Shareholding and Financial Advisory Division (SFAD)€¦ · • AIB capital reorganisation returned €1.6bn to the State • AIB CoCo redemption of €1.6bn • IBRC paid first interim

Shareholding and Financial Advisory Division (SFAD)

Fact Book: H1 2020

Section 1: Introduction

Section 2: Economic Update

Section 3: State Bank Investments

Section 4: NAMA / HBFI

Section 5: Credit Unions

Section 6: IBRC

Section 7: Financial Advisory

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3 An Roinn Airgeadais | Department of Finance

Shareholding and Financial Advisory Division

SFAD Roles & ResponsibilitiesSF

AD

Developing and recommending to the Minister strategies for returning the banks to private ownership Realising value for the taxpayer by executing share disposals Monitoring bank performance and stock market trends through regular interaction with management,

investors and market participants Protecting and exercising the Minister’s rights while respecting bank Relationship Framework

Agreements

1. Oversight of State ownership in Irish banks

2. Advisory and policy development

3. Oversight of NAMA and HBFI

6. Liquidation of IBRC

4. Oversight of Credit Union Sector

5. Market Interaction

Utilisation of expertise within the Division to provide financial advisory services and input to policy options across the Department of Finance Manage and co-ordinate the Blockchain & Virtual Currencies Working Group Provide insight and objective analysis on emerging areas of financial services and technology

Responsible for representing the Minister’s interests in relation to the liquidation of IBRC

The Shareholding and Financial Advisory Division (SFAD) consists of a team of c. 20 professionals with a mix of capital markets, accounting, corporate finance, legal and investment backgrounds. This team has a blend of both private sector expertise and experienced civil servants and has a number of roles and responsibilities:

Responsible for the management of the Minister’s shareholding in the National Asset Management Agency (NAMA) and Home Building Finance Ireland (HBFI)

Policy oversight for the Credit Union sector Provide advice to the Minister on developments in the sector

Daily two-way interaction with analysts, investors, investor relation teams and investment banks

Introduction

Economic Update

State Bank Investments

NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

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A Track Record of Delivery

A number of significant milestones have been achieved:

2015

2016

2017

• Recapitalisation, restructuring and deleveraging was undertaken across the sector

• Elimination of promissory notes programme, ELA and liquidation of IBRC

• Sale of Bank of Ireland CoCos (€1bn) and Preference Shares (€2bn)

• State disposal of Irish Life for €1.3bn

• Establishment of NAMA

• Troika programme commitments met and programme exited

• PTSB raised €525m of capital to address stress test shortfall, while the State retained a 75% stake

• AIB capital reorganisation returned €1.6bn to the State

• AIB CoCo redemption of €1.6bn

• IBRC paid first interim dividend of 25% to all admitted creditors

• AIB resumed dividend repayment: €250m and Initial Public Offering (IPO) raised €3.4bn for the State (the second largest IPO globally in 2017)

• Completion of ReBo activity: 82 mergers concluded, involving 156 individual credit unions with total assets in excess of €6.7bn

• NAMA repaid 100% of its senior debt

• IBRC paid second interim dividend of 25% to all admitted unsecured creditors

2010 to

2014

2018

• BOI announced the re-commencement of dividends

• Eligible Liability Guarantee (ELG) eliminated

• PTSB completed the sale of Project Glas and Project Glenbeigh. This saw its NPL ratio reduce to 10%, from 26% at the start of the year

• Launched an intra-Departmental working group on virtual currencies & blockchain technology

• IBRC paid final dividend of 50% to all admitted creditors

• Anglo Irish Bank assessor appointed pursuant to the Anglo Irish Bank Corporation Act 2009

2019

• Home Building Finance Ireland (HBFI) officially launched in January 2019 to finance housing construction

• Hosted the first Government services blockchain hackathon in the Trinity Innovation Centre in January 2019

• Permanent TSB exited its restructuring plan

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

2020

• Ongoing efforts to address the numerous challenges posed by Covid-19 to the Irish banking sector and the wider economy

• NAMA redeemed final debt and equity obligations and commenced return of surplus to the State - €2bn to transfer in June

• Final report of the Anglo Irish Bank Assessor published in April 2020






Section 6: IBRC


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EconomyThe Irish economy experienced robust economic growth prior to

the outbreak of Covid-19; expected to return to growth in 2021

Commentary 2021 Forecast Real GDP Growth (%)2

1. Central Statistics Office (CSO) - GNP at Constant linked to 2017) Market Prices (Seasonally Adjusted) (€ million)2. European Commission Spring 2020 Economic Forecast 23rd April 2020

3. Personal Consumption Expenditure (PCE) is the market value of all goods and services, including durable products, purchased by households (excluding purchases on dwellings)

4. Source: CSO Retail Sales Index Value Adjusted – (Base 2015=100)

GDP and GNP (€bn)1

Retail Sales Index: Seasonally Adjusted4

(2015 base = 100)

Ireland’s Gross Domestic Product (GDP) grew by 5.5% in 2019 to €339 billion. This compares with growth of 3.3% in Gross National Product (GNP).

European Commission forecasts suggest that Ireland’s economy will recover in line with the wider EU in 2021 following a pan-European recession in 2020

Consumer spending growth (as represented by the Retail Sales Index) has experienced steady growth since 2015.

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

111.2

90

95

100

105

110

115

April 2015 base

2008€198

2019€339

2008€170

2019€258

€100 €125 €150 €175 €200 €225 €250 €275 €300 €325 €350 €375

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

GDP €bn (Seasonally Adjusted) GNP €bn (Seasonally Adjusted)

-9.7 -8

.2

-9.4

-7.2

-7

-9.5

-7.7

-7.4

-7.9 -6

.5

-6.8 -5

.4

-5.9

-6.8 -5

.5

-6.1

-6.3

7.9

7.4 7

6.7

6.7

6.5

6.3

6.1

6.1

5.9

5.8

5.7

5.1 5 5

4.3

3.7

-10

-8

-6

-4

-2

0

2

4

6

8

Gre

ece

Fran

ce

Spai

n

Bel

giu

m

Slo

ven

ia

Ital

y

Euro

Are

a

EU

Irel

and

Ge

rman

y

Po

rtu

gal

Luxe

mb

ou

rg

Den

mar

k

Ne

the

rlan

ds

Au

stri

a

Swed

en

Fin

lan

d

2020

2021

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Commentary Ireland’s Purchasing Manager’s Index (PMI)1

Composite Purchasing Managers Index – Western European countries1

The Covid-19 lockdown has temporarily brought the construction and services sectors largely to a halt in Q1 2020.

Ireland's manufacturing PMI remained more resilient than in most other Western European countries resulting in a higher composite PMI in April-20 (17.3 vs. 13.6 for the wider Eurozone).

1. Bloomberg / NTMA Investor Presentation April-2020

Economy: Covid-19 ImpactsIreland’s Purchasing Managers Index declined sharply in Q1 2020, but with greater resilience than most Western European peers

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

CompositeFeb-20

56.7

CompositeApr-20

17.3

Manufacturing36

Services13.9

Construction4.5

0

10

20

30

40

50

60

70

Composite Manufacturing Services Construction

50

.7

56

.7

53

.0

51

.6

52

.0

50

.7

51

.8

35

.0

37

.3

36

.0

29

.7

28

.9

20

.2 2

6.7

17

.4

17

.3

13

.8

13

.6

11

.1

10

.9

9.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Germany Ireland UK EuroZone France Italy Spain

Jan-20 Feb-20 Mar-20 Apr-20

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Covid-19 Fiscal Response €6.5 billion of business supports announced since beginning of the

epidemic

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

A range of measures have been announced to help meet the capital requirements (including working capital, and short and long term debt) for small, medium and large businesses:

1. Credit Guarantee Scheme for COVID-19: in partnership with AIB, Bank of Ireland and Ulster Bank, this scheme supports loans of up to €1 million to Small to Medium Enterprises (SMEs).

2. The COVID-19 Business Loan scheme is designed for Microenterprises that wish to access loans of up to €50,000 over 3 years. This is administered by Microfinance Ireland.

3. The €450m SBCI COVID-19 Working Capital Scheme is designed for eligible businesses loans from €25,000 up to €1.5 million with a maximum interest rate of 4%.

4. The SBCI Future Growth Loan Scheme was granted an additional €200 million in supplementary funding to provide longer-term loans to COVID-19 impacted businesses.

5. The Sustaining Enterprise Fund is a €180 million scheme aimed at firms with 10 or more employees impacted by COVID-19 that are vulnerable but viable.

6. The Pandemic Stabilisation and Recovery Fund will make up to €2 billion of capital available to medium and large enterprises through a dedicated fund operated by the Irish Strategic Investment Fund (ISIF).

Increasing the availability of capital to Irish businesses3

Tax Measures1

1. Tax repayments and refunds: the Revenue Commissioners have indicated that it will expedite refunds to taxpayers with regard to: VAT, personal services withholding tax, and excess R&D tax credits.

2. Interest suspension: the charging of interest on the late payment of VAT has been suspended by Revenue for March/April, while interest on PAYE employer liabilities has been suspended for April.

3. Debt Enforcement: All debt enforcement activity by Revenue remain suspended until further notice.

Sources:1. More measures can be found on https://www.revenue.ie/en/corporate/press-office/press-releases/2020/pr-020420-revenue-update-advice-to-smes-experiencing-

cashflow-difficulties-arising-from-covid-19.aspx2. https://www.gov.ie/en/service/578596-covid-19-wage-subsidy/

3. Department of Business Enterprise and Innovation

1. Temporary COVID-19 Wage Subsidy Scheme: employers that have lost 25% or more of their revenue as a result of Covid-19 can apply to have 70-85% of their employees’ wages temporarily subsidised by the State.

Income Supports2

https://www.revenue.ie/en/corporate/press-office/press-releases/2020/pr-020420-revenue-update-advice-to-smes-experiencing-cashflow-difficulties-arising-from-covid-19.aspx

https://www.gov.ie/en/service/578596-covid-19-wage-subsidy/

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€702 €711

€718

€732

€757

€784

€660

€680

€700

€720

€740

€760

€780

€800

Q4 2014 Q4 2015 Q4 2016 Q4 2017 Q4 2018 Q4 2019(est.)

Labour Force: Prior to Covid-19, Ireland experienced a sharp reduction in

unemployment; increase in reported figures in Q1 2020Commentary Unemployment Rate1

Youth employment amongst under 25s as a % of Active Population (2008 – 2019)3

1. CSO and Eurostat, Note2. CSO. Preliminary figures for Q4 2019

3. Eurostat, seasonally adjusted, not calendar adjusted4. https://www.cso.ie/en/releasesandpublications/er/lr/liveregisterapril2020/ Seasonally adjusted

Wage increases: Average Weekly Earnings2

Unemployment rate amongst under 25s as a % of Active Population (Q1 2020)3

Seasonally adjusted unemployment rate stood at 16% in 2012. This fell to 4.8% in February 2020 before rising to 5.4% following the outbreak of Covid-19. Unemployment figures are expected to rise further in the next statistical release as a result of the pandemic.

As of April 2020, 602,170 people were in receipt of the Government’s Pandemic Unemployment Payment (PUP). This is in addition to the 216,900 citizens already on the Live Register.4

Falling unemployment has helped drive wage growth of c.12% between 2014 and Q4 2019

With the exception of March 2020, youth unemployment in Ireland has declined each year since 2012. It now stands at 13%, below the EU19 average of 16%

+12%

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

16%

Mar-20, 5.4%

Mar-20, 7.4%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

Hu

nd

red

s

Ireland Euro Area 19

Mar-2013%

Mar-2015.8%

0%

5%

10%

15%

20%

25%

30%

35%

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Jan

-17

Jan

-18

Jan

-19

Jan

-20

Ireland EU 19

33

%

28

%

20

%

20

%

20

%

18

%

16

%

15

%

13

%

11

%

9%

8%

6%

6%

0%

5%

10%

15%

20%

25%

30%

35%

https://www.cso.ie/en/releasesandpublications/er/lr/liveregisterapril2020/

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State Finances: Economic growth has helped drive down borrowing costs however

Covid-19 will increase the need for additional borrowing in 2020Commentary Government Debt to GDP % (2006 – 2019)2

Government Budget Surplus (Deficit) Q4 2019 (%)3

1. Central Bank of Ireland and CSO2. Europa.eu

3. Europa.eu: Government deficit(-) or surplus(+) (as % of GDP)4. Bloomberg: As of May 2020

5. https://www.ntma.ie/news/ntma-raises-6-billion-from-sale-of-new-7-year-benchmark-bond

Government Net Worth (2014 to 2019)1

European 10 Year Bond Yields % (May 2020)4

Levels of government indebtedness remain high relative to pre-2007 levels, however, the sustainability and affordability of this is reinforced by strong economic growth and low borrowing costs

Covid-19 will increase the need for additional government indebtedness. In April 2020, the NTMA raised €6 billion through the syndicated sale of a 7-year Treasury Bond. The funds were raised at a yield of 0.242%.

(€bn)

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

24

%

24

%

42

%

62

%

86

%

11

0% 12

0%

11

9%

10

5%

77

%

73

%

68

%

64

%

59

%

84%

0%

20%

40%

60%

80%

100%

120%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

Ireland (%) Euro Area 19 (%)

Q4 20190.4%

Q4 2019-0.6%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

Q1

200

6Q

3 2

006

Q1

200

7Q

3 2

007

Q1

200

8Q

3 2

008

Q1

200

9Q

3 2

009

Q1

201

0Q

3 2

010

Q1

201

1Q

3 2

011

Q1

201

2Q

3 2

012

Q1

201

3Q

3 2

013

Q1

201

4Q

3 2

014

Q1

201

5Q

3 2

015

Q1

201

6Q

3 2

016

Q1

201

7Q

3 2

017

Q1

201

8Q

3 2

018

Q1

201

9Q

3 2

019

Ireland (%) Euro Area 19 (%)2

.1%

1.8

%

1.3

%

0.8

%

0.8

%

0.7

%

0.1

%

0.0

%

-0.1

%

-0.1

%

-0.1

%

-0.2

%

-0.3

%

-0.5

%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

€177 €182 €184 €191 €211 €213

-€237 -€234 -€231 -€228 -€244 -€241

-€61 -€52 -€47 -€37 -€33 -€28

-€250

-€150

-€50

€50

€150

€250

2014 2015 2016 2017 2018 2019

Liabilities at market valueFinancial & Non-Financial Assets at market valueNet worth at market value, excluding pension liabilities

https://www.ntma.ie/news/ntma-raises-6-billion-from-sale-of-new-7-year-benchmark-bond

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Debt Servicing (1/2): stabilisation leading to better credit ratings

and falling yields – Irish government continues to secure cheap

long term funding

[xx]

Source:1. Moody (Sept-17), S&P (Nov-19), Fitch (Dec-17)

2. NTMA: https://www.ntma.ie/business-areas/funding-and-debt-management/investor-relations/credit-ratings3. Bloomberg

4. NTMA April 2020. Data excludes programme loans.

Rating Agency Long-term Short-termOutlook

/trend

Date of

updateLong-term Short-term

Outlook

/trend

BBB+ A-2 Negative WatchDec

2011AA- A-1+ Stable

BBB+ F2 Negative WatchApr

2011A+ F1+ Stable

MOODY’S Ba1 Not Prime NegativeJul

2011A2 P-1 Stable

N/a A (high) R-1 (middle) Stable

R&I N/a A a-1 Stable

20111

20202

Improved fundamentals helping reduce Irish Government Bond Yield (Weighted Avg. 10 year yield % Jan 2011 – May 2020)

3:

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

In Nov-2019, S&P upgraded Ireland’s long term rating to AA

13%

0.2%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Jan

-17

Jul-

17

Jan

-18

Jul-

18

Jan

-19

Jul-

19

Jan

-20

Uncertainty as a result of Covid-19

led to yields turning positive in Q2 2020

Weighted average maturity of Irish government debt exceed Euro Area peers (years):

4

10

.4

10

.3

10

.1

10

.1

8.0

7.8

7.7 7.8

6.9

6.4

0.0

2.0

4.0

6.0

8.0

10.0

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Debt Servicing (2/2): Long term sustainability of debt profile helped by Ireland’s proportionally

young population

Commentary Old Age Dependency Ratio (Individuals aged 64+ as a % of those between the ages of 15-64)1

Fertility Rate In Ireland (2017)2

1. 2018 Worldbank.org. 2. WorldBank.org: Fertility rates relate to the number of children born per family

3. April Central Statistics Office. 2019 figures are preliminary.

Favourable demographics reinforce Ireland’s relative debt sustainability in the long run, while also continuing to make Ireland an attractive destination for Multinational Corporations (MNCs). However, like other European countries, Ireland’s ageing population is expected to result in increased age-related expenditure over time.

Net migration turned positive in 2016 for the first time since 2009. Continued to grow in 2019 with net migration of 34,000 versus 20,000 in 2017.

Net Inward Migration (Thousands)3

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

20 20 21 23 2

6 28 29 29 29 30 30 30 31 31 32 32 32 33 34 34 35 36

0

5

10

15

20

25

30

35

40

Cyp

rus

Luxe

mb

ou

rg

Irel

and

Slo

vak

Rep

ub

lic

Po

lan

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Au

stri

a

Un

ited

Kin

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m

Bel

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m

Spai

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Ne

the

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ds

Cze

ch R

epu

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Slo

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ia

Esto

nia

Den

mar

k

Euro

are

a

Swed

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Fran

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Ge

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y

Gre

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Po

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Fin

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d

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1.3

1.3 1.4 1.4 1.4 1.4 1

.5 1.5 1.6 1.6 1

.7 1.7 1

.8 1.8 1.9 1

.9

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

Ital

y

Spai

n

Po

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gal

Gre

ece

Po

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d

Luxe

mb

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Fin

lan

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Au

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a

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are

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Ge

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Ne

the

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ds

Bel

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m

Den

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k

Irel

and

Swed

en

Fran

ce

72

105

64

2

-28 -27 -26 -19-9

616 20

34 34

-100

-50

0

50

100

150

Ap

r-0

6

Ap

r-0

7

Ap

r-0

8

Ap

r-0

9

Ap

r-1

0

Ap

r-1

1

Ap

r-1

2

Ap

r-1

3

Ap

r-1

4

Ap

r-1

5

Ap

r-1

6

Ap

r-1

7

Ap

r-1

8

Ap

r-1

9

Immigrants Emigrants Net migration ('000)

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Housing (1/2): 2008 Financial crisis saw a collapse in the Irish housing market. Covid-19 has

resulted in a halt in construction activity, expected to resume in June 2020

Commentary Market-based Purchases of Residential Dwellings2

1. CSO.ie: The primary data source used for the New Dwellings Completions series is the ESB Networks new domestic connections dataset wherethe date that the connection is energised determines the date of completion. It is accepted that the ESB domestic connections dataset is

overestimating new dwellings and the CSO has adjusted for this overcount by using additional information from the ESB and other data sources2. Central Statistics Office (Market-based Household Purchases of Residential Dwellings)

3. Central Statistics Office

Ireland’s housing market recovered well following the collapse in 2007

Rising level of house completions with metrics showing increases across registrations, commencement notices, planning permissions and ESB connections/New Dwelling Completions

The closure of construction sites as a result of Covid-19 will impact on the number of completions in 2020

Nationally, residential property prices have recovered since the financial crisis in 2013, and remain nearly 20% below their 2007 peak.

Residential Property Price Index (Base Jan ‘05 = 100)3

Introduction of Irish Central Bank Macro prudential rules in 2015 slowed the growth in property sales

Central Bank macro-prudential rules increase the resilience of the banking sector

First time buyers can borrow up to 90% of the value of a home (i.e. 10% minimum deposit). Only 5% of new lending to first time buyers will be allowed above the 90% Loan to Value (LTV) limit

For second and subsequent buyers, banks must restrict lending for primary dwelling purchase above 80% LTV to no more than 20% of their new lending.

Bank must restrict lending for primary dwelling purchase above 3.5 times Loan to Income (LTI) to no more than 20% of that aggregate value

Banks must limit Buy-to-Let loans (BTL) above 70% LTV to 10% of all BTL loans

Estimated New Dwelling Completions (2011 –1Q2020)1

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

163

75

135

125

183

145

40

60

80

100

120

140

160

180

200

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

National - all residential propertiesDublin - all residential propertiesNational excluding Dublin - all residential properties

13,113 12,675 18,088

21,634

30,855 34,822 34,309 35,872 35,859 36,489

4,820 2,351

2,666

2,944

4,402

4,563 5,465 7,312 8,538 8,650

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Existing New

6,994 4,911 4,575 5,518

7,219

9,889

14,358

17,946

21,138

4,986

-

5,000

10,000

15,000

20,000

25,000

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Government has undertaken a number of steps to increase the supply of housing:

Open up land supply & low-cost State lands

Local Infrastructure Housing Activation Fund - €200m

NTMA financing of large-scale “on-site” infrastructure

Deliver 50,000 units of social housing in the period to 2021

Lay foundations for a more vibrant and responsive private rented sector

Housing (2/2):Residential property will continue to be a large contributor to

volume growth in the Irish banking sector over the medium term

Commentary

Government Targets1

Measures

Planning Reforms

Larger housing proposals (+100 homes) to go directly to An Bord Pleanála (ABP)

Prioritisation of ABP appeals (18 weeks)

More Strategic Development Zones (SDZs)

Optimal utilisation of existing housing stock

Rent-a-room tax relief programme that provides home owners with up to €14,000 of tax free rental income

Macro-prudential rules limiting Loan to Value and Loan to Income multiples for home buyers

Home Building Finance Ireland (HBFI) established to increase the supply of finance for viable residential developments

1. Action Plan for Housing & Homelessness: http://rebuildingireland.ie/Rebuilding%20Ireland_Action%20Plan.pdf2. Planning permission statistics: execution of planning permission for houses and apartment units. Source: CSO

Planning Permissions granted for new apartments and houses (number)2

The 2008 financial crisis resulted in a large decrease in construction activity, and led to a reduction in the number of residential properties available on the market. Covid-19 will reduce construction activity throughout 2020

Government has set specific targets and implemented a number of measures to increase the volume of new residential properties on the market

2019 saw for the first time more apartments than houses granted planning permission

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6,626 10,250 12,318 15,440

19,964 19,670 785

2,794 3,632

5,336

9,138

20,582

7,411

13,044 15,950

20,776

29,102

40,252

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2014 2015 2016 2017 2018 2019

Houses Apartments Total






Section 6: IBRC


Body Level One

Body Level Two

Body Level Three

Body Level Four

Body Level Five


State Exit

Government policy is not to hold these

investments long term and, subject to

market conditions, is willing to exit in a

manner that generates value for the

taxpayer

State Bank Investments: Core objective is to return banks to private ownership

Investor appetite and market conditions

Valuation

Irish economy

Global economy

Financial performance

How we look at the State’s bank investments:

Value For Taxpayers Monetise through sales &

income

Rational Investor

State priority is to engage with the market

in a sensible, orderly and professional

manner

Disposals since Summer 2017 hampered by

numerous factors including poor markets.

In times of depressed valuations, income

return in dividends and return of any

excess capital becomes very important.

1 2 3

Multiple considerations to take into account:

Government authorisation

Introduction

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• Irish State still “owns”: c. 41% of the combined assets of AIB/BOI/PTSB (translates to 35% of assets of five retail banks)

• c. 50% of the combined market value of AIB/BOI/PTSB

Body Level One

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Body Level Three

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Body Level Five


State bank investments Overview – strong financial performance in recent years

pre-Covid-19

PTSB 2019 FY results saw thebank record a profit for thethird successive year.

Key financial metricsincluded a profit beforeexceptional items of €74mwith NIM of 1.80% (2018:1.78%). New lending of€1.7bn increased by 14% y-o-y with mortgage marketshare of 15.5% (2018:15.1%). The bank continuedto generate capital with fullyloaded CET1 increasing by100bps to 15.0%.

On NPLs, the bank showedfurther progress with loanbalances down to €1.05bn, areduction of c. 37% in theyear. The NPL ratio at year-end was 6.4% (Dec 2018:10%).

AIB issued its FY 2019 results inMarch 2020. The bank continued todeliver sustainable underlyingprofitability while maintaining arobust capital position. Proposeddividend was subsequentlycancelled on the instruction of theRegulator.

Key financial metrics included a pre-exceptional profit before tax of€1,091m for the full year. Total newlending was up 2% YoY. Irishmortgage lending increased 8% also.

AIB continued to demonstratesignificant capital generation. Thebank’s fully-loaded CET1 ratio at theend of 2019 was 16.4%, substantiallyin excess of their regulatory capitalrequirements.

Impaired loans continued to declineat pace with a 45% reduction in2019 and down to €3.3bn (areduction of €27.7bn since the peakin 2013).

BOI announced anunderlying profit of €758mfor FY 2019 with the bankcontinuing to meet its costtarget. Net lending growthwas €2bn.

The bank had proposed adividend of €189m (+9% on2018) which wassubsequently cancelled.

The fully loaded CET1 ratio of13.8% increased 60bps inthe year.

NPLs reduced by €1.5bn to€3.5bn with the NPL ratiostanding at 4.4% (Dec 2018:6.3%).

BOI revised a number of itsmedium term targets toreflect the lower for longerinterest rate environmentand increased capitalrequirements.

Commentary

The state has reduced its ownership in all three banks since 2013

Strong capital generation to support growth and payouts while helping to withstand regulatory headwinds

Impact of Covid-19 uncertain but strong capital and liquidity positions going into the crisis.

Department as shareholder keen to see any surplus capital returned as soon as possible

99.9% 99.9%

2013

29% 86% 25%

71%

14%

75%

May 2020

% State

Owned

% Privately

Owned

The State holds investments in three Irish banks:

Recent Highlights

85%

15%

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State bank investmentsTransformational change in underlying financial metrics of State

bank investments between 2010 and 2019

Commentary State bank investments: change in selected metrics (2010 to 2019)

Transformational change across all three State bank investments between 2010 and 2019

Recovery in all covered metrics including: profitability, capital, new lending volumes, Loan to Deposit Ratios, and non-performing loans

EU restructuring plans exited by all three banks

AIB BOI PTSB

Metric €bn/% Year FY 2019 €bn/% Year FY 2019 €bn/% Year FY 2019

Underlying profit/(loss) before tax

(€10.4bn) 2010 €1.1bn (€3.5bn) 2010 €758m (€1bn) 2012 €74m

NIM 1.03% 2011 2.37% 1.25% 2012 2.14% 0.72% 2013 1.80%

New lending1 €7bn 2013 €12.3bn €6.6bn 2013 €16.5bn €0.1bn 2012 €1.7bn

NPL / NPL Ratio2

€29bn/35%

2013€3.3bn/

5.4%€18bn/

18%2013(June)

€3.5bn/4.4%

€8.6bn/28%

2013€1.1bn/

6.4%

Loan to deposit ratio 165% 2010 85% 175% 2010 95% 227% 2011 91%

Monetary authority funding

€31bn 2011 Nil €33bn 2010 €1.7bn €19.5bn 2011 Nil

Fully loaded CET13 4.0% 2010 16.4% 6.3% 2013 13.8% 11.3% 2013 15.0%

EU Restructuring Plan

Entered 2011 Exited Entered 2010 Exited Entered 2015 Exited

1. New lending - BOI & AIB did not disclose pre-2013

2. 2018 values reflect the Non-Performing Exposure (NPE) balance for AIB and BOI, and the NPL Balance for PTSB

3. AIB 2019 is pro-forma allowing for TRIM. BOI 2013 excludes the preference shares.

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€14.1€10.2

€6.1€3.3

€9.4

€6.5

€5.0

€3.5

€5.8

€5.3

€1.7

€1.1

€29.3

€22.0

€12.8

€7.9

17%

14%

8%

4.9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

€0.0

€5.0

€10.0

€15.0

€20.0

€25.0

€30.0

€35.0

2016 2017 2018 2019

AIB (NPEs) BOI (NPEs)PTSB (NPL) NPE Ratio % (Implied)

€8.6€8.3

€6.6

€5.8€5.3

€1.7€1.1

26% 26% 26%27%

26%

10%

6.4%

0%

5%

10%

15%

20%

25%

30%

€0.0

€1.0

€2.0

€3.0

€4.0

€5.0

€6.0

€7.0

€8.0

€9.0

€10.0

2013 2014 2015 2016 2017 2018 2019

PTSB (NPL) NPL Ratio (%)

€9.4

€6.5

€5.0

€3.5

11%

8%

6%

4%

0%

2%

4%

6%

8%

10%

12%

€0.0

€2.0

€4.0

€6.0

€8.0

€10.0

2016 2017 2018 2019BOI (NPEs) NPE Ratio %

€30.7

€26.2

€18.0

€14.1

€10.2

€6.1 €3.3

37%35%

26%

22%

16%

10%

5.3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

€0.0

€5.0

€10.0

€15.0

€20.0

€25.0

€30.0

€35.0

2013 2014 2015 2016 2017 2018 2019

AIB (NPEs) NPE Ratio %

Drivers of Falling

NPEs

State bank investments: improved risk profile Combined NPE ratio for AIB, BOI and PTSB fell to 4.9% as of

December 2019

Commentary AIB Non-Performing Exposures (NPEs)

Significant reduction in Non-Performing Exposures across all three State Bank Investments. c.90% reduction in AIB and c. 87% for PTSB between 2013 and 2019. Bank of Ireland meanwhile reduced NPEs by c. 63% between 2016 and 2019.

A combination of rising property prices, a growing economy, and measures taken by Irish banks to address non-performing loans have all contributed to the decline in balances.

Improved Collateral

Improved borrower

repayment capabilities

Portfolio Sales

Loan Treatment

1. Company Accounts / Central Bank of Ireland / DoF Analysis.

NPE = NPL + eligible forborne loans + other exposures

NPL = Impaired + debtors deemed unlikely to pay

Permanent TSB - Non-Performing Loans (NPLs)

Bank of Ireland Non-Performing Exposures (NPEs)

Combined 3 Banks Non-Performing Exposures

-90%

-87%

-63%

(€bn)

(€bn) (€bn)

(€bn)

-73%

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Min.

11

1%

11

9%

12

3%

12

5%

12

9%

12

0%

12

2%

12

7%

13

0%

13

1%

92

% 10

5% 11

4%

12

0%

13

8%

0%

20%

40%

60%

80%

100%

120%

140%

2015 2016 2017 2018 2019

AIB BOI PTSB

State bank investments: capital, liquidity & funding (1/2)

From too little funding to too much

Commentary Falling Loan to Deposit Ratios % (2012 - 2019)1

Net Stable Funding Ratio % (2015 – 2019)1,3

Household deleveraging (€bn)2

Reduced loan to deposit ratios (LTDs) across all three State bank investments as households and businesses deleverage. Provides capacity for additional lending

A combination of falling household liabilities and increasing asset values has led to aggregate nominal household net worth exceeding pre-crisis levels

Quality of funding remains high, exceeding the Basel III net stable funding ratio minimum requirements (100%)

1. Published financial accounts & Pillar III disclosures2. Central Bank of Ireland: Quarterly Financial Accounts

3. Net Stable Funding Ratio (NSFR) seeks to calculate the proportion of long-term assets which are funded by long-term, stable funding. The NSFR limits overreliance on short-term wholesale funding. Soruce: Annual accounts & Pillar 3 Disclosures

4. The LCR is calculated by dividing a bank's stock of high-quality liquid assets by its total net cash outflows over a 30-day stress period

Household Deposits

Liquidity Coverage Ratio % (2015 – 2019)1,4

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11

5%

10

0%

99

%

10

0%

95

%

93

%

90

%

85

%

12

3%

11

4%

11

0%

10

6%

10

4%

10

0%

97

%

95

%

19

1%

15

1%

13

8%

12

5%

11

1%

10

8%

93

%

91

%

0%

50%

100%

150%

200%

2012 2013 2014 2015 2016 2017 2018 2019

AIB BOI PTSB

11

6% 12

8%

13

2%

12

8%

15

7%

10

8%

11

3%

13

6%

13

6%

13

8%15

3% 16

6%

16

5%

16

0%

17

0%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

2015 2016 2017 2018 2019

AIB BOI PTSB

100%

120%

140%

160%

180%

200%

220%

€0

€50

€100

€150

€200

€250

20

03

Q1

20

04

Q1

20

05

Q1

20

06

Q1

20

07

Q1

20

08

Q1

20

09

Q1

20

10

Q1

20

11

Q1

20

12

Q1

20

13

Q1

20

14

Q1

20

15

Q1

20

16

Q1

20

17

Q1

20

18

Q1

20

19

Q1

Household Debt (€ billion) Debt to Disposable Income(%)

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Body Level Five


State bank investments: capital, liquidity & funding (2/2) Crisis impacted RWAs mean leverage ratios show true capitalisation

Commentary Core Equity Tier 1 Capital ratios % (Dec 2019)1,2

Core Equity Tier 1 Capital Ratios by Country (Fully Loaded: Q4 2019)2,3

Total Regulatory Capital ratios % (Dec 2019)1,2

Leverage Ratios by Country (Fully Loaded: Q4 2019)2,3

State bank investments now well capitalised relative to EU peers on a fully loaded basis

RWAs partly responsible for the relatively high levels of capitalisation at Irish banks

According to the EBA (Dec-2018), risk weighted assets for Irish residential mortgages (based on IRB models) were 38%. This is 2.5x the European median of 15%, and the third highest in Europe behind Hungary and Romania4.

Leverage ratios offer the best look through view on Irish capital levels

1. Published annual reports2. “Transitional” refers to the transitional Basel III required for CET1 ratios which came into effect Jan-14. “Fully loaded” refers to the actual Basel III basis for CET1 ratios.

3. EBA Dashboard (Includes 3 domestic Irish banks plus Ulster Bank, DEPFA & Citibank)4. “Risk Weighted Assets in Ireland” Department of Finance: https://assets.gov.ie/6836/664f5174ebd34f7e938aea654bed6757.pdf

Basel III Leverage Ratio Rule:

Tier 1 Capital ≥ 3%

Total Exposure

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Financial Advisory

23

.3%

20

.5%

18

.6%

17

.4%

19

.1%

16

.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Total capital % (Transitional) Total capital % (Fully loaded)

AIB BoI PTSB

20

.3%

17

.3%

15

.0%

13

.8%

17

.6%

14

.6%

0.0%

5.0%

10.0%

15.0%

20.0%

CET1 (Transitional) CET1 (Fully loaded)

AIB BoI PTSB

9.3

%

9.3

%

7.4

%

6.8

%

6.3

%

6.0

%

5.7

%

5.6

%

5.5

%

5.3

%

5.3

%

4.8

%

4.8

%

4.7

%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

IE GR PT

AT

LU BE IT ES EU GB FR DE

NL

DK

19

.1%

17

.9%

17

.8%

16

.5%

16

.2%

15

.3%

14

.9%

14

.8%

14

.5%

14

.4%

13

.5%

13

.5%

13

.2%

11

.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

LU DK IE NL

BE

GB FR EU DE

AT

GR PT IT ES

Body Level One

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Body Level Four

Body Level Five


€2.8€4.2 €5.0 €5.4 €5.7 €6.0 €6.0 €6.3 €6.6 €6.6€0.5€0.5

€5.0 €5.0€7.4

€9.2

€12.6 €12.6 €12.6 €12.6

€7.7€8.0

€11.6€13.3

€13.9 €11.6

€10.6 €7.1 €6.0

€1.8

€14.3

€17.7

€23.1

€25.5

€29.9 €28.8

€31.1

€27.2€26.3

€21.4

€0.0

€5.0

€10.0

€15.0

€20.0

€25.0

€30.0

€35.02

00

9-2

01

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

May

-20

Fees and Income (accumulated) Disposals (accumulated) AIB Valuation BOI Valuation PTSB Valuation

State bank investments:Expected value attributable to taxpayers

Value of State’s Shareholding (May-2020)

€1.8bn

€0.2bn

€0.15bn

Total €2.2bn

Reduction in bank valuations has impacted on €29.4bn investment (€bn)1,2,3,4:

€29.4bn State Investment

(€bn)

1. Disposals comprise sale/redemption of debt instruments, AIB and PTSB IPOs, and the sale of Irish Life. 2. Fees and income comprise interest coupons, recap fees, and CIFS/ELG fees.

3. Bank valuations based on ISE closing prices, May-20.4. The result of AIB IPO reflected above does not include value of Government owned warrants.

Cash Realised (€19.2bn)

Market value of State holdings

(€2.2bn Un-realised)

€21.4bn market value of State investments + realised cash(as at May-20)

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Long Only

Funds66%

Hedge Funds23%

Sovereign Wealth Funds 12%

State bank investments

€3.4bn1 IPO of AIB

1. No valuation ascribed to state warrants2. Bloomberg

3. Valuation as of May 2020

Pricing Date 22-Jun-17

ListingOfficial List of the Irish Stock Exchange (Primary Listing) and London Stock Exchange Main Market (Premium Listing)

Offer Price €4.40

Offer Size €3,433.7m (incl. greenshoe)

Residual Shareholding c.71.25%

Retail Offer 10% of base offering

Implied Market Cap €11,943m

Lock-Up 180 days for Minister and AIB

Allocationby geography:

Allocationby fund type:

UK35%

US25%France

8%

Ireland2%

RoW31%

(€bn) (€bn)

AIB State Aid Repayments (€bn)AIB Valuation & Redemption (€bn)3

Key Offering Statistics Transaction Highlights

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• Largest listing in EMEA and second largest worldwide in 2017. Largest IPO in the UK since Glencore in 20112

• Second largest European Bank IPO since 20072

• More than 250 investors in the allocated order book• Top 50 allocations accounted for c.75% of the order book• Quality of allocation: more than 30% of the order book received zero allocation

€6.1 €6.4

€10€11.7 €12.3 €11.3 €10.6

€7.1 €6.0

€1.8

€1.2 €1.7

€2.0€2.3

€4.6 €6.4€10.1

€10.3€10.6

€10.6

€20.75bn

€7.3€8.1

€12.1

€13.9

€16.8€17.7

€20.7

€17.4€16.6

€12.4

€0.0

€5.0

€10.0

€15.0

€20.0

Valuation Cumulative Repayments State Aid Injected

€0.2 €0.6€1.2

€1.7 €2.0 €2.3

€4.6

€6.4

€10.1 €10.3 €10.6 €10.6

€0.0

€2.0

€4.0

€6.0

€8.0

€10.0

€12.0

ELG Fees Interest Payments

Capital Redemptions Dividends

Cumulative Repayments

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State bank Investments Banks trading at a large discount to book value

Commentary % Change in Listed Share Prices (Jan 2018 – May 2020)1

Price to Book Ratios (Jan 2018 – May 2020)2

Irish bank shares have fallen by c.80% since December 2017. This compares with a fall of 60% for the EuroStoxxindex of European Banks

European banks trading at a heavy discount to book value with the EuroStoxx Bank Index trading at 0.3X times book value as of May 2020

Irish banks have suffered disproportionately more due to a variety of factors including unfavorable regulatory capital requirements and an inquiry relating to tracker mortgages that resulted in the banks incurring related costs.

1. Source: Based to 100 as of August 2018. Bloomberg May-20202. Bloomberg May 2020. The EuroStoxx Bank Index tracks the share price performance of the European banking sector

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(x)

0.1x

0.2x0.2x

0.3x

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

AIB Permanent TSB Bank of Ireland EuroStoxx Banks

21

40

0

20

40

60

80

100

120

Jan

-18

Feb

-18

Mar

-18

Ap

r-1

8

May

-18

Jun

-18

Jul-

18

Au

g-1

8

Sep

-18

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

Dec

-19

Jan

-20

Feb

-20

Mar

-20

Ap

r-2

0

May

-20

AIB Permanent TSB Bank of Ireland EuroStoxx Banks

P/B = 1.0x

Body Level One

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Body Level Five


Irish banking sector overview (1/2):

Ireland compares favorably against European peers…

Commentary % Reduction in NPE ratio: Q1 2016 – Q4 20191

Net interest margins Q4 2019 (%)1

Cost/income ratios Q4 2019 (%)1

CET1 fully loaded Q4 2019 (%)1

According to the EBA, Ireland was the fastest country in Europe at reducing its Non-Performing Exposure ratio (NPE) amongst comparable countries between March 2016 and December 2019 (-73%)

Ongoing cost management, and strong net interest margins, helped Irish banks reduce cost to income ratios to below the European average

Irish banking sector well capitalised relative to European peers.

Sources: 1. EBA Dashboard (Includes 3 domestic Irish banks plus Ulster Bank, DEPFA & Citibank)

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-3%7%17%

29%29%

36%39%

43%44%

48%51%

57%60%

73%

-20% 0% 20% 40% 60% 80%

LUGRNLFRBEGBESEUDKDEIT

ATPTIE

49

% 53

% 58

%

59

% 62

%

62

%

63

%

64

%

64

%

65

% 68

%

68

% 71

%

84

%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

GR ES NL

PT

GB BE

AT

EU DK IT IE LU FR DE

2.8

%

2.4

%

2.0

%

1.9

%

1.7

%

1.6

%

1.5

%

1.5

%

1.4

%

1.4

%

1.2

%

1.1

%

0.9

%

0.8

%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

GR ES IE AT

PT

NL IT EU BE

GB FR DE

LU DK

19

.1%

17

.9%

17

.8%

16

.5%

16

.2%

15

.3%

14

.9%

14

.8%

14

.5%

14

.4%

13

.5%

13

.5%

13

.2%

11

.9%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

LU DK IE NL

BE

GB FR EU DE

AT

GR PT IT ES

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Commentary Return on Equity Q4 2019 (%)

Return on Assets Q4 2019 (%)

Higher net interest margins need to be seen in the context of the highest equity requirements in Western Europe

Hence a more favourable return on assets profile than for return on equity

RWAs at Irish banks very high relative to European averages. As such, leverage is a useful barometer of the true capital strength of the banks.

Sources:1. EBA Interactive Dashboard

Irish banking sector (2/2):… including high returns on assets1

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

8.9

%

8.7

%

7.7

%

7.1

%

7.0

%

6.5

%

5.8

%

5.8

%

5.6

%

5.5

%

5.0

%

3.9

%

1.0

%

-0.2

%

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

AT DK NL BE ES FR LU EU IT IE GB PT GR DE

0.8

%

0.7

%

0.5

%

0.5

%

0.5

%

0.5

%

0.4

%

0.4

%

0.4

%

0.4

%

0.4

%

0.3

%

0.1

%

0.0

%

-0.1%

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

AT IE BE ES DK NL IT FR EU LU PT GB GR DE

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Irish banking sector 2020 outlook:… Banks are well positioned to support the recovery

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

The membership of the Banking & Payments Federation Ireland (BPFI) have delivered a range of measures and supports in response to Covid -19.

Payment breaks for mortgage customers approving c. 19k payment breaks, equating to c. €2.6bn or c. 9% of the portfolio

Payment breaks for SME customers approving c. 13k payment breaks, equating to c. €0.5bn or c. 13% of the portfolio

To protect customer credit profile, as agreed with the Central Bank of Ireland, payment breaks are not adversely reported on Central Credit Register

Customers Employees Communities

Over 7,000 of c. 9,500 staff are working remotely using remote, secure controlled services. This has been achieved with minimal operational disruption

Implemented multiple-location Treasury teams as a contingency to ensure the smooth operation of payments and money transmission systems

The branch network remains open to serve the community

Partnered with Trinity College Dublin by pledging €2.4 million to the dedicated AIB COVID-19 Research Laboratories Hub at the University to accelerate the college's immunology project to tackle Covid 19

Making up to €2 million available to community investment partners Food-Cloud and Soar, as well as a number of local charities that provide critical services

Focus is on delivering fair, practical and sustainable solutions for Mortgages, SME and Personal loans…

For personal customers, payment breaks and flexible arrangements on mortgages and loans put in place totalling 18k/12% of portfolio in ROI & 20K/14% of portfolio in the UK

For business customers in the Republic of Ireland - 11K payment breaks representing 26% of the portfolio rolled out in addition to the emergency working capital, and FX products provided

70% staff working from home; prior rollout of Agile working supported increased capacity and ways of working

Staff supports include mental and physical wellbeing app, 24/7 health support line, and COVID-19 communications hub

Supports in place for staff required to provide childcare or family support

Temporarily closed smaller branches reflecting reduced footfall; enabling staff to be reallocated to services most in demand, and to support social distancing

Donated €1 million in emergency funding for communities with urgent needs, with 13 projects fast-tracked

‘Cocooning’ support for older customers and those in vulnerable situations – to access cash

All 76 branches remain open to meet customer needs

Priority banking in branch and over the phone for our elderly and vulnerable customers

Operationally resilient with over 1,200 colleagues working remotely.

Payment breaks for both mortgage and term loan customers; approving c. 10k payment breaks, equating to c. €1.5bn or c. 9% of total gross loans

Redeployment of over one hundred staff to contact centres to support in answering customer queries.

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Commentary

Q1 Trading Statement from each of the banks show a material turnaround from the strong financial performance of recent years

Common themes included:

1. Reductions in all income lines expected from lower lending and lower general economic activity

2. Significant impairment charges expected

3. Continued focus on NPE reduction strategies and cost management

4. Strong capital and liquidity positions entering the crisis.

Source:Bank Trading Statements

Irish banking sector Q1 2020 trading update:… Covid 19 is having a material impact on 2020 results

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

A small loss recorded mainly due to aCovid-related impairment charge of€210m (136bps annualized). Non-interest income -21% from valuationmoves on customer derivative positions.Management reiterated its 2022 costtarget of €1.5bn

Mixed new lending which was 12%lower. However, within this, ROImortgage lending was +11%

Increase in NPEs from €3.3bn to €3.6bndue to a regulatory change in definitionof default. Management re-emphasizedfurther reductions in NPES remains akey focus

Capital and liquidity remain strong.Including relief measures taken by theregulator in response to the crisis,Transitional CET1 ratio of 18.7%represents a buffer of 770bps overminimum requirements of 11.0%

On outlook, management commentedthat recent guidance issued for 2020was not now applicable. An update willbe provided at H1 once there is a betterunderstanding of how the crisis mayunfold

Loss of €235m versus profit of €143m inQ1 2019 mainly due to two Covid-related items – a managementimpairment overlay of €250m (133bpsannualized); and valuation losses of€155m due to changes in market prices.NII and business income stable withcosts reducing by a further 3%

New lending not impacted in Q1 (+17%)but month of April down 37% y-o-y

NPEs reduced a further 20bps with ratioof 4.2% at end-March

Capital and liquidity remain strong withmanagement guiding to CET1 headroomof c. 510bps to end-2020 (includingrelief measures announced by theregulator)

On outlook, management commentedthat new lending could be within arange of 50-70% of 2019 levels. Incomeis also expected to be significantlyimpacted with business income down30-40%. In addition, impairmentcharges are expected to increase over2020

Income statement broadly flat withstable NII supported by management ofcost of funds. Non-interest income inline with 2019 other than lower gainsfrom sale of properties in possession

Although the bank did not record aCovid-related impairment charge,management guided to an annualizedcharge of €50m (60bps).

Total new lending of €350m up 1% y-o-ywith mortgages of €300m up 4%

NPEs broadly in line with end-2019 withnew defaults being offset by cures

CET1 of 17.7% represents a buffer of c.880bps above minimum requirement of8.9% (after regulatory relief measures)

On outlook, management commentedthat new lending could reduce 40-50%y-o-y. NIM is expected to reduce from180bps to mid-170bps reflectinginterest rate environment and higherliquid assets. Although challenging,management confirmed itscommitment to deliver cost savings inthe medium term.






Section 6: IBRC


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NAMA Objectives & Section 227 Review

NAMA seeks to make a positive social and

economic contribution across

the broad range of its activities, subject to

the primacy of its commercial mandate

and often complementing it.

Repay 100% senior debt by year end 2017 and all sub-debt by March 2020

Senior debt fully repaid and has redeemed the final €1.1bn of sub-debt in March 2020. This leaves NAMA debt free

Facilitate delivery of key Grade A office space in the Dublin Docklands Strategic Development Zones (SDZ)

All of the sites NAMA originally had an interest in are either completed, under construction, received planning, or have been sold with planning permission

Facilitate delivery of up to 20,000 residential units by end 2020

From 2014 to end 2019, NAMA has directly funded the construction of 11,000 new residential units in Ireland. In excess of 2,500 homes have been delivered for social housing use by NAMA

1

2

3

Objective Achievements to date

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

In July 2019 Minister published the second report into NAMA under Section 227 of the NAMA Act. The review reflects the exceptionalprogress that NAMA has made in achieving its overall objectives since 2014 during which time NAMA has repaid all of its €30.2 billionsenior debt and now expects to be in a position to return €4 billion of a surplus to the Exchequer subject to market conditions.

The review recognised the potential for NAMA to exceed its expectations should it be permitted additional time to work out a smallnumber of residual loans beyond its expected end date of 2021. The loans concerned represent less than 1% of NAMA’s originalportfolio.

On receipt of DG Comp approval in July 2019, the Minister announced an extension of NAMA to realise this additional value. WhileNAMA is permitted to continue until end 2025 at the latest, NAMA has been requested to provide the Minister with a detailed windup plan for its ultimate dissolution by the end of 2021.

As part of the review the Minister has also decided to direct NAMA to retain its social housing vehicle, NARPS, in long term Stateownership. This decision was taken in recognition of the important role it makes to the social housing sector.

NAMA Section 227 Review1

1. https://www.gov.ie/en/publication/41970e-nama-section-227-review-2014-2018/

https://www.gov.ie/en/publication/41970e-nama-section-227-review-2014-2018/

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2010 - 2013

• Strategic focus on UK disposals during 2010 – 2013. UK market had remained comparatively buoyant

• 73% UK sales: London assets accounted for 60% of total NAMA sales proceeds, rest of Britain - 13%

• Irish assets, by contrast, accounted for just 16% of total sales proceeds in the same period

• By end-2012 NAMA had sold less than €1bn in Ireland – a deliberate action

2014

• Improving market conditions, increased institutional investor appetite - NAMA took strategic decision to steadily increase the volume of available supply from 2013 onwards

• Step change seen in total NAMA sales proceeds: €7.8bn in 2014 - increase of €4.1bn on 2013

• Of the €7.8bn, 44% or €3.7bn generated from the sale of Irish properties

2015/2016

• In 2015, two-thirds of disposals were in Ireland - strong domestic and international investor appetite

• Total NAMA sales proceeds: €8.5bn in 2015 - increase of €0.7bn on 2014

• 2016 total NAMA sales proceeds of €5.1bn -64% or €3.3bn generated from the sale of Irish assets

• Cumulative Irish sales at €14.4bn at YE 2016

2017/2018

• Few large portfolio sales remain in pipeline

• End-2017 carrying value of NAMA’s loan portfolio was €3.7bn –down to €2.4bn by end of September 2018

• Majority of portfolio relates to residential delivery and Dublin Docklands SDZ programmes –increased focus from 2017 onwards

• Increased its projected lifetime surplus to €3.5bn

2019/2020

• Publication of Section 227 Review in 2019 outlining NAMA’s wind-down strategy

• Redemption of €1.1bn remaining sub-debt by March 2020

• Repayment of private investors and delivery of €3.5bn surplus

• The first €2bn of expected €4bn surplus to be transferred to the Exchequer in June 2020.

NAMA’s Phased Disposal Strategies

NAMA: Timeline of Events

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

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€8.1

€0.3

-€8.1

-€0.3

-€0.5

€2.7

€1.6

€1.1

€1.6

€4.2

€0.1

€0.1

€0.0

€2.0

€4.0

€6.0

€8.0

€10.0

€12.0

2015 Senior BondRedemption

Decrease inother

liabilities

Decrease inSub -Debt

Increase inRetainedEarnings

Sep-19

Government Guaranteed Senior Bonds Other Liabilities

Subordinated Bonds Retained Earnings

Non-Controlling Interests

NAMA: Surplus Generation

NAMA Funding Structure 2016 – September 2020 (€bn)1,2:

Source:1. NAMA Q3 Report 2019

2. As the subordinated notes contain no contractual obligation to make payments, it has been classified as equity in the statement of financial position, with any coupon payments classified as dividend payments

NAMA held just under €4.2bn of retainedearnings attributable to shareholders at end ofSeptember 2020.

Final debt redeemed (€1.1bn) in March 2020and private investors to be repaid in June 2020.

NAMA will commence repayment of its surplusin late June with the return of the first €2bntransferred to the Exchequer.

It is currently estimated that the residualsurplus of €1.7bn (excluding NARPS) will bepaid to the Exchequer during 2021 and 2022subject to market conditions.

It is likely that COVID-19 will have some impacton the timing and amount of forecastedpayments beyond 2020 however it is too earlyto estimate what the overall impact may be.

(€bn)

Commentary

c.€4.2bn (as at end-Sept 2019) of retained earnings attributable

to shareholder

€11.6

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

€1.1 billion of subordinated bonds redeemed in March

2020

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Home Building Finance Ireland (‘HBFI’)

Home Building Finance Ireland (“HBFI”) was announced as part of Budget 2018 to increase the availability of debt funding to commercially viable residential development projects in the State.

HBFI has been established to provide senior debt funding on a commercial basis to small and medium size residential development projects (circa €2m to €35m) throughout the Irish State.

The Home Building Finance Ireland Act was commenced on 5 December 2018 and HBFI was formally launched in January 2019. HBFI has an independent board and is wholly owned by the Minister for Finance.

In May 2020, in response to COVID-19, HBFI launched a series of new measures to extend its presence throughout the housebuilding finance market to support the resumption of construction activity.

Further information in relation to HBFI and its application process can be found at https://www.hbfi.ie.

HBFI Funding

HBFI Indicative Lending Criteria

Overview

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

To end January 2020, HBFI has approvedlending facilities worth €114 million which canfacilitate the construction of over 600 newhomes across 12 counties.

The average facility size to date is €6.4m

61 full applications (160 EOI) have beenreceived by HBFI since its inception.

From May 2020 HBFI announced the followingnew products;

Provide new “step-in” funding for house builderswhere funding from banks may not be available toenable them to commence new housingdevelopments

Allow a bigger range of housebuilders (both largeand small) to access HBFI’s €750m funding

Fund major apartment developments for the firsttime

Latest Update

https://www.hbfi.ie/






Section 6: IBRC


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Minister For Finance

241 registered credit unions in the Republic of Ireland serve the needs of 3.4

million members 1

The role of Minister for Finance is to ensure that the legal framework for credit

unions is appropriate.

The Registrar of Credit Unions at the Central Bank of Ireland is the independent

regulator for credit unions in Ireland.

The main representative bodies are:

ILCU (creditunion.ie) - 355 credit union's affiliated to League in the

Republic of Ireland and Northern Ireland.

CUDA (cuda.ie) – represents 16 credit unions and also provides affinity

membership for 34 additional credit unions.

CUMA (cuma.ie) – represents credit union managers in Ireland.

NSF (nsf.ie) - supports board oversight committees in the Republic of

Ireland and supervisory committees in Northern Ireland.

CUAC is a statutory body providing advice to the Minister for Finance on credit

union matters.

Credit Union stakeholders

Average New Loan Average Savings

€3,400

Members Credit Unions

Registrar of Credit Unions

CUACCREDIT UNION ADVISORY

COMMITTEE

ILCUIrish League of Credit Unions

Key Stakeholders Sector Overview1

Source: 1. As of September 2019 (Central Bank – Financial Conditions Report)

Introduction

Economic Update


NAMA / HBFI

Credit UnionsIBRC

Financial Advisory

Recent Actions

CUAC published a report in February 2020 which examined the role of theDirector and set out a number of recommendations for consideration.

The Central Bank published revised lending regulations, which provide creditunions with increased capacity for mortgage lending from 1 January 2020.

ICURN published a peer review in January 2020 of the Central Bank’s performanceof its functions, concluding that the Central Bank is effective in performing itsfunctions in relation to credit unions.

Credit unions are designated as an ‘essential service’ under the Governmentissued public health guidelines in response to COVID-19.

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Credit Unions: background

Total assets have grown from €14bn in 2011 to €18.3bn as at 2019. 55 credit unions with over €100 million in assets control 59% of sector assets (having risen

from 41% of sector assets in 2015). Credit unions of < €20 million asset size have reduced by 58% since 2015

Loan balances had been increasing, rising from €3.9bn in 2015 to €5.1bn in 2019. Loan To Asset (LTA) ratio has remained broadly static at 28%, primarily as a

result of continuing growth in member savings matching loan growth

Reserves averaged 16.5% in September 2019

The average sector return on assets has fallen from 1.4% in 2015 to 0.7% in 2019 due to falling investment yields and rising overheads

The Sector in Numbers

%

Introduction

Economic Update


NAMA / HBFI

Credit UnionsIBRC

Financial Advisory

€13 €13 €12 €13 €12 €12 €12 €12 €12

€13 €13

€14 €15

€15

€7 €7 €7

€7 €6

€6 €5

€4 €4.0 €3.9 €4.1 €4.5 €4.8 €5.1

0

0.1

0.2

0.3

0.4

0.5

0.6

€0

€2

€4

€6

€8

€10

€12

€14

€16

€18

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sep-19

Savings (€bn) Loans (€bn) Reg Cap (%) Arrears (%) Loans to Total Assets (%)

These figures predate the onset of the COVID-19, which is likely to impact the majority of credit unions negatively through increased arrears, reduced lending and rising savings.






Section 6: IBRC


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2009

•Following consultation with Central Bank and Department of Finance, the ‘Anglo Irish Bank Corporation Act 2009’ was passed to take Anglo Irish Bank into public ownership

•€4bn in ordinary shares invested in Anglo Irish Bank and €100m in Irish Nationwide (INBS)

2010

•€30.6bn additional capital injections in the form of promissory notes

•Brings total invested to €34.7bn across Anglo and INBS

2011

•Majority of deposits held in Anglo Irish Bank and INBS are merged to form Irish Bank Resolution Corporation (IBRC)

2013

•Following discussions between Irish Authorities and the ECB, the IBRC promissory notes are exchanged for long-term government bond

•Improves Ireland’s debt profile and decreases near team borrowing requirements

•IBRC placed into liquidation

2014/2015

•Liquidation generated €16.5bn of cash inflows to date

•Allows for payment of €14.7bn toIBRC’s creditors, including full repayment of €12.9bn of debt owed to NAMA

2016-2020

•All admitted unsecured creditors and subordinated creditors have been paid 100% of what they were owed at the date of the liquidation.

•The State has received the full amount owed as the owner of the Preference Shares.

•Assessor appointed pursuant to the Anglo Irish Bank Corporation Act 2009 with his final report published in April 2020.

IBRC: Overview

IBRC: Timeline of Events

Established: • July 2011 following the merger of Anglo Irish Bank and Irish Nationwide Building Society

Purpose: • To manage the orderly wind down of the merged entity

Government Support: • Total invested in IBRC (Dec-2010): €34.7bn

Progress to date: • IBRC was placed in special liquidation in February 2013• Loans with a par value of €21.7bn have been prepared, brought to the market and sold• Liquidation generated €17.1bn of cash inflows to date• All admitted unsecured creditors have been paid 100% of the principal that was owed to them at the date of liquidation.

Overview

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

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IBRC Progress Update Report

Sales process by numbers

€21,700,000,000

64 15,900

>130,000 355

755,000

3,500 241 100%

174

OF LOANS PREPARED AND BROUGHT TO MARKET

LOAN SALES PROCESSES CONDUCTED

LOANS CONSISTED OF OVER

LETTERS ISSUED TO BORROWERS

AND GUARANTORS

INTERESTED PARTIES

ACROSS 13

COUNTRIES

DOCUMENTS WERE REVIEWED AND

UPLOADED TO VIRTUAL DATA ROOMS

(“VDRS”)

PROPERTY VALUATIONS

WERE OBTAINED

INDIVIDUAL BIDS WERE RECEIVED

ACROSS 6 PORTFOLIOS

OF THE LOAN BOOK

TRANSACTED

NON DISCLOSURE AGREEMENTS (“NDAS”)

SIGNED WITH INTERESTED PARTIES

DIFFERENT BORROWER GROUPS

22

• The IBRC loan portfolio was supported by collateral based in 22 different jurisdictions worldwide

• Strong interest from a variety of financial and strategic buyers and funders, with US private equity houses and hedge funds being key participants across each of the portfolios.

Project PebbleUS CRE, UK hotels and UK

& Ireland Shopping Centres

■ Ireland/UK (84%)

■ US (15%)

■ World: other (1%)

Project Sand/PearlIrish originated Residential

Mortgages

■ Ireland (100%)

Project Evergreen Irish originated Corporate

Loans

■ Ireland (93%)

■ UK (7%)

Project SaltUK originated CRE Loans

■ Germany (60%)

■ UK (30%)

■ Poland (7%)

■ Europe: other (3%)

Project RockUK originated Commercial

Real Estate (“CRE”) Loans

■ UK (89%)

■ US (7%)

■ Germany (3%)

■ Europe: Other (1%)

Project StoneIrish originated CRE Loans

■ Ireland (46%)

■ United Kingdom (33%)

■ Continental Europe (18%)

■ Other (3%)Project Quartz

Irish originated CRE loans

■ Ireland (97%)

■ UK (1%)

■ Other (2%)

Project Amber / Amethyst

Corporate and CRE loans

■ UK (78%)

■ Ireland (22%)

Source: 1. IBRC Progress Update Report

Collateral was based

in 22 different jurisdictions

Sales Processes

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory

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The most recent special liquidation progress update report was published in [June 2020] giving acomprehensive overview of the work completed to date. It is available on the Department of Financewebsite www.finance.gov.ie.

Asset realisation workstream largely complete. At this stage, loans with a par value of €21.7bn havebeen prepared, brought to the market and sold

All admitted unsecured creditors and subordinated creditors have been paid 100% of what they wereowed at the date of the liquidation.

The State has received the full amount owed as the owner of the Preference Shares.

In 2018, an assessor was appointed pursuant to the Anglo Irish Bank Corporation Act 2009 to determinethe fair and reasonable aggregate value of the transferred shares and extinguished rights and theconsequent amount of compensation (if any) that may be payable to the previous shareholders. Thefinal report of the assessor was published on the Department of Finance website in April 2020 whichconcludes that no compensation is payable to former shareholders of any class or to former rightsholders.

On 2nd April 2019 the Special Liquidators announced the successful agreement of the largest remainingpiece of litigation impacting the liquidation of IBRC.

As a result of Covid-19, the expected timeline for completion of the liquidation has been extended toend-2022 (from end-2021) which allows for delays in court proceedings and asses realization strategies.

IBRC Liquidation Update

Recent Developments

Ongoing

Tasks

Liquidation update

Continued management of c. 50 legal cases

Completion of the creditor adjudication process

Management of the remaining loan book of c. €3.4bn

Realisation of all remaining assets

Introduction

Economic Update


NAMA / HBFI

Credit UnionsIBRC

Financial Advisory






Section 6: IBRC


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Financial AdvisoryAnalysis, insight and building connections

Insight Objective Analysis

Building Connections

Financial Advisory

Key objectives

The Financial Advisory team provides insight and analysis into emerging technologies and financial services, while helping to build connections between academia, public bodies, and private institutions

Blockchain & Virtual Currencies

Analysis & Insight

Conduct research into new developments in the financial services sector and nascent technologies. Research areas include: crowdfunding, seed & venture capital funding, blockchain and fintech

Co-hosted a conference with the European Investment Bank (EIB) that focused on improving access to finance for Irish companies (December 2018)

Hosed the first ‘Institutional Investment in Private Capital’ event in June 2019 to explore how greater levels of institutional investment can be allocated to Irish businesses.

About

Coordinate and manage the Department’s Blockchain & Virtual Currencies Working Group

Regular engagement with academia, Enterprise Ireland, the IDA and private sector via the ‘Blockchain Ireland’ initiative

Authors of the Department’s discussion paper on blockchain & virtual currencies

Co-founded the BlockW initiative (women in blockchain forum)

Provide input at an EU and OECD level. In particular, at the EU Blockchain Observatory & Forum and the EU Blockchain Partnership

Hosted Ireland’s first Government Blockchain Hackathon (Blockathon Ireland) in January 2019

Completed the Department’s response to the European Commission’s public consultation on cryptoassets

Introduction

Economic Update


NAMA / HBFI

Credit Unions

IBRC

Financial Advisory


Contacts

Head of Shareholding and Financial Advisory Division

Shareholding and Financial Advisory Division Contacts

Department of Finance Press Office

Des CarvilleEmail: [email protected]: +353 1 604 5326

Aidan MurphyEmail: [email protected]: +353 1 604 5531

AIB, BOI & PTSB Credit Unions Scott Rankin(Deputy Head) Brian CorrEmail: [email protected] Email: [email protected]: +353 1 604 5469 Phone: +353 1 604 5064

Financial Advisory NAMA, IBRC & HBFIMai Santamaria Gary HyndsEmail: [email protected] Email: [email protected]: +353 761007728 Phone: +35316045308

mailto:[email protected]






www.gov.ie

Documents

Shareholding and Financial Advisory Division (SFAD)€¦ · • AIB capital reorganisation returned €1.6bn to the State • AIB CoCo redemption of €1.6bn • IBRC paid first interim