AIB Group plc (A5G) Earnings Call Transcript

Good morning, and welcome to the presentation of AIB Group's results for the first half of 2026. I'm conscious that the analyst community has a very busy day of announcements. So Donal and I will get through the performance highlights at a decent clip before we open to the floor for your questions. H1 was another period of progress with purpose for AIB, building on our exceptional customer franchise and the momentum of recent years. We're pleased to be reporting a profit after tax of EUR 939 million, representing a ROTE of 23.2% with strong organic capital generation of circa 170 bps and a closing CET1 of 16.1%. The strong financial outturns reflect an excellent performance across the business with new lending of EUR 7.5 billion, an increase of 10%, bringing our gross loans to EUR 74.5 billion, representing growth of 3% since the start of the year. With good visibility on the second half pipeline and a strong first half booked, we're well on course to meet our full year guidance for loan growth of circa 5%. Now in the face of an evolving competitive environment, our NIM remains resilient at 2.68% and our deposit base grew to almost EUR 119 billion. And all of this positions us well to declare an interim dividend of EUR 0.19528 per share, representing an increase of almost 60% on the prior year. Sustainability continues to sit at the very heart of our mission and our purpose. Green and transition lending accounted for 41% of all new lending in the half with EUR 26 billion of our EUR 30 billion climate action target now successfully deployed, directly and positively supporting Ireland's transition to a low-carbon future. And aligned with our success in green and social lending, we remain a leading issuer of ESG bonds with EUR 8.2 billion issued since 2020, and we've comfortably exceeded our 2026 first-time buyer lending target while supporting some 23,000 customers to buy their first home. Our medium-term sustainability targets are all well in-hand. Now these results are reflective of the ongoing economic strength and resilience of our core market, Ireland. And growth in modified domestic demand is expected to remain robust over our current forecasting horizon to 2028. The pace and durability of Ireland's post-COVID bounce has been exceptional with real per capita economic growth ranking at the upper end of the world's largest developed economies. The employment market remains strong and while there has been a moderation in the pace of new jobs growth in recent years, we're expecting the unemployment rate to remain no higher than 5% out to the end of 2028. Balance sheets of households, businesses and government remain in robust health and are very conservatively positioned, and that augurs well for the medium-term outlook for both consumption and investment. And the strength of the fiscal position with a surplus of some 3% of gross national income and a debt to GNI of 54% forecast for 2026, is key to the unlocking of Ireland's true potential over the years ahead. The successful and timely execution of the EUR 275 billion national development plan over the next decade would underpin demand metrics, but more importantly, would transform and modernize the supply side of the economy for the medium term and beyond. There is real momentum now as Ireland seeks to build the housing, energy, water and transport infrastructure we need to sustain our economic and social progress. You can see it clearly reflected in housing stats with completions expected to reach 39,000 this year and to remain on an upward trajectory over the years ahead. We need to decide faster, build faster and connect faster. Ireland has the resources, the ambition and the opportunity to pivot critical infrastructure from a constraint to an enduring competitive advantage. And in that vein, last week, we welcomed the Irish government's designation of 9 projects as critical infrastructure under the Critical Infrastructure Act. The potential benefits for AIB, Ireland's leading bank and the impact we can make to both society and the economy are significant. Turning now to new lending. We are pleased to report a strong performance in the first 6 months of the year. Solid outturns in personal and SME lending while new mortgage lending was EUR 2.1 billion with our mortgage market share standing at 30% for the first half, and we remain the largest direct-to-customer mortgage lender. Property and corporate lending reported strong growth rates, reflecting the strength of our customer base and the quality of our delivery. And I'm particularly pleased with the exceptional performance of our climate infrastructure capital team, which after a sluggish 2025 due largely to geopolitical considerations, had a stellar first half with new lending doubling to EUR 1.2 billion. As we continue our relentless focus on supporting our customers in the required transition to a low-carbon future, the impact we are making is clear with green and transition lending now representing 61% of EUR 7.5 billion in new lending and 60% of the new lending for mortgages. Looking out to the end of this year, the pipeline across all our lending teams remain strong, and we're confidently reiterating our guidance of loan growth of some 5% for the year as a whole. Once again, we can state with confidence backed by facts that AIB is Ireland's leading bank. We continue to welcome more new customers to AIB than any other financial institution with the total number of customers we serve reaching 3.5 million for the first time. And while we maintain and are very committed to the largest branch network in Ireland, we're continuing to enhance our digital offering, our key customer interface with 84% of our personal customers now digitally active. We've delivered a complete rebuild of our mobile offering, which we launched in the first half of the year to a very positive reception. Built in the cloud, the new app will allow us to add new functionality with ease over the months and quarters ahead, further underpinning the quality and the reliability of our products. I also want to draw attention on this slide to the success we have enjoyed in growing our savings and investment management businesses at both Goodbody and AIB Life with total group AUM now standing at over EUR 20 billion, including our recently agreed Legacy Wealth Management acquisition, which is subject to regulatory approval. And now turning to the first of our strategic priorities, Customer First, with further progress to report. I'm delighted to see that the efforts of my colleagues in supporting our customers across the group are being recognized by those customers in Net Promoter Scores at all-time highs across multiple customer journeys. We're also making real progress on improving our understanding of our customers' needs through their life stages, which will help us to deliver more tailored personalized propositions. I'm also pleased that together with the other retail banks, we successfully launched Zippay, enabling our customers to send requests and split money instantly using their mobile phones. We're encouraged by early adoption and usage levels. And meanwhile, Abi, our digital assistant is continuing to triage and handle an increasing number of customer journeys in our customer engagement centers, and she is now fully embedded in our new app. Abi is delivering a very high quality of service to those of our customers who are happy to engage with her, supporting some 6,500 calls per day, which is up about 25% since the end of last year. And she's now supporting 90 customer journeys in our customer engagement center, up 60% over the same period. And we look forward to further service enhancements on the app at the website and indeed in our customer engagement centers in the second half of this year. We maintain our commitment to greening our business, and I'm delighted that the performance in green and transition lending in the first half was a standout with 87% of our EUR 30 billion climate action target now deployed. 41% of all new lending in the first half was green with solid contributions being made across each of our operating divisions. And as I mentioned earlier, Climate & Infrastructure Capital had an exceptional first half with 13% growth in gross loans. We've built the expertise. We have the skills and the reputation, and we're building a really strong franchise in an area of great opportunity as the world continues to electrify. Now, the scale of that opportunity is immense, and it allows us to be highly selective about the projects that we choose to finance, some of which are spotlighted on the slide here, representing some of the transactions that we've been involved with here in Ireland, in Europe and indeed in the United States. Operational efficiency and resilience is the third of our strategic priorities, and we're continuing to make real tangible progress. I'm encouraged that in an ever more challenging and dynamic cyber environment, we maintained more than 99.99% IT service availability across our critical customer service areas, while at the same time, we continue to digitalize at pace with 2.4 million digitally active customers. Meanwhile, we are continuing to enhance our internal efficiency through relentless simplification, digitalization and product rationalization. Now this is a multiyear process, but I'm very pleased with the real results that we're now generating, and I expect far more to be delivered. In terms of scaling AI adoption, we are well beyond experimentation and firmly focused on operationalization with AI now embedded across hundreds of workflows. Having built the foundations and demonstrated value through use cases such as Abi, we're now scaling adoption across core business processes with new agentic capabilities live and expanding to improve our productivity, to strengthen our resilience, to enhance our risk management and to deliver better customer outcomes. In June, we successfully launched our new mobile app, which was designed in collaboration with our customers and which will be fully rolled out by the end of October. Now I'm really pleased with the enhanced functionality, the look and the feel of the app, which is the #1 channel for customer engagement on a day-to-day basis. This investment was not just about our customer interface, but it represents a transformation of our digital engagement platform. And we're going to continue to invest around EUR 400 million per annum, increasing our resilience, leveraging scale and accelerating innovation for future growth. As we embark on the final 6 months of our current strategic planning cycle, I'm really pleased with how the group is performing. We're very clear on our strategic priorities, and we're focused and relentless in our execution. Our franchise is strong and growing, while our multi-year investment in technology is bearing fruit in the form of our new key customer interface, enhanced efficiency and robust system reliance resilience and security. We are very well placed to reach the end of this strategic cycle in good health, delivering on our targets and on our commitments to all our key stakeholders. Now we are looking beyond the end of 2026 and towards our new planning horizon. With great momentum in our business and a strategy framed in the context of the structural forces of electrification, digitalization and demographic change, I'm very excited about the prospects for AIB today, tomorrow and in the years ahead. Clear focused delivery built upon the pillars of a remarkable franchise and capital strength will position AIB strongly to deliver sustainable long-term value for our shareholders for many years to come. We are very well advanced now on planning for our next strategic cycle, and we look forward to sharing our 2030 targets with you all in March. Donal?

Thank you very much, Colin, and good morning, everyone. I'm going to run you through the financial highlights for the first half of 2026. We had a profit after tax of EUR 939 million, and that equated to a return on tangible equity of 23.2% and an earnings per share of EUR 0.422. Our total income was EUR 2.282 billion, which was up 2%. Our costs were just over EUR 1 billion, which are up 2% as guided, leaving us with a cost-to-income ratio of 44%. Our gross loans increased by 3% to EUR 74.5 billion, and we had EUR 7.5 billion of new lending, which was up 10% year-on-year. Our asset quality remains resilient, and our ECL cover is unchanged at 1.6% and we had a charge in the first half of the year of EUR 91 million, which is a 25 basis points cost of risk. Our customer deposits were EUR 118.8 billion, which increased EUR 1.6 billion, which were up 1.3%. Our CET1 ratio is 16.1%, which is well ahead of regulatory requirements, and with strong organic capital generation in that of about 170 basis points, an interim ordinary dividend of EUR 0.1952 and our EUR 1 billion share buyback announced in March continues with EUR 410 million completed at June. I'm just going to run through some of the key highlights here on the income statement. Return on tangible equity strong 23%; EPS, 42.2%; return on assets, 1.2%. Our levies and reg fees were EUR 109 million, which includes a levy of EUR 94 million. I think for our full year 2026, reg fees and levies of EUR 140 million are expected and no material exceptional items. NIM of EUR 1.8 billion is stable at 2.68% and exit NIM of 2.71%. Moving parts here are really SHP, offset by lower returns from cash at banks and cost of liabilities offset by customer loans. NII has been resilient through the interest rate cycle, and we expect our NII to be greater than EUR 3.8 billion in 2026. Other income is EUR 411 million, which is up 15%, and we expect other income to be around EUR 800 million for the full year. Very strong performance in wealth and insurance. Costs are EUR 1 billion, which are up 2%, which is very much in line with guidance. And like I mentioned, we have an ECL charge of EUR 91 million, which is a 1.6% ECL cover rate. Cost of risk for the year is expected to be 20 basis points to 30 basis points. Overall, on balance sheet, as Colin would have mentioned, we've had growth of 3% in the first half of the year. We expect that to be around 5% for the full year and deposits were up 1.3%, and we expect them to be greater than 3%. The moving parts on balance sheet growth really in our consumer areas, mortgages and personal are up low-single digits. And in the wholesale areas, we saw significant growth, as Colin would have mentioned. Funding and capital remain very strong, all of our key ratios above key metrics. CET1 ratio, 16.1%, very strong, comfortably ahead of all targets. Pathway to CET1 target, we will continue to invest in our business and drive sustainable profits greater than 320 basis points of underlying business, a DTA benefit of 35 basis points, investing EUR 400 million per annum and supporting balance sheet growth of 5%. With respect to IRB and capital, we'll continue our multi-asset SRT program. We implemented the slotting model for our project finance business that had a benefit of EUR 900 million. And there are other factors impacting RWAs. We look to execute an SRT in quarter 4 of this year on our project finance book that will have a benefit of 25 basis points to 30 basis points. And we'll also have a rollout or continued rollout of our IRB program. Our EBS mortgage model is expected to be broadly neutral. And post implementation of our commercial real estate model, we do expect there to be an increase in RWAs of up to 50 basis points. We will continue to deliver market-leading distributions. We delivered over 100% in 2024 and '25, and EUR 6.9 billion in total distributions since 2023. We'll pay a sustainable dividend with a 40% to 60% payout policy and an interim dividend set at 1/3 of the prior year's ordinary dividend. With respect to additional distributions, we have capacity for above policy payouts subject to annual review and necessary approvals. And we have optionality to utilize share buybacks and special dividends or a combination of both as we move towards our medium-term target of 14%. So to wrap all that up, our net interest income will be greater than EUR 3.8 billion. Other income will be circa EUR 800 million. We expect costs to increase by 2% but a cost of risk of between 20 basis points. and 30 basis points. Growth in customer loans of 5% and deposits of 3%, giving us a ROTE of greater than 20%. So for 2026 and beyond, we're moving into the next strategic cycle with positive momentum in our business. We have sustainable business growth and returns, strong organic and capital generation, increased investment in our business and market-leading shareholder distributions. So our medium-term targets continue to guide the business and will be refreshed for Strategy 2030 with full year 2026 results in March 2027. Thank you.

Thank you so much indeed, Donal.

And now we're going to turn to the floor for questions. And I think the first up is Denis McGoldrick from Goodbody.

Just 2, please, if I may. Firstly, on the mortgage market, obviously, your share remains very strong at circa 30%. Could you talk us through anything you've seen in that market in the first half of the year and your strategy in that market from here? And then secondly, just on NII. You've updated your assumption for an ECB rate of 2.5% from the end of this year. I guess, any color you could give us in terms of how you view consensus NII for '27 and '28 based on that rate assumption would be great.

Thanks for both questions, Denis. I'll leave Donal handle question 2. On the mortgage markets, we've consistently said that we don't target mortgage market share per se, but I'm very, very happy with how we are performing, 30% share of the overall market. Our direct consumer share is about 46% in fact, a little bit higher than that in the month of June. And one of the reasons we target the direct-to-consumer market, in particular, is because we want to have that direct relationship with our customers. We think that's in the best interest of the customers, ultimately in the best interest of the group. And it also, of course, allows us to sell other products to our customers. And of those customers with whom we have a direct relationship, we sell home insurance and mortgage protection insurance to about 60% of them. So happy with the performance of the business. One of the interesting things is, we're now seeing a drift higher in terms of the customers who choose to deal with us digitally. Now we've seen an ongoing climb in terms of usage on the personal front, that's been high for quite some time. But now in the first half of this year, 90% of our personal loans were delivered digitally. Probably last year, we're looking at about 25% of mortgages being delivered digitally, big step up relatively in the first half of this year, that number is now running at 29%. But overall, very happy with how we are performing in the mortgage market business. Our focus consistently has been on writing the right business with the right customers at the right price. Donal, do you want to cover NII?

Yes. Look, on ECB rates, we had initially expected a year-end 2%. It looks like there's going to be another hike in September '25, ending the year at 2.5%. I think for '27, '28, what we'd say is, we're happy with consensus, and we think that, that's incorporated updated yield curves. But overall, '27, '28, comfortable with consensus.

Now we're going to down the street to Diarmaid Sheridan from Davy.

Maybe just 2 questions, please, if I can. Just on the medium-term targets, I appreciate you're going to come back to us in March next year. But I guess the observation is you're running well ahead on [ month 3 ] on the 3 pillars that you set out. I guess how should we think about you approaching those as you look to the next cycle? Are you going to look to increase those? Or are you comfortable keeping them at a baseline and then looking to exceed them going forward? And then secondly, maybe somewhat interrelated, just in terms of dividends and distributions, just in terms of going forwards, the mix of those. Obviously, been quite a strong delivery on both the dividend and the buyback side. Given where valuation is now, would you still look at the buyback as being kind of as material as it has been over the last couple of years?

Okay. Well, on the medium-term targets, the executive team here have been given a lot of consideration to the shape of the strategy for the next 4 years. We're going a little bit longer than normal. Normal is a 3-year cycle. We're going to do 4 years this year because 2030 is just too attractive an endpoint to miss. Our strategy is going to, in my view, continue to be focused on those 3 strategic pillars that I speak about, customer first, winning our business and driving ever greater operational efficiency and resilience through the business. We're going to obviously be taking into account what we've identified as 3 major structural forces out there. You will have heard me referring to them in my earlier remarks, and that's going to shape the discussions that we have with Board later on this year. I'm not going to front run where we're going to end in terms of medium-term targets. We will go through the appropriate governance internally here. And I think that the best juncture thereafter is to share those medium-term targets with you when we present our full year results for this year. But rest assured, this is a management team that has been consistently ambitious in our strategy and conservative in our execution. It's worked really well in terms of delivery for all our stakeholders in the past number of years, and that will be the overriding principles that guide how we approach the strategy out to 2030. On dividends and distributions, we have a very clear policy in relation to ordinary dividends. We will continue to adhere to that policy. Delighted today to be announcing a EUR 0.19528 interim dividend, which is our second cash dividend -- sorry, second cash interim dividend and a 60% increase in the prior year outcome. Anything about that -- anything outside of policy in relation to ordinary dividends is a matter for annual Board discussion, and we'll be having those discussions with the Board as we near the end of this year. Our next question is coming from Fatima, in KBW.

So just 2 from me. It looks like your deposit costs trended down in the first half. So is this supporting your NIM expansion? And can you expect any more repricing tailwinds to come on the fixed book of your deposits? And then following on from that, is there any impact that you're seeing from competition in the deposit market on deposit margins? Are you sort of expecting any pricing pressure there?