net cash flow from operating assets and liabilities (965) 464

Net cash flow from operating activities before taxation (684) 716Taxation paid (14) (13)Net cash flow from operating activities (698) 703

Investing activities (section (a) - see next page) 582 78Financing activities (section (b) - see next page) (143) (107)Net change in cash and cash equivalents (259) 674

Opening cash and cash equivalents 4,314 3,640Closing cash and cash equivalents 15 4,055 4,314

1 Exclusive of the net cash proceeds on disposal of the credit cards portfolio which is presented within investing activities.


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Consolidated cash flow statement (for the year ended 31 December 2019) (continued)

2019 2018 Note £m £m (a) Investing activities Disposal of business activities 516 -Additions to debt securities at amortised cost 18 (242) (156)Disposal / redemption of debt securities at amortised cost 18 309 232Dividends received from joint venture 22 28 33Additions to intangible assets 23 (1) -Additions to property, plant and equipment 24 (46) (43)Disposal of property, plant and equipment 18 12Cash flows from investing activities 582 78 (b) Financing activities Dividend paid on ordinary shares 42 (100) (70)Additional tier 1 coupon paid 42 (24) (24)Interest paid on subordinated liabilities 4 (14) (13)Payment of lease liability 46 (5) -Cash flows from financing activities (143) (107)


Index Page

1 Accounting policies 82

2 Critical accounting estimates and

judgements 97

3 Interest income 101

4 Interest expense 101

5 Other leasing income and expense 101

6 Fee and commission income and expense 102

7 Net trading income / (expense) 103

8 Other operating income 103

9 Operating expenses 103

10 Auditors’ remuneration 104

11 Net impairment losses / (gains) on financial

instruments 104

12 Share of profit after tax of joint venture 104

13 Loss on disposal of business activities 104

14 Taxation charge 105

15 Cash and cash equivalents 105

16 Derivative financial instruments 106

17 Loans and advances to banks 111

18 Debt securities at amortised cost 111

19 Loans and advances to customers 112

20 Credit risk exposures 119

21 Assets classified as held for sale 133

22 Interest in joint venture and joint operations 133

23 Intangible assets and goodwill 134

24 Property, plant and equipment 135

Index Page

25 Other assets 138

26 Deferred tax 138

27 Deposits from banks 139

28 Customer accounts 139

29 Debt securities in issue 140

30 Other liabilities 140

31 Provisions 140

32 Loss allowance provision on loan

commitments and financial guarantees 141

33 Retirement benefit obligations 143

34 Subordinated liabilities 147

35 Contingent liabilities and commitments 147

36 Share capital 148

37 Capital restructure 148

38 Other equity instruments 148

39 Liquidity risk 149

40 Measurement basis of financial assets

and financial liabilities 150

41 Fair value of assets and liabilities 153

42 Related party transactions 156

43 Offsetting financial assets and liabilities 160

44 Interests in other entities 161

45 Transferred financial assets 162

46 Impact of adopting new accounting standard IFRS 16 ‘Leases’ 163

47 Post balance sheet events 164

48 Approval of financial statements 164

Notes to the Financial Statements

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82

1 Accounting policies

Basis of preparationThese financial statements are theconsolidated financial statements of Bankof Ireland (UK) plc (‘the Bank’) and itssubsidiaries (collectively the ‘Group’), andthe separate financial statements of theBank.

The financial statements comprise theConsolidated and Bank incomestatements, the Consolidated and Bankstatements of other comprehensiveincome, the Consolidated and Bankbalance sheets, the Consolidated andBank statements of changes in equity, theConsolidated cash flow statement and thenotes to the Consolidated and Bankfinancial statements. The financialstatements include the informationmarked as audited that is described asbeing an integral part of the auditedfinancial statements contained in sections2.1, 2.2, 2.3 and 3 of the RiskManagement Report.

The separate financial statements of theBank reflect the financial position of theBank only and do not consolidate theresults of any subsidiaries.

The consolidated financial statements ofthe Group are prepared in accordancewith International Financial ReportingStandards (IFRS) as adopted by the EUand with those parts of the CompaniesAct 2006 applicable to companiesreporting under IFRS and with theEuropean Union (Credit Institutions:Financial Statements) Regulations, 2015.

The financial statements of the Bank areprepared under FRS 101 ‘Reduceddisclosure framework’ and in accordancewith the Companies Act 2006. Inpreparing these financial statements theBank applies the recognition,measurement and disclosure requirementsof IFRS as adopted by the EU. The Bankhas applied the exemptions availableunder FRS 101 in respect of the followingdisclosures:• the requirements of IAS 7 Statement

of Cash Flows;• disclosure requirements of IAS 24 in

respect of transactions with wholly-owned subsidiaries;

• certain requirements of IAS 1‘Presentation of financial statements’;and

• the effects of new but not yet effectiveIFRSs (IAS 8).

The financial statements have been

prepared on the going concern basis, inaccordance with IFRS and IFRS ICinterpretations, as adopted for use in theEU and as applied in accordance with theprovisions of the Companies Act 2006.

The financial statements have beenprepared under the historical costconvention, as modified to include the fairvaluation of certain financial instruments.The preparation of the financialstatements in conformity with IFRS or FRS101 requires the use of estimates andassumptions that affect the reportedamounts of assets and liabilities at thedate of the financial statements and thereported amounts of revenues andexpenses during the reporting year.Although these estimates are based onmanagement’s best knowledge of theamount, event or actions, actual resultsultimately may differ from those estimates.A description of the critical estimates andjudgements is set out on pages 97 to 100.

Going concernThe time period that the Directors haveconsidered in evaluating theappropriateness of the going concernbasis in preparing the financial statementsfor the year ended 31 December 2019 is aperiod of twelve months from the date ofapproval of these financial statements(‘the period of assessment’). In makingthis assessment, the Directors consideredthe Group’s business, profitabilityprojections, liquidity, funding and capitalplans, under both base and plausiblestress scenarios, together with a range ofother factors such as the outlook for theUK economy and the impact of Brexit. TheDirectors also considered the position ofthe Bank’s parent, the Governor andCompany of the Bank of Ireland as, inaddition to being the Bank’s soleshareholder, it is a provider of significantservices to the Bank under outsourcingarrangements.The matters of primary consideration bythe Directors are set out below:

CapitalThe Group has developed capital plansunder both base and stress scenarios andthe Directors believe that the Group hassufficient capital to meet its regulatorycapital requirements throughout the periodof assessment.

Funding and liquidityThe Directors have considered theGroup’s funding and liquidity position andare satisfied that the Group has sufficient

funding and liquidity throughout the periodof assessment, including sufficientcollateral for further funding if requiredfrom the Bank of England.

The Bank’s ParentThe Bank’s Parent is its sole shareholderand provider of capital and is also a majorprovider of services under outsourcingarrangements.

The Directors note that the Court of theBank’s Parent has concluded that thereare no material uncertainties that may castsignificant doubt about the Bank of IrelandGroup’s ability to continue as a goingconcern and that it is appropriate toprepare accounts on a going concernbasis. The audit report on the financialstatements of the Bank’s Parent is notqualified and does not contain anemphasis of matter paragraph in respectof going concern.

ConclusionOn the basis of the above, the Directorsconsider it appropriate to prepare thefinancial statements on a going concernbasis having concluded that there are nomaterial uncertainties related to events orconditions that may cast significant doubton the Group’s ability to continue as agoing concern over the period ofassessment.

ComparativesComparative information has beenamended where necessary to ensureconsistency with the current period.

Adoption of new and amendedaccounting standardsThe following new standards andamendments to standards have beenadopted by the Group during the yearended 31 December 2019:• IFRS 16 ‘Leases’• International Financial Reporting

Interpretation Committee (IFRIC) 23‘Uncertainty over income taxtreatments’

• Amendment to IAS 19 ‘PlanAmendment, Curtailment orSettlement’

• Amendments to IAS 28 ‘Investmentsin associates’

• 'Interest Rate Benchmark Reform(Amendments to IFRS 9 ‘Financialinstruments’, IFRS 7 ‘Financialinstruments: Disclosures’ and IAS 39‘Financial instruments: Recognitionand measurement’)

• Annual improvements 2015-2017 -

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1 Accounting policies (continued)

These amendments include minorchanges to the following standards:- IAS 12 ‘Income Taxes’- IFRS 3 ‘Business combinations’- IFRS 11 ‘Joint arrangements’- IAS 23 ‘Borrowing costs’

The Group’s accounting policies havebeen updated for the application of theabove new and amended accountingstandards from 1 January 2019. Theupdates together with the accountingpolicies for the comparative year up to 31December 2018 are detailed below.

IFRS 16 ‘Leases’IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’and related interpretations. It addressesthe definition of a lease, recognition andmeasurement of leases and establishesprinciples for reporting useful informationto users of financial statements about theleasing activities of both lessees andlessors. A key change arising from IFRS16 is that all operating leases areaccounted for on balance sheet forlessees. The accounting for lessors hasnot materially changed. As permittedunder IFRS 16, the Group has elected toapply the standard under the modifiedretrospective application rather than fullretrospective application. Under themodified retrospective application, theGroup as a lessee has not restatedcomparative information, insteadrecognising the cumulative effect ofinitially applying the standard as anadjustment to retained earnings (£nileffect).

As permitted, the Group has availed of thefollowing exemptions:• short-term leases (lease term of 12

months or less);• leases where the lease term ends

within 12 months of the date of initialapplication;

• leases for which the underlying assetis of low value; and

• for certain computer equipment wherethe Group is lessee, it has elected notto separate the non-lease componentsand accounts for lease and non-leasecomponents as a single lease.

The Group recognises the lease paymentsassociated with those leases as anexpense on a straight line basis over thelease term.

The principal impact on the Group is inrelation to property leases that the Group,

as the lessee, previously classified asoperating leases under IAS 17. Theseinclude primary branches and officepremises. The commercial leases typicallyrun for an original period of 25 to 35 years(from inception) with five-yearly rentreviews. The majority of the rent reviewsare on an upwards only basis. Someleases also include break options. TheGroup now recognises a lease liability forthe leases measured at the present valueof the remaining lease paymentsdiscounted using the Group’s incrementalborrowing rate (IBR). The Group hasrecognised a right of use (ROU) assetequal to the lease liability, adjusted by theamounts of any prepaid or accrued leasepayments relating to that lease recognisedin the balance sheet immediately prior todate of initial application.

The effect of adoption of IFRS 16 isexplained further in note 46.

International Financial ReportingInterpretation Committee(IFRIC) 23 ‘Uncertainty over income taxtreatments’IFRIC 23 clarifies how the recognition andmeasurement requirements of IAS 12‘Income taxes’, are applied where there isuncertainty over income tax treatments.

An uncertain tax treatment is any taxtreatment applied by an entity where thereis uncertainty over whether that treatmentwill be accepted by the tax authority.IFRIC 23 applies to all aspects of incometax accounting where there is anuncertainty regarding the treatment of anitem, including taxable profit or loss, thetax bases of assets and liabilities, taxlosses and credits and tax rates.

The introduction of IFRIC 23 has noimpact on the Group’s financialstatements. The Group’s approach toaccounting for uncertain tax positionsheretofore has embodied the clarificationsoutlined in IFRIC 23. In particular, theGroup considers uncertain tax positionstogether or separately depending onwhich approach better predicts how theuncertainties will be resolved. Where theGroup concludes it is not probable that atax authority will accept its assessment ofan uncertain tax position, it reflects theeffect of the uncertainty using either the‘most likely amount’ method or the‘expected value’ method, as appropriatefor the particular uncertainty.

Amendment to IAS 19 ‘PlanAmendment, Curtailment orSettlement’This amendment requires an entity to useupdated assumptions to determine currentservice cost and net interest for theremainder of the period after a planamendment, curtailment or settlement andrecognise in profit or loss as part of pastservice cost, or a gain or loss onsettlement, any reduction in a surplus,even if that surplus was not previouslyrecognised because of the impact of theasset ceiling. The amendment does nothave any impact on the Group at 31December 2019.

Amendments to IAS 28 ‘Investments inassociates’This narrow scope amendment clarifiesthat a long term interest in an associate orjoint venture to which the equity method isnot applied should be accounted for in thefirst instance under IFRS 9.This has noimpact on the Group.

'Interest Rate Benchmark Reform(Amendments to IFRS 9, IFRS 7 and IAS39)'The IASB has issued amendments to IFRS9, IAS 39 and IFRS 7 that provide certaintemporary reliefs from applying specifichedge accounting requirements inconnection with the ongoing reform of theinterbank offered rate (IBOR). Thetemporary reliefs relate to issues affectingfinancial reporting in the period before thereplacement of an existing IBOR with analternative interest rate (pre-replacementissues) and have the effect that IBORreform should not generally cause hedgeaccounting relationships to terminate.However, any hedge ineffectivenessshould continue to be recorded in theincome statement under both IAS 39 andIFRS 9.

The main exceptions relate to:• The highly probable requirement and

reclassifying the cumulative gain orloss recognised in othercomprehensive income (OCI)Under IFRS 9 and IAS 39, a forecasttransaction designated as the hedgeditem in a cash flow hedge must meetthe “highly probable requirement”.IFRS 9 and IAS 39 also requireamounts accumulated in the cash flowhedge reserve to be reclassified toprofit or loss when the hedged futurecash flows affect profit or loss.The relief provided by the


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amendments requires an entity toassume that the existing interest ratebenchmark on which the hedged cashflows are based do not change as aresult of the IBOR reform.

• Prospective assessmentsA hedging relationship qualifies forhedge accounting only if it is expectedto be highly effective (IAS 39) or thereis an economic relationship betweenthe hedged item and the hedginginstrument (IFRS 9).Under theamendments, an entity assumes thatthe interest rate benchmark on whichthe cash flows of the hedged item,hedging instrument or hedged risk arebased is not altered by the IBORreform.

• Separately identifiable riskcomponentsIFRS 9 and IAS 39 allow entities todesignate only changes in the cashflows or fair value of an itemattributable to a specific risk (i.e. a riskcomponent) if that risk component isseparately identifiable and reliablymeasurable. Under the amendments,entities shall apply the separatelyidentifiable requirement only at theinception of a hedging relationshipand are not required to continue thisassessment over the life of the hedge.

End of applicationThe exceptions related to the highlyprobable requirement, reclassifying thecumulative gain or loss recognised in OCIand prospective assessment will apply fora limited period being the earlier of thedate when:• The uncertainty arising from IBOR

reform is no longer present; and• The hedging relationships to which the

exceptions apply are discontinued or,in the case of reclassifying thecumulative gain or loss recognised inOCI, when the entire cumulative gainor loss recognised in OCI with respectto discontinued hedging relationshiphas been reclassified to profit or loss.

The amendments apply for annualreporting periods beginning on or after 1January 2020 and earlier application ispermitted. The amendments wereendorsed by the EU in January 2020.Having made the accounting policy choiceallowed under IFRS 9 to continue to applythe hedge accounting requirements of IAS39, the Group has elected to early adoptthe interest rate benchmark reformamendments to IFRS 7 and IAS 39. The

adoption of these amendments did notresult in any adjustment to the amountspresented in the financial statements.

Annual improvements 2015-2017These amendments include:minor changes to the following standards:• Amendment to IAS 12 ‘Income Taxes’

– this amendment clarifies that theincome tax consequences ofdividends on a financial instrumentclassified as equity should berecognised according to where theprevious transactions or events thatgenerated distributable profits wererecognised. As a result at 31December 2019, the Group hasrecognised the income tax effect ofthe AT1 dividend within the incomestatement. Comparatives have notbeen restated, as the impact was notmaterial. Refer to page 78 for furtherinformation.

• IFRS 3 ‘Business combinations’ - acompany remeasures its previouslyheld interest in a joint operation whenit obtains control of the business.

• IFRS 11 ‘Joint arrangements’ - acompany does not remeasure itspreviously held interest in a jointoperation when it obtains joint controlof the business.

• IAS 23 ‘Borrowing costs’ - a companytreats as part of general borrowings,any borrowing originally made todevelop an asset when the asset isready for its intended use or sale.

Interest income and expenseInterest income and expense arerecognised in the income statement usingthe effective interest method for financialinstruments measured at amortised costand financial assets which are debtinstruments measured at fair valuethrough other comprehensive income inaccordance with IFRS 9. Interest incomeand expense from derivative financialinstruments designated as hedginginstruments are accounted for in netinterest income, in line with the underlyinghedged asset or liability. Interest in relationto derivatives not designated as hedginginstruments is included in trading income.

The effective interest method is themethod that is used in the calculation ofthe amortised cost of a financial asset orliability and in the allocation andrecognition of interest revenue or interestexpense in profit or loss over the relevantperiod. The effective interest rate is therate that exactly discounts estimatedfuture cash payments or receipts through

the expected life of the financial asset orfinancial liability to the gross carryingamount of a financial asset or to theamortised cost of a financial liability.

When calculating the effective interestrate, the Group estimates the expectedcash flows by considering all thecontractual terms of the financialinstrument (for example, prepayment,extension, call and similar options) butdoes not consider the expected creditlosses (except in accordance with IFRS 9,in the case of purchased or originatedcredit-impaired financial assets whereexpected credit losses are included in thecalculation of a ‘credit-adjusted effectiveinterest rate’). The calculation includes allfees and points paid or received betweenparties to the contract that are an integralpart of the effective interest rate,transaction costs and all other premiumsor discounts.

In the case of a financial asset that isneither credit-impaired nor a purchased ororiginated credit-impaired financial asset,interest revenue is calculated by applyingthe effective interest rate to the grosscarrying amount.

In the case of a financial asset that is not apurchased or originated credit-impairedfinancial asset but is credit-impaired at thereporting date, interest revenue iscalculated by applying the effectiveinterest rate to the amortised cost, whichis the gross carrying amount adjusted forany impairment loss allowance.

In the case of a purchased or originatedcredit-impaired financial asset, interestrevenue is recognised by applying thecredit-adjusted effective interest rate tothe amortised cost.

Where the Group revises its estimates ofpayments or receipts on a financialinstrument (excluding modifications of afinancial asset and changes in expectedcredit losses), it recalculates the grosscarrying amount of the financial asset oramortised cost of the financial liability asthe present value of the estimated futurecontractual cash flows that are discountedat the financial instrument’s originaleffective interest rate (or credit-adjustedeffective interest rate for purchased ororiginated credit-impaired financialassets). The adjustment is recognised asinterest income or expense.

ModificationsWhere the contractual cash flows of a



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financial asset are modified and themodification does not result inderecognition of the financial asset, theGroup recalculates the gross carryingamount of the financial asset as thepresent value of the modified contractualcash flows that are discounted at thefinancial asset’s original effective interestrate and recognises a modification gain orloss in the income statement. Where amodification is a forbearance measurewhich does not result in derecognition, themodification gain or loss is included in theincome statement within net impairmentgains or losses. Otherwise, themodification gain or loss is included withininterest income.

Interest income and expense excludesinterest on financial instruments at fairvalue through profit or loss which isinstead included within the fair valuemovements recognised within net tradingincome.

Fee and commission incomeThe Group accounts for fee andcommission income which is not anintegral part of the effective interest rate ofa financial instrument, when the contractwith the customer is agreed and eachparty’s rights under the contract, togetherwith the payment terms, are identified. Inaddition it must be probable that theGroup will collect the consideration towhich it is entitled. Fee and commissionincome is measured based on theconsideration specified in a contract witha customer and excludes amountscollected on behalf of third parties. TheGroup recognises revenue when ittransfers control of a product or service toa customer. Fee income on the provisionof current accounts to customers isrecognised as the service is provided.Loan syndication and arrangement feesare recognised at a point in time when theperformance obligation is completed.Other fees including interchange income,ATM fees and foreign exchange fees arerecognised on completion of thetransaction and once the Group hascompleted its performance obligationsunder the contract.

Financial assets(1) Recognition, classification and

measurement: A financial asset is recognised in thebalance sheet when, and only when,the Group becomes a party to itscontractual provisions. At initialrecognition, a financial asset is

measured at fair value (plus, in thecase of a financial asset not at fairvalue through profit or loss, directlyattributable transaction costs) and isassigned one of the followingclassifications for the purposes ofsubsequent measurement:• financial assets at amortised cost;• financial assets at fair value

through other comprehensiveincome; or

• financial assets at fair valuethrough profit or loss.

The Group determines the appropriateclassification based on the contractualcash flow characteristics of thefinancial asset and the objective of thebusiness model within which thefinancial asset is held.

In determining the business model fora group of financial assets, the Groupconsiders factors such as howperformance is evaluated andreported to key managementpersonnel; the risks that affectperformance and how they aremanaged; how managers arecompensated; and the expectedfrequency, value and timing of sales offinancial assets.

In considering the contractual cashflow characteristics of a financialasset, the Group determines whetherthe contractual terms give rise onspecified dates to cash flows that aresolely payments of principal andinterest on the principal amountoutstanding. In this context, ‘principal’is the fair value of the financial asseton initial recognition and ‘interest’ isconsideration for the time value ofmoney and for the credit riskassociated with the principal amountoutstanding during a particular periodof time and for other basic lendingrisks and costs (e.g. liquidity risk andadministrative costs), as well as profitmargin. In making the determination,the Group assesses whether thefinancial asset contains a contractualterm that could change the timing oramount of contractual cash flows suchthat it would not meet this condition.In making this assessment, the Groupconsiders contingent events, leveragefeatures, prepayment and termextensions, terms which limit theGroup’s recourse to specific assetsand features that modify considerationof the time value of money.

(a) Financial assets at amortisedcost.Debt instrumentsA debt instrument is measured,subsequent to initial recognition,at amortised cost where it meetsboth of the following conditionsand has not been designated asmeasured at fair value throughprofit or loss: • the financial asset has

contractual terms that giverise on specified dates to cashflows that are solely paymentsof principal and interest on theprincipal amount outstanding;and

• the financial asset is heldwithin a business modelwhose objective is achievedby holding financial assets tocollect contractual cash flows.

Purchases and sales of debtsecurities at amortised cost arerecognised on trade date: the dateon which the Group commits topurchase or sell the asset. Loansmeasured at amortised cost arerecognised when cash isadvanced to the borrowers.

Interest revenue using theeffective interest method isrecognised in the incomestatement. An impairment lossallowance is recognised forexpected credit losses withcorresponding impairment gainsor losses recognised in theincome statement.

(b) Financial assets at fair valuethrough other comprehensiveincomeDebt instrumentsA debt instrument is measured,subsequent to initial recognition,at fair value through othercomprehensive income where itmeets both of the followingconditions and has not beendesignated as measured at fairvalue through profit or loss:• the financial asset has

contractual terms that giverise on specified dates to cashflows that are solely paymentsof principal and interest on theprincipal amount outstanding;and

• the financial asset is held



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within a business modelwhose objective is achievedby both collecting contractualcash flows and sellingfinancial assets.

Gains and losses arising fromchanges in fair value are includedin other comprehensive income.Interest revenue using theeffective interest method andforeign exchange gains and losseson the amortised cost of thefinancial asset are recognised inthe income statement. Theimpairment loss allowance forexpected credit losses does notreduce the carrying amount but anamount equal to the allowance isrecognised in othercomprehensive income as anaccumulated impairment amount,with corresponding impairmentgains or losses recognised in theincome statement. Onderecognition, the cumulative gainor loss previously recognised inother comprehensive income isreclassified to the incomestatement.

Equity instrumentsWhere an irrevocable election hasbeen made by the Group at initialrecognition, an investment in anequity instrument that is neither‘held for trading’ nor contingentconsideration recognised by theGroup in a business combinationto which IFRS 3 ‘Businesscombinations’ applies, ismeasured at fair value throughother comprehensive income.Amounts presented in othercomprehensive income are notsubsequently transferred to profitor loss. Dividends on suchinvestments are recognised inprofit or loss unless the dividendclearly represents a recovery ofpart of the cost of the investment.

Regular way purchases and salesof financial assets measured at fairvalue through othercomprehensive income arerecognised on trade date.

(c) Financial assets at fair valuethrough profit or lossAll other financial assets aremeasured, subsequent to initialrecognition, at fair value throughprofit or loss. Financial assets at

fair value through profit or losscomprise:

Financial assets mandatorilymeasured at fair value through profitor lossFinancial assets meeting either ofthe conditions below aremandatorily measured at fair valuethrough profit or loss (other than inrespect of an equity investmentdesignated as at fair value throughother comprehensive income):• financial assets with

contractual terms that do notgive rise on specified dates tocash flows that are solelypayments of principal andinterest on the principalamount outstanding; and

• financial assets held within abusiness model whoseobjective is achieved neitherby collecting contractual cashflows nor both collectingcontractual cash flows andselling financial assets. Thisincludes financial assets heldwithin a portfolio that ismanaged and whoseperformance is evaluated on afair value basis. It furtherincludes portfolios of financialassets which are ‘held fortrading’, which includesfinancial assets acquiredprincipally for the purpose ofselling in the near term andfinancial assets that on initialrecognition are part of anidentified portfolio where thereis evidence of a recent patternof short-term profit-taking.

Financial assets designated asmeasured at fair value through profitor loss A financial asset may bedesignated at fair value throughprofit or loss only if doing soeliminates or significantly reducesmeasurement or recognitioninconsistencies (an ‘accountingmismatch’) that would otherwisearise from measuring financialassets or liabilities or recognisinggains and losses on them ondifferent bases.

Regular way purchases and salesof financial assets at fair valuethrough profit or loss arerecognised on trade date. Theyare carried on the balance sheet at

fair value, with all changes in fairvalue included in the incomestatement.

(2) ReclassificationWhen, and only when, the Groupchanges its business model formanaging financial assets, itreclassifies all affected financialassets. Reclassification is appliedprospectively from the reclassificationdate, which is the first day of the firstreporting period following the changein business model that results in thereclassification. Any previouslyrecognised gains, losses or interestare not restated.

(3) DerecognitionA financial asset is derecognisedwhen the contractual rights to thecash flows from the financial assetexpire or the Group has transferredsubstantially all the risks and rewardsof ownership. Where a modificationresults in a substantial change to thecontractual cash flows of a financialasset, it may be considered torepresent expiry of the contractualcash flows, resulting in derecognitionof the original financial asset andrecognition of a new financial asset atfair value. The Group reduces thegross carrying amount of a financialasset and the associated impairmentloss allowance when it has noreasonable expectations of recoveringa financial asset in its entirety or aportion thereof.

Impairment of financial instrumentsScopeThe Group recognises impairment lossallowances for expected credit losses(ECL) on the following categories offinancial instruments unless measured atfair value through profit or loss:• financial assets that are debt

instruments;• loan commitments; • lease receivables recognised under

IFRS 16 ‘Leases’ (IAS 17 ‘Leases’ until31 December 2018);

• financial guarantee contracts issuedand not accounted for under IFRS 4‘Insurance contracts’;

• receivables and contract assetsrecognised under IFRS 15 ‘Revenuefrom contracts with customers’.

Basis for measuring impairmentThe Group allocates financial instrumentsinto the following categories at eachreporting date to determine the



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appropriate accounting treatment.

Stage 1: 12-month ECL (not credit-impaired)These are financial instruments wherethere has not been a significant increase incredit risk since initial recognition. Animpairment loss allowance equal to 12-month ECL is recognised. This is theportion of lifetime ECL resulting fromdefault events that are possible within thenext 12 months.

Stage 2: Lifetime ECL (not credit-impaired)These are financial instruments wherethere has been a significant increase incredit risk since initial recognition butwhich are not credit-impaired. Animpairment loss allowance equal tolifetime ECL is recognised. Lifetime ECLare the ECL resulting from all possibledefault events over the expected life of thefinancial instrument.

Stage 3: Lifetime ECL (credit-impaired)These are financial instruments which arecredit-impaired at the reporting date butwere not credit-impaired at initialrecognition. An impairment loss allowanceequal to lifetime ECL is recognised.

Purchased or originated credit-impairedfinancial assetsThese are financial assets that werecredit-impaired at initial recognition. Theyare not subject to any initial impairmentloss allowance but an impairment lossallowance is subsequently recognised forthe cumulative changes in lifetime ECLsince initial recognition. A purchased ororiginated credit-impaired financial assetremains classified as such until it isderecognised, even if assessed as nolonger credit-impaired at a subsequentreporting date.

With the exception of purchased ororiginated credit-impaired financial assets,a financial instrument may migratebetween stages from one reporting date tothe next.

Significant increase in credit riskIn determining if a financial instrument hasexperienced a significant increase in creditrisk since initial recognition, the Groupassesses whether the risk of default overthe remaining expected life of the financialinstrument is significantly higher than hadbeen anticipated at initial recognition,taking into account changes inprepayment expectations where relevant.The Group uses reasonable and

supportable information available withoutundue cost or effort at the reporting date,including forward-looking information. Acombination of quantitative, qualitativeand backstop indicators are generallyapplied in making the determination. Forcertain portfolios, the Group assumes thatno significant increase in credit risk hasoccurred if credit risk is ‘low’ at thereporting date.

Credit-impaired A financial asset is credit-impaired whenone or more events that have adetrimental impact on the estimated futurecash flows have occurred. Evidence that afinancial asset is credit-impaired includesobservable data about the followingevents:(a) significant financial difficulty of the

issuer or the borrower;(b) a breach of contract, such as a default

or past due event;(c) the lender(s) of the borrower, for

economic or contractual reasonsrelating to the borrower’s financialdifficulty, having granted to theborrower a concession(s) that thelender(s) would not otherwiseconsider;

(d) it is becoming probable that theborrower will enter bankruptcy orother financial reorganisation;

(e) the disappearance of an active marketfor that financial asset because offinancial difficulties; or

(f) the purchase or origination of afinancial asset at a deep discount thatreflects the incurred credit losses.

It may not be possible to identify a singlediscrete event - instead, the combinedeffect of several events may have causedfinancial assets to become credit-impaired.

Measurement of ECL and presentationof impairment loss allowancesECL are measured in a way that reflects:(a) an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; (b) the time value of money; and (c) reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

ECLs are measured as follows:• Financial assets that are not credit-

impaired at the reporting date: the

present value of the differencebetween all contractual cash flowsdue to the Group in accordance withthe contract and all the cash flows theGroup expects to receive.

• Financial assets that are credit-impaired at the reporting date: thedifference between the gross carryingamount and the present value ofestimated future cash flows.

• Undrawn loan commitments: thepresent value difference between thecontractual cash flows that are due tothe Group if the commitment is drawnand the cash flows that the Groupexpects to receive.

• Financial guarantee contracts: theexpected payments to reimburse theholder less any amounts that theGroup expects to recover, discountedat an appropriate risk-free rate.

Expected cash flows arising from the saleon default of a loan are included in themeasurement of expected credit lossesunder IFRS 9 where the followingconditions are met:• selling the loan is one of the recovery

methods that the Group expects topursue in a default scenario;

• the Group is neither legally norpractically prevented from realising theloan using that recovery method; and

• the Group has reasonable andsupportable information upon which tobase its expectations andassumptions.

For financial assets, the discount rateused in measuring ECL is the effectiveinterest rate (or ‘credit-adjusted effectiveinterest rate’ for a purchased or originatedcredit-impaired financial asset) or anapproximation thereof. For undrawn loancommitments, it is the effective interestrate, or an approximation thereof, that willbe applied when recognising the financialasset resulting from the loan commitment.

Impairment loss allowances for ECLs arepresented in the financial statements asfollows:• Financial assets at amortised cost: as

a deduction from the gross carryingamount in the balance sheet.

• Loan commitments and financialguarantee contracts: generally, as aprovision in the balance sheet.

• Debt instruments at fair value throughother comprehensive income: anamount equal to the allowance isrecognised in other comprehensiveincome as an accumulatedimpairment amount.



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Utilisation of impairment lossallowancesThe Group reduces the gross carryingamount of a financial asset and theassociated impairment loss allowancewhen it has no reasonable expectations ofrecovering a financial asset in its entiretyor a portion thereof. Indicators that thereis no reasonable expectation of recoveryinclude the collection process having beenexhausted or it becoming clear during thecollection process that recovery will fallshort of the amount due to the Group. TheGroup considers, on a case-by-casebasis, whether enforcement action inrespect of an amount that has beenwritten off from an accounting perspectiveis or remains appropriate. Any subsequentrecoveries are included in the incomestatement as an impairment gain.

ForbearanceForbearance occurs when a borrower isgranted a concession or agreed change toa loan (‘forbearance measure’) for reasonsrelating to the actual or apparent financialstress or distress of that borrower.Forbearance has not occurred if theconcession or agreed change to a loangranted to a borrower is not related to theactual or apparent financial stress ordistress of that borrower.

Prior to any decision to grant forbearance,the Group performs an assessment of acustomer’s financial circumstances andability to repay and assesses whether theloan is credit-impaired. Where the loan iscredit-impaired, it is allocated to stage 3(unless a purchased or originated credit-impaired financial asset). If a forborne loanhas a variable interest rate, the discountrate for measuring ECL is the currenteffective interest rate determined underthe contract before the modification ofterms.

Financial assets to which forbearance hasbeen applied continue to be reported asforborne until such time as they satisfyconditions to exit forbearance in line withEBA guidance on non-performing andforborne classifications. Forborne financialassets which are not credit-impaired aregenerally allocated to stage 2.

Where the cash flows from a forborne loanare considered to have expired, theoriginal financial asset is derecognisedand a new financial asset is recognised,initially measured at fair value. Anydifference between the carrying value ofthe original financial asset and the fairvalue of the new financial asset on initial

recognition are recognised in the incomestatement. The new financial asset may beinitially allocated to stage 1 or, if credit-impaired, be categorised as a purchasedor originated credit-impaired financialasset.

Where a forbearance measure representsa modification of the contractual cashflows of a financial asset and does notresult in its derecognition, the Grouprecalculates the gross carrying amount ofthe financial asset as the present value ofthe modified contractual cash flows thatare discounted at the financial asset’soriginal effective interest rate (before anymodification of terms) and a modificationgain or loss is included in the incomestatement within net impairment gains orlosses.

Financial liabilitiesThe Group classifies its financial liabilitiesas being measured at amortised costunless it has designated liabilities at fairvalue through profit or loss or is requiredto measure liabilities mandatorily at fairvalue through profit or loss such asderivative liabilities. Financial liabilities areinitially recognised at fair value, (normallythe issue proceeds i.e. the fair value ofconsideration received) less, in the case offinancial liabilities subsequently carried atamortised cost, transaction costs. Forfinancial liabilities carried at amortisedcost, any difference between theproceeds, net of transaction costs, andthe redemption value is recognised in theincome statement using the effectiveinterest method.

When a financial liability that is measuredat amortised cost is modified withoutresulting in derecognition, a gain or loss isrecognised in profit or loss. The gain orloss is calculated as the differencebetween the original contractual cashflows and the modified contractual cashflows discounted at the original effectiveinterest rate.

A financial liability may be designated asat fair value through profit or loss onlywhen:(i) it eliminates or significantly reduces a

measurement or recognitioninconsistency (an ‘accountingmismatch’) that would otherwise arisefrom measuring assets or liabilities orrecognising the gains and losses onthem on different bases; or

(ii) a group of financial assets, financialliabilities or both is managed and itsperformance is evaluated on a fair

value basis in accordance withdocumented risk management orinvestment strategy; or

(iii) a contract contains one or moreembedded derivatives thatsignificantly changes the cash flows ofthe contract and the separation of theembedded derivative(s) is notprohibited.

The movement in own credit risk related tofinancial liabilities designated at fair valuethrough profit or loss is recorded in othercomprehensive income unless this wouldcreate or enlarge an accounting mismatchin profit or loss for the Group (in whichcase all gains or losses are recognised inprofit or loss).

Financial liabilities are derecognised whenthey are extinguished, that is when theobligation is discharged, cancelled orexpires.

Embedded derivativesAn embedded derivative is a componentof a hybrid contract that also includes anon-derivative host, with the effect thatsome of the cash flows of the combinedinstrument vary in a way similar to astand-alone derivative.

If a hybrid contract contains a host that isnot a financial asset within the scope ofIFRS 9, an embedded derivative isseparated from the host and accountedfor as a derivative if, and only if, itseconomic characteristics and risks are notclosely related to those of the host, aseparate instrument with the same termsas the embedded derivative would meetthe definition of a derivative, and thehybrid contract is not measured at fairvalue through profit or loss.

Financial guarantees A financial guarantee contract requires theissuer to make specified payments toreimburse the holder for a loss it incursbecause a specified debtor fails to makepayment when due.

Where the Group is the holder of such aguarantee and it is considered integral tothe contractual terms of the guaranteeddebt instrument(s), the guarantee is notaccounted for separately but isconsidered in the determination of theimpairment loss allowance for expectedcredit losses of the guaranteedinstrument(s).

The Group’s liability under an issuedfinancial guarantee contract is initially




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measured at fair value. The liability issubsequently measured at the higher ofthe initial measurement, less thecumulative amount of income recognisedin accordance with the principles of IFRS15, and the amount of the impairment lossallowance for expected credit lossesdetermined in accordance with therequirements of IFRS 9.

Any change in the liability is taken to theincome statement and recognised on thebalance sheet within provisions.

Where the Group issues a financial liabilitywhich contains a financial guarantee, theliability is measured at amortised costusing the effective interest method.

OffsettingFinancial assets and liabilities are offsetand the net amount reported in thebalance sheet when there is currently alegally enforceable right of set off andthere is an intention to settle on a netbasis, or realise the asset and settle theliability simultaneously. No impairmentloss allowance for expected credit lossesis recognised on a financial asset, orportion thereof, which has been offset.

Valuation of financial instrumentsThe Group recognises assets andliabilities designated at fair value throughprofit or loss and derivatives at fair valuein the balance sheet. Fair value is the pricethat would be received to sell an asset orpaid to transfer a liability in an orderlytransaction between market participantsat the measurement date in the principal,or in its absence, the most advantageousmarket to which the Group has access atthat date.

The fair values of financial assets andliabilities traded in active markets arebased on unadjusted bid and offer pricesrespectively. If an active market does notexist, the Group establishes fair valueusing valuation techniques. These includethe use of recent arm’s lengthtransactions, discounted cash flowanalysis, option pricing models and othervaluation techniques commonly used bymarket participants. To the extentpossible, these valuation techniques useobservable market data. Whereobservable data does not exist, the Groupuses estimates based on the bestinformation available.

The best evidence of the fair value of afinancial instrument at initial recognition isthe transaction price, in an arm’s length

transaction, unless the fair value of thatinstrument is evidenced by comparisonwith other observable current markettransactions in the same instrument (i.e.without modification or repackaging) orbased on a valuation technique whichuses only observable market inputs. Whensuch evidence exists, the initial valuationof the instrument may result in the Grouprecognising a profit on initial recognition.In the absence of such evidence, theinstrument is initially valued at thetransaction price. Any day one profit isdeferred and recognised in the incomestatement to the extent that it arises froma change in a factor that marketparticipants would consider in setting aprice. Straight line amortisation is usedwhere it approximates to that amount.Subsequent changes in fair value arerecognised immediately in the incomestatement without the reversal of deferredday one profits or losses. Where atransaction price in an arm’s lengthtransaction is not available, the fair valueof the instrument at initial recognition ismeasured using a valuation technique.For liabilities designated at fair valuethrough profit or loss, the fair valuesreflect changes in the Group’s own creditspread.

Transfers between levels of the fairvalue hierarchyThe Group recognises transfers betweenlevels of the fair value hierarchy at the endof the reporting period during which thechange occurred. The Group providesthese disclosures in note 41.

Group financial statements(1) Subsidiaries

Subsidiary undertakings are investees(including structured entities)controlled by the Group. The Groupcontrols an investee when it haspower over the investee, is exposed,or has rights, to variable returns fromits involvement with the investee andhas the ability to affect those returnsthrough its power over the investee.The Group reassesses whether itcontrols an investee when facts andcircumstances indicate that there arechanges to one or more elements ofcontrol. The existence and effect ofpotential voting rights are consideredwhen assessing whether the Groupcontrols an investee only if the rightsare substantive.

A structured entity is an entitydesigned so that its activities are notgoverned by way of voting rights. The

Group assesses whether it has controlover such entities by consideringfactors such as the purpose anddesign of the entity; the nature of itsrelationship with the entity; and thesize of its exposure to the variability ofreturns from the entity.

Assets, liabilities and results of allGroup undertakings have beenincluded in the Group financialstatements on the basis of financialstatements made up to the end of thefinancial period.

Business combinations Subsidiaries are consolidated from thedate on which control is transferred tothe Group and are no longerconsolidated from the date thatcontrol ceases. The Group uses theacquisition method of accounting toaccount for business combinationsother than business combinationsinvolving entities or business undercommon control. Under theacquisition method of accounting, theconsideration transferred for theacquisition of a subsidiary is the fairvalue of the assets transferred, theliabilities incurred and the equityinterests issued by the Group. Theconsideration transferred includes thefair value of any asset or liabilityresulting from a contingentconsideration arrangement.Acquisition-related costs areexpensed as incurred. Identifiableassets acquired and liabilities andcontingent liabilities assumed in abusiness combination are measuredinitially at their fair values at theacquisition date. On an acquisition-by-acquisition basis, the Grouprecognises any non-controllinginterest in the acquiree either at fairvalue or at the non-controllinginterest’s proportionate share of theacquiree’s net assets. The excess ofthe consideration transferred, theamount of any non-controlling interestin the acquiree and the acquisitiondate fair value of any previous equityinterest in the acquiree, over the fairvalue of the Group’s share of theidentifiable net assets acquired, isrecorded as goodwill.

Intercompany transactions, balancesand unrealised gains on transactionsbetween Group companies areeliminated. Unrealised losses are alsoeliminated unless the transactionprovides evidence of impairment of



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the asset transferred. Foreignexchange gains and losses whicharise on the retranslation to functionalcurrency of intercompany monetaryassets and liabilities are noteliminated.

Accounting policies of subsidiarieshave been changed, where necessary,to ensure consistency with the policiesadopted by the Group.

(2) Associates and Joint VenturesAssociates are all entities over whichthe Group has significant influence butnot control, over the entity’s financialand operating decisions, generallyaccompanying a shareholding ofbetween 20% and 50% of the votingrights.

A joint arrangement is an arrangementof which two or more parties havejoint control.

A joint venture is a joint arrangementwhereby the parties that have jointcontrol of the arrangement have rightsto the net assets of the arrangement.Those parties are called jointventurers.

Investments in associates and jointventures are accounted for by theequity method of accounting and areinitially recognised at cost.

A joint operation is a joint arrangementwhereby the parties that have jointcontrol of the arrangement have rightsto the assets, and obligations for theliabilities, relating to the arrangement.Those parties are called jointoperators.

The Group accounts for the assets,liabilities, revenues and expensesrelating to its interest in jointoperations in accordance with theIFRSs applicable to the particularassets, liabilities, revenues andexpenses.

Accounting policies of associates andjoint ventures have been changed,where necessary, to ensureconsistency with the policies adoptedby the Group.

(3) Common control transactionsA business combination involvingentities or businesses under commoncontrol is excluded from the scope of

IFRS 3: ‘Business Combinations’. Theexemption is applicable where thecombining entities or businesses arecontrolled by the same party, bothbefore and after the combination.Where such transactions occur, theGroup, in accordance with IAS 8, usesits judgement in developing andapplying an accounting policy that isrelevant and reliable. In making thisjudgement, management considersthe requirements of IFRS dealing withsimilar and related issues and thedefinitions, recognition criteria andmeasurement concepts for assets,liabilities, income and expenses in theframework. Management alsoconsiders the most recentpronouncements of other standardsetting bodies that use a similarconceptual framework to developaccounting standards, to the extentthat these do not conflict with theIFRS Framework or any other IFRS orinterpretation. Accordingly, the Groupapplies the guidance set out in FRS 6:‘Acquisitions and Mergers’ as issuedby the Accounting Standards Board.

Where a transaction meets thedefinition of a group reconstruction orachieves a similar result, predecessoraccounting is applied. The assets andliabilities of the business transferredare measured in the acquiring entity,upon initial recognition, at theirexisting book value in theconsolidated financial statements ofthe Bank of Ireland Group, asmeasured under IFRS. The Groupincorporates the results of theacquired businesses only from thedate on which the businesscombination occurs.

Similarly, where the Group acquires aninvestment in an associate or jointventure from an entity under commoncontrol with the Group, the investmentis recognised initially at its existingbook value in the consolidatedfinancial statements of the Bank ofIreland Group.

(4) SecuritisationsCertain Group undertakings enter intosecuritisation transactions in order tofinance specific loans and advancesto customers.

All financial assets continue to be heldon the Group balance sheet, and aliability recognised for the proceeds of

the funding transaction, unless:• the rights to the cash flows have

expired or been transferred;• substantially all the risks and

rewards associated with thefinancial instruments have beentransferred outside the Group, inwhich case the assets arederecognised in full; or

• a significant portion, but not all, ofthe risks and rewards have beentransferred outside the Group. Inthis case the asset isderecognised entirely if thetransferee has the ability to sell thefinancial asset. Otherwise theasset continues to be recognisedonly to the extent of the Group’scontinuing involvement.

Where the above conditions apply to afully proportionate share of all orspecifically identified cash flows, therelevant accounting treatment isapplied to that proportion of the asset.

Foreign currency translationThe consolidated financial statements ofthe Group and the financial statements ofthe Bank are presented in Sterling. Foreigncurrency transactions are translated intofunctional currency at the exchange ratesprevailing at the dates of the transactions.Foreign exchange gains and lossesresulting from the settlement of suchtransactions and from the transaction atyear end exchange rates of monetaryassets and liabilities denominated inforeign currencies are recognised in theincome statement. Translation differenceson non-monetary items, such as equitiesheld at fair value through profit or loss, arereported as part of the fair value gain orloss. Translation differences on non-monetary items such as equities,classified at fair value through othercomprehensive income, are recognised inother comprehensive income.

Operating profitOperating profit includes the Group’searnings from ongoing activities afterimpairment charges and before share ofprofit or loss on joint ventures (after tax)and loss on disposal of business activities.

Leases Identifying a leaseUnder IFRS 16, a contract is, or contains,a lease if the contract conveys the right tocontrol the use of an identified asset for aperiod of time in exchange forconsideration.




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LesseeFrom 1 January 2019, the Grouprecognises a Right of Use (RoU) asset andlease liability at the lease commencementdate. RoU assets are initially measured atcost, and subsequently measured at costless any accumulated depreciation andimpairment losses, and adjusted forcertain remeasurement of lease liabilities.The recognised RoU assets aredepreciated on a straight-line basis overthe shorter of their estimated useful livesand the lease term. RoU assets aresubject to impairment under IAS 36‘Impairment of assets’.

The Group has elected not to recogniseright-of-use assets and lease liabilities forleases of low-value assets and short-termleases. The Group recognises the leasepayments associated with these leases asan expense on a straight-line basis overthe lease term.

RoU assets, comprised of leases ofbuildings which do not meet the definitionof investment properties are presented inproperty, plant and equipment. RoUassets which meet the definition ofinvestment properties are presented withininvestment properties.

Lease liabilities are initially measured atthe present value of lease payments thatare not paid at the commencement date,discounted using the incrementalborrowing rate if the interest rate implicit inthe lease is not readily determinable.Lease payments include fixed rentalpayments. Generally, the Group uses itsincremental borrowing rate as thediscount rate. The lease liability issubsequently increased by the interestcost on the lease liability and decreasedby lease payments made. It is remeasuredif there is a change in future leasepayments, a change in the lease term, oras appropriate, a change in theassessment of whether an extensionoption is reasonably certain to beexercised or a termination option isreasonably certain not to be exercised.

When the lease liability is remeasured acorresponding adjustment is made to theROU asset and/or profit or loss, asappropriate.

The Group has applied judgement indetermining the lease term as the non-cancellable term of the lease, togetherwith any periods covered by an option toextend the lease if it is reasonably certainto be exercised, or any periods covered by

an option to terminate the lease, if it isreasonably certain not to be exercised.The assessment of whether the Group isreasonably certain to exercise suchoptions impacts the lease term, whichsignificantly affects the amount of leaseliabilities and RoU assets recognised.

Until 31 December 2018, under therequirements of IAS 17, the totalpayments made under operating leaseswere charged to the income statement ona straight line basis over the period of thelease.

When an operating lease was terminatedbefore the lease period expired, anypayment required to be made to the lessorby way of penalty was recognised as anexpense in the period in which thetermination took place.

Leases of property, plant and equipmentwhere the Group had substantially all therisks and rewards of ownership wereclassified as finance leases. Financeleases were capitalised at the lease’sinception at the lower of the fair value ofthe leased property and the present valueof the minimum lease payments.

The corresponding rental obligations, netof finance charges, were included in thelong-term payables. The interest elementof the finance costs was charged to theincome statement over the lease period soas to produce a constant periodic rate ofinterest on the remaining balance of theliability for each period.

LessorThe accounting policies under IFRS 16applicable to the Group as a lessor aregenerally the same as under IAS 17.

When assets are held under a financelease, the present value of the leasepayments is recognised as a receivable.The difference between gross receivablesand the present value of the receivable isrecognised as unearned finance income.Lease income is included within netinterest income and is recognised over theterm of the lease reflecting a constantperiodic rate of return on the netinvestment in the lease.

However, under IFRS 16, where the Groupis an intermediate lessor the subleases areclassified with reference to the RoU assetarising from the head lease, not withreference to the underlying asset. Wherethe Group continues to retain the risks andrewards of ownership as the intermediate

lessor, it retains the lease liability and theRoU asset relating to the head lease in itsbalance sheet. If the Group does notretain the risks and rewards of ownershipas the intermediate lessor, thesesubleases are deemed finance leases.During the term of the sublease, theGroup recognises both finance leaseincome on the sublease and interestexpense on the head lease.

Until 31 December 2018, the Groupapplied the following accounting policyin respect of leases in accordance withIAS 17.

LessorWhen assets are held under a financelease, the present value of the leasepayments is recognised as a receivable.The difference between the grossreceivable and the present value of thereceivable is recognised as unearnedfinance income. Lease income is includedin net interest income and is recognisedover the term of the lease reflecting aconstant periodic rate of return on the netinvestment in the lease.

A lease that does not transfer substantiallyall the risks and rewards of ownership aretreated as operating leases. The annualrentals are credited to the incomestatement on a straight-line basis over theterm of the lease. Costs incurred,including depreciation, are recognised inline with the normal depreciation policy forsimilar assets.

LesseeThe total payments made under operatingleases are charged to the incomestatement on a straight line basis over theperiod of the lease. When an operatinglease is terminated before the lease periodhas expired, any payment required to bemade to the lessor by way of penalty isrecognised as an expense in the period inwhich termination takes place.

Leases of property, plant and equipmentwhere the Group has substantially all therisks and rewards of ownership, areclassified as finance leases. Financeleases are capitalised at the lease’sinception at the lower of the fair value ofthe leased property and the present valueof the minimum lease payments. Thecorresponding rental obligations, net offinance charges, are included in long termpayables. The interest element of thefinance costs is charged to the incomestatement over the lease period so as toproduce a constant periodic rate of



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interest on the remaining balance of theliability for each period.

Sale and repurchase agreementsAssets sold subject to repurchaseagreements (repos) are retained on thebalance sheet and reclassified as pledgedassets when the transferee has the rightby contract or custom to sell or re-pledgethe collateral; the counterparty liability isincluded in deposits by banks or customeraccounts, as appropriate.

Derivative financial instrumentsand hedge accounting

The Group has made the accountingpolicy choice allowed under IFRS 9 tocontinue to apply the hedge accountingrequirements of IAS 39. Derivatives areinitially recognised at fair value on the dateon which the contract is entered into andare subsequently remeasured at their fairvalue at each reporting date. Allderivatives are carried as assets whentheir fair value is positive and as liabilitieswhen their fair value is negative.

Fair value gains or losses on derivativesare normally recognised in the incomestatement. However where they aredesignated as hedging instruments, thetreatment of the fair value gains andlosses depends on the nature of thehedging relationship.

The Group designates certain derivativesas either:(i) hedges of the exposure to changes in

the fair value of recognised assets orliabilities that is attributable to aparticular risk (fair value hedge); or

(ii) hedges of highly probable future cashflows attributable to a recognisedasset or liability, or a forecasttransaction (cash flow hedge).

Hedge accounting is applied to thesederivatives provided certain criteria aremet. The Group documents, at theinception of the transaction, therelationship between hedging instrumentsand hedged items, as well as its riskmanagement objective and strategy forundertaking various hedge transactions.The Group also documents itsassessment, both at hedge inception andon an ongoing basis, of whether thederivatives that are used in hedgingtransactions are highly effective inoffsetting changes in fair values or cashflows of hedged items. Hedgerelationships are concluded to be effectiveif the hedging instruments that are used in

hedging transactions offset the changes infair value or cashflow of the hedged itemswithin a range of 80% to 125%.

(a) Fair value hedge (micro)Changes in the fair value of derivativesthat are designated and qualify as fairvalue hedges are recorded in theincome statement, together with anychanges in the fair value of thehedged asset or liability that areattributable to the hedged risk. Thehedged item in a micro fair valuehedge is a single specified item e.g. afixed commercial loan.

If the criteria for hedge accountingcease to be met, no furtheradjustments are made to the hedgeditem for fair value changes attributableto the hedged risk. The cumulativeadjustment to the carrying amount ofa hedged item is amortised to profit orloss over the period to maturity usingthe effective interest method.

(b) Fair value hedge (macro)The hedged item in a macro fair valuehedge is a pool of assets or liabilitieswith similar risk characteristics andprofiles, such as a pool of fixed ratemortgages. Unlike micro fair valuehedge accounting, macro fair valuehedge accounting is not discontinuedif an individual asset or liability withinthe pool of hedged items is sold, solong as the overall pool of hedgeditems retains its characteristics asdocumented at inception of thehedge. In addition, hedgeeffectiveness testing is performed on aportfolio basis rather than on anindividual hedge relationship by hedgerelationship basis.

The Group also avails of the relaxedhedge accounting provisionspermitted by IAS 39 ‘FinancialInstruments: recognition andmeasurement’ as adopted by the EU.Under these provisions, the Groupapplies portfolio fair value hedgeaccounting of interest rate risk to itsdemand deposit book. The Groupresets its macro fair value hedges on amonthly basis.

If the criteria for hedge accountingcease to be met, no furtheradjustments are made to the hedgeditem for fair value changes attributableto the hedged risk. The cumulativeadjustment to the carrying amount ofa hedged item is amortised to profit or

loss over the period to maturity usingthe effective interest method.

(c) Cash flow hedgeThe effective portion of changes in thefair value of derivatives that aredesignated and qualify as cash flowhedges is recognised in othercomprehensive income. The gain orloss relating to the ineffective portionis recognised immediately in theincome statement. Amountsaccumulated in other comprehensiveincome are reclassified to the incomestatement in the periods in which thehedged item affects profit or loss.

When a hedging instrument expires oris sold, or when a hedge no longermeets the criteria for hedgeaccounting, any cumulative gain orloss existing in other comprehensiveincome at that time remains in othercomprehensive income and isrecognised in the income statementwhen the forecast transaction occurs.When a forecast transaction is nolonger expected to occur, thecumulative gain or loss that wasreported in other comprehensiveincome is immediately reclassified tothe income statement. The Groupresets its macro cash flow hedges ona monthly basis.

Property, plant and equipmentFreehold and long leasehold land andbuildings are initially recognised at cost,and subsequently are revalued annually toopen market value by independentexternal valuers. Revaluations are madewith sufficient regularity to ensure that thecarrying amount does not differ materiallyfrom the open market value at thereporting date.

Right of Use assets recognised asproperty, plant and equipment aremeasured at cost less any accumulateddepreciation and impairment losses, andadjusted for certain remeasurement oflease liabilities.

All other property, plant and equipment,including freehold and leaseholdadaptations, are stated at historical costless accumulated depreciation.

Increases in the carrying amount arisingon the revaluation of land and buildingsare recognised in other comprehensiveincome. Decreases that offset previousincreases on the same asset arerecognised in other comprehensive




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income: all other decreases are charged tothe income statement.

The Directors consider that residual valuesof freehold and long leasehold propertybased on prices prevailing at the time ofacquisition or subsequent valuation aresuch that depreciation is not material.

Depreciation is calculated on the straightline method to write down the carryingvalue of other items of property, plant andequipment to their residual values overtheir estimated useful lives as follows:• Adaptation works on freehold and

leasehold property - fifteen years, orthe remaining period of the lease; and

• Computer and other equipment -maximum of ten years.

• Motor vehicles held for leasing - overthe lease term.

• The recognised RoU assets aredepreciated on a straight-line basisover the earlier of the end of the usefullife of the RoU asset or the end of thelease term.

The assets’ residual values and usefullives are reviewed, and adjusted ifappropriate, at each reporting date.Property, plant and equipment arereviewed for impairment whenever eventsor changes in circumstances indicate thatthe carrying amount may not berecoverable. An asset’s carrying amount iswritten down immediately to itsrecoverable amount if its carrying amountis greater than its estimated recoverableamount. The estimated recoverableamount is the higher of the asset’s fairvalue less costs to sell or its value in use.

Gains and losses on the disposal ofproperty, plant and equipment aredetermined by reference to their carryingamount and are taken into account indetermining profit before tax. If the assetbeing disposed of had previously beenrevalued then any amount in othercomprehensive income relating to thatasset is reclassified directly to retainedearnings on disposal, rather than theincome statement.

Intangible assets(a) Computer software

Acquired computer software licencesare capitalised on the basis of thecosts incurred to acquire and bring touse the specific software. These costsare amortised on the basis of theexpected useful lives, which isnormally five years.

Costs associated with developing ormaintaining computer softwareprogrammes are recognised as anexpense as incurred. Costs that aredirectly associated with the productionof identifiable and unique softwareproducts controlled by the Group andwhich will probably generateeconomic benefits exceeding costsbeyond one year, are recognised asintangible assets. Direct costs includesoftware development, employeecosts and an appropriate portion ofrelevant overheads. Computersoftware development costsrecognised as assets are amortisedusing the straight line method overtheir useful lives, which is normallybetween five and ten years.

(b) Other intangible assetsOther intangible assets are carried atcost less amortisation andimpairment, if any, and are amortisedon a straight line basis over theiruseful lives which range from fiveyears to twenty years and assessedfor impairment indicators annually orwhenever events or changes incircumstances indicate that thecarrying amount may not berecoverable. If such indicators exist,the assets recoverable amount isestimated. An asset’s carrying amountis written down immediately to itsrecoverable amount if its carryingamount is greater than its estimatedrecoverable amount. The estimatedrecoverable amount is the higher ofthe asset’s fair value less costs to selland its value in use.

(c) GoodwillGoodwill represents the excess of theconsideration transferred, the amountof any non-controlling interest in theacquiree and the acquisition date fairvalue of any previous equity interest inthe acquiree over the fair value of theGroup’s share of the identifiable netassets acquired. Goodwill onacquisition of subsidiaries is includedin intangible assets.

Goodwill is tested annually forimpairment or more frequently if thereis any indication that it may beimpaired, and carried at cost lessaccumulated impairment losses.Goodwill is allocated to cashgenerating units (CGU) for the purposeof impairment testing. An impairmentloss arises if the carrying value of the

CGU exceeds the recoverableamount. The recoverable amount of aCGU is the higher of its fair value lesscosts to sell and its value in use,where the value in use is the presentvalue of the future cash flowsexpected to be derived from the CGU.

Assets and liabilities classified asheld for saleAn asset or a disposal group is classifiedas held for sale if the following conditionsare met:• its carrying amount will be recovered

principally through sale rather thancontinuing use;

• it is available for immediate sale; and• the sale is highly probable within the

next few months.

When an asset (or disposal group) isinitially classified as held for sale, it ismeasured at the lower of its carryingamount or fair value less costs to sell atthe date of classification, except fordeferred tax assets, financial assets andassets arising from employee benefits,which are measured in accordance withthe accounting policies applied to thoseassets prior to their classification as heldfor sale.

Impairment losses on initial classificationof an asset (or disposal group) as held forsale, and on subsequent remeasurementof the asset (or disposal group), arerecognised in the income statement.Increases in fair value less costs to sell ofan asset (or disposal group) that havebeen classified as held for sale arerecognised in the income statement to theextent that the increase is not in excess ofany cumulative impairment loss previouslyrecognised in respect of the asset (ordisposal group).

Impairment losses are allocated to non-current assets within the measurementscope of IFRS 5 and the amount ofimpairment losses recognised in thefinancial statements is limited to thecarrying value of those assets. Otherassets and liabilities are measured inaccordance with applicable IFRSs in bothinitial and subsequent measurement of theasset (or disposal group) held for sale. Asa result, in accordance with IFRS 5 anyimpairment losses in excess of thecarrying value of the non-current assetswithin the measurement scope of IFRS 5are not recognised until disposal.

When an asset (or disposal group) is



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classified as held for sale, amountspresented in the balance sheet for theprior period are not reclassified.Where the criteria for the classification ofan asset (or disposal group) as held forsale cease to be met, the asset (ordisposal group) is reclassified out of heldfor sale and included in the appropriatebalance sheet headings.

ProvisionsProvisions are recognised when the Grouphas a present legal or constructiveobligation as a result of past events, it isprobable that an outflow of resourcesembodying economic benefits will berequired to settle the obligation, and areliable estimate of the amount of theobligation can be made.

Provision is made for the anticipated costsof restructuring, including relatedredundancy costs, when an obligationexists. An obligation exists when theGroup has a detailed formal plan forrestructuring a business and has raisedvalid expectations in those employeesaffected by the restructuring by starting toimplement the plan or announcing its mainfeatures.

A levy payable to a Government isprovided for on the occurrence of theevent identified by the legislation thattriggers the obligation to pay the levy.

Contingent liabilities are not recognisedbut are disclosed unless the probability oftheir occurrence is remote.

Employee benefits(a) Pension obligations

The Group operates one definedbenefit scheme, the NIIB GroupLimited (1975) Pension Scheme. Inaddition, certain of the Group'semployees are members of otherBank of Ireland Group schemes, andthese are accounted for as definedcontribution schemes in the Group.The schemes are funded and theassets of the schemes are held inseparate trustee administered funds. Adefined benefit plan is a pension planthat defines an amount of pensionbenefit to be provided, usually as afunction of one or more factors suchas age, years of service orcompensation.

The asset or liability recognised in thebalance sheet in respect of definedbenefit pension plans is the present

value of the defined benefit obligationat the reporting date minus the fairvalue of plan assets. The definedbenefit obligation is calculatedannually by independent actuariesusing the projected unit credit method.The present value of the definedbenefit obligation is determined bydiscounting the estimated future cashoutflows using interest rates on highquality corporate bonds that aredenominated in the currency in whichthe benefits will be paid, and that haveterms to maturity approximating theterms of the related pension liability.

Where a plan amendment, curtailmentor settlement occurs and the netdefined benefit liability is remeasuredto determine past service cost or thegain or loss on settlement, the currentservice cost and net interest for theremainder of the period areremeasured using the sameassumptions.

Service cost and net interest on thenet defined benefit liability / (asset) arerecognised in profit or loss inoperating expenses.

Remeasurements of the net definedbenefit liability / (asset), that arerecognised in other comprehensiveincome include:• actuarial gains and losses arising

from experience adjustments andchanges in actuarial assumptions;and

• the return on plan assets,excluding amounts included in netinterest on the net defined benefitliability / (asset);

A settlement is a transaction thateliminates all further legal andconstructive obligations for part or allof the benefits provided under adefined benefit plan, other than apayment of benefits to, or on behalfof, employees that is set out in theterms of the plan and included in theactuarial assumptions.

(b) Short term employee benefitsShort term employee benefits, such assalaries and other benefits, areaccounted for on an accruals basisover the period in which theemployees’ service is rendered.

(c) Termination paymentsTermination payments are recognised

as an expense at the earlier of:• when the Group can no longer

withdraw the offer of thosebenefits; and

• when the Group recognises costsfor a restructuring that is withinthe scope of IAS 37 and involvesthe payment of terminationbenefits.

For this purpose, in relation totermination benefits for voluntaryredundancies, the Group isconsidered to be no longer able towithdraw the offer on the earlier of thefollowing dates:• when the employee accepts the

offer; and• when a restriction (e.g. a legal,

regulatory or contractualrequirement) on the Group’s abilityto withdraw the offer takes effect.

Income taxes(a) Current income tax

Income tax payable on profits isrecognised as an expense in the yearin which profits arise. Tax provisionsare provided on a transaction bytransaction basis using either the‘most likely amount’ method or the‘expected value’ method asappropriate for the particularuncertainty and by managementassessing the relative merits and risksof tax treatments assumed, taking intoaccount statutory, judicial andregulatory guidance and, whereappropriate, external advice.

A current tax provision is recognisedwhen the Group has a presentobligation as a result of a past eventand it is probable that there will be afuture outflow of funds to a fiscalauthority to settle the obligation.

(b) Deferred income taxDeferred income tax is provided in full,using the liability method, ontemporary differences arising betweenthe tax bases of assets and liabilitiesand their carrying amounts in thefinancial statements. Deferred incometax is determined using tax rates (andtax laws) that have been enacted, orsubstantively enacted, by thereporting date and are expected toapply when the related deferredincome tax asset is realised or thedeferred income tax liability is settled.The rates enacted, or substantivelyenacted, at the reporting date, are




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used to determine deferred incometax. However, the deferred income taxis not accounted for if it arises frominitial recognition of an asset or liabilityin a transaction, other than a businesscombination that at the time of thetransaction affects neither accountingnor taxable profit or loss.

The tax effects of income tax lossesavailable for carry forward arerecognised as deferred tax assets tothe extent that it is probable thatfuture taxable profit will be availableagainst which the temporarydifferences can be utilised and byreference to the expiry dates (if any) ofthe relevant unused tax losses or taxcredits. Deferred tax assets andliabilities are not discounted.Deferred income tax is provided ontemporary differences arising frominvestments in subsidiaries,associates and joint ventures, exceptwhere the timing of the reversal of thetemporary difference is controlled bythe Group and it is probable that thedifference will not reverse in theforeseeable future.

Deferred tax on items recognised inother comprehensive income is alsorecognised in other comprehensiveincome and is subsequentlyreclassified to the income statement,together with the deferred gain or loss.Income tax on items recogniseddirectly in equity is recognised directlyin equity, except for the income taxconsequences of dividends on afinancial instrument classified asequity, which are recognisedaccording to where the previoustransactions or events that generateddistributable profits were recognised.

(c) Uncertain tax positionsThe Group considers uncertain taxpositions together or separatelydepending on which approach betterpredicts how the uncertainties will beresolved. Where the Group concludesit is not probable that a tax authoritywill accept its assessment of anuncertain tax position, it reflects the

effect of the uncertainty using eitherthe ‘most likely amount’ method or the‘expected value’ method, asappropriate for the particularuncertainty.

Cash and cash equivalentsFor the purposes of the cash flowstatement, cash and cash equivalentscomprise cash in hand and balances withcentral banks and other banks, which canbe withdrawn on demand. It alsocomprises balances with an originalmaturity of less than three months.

Share capital and reservesa) Equity transaction costs

Incremental external costs directlyattributable to equity transactions,including the issue of new equitystock or options, are shown as adeduction from equity, net of tax.

(b) Dividends on ordinary sharesDividends on ordinary shares arerecognised in equity in the year inwhich they are approved by theBank’s shareholders or the Board ofDirectors, as appropriate.

(c) Cash flow hedge reserveThe cash flow hedge reserverepresents the cumulative changes infair value (net of tax) excluding anyineffectiveness of cash flow hedgingderivatives. These are transferred tothe income statement when thehedged transactions impact theGroup’s profit or loss.

(d) Capital contributionThe capital contribution is measuredas the initial amount of cash or otherassets received.

(e) Capital redemption reserve fundOn 1 May 2015, preference stock of£300 million was repurchased. On thesame date £300 million wastransferred from capital contribution tothe capital redemption reserve fund inorder to identify these reserves asnon-distributable. On 4 June 2019, theUK High Court of Justice approvedthe Board’s application to cancel the

capital redemption reserve fund andthe balance was transferred toretained earnings. See note 37.

(f) Other equity instrumentsOther equity instruments representsAdditional tier 1 securities issued bythe Group to the Parent. See note 38for details.

(g) Revaluation reserveThe revaluation reserve represents thecumulative gains and losses on therevaluation of property. Therevaluation reserve is not distributable.

CollateralThe Group enters into master nettingagreements with counterparties, to ensurethat if an event of default occurs, allamounts outstanding with thosecounterparties will be settled on a netbasis. The Group obtains collateral inrespect of customer liabilities where this isconsidered appropriate. The collateralnormally takes the form of a lien over thecustomer’s assets and gives the Group aclaim on these assets for both existingand future liabilities. The collateral is, ingeneral, not recorded on the Group’sbalance sheet.

The Group also receives collateral in theform of cash or securities in respect ofother credit instruments, such as stockborrowing contracts and derivativecontracts, in order to reduce credit risk.Collateral received in the form of cash isrecorded on the balance sheet, with acorresponding liability recognised indeposits from banks or deposits fromcustomers. Any interest payable arising isrecorded as interest expense.

In certain circumstances, the Grouppledges collateral in respect of liabilities orborrowings. Collateral pledged, in the formof securities or loans and advances,continues to be recorded on the balancesheet. Collateral placed in the form ofcash is recorded in loans and advances tobanks or customers. Any interestreceivable arising is recorded as interestincome.


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Impact of new accounting standardsThe following standards, interpretations and amendments to standards will be relevant to the Group but were not effective at 31December 2019 and have not been applied in preparing these financial statements. The Group’s initial view of the impact of theseaccounting changes is outlined below.

PronouncementIFRS 17 ‘Insurance contracts’

Nature of changeIFRS 17 replaces IFRS 4 ‘Insurance contracts’, which was introduced as an interim standard in 2004. IFRS 17 addresses the comparison problemscreated by IFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner. IFRS 17 establishes the principles for therecognition, measurement, presentation and disclosures of insurance contract liabilities, ensuring an entity provides relevant information that faithfullyrepresents those contracts.

The standard is still subject to EU endorsement.

Effective dateCurrently the effective date is for financial periods beginning on or after 1 January 2021, however the IASB have proposed delaying the mandatoryimplementation date by one year to 2022. Earlier application of the standard is permissible.

ImpactThe Group does not expect that IFRS 17 will have a material impact on the financial statements.


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2 Critical accounting estimates and judgements

In preparing the financial statements, theGroup makes estimates and assumptionsthat affect the reported amounts of assets,liabilities, revenues and expenses.Estimates and judgements are continuallyevaluated and are based on historicalexperience and other factors, includingexpectations of future events that arebelieved to be reasonable under thecircumstances. Due to the inherentuncertainty involved in estimating thelikelihood of future events, actual resultscould differ from those estimates, whichcould affect the future reported amounts ofassets and liabilities. The estimates andjudgements that have had the mostsignificant effect on the amountsrecognised in the Group’s financialstatements are set out below.

(a) Impairment loss allowance onfinancial assetsThe measurement of impairment lossallowance requires significant judgementand estimation and is dependent in largepart on complex impairment models.

In arriving at impairment loss allowances,accounting estimates which could changeand have a material influence on thequantum of impairment loss allowanceand net impairment charge within the nextfinancial year include:

• generation of forward lookingmacroeconomic scenarios andtheir probability weightings whichare used in both the assessmentof ‘significant increase in creditrisk’ and in the measurement ofimpairment loss allowances; and

• valuing property collateralincluding residential propertyprices).

Accounting judgements which couldchange and have a material influence onthe quantum of impairment loss allowanceand net impairment charge within the nextfinancial year include determining if Groupmanagement adjustments may benecessary to impairment model outputs toaddressimpairment model limitations or latebreaking events.

In the next financial year the Group will,subject to regulatory approval, implementa new definition of default to comply withEBA guidelines that are effective from nolater than 1 January 2021. The introductionof a new definition of default policy mayresult in a change in the Group’sclassification of stage 3 assets and / or theamount of impairment loss allowances.

Other key accounting estimates which arenot expected to change and materiallyinfluence the quantum of impairmentloss allowance and net impairment chargewithin the next financial year, include:

• determining the period over whichto measure ECL for uncommittedrevolving credit facilities; and

• determining timeframes torealisation and likely net saleproceeds.

Other key accounting judgements whichare not expected to change and materiallyinfluence the quantum of impairmentloss allowance and net impairment chargewithin the next financial year, include:

• the Group’s criteria for assessing ifthere has been a significantincrease in credit risk since initialrecognition such that a lossallowance for lifetime rather than 12month ECL is required;

• the selection of appropriatemethodologies and model factorsfor internal risk rating andimpairment models;

• the approximation made attransition to IFRS 9 of the residuallifetime PD expectations for most

exposures originated prior toadoption of IFRS 9; and

• selection of the most relevantmacroeconomic variables forparticular portfolios anddetermining associations betweenthose variables and modelcomponents such as Probability ofDefault (PD) and Loss Given Default(LGD).

The Group’s approach to measurement ofimpairment loss allowances and associatedmethodologies, including the keymacroeconomic variables applied at 31December 2019, is set out in the credit riskmethodologies section on pages 43 to 46.

The quantum of impairment loss allowanceis impacted by the application of threeprobability weighted future macroeconomicscenarios. The following table indicates theapproximate extent to which theimpairment loss allowance at 31 December2019, excluding Group managementadjustments, was increased by virtue ofapplying multiple scenarios rather than onlya central scenario.

The following table indicates the approximate extent to which the impairment lossallowance, excluding Group management adjustments, would be higher or lower thanreported were a 100% weighting applied to the upside and downside future macro-economic scenarios respectively:

Additional impairmentImpact of applying loss allowancemultiple scenarios Additional impairment on stage 1 and 2rather than only loss allowance financial instrumentsa centralscenario £m impact % impact £m impact % impact Residential Mortgages 1.0 4.5% 0.9 9.9%Non-property SME and Corporate 0.1 0.4% 0.1 1.2%Property & construction 0.2 1.3% 0.2 10.7%Consumer 1.1 1.4% 1.1 2.0%Total 2.4 1.6% 2.3 3.0%

Impact of applying Impact of applyingonly an upside Impact of applying a a 100% weighting or downside scenario 100% weighting to the to the rather than applying upside scenario downside scenariomultiple probabilityweighted scenarios £m impact % impact £m impact % impact Residential Mortgages (7) (30%) 28 125%Non-property SME and Corporate (1) (5%) 2 6%Property & construction (1) (6%) 1 10%Consumer (4) (6%) 6 8%Total (13) (9%) 37 25%


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2 Critical accounting estimates and judgements (continued)


The sensitivity of impairment lossallowances to stage allocation is such thata transfer of 1% of stage 1 balances at 31December 2019 to stage 2 would increasethe Group’s impairment loss allowance byapproximately £3 million.

At 31 December 2019, the impairmentloss allowance for residential mortgagesof £24 million includes a managementadjustment of £2 million.The £2 million management adjustmentfor the mortgage portfolio has beenapplied across all stages in the mortgageportfolio pending further evolution of IFRS9 impairment model methodology.

The requirement for the application of amanagement adjustment is reviewed ateach financial reporting date to assess ifthe situation requiring an adjustment in theprevious reporting date pertains andwhether additional conditions have beenidentified that may require the applicationof a new management adjustment. Ateach financial reporting date, theadequacy of the Group’s quantum ofimpairment loss allowance (including, ifrequired, any Group managementadjustment) is reviewed and consideredby the Group Audit Committee.

(b) TaxationThe taxation charge accounts for amountsdue to UK authorities, and includesestimates based on a judgement of theapplication of law and practice, in certaincases, to determine the quantification ofany liabilities arising. In arriving at suchestimates, management assesses therelative merits and risks of tax treatmentsassumed, taking into account statutory,judicial, and regulatory guidance and,where appropriate, external advice. At 31December 2019, the Group had a netdeferred tax asset of £41 million (2018:£85 million), of which £30 million (2018:£72 million) related to trading losses. Seenote 26.

A deferred tax asset is recognised to theextent that it is probable that futuretaxable profits will be available, againstwhich deductible temporary differencesand unutilised tax losses can be utilised.The recognition of a deferred tax assetrelies on management’s estimate of theprobability and sufficiency of futuretaxable profits, and the future reversals ofexisting taxable temporary differences. The most significant judgement relates tothe Group’s assessment of therecoverability of the portion of the deferredtax asset in the Bank relating to tradinglosses. Under current UK tax legislationthere is no time restriction on theutilisation of these losses.

UK legislation restricts the proportion of abank’s annual taxable profit that can beoffset by carried forward losses to 25%.This restriction significantly lengthens theperiod over which the Group could use itsUK trading losses and has beenconsidered in the context of themeasurement and recognition of thedeferred tax asset at 31 December 2019.

JudgementsThe Directors believe that the Group willbe profitable for the foreseeable future butacknowledge external challenges whichare outlined in the Strategic Report facingthe banking industry. In particular, during2019, the economic environment in whichthe Bank operates has become morechallenging, with residual Brexituncertainty, forecast continuation of alower-for-longer interest rate environmentand accelerated transformation of bankingbusiness models. The risk andimplications of these issues haveheightened significantly in 2019.

Therefore, notwithstanding the absence ofany expiry date for trading losses in theUK, but acknowledging the economic andindustry-wide headwinds have worsened

during 2019 and profit forecasts havebecome increasingly uncertain as theforecast period extends into the future, theDirectors have determined that for thepurpose of valuing its deferred tax asset,the brought forward trading losses of theBank will be limited by reference to a 10year period of projected profits from 2019.

This 10 year timescale is supported byforecast taxable profits, takes into accountthe Group’s long-term financial andstrategic plans and reflects the periodover which the Group believes it canconclude that it is probable that futuretaxable profits will be available in theBank. As a consequence, the carryingvalue of deferred tax assets relating totrading losses of the Bank has beenreduced by £40 million in the year ended31 December 2019 (31 December 2018:£nil).

There is a risk that the final taxationoutcome could be different to the amountscurrently recorded. If future profits orsubsequent forecasts differ from currentforecasts, a further adjustment may berequired to the deferred tax asset.

Sources of estimation uncertaintyTo the extent that the recognition of adeferred tax asset is dependent onsufficient future profitability, a degree ofestimation and the use of assumptions arerequired to support the conclusion that itis probable that future taxable profit will beavailable against which the unused taxlosses can be utilised. The Group’s estimate of future profitabilitytakes into consideration the impact ofboth positive and negative evidence,including historical financial performance,projections of future taxable income, theimpact of tax legislation, and futurereversals of existing taxable temporarydifferences.

The Group’s assessment of deferred tax

The following table indicates the approximate extent to which impairment loss allowances for the residential mortgage portfolios,excluding Group management adjustments, would be higher or lower than the application of a central scenario if there was animmediate change in residential property prices:

2019 Impairment Residential Residential Residential ResidentialImpact of an immediate change loss allowance property price property price property price property pricein residential property prices - Central Scenario reduction of 10% reduction of 5% increase of 10% increase of 5%compared to central scenario Impact Impact Impact Impact Impact Impact Impact Impactimpairment loss allowances £m £m % £m % £m % £m %

Residential mortgages 21 11 53% 6 30% (3) (16%) (4) (19%)


recoverability for the Bank is based onforecasts covering its five year initialplanning period. The forecast for year fiveonwards is based on the projectionswithin that fifth year of the initial planningperiod. The deferred tax recoverability ismost sensitive to the forecasts in the initialplanning period. These forecasts assumea sustainable UK market return on equityin the high single digits over the long termfor future profitability levels and a UK GDPgrowth of 1.5%. The Group’s profitabilityprojections are based on its agreedstrategic priorities of “Invest, Improve andReposition”, where the focus will be toincrease overall returns, improve costefficiencies and grow sustainable profits.

The Bank expects to recover over 50% ofthe deferred tax asset within six years ofthe balance sheet date.

(c) Impairment review of goodwill and intangible assetsGoodwill of £30 million and otherintangible assets of £10 million arose onthe acquisition of Marshall Leasing Limited(“MLL”) on 24 November 2017, as set outin note 23. Goodwill is not amortised as itis deemed to have an indefinite useful life.

The Group’s carrying value of MLL(including goodwill and other intangibleassets) has been reviewed for impairment

for the purpose of December 2019reporting and no impairment wasidentified as a result of this review.

The Group’s impairment reviews normallyestimate the recoverable amount of therelevant cash generating unit usingprojections based on the Group’s mostrecent forecasts covering an initial fiveyear period with a terminal growth rate of0% thereafter. However, for the MLLsubsidiary, given current marketuncertainty around the motor financemarket, the impairment review has beenprepared using an initial three year periodfor the MLL cash generating unit (which islinked to the average term of the leases)with a terminal growth rate of 0%thereafter. These cash flows are thendiscounted at a post tax discount rate of10%.

The Group’s strategic plan comprisesforecasts of revenue, staff costs andoverheads based on current andanticipated market conditions. Whilst the

Group operates a robust forecastingprocess, it is acknowledged that therevenue projections contain an element ofuncertainty.

The impairment review is most sensitive tothe forecast in the initial 3 year periodwhich assumes growth in the perioddriven by planned fleet increases andcontinued fleet disposal profits at historiclevels. The Group’s profitability projectionsare based on its agreed strategic prioritiesof “Invest, Improve and Reposition”,where the focus will be to increase overallreturns, improve cost efficiencies andgrow sustainable profits.

For year-end reporting the recoverableamount was calculated as 123% of thecarrying value of MLL. The table belowincludes reasonably possible changes inassumptions upon which the recoverableamount is estimated, which would lead tothe following changes in the net presentvalue of MLL:

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As part of the impairment review of goodwill, management have also carried out abreakeven sensitivity analysis which assumes a negative 4% growth rate after the intialthree year period.

Decrease in recoverable amountChange in assumption % Decrease in forecast profitability (3 year planning period) by 5% 2%Increase in discount rate by 1% 7%Decrease in growth rate 1% (post 3 years planning period) 5%


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(d) Unwind of fair value adjustments onacquired mortgagesBetween 2012 and 2014 the Groupacquired a number of tranches ofmortgages from the Parent at fairvalue. These assets were initiallyrecognised on the balance sheet atfair value plus transaction costs. Thedifferential between the initial carryingvalue of the assets and the principalbalances is considered to be a ‘fairvalue adjustment’. This fair valueadjustment is amortised to the incomestatement, as part of the effectiveinterest rate of the assets, over theirremaining expected lives. At 31December 2019, the impact of the fairvalue adjustment was to reduce thecarrying amount of loans andadvances to customers by £184million (2018: £210 million). In 2019,there was a benefit of £26 million(2018: £41 million) to the incomestatement from the unwind of, andrevisions to, the fair value adjustment.

The most significant judgementrelating to the fair value adjustmentrelates to the timing of the unwind.This requires significant managementjudgement in relation to customerrepayment assumptions whichdetermines the expected lives of therelevant loans, and therefore impactson the amount of interest incomerecognised in each financial year. Inarriving at the expected lives andhence the amount of the unwind, asensitivity analysis is carried out which

considers the impact of variousscenarios, as follows:• a reduction in the rate of

repayments, resulting in theexpected life of the buy to letmortgage portfolio increasing by 3months, would give rise to areduction in interest income of £9 million being recognised in2019; and

• an increase in the rate ofrepayments, resulting in theexpected life of the buy to letmortgage portfolio shortening by 3months, would give rise to anincrease in interest income of £9 million being recognised in2019.

(e) Effective interest rateIFRS 9 requires interest to berecognised using the effective interestrate, being the rate that exactlydiscounts estimated future cash flowsover the expected life of the financialinstrument to the net carrying amountof the financial instrument.

Adjustments to the carrying value offinancial instruments may be requiredwhen actual cash flows vary from theinitial estimation of future cash flows,with the corresponding adjustmentbeing made to the income statement.

For secured mortgage lendingmanagement model future expectedcash flows for each tranche of lending.In determining the future cash flows

management use judgement toestimate the average life curve of eachlending tranche. Managementestimate expected future payments ofinterest and capital based onexpected interest rates andredemption profiles of customersbased on previous customerbehaviour, incorporating estimates ofthe proportion of borrowers expectedto incur early redemption charges. Inparticular, a key assumption in theeffective interest rate models relates tothe length of time which borrowersremain on a reversionary rate after theend of the fixed rate period.

Management considers the estimatedlife curve to be the most significantestimate, the accuracy of which couldbe impacted by customer repaymentbehaviour being different toexpectations. Sensitivity analysisshows that a one month reduction inthe weighted average expected life ofbuy to let mortgages would give riseto an additional income statementcharge of £5 million and a reduction of0.5 months in the weighted averageexpected life of standard mortgageswould give rise to an additionalincome statement charge of £11million.

During the year, following thereassessment of the expected lives ofloans and advances to customers, acharge of £14 million was recognisedthrough interest income.


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3 Interest income

Included in interest income for the yearended 31 December 2019 is £9 million inrespect of income earned by the Groupon loans and advances to banks, relatingto amounts placed with the Parent (2018:£14 million) offset by interest on hedgingderivatives of £11 million which are also

held with the Parent (2018: £15 million).Group share of joint operation interestincome for the year ended 31 December2019 is £38 million (2018: £27 million).Refer to note 22.

In 2019, £8 million of interest incomewas recognised on credit-impairedloans and advances to customers(2018: £11 million).

In 2019, £10 million of interestincome was received on credit-impaired loans and advances tocustomers (2018: £12 million).

Interest income also includes £26 millionrelating to the unwind of, and revisions to,fair value adjustments associated withmortgages acquired from the Parent inprior years (2018: £41 million).

For the year ended 31 December 2019interest recognised on total forborneloans and advances to customers was £7million (2018: £5 million).

Finance lease and hire purchasereceivables interest income arises fromthe Northridge Finance business.

Group 2019 2018 £m £m Financial assets measured at amortised cost Loans and advances to customers 590 599Loans and advances to banks 9 14Debt securities at amortised cost 15 15Interest on hedging derivatives (11) (15)Cash and balances with central banks 21 17Interest income on financial assets measured at amortised cost 624 630 Interest income calculated using the effective interest method 624 630

Interest income on finance leases and hire purchase receivables 82 65Interest income 706 695

4 Interest expense

Included in interest expense for the yearended 31 December 2019 is £32 million inrespect of interest paid to the Parent ondeposits and subordinated liabilities(2018: £26 million).

Group share of joint operation interestexpense for the year ended 31 December2019 is £9 million (2018: £7 million). Referto note 22.

Group 2019 2018Interest expense £m £m Customer accounts 174 148Deposits from banks 33 26Subordinated liabilities 14 13Debt securities in issue 3 -Lease liabilities 1 -Interest expense 225 187

5 Other leasing income and expense

Other leasing income and expense relateto the business activities of MarshallLeasing Limited (MLL). MLL is a car andcommercial leasing and fleet managementcompany based in the UK. Other leasingexpense includes depreciation of £25million related to vehicles leased underoperating leases (2018: £21 million). Seenote 24.

Group 2019 2018 £m £m Other leasing income 54 46Other leasing expense (46) (37)Net leasing income 8 9


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6 Fee and commission income and expense

Group GB NI and GB2019 Consumer Business Banking1 Banking2 TotalFee and commission income £m £m £m Retail banking customer fees 48 29 77ATM fees 46 - 46Other fees 2 29 31

Other fees received 13 5 18Total 61 34 95

Group GB NI and GB2018 Consumer Business Banking1 Banking2 TotalFee and commission income £m £m £m Retail banking customer fees 60 33 93

ATM fees 56 - 56Other fees 4 33 37

Other fees received 7 4 11Total 67 37 104

2019 2018Amounts include: £m £m Group share of joint operation (note 22) 2 1

No impairment losses were recognised in relation to the Group’s receivables arising from contracts with customers in 2019 and 2018.

1 Great Britain (GB) Consumer Banking: offers consumer banking products through strategic partnerships with the Post Office, the AA and intermediaries.2 Northern Ireland (NI): the business includes the results of the Northern Ireland Bank of Ireland UK branch network and business centres, personal lending, together with the credit

card and mortgage portfolio and the note issuing activity in Northern Ireland. Great Britain (GB) Business Banking: includes commercial lending and retail deposits. Thecommercial lending business is undergoing a continued programme of deleveraging.

2019 2018Fee and commission expense £m £m Fee and commission expense - external 81 102Fees paid to the Parent 8 8Fee and commission expense 89 110

Amounts include: Group share of joint operation (note 22) 3 2


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8 Other operating income

Group 2019 2018 £m £m Other operating income 1 3Net gains on derecognition of financial assets measured at amortised cost 1 6Total other operating income 2 9

7 Net trading income / (expense)

Group 2019 2018Net trading income / (expense) £m £m Financial instruments held for trading 4 5Net trading income / (expense) 4 5

Amounts include: Net trading income / (expense) from the Parent (22) 33

Net trading income / (expense) from theParent primarily comprises fair valuemovements on derivatives with the Parentwhich are in fair value hedge relationships.

(a) Staff costs Staff costs of £51 million (2018: £52million) include all gross salaries,related social security costs, andpension contributions attributable tothose employees directly employed bythe Group. Gross salaries also includethose costs associated with staffseconded to the Group from the

Parent under a secondmentagreement. The monthly averagenumber of staff (direct and secondedfull time equivalents) was 661 (2018:724), of which 500 related to the Bank(2018: 568). Refer to note 42 fordetails of compensation paid to keymanagement personnel (KMP).

(b) Other administrative expenses –related partiesOther administrative expenses are thecosts incurred by the Group in relationto services provided by the Parentunder a number of service levelagreements. These comprise ofservices across a number of differentactivities and areas including, but notrestricted to, product design,manufacture, distribution andmanagement, customer service, andIT. Included in this managementcharge is the cost of a number ofemployees who carry out services forthe Group on behalf of the Parent.These employees’ employmentcontracts are with the Parent and theirremuneration is included in theParent’s financial statements. Due tothe nature of the services provided it isneither possible to ascertainseparately the element of themanagement charge that reflects theemployee staff charge, nor discloseseparately employee numbers relevantto the Group’s activities.

9 Operating expenses

Group 2019 2018Operating expenses £m £m Administrative expenses Staff costs1 (a) - Wages and salaries 39 39- Social security costs 5 5- Other pension costs2 7 8Total staff costs 51 52

- Other administrative expenses 83 73- Other administrative expenses – related parties (b) 173 219Amortisation and depreciation 10 7Total operating expenses 317 351

Amounts include: Group share of joint operation (note 22) 10 16

1 Staff costs include amounts of £32 million (2018: £33 million) for wages and salaries, £4 million (2018: £4 million) for social security costs and £5 million (2018: £6 million) forother pension costs recorded in the Bank financial statements.

2 Other pension costs include £1 million (2018: £1.2 million) in relation to the NIIB scheme which is accounted for as a defined benefit scheme (see note 33) with the balancerelating to other schemes which are accounted for on a defined contribution basis.


The Group’s Audit Committee hasreviewed the level of fees and is satisfiedthat it has not affected the independenceof the auditors. Audit related assuranceservices consist of fees in connection withaccounting matters and regulatorycompliance based work. It is the Group’spolicy to subject all major assignments toa competitive tender process.

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10 Auditors’ remuneration

Group 2019 2018 £000’s £000’s Fees payable for the audit of the Bank and Group financial statements 498 504Audit of the Bank’s subsidiaries pursuant to legislation 144 140Audit related assurance services 80 15Other assurance services 39 51Auditors’ remuneration 761 710

This represents the Group’s 50% share ofprofit after tax of its joint venture in FRESHwith Post Office Limited. It is accountedfor using the equity method of accounting.See note 22 for further information.

12 Share of profit after tax of joint venture

The loss on disposal of business activitiesreflects the sale of the Group’s consumercredit cards portfolio. The assets wereclassified as Assets held for sale up to thedate of disposal (see note 21). In July2019, the portfolio was sold for total

consideration of £521 million resulting in anet loss on disposal of £19 million. On thedate of disposal, the assets had a grosscarrying value of £528 million (gross ofECL allowance) and a net book value of£505 million (net of ECL allowance).

The net loss on disposal also includes aprovision of £34 million related to thecosts of migration and other costsassociated with the disposal.

13 Loss on disposal of business activities

Group 2019 2018 £m £m First Rate Exchange Services Holdings Limited 30 33Share of profit after tax of joint venture 30 33

11 Net impairment losses / (gains) on financial instruments

Group 2019 2018 £m £m Loans and advances to customers (note 19) 41 37- Cash recoveries (13) (9)- Movement in impairment (gains) / losses 54 46Loans and advances to banks (1) (1)Loan commitments (note 32) - (2)Guarantees and irrevocable letters of credit (note 32) - -Net impairment losses / (gains) on financial instruments 40 34

Loans and advances to customersat amortised cost

Net impairment losses / (gains)The Group’s net impairment losses /(gains) on loans and advances tocustomers at amortised cost is set out inthis table.

Group 2019 2018 £m £m Residential mortgages (3) 7Non-property SME and corporate (2) -Property and construction (2) (6)Consumer 48 36Total 41 37



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The effective tax rate for the year is acharge of 37% (2018: charge of 13%).This rate is higher than the standard rateof 19% largely due to the impact of the re-assessment of the value of tax lossescarried forward (see note 26), partly offsetby the impact of the treatment of theacquired mortgage portfolio and theresults of the joint venture FRESH.

14 Taxation charge

Group 2019 2018 £m £m Current tax Current year charge 13 19Adjustment in respect of prior year 1 (2)Total current taxation charge 14 17

Deferred tax Current year charge 3 5Adjustment in respect of prior year 1 -Re-assessment of the value of tax losses carried forward 40 Total deferred taxation charge 44 5

Taxation charge 58 22


This table shows a reconciliation of tax onthe profit before taxation, at the standardUK corporation tax rate, to the Group’sactual tax charge for the years ended 31December 2019 and 31 December 2018.

The impairment loss allowance for Group and Bank of £0.3 million (2018: £0.3 million) is related to 12 month ECL not credit-impaired.

Group 2019 2018 £m £m Profit before taxation 155 173Multiplied by the standard rate of Corporation tax in UK of 19%(2018: 19%) 29 33Effects of:Non-allowable expenses - -Share of results of joint venture after tax in the income statement (6) (6)Impact of UK banking surcharge 1 4Non-taxable income on the unwind of fair value adjustments on acquired mortgages (see page 100) (5) (8)Adjustment in respect of prior year 2 (2)Tax credit on AT1 coupon (5) -Other 2 1Re-assessment of the value of tax losses carried forward (see note 26) 40 -Taxation charge 58 22

15 Cash and cash equivalents

Group Bank

2019 2018 2019 2018Cash and cash equivalents £m £m £m £m Cash 37 29 37 29Balances at central banks 2,097 2,538 2,097 2,538Less impairment loss allowance on cash and balances at central banks - - - -Total cash balances included in cash and cash equivalents 2,134 2,567 2,134 2,567

Loans and advances to banks 2,158 2,348 1,935 2,331Less: amounts with a maturity of three months or more (237) (601) (237) (601)Total loans and advances to banks included in cash and cash equivalents 1,921 1,747 1,698 1,730

Total cash and cash equivalents 4,055 4,314 3,832 4,297

Due from the Parent 353 367 345 359


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The Group’s utilisation of objectives andpolicies in relation to managing the risksthat arise in connection with derivatives,are included in the Risk Managementsection, on pages 30 to 57. The notionalamounts of certain types of financialinstruments do not necessarily indicatethe amounts of future cash flows involvedor the current fair value of the instrumentsand, therefore, do not indicate the Group’sexposure to credit risk. The derivativeinstruments become assets or liabilities asa result of fluctuations in market rates orprices relative to their terms.

The Group holds certain derivatives withthe Parent principally for interest rate riskmanagement. The Group has applied

hedge accounting to the majority of thesederivatives, which are classified as held forhedging in the table below.

The Group also holds certain derivativesto which hedge accounting is not appliedand these are considered to be held fortrading in the table above. These primarilyinclude foreign exchange forwardcontracts with customers, with acorresponding foreign exchange contractto hedge foreign exchange risk with theParent.

As set out in the risk management policyon page 38, the Group uses nettingarrangements and collateral agreementsto reduce its exposure to credit losses. Of

the derivative assets of £41 million at 31December 2019 (2018: £32 million):• £37 million (2018: £31 million) are

available for offset against derivativeliabilities under CSA and ISDAstandard documentation. Thesetransactions do not meet the criteriaunder IAS 32 to enable the assets tobe presented net of the liabilities. At 31 December 2019 cash collateralof £15 million (2018: £2 million) wasplaced against these liabilities and isreported in Loans and advances tobanks (note 17); and

• £4 million (2018: £1 million) are notcovered under CSA and ISDAstandard documentation.

16 Derivative financial instruments

Group and Bank 2019 2018

Contract Fair values Contract Fair values notional notional amounts Assets Liabilities amounts Assets Liabilities £m £m £m £m £m £m Derivatives held for tradingForeign exchange derivatives Currency forwards 103 1 2 198 1 5Currency forwards – with the Parent 103 2 1 198 5 1Currency swaps 168 3 3 219 - 3Currency swaps - with the Parent 168 3 3 219 3 -Total foreign exchange derivatives held for trading 542 9 9 834 9 9

Interest rate derivatives Interest rate swaps - with the Parent 3,669 11 5 4,079 9 2Cross currency interest rate swaps - with the Parent 194 - - 123 - -Total interest rate derivatives held for trading 3,863 11 5 4,202 9 2Total derivatives held for trading 4,405 20 14 5,036 18 11

Derivatives held as fair value hedges Interest rate swaps - with the Parent 4,000 5 35 3,325 10 22

Derivatives held as cash flow hedges Interest rate swaps - with the Parent 4,242 16 10 3,557 4 10Total derivative assets / liabilities held for hedging 8,242 21 45 6,882 14 32Total derivative assets / liabilities 12,647 41 59 11,918 32 43



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16 Derivative financial instruments (continued)

Hedge accountingIn applying hedge accounting, the Group designates certain derivatives as hedging instruments in either fair value or cash flow hedgerelationships.

The timing of the nominal amounts (excluding those subject to a dynamic macro-hedging process) and the applicable average rateswere as follows:

Group and Bank Up to 1 1-2 2-5 >52019 year years years yearsHedging Strategy Risk Category Hedging Instrument £m £m £m £m Fair Value Hedge Interest Rate Risk Interest rate swap 83 272 225 - Average fixed interest rate 1.10 1.95 1.38 0.60 Cash Flow Hedge Interest Rate Risk Interest rate swap 633 1,760 893 956 Average fixed interest rate 1.01 0.77 0.61 1.02

Group and Bank Up to 1 1-2 2-5 >52018 year years years yearsHedging Strategy Risk Category Hedging Instrument £m £m £m £m Fair Value Hedge Interest Rate Risk Interest rate swap 238 72 382 - Average fixed interest rate 1.80 1.11 1.84 0.60 Cash Flow Hedge Interest Rate Risk Interest rate swap 853 1,499 259 946 Average fixed interest rate 0.69 0.99 1.11 1.19

Interest rate benchmark reformAt 31 December 2019, GBP LIBORrepresented the most significant IBORinterest rate benchmarks to which theGroup’s fair value and cash flow hedgerelationships of interest rate risk areexposed. It is currently expected thatSONIA (Sterling Overnight Index Average)will replace GBP LIBOR.

The Group also has a small exposure toEURIBOR. As EURIBOR has beenreformed and complies with the EUBenchmarks Regulation (BMR) under anew hybrid methodology, the Groupexpects EURIBOR to continue as abenchmark interest rate for theforeseeable future and, therefore, does notconsider interest rate hedge relationshipsof EURIBOR to be directly affected byIBOR reform as at 31 December 2019.

The process being used by the Group tomanage the transition to alternativebenchmark rates is included in the RiskManagement report on pages 30 to 57.

The Group has applied judgement inrelation to market expectations whendetermining the fair value of the hedginginstrument and the present value of theestimated cash flows of the hedged item.The key judgement is that the cash flowsfor contracts currently indexing IBOR areexpected to be broadly equivalent to thecash flows when those contractstransition to IBOR replacement rates.However, as the date of the transition getscloser, this might no longer be the case.Hedge accounting relationships impactedby IBOR reform may experience increasedineffectiveness due to the followingreasons:• Market participants’ expectations for

when the transition from the existing

IBOR benchmark rate to an alternativebenchmark interest rate may occur.This could give rise to hedgeineffectiveness in the prospectiveassessment, in particular where thereplacement of the benchmark rate isexpected to occur at different times inthe hedged item and the hedginginstrument.

• Modification to the terms of theexisting IBOR contracts that results inthe derecognition of a hedged item orthe hedging instrument. If amodification is deemed to besubstantial, the hedging instrumentand/or hedged item will be required tobe derecognised, which would implydiscontinuation of the correspondinghedge accounting relationship. Anysubsequent re-designation of suchhedge relationships may increasehedge ineffectiveness.


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1 All hedging instruments are included within derivative financial instruments on the balance sheet.2 Ineffectiveness is included within net trading income / (expense) on the income statement.3 There are no material causes of ineffectiveness in the Group’s fair value hedges.

Fair value hedgesCertain interest rate derivatives are designated as hedging instruments. These are primarily used to reduce the interest rate exposureon the Group's fixed rate financial assets and liabilities.

The amounts relating to items designated as hedging instruments and hedge ineffectiveness for the year are shown in the table below:

Group and Bank2019 Changes Nominal Carrying in value amount Nominal amount of the used for Ineffectiveness of the hedging amount of hedging instrument calculating recognised instruments the hedging hedge in profit affected by IBOR instrument Assets Liabilities ineffectiveness2,3 or loss2,3 reformRisk Category Hedging Instrument1 £m £m £m £m £m £m Interest rate risk Interest rate swaps 4,000 5 (35) (19) - 3,257Total 4,000 5 (35) (19) - 3,257

Group and Bank2018 Changes Carrying in value Nominal amount of the used for Ineffectiveness amount of hedging instrument calculating recognised the hedging hedge in profit instrument Assets Liabilities ineffectiveness2,3 or loss2,3

Risk Category Hedging Instrument1 £m £m £m £m £m Interest rate risk Interest rate swaps 3,325 10 (22) (18) -Total 3,325 10 (22) (18) -


Group and Bank

2019 Accumulated amount of fair value hedge adjustments on the hedged Changes Carrying item included in in value amount of the the carrying amount used for Remaining Line item hedged item of the hedged item calculating adjustments for on the balance hedge discontinued sheet in which the Assets Liabilities Assets Liabilities ineffectiveness hedgesRisk Category hedged item is included £m £m £m £m £m £m Interest rate risk Debt securities at amortised cost 555 - 10 - (1) - Loans and advances to customers 3,443 - 10 - (17) - Customer accounts - 70 - (1) (1) (6)Total 3,998 70 20 (1) (19) (6)


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1 All hedging instruments are included within derivative financial instruments on the balance sheet.2 Ineffectiveness is included within trading income / (expense) on the income statement.3 There are no material causes of ineffectiveness in the Group’s cash flow hedges. 4 £nil relates to amounts transferred to profit or loss for which hedge accounting was previously applied but for which hedged future cash flows are not expected to occur.

Group and Bank Changes in Amount2018 the value of reclassified Carrying Changes the hedging from the amount of the in value instrument cash flow Nominal hedging used for recognised Ineffectiveness hedge amount of instrument calculating in other recognised reserve to the hedging hedge comprehensive in profit profit or instrument Assets Liabilities ineffectiveness income or loss2,3 loss3,4

Risk Category Hedging Instruments1 £m £m £m £m £m £m £m Interest rate risk Interest rate swaps 3,557 4 10 (3) 4 1 (12)

Group and Bank

2018 Accumulated amount of fair value hedge adjustments on the hedged Changes Carrying item included in in value amount of the the carrying amount used for Remaining Line item hedged item of the hedged item calculating adjustments for on the balance hedge discontinued sheet in which the Assets Liabilities Assets Liabilities ineffectiveness hedgesRisk Category hedged item is included £m £m £m £m £m £m Interest rate risk Debt securities at amortised cost 624 - 9 - 9 - Loans and advances to customers 2,500 - (5) - 9 - Customer accounts - 235 - (1) - -Total 3,124 235 4 (1) 18 -

Cash flow hedgesThe Group designates certain interest rate derivatives in cash flow hedge relationships in order to hedge the exposure to variability infuture cash flows arising from floating rate assets.

The amounts relating to items designated as hedging instruments and hedge ineffectiveness for the year are as follows.

Group and Bank Changes in Amount Nominal 2019 Changes the value of reclassified amount Carrying in value the hedging from the of the amount of the used for instrument In- cash flow hedging Nominal hedging calculating recognised effectiveness h edge instruments amount of instrument hedge in other recognised reserve to affected the hedging in- comprehensive in profit profit or by instrument Assets Liabilities effectiveness income or loss2,3 loss3,4 IBOR reformRisk Category Hedging Instruments1 £m £m £m £m £m £m £m £m Interest rate risk Interest rate swaps 4,242 16 10 (12) 11 (1) (5) 3,660


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The amounts relating to items designated as hedged items for the period are as follows.

This table below shows a reconciliation of the movements in the cash flow hedge reserve for 2019 and 2018.

In 2019 and 2018, there were no forecast transactions to which the Group had applied hedge accounting which were no longerexpected to occur. Movements in the cash flow hedge reserve are shown in the Consolidated statement of changes in equity (seepage 78).


Group and Bank 2019 2018 Changes Changes in the hedged Remaining in the hedged Remaining risk used for Cash flow adjustments for risk used for Cash flow adjustments for calculating hedge hedge discontinued calculating hedge hedge discontinued ineffectiveness reserve hedges ineffectiveness reserve hedges £m £m £m £m £m £m Interest rate risk 11 (7) (3) 4 4 (12)Foreign exchange risk - - - - - -Total 11 (7) (3) 4 4 (12)

Group and Bank 2019 2018Cash flow hedge reserve £m £m Changes in fair value- Interest rate risk 7 (11)

Transfer to income statementInterest income - Interest rate risk - (2)Net trading income / (expense)3

- Interest rate risk (6) (10)

Deferred tax on reserve movements - 6Net change in cash flow hedge reserve 1 (17)


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Amounts due from the Parent, which areincluded within placements with otherbanks in the above table, arise fromtransactions with the Parent, whichprimarily relates to the management of theGroup's interest rate risk position.Amounts due to the Parent are alsodisclosed in note 27. From a counterpartycredit risk perspective, while these twoamounts are disclosed on a gross basis,the Group has in place a contractualMaster Netting Agreement with the Parent,

whereby, in the event of default of eitherparty, all amounts due or payable will besettled immediately on a net basis.

Represented in mandatory deposits withcentral banks is:• an amount of £1,242 million relating to

collateral with the Bank of England inrespect of notes in circulation (2018:£1,252 million). £689 million of thisrelates to non-interest bearingcollateral (2018: £726 million); and

• an amount of £64 million in relation tomandatory cash ratio deposits, whichare non-interest bearing depositsplaced with the Bank of England under the provisions of the Bank ofEngland Act 1998 (2018: £58 million).

All loans and advances to banks for Groupand Bank are stage 1.

17 Loans and advances to banks

Group Bank

2019 2018 2019 2018 £m £m £m £m Placements with other banks 853 1,039 630 1,022Mandatory deposits with central banks 1,306 1,310 1,306 1,310 2,159 2,349 1,936 2,332

Less impairment loss allowance on loans and advances to banks (1) (1) (1) (1)Loans and advances to banks at amortised cost 2,158 2,348 1,935 2,331

Loans and advances to banks at fair value through profit or loss - - -Total loans and advances to banks 2,158 2,348 1,935 2,331

Amounts include: Due from the Parent 552 930 544 923

Loans and advances to banks are classified as financial assets at amortised cost. The associated impairment loss allowance on loansand advances to banks is measured on a 12 month and lifetime ECL approach.

Group and Bank

2019 Gross carrying amount Total(before impairment loss allowance) £m Closing balance 31 December 2018 915

Additions 242Redemptions, repayments and disposals (309)Measurement reclassification and other movements (2)Gross carrying amount at 31 December 2019 846

The following table details the significantcategories of debt securities at amortisedcost.

Group Bank 2019 2018 2019 2018 £m £m £m £m Government bonds 261 415 261 415Other debt securities at amortised cost 585 500 585 500

Less impairment loss allowance - - - -Debt securities at amortised cost 846 915 846 915

18 Debt securities at amortised cost

The following table shows the movementin debt securities at amortised cost for theyear ended 31 December 2019. All debtsecurities at amortised cost were stage 1(12 month ECL not credit-impaired)throughout the year ended 31 December2019.


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19 Loans and advances to customers

Group Bank

2019 2018 2019 2018 £m £m £m £m Loans and advances to customers at amortised cost 19,101 18,079 21,452 19,982Finance leases and hire purchase receivables (see below) 2,245 1,756 - -Less impairment loss allowance on loans and advances to customers (146) (132) (131) (122)Total loans and advances to customers1 21,200 19,703 21,321 19,860

Amounts include: Share of joint operation (note 22) 632 526 632 526Due from subsidiaries - - 2,443 1,963Due from entities controlled by the Parent 6 6 6 6

Finance leases and hire purchase receivables2

Gross investment in finance leases:Not later than 1 year 695 574 - -Later than 1 year and not later than 5 years 1,733 1,321 - -Later than 5 years 7 6 - - 2,435 1,901 - -Unearned future finance income on finance leases (190) (145) - -Net investment in finance leases 2,245 1,756 - -

Not later than 1 year 641 531 - -Later than 1 year and not later than 5 years 1,598 1,220 - -Later than 5 years 6 5 - - 2,245 1,756 - -

The Group’s and the Bank’s portfolios of loans and advances to customers were classified as follows at 31 December:

1 At 31 December 2019, loans and advances to customers included £1,857 million (2018: £nil) of residential mortgage balances that had been securitised but not derecognised.Refer to note 44.

2 The Group's material finance leasing arrangements include the provision of instalment credit and leasing finance for both consumer and business customers. At 31 December2019, the accumulated allowance for uncollectable minimum lease payments receivable was £nil (2018: £nil).

Group Total loans and advances to Gross carrying amount Impairment loss customers at at amortised cost allowance amortised cost2019 £m £m £m Loans and advances to customers at amortised cost 21,346 (146) 21,200Loans and advances to customers classified as held for sale (note 21) - - -Total 21,346 (146) 21,200

Group Total loans and advances to Gross carrying amount Impairment loss customers at at amortised cost allowance amortised cost2018 £m £m £m Loans and advances to customers at amortised cost 19,835 (132) 19,703Loans and advances to customers classified as held for sale (note 21) 564 (27) 537Total 20,399 (159) 20,240


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Bank Total loans and advances to Gross carrying amount Impairment loss customers at at amortised cost allowance amortised cost2019 £m £m £m Loans and advances to customers at amortised cost 21,452 (131) 21,321Loans and advances to customers classified as held for sale (note 21) - - -Total 21,452 (131) 21,321

Bank Total loans and advances to Gross carrying amount Impairment loss customers at at amortised cost allowance amortised cost2018 £m £m £m Loans and advances to customers at amortised cost 19,982 (122) 19,860Loans and advances to customers classified as held for sale (note 21) 564 (27) 537Total 20,546 (149) 20,397

19 Loans and advances to customers (continued)

Group

31 December 2019 Non-property Commercial Residential SME and property and Gross carrying amount at amortised cost mortgages corporate construction Consumer Total(before impairment loss allowance) £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 16,178 1,157 287 2,875 20,497Stage 2 - Lifetime ECL (not credit impaired) 267 130 88 84 569Stage 3 - Lifetime ECL (credit impaired) 165 39 37 38 279Purchased / originated credit-impaired - 1 - - 1Gross carrying amount at 31 December 2019 16,610 1,327 412 2,997 21,346

31 December 2018 Non-property Commercial Residential SME and property and Gross carrying amount at amortised cost mortgages corporate construction Consumer Total(before impairment loss allowance) £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 15,397 1,112 327 2,521 19,357Stage 2 - Lifetime ECL (not credit impaired) 295 167 96 136 694Stage 3 - Lifetime ECL (credit impaired) 188 41 79 40 348Purchased / originated credit-impaired - - - - -Gross carrying amount at 31 December 2018 15,880 1,320 502 2,697 20,399

The following tables show the gross carrying amount, the movement in the gross carrying amount, impairment loss allowances andmovement in impairment loss allowances subject to 12 months and lifetime ECL on loans and advances to customers at amortisedcost (including assets classified as held for sale).


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Group

2019 Stage 1 - Stage 2 - Stage 3 - Purchased / Total 12 month ECL Lifetime ECL Lifetime ECL originated gross (not credit- (not credit- (credit- credit- carryingGross carrying amount at amortised cost impaired) impaired) impaired) impaired amount(before impairment loss allowance) £m £m £m £m £m Opening balance 1 January 2019 19,357 694 348 - 20,399

Total net transfers (121) (17) 138 - -- to 12-month ECL not credit-impaired 798 (792) (6) - -- to lifetime ECL not credit-impaired (849) 984 (135) - -- to lifetime ECL credit-impaired (70) (209) 279 - -Net changes in exposure 1,693 (59) (150) 1 1,485Impairment loss allowances utilised1 - - (42) - (42)Exchange adjustments - - - - -Measurement reclassification and other movements (432) (49) (15) - (496)Gross carrying amount at 31 December 2019 20,497 569 279 1 21,346

Group


Total net transfers (182) 23 159 - -- to 12-month ECL not credit-impaired 900 (896) (4) - -- to lifetime ECL not credit-impaired (1,010) 1,126 (116) - -- to lifetime ECL credit-impaired (72) (207) 279 - -Net changes in exposure 644 (166) (171) - 307Impairment loss allowances utilised1 - - (83) - (83)Exchange adjustments - - - - -Measurement reclassification and other movements 20 2 1 - 23Gross carrying amount at 31 December 2018 19,357 694 348 - 20,399

1 Impairment loss allowances utilised on loans and advances to customers at amortised cost during 2019 includes £18 million of contractual amounts outstanding that are stillsubject to enforcement activity.

The impact of the disposal of the consumer credit cards portfolio during the year, which was previously classified as assets held forsale, is included in “measurement reclassification and other movements” and has resulted in a reduction in gross carrying amount of£528 million and impairment loss allowance of £23 million.


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Group

31 December 2019 Non-property Commercial Residential SME and property and mortgages corporate construction Consumer TotalImpairment loss allowance £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 5 3 - 40 48Stage 2 - Lifetime ECL not credit impaired 5 3 2 17 27Stage 3 - Lifetime ECL credit impaired 14 19 12 26 71Purchased / originated credit-impaired - - - - -Impairment loss allowance at 31 December 2019 24 25 14 83 146

31 December 2018 Non-property Commercial Residential SME and property and mortgages corporate construction Consumer TotalImpairment loss allowance £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 5 3 - 34 42Stage 2 - Lifetime ECL (not credit impaired) 6 5 1 19 31Stage 3 - Lifetime ECL (credit impaired) 18 16 23 29 86Purchased / originated credit-impaired - - - - -Impairment loss allowance at 31 December 2018 29 24 24 82 159

Group

2019 Stage 1 - Stage 2 - Stage 3 - Purchased / Total 12 month ECL Lifetime ECL Lifetime ECL originated impairment (not credit- (not credit- (credit- credit- loss impaired) impaired) impaired) impaired allowanceImpairment loss allowance £m £m £m £m £m Opening balance 1 January 2019 42 31 86 - 159

Total net transfers 8 (14) 6 - -- to 12-month ECL not credit-impaired 19 (17) (2) - -- to lifetime ECL not credit-impaired (4) 15 (11) - -- to lifetime ECL credit-impaired (7) (12) 19 - -Net impairment (losses) / gains in income statement 2 18 34 - 54- Re-measurement (7) 14 74 - 81- Net changes in exposure 11 3 (44) - (30)- ECL model parameter and / or methodology changes (2) 1 4 - 3Impairment loss allowances utilised - - (42) - (42)Exchange adjustments - - - - -Measurement reclassification and other movements (4) (8) (13) - (25)Impairment loss allowance at 31 December 2019 48 27 71 - 146


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Group


Total net transfers (18) 18 - - -- to 12-month ECL not credit-impaired 12 (10) (2) - -- to lifetime ECL not credit-impaired (28) 37 (9) - -- to lifetime ECL credit-impaired (2) (9) 11 - -Net impairment (losses) / gains in income statement 26 (18) 38 - 46- Re-measurement 27 (8) 56 - 75- Net changes in exposure 9 (7) (16) - (14)- ECL model parameter and / or methodology changes (10) (3) (2) - (15)Impairment loss allowances utilised - - (84) - (84)Exchange adjustments - - - - -Measurement reclassification and other movements - (1) 5 - 4Impairment loss allowance at 31 December 2018 42 31 86 - 159


Bank

31 December 2019 Non-property Commercial Residential SME and property and Gross carrying amount at amortised cost mortgages corporate construction Consumer Total(before impairment loss allowance) £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 16,178 3,164 287 1,048 20,677Stage 2 - Lifetime ECL (not credit impaired) 267 125 88 34 514Stage 3 - Lifetime ECL (credit impaired) 165 37 37 21 260Purchased / originated credit-impaired - 1 - - 1Gross carrying amount at 31 December 2019 16,610 3,327 412 1,103 21,452

31 December 2018 Non-property Commercial Residential SME and property and Gross carrying amount at amortised cost mortgages corporate construction Consumer Total(before impairment loss allowance) £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 15,397 2,719 327 1,119 19,562Stage 2 - Lifetime ECL (not credit impaired) 295 160 96 99 650Stage 3 - Lifetime ECL (credit impaired) 188 40 79 27 334Purchased / originated credit-impaired - - - - -Gross carrying amount at 31 December 2018 15,880 2,919 502 1,245 20,546



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1 Impairment loss allowances utilised on loans and advances to customers at amortised cost during 2019 includes £15 million of contractual amounts outstanding that are stillsubject to enforcement activity.

Bank


Total net transfers (171) 17 154 - -- to 12-month ECL not credit-impaired 888 (886) (2) - -- to lifetime ECL not credit-impaired (993) 1,107 (114) - -- to lifetime ECL credit-impaired (66) (204) 270 - -Net changes in exposure 503 (162) (170) - 171Impairment loss allowances utilised1 - - (81) - (81)Exchange adjustments - - - - -Measurement reclassification and other movements 20 2 1 - 23Gross carrying amount at 31 December 2018 19,562 650 334 - 20,546

Bank


Total net transfers (102) (28) 130 - -- to 12-month ECL not credit-impaired 778 (778) - - -- to lifetime ECL not credit-impaired (821) 955 (134) - -- to lifetime ECL credit-impaired (59) (205) 264 - -Net changes in exposure 1,646 (59) (150) 1 1,438Impairment loss allowances utilised1 - - (39) - (39)Exchange adjustments - - - - -Measurement reclassification and other movements (429) (49) (15) - (493)Gross carrying amount at 31 December 2019 20,677 514 260 1 21,452


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Bank

31 December 2019 Non-property Commercial Residential SME and property and mortgages corporate construction Consumer TotalImpairment loss allowance £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 5 5 - 35 45Stage 2 - Lifetime ECL not credit impaired 5 3 2 14 24Stage 3 - Lifetime ECL credit impaired 14 18 12 18 62Purchased / originated credit-impaired - - - - -Impairment loss allowance at 31 December 2019 24 26 14 67 131

31 December 2018 Non-property Commercial Residential SME and property and mortgages corporate construction Consumer TotalImpairment loss allowance £m £m £m £m £m Stage 1 - 12 month ECL (not credit impaired) 5 4 - 32 41Stage 2 - Lifetime ECL (not credit impaired) 6 5 1 17 29Stage 3 - Lifetime ECL (credit impaired) 18 15 23 23 79Purchased / originated credit-impaired - - - - -Impairment loss allowance at 31 December 2018 29 24 24 72 149

Bank


Total net transfers 6 (14) 8 - -- to 12-month ECL not credit-impaired 16 (16) - - -- to lifetime ECL not credit-impaired (4) 15 (11) - -- to lifetime ECL credit-impaired (6) (13) 19 - -Net impairment (losses) / gains in income statement 3 16 27 - 46- Re-measurement (2) 12 67 - 77- Net changes in exposure 7 3 (44) - (34)- ECL model parameter and / or methodology changes (2) 1 4 - 3Impairment loss allowances utilised - - (38) - (38)Exchange adjustments - - - - -Measurement reclassification and other movements1 (5) (7) (14) - (26)Impairment loss allowance at 31 December 2019 45 24 62 - 131


1 Includes the disposal of credit cards in July 2019.


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Modified financial assetsThe following table provides analysis offinancial assets for which the contractualcash flows have been modified while theyhad an impairment loss allowancemeasured at an amount equal to lifetimeexpected credit loss, and where themodification did not result inderecognition.

There were no modification gains orlosses recognised during the year.


Bank


Total net transfers (19) 18 1 - -- to 12-month ECL not credit-impaired 10 (10) - - -- to lifetime ECL not credit-impaired (28) 37 (9) - -- to lifetime ECL credit-impaired (1) (9) 10 - -Net impairment (losses) / gains in income statement 28 (18) 33 - 43- Re-measurement 29 (10) 52 - 71- Net changes in exposure 8 (5) (17) - (14)- ECL model parameter and / or methodology changes (9) (3) (2) - (14)Impairment loss allowances utilised - - (81) - (81)Exchange adjustments - - - - -Measurement reclassification and other movements - (1) 5 - 4Impairment loss allowance at 31 December 2018 41 29 79 - 149

Internal credit risk ratings

PD Grade PD % Indicative external ratings 1-4 0% ≤ PD < 0.26% AAA, AA+, AA, AA-, A+, A, A-, BBB+ 5-7 0.26% ≤ PD < 1.45% BBB, BBB-, BB+, BB 8-9 1.45% ≤ PD < 3.60% BB-, B+ 10-11 3.60% ≤ PD < 100% B, Below B 12 (credit-impaired) 100% n/a

The following disclosures providequantitative information about credit riskwithin financial instruments held by theGroup. Details of the credit riskmethodologies are set out on pages 43 to46.

All disclosures for loans and advances tocustomers in this note also incorporateassets classified as held for sale (note 21).

In addition to credit risk, the primary risksaffecting the Group through its use offinancial instruments are: liquidity andfunding risk and market risk. The Group’sapproach to the management of theserisks, together with its approach to capitalmanagement, are set out in the RiskManagement Report included on pages30 to 57.

The table below illustrates the relationshipbetween the Group’s internal credit riskrating grades as used for credit riskmanagement purposes and Probability ofDefault (PD) percentages, and furtherillustrates the indicative relationship withcredit risk ratings used by external ratingagencies.

20 Credit risk exposures

2019 2018 £m £m Financial assets modified during the period- Amortised cost before modification 27 46

Financial assets modified since initial recognition- Gross carrying amount of financial assets for which ILA has changed from lifetime to 12 month ECL during theyear as at 31 December 40 28


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20 Credit risk exposures (continued)

Group

Stage 1 - Stage 2 - Stage 3 - Purchased2019 (not credit- (not credit- (credit- or originatedFinancial asset exposure by stage impaired) impaired) impaired) credit-impaired Total(before impairment loss allowance) £m £m £m £m £m Financial assets measured at amortised cost Loans and advances to customers 20,497 569 279 1 21,346Loans and advances to banks 2,159 - - - 2,159Debt securities 846 - - - 846Other financial assets1 2,278 - - - 2,278Total financial assets measured at amortised cost 25,780 569 279 1 26,629Total 25,780 569 279 1 26,629

Group

Stage 1 - Stage 2 - Stage 3 - Purchased2018 (not credit- (not credit- (credit- or originatedFinancial asset exposure by stage impaired) impaired) impaired) credit-impaired Total(before impairment loss allowance) £m £m £m £m £m Financial assets measured at amortised cost

Loans and advances to customers 19,357 694 348 - 20,399Loans and advances to banks 2,349 - - - 2,349Debt securities 915 - - - 915Other financial assets1 2,736 - - - 2,736Total financial assets measured at amortised cost 25,357 694 348 - 26,399

Total 25,357 694 348 - 26,399

Financial assetsComposition and risk profileThe table below summarises the composition and risk profile of the Group’s financial assets subject to impairment.

1 At 31 December 2019, other financial assets includes cash and balances at central banks and items in the course of collection from other banks.


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Bank

Stage 1 - Stage 2 - Stage 3 - Purchased2019 (not credit- (not credit- (credit- or originatedFinancial asset exposure by stage impaired) impaired) impaired) credit-impaired Total(before impairment loss allowance) £m £m £m £m £m Financial assets measured at amortised cost Loans and advances to customers 20,677 514 260 1 21,452Loans and advances to banks 1,936 - - - 1,936Debt securities 846 - - - 846Other financial assets1 2,278 - - - 2,278Total financial assets measured at amortised cost 25,737 514 260 1 26,512Total 25,737 514 260 1 26,512

Bank

Stage 1 - Stage 2 - Stage 3 - Purchased2018 (not credit- (not credit- (credit- or originatedFinancial asset exposure by stage impaired) impaired) impaired) credit-impaired Total(before impairment loss allowance) £m £m £m £m £m Financial assets measured at amortised cost Loans and advances to customers 19,562 650 334 - 20,546Loans and advances to banks 2,332 - - - 2,332Debt securities 915 - - - 915Other financial assets1 2,736 - - - 2,736Total financial assets measured at amortised cost 25,545 650 334 - 26,529Total 25,545 650 334 - 26,529

1 At 31 December 2019, other financial assets includes cash and balances at central banks and items in the course of collection from other banks.

Impairment loss allowanceThe impairment loss allowance on financial assets is set out in the tables below.

Group

Stage 1 - Stage 2 - Stage 3 - Purchased2019 (not credit- (not credit- (credit- or originatedImpairment loss allowance impaired) impaired) impaired) credit-impaired Totalon financial assets £m £m £m £m £m Financial assets measured at amortised cost Loans and advances to customers 48 27 71 - 146Loans and advances to banks 1 - - - 1Debt securities - - - - -Other financial assets - - - - -Total financial assets measured at amortised cost 49 27 71 - 147Total net impairment loss allowance on financial assets 49 27 71 - 147


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Group


Bank


Bank

Stage 1 - Stage 2 - Stage 3 - Purchased2018 (not credit- (not credit- (credit- or originatedImpairment loss allowance impaired) impaired) impaired) credit-impaired Totalon financial assets £m £m £m £m £m Financial assets measured at amortised cost

Loans and advances to customers 41 29 79 - 149Loans and advances to banks 1 - - - 1Debt securities - - - - -Other financial assets - - - - -Total financial assets measured at amortised cost 42 29 79 - 150Total net impairment loss allowance on financial assets 42 29 79 - 150



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Loans and advances to customers at amortised costComposition and risk profileThe table below summarises the composition and risk profile of the Group’s loans and advances to customers at amortised cost. In thetables for the Bank, balances with its subsidiaries, primarily Northridge Finance and Marshall Leasing, are included within the non-property SME and corporate portfolio.

Group

2019Loans and advances to customers Not credit- Credit- TotalComposition and risk profile impaired impaired (before impairment loss allowance) £m £m £m % Residential mortgages 16,445 165 16,610 78%Non-property SME and corporate 1,287 40 1,327 6%Commercial property and construction 375 37 412 2%Consumer 2,959 38 2,997 14%Total 21,066 280 21,346 100%

Impairment loss allowance on loans and advances to customers 75 71 146 100%

Bank



Group





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Bank




Group2019 Stage 1 Stage 2

Impairment Impairment loss lossNot credit-impaired loans Loans as Impairment allowance Loans as Impairment allowanceand advances to customers % of total loss as % of % of total loss as % ofComposition and impairment Loans advances allowance loans Loans advances allowance loansloss allowance £m % £m % £m % £m % Residential mortgages 16,178 76% 5 0.03% 267 1% 5 1.87%Non-property SME and corporate 1,157 5% 3 0.26% 130 1% 3 2.31%Commercial property and construction 287 1% - - 88 - 2 2.27%Consumer 2,875 14% 40 1.39% 84 - 17 20.24%Total 20,497 96% 48 0.23% 569 2% 27 4.75%

Group2018 Stage 1 Stage 2

Impairment Impairment loss lossNot credit-impaired loans Loans as Impairment allowance Loans as Impairment allowanceand advances to customers % of total loss as % of % of total loss as % ofComposition and impairment Loans advances allowance loans Loans advances allowance loansloss allowance £m % £m % £m % £m % Residential mortgages 15,397 75% 5 0.03% 295 1% 6 2.03%Non-property SME and corporate 1,112 5% 3 0.27% 167 1% 5 2.99%Commercial property and construction 327 2% - - 96 - 1 1.04%Consumer 2,521 12% 34 1.35% 136 1% 19 13.97%Total 19,357 94% 42 0.22% 694 3% 31 4.47%

Asset quality - not credit-impairedThe table below summarises the composition and impairment loss allowance of the Group’s loans and advances to customers that arenot credit-impaired.



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Bank2019 Stage 1 Stage 2

Impairment Impairment loss lossNot credit-impaired loans Loans as Impairment allowance Loans as Impairment allowanceand advances to customers % of total loss as % of % of total loss as % ofComposition and impairment Loans advances allowance loans Loans advances allowance loansloss allowance £m % £m % £m % £m % Residential mortgages 16,178 75% 5 0.03% 267 1% 5 1.87%Non-property SME and corporate 3,164 15% 5 0.16% 125 1% 3 2.40% Commercial property and construction 287 1% - - 88 - 2 2.27%Consumer 1,048 5% 35 3.34% 34 - 14 41.18%Total 20,677 96% 45 0.22% 514 2% 24 4.67%

Bank2018 Stage 1 Stage 2

Impairment Impairment loss lossNot credit-impaired loans Loans as Impairment allowance Loans as Impairment allowanceand advances to customers % of total loss as % of % of total loss as % ofComposition and impairment Loans advances allowance loans Loans advances allowance loansloss allowance £m % £m % £m % £m % Residential mortgages 15,397 75% 5 0.03% 295 1% 6 2.03%Non-property SME and corporate 2,719 13% 4 0.15% 160 1% 5 3.13%Commercial property and construction 327 2% - - 96 - 1 1.04%Consumer 1,119 5% 32 2.86% 99 1% 17 17.17%Total 19,562 95% 41 0.21% 650 3% 29 4.46%



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The table below provides analysis of the asset quality of loans and advances to customers at amortised cost that are not credit-impaired based on mapping the IFRS 9 twelve month probability of default (PD) of each loan to a PD grade based on the tableprovided on page 119.

Group2019 Non-property Commercial Residential SME and property andNot credit-impaired loans and mortgages corporate construction Consumer Totaladvances to customers Asset quality - PD grade £m % £m % £m % £m % £m % Stage 11-4 7,081 43% 278 22% 115 31% 8 - 7,482 35%5-7 8,365 51% 383 30% 158 42% - - 8,906 42%8-9 519 3% 484 37% 14 4% 1,818 61% 2,835 14%10-11 213 1% 12 1% - - 1,049 36% 1,274 6%Total Stage 1 16,178 98% 1,157 90% 287 77% 2,875 97% 20,497 97%

Stage 21-4 14 - 4 - 4 1% - - 22 -5-7 40 - 60 5% 36 10% - - 136 1%8-9 18 - 27 2% 19 5% - - 64 -10-11 195 2% 39 3% 29 7% 84 3% 347 2%Total Stage 2 267 2% 130 10% 88 23% 84 3% 569 3%

Not credit-impaired1-4 7,095 43% 282 22% 119 32% 8 - 7,504 35%5-7 8,405 51% 443 35% 194 52% - - 9,042 43%8-9 537 3% 511 39% 33 9% 1,818 61% 2,899 14%10-11 408 3% 51 4% 29 7% 1,133 39% 1,621 8%Total not credit-impaired 16,445 100% 1,287 100% 375 100% 2,959 100% 21,066 100%

Group2018 Non-property Commercial Residential SME and property andNot credit-impaired loans and mortgages corporate construction Consumer Totaladvances to customers Asset quality - PD grade £m % £m % £m % £m % £m % Stage 11-4 6,572 42% 269 21% 185 44% 61 2% 7,087 35%5-7 8,146 52% 409 32% 120 28% 1,422 54% 10,097 50%8-9 471 3% 427 33% 22 5% 317 12% 1,237 6%10-11 208 1% 7 1% - - 721 27% 936 5%Total Stage 1 15,397 98% 1,112 87% 327 77% 2,521 95% 19,357 96%

Stage 21-4 12 - 56 4% 13 3% - - 81 1%5-7 36 - 35 3% 42 10% 1 - 114 1%8-9 15 - 25 2% 20 5% 7 - 67 -10-11 232 2% 51 4% 21 5% 128 5% 432 2%Total Stage 2 295 2% 167 13% 96 23% 136 5% 694 4%

Not credit-impaired1-4 6,584 42% 325 25% 198 47% 61 2% 7,168 36%5-7 8,182 52% 444 35% 162 38% 1,423 54% 10,211 51%8-9 486 3% 452 35% 42 10% 324 12% 1,304 6%10-11 440 3% 58 5% 21 5% 849 32% 1,368 7%Total not credit-impaired 15,692 100% 1,279 100% 423 100% 2,657 100% 20,051 100%

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Bank2019 Non-property Commercial Residential SME and property andNot credit-impaired loans and mortgages corporate construction Consumer Totaladvances to customers Asset quality - PD grade £m % £m % £m % £m % £m % Stage 11-4 7,081 43% 240 7% 115 31% - - 7,436 35%5-7 8,365 51% 2,832 86% 158 42% - - 11,355 54%8-9 519 3% 80 3% 14 4% - - 613 3%10-11 213 1% 12 - - - 1,048 97% 1,273 6%Total Stage 1 16,178 98% 3,164 96% 287 77% 1,048 97% 20,677 98%

Stage 21-4 14 - 4 - 4 1% - - 22 -5-7 40 - 60 2% 36 10% - - 136 1%8-9 18 - 27 1% 19 5% - - 64 -10-11 195 2% 34 1% 29 7% 34 3% 292 1%Total Stage 2 267 2% 125 4% 88 23% 34 3% 514 2%

Not credit-impaired1-4 7,095 43% 244 7% 119 32% - - 7,458 35%5-7 8,405 51% 2,892 88% 194 52% - - 11,491 55%8-9 537 3% 107 4% 33 9% - - 677 3%10-11 408 3% 46 1% 29 7% 1,082 100% 1,565 7%Total not credit-impaired 16,445 100% 3,289 100% 375 100% 1,082 100% 21,191 100%

Bank2018 Non-property Commercial Residential SME and property andNot credit-impaired loans and mortgages corporate construction Consumer Totaladvances to customers Asset quality - PD grade £m % £m % £m % £m % £m % Stage 11-4 6,572 42% 2,233 77% 185 44% 55 5% 9,045 45%5-7 8,146 52% 401 14% 120 28% 221 18% 8,888 44%8-9 471 3% 78 3% 22 5% 122 10% 693 3%10-11 208 1% 7 - - - 721 59% 936 5%Total Stage 1 15,397 98% 2,719 94% 327 77% 1,119 92% 19,562 97%

Stage 211-4 12 - 56 2% 13 3% - - 81 -5-7 36 - 36 1% 42 10% - - 114 1%8-9 15 - 24 1% 20 5% 8 1% 67 -10-11 232 2% 44 2% 21 5% 91 7% 388 2%Total Stage 2 295 2% 160 6% 96 23% 99 8% 650 3%

Not credit-impaired1-4 6,584 42% 2,289 79% 198 47% 55 5% 9,126 45%5-7 8,182 52% 437 15% 162 38% 221 18% 9,002 45%8-9 486 3% 102 4% 42 10% 130 11% 760 3%10-11 440 3% 51 2% 21 5% 812 66% 1,324 7%Total not credit-impaired 15,692 100% 2,879 100% 423 100% 1,218 100% 20,212 100%


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The table below summarises the composition and impairment loss allowance of the Group’s loans and advances to customers atamortised cost that are credit-impaired (i.e. stage 3).

All loans and advances to customers that are greater than 90 days past due are classified as being credit-impaired. All credit-impairedloans and advances to customers are risk rated PD grade 12.

Group2019 Impairment loss Credit- allowance impaired as % ofCredit-impaired loans Credit- loans as Impairment credit-and advances to customers impaired % of total loss impairedComposition and impairment loans advances allowance loansloss allowance £m % £m % Residential mortgages 165 1% 14 8%Non-property SME and corporate 40 - 19 48%Commercial property and construction 37 - 12 32%Consumer 38 - 26 68%Total credit-impaired 280 1% 71 25%

Group2018 Impairment loss Credit- allowance impaired as % ofCredit-impaired loans Credit- loans as Impairment credit-and advances to customers impaired % of total loss impairedComposition and impairment loans advances allowance loansloss allowance £m % £m % Residential mortgages 188 1% 18 10%Non-property SME and corporate 41 - 16 39%Commercial property and construction 79 1% 23 29%Consumer 40 - 29 73%Total credit-impaired 348 2% 86 25%

Bank2019 Impairment loss Credit- allowance impaired as % ofCredit-impaired loans Credit- loans as Impairment credit-and advances to customers impaired % of total loss impairedComposition and impairment loans advances allowance loansloss allowance £m % £m % Residential mortgages 165 1% 14 8%Non-property SME and corporate 38 - 18 47%Commercial property and construction 37 - 12 32%Consumer 21 - 18 86%Total credit-impaired 261 1% 62 24%


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Bank2018 Impairment loss Credit- allowance impaired as % ofCredit-impaired loans Credit- loans as Impairment credit-and advances to customers impaired % of total loss impairedComposition and impairment loans advances allowance loansloss allowance £m % £m % Residential mortgages 188 1% 18 10%Non-property SME and corporate 40 - 15 38%Commercial property and construction 79 1% 23 29%Consumer 27 - 23 85%Total credit-impaired 334 2% 79 24%

Risk profile of forborne and non-forborne loans and advances to customers

Group Purchased / 2019 Stage 1 Stage 2 Stage 3 originated (not credit- (not credit- (credit- credit- Loans and advances to customers impaired) impaired) impaired) impaired Totalat amortised cost - Composition £m £m £m £m £m Non-forborne loans and advances to customersResidential mortgages 16,177 204 129 - 16,510Non-property SME and corporate 1,157 104 6 1 1,268Commercial property and construction 287 60 1 - 348- Investment 255 52 1 - 308- Land and development 32 8 - - 40Consumer 2,875 84 38 - 2,997Total non-forborne loans and advances to customers 20,496 452 174 1 21,123

Forborne loans and advances to customersResidential mortgages 1 63 36 - 100Non-property SME and corporate - 26 33 - 59Commercial property and construction - 28 36 - 64- Investment - 24 27 - 51- Land and development - 4 9 - 13Consumer - - - - -Total forborne loans and advances to customers 1 117 105 - 223


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Group Purchased / 2018 (Restated)1 Stage 1 Stage 2 Stage 3 originated (not credit- (not credit- (credit- credit- Loans and advances to customers impaired) impaired) impaired) impaired Totalat amortised cost - Composition £m £m £m £m £m Non-forborne loans and advances to customersResidential mortgages 15,396 237 149 - 15,782Non-property SME and corporate1 1,112 126 13 - 1,251Commercial property and construction1 327 43 10 - 380- Investment1 300 40 10 - 350- Land and development 27 3 - - 30Consumer1 2,521 136 40 - 2,697Total non-forborne loans and advances to customers 19,356 542 212 - 20,110

Forborne loans and advances to customers Residential mortgages 1 58 39 - 98Non-property SME and corporate - 41 28 - 69Commercial property and construction - 53 69 - 122- Investment - 49 57 - 106- Land and development - 4 12 - 16Consumer - - - - -Total forborne loans and advances to customers 1 152 136 - 289


Group Standard Buy to let Self certified Total 2019 Not Not Not Not credit- Credit- credit- Credit- credit- Credit- credit- Credit-Loan to value (LTV) ratio of total impaired impaired impaired impaired impaired impaired impaired impaired Totalmortgages £m £m £m £m £m £m £m £m £m Less than 50% 1,985 18 1,743 11 279 12 4,007 41 4,04851% to 70% 2,901 25 2,854 19 253 17 6,008 61 6,06971% to 80% 1,976 11 912 10 73 8 2,961 29 2,99081% to 90% 2,492 8 153 5 42 7 2,687 20 2,70791% to 100% 739 6 12 2 7 2 758 10 768Subtotal 10,093 68 5,674 47 654 46 16,421 161 16,582101% to 120% 10 1 3 1 3 - 16 2 18121% to 150% 5 1 1 - 2 - 8 1 9Adjusted Greater than 150% 1 - - - - - 1 - 1Subtotal 16 2 4 1 5 - 25 3 28Total 10,109 70 5,678 48 659 46 16,446 164 16,610 Weighted average LTV2:Stock of mortgages at period end 67% 64% 57% 63% 53% 63% 63% 64% 63%

New mortgages during year 76% 87% 61% 53% 58% 65% 73% 68% 73%

The Group mitigates its credit risk by taking collateral, which may take a variety of forms as set out in section 2.1.3 of the riskmanagement report. The most material type of secured lending is residential mortgages, for which collateral information is given in thetable below.

1 The table above has been restated so that it reconciles to the Group’s credit risk data.2 Weighted average LTVs are calculated at a property level and reflect the average of property values in proportion to the outstanding mortgage.


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Repossessed collateral on residentialmortgagesAt 31 December 2019 and 31 December2018 the Group held collateral as securityon residential mortgages as detailed in thetable.

Repossessed properties are sold as soonas practicable, with the proceeds appliedagainst outstanding indebtedness.

Group 2019 2018

Number of Number of repossessions Balance repossessions Balance as at balance outstanding as at balance outstandingRepossessed collateral sheet date £m sheet date £m Residential properties Owner occupier 20 2 8 1Buy to let 18 2 24 2Self certified 6 1 3 -Total 44 5 35 3

Industry analysis of loans and advancesto customersThe following table provides an industrybreakdown of total loans (beforeimpairment loss allowances).

Group 2019 2018Total loans - by industry analysis £m £m Residential mortgages 16,610 15,880Finance leases and hire purchase 2,245 1,756Credit cards - 564Personal loans 1,103 681Commercial property and construction 412 502Business and other services 632 714Manufacturing and distribution 344 289Other - 13Total 21,346 20,399

Group Standard Buy to let Self certified Total 2018 Not Not Not Not credit- Credit- credit- Credit- credit- Credit- credit- Credit-Loan to value (LTV) ratio of total impaired impaired impaired impaired impaired impaired impaired impaired Totalmortgages £m £m £m £m £m £m £m £m £m Less than 50% 1,968 21 1,770 13 300 14 4,038 48 4,08651% to 70% 3,081 24 2,721 21 285 20 6,087 65 6,15271% to 80% 1,802 13 788 11 82 10 2,672 34 2,70681% to 90% 1,998 8 181 7 47 6 2,226 21 2,24791% to 100% 603 7 25 3 12 4 640 14 654Subtotal 9,452 73 5,485 55 726 54 15,663 182 15,845101% to 120% 14 2 2 1 2 2 18 5 23121% to 150% 6 1 1 - 2 - 9 1 10Adjusted Greater than 150% 2 - - - - - 2 - 2Subtotal 22 3 3 1 4 2 29 6 35Total 9,474 76 5,488 56 730 56 15,692 188 15,880 Weighted average LTV1:Stock of mortgages at period end 65% 64% 56% 64% 54% 65% 62% 64% 62%

New mortgages during year 76% 69% 60% 75% 53% - 72% 70% 72%


1 Weighted average LTVs are calculated at a property level and reflect the average of property values in proportion to the outstanding mortgage.


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Debt securities at amortised cost - asset quality

For Group and Bank all debt securities were PD grade 1-4 and stage 1 at 31 December 2019 and 31 December 2018. The impairmentloss allowance at 31 December 2019 was £0.1 million (2018: £0.2 million).

Loans and advances to banks at amortised cost - asset quality

For Group and Bank all loans and advances to banks were PD grade 1-4 and stage 1 at 31 December 2019 and 31 December 2018.The impairment loss allowance at 31 December 2019 was £1 million (2018: £1 million).

Other financial instruments - asset quality

Other financial instruments as set out in the table below include instruments that are not within the scope of IFRS 9 or are not subjectto impairment under IFRS 9. These include derivative financial instruments. The table summarises the asset quality of these financialinstruments by equivalent external risk ratings.

Group Bank 2019 2018 2019 2018Other financial instruments with ratings equivalent to: £m £m £m £m Aaa to Aa3 - - - -A1 to A3 41 32 41 32Baa1 to Baa3 - - - -Total 41 32 41 32


Exposures by countryThe following tables provide an analysis of the Group’s exposure to sovereign debt and other country exposures (primarily financialinstitution exposure), by selected balance sheet line item, as at 31 December 2019 and 31 December 2018. In addition, for these lineitems, further information is included on the Group’s exposures to selected countries and their associated credit ratings from Moody’s.

Group2019 Debt securities Loans and at Derivative Cash and advances amortised financialAsset quality: Credit balances2 to banks3 cost4 instruments Totalexposures by country rating1 £m £m £m £m £m Ireland A2 - 759 - 36 795United Kingdom Aa2 2,134 1,389 484 5 4,012Other - - 10 362 - 372Total - 2,134 2,158 846 41 5,179

2018 Debt securities Loans and at Derivative Cash and advances amortised financialAsset quality: Credit balances2 to banks3 cost4 instruments Totalexposures by country rating1 £m £m £m £m £m Ireland A2 - 931 - 31 962United Kingdom Aa2 2,567 1,406 639 1 4,613Other - - 11 276 - 287Total - 2,567 2,348 915 32 5,862

1 Based on credit ratings from Moody’s.2 Cash and balances in the United Kingdom primarily consist of amounts placed with the Bank of England.3 Loans and advances to banks in Ireland consist primarily of balances with the Parent and balances in the United Kingdom consist primarily of the Bank of England required

collateral for notes in circulation.4 Debt securities at amortised cost consist of UK Government gilts, Supranational bonds and UK covered bonds.


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1 AA branded credit cards were sold as part of the UK consumer credit cards portfolio on 11 July 2019. See note 13 for further details.

21 Assets classified as held for sale

Assets classified as held for sale in 2018represented the gross carrying value of theUK consumer credit cards portfolio net ofrelated impairment loss allowance togetherwith related accrued interest receivable. Thisportfolio continued to be classified as suchin 2019 up to its disposal in July 2019. Seenote 13 for further details.

Group and Bank 2019 2018 £m £m Gross carrying amount - 564Impairment loss allowance - (27)Accrued interest - 2Total assets held for sale - 539

22 Interest in joint venture and joint operations

Country of Joint arrangement Holding Classification operation Nature of activities First Rate Exchange Services Holdings Limited 50% Joint venture UK Sale of foreign exchange products through (FRESH) the UK Post Office network

AA Financial Services n/a Joint operation UK Sale of AA branded personal loans, savings, mortgages and credit cards1

Joint ventureThe Group owns 50% of the shares inFRESH, a company incorporated in theUnited Kingdom which provides foreignexchange services.

The following table shows the movementin the Group’s interest in FRESH duringthe years ended 31 December 2019 and31 December 2018.

The investment in FRESH is unquoted andis measured using the equity method ofaccounting. There are no significantrestrictions on the ability of this entity totransfer funds to the Group in the form ofcash dividends, or to repay loans or

advances made by the Group, nor is thereany unrecognised share of losses eitherfor the year ended 31 December 2019 or cumulatively in respect of this entity. TheGroup does not have any furthercommitments or contingent liabilities in

respect of this entity other than itsinvestment to date.

There are no significant risks associatedwith the joint venture that have beenidentified which require disclosure.

The following amounts represent the Group’s 50% share of the revenue, expenses, assets and liabilities of FRESH for the year ended31 December 2019 and the year ended 31 December 2018.

Joint operation – AA FinancialServicesIn July 2015, the Group entered into astrategic partnership with AA FinancialServices for the sale of AA brandedpersonal loans, savings, mortgages andcredit cards1.

The above joint arrangement has beenaccounted for as a joint operation, on thebasis that it is not a separate legal entity.

The Group combines its share of thejoint operation in individual income and expenses, assets and liabilities and cash flows on a line-by-line basis.

2019 2018 £m £m At 1 January 62 61Share of profit after taxation (note 12) 30 33Dividends received (28) (33)Other - 1At 31 December 64 62

2019 2018 £m £m Revenue 66 69Expenses (29) (28)Profit before taxation 37 41Taxation charge (7) (8)Profit after taxation 30 33

Non-current assets 8 7Current assets 232 237Total assets 240 244

Current liabilities (176) (182)Total liabilities (176) (182)

Net assets 64 62


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Group 2019 2018

Other Other Computer externally Computer externally software purchased software purchased internally intangible internally intangible Goodwill generated assets Total Goodwill generated assets Total £m £m £m £m £m £m £m £m Cost At 1 January 30 35 87 152 30 35 87 152Acquisitions - - - - - - - -Additions - 1 - 1 - - - -At 31 December 30 36 87 153 30 35 87 152

Accumulated amortisation At 1 January - (34) (64) (98) - (34) (57) (91)Charge to the income statement (note 9) - - (7) (7) - - (7) (7)At 31 December - (34) (71) (105) - (34) (64) (98) Net book value at 31 December 30 2 16 48 30 1 23 54

23 Intangible assets and goodwill

Goodwill of £30 million (2018: £30 million)relates to Marshall Leasing Limited. TheGroup also has intangible assets of £8million (2018: £10 million) relating toMarshall Leasing Limited.

Goodwill is not amortised as it is deemedto have an indefinite useful life. The

Group’s investment in Marshall LeasingLimited has been reviewed for impairment.

Other intangible assets have also beenreviewed for any indication thatimpairment may have occurred. Noimpairment of either goodwill or intangibleassets was identified in the year ended 31

December 2019 or 31 December 2018.

Further detail on the impairment review,including assumptions and sensitivities, isset out in the critical accounting estimatesand judgements on page 99.

Bank 2019 2018

Other Other Computer externally Computer externally software purchased software purchased internally intangible internally intangible Goodwill generated assets Total Goodwill generated assets Total £m £m £m £m £m £m £m £m Cost At 1 January - 34 76 110 - 34 76 110Acquisitions - - - - - - - -Additions - 1 - 1 - - - -At 31 December - 35 76 111 - 34 76 110

Accumulated amortisation At 1 January - (34) (62) (96) - (34) (57) (91)Charge to the income statement - - (6) (6) - - (5) (5)At 31 December - (34) (68) (102) - (34) (62) (96) Net book value at 31 December - 1 8 9 - - 14 14



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24 Property, plant and equipment


Group Freehold land and buildings Vehicles and long leased Computer leaseholds under Right of use and other (held at operating asset - equipment1 fair value) leases Buildings Total2019 £m £m £m £m £m

Cost or valuation at 31 December 2018 1 24 113 - 138Impact of adopting IFRS 16 at 1 January 2019 (note 46) - - - 22 22Opening balance at 1 January 2019 1 24 113 22 160Acquisitions - - - - -Additions 1 - 45 - 46Disposals/ write offs (1) - (34) - (35)Revaluation recognised in OCI - 1 - - 1Other movements - - - (3) (3)As at 31 December 2019 1 25 124 19 169 Accumulated depreciation at 31 December 2018 - - (21) - (21)Impact of adopting IFRS 16 at 1 January 2019 (note 46) - - - - -Accumulated depreciation at 1 January 2019 - - (21) - (21)Disposals / write offs - - 18 - 18Charge for the year3 - - (25) (3) (28)As at 31 December 2019 - - (28) (3) (31) Net book value at 31 December 2019 1 252 96 16 138

1 All of which is related to own-use.2 Includes £4 million of which is subject to operating leases.3 Depreciation on vehicles leased under operating leases is included in other leasing expense (note 5).

The historical cost of property, plant and equipment held at fair value at 31 December 2019 was £22 million (2018: £22 million). Nodepreciation is charged on freehold land and buildings and long leaseholds, as these are revalued annually.

Group Freehold land and buildings Vehicles and long leased Computer leaseholds under and other (held at operating equipment fair value) leases Total2018 £m £m £m £m Cost or valuationAt 1 January 1 23 82 106Acquisition of subsidiary undertakings - - - -Revaluation adjustments - 1 - 1Additions - - 43 43Disposals / write offs - - (12) (12)At 31 December 1 24 113 138

Accumulated depreciation At 1 January - - (2) (2)Disposals / write offs - - 2 2Charge for the year - - (21) (21)At 31 December - - (21) (21)Net book value at 31 December 1 24 92 117


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24 Property, plant and equipment (continued)

Bank 2018Freehold land and buildings and long leaseholds (held at fair value) £m

Cost or valuationAt 1 January 23

Revaluation adjustments 1

Additions -

At 31 December 24

Accumulated depreciation At 1 January -

Charge for the year -

At 31 December -

Net book value at 31 December 24

Bank Freehold land and buildings and long leaseholds Right of use (held at asset - fair value) Buildings Total2019 £m £m £m

Cost or valuation at 31 December 2018 24 - 24Impact of adopting IFRS 16 at 1 January 2019 (note 46) - 22 22Opening balance at 1 January 2019 24 22 46Revaluation recognised in OCI 1 - 1Other movements - (3) (3)As at 31 December 2019 25 19 44 Accumulated depreciation at 31 December 2018 - - -Impact of adopting IFRS 16 at 1 January 2019 (note 46) - - -Accumulated depreciation at 1 January 2019 - - -Charge for the year - (3) (3)As at 31 December 2019 - (3) (3) Net book value at 31 December 2019 251 16 41

1 Includes £4 million of which is subject to operating leases.


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24 Property, plant and equipment (continued)

For vehicles leased under operatingleases, the annual depreciation charge iscalculated using residual values whichrepresent the estimated net salesproceeds expected from the sale of theassets at the end of the operating leaseperiod. Due to the inherent uncertaintyassociated with such valuationmethodology and in particular the volatilityof prices of second hand vehicles, thecarrying value of the residual values maydiffer from their realisable value.

Management is careful to ensure thatexposure to residual value risk iseffectively managed to minimise thecompany’s exposure to residual value risk.The residual values used mirror thoseutilised in the creation of the original clientcontract. Management benchmark internal

residual values for the existing fleet ofvehicles against industry standardvaluation tools by third party providers.The residual values for the entire portfolioare reassessed using an independentvaluation tool on a monthly basisthroughout the life of the underlyingcontracts, with adjustments being made ifrequired. The process of realising assetvalues is effectively managed to maximisenet sale proceeds.

Depreciation on vehicles leased underoperating leases is presented within netleasing income. See note 5.

The following residual values are includedin the calculation of the net book value offixed assets held for use in operatingleases:

Group 2019 2018 £m £m Within 1 year 26 231 – 2 years 14 18Greater than 2 years 17 14Total 57 55

In 2018, under IAS 17, the Group had commitments on future rentals under non-cancellable operating leases as follows:

At 31 December 2019 and 31 December 2018 there was no future capital expenditure authorised by the Directors but not contractedfor, or contracted for but not provided for.

Group Bank 2018 2018Operating leases £m £m Not later than 1 year 4 4Later than 1 year and not later than 5 years 16 16Later than 5 years 19 19 39 39

The Group has the following amounts of minimum lease receivables under non-cancellable operating leases as follows:

Group Bank

2019 2018 2019 2018Operating lease receivables £m £m £m £m Not later than 1 year 23 23 1 -Later than 1 year and not later than 5 years 26 24 2 3Later than 5 years - - - - 49 47 3 3



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26 Deferred tax

In accordance with IAS 12, whenpresenting the deferred tax balances, theGroup offsets deferred tax assets anddeferred tax liabilities where:• an entity has a legally enforceable

right to set off current tax assetsagainst current tax liabilities; and

• the deferred tax assets and thedeferred tax liabilities relate to incometaxes levied by the same taxationauthority on the same taxable entity.

The deferred tax asset includes an amountof £30 million (2018: £72 million) in respect

of operating losses which are available toshelter future profits from tax.

The recognition of a deferred tax asset inrespect of tax losses carried forwardrequires the Directors to be satisfied that itis probable that the Group will have

Group Bank

2019 2018 2019 2018 £m £m £m £m The movement on the deferred tax account is as follows:At 1 January 85 71 80 65Impact of adopting IFRS 9 at 1 January 2018 - 13 - 12Income statement charge for the year (note 14) (44) (5) (43) (5)Cash flow hedges - credit / (charge) to other comprehensive income - 6 - 6Additional tier 1 - credit to equity - 1 - 1Other movements - (1) (1) 1At 31 December 41 85 36 80

Deferred tax assets and liabilities are attributable to the following items:

Deferred tax assetsUnutilised tax losses 30 72 30 72Fixed / leased assets 6 7 1 1IFRS 9 transitional adjustment 9 11 9 10Total deferred tax assets 45 90 40 83

Deferred tax liabilitiesCash flow hedges (2) (2) (2) (2)Deferred tax on property held at fair value (1) (1) (1) (1)Other (1) (2) (1) -Total deferred tax liabilities (4) (5) (4) (3)

Represented on the balance sheet as follows:Deferred tax assets 41 85 36 80Total deferred tax 41 85 36 80


25 Other assets

Group Bank

2019 2018 2019 2018Other assets £m £m £m £m Sundry and other receivables 66 55 62 51Accounts receivable and prepayments 28 26 27 24Interest receivable 14 16 15 17Trade receivables 3 5 3 5Other assets 111 102 107 97

Amounts include:Due from the Parent - - - -

Maturity profile of other assetsAmounts receivable within 1 year 102 89 98 85Amounts receivable after 1 year 9 13 9 12Total 111 102 107 97


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27 Deposits from banks

Deposits from banks includes £1,278million (2018: £1,278 million) of borrowingsunder the Bank of England Term FundingScheme, which is secured primarily withmortgage loans and partly with notesissued by Bowbell 2 plc, and £200 million(2018: £200 million) borrowed under theBank of England Indexed Long - TermRepo scheme, which is collateralised withnotes issued by Bowbell 2 plc. Drawings

under the Term Funding Scheme will berepaid within four years from the date ofdrawdown. The interest charged is basedon the quantum of net lending by the Bankand by the Parent’s UK branch to UKresident households, private non-financialcorporations and certain non-bank creditproviders from June 2016 to December2017.

Amounts due to the Parent relates toborrowings in place to fund and manageinterest rate risk on the Group’s assets.Refer to note 17 for details of amountsdue from the Parent, and note 42 inrespect of changes in these balancesduring 2019.

Group Bank

2019 2018 2019 2018 £m £m £m £m Deposits from banks 3,500 3,152 3,496 3,148

Amounts include: Due to the Parent 1,980 1,651 1,977 1,646

28 Customer accounts

Group Bank

2019 2018 2019 2018 £m £m £m £m Term deposits 7,018 6,985 7,029 7,028Demand deposits 9,101 9,854 9,207 9,866Non-interest bearing current accounts 2,788 2,661 2,788 2,661Interest bearing current accounts 168 269 168 269Customer accounts 19,075 19,769 19,192 19,824

Amounts include:Share of joint operation (note 22) 764 706 764 706Due to entities controlled by the Parent 9 8 9 8Due to subsidiaries - - 115 55


26 Deferred tax (continued)

sufficient future taxable profits againstwhich the losses can be utilised. In thatregard, the Group estimates the periodover which it will utilise its tax lossescarried forward. These estimates arebased on the Group’s profitabilityprojections which cover a 5 year planningperiod. These profitability projections arebased on its agreed strategic prioritieswhere the focus will be to increase overallreturns, improve cost efficiencies andgrow sustainable profits and incorporateestimates and assumptions on economicfactors such as employment levels andinterest rates as well as other measuressuch as loan volumes, margins, costs andimpairment losses. For the purposes ofestimating when its tax losses will beutilised, the Group does not assume any

annual growth in profits after the Group’sfive year planning period.

As set out on page 98, the Group believethat the Bank will continue to be profitablefor the foreseeable future butacknowledge the external challengesfacing the banking industry including thecontinued low interest rate environmentand the uncertainty around the impact ofBrexit on the UK economy. Therefore,notwithstanding the absence of any expirydate for trading losses in the UK, butacknowledging that profits forecastsbecome increasingly uncertain as theforecast period extends into the future, theGroup have determined that, at 31December 2019, the recognition ofdeferred tax assets in respect of tax

losses of the Bank will be limited byreference to the amount of losses that areexpected to be utilised within a 10 yearperiod of projected profits. This 10 yeartimescale is supported by forecast taxableprofits and takes into account the Group’slong-term financial and strategic plans andreflects the period over which the Groupbelieves it can conclude that it is probablethat future taxable profits will be availablein the Bank.

As a consequence, the carrying value ofthe deferred tax asset relating to tradinglosses of the Bank has been reduced by£40 million in the year ended 31December 2019 (31 December 2018: £nil).


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30 Other liabilities

29 Debt securities in issue

The Bank is authorised to issue banknotes in Northern Ireland under the Bank of Ireland (UK) plc Act 2012.

The residential mortgage backed securities were issued in June 2019 by the Group’s securitisation entity, Bowbell 2 plc. For furtherinformation refer to note 44.

The floating rate senior non preferred notes were issued to the Parent on 11 December 2019, in order to meet the Group’s indicativeinternal requirements for Minimum Requirement for Eligible Liabilities (MREL).

Group Bank

2019 2018 2019 2018 £m £m £m £m Notes in circulation 1,073 1,143 1,073 1,143Accrued interest payable 82 68 81 68Sundry payables 85 99 67 79Accruals and deferred income 32 8 32 8Other liabilities 1,272 1,318 1,253 1,298

Amounts include:Due to the Parent 4 3 4 3Share of joint operation (note 22) 9 7 9 7

Maturity profile of other liabilitiesAmounts payable within 1 year 1,272 1,318 1,253 1,298Amounts payable after 1 year - - - -

31 Provisions

As at 31 December 2019, the Group hasprovisions of £29 million remaining relatingto various costs associated with thedisposal of the consumer credit cardportfolio (see note 13) and the associatedmigration costs. The initial provision was£33 million of which £4 million was utilisedby 31 December 2019. The provision isbased upon management’s currentestimates of the length of the migrationperiod and the related costs.

In addition the Group has provisions of £1million relating to potential payments tocustomers in relation to variouscompliance matters.

Group Bank2019 £m £m Closing balance 31 December 2018 7 6Net charge to the income statement 33 33Utilised during the year (10) (9)At 31 December 30 30

Expected utilisation period Used within 1 year 30 30Used after 1 year - -


Group Bank

2019 2018 2019 2018 £m £m £m £m Residential mortgage backed securities 307 - - -Floating rate senior non preferred notes 300 - 300 -Total debt securities in issue 607 - 300 -


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32 Loss allowance provision on loan commitments and financial guarantees

Loan commitments and guarantees andirrevocable letters of credit have beenclassified and measured in accordancewith IFRS 9. This involves measuring theloss allowance provision for loancommitments and financial guaranteesand irrevocable letters of credit on a 12month or lifetime ECL approach.

At 31 December 2019, the Group held animpairment loss allowance of £3 million(2018: £7 million) on loan commitmentsand financial guarantees, of which £1million are classified as stage 1 (2018: £7million), £nil as stage 2 (2018: £nil) and £2million as stage 3 (2018: £nil).

Group2019 Loan commitments Guarantees and irrevocable letters of credit

Loan commitments and Stage 1 Stage 2 Total Stage 1 Stage 2 Totalfinancial guarantees - Contract amount £m % £m % £m % £m % £m % £m % PD Grade1-4 160 11% 1 3% 161 11% 18 90% - - 18 90%5-7 1,110 74% 24 75% 1,134 74% 2 10% - - 2 10%8-9 216 14% 3 9% 219 14% - - - - - -10-11 7 1% 4 13% 11 1% - - - - - -Total 1,493 100% 32 100% 1,525 100% 20 100% - - 20 100%

Group 2019 2018

Loss Loss Amount allowance Amount allowance2019 £m £m £m £m Loan commitments (note 35) 1,537 3 3,792 7Guarantees and irrevocable letters of credit (note 35) 20 - 11 - 1,557 3 3,803 7

Bank 2019 2018

Loss Loss Amount allowance Amount allowance2019 £m £m £m £m Loan commitments (note 35) 1,497 3 3,760 7Guarantees and irrevocable letters of credit (note 35) 20 - 11 - 1,517 3 3,771 7

Group2018 Loan commitments Guarantees and irrevocable letters of credit

Loan commitments and Stage 1 Stage 2 Total Stage 1 Stage 2 Totalfinancial guarantees - Contract amount £m % £m % £m % £m % £m % £m % PD Grade1-4 2,051 55% 20 25% 2,071 55% 7 70% - - 7 70%5-7 1,470 40% 12 15% 1,482 39% 2 20% - - 2 20%8-9 150 4% 10 13% 160 4% 1 10% - - 1 10%10-11 35 1% 38 47% 73 2% - - - - - -Total 3,706 100% 80 100% 3,786 100% 10 100% - - 10 100%



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32 Loss allowance provision on loan commitments and financial guarantees (continued)

Bank2019 Loan commitments Guarantees and irrevocable letters of credit

Loan commitments and Stage 1 Stage 2 Total Stage 1 Stage 2 Totalfinancial guarantees - Contract amount £m % £m % £m % £m % £m % £m % PD Grade1-4 120 8% 1 3% 121 8% 18 90% - - 18 90%5-7 1,110 76% 24 75% 1,134 76% 2 10% - - 2 10%8-9 216 15% 3 9% 219 15% - - - - - -10-11 7 1% 4 13% 11 1% - - - - - -Total 1,453 100% 32 100% 1,485 100% 20 100% - - 20 100%

Bank2018 Loan commitments Guarantees and irrevocable letters of credit

Loan commitments and Stage 1 Stage 2 Total Stage 1 Stage 2 Totalfinancial guarantees - Contract amount £m % £m % £m % £m % £m % £m % PD Grade1-4 2,019 55% 20 25% 2,039 54% 7 70% - - 7 70%5-7 1,470 40% 12 15% 1,482 40% 2 20% - - 2 20%8-9 150 4% 10 13% 160 4% 1 10% - - 1 10%10-11 35 1% 38 47% 73 2% - - - - - -Total 3,674 100% 80 100% 3,754 100% 10 100% - - 10 100%

The tables above for Group and Bank show the loan commitments and guarantees and irrevocable letters of credit by PD grade forstage 1 and stage 2. The remaining balances for Group and Bank of £12 million (2018: £6 million) on loan commitments and £0.2million (2018: £1 million) on guarantees and irrevocable letters of credit are stage 3.


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33 Retirement benefit obligations

The Group’s employees’ membership of aparticular pension scheme is dependenton their specific employment contract.Where an employee is seconded directlyto the Group, the Group only incurs thecost of the future service contribution tothose particular schemes. The Group doesnot have any liability for payment inrespect of increases to pensioncontributions arising from any historic orfuture shortfall in the pension assetsrelative to the pension liabilities of the BOIGroup operated schemes. Consequently,the schemes have been accounted for asdefined contribution schemes in thesefinancial statements and where applicablewill be included in the disclosures fordefined benefit schemes in the financialstatements of BOI Group.

NIIB Group Limited (1975) PensionScheme (the ‘NIIB scheme’)The NIIB defined benefit scheme is basedon final pensionable salary and operatesfor eligible employees of NIIB GroupLimited and its subsidiaries. Contributionsby the company and the employees areinvested in a trustee-administered fund.As the scheme’s underlying assets andliabilities are identifiable as those of theGroup the scheme has been accountedfor as a defined benefit scheme (as set outin the accounting policy for pensionobligations) and the disclosures set out inthe remainder of this note relate to thisscheme.

In determining the level of contributionsrequired to be made to the scheme andthe relevant charge to the incomestatement the Group has been advised byindependent actuaries, Willis TowersWatson.

The scheme has been closed to newmembers since late 2006.

Regulatory frameworkThe NIIB scheme operates under the UKpension regulatory framework. Benefitsare paid to members from a trustee-administered fund. The trustees areresponsible for ensuring that the plan issufficiently funded to meet current andfuture benefit payments. If the planexperience is worse than expected, theGroup’s obligations are increased.

Under UK pensions legislation, thetrustees must agree a funding plan withthe Group such that any funding shortfallis expected to be met by additionalcontributions and investmentoutperformance. In order to assess thelevel of contributions required, triennialvaluations are carried out with thescheme’s obligations measured usingprudent assumptions (relative to thoseused to measure accounting liabilities) anddiscounted based on the return expectedfrom assets held in accordance with theactual scheme investment policy.

The trustees’ other duties includemanaging the investment of the planassets, administration of the plan benefits,ensuring contributions are received,compliance with relevant legislation andexercising of discretionary powers. TheGroup works closely with the trustees,who manage the plan.

Actuarial valuation of the NIIB schemeA formal valuation of the NIIB scheme wascarried out as at 1 May 2016. The fundingmethod used measures liabilities takingaccount of the projected future levels ofpensionable earnings at the time ofcommencement of benefits i.e. at normalretirement date. Discussions in relation tothe valuation were completed in 2017 anda schedule of contributions and recoveryplan, setting out how the shortfall in thescheme will be met, was agreed betweenthe trustees and the Group and submittedto, and signed off by, the PensionsRegulator.

Under the schedule of contributions theGroup agreed to make contributions of£1.31 million by 1 August 2017 plus£1.095 million by 1 April 2018, to meet theshortfall in the scheme of £3.0 million as atthe date of the triennial valuation, inaddition to the cost of future benefit

accrual. The formal valuation at 1 May2019 of the NIIB scheme is currentlyunderway.

Plan detailsThe above table sets out details of themembership of the NIIB scheme as at 1May 2019.

Financial and demographicassumptionsThe assumptions used in calculating thecosts and obligations of the NIIB scheme,as detailed below, were set afterconsultation with Willis Towers Watson.

The discount rate used to determine thepresent value of the obligations is set byreference to market yields on corporatebonds. The methodology was updated atthe end of 2017, primarily to remove anumber of bonds that did not obviouslymeet the criteria of ‘corporate bonds’ fromthe universe considered.

The methodology used to determine theassumption for retail price inflation usesan inflation curve derived by Willis TowersWatson using market data which reflectsthe characteristics of the Bank’s liabilitieswith an appropriate adjustment to reflectdistortions due to supply and demand. The assumption for consumer priceinflation is set by reference to retail priceinflation, with an adjustment applied, asno consumer price inflation linked bondsexist.

The salary assumption takes into accountinflation, seniority, promotion and currentemployment market relevant to the Group.

By % of By schemePlan details at last valuation date (1 May 2019) number liability Scheme members Active 66 41Deferred 116 26Pensioners / dependants 71 33


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Mortality assumptionsThe mortality assumptions adopted are outlined in the table below.

Amounts recognised in financial statementsThe table below outlines where the Group’s defined benefit plans are recognised in the financial statements.

A pension asset is recognised on the basis that the Group has an unconditional right to a refund.

2019 2018Post retirement mortality assumptions Years Years Longevity at age 70 for current pensioners Men 18.0 18.6Women 19.4 20.0

Longevity at age 60 for active members currently aged 60 years Men 27.1 27.8Women 28.8 29.4

Longevity at age 60 for active members currently aged 40 years Men 28.6 29.4Women 30.4 31.0

2019 2018 £m £m Total charge in operating expenses (1) (1)

Total gain in remeasurements1 1 (1)

Total asset in the balance sheet 9 8

Financial assumptionsThe financial assumptions used in measuring the Group’s defined benefit asset / liability under IAS 19 are set out in the table below.

2019 2018Financial assumptions % p.a. % p.a. Consumer price inflation 1.95 2.20Retail price inflation 2.95 3.20Discount rate 2.10 2.95Rate of general increase in salaries 3.45 3.70Rate of increase in pensions in payment 3.00 3.00Rate of increase in deferred pensions 1.95 2.20

33 Retirement benefit obligations (continued)

1 Shown before deferred tax.



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Sensitivity of defined benefit obligationto key assumptionsThe table sets out how the defined benefitobligation would have been affected bychanges in the significant actuarialassumptions that were reasonablypossible at 31 December 2019.

Some of the changes in assumptions mayhave an impact on the value of thescheme’s investment holdings. Forexample, the plan holds a proportion of itsassets in Liability Driven Investments (LDI).A fall in the rate of inflation would be

expected to lead to a reduction in thevalue of these assets, thus partlyoffsetting the reduction in the definedbenefit obligation. The extent to which

these sensitivities are managed isdiscussed further below.


The movement in the net defined benefit asset / obligation is as follows:

2019 2018

Surplus Surplus Present value Fair value of / (deficit) Present value Fair value of / (deficit) of obligation plan assets of plan of obligation plan assets of plan £m £m £m £m £m £m At 1 January (37) 45 8 (38) 46 8Current service cost (1) - (1) (1) - (1)Interest (expense) / income (1) 1 - (1) 1 -Total amount in recognised income statement (2) 1 (1) (2) 1 (1)

Return on plan assets not included in income statement - 7 7 - (3) (3)Change in demographic assumptions 1 - 1 - - -Change in financial assumptions (6) - (6) 2 - 2Experience losses (1) - (1) - - -Total remeasurements in other comprehensive income (6) 7 1 2 (3) (1)

Benefit payments 1 (1) - 1 (1) -Employer contributions - 1 1 - 2 2Other - - - - - -Other movements 1 0 1 1 1 2

At 31 December (44) 53 9 (37) 45 8

2019 2018Asset breakdown £m £m Equities (quoted)1 17 27Corporate bonds 11 -Liability Driven Investment (LDI) 8 -Indexed linked government bonds (quoted)1 - 18Cash 17 -Total fair value of assets 53 45

Increase in Decrease inImpact on defined Change in assumptions assumptionsbenefit obligation assumptions (%) £m £m Discount rate 0.25% (2.3) 2.5Inflation2 0.10% 0.5 (0.5)Salary growth 0.10% 0.2 (0.2)Life expectancy 1 year 1.5 (1.5)

1 These are held indirectly against managed funds.2 Including other inflation-linked assumptions (consumer price inflation, pension increases, salary growth).


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Future cash flowsThe plan’s liabilities represent a long-termobligation and most of the payments dueunder the plan will occur several decadesinto the future. The duration, or averageterm to payment for the benefits due,weighted by liability, is 22 years.

Expected employer contributions for theyear ended 31 December 2020 are £0.6million. Expected employee contributionsfor the year ended 31 December 2020 are£57,000.


Benefit payments from plan assetsYears £m 2020 - 2029 (12)2030 - 2039 (17)2040 - 2049 (20)2050 - 2059 (18)2060 - 2069 (10)2070 - 2079 (4)2080 - 2089 (1)2090 - 2099 -Total (82)

Risks and risk managementThe NIIB scheme has a number of areas of risk. The key areas of risk, and the ways in which the Group has sought to manage them,are set out in the table below.

The risks are considered from both a funding perspective, which drives the cash commitments of the Group, and from an accountingperspective, i.e. the extent to which such risks affect the amounts recorded in the Group’s financial statements.

Risk Description

Asset volatility The funding liabilities are calculated using a discount rate set with reference to government bond yields, with allowance foradditional return to be generated from the investment portfolio. The defined benefit obligation in the Group’s financialstatements is calculated using a discount rate set with reference to high quality corporate bond yields.

The plan holds a proportion of its assets in equities. The returns on such assets tend to be volatile and are not correlated togovernment bonds. This means that the funding level is likely to be volatile in the short-term, potentially resulting in short-term cash requirements and an increase in the net defined benefit liability recorded on the balance sheet.

Changes in bond Interest rate and inflation risks, along with equity risk, are the scheme’s largest risks. From an accounting liability perspective, yields the scheme is also exposed to movements in corporate bond spreads. The scheme uses investment Liability Driven

Investments (LDI) to assist in managing its interest rate and inflation risk. This portfolio is used to broadly hedge againstmovements in long-term interest rates and inflation expectations.

The portfolio does not completely eliminate risk and addresses only a portion of the scheme’s interest rate and inflation risks.Furthermore, it does not hedge against changes in the credit spread available on corporate bonds used to derive theaccounting liabilities.

The investment in LDI offers a degree of matching, i.e. the movement in assets arising from changes in bond yields partiallymatches the movement in the funding or accounting liabilities. In this way, the exposure to movements in bond yields isreduced.

Inflation risk A significant proportion of the scheme’s benefit obligations are linked to inflation and higher inflation will lead to higherliabilities, although in most cases caps on the level of inflationary increases are in place to protect the plan against inflation.

Life expectancy The majority of the plan’s obligations are to provide a pension for the life of the member, which means that increases in lifeexpectancy will result in an increase in the plan’s liabilities.



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These liabilities constitute unsecuredobligations of the Group to its Parent,subordinated in right of payments to theclaim of depositors, and otherunsubordinated creditors of the Group.The subordinated liabilities meet thedefinition of a financial liability as theGroup does not have an unconditional

right to avoid the repayment of theprincipal or interest. Therefore, theliabilities are recognised on the balancesheet at amortised cost, using theeffective interest method.

All of the current notes are redeemable inwhole but not in part, subject to the prior

approval of the PRA, on the fifthanniversary of their drawdown date. In theevent of a wind up of the Group, the loanswill become immediately due and payablewithout demand, together with all interestaccrued thereon.

34 Subordinated liabilities

Group Bank

2019 2018 2019 2018 £m £m £m £m £200 million subordinated floating rate notes 20251 200 200 200 200£90 million subordinated floating rate notes 20272 90 90 90 90Subordinated liabilities 290 290 290 290

1 Initial call date 26 November 2020. If not repaid at this point, they are due in full on their final maturity date of 26 November 2025. They bear interest at a floating rate of 4.225%per annum above the sterling LIBOR three month rate.

2 Initial call date 19 December 2022. If not repaid at this point, they are due in full on their maturity date of 19 December 2027. They bear interest at a floating rate of 2.72% perannum above the sterling LIBOR three month rate.

Group Bank

2019 2018 2019 2018Movement on subordinated liabilities £m £m £m £m At 1 January 290 290 290 290Issued during the year - - - -Repurchased - - - -At 31 December 290 290 290 290

The table sets out the contractualamounts of contingent liabilities andcommitments. The maximum exposure tocredit loss under contingent liabilities andcommitments is the contractual amount ofthe instrument in the event of non-performance by the other party where allcounter claims, collateral, or securityprove worthless. Loss allowance

provisions of £3 million (2018: £7 million)recognised on loan commitments andguarantees and irrevocable letters ofcredit are shown in note 32. Provisions onall other contingent liabilities andcommitments are shown in note 31 (whereapplicable).

Guarantees and letters of credit are givenas security to support the performance ofa customer to third parties. As the Groupwill be required to meet these obligationsonly in the event of the customer’s default,the cash requirements of theseinstruments are expected to beconsiderably below their nominalamounts.

35 Contingent liabilities and commitments

Group Bank

2019 2018 2019 2018 £m £m £m £m Contingent liabilities Guarantees and irrevocable letters of credit 20 11 20 11Other contingent liabilities 9 4 9 4Total contingent liabilities 29 15 29 15 Loan commitments Undrawn formal standby facilities, credit lines and other commitments to lend - revocable or irrevocable with original maturity of 1 year or less 1,477 3,741 1,437 3,709- irrevocable with original maturity of over 1 year 60 51 60 51Total commitments 1,537 3,792 1,497 3,760


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35 Contingent liabilities and commitments (continued)

Other equity instruments consist ofAdditional tier 1 securities held by theParent:• £200 million issued on 1 May 2015;

and• £100 million issued on 26 November

2015.

The principal terms of the Additional tier 1securities are as follows:• the securities constitute direct,

unsecured and subordinatedobligations of the Group, rank behindtier 2 instruments and in priority toordinary shareholders;

• the securities bear a fixed rate ofinterest (7.9% for the May 2015issuance; 8.4% for the November

2015 issuance) until the first call date(1 May 2020 and 26 November 2020respectively). After the initial call date,in the event that they are notredeemed, the Additional tier 1securities will bear interest at ratesfixed periodically in advance for five-year periods based on market rates atthat time;

• the Group may elect at its sole and fulldiscretion to cancel (in whole or inpart) the interest otherwise scheduledto be paid on any interest paymentdate;

• the securities have no fixedredemption date, and the securityholders will have no right to requirethe Group to redeem or

purchase the securities at any time;• the Group may, in its sole and full

discretion, but subject to thesatisfaction of certain conditions, electto redeem all (but not some only) ofthe securities on the initial call date oron any interest payment datethereafter. In addition, the Additionaltier 1 securities are repayable, at theoption of the Group, due to certainregulatory or tax reasons. Anyrepayments require the prior consentof the regulatory authorities; and

• the securities will convert into ordinaryshares if the Group’s CET 1 ratio (on aCRD IV full implementation basis) fallsbelow 7%.

38 Other equity instruments

Group Bank

2019 2018 2019 2018 £m £m £m £m At 1 January and 31 December 300 300 300 300

Group Bank

2019 2018 2019 2018Ordinary shares £m £m £m £m At 1 January 851 851 851 851Capital reduction during the year (note 37) (596) - (596) -At 31 December 255 851 255 851

At 31 December 2019 and at 31 December 2018, the Bank had 851 million shares in issue, all of which were held by the Parent andwere fully paid. The Bank’s authorised share captial at 31 December 2019 and 31 December 2018 was £2.5 billion.

36 Share capital

Other contingent liabilities primarilyinclude performance bonds and aregenerally short term commitments to thirdparties which are not directly dependenton the customer’s credit worthiness. Othercontingent liabilities also includedocumentary credits which commit theGroup to make payments to third parties,

on production of documents, which areusually reimbursed immediately bycustomers.

In February 2019, the Group received aletter before claim from investors inEclipse film finance schemes assertingvarious claims in connection with thedesign, promotion and operation of such

schemes. The Group’s involvement inthese schemes was limited to theprovision of commercial finance. TheGroup was not the designer, promoter oroperator in respect of any of the schemes.

Commitments to lend are agreements tolend to a customer in the future, subject tocertain conditions.


37 Capital restructure

On 4 June 2019 the UK High Court of Justice approved the Bank’s application to reduce its share capital by £596 million from £851million to £255 million, by means of a reduction in the nominal value of each share from £1 to £0.30, thereby increasing distributablereserves, and to cancel the capital redemption reserve of £300 million. These reductions gave rise to an increase in retained earningstotalling £896 million.


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The tables below summarise the maturityprofile of the Group’s financial liabilities, at31 December 2019 and at 31 December2018, based on contractual undiscountedrepayment obligations. See also RiskManagement section 2.2 for details of thematurity of assets and liabilities on adiscounted basis.

The Group does not manage liquidity risk

on the basis of contractual maturity.Instead, the Group manages liquidity riskbased on expected cash flows. Thebalances shown below will not agreedirectly to the consolidated balance sheetbecause the table incorporates all cashflows, on an undiscounted basis, relatedto both principal and interest payments.

Customer accounts include a number of

term accounts that contain easy accessfeatures. These allow the customer toaccess a portion or all of their depositnotwithstanding that this repayment couldresult in a financial penalty being paid bythe customer. For such accounts theportion subject to the potential earlyaccess has been classified accordingly inthe table below as ‘demand’.

39 Liquidity risk

Group 0-3 3-12 1-5 Over 52019 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 267 10 1,837 1,427 11 3,552Lease liabilities - 1 2 14 5 22Customer accounts 13,608 1,719 2,573 1,323 - 19,223Debt securities in issue - 29 4 24 717 774Subordinated liabilities - 3 10 52 310 375Contingent liabilities 29 - - - - 29Commitments 485 40 952 60 - 1,537Total 14,389 1,802 5,378 2,900 1,043 25,512

0-3 3-12 1-5 Over 52018 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 396 8 1,244 1,537 20 3,205Customer accounts 14,541 1,711 2,295 1,362 - 19,909Subordinated liabilities - 4 10 57 326 397Contingent liabilities 15 - - - - 15Commitments 2,947 32 762 51 - 3,792Total 17,899 1,755 4,311 3,007 346 27,318

Bank 0-3 3-12 1-5 Over 52019 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 264 10 1,837 1,427 11 3,549Lease liabilities - 1 2 14 5 22Customer accounts 13,714 1,722 2,577 1,328 - 19,341Debt securities in issue - - 2 6 300 308Subordinated liabilities - 3 10 52 310 375Contingent liabilities 29 - - - - 29Commitments 485 - 952 60 - 1,497Total 14,492 1,736 5,380 2,887 626 25,121

0-3 3-12 1-5 Over 52018 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 392 8 1,244 1,537 20 3,201Customer accounts 14,552 1,722 2,319 1,370 - 19,963Subordinated liabilities - 4 10 57 326 397Contingent liabilities 15 - - - - 15Commitments 2,947 - 762 51 - 3,760Total 17,906 1,734 4,335 3,015 346 27,336


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Group and Bank 0-3 3-12 1-5 Over 52019 Demand months months years years TotalMaturity profile of derivative liabilities £m £m £m £m £m £m Gross settled derivative liabilities - outflows (4) (78) (96) (8) - (186)Gross settled derivative liabilities - inflows 3 75 92 7 - 177Gross settled derivative liabilities - net flows (1) (3) (4) (1) - (9)Net settled derivative liabilities - (7) (12) (28) (2) (49)Total derivatives cash flows (1) (10) (16) (29) (2) (58)

0-3 3-12 1-5 Over 52018 Demand months months years years TotalMaturity profile of derivative liabilities £m £m £m £m £m £m Gross settled derivative liabilities - outflows (2) (70) (56) (12) - (140)Gross settled derivative liabilities - inflows 2 64 53 12 - 131Gross settled derivative liabilities - net flows - (6) (3) - - (9)Net settled derivative liabilities - (6) (8) (18) - (32)Total derivatives cash flows - (12) (11) (18) - (41)

The table below summarises the maturity profile of the Group’s derivative liabilities. The Group manages liquidity risk based on expectedcash flows, therefore the undiscounted cash flows payable on derivatives liabilities are classified according to their contractual maturity.

39 Liquidity risk (continued)

GroupAt fair value

through profit or loss Derivatives Held at designated amortised as hedging Mandatorily Designated cost instruments Total2019 £m £m £m £m £m Financial assets Cash and balances with central banks - - 2,134 - 2,134Items in the course of collection from other banks - - 144 - 144Derivative financial instruments 20 - - 21 41Loans and advances to banks - - 2,158 - 2,158Debt securities at amortised cost - - 846 - 846Loans and advances to customers - - 21,200 - 21,200Assets classified as held for sale - - - - -Total financial assets 20 - 26,482 21 26,523

Financial liabilitiesDeposits from banks - - 3,500 - 3,500Customer accounts - - 19,075 - 19,075Items in the course of transmissionto other banks - - 95 - 95Derivative financial instruments 14 - - 45 59Debt securities in issue - - 607 - 607Lease liabilities - - 20 - 20Loss allowance provision on loan commitments and financial guarantees - - 3 - 3Subordinated liabilities - - 290 - 290Total financial liabilities 14 - 23,590 45 23,649

40 Measurement basis of financial assets and financial liabilities

The tables below analyse the carrying amounts of the financial assets and financial liabilities, by accounting treatment and by balancesheet heading.



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GroupAt fair value

through profit or loss Derivatives Held at designated amortised as hedging Mandatorily Designated cost instruments Total2018 £m £m £m £m £m Financial assets Cash and balances with central banks - - 2,567 - 2,567Items in the course of collection from other banks - - 168 - 168Derivative financial instruments 18 - - 14 32Loans and advances to banks - - 2,348 - 2,348Debt securities at amortised cost - - 915 - 915Loans and advances to customers - - 19,703 - 19,703Assets classified as held for sale - - 539 - 539Total financial assets 18 - 26,240 14 26,272

Financial liabilitiesDeposits from banks - - 3,152 - 3,152Customer accounts - - 19,769 - 19,769Items in the course of transmissionto other banks - - 106 - 106Derivative financial instruments 11 - - 32 43Loss allowance provision on loan commitments and financial guarantees - - 7 - 7Subordinated liabilities - - 290 - 290Total financial liabilities 11 - 23,324 32 23,367

40 Measurement basis of financial assets and financial liabilities (continued)

BankAt fair value

through profit or loss Derivatives Held at designated amortised as hedging Mandatorily Designated cost instruments Total2019 £m £m £m £m £m Financial assets Cash and balances with central banks - - 2,134 - 2,134Items in the course of collection from other banks - - 144 - 144Derivative financial instruments 20 - - 21 41Loans and advances to banks - - 1,935 - 1,935Debt securities at amortised cost - - 846 - 846Loans and advances to customers - - 21,321 - 21,321Assets classified as held for sale - - - - -Total financial assets 20 - 26,380 21 26,421

Financial liabilitiesDeposits from banks - - 3,496 - 3,496Customer accounts - - 19,192 - 19,192Items in the course of transmissionto other banks - - 95 - 95

Derivative financial instruments 14 - - 45 59Debt securities in issue - - 300 - 300Lease liabilities - - 20 - 20Loss allowance provision on loan commitments and financial guarantees - - 3 - 3Subordinated liabilities - - 290 - 290Total financial liabilities 14 - 23,396 45 23,455


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40 Measurement basis of financial assets and financial liabilities (continued)

BankAt fair value

through profit or loss Derivatives Held at designated amortised as hedging Mandatorily Designated cost instruments Total2018 £m £m £m £m £m Financial assets Cash and balances with central banks - - 2,567 - 2,567Items in the course of collection from other banks - - 168 - 168Derivative financial instruments 18 - - 14 32Loans and advances to banks - - 2,331 - 2,331Debt securities at amortised cost - - 915 - 915Loans and advances to customers - - 19,860 - 19,860Assets classified as held for sale - - 539 - 539Total financial assets 18 - 26,380 14 26,412

Financial liabilitiesDeposits from banks - - 3,148 - 3,148Customer accounts - - 19,824 - 19,824Items in the course of transmissionto other banks - - 106 - 106Derivative financial instruments 11 - - 32 43Loss allowance provision on loan commitments and financial guarantees - - 7 - 7Subordinated liabilities - - 290 - 290Total financial liabilities 11 - 23,375 32 23,418



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Fair value of assets and liabilitiesFair value is defined as the price thatwould be received to sell an asset, or paidto transfer a liability, in an orderlytransaction between market participantsat the measurement date.

Where possible, the Group calculates fairvalue using observable market prices.Where market prices are not available, fairvalues are determined using valuationtechniques which may include DCFmodels or comparisons to instrumentswith characteristics either identical orsimilar to those of the instruments held bythe Group or recent arm’s length markettransactions.

These fair values are classified within athree-level fair value hierarchy, based onthe inputs used to value the instrument.Where the inputs might be categorisedwithin different levels of the fair valuehierarchy, the fair value measurement in itsentirety is categorised in the same level ofthe hierarchy as the lowest level input thatis significant to the entire measurement.The levels are defined as:

Level 1 inputs are quoted prices(unadjusted) in active markets for identicalassets or liabilities that the entity canaccess at the measurement date.

Level 2 inputs are inputs other thanquoted prices included within Level 1 thatare observable for the asset or liability,either directly or indirectly.

Level 3 inputs are unobservable inputs forthe asset or liability. Transfers betweendifferent levels are assessed at the end ofall reporting periods.

(a) Financial assets and liabilitiesrecognised and subsequentlymeasured at fair valueAll financial instruments are initiallyrecognised at fair value. The Groupsubsequently measures derivativesand certain other financial assets andliabilities designated or mandatorily atfair value through profit or loss at fairvalue in the balance sheet. Theseinstruments are shown as at fair valuethrough profit or loss in note 40 on themeasurement basis of financial assetsand liabilities. A description of themethods and assumptions used tocalculate fair values of these assetsand liabilities is set out below.

Derivative financial instrumentsThe Group’s derivative financialinstruments are valued using valuationtechniques commonly used by marketparticipants. These consist of DCFand options pricing models, whichtypically incorporate observablemarket data, principally interest rates,basis spreads, foreign exchange rates,equity prices and counterparty credit(level 2 inputs).

(b) Financial assets and liabilities heldat amortised costFor financial assets and liabilitieswhich are not subsequently measuredat fair value on the balance sheet, theGroup discloses their fair value in away that permits them to becompared to their carrying amounts.The methods and assumptions usedto calculate the fair values of theseassets and liabilities are set out below.

Loans and advances to banksThe estimated fair value of floatingrate placements and overnightplacings is their carrying amount. Theestimated fair value of fixed interestbearing placements is based ondiscounted cash flows, usingprevailing money market interest ratesfor assets with similar credit risk andremaining maturity (level 2 inputs).

Loans and advances to customersLoans and advances to customers arecarried net of provisions forimpairment. The fair value of bothfixed and variable rate loans andadvances to customers is estimatedusing valuation techniques, whichinclude:• recent arm’s length transactions in

similar assets (level 2 inputs); and• the discounting of estimated

future cash flows at currentmarket rates, incorporating theimpact of current credit spreadsand margins. The fair valuereflects both loan impairments atthe balance sheet date andestimates of market participants’expectations of credit losses overthe life of the loans (level 3 inputs).

Debt securities at amortised costFor these assets where an activemarket exists, fair value has beendetermined directly from observablemarket prices (level 1 inputs) or yieldsthrough a recognised pricing source

or an independent broker, price-provider or investment bank (level 2inputs).

Deposits from banks and customeraccountsThe estimated fair value of depositswith no stated maturity, whichincludes non-interest bearingdeposits, is the amount repayable ondemand. The estimated fair value offixed interest bearing deposits andother borrowings without quotedmarket prices is based on discountedcash flows, using interest rates fornew deposits with similar remainingmaturity (level 2 inputs).

Debt securities in issue For those instruments where an activemarket exists, fair value has beendetermined through an independentbroker/investment bank or estimatedby benchmarking the yield againstsimilar bonds issued by the Parent,which have similar maturity dates(level 2 inputs).

Subordinated liabilitiesAs quoted market prices are notavailable, the fair value is estimated bybenchmarking the yield against similarbonds issued by the Parent, whichhave similar maturity dates (level 2inputs).

(c) Fair value of non-financial assetsPropertyA revaluation of Group property wascarried out as at 31 December 2019.All freehold and long leaseholdcommercial properties were valued byLisney (or its partner, SandersonWeatherall) as external valuers. Lisneyvaluations were made on the basis ofobservable inputs such as comparablelettings and sales (level 2 inputs).Unobservable inputs such as profile,lot size, layout and presentation ofaccommodation are also used (level 3inputs). Using reasonably possiblealternative assumptions would nothave a material impact on the value ofthese assets. All properties are valuedbased on highest and best use.

41 Fair value of assets and liabilities


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41 Fair value of assets and liabilities (continued)

Group 2019 2018

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Fair value of financial assets held at amortised cost Loans and advances to banks - 2,161 - 2,161 - 2,353 - 2,353Debt securities at amortised cost 847 - - 847 918 - - 918Loans and advances to customers - - 20,986 20,986 - - 20,1281 20,128Total 847 2,161 20,986 23,994 918 2,353 20,128 23,399

Fair value of financial liabilities held at amortised cost Deposits from banks - 3,513 - 3,513 - 3,161 - 3,161Customer accounts - 19,097 - 19,097 - 19,780 - 19,780Debt securities in issue - 609 - 609Subordinated liabilities - 296 - 296 - 282 - 282Total - 23,515 - 23,515 - 23,223 - 23,223

Bank 2019 2018

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Fair value of financial assets held at amortised cost

Loans and advances to banks - 1,939 - 1,939 - 2,336 - 2,336Debt securities at amortised cost 847 - - 847 918 - - 918Loans and advances to customers - - 21,130 21,130 - - 20,2881 20,288Total 847 1,939 21,130 23,916 918 2,336 20,288 23,542

Fair value of financial liabilities held at amortised cost

Deposits from banks - 3,509 - 3,509 - 3,156 - 3,156Customer accounts - 19,214 - 19,214 - 19,835 - 19,835Debt securities in issue - 300 - 300Subordinated liabilities - 296 - 296 - 282 - 282Total - 23,319 - 23,319 - 23,273 - 23,273

1 Inclusive of loans and advances to customers which are classified as assets held for sale at 31 December 2018.



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Group and Bank 2019 2018

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Financial assets held at fair value Derivative financial instruments - 41 - 41 - 32 - 32

Non-financial assets held at fair value Property held at fair value - - 25 25 - - 24 24Total assets held at fair value - 41 25 66 - 32 24 56

As a % of fair value assets - 62% 38% 100% - 57% 43% 100%

Financial liabilities held at fair value Derivative financial instruments - 59 - 59 - 43 - 43Total financial liabilities held at fair value - 59 - 59 - 43 - 43

As a % of fair value liabilities - 100% - 100% - 100% - 100%

There were no transfers between levels 1, 2 or 3 during the year ended 31 December 2019 or 31 December 2018.

Movements in level 3 assets

Quantitative information about fair value measurements using significant unobservable inputs (level 3)

Group and Bank Fair Value Range

Valuation Unobservable 2019 2018 2019 2018Level 3 assets technique input £m £m % % Property held at fair value Market comparable Property valuation 25 24 Third party Third party property transactions assumptions pricing pricing

Group Bank

2019 2018 2019 2018Property held at fair value £m £m £m £m At 1 January 24 23 24 23Additions - - - -Revaluation of property 1 1 1 1At 31 December 25 24 25 24


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The carrying amount and the fair value of the Group’s financial assets and liabilities which are carried at amortised cost are set out inthe table below. Items where the carrying amount is a reasonable approximation of fair value are not included, as permitted by IFRS 7.

Group Bank

2019 2018 2019 2018

Carrying Fair Carrying Fair Carrying Fair Carrying Fair amount values amount values amount values amount values £m £m £m £m £m £m £m £m Financial Assets Loans and advances to banks 2,158 2,161 2,348 2,353 1,935 1,939 2,331 2,336Debt securities at amortised cost 846 847 915 918 846 847 915 918Loans and advances to customers1 21,200 20,986 20,240 20,128 21,321 21,130 20,397 20,288

Financial Liabilities Deposits from banks 3,500 3,513 3,152 3,161 3,496 3,509 3,148 3,156Customer accounts 19,075 19,097 19,769 19,780 19,192 19,214 19,824 19,835Debt securities in issue 607 609 - - 300 300 - -Subordinated liabilities 290 296 290 282 290 296 290 282

1 Including assets classified as held for sale £nil (2018: £537 million). See note 19.

Parties are considered to be related if oneparty has the ability to control the otherparty or exercise significant influence overthe other party in making financial oroperational decisions or one other partycontrols both. The definition includessubsidiaries, joint ventures and the Parent,as well as key management personnel.

(a) ParentThe immediate parent and owner ofthe entire share capital of the Group isThe Governor and Company of theBank of Ireland, a corporationestablished in Ireland in 1783 underRoyal Charter.

Bank of Ireland Group plc is listed asthe holding company and ultimateparent of the Bank of Ireland Groupand Bank of Ireland (UK) plc. Theresults of the Group are consolidatedin the Bank of Ireland Group plcfinancial statements, which areavailable at Bank of Ireland, HeadOffice, 40 Mespil Road, Dublin 4,Ireland being the registered office ofthe immediate and ultimate Parent(website: www.bankofireland.com). The Governor and Company of theBank of Ireland acts as guarantor forthe Bank in its transactions with theBank of England (including itssubsidiary, the Bank of England AssetPurchase Facility Fund Limited). If inany circumstances the Bank fails to

make payment of guaranteed amountsto the Bank of England or does notperform any of its other obligationsunder the relevant agreement, theGovernor and Company of the Bankof Ireland may be required to pay theamounts or perform its obligationsupon written demand from the Bank ofEngland.

The Group receives a range ofservices from its Parent and relatedparties, including loans and deposits,forward exchange, interest rate coverincluding derivatives and variousadministrative services. In the courseof operating its business, the Grouputilises a number of key services fromits Parent, which are subject to anumber of Service Level Agreementsand costs, and these are disclosed innote 9 of the financial statements.

Other transactions with the Parent in2019 and 2018

(i) On 24 October 2019 a dividendpayment of £100 million was paid tothe Parent. (2018: £70 million)

(ii) On 1 May 2019 a coupon payment of£16 million was paid to the Parent inrelation to the £200 million Additionaltier 1 instrument (2018: £16 million)(refer to note 38). On 26 November2019 a coupon payment of £8 million

was paid to the Parent in relation tothe £100 million Additional tier 1instrument (2018: £8 million) (refer tonote 38).

(iii) On 4 June 2019 the UK High Court ofJustice approved the Bank’sapplication to reduce its share capital,which is all held by the Parent, by£596 million from £851 million to £255million, by means of a reduction in thenominal value of each share from £1to £0.30, thereby increasingdistributable reserves, and to cancelthe capital redemption reserve of £300million. These reductions gave rise toan increase in retained earningstotalling £896 million.

(iv) On 11 December 2019, £300 millionfloating rate senior non preferrednotes were issued to the Parent, inorder to meet the Group’s indicativeinternal requirements for MinimumRequirement for Eligible Liabilities(MREL). These are disclosed as debtsecurities in issue.

(b) Pension fundsThe Group provides a range of normalbanking and financial services, whichare not material to the Group, tovarious pension funds operated by theBank of Ireland Group for the benefitof employees, which are conductedon similar terms to third partytransactions.

42 Related party transactions



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42 Related party transactions (continued)

Group 2019 2018Summary - Parent1 £m £m Income statementInterest income (note 3) (2) (1)Interest expense (note 4) (32) (26)Fees and commissions expense (note 6) (8) (8)Net trading (expense) / income (note 7) (22) 33Operating expenses paid for services provided (note 9) (173) (219)Total (237) (221) Assets Loans and advances to banks (note 17) 552 930Loans and advances to customers (note 19) 6 6Other assets (note 25) - -Derivatives (note 16) 37 31Total assets 595 967

LiabilitiesDeposits from banks (note 27) 1,980 1,651Customer accounts (note 28) 9 8Debt securities in issue (note 29) 300 -Other liabilities (note 30) 4 3Derivatives (note 16) 54 35Subordinated liabilities (note 34) 290 290Total liabilities 2,637 1,987 Net exposure (2,042) (1,020)

1 This relates to amounts in respect of the Parent and entities controlled by the Parent.

At 31 December 2019 and 2018 the Parent also held the AT1 securities of £300 million issued by the Bank which are classified as otherequity instruments (see note 38).


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(c) Transactions with key managementpersonnel

i. Loans to DirectorsThe following information ispresented in accordance withSection 413 of the Companies Act2006. For the purposes of theCompanies Act disclosures,‘Directors’ means the Board ofDirectors and any past Directorswho were Directors during therelevant year.

All loans to Directors are made inthe ordinary course of business onsubstantially the same terms,including interest rates andcollateral, as those prevailing atthe time for similar transactionswith other persons, unconnectedwith the Group and of similarfinancial standing. They do notinvolve more than the normal riskof collectability.

Group Aggregate maximum amount outstanding during(i) Balance as at the year ended Balance as at 31 December 31 DecemberCompanies Act disclosures 1 January 20192 20193 20194

Loans to Directors 2019 £’000 £’000 £’000 Loans to Directors 4 13 21

Aggregate maximum amount outstanding during Balance as at the year ended Balance as at 31 December 31 DecemberCompanies Act disclosures 1 January 20185 20183 20184

Loans to Directors 2018 £’000 £’000 £’000 Loans to Directors 3 4 17

2019 2018Bank Joint Joint Parent1 venture Total Parent1 venture Total £m £m £m £m £m £m Income statement Interest income (2) - (2) (1) - (1)Interest expense (32) - (32) (26) - (26)Fees and commission expense (8) - (8) (8) - (8)Net trading expense (22) - (22) 33 - 33Other operating income - 30 30 - 33 33Operating expenses paid for services provided (169) - (169) (215) - (215)Total income / (expense) (233) 30 (203) (217) 33 (184) Assets Loans and advances to banks 544 - 544 923 - 923Loans and advances to customers 6 - 6 6 - 6Other assets - - - - - -Derivatives 37 - 37 31 - 31Total assets 587 - 587 960 - 960 Liabilities Deposits from banks 1,977 - 1,977 1,646 - 1,646Customer accounts 9 - 9 8 - 8Debt securities in issue 300 - 300 - - -Other liabilities 4 - 4 3 - 3Derivatives 54 - 54 35 - 35Subordinated liabilities 290 - 290 290 - 290Total liabilities 2,634 - 2,634 1,982 - 1,982 Net exposure (2,047) - (2,047) (1,022) - (1,022)

1 This relates to amounts in respect of the Parent and entities controlled by the Parent.2 The opening balance includes balances and transactions with Directors who have retired during 2018 and are not related parties during the current year. Therefore, these

Directors are not included in the maximum amounts outstanding.3 Balance includes principal and interest.4 These figures include credit card exposures at the maximum statement balance. In all cases, Directors have not exceeded their approved limits. The maximum approved credit

limit on any credit card held by any Director is £14,000.5 Foreign currency amounts are converted to GBP, using exchange rates at 1 January 2018 and the average exchange rate for the year, as appropriate.



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1 Balance includes principal and interest.2 These figures include credit card exposures at the maximum statement balance. In all cases, KMP have not exceeded their approved limits. The maximum approved credit limit

on any credit card held by KMP is £14,000.3 The maximum amount outstanding was calculated using the maximum balance on each account. The highest maximum outstanding liability, during the year ended 31 December

2019 for any member of KMP and their close family did not exceed £1,008,000 (31 December 2018: £79,886) . The closing balance includes interest accrued and interest paid;the maximum balance includes interest paid.

4 Foreign currency amounts are converted to GBP, using exchange rates at 1 January 2019 and the average exchange rate for the year, as appropriate.5 The opening balance includes balances and transactions with KMP who retired during the previous year and are not therefore related parties during the year. Therefore, these

KMP’s are not included in the maximum amounts outstanding.

Group Aggregate maximum amounts outstanding during (ii) Balance as at the year ended Total number Total number Balance as at 31 December 31 December of KMP as of KMP as at2019 1 January 20195 20191 20192,3 at 1 January 31 DecemberKey management personnel £’000 £’000 £’000 2019 2019 Loans 59 1,043 1,115 7 9Deposits 513 816 1,159 13 8

Aggregate maximum amounts outstanding during Balance as at the year ended Total number Total number Balance as at 31 December 31 December of KMP as of KMP as at2018 1 January 20184,5 20181 20182,3 at 1 January 31 DecemberKey management personnel £’000 £’000 £’000 2018 2018 Loans 65 59 80 7 7Deposits 109 513 823 11 13

ii. Key management personnel -loans and depositsFor the purposes of IAS 24Related Party Disclosures, ‘keymanagement personnel’ comprisethe Directors of the Board, theChief Executive Officer, Chief RiskOfficer, Chief Financial Officer,Partnership Director, HR Director,Strategy and TransformationDirector, Operations Director, theManaging Director NorthernIreland and any past KMP, whowere a KMP during the relevantyear.

KMP, including Directors, holdproducts with the Group in theordinary course of business. Allloans to Non-executive Directorsare made in the ordinary course ofbusiness on substantially thesame terms, including interestrates and collateral, as thoseprevailing at the time forcomparable transactions withother persons, and do not involvemore than the normal risk ofcollectability or present otherunfavourable features. Loans toKMP, other than Non-executiveDirectors, are made on terms

similar to those available to staffgenerally, and / or in the ordinarycourse of business on normalcommercial terms.

The aggregate amountsoutstanding, in respect of allloans, quasi-loans and credittransactions, between the Group,its KMP (as defined above) andKMP of the Parent, includingmembers of their close familiesand entities influenced by themare shown in the table.



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CRD IV Pillar 3 disclosures for the Groupalso include information on remuneration.This can be found on the website of theBank of Ireland (UK) plc atwww.bankofirelanduk.com.

• Total compensation paid to KMP was£4.1 million for the year ended 31December 2019 and of this amount£1.9 million was paid to Directors. Thiscompared to £3.3 million and £1.7million respectively for the year ended31 December 2018.

• During the year ended 31 December2019 or the year ended 31 December2018, there was no remuneration paidto the Executive Directors of theParent in respect of their services asNon-executive Directors of the Group,or for managing the Group or itssubsidiaries;

• The highest total amount paid to anyDirector for the year ended 31December 2019 was £531,696comprising salary and other benefits(2018: £470,650). The total accruedpension and accrued lump sum of thisDirector at the year ended 31December 2019 was £nil;

• One Executive Director accruedretirement benefits under a definedbenefit and defined contribution Bankof Ireland Group Pension Scheme foryear ended 31 December 2019.

• Pension costs were paid by the Parentand the costs incurred recharged onan agreed basis through the servicelevel agreements.

• There were no additional benefits,paid by the Group or any other party,in respect of compensation to theDirectors for their services formanaging the Group or itssubsidiaries, either for the year ended31 December 2019 or the year ended31 December 2018.

Group 2019 2018(d) Compensation of key management personnel £000’s £000’s RemunerationSalaries and other benefits 3,875 3,016Pension benefits 245 303Total 4,120 3,319


43 Offsetting financial assets and liabilities

Group 2019 2018

Gross amounts Net amounts Gross amounts Net amounts of recognised of financial of recognised of financial financial assets financial assets Gross amounts liabilities1 presented Gross amounts liabilities1 presented of recognised set off in the in the of recognised set off in the in the financial assets balance sheet balance sheet financial assets balance sheet balance sheetAssets £m £m £m £m £m £m Loans and advances to customers 165 (165) - 266 (266) -

The following items have been offset in thebalance sheet, in accordance withparagraph 42 of IAS 32.

In addition, as set out in section 2.1.2 ofthe Risk management report, the Group’s

net exposure to the Parent is managedthrough a contractual master nettingagreement with the Parent. Theseamounts do not meet the criteria for offsetunder paragraph 42 of IAS 32 and arepresented gross within loans and

advances to banks, derivatives anddeposits by banks respectively. Furtherdetail on these amounts is set out in notes17, 16 and 27 to the financial statements.

1 Loans and advances to customers represent loan agreements entered into by the Group that are fully collateralised by the Parent. Ultimate recourse is to the Parent. These loansare netted on the balance sheet against deposits received from the Parent.



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1 Bank of Ireland Trustee Company Limited went into members voluntary liquidation on 27 March 2019.2 This entity is a joint venture with the UK Post Office in which the Group holds 50% of the equity of the company. FRESH holds 100% of the equity in FRES.3 Gates Contract Hire Limited went into members voluntary liquidation on 18 September 2019.4 This was previously a securitisation entity. The securitisation was unwound during 2018 and the company is no longer actively trading.

44 Interests in other entities

Group Percentage of Percentage ordinary share of voting Country of Statutory capital held rights held RegisteredNames Principal activity incorporation year end % % address NIIB 1 Donegall Square South,Group Belfast,Limited Personal finance and leasing Northern Ireland 31 December 100 100 BT1 5LR.

Bank of Ireland 1 Temple Back East,Personal Finance Temple Quay, Bristol,Limited Personal finance Northern Ireland 31 December 100 100 BS1 6DX.

Bank of Ireland 1 Temple Back East,Trustee Company Temple Quay, Bristol,Limited1 In-liquidation Northern Ireland 31 December 100 100 BS1 6DX.

Bow Bells House, Midasgrange 1 Bread Street, London,Limited Dormant England and Wales 30 September 100 100 EC4M 9BE.

Great West House,First Rate Great West Road,Exchange Services Brentford, London, Holdings Limited2 Foreign exchange England and Wales 31 March 50 50 TW8 9DF.

Great West House,First Rate Great West Road,Exchange Brentford, London,Services Limited Foreign exchange England and Wales 31 December 50 50 TW8 9DF.

Marshall Bow Bells House,Leasing 1 Bread Street, London,Limited Vehicle leasing England and Wales 31 December 100 100 EC4M 9BE.

Gates Bow Bells House,Contract 1 Bread Street, London,Hire Limited3 In-liquidation England and Wales 31 December 100 100 EC4M 9BE

6th floor,Bowbell 65 Gresham Street, London,No.1 plc4 Non-trading England and Wales 31 December n/a n/a EC2V 7NQ.

Level 37,Bowbell 25 Canada Square, London,No.2 plc Securitisation England and Wales 31 December n/a n/a E14 5LQ.

Copies of the financial statements of theseundertakings can be obtained from therelevant addresses listed above.

Management has assessed itsinvolvement in all entities in accordancewith the definitions and guidance in:• IFRS 10: Consolidated Financial

Statements;• IFRS 11: Joint Arrangements;• IAS 28: Investments in Associates and

Joint Ventures; and

• IFRS 12: Disclosure of interests inother entities.

The Group controls an entity when it haspower over the entity, is exposed to or hasrights to variable returns from itsinvolvement with the entity and has theability to affect those returns through itspower over the entity.

Generally, control or significant influence isidentified by the level of ownership of

ordinary shares and the level ofmanagement involvement in the relevantactivities of the entity. However, in thecase of ‘structured entities’,management’s judgement is required indetermining how the investee should beaccounted for.

There are no significant restrictions on theGroup’s ability to access or use the assetsand settle the liabilities of the Group.


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Structured entitiesA structured entity is an entity that hasbeen designed so that voting or similarrights are not the dominant factor indeciding who controls the entity, such aswhen any voting rights relate toadministrative tasks only and the relevantactivities are directed by means ofcontractual arrangements.

In assessing whether it has control oversuch an entity, the Group assesses whetherit has power over the relevant activities byconsidering factors such as who managesthe assets of these entities, if the Group haslending to them or has a residual interest inthem.

In the case of structured entities, the Groupconsiders it has control over the investeewhere it is a securitisation vehicle whose

purpose is to finance specific loans andadvances to customers. In such cases theGroup considers that it has power over theentity, is exposed to or has rights tovariable returns from its involvement withthe entity and has the ability to affect thosereturns through its power over the entity.

In June 2019 the Group transferredmortgage loans into a structuredsecuritisation entity, Bowbell No. 2 plc(‘Bowbell 2’) and issued £2.3 billion ofmortgage backed securities, of which £350million were issued externally to the Group,with the balance held by the Bank.

During 2018, the Group unwound itsprevious structured securitisation entity,Bowbell No. 1 plc (‘Bowbell 1’). Allmortgage loans held by the entity weretransferred back to the Bank, and the

mortgage backed securities previouslyissued by Bowbell 1 to the Bank were fullyrepaid.

Both Bowbell 1 and Bowbell 2 areincorporated in Great Britain, with 100% oftheir ordinary share capital and voting rightsbeing held by their ultimate holdingcompanies (which are not subsidiaries ofthe Group), Bowbell No. 1 Holdings Limitedand Bowbell No. 2 Holdings Limitedrespectively. The creditors of Bowbell 2 andBowbell 1 have no recourse to the Group.During 2019 and 2018 there were nocontractual arrangements that required theGroup to provide financial support to eitherof its structured entities.

The assets and liabilities of Bowbell 2 areshown in the table below:

44 Interests in other entities (continued)

Group 2019 2018

Loans and advances Loans and advances to customers Notes in issue to customers Notes in issueActivity Company £m £m £m £m Acquiring mortgage loans and Bowbell No. 2 plc 1,857 2,020 - -issuing mortgage backedsecurities

45 Transferred financial assets

Bank Fair value of associated Carrying liabilities Carrying amount of Fair value (Fair value amount associated of transferred of notesSecuritisation of assets liabilities assets in issue)2019 £m £m £m £m Residential mortgage book (Bowbell No. 2 plc)1 1,857 2,020 1,903 2,024

Group Fair value of associated Carrying liabilities Carrying amount of Fair value (Fair value amount associated of transferred of notesSecuritisation of assets liabilities assets in issue)2019 £m £m £m £m Residential mortgage book (Bowbell No. 2 plc)1 314 307 322 309

At 31 December 2019, the following assets were transferred but not derecognised from the balance sheet:

The Group is exposed substantially to all the risks and rewards including credit and market risk associated with the transferred assets.

At 31 December 2018, neither the Group nor the Bank had transferred any financial assets which were not derecognised from thebalance sheet.

Neither the Group nor the Bank is recognising any asset to the extent of its continuing involvment.

1 For the purposes of this disclosure, associated liabilities include liabilities issued by Bowbell No. 2, held by the Bank.



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46 Impact of adopting new accounting standard IFRS 16 ‘Leases’

Group and Bank £m Operating lease commitments as at 31 December 2018 39

LessValue added tax included in operating lease commitments as at 31 December 2018 (5)Operating lease commitments as at 31 December 2018 excluding value added tax 34

Weighted average incremental borrowing rate as at 1 January 2019 2.1%Discounted operating lease commitments as at 1 January 2019 excluding value added tax under IFRS 16 25

Add Commitments in optional extension periods not recognised as at 31 December 2018 1Lease liabilities as at 1 January 2019 26

Carrying Carrying amount before Impact amount after adoption of of new adoption of IFRS 16 as at accounting IFRS 16 as at 31 December 2018 standard 1 January 2019Group £m £m £m AssetsProperty, plant and equipment 117 22 139Other assets 102 1 103

LiabilitiesLease liabilities - 26 26Other liabilities 1,318 (3) 1,315

Carrying Carrying amount before Impact amount after adoption of of new adoption of IFRS 16 as at accounting IFRS 16 as at 31 December 2018 standard 1 January 2019Group £m £m £m AssetsProperty, plant and equipment 24 22 46Other assets 97 1 98

LiabilitiesLease liabilities - 26 26Other liabilities 1,298 (3) 1,295

As outlined in the Group accounting policies note on page 83, from 1 January 2019, the Group adopted IFRS 16 ‘Leases’. On transitionto IFRS 16, the Group recognised Right of Use (RoU) assets and lease liabilities by adjusting the opening balances of the relevant assetsand liabilities on the balance sheet, with no adjustment required to opening retained earnings. The impact on transition is summarisedbelow:


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48 Approval of financial statements

The Board of Directors approved the financial statements on 2 March 2020.

47 Post balance sheet events

There are no post balance sheet events that require disclosure in the financial statements.

46 Impact of adopting new accounting standard IFRS 16 ‘Leases’ (continued)

Group and Bank Right of use asset - Lease Buildings liabilitiesBalance sheet under IFRS 16 £m £m As at 1 January 2019 22 26Payments - (5)Interest expense (note 4) - 1Remeasurement of lease liabilities - (2)Other movements (3) -Depreciation expense (3) -As at 31 December 2019 16 20

Group and Bank Year ended Year endedSummary of amounts recognised in the income statement 31 December 2019 31 December 2018under IFRS 16 compared to equivalent amounts under IAS 17 £m £m Amounts recognised in interest expense Interest expense on lease liabilities 1 -

Amounts recognised in other operating expenses Depreciation of RoU assets in property, plant and equipment 3 -Total 4 -

Amounts recognised in the balance sheet and income statementSet out below are the carrying amounts of the Group’s RoU assets and lease liabilities and the movements during the period:

The Group recognised rent expense from short-term leases of £nil for the year ended 31 December 2019.


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Other Information

Principal business units and addresses1

Bank of Ireland (UK) plcBow Bells House, 1 Bread Street, London EC4M 9BETel: +44 207 236 2000Website: www.bankofirelanduk.com

Bank of Ireland Great Britain Consumer BankingMortgages, Personal LoansPO Box 27, One Temple Quay, Bristol BS1 9HYTel: + 44 117 979 2222 and + 44 117 909 0900

Bank of Ireland Northern Ireland Business Banking1 Donegall Square South, Belfast, BT1 5LRTel: +44 28 9043 3000

First Rate Exchange Services LimitedGreat West House, Great West Road, Brentford, London, TW8 9DFTel: + 44 208 577 9393, Fax: + 44 208 814 6685Website: www.firstrate.co.uk

NIIB Group Limited (trading as Northridge Finance)1 Donegall Square South, Belfast BT1 5LRTel: + 44 844 892 1848website: www.northridgefinance.com

Marshall Leasing LimitedBridge House, Orchard Lane, Huntingdon, Cambridgeshire, PE29 3QTTel: + 44 148 041 4541

Pillar 3 disclosures

The Group's Pillar 3 document for the year ended 31 December 2019 can be accessed on the Group's website:www.bankofirelanduk.com. The Group's obligations under Article 89 of the CRD IV have been met by consolidation of Group data inthe Parent’s country by country reporting which is published on the Bank of Ireland Group website www.bankofireland.com.

1 Registered addresses for subsidiary companies are included in note 44.


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Further information related tocertain measures referred to in thestrategic report.

The Group considers that the alternativeperformance measures included in thestrategic report provide meaningful

information to enable a consistent basisfor comparing the financial performancebetween reporting periods.

In arriving at an underlying basis, theeffect of certain items that do not promotean understanding of future or historical

performance are excluded. Managementconsiders that this presents a moremeaningful basis for year on yearcomparison. These non-core items are setout on page 8.

Alternative performance measures

Average interest earning assets – isdefined as the twelve month average oftotal loans and advances to customers(less ECL stage 3 balances), cashplacements, securities balances and netbalances owed by the Parent (theGovernor and Company of the Bank ofIreland).

Cost income ratio – is calculated on astatutory basis being operating expensesdivided by operating income.

Gross new lending volumes – representsloans and advances to customers drawnin the year.

Net interest margin – is defined as netinterest income for the year divided byaverage interest earning assets.

Return on assets – is calculated asstatutory profit after tax divided by totalassets, in line with the requirement in theEuropean Union (Capital Requirements)Regulations (CRR) 2014.

Statutory return on tangible equity – iscalculated as being profit attributable toshareholders (net of tax) divided byaverage shareholders’ equity less averageintangible assets and goodwill.

Underlying return on tangible equity – iscalculated as being profit attributable toshareholders less non-core items (net oftax) divided by average shareholders’equity less average intangible assets andgoodwill.

Regulatory performance measures

Leverage ratio – is calculated as the tier 1capital divided by total balance sheetassets and off balance sheet exposures.

Liquidity coverage ratio (LCR) – iscalculated as the high quality liquid assets,divided by net cash outflows over the next30 days, expressed as a percentage.

Loan to deposit ratio – is calculated asnet loans and advances to customersincluding those classified as held for saleexpressed as a percentage of customerdeposits.

Net stable funding ratio (NSFR) – isdefined as the total amount of availablestable funding divided by the total amountof required stable funding, expressed as apercentage.

Risk weighted assets (RWAs) – on andoff balance sheet assets are risk weightedbased on the amount of capital required tosupport the assets. The Group adopts astandardised approach for calculatingRWAs.

Performance measures

Other Information


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Other Information

Abbreviations

ALCO Asset and Liability Committee

AML Anti Money Laundering

ATM Automatic Teller Machine

BOI Bank of Ireland

BRC Board Risk Committee

CCO Chief Credit Officer

CEO Chief Executive Officer

CFO Chief Financial Officer

CGU Cash Generating Unit

CMA Competition and Markets Authority

CRD Capital Requirement Directive (EU)

CRO Chief Risk Officer

CRPC Credit Risk Portfolio Committee

CRR Capital Requirements Regulation

CSA Credit Support Annex

DCF Discounted Cash Flow

EAD Exposure at default

EBA European Banking Authority

ECL Expected Credit Loss

EIR Effective Interest Rate

ERC Executive Risk Committee

EU European Union

EURIBOR Euro interbank offered rate

FCA Financial Conduct Authority

FLI Forward Looking Information

FPC Financial Policy Committee

FRES First Rate Exchange Services Limited

FRESH First Rate Exchange Services Holdings Limited

GBP ISO 4217 currency code for Pound Sterling

GCR Group Credit Review

GIA Group Internal Audit

GRPC Group Risk Policy Committee

IAS International Accounting Standards

IASB International Accounting Standards Board

IBR Incremental borrowing rate

IBOR Interbank offered rate

ICAAP Internal Capital Adequacy Assessment Process

IFRS International Financial Reporting Standards

IFRS IC IFRS Interpretations Committee

ILAAP Individual Liquidity Adequacy Assessment Process

IRRBB Interest Rate Risk in the Banking Book

ISDA International Swaps and Derivatives Association

IT Information Technology

KMP Key Management Personnel

KPI Key Performance Indicator

LCR Liquidity Coverage Ratio

LGD Loss Given Default

LIBOR London Interbank Offered Rate

LLP Limited Liability Partnership

LTD Limited

LTV Loan to Value

MLL Marshall Leasing Limited

MRR Monthly Risk Report

NSFR Net Stable Funding Ratio

OCI Other Comprehensive Income

ORMF Operational Risk Management Framework

PD Probability of Default

POCI Purchased or originated credit-impaired financial assets

PRA Prudential Regulation Authority

PSAGC Product & Services Approvals & Governance Committee

RAROC Risk Adjusted Return on Capital

RAS Risk Appetite Statement

RMF Risk Management Framework

ROTE Return on Tangible Equity

ROU Right of use

R&ORC Regulatory and Operational Risk Committee

RWA Risk Weighted Assets

SME Small / Medium Enterprises

TFS Term Funding Scheme

£m Million

’000 Thousands





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2019...dedication, professionalism and counsel. I would like to thank Neil Fuller for supporting us so well during the period he was interim Chief Executive Officer and would like