AIB Group plc (A5G) Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the AIB Group plc Third Quarter 2026 Trading Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Colin Hunt, CEO. Please go ahead.

Thank you, Nadia. Good morning, everyone, and I'm joined today by Kevin Gahan, our Group Financial Controller, and we'll be taking questions later. I am very pleased that we're announcing another strong performance by AIB, and we're now comfortable in raising our guidance for full year 2026. We now expect NII to be greater than EUR 3.85 billion, our customer loan book to grow by between 5% and 6% and our customer deposits to grow by between 3% and 4%. New lending growth of 17% was underpinned by good performances right the way across the franchise with strong outturns from corporate and real estate lending, while Climate & Infrastructure Capital had a superb performance, very much delivering on our long-standing ambitions in that space. Our costs are ahead by 3%, where we're continuing to guide to a circa 2% outturn for the full year, aided by an ongoing rolling reduction of 3% in our total head count. Our capital remains strong with our CET1 of 15.7%, not including the 260 basis points of organic capital, which the business generated to the end of the third quarter. So overall, we are pleased with how the year is unfolding, and we are well set for a strong finish to 2026 and to this strategic cycle. We're very much looking forward to announcing our full year results and unveiling our strategy to 2030 in March of next year. And with that, I will turn the floor over to you for your questions.

[Operator Instructions] And now we're going to take our first question. And it comes from the line of Denis McGoldrick from Goodbody.

Just 2, please, if I may. So firstly, the Q3 exit NIM of 279 basis points was a fairly significant step up from the 271 exit NIM in Q2. Can you help us unpack what drove that improvement? And I guess, how sustainable that might be as we move into next year? And then secondly, you've upgraded loan growth to between 5% to 6% this year, which is obviously positive. How should we think again about that mix of loan growth moving into 2027 also.

You are most welcome. Look, the NII guidance is obviously underpinned by a strong performance in NIM, but also most materially by a very strong performance on the volume side. And certainly, what we're -- we've obviously now returned 3 quarters of a very good performance in terms of loan growth. From what we see in the pipeline, we're very, very happy to be raising our guidance for the full year. And I see nothing at this juncture that would suggest that we're going to be entering 2027 with anything other than the momentum that is evident in the numbers this morning. And that's very much underpinned by what we're seeing happening in terms of the domestic economy. If you go back just a few months, we were looking at modified domestic demand growth, and that's the sort of key metric for our business rather than GDP. We're looking at modified domestic demand growth of about 2.7%. As we now get closer to the end of the year, we've raised our forecast for modified domestic demand to 3.8%. And that buoyant domestic backdrop is very much a feature in terms of the overall loan growth. I would expect that we'll continue to see solid performance from retail and very strong performances on the corporate real estate finance and indeed climate and infrastructure capital businesses, given the length of visibility that we have on pipelines right the way across those businesses. I'll turn it over to Kevin for some commentary on the NIM.

Yes. And I suppose before we get to the NIM, just on that loan growth, we're really happy with that momentum. The year-to-date is 5.6%, up to 76.3% for the year. And that's as a result of the new lending of EUR 12.3 billion for the year, up 17%. And just to break down some of that for you, the Climate & Infrastructure Capital had a really strong year, as Colin referenced, new lending of EUR 2 billion, an increase of EUR 0.9 billion on the prior year following lower activity last year. And as Colin also referenced the capital markets business, really strong performance with an increase of 16% in new lending across a range of sectors and the pipeline remains strong. That enables us to update our full year guidance of the 5% to 6%. We do expect that the underlying momentum to be offset by the seasonal redemptions in Q4, which typically tend to be a little bit lumpy as well as the potential for an unwind of some of the FX benefit that I referred to. Then in terms of the NIM, again, really -- we've been really happy with how that has held up, supported by volume growth and the structural hedge program and active balance sheet management. The year-to-date NIM is 2.72%, and that was 2.79% in quarter 3 with that quarterly improvement supported predominantly by higher average lending volumes. And based on the expected volume in Q4, that we expect that to remain resilient into the year-end.

Now we're going to take our next question. And it comes from the line of Sheel Shah from JPMorgan.

Two, please. If I can ask on the run rate for 2027 NII, diving a little bit deeper, I know you spoke about loan growth, but some of the other moving parts we should be thinking about as well. When I look at fourth quarter NII, when you're annualizing that, you add on a rate hike or so from the ECB, possibly more, it looks like there's a fairly good level of NII progression coming through for '27. So just to get some more color on the moving parts there. And then secondly, on the fees, can I ask what your thoughts are around the fees outlook for 2027 slightly weaker this year given the repricing actions taken? And where do you think sort of the consensus other income number is sort of landing? Are you happy with that number for consensus '27.

So I'll kick off with the NII question. And if I divide that into 2 parts, one, just the 2026 and then move into 2027. So in terms of 2026, in the first instance, we're happy with the NII performance year-to-date. That has continued to perform strongly with EUR 2.87 billion delivered year-to-date and as you referenced, EUR 1 billion in quarter 3. And that strong performance underpins the upgrade that we talked about or that Colin referenced earlier of greater than EUR 3.85 billion for the full year. So we see quarter 3 is broadly representative of the quarter 4 run rate, recognizing that there's always moving parts around lending and redemptions and balance sheet dynamics that I referred to earlier. The updated guidance of greater than EUR 3.85 billion that provides a floor on our outlook for the year. In terms of potential headwinds, we're not expecting anything material in Q4 that would change our view. And then in terms of rates for 2026, we have seen the rate curves move higher more recently. But given the timing of those expectations of the next rate change, it won't have much of an impact on '26 with any benefit more relevant to 2027 and beyond. If I then move to your question around 2027 and the outlook on that, the rate outlook remains volatile. Our current assumption in our internal planning is that the ECB deposit rate was to be at 2.5% at year-end, although we recognize the market has and is currently pricing in a somewhat higher rate. From an NII perspective, we are positively geared to higher rates. Our sensitivities that we published at June indicated that a 100 basis points increase in rates would benefit NII by circa EUR 260 million. And the September sensitivity is broadly similar to that June. So therefore, depending on your own market outlook, you can use that in your models to work through to 2027. Since half year, the consensus has moved somewhat higher for '27 and '28, and we remain broadly comfortable with that consensus for both years. And I suppose that's as far as I would go at this point on those. Did you have a -- yes, in relation to the fee question, the total fees up 7% year-on-year. So a really good performance there. That's made up of 2 constituent parts. If I talk about net fee and commission income first, that was 5% lower, a number of moving parts behind that. The prior year benefited from one-off Visa rebate, which we've referenced before. And then during the -- this year, we had a transition to a more simplified flat fee structure in July. And as disclosed in our half year financial report, we gave a 1-month free banking to our customers to transition across to that new fee structure. And then that is somewhat offset by our good momentum in wealth, albeit from a relatively smaller base. The second component of the other income is the other items growth, and that includes some nonrecurring lumpier items, which we recognized at the first -- in the first half. But notwithstanding all of that and the fact that those other items can be lumpy, we remain comfortable with the full year guidance of circa EUR 800 million that we have previously referenced.

The next question comes from the line of Fatima Ghaznavi from KBW.

So firstly, on deposits and deposit competition. So we've seen some pricing action recently in the deposit market. And it looks like from your update that your deposit beta is unchanged and also volumes are tracking quite well here. So I guess, are there any parts of the deposit book where you're sort of seeing any pressures yet? Or has that not really been impacting you? And then secondly, I know you've seen a reduction in your Pillar 2 guidance. So how are you thinking about capital sort of going into your Strategy Day? Is there any scope to go lower in your capital target?

First of all, on deposits, you can see the deposit beta. We're guiding 20% for the full year -- sorry, and we haven't seen any significant change in terms of customer behavior, be it in corporate, be it in commercial or indeed, be it in the retail space. So the deposit franchise remains really, really strong. And we're very, very comfortable now with raising our guidance to a growth rate there for customer deposits of between 3% and 4%. So no discernible change as of yet and certainly as of this point in relation to customer behavior on the deposit side. On the P2R, look, we're very, very happy to see the ECB reducing our P2R by a further 20 basis points down to 220 basis points. If you go back 8 years, that number was standing at 315 basis points. And I think the scale of the reduction is a very welcome and neat reflection of the quality of risk management right the way across the business. It would be absolutely premature for me at this stage to start speculating on the implications for our medium-term targets, which have not yet been set for the next strategic cycle. Just to give you a bit of color on that, we're -- as the executive team are in the -- we're putting the finishing touches to our strategy or recommendations to Board at this very moment, and we'll be having a discussion with the Board about the strategy, the strategic direction of the group for the next 4 years. We will be doing that over the course of the next number of weeks. As we move into -- get closer and closer to results announcement in March, we'll be making decisions about what are the appropriate set of targets for our business as we guide the market towards 2030 and as we direct the business towards 2030. But as I said, it will be premature for me at this stage to speculate on where those numbers will lie because these are debates that are yet to happen. But what I can say is that we have acted with ambition and determination in driving this organization. And that -- they are features which will continue to characterize how we approach this business, how we approach guiding the business and how we approach delivering for all our stakeholders over the next strategic cycle.

Now we're going to take our next question. And the question comes from the line of as Mike Everson from Bernstein Autonomous.

Just 2 from me, please. So I just want to go back to the NII guidance. Obviously, looking at the 3Q performance, if we sort of run rate that forward to 4Q and we think about where the exit NIM and rates are coming out of 3Q plus where the volumes are, obviously, maybe there will be an SRT impact in the fourth quarter. It feels like the guidance is sort of on the lower end if you just sort of add that on. I just want to understand, is that really a floor or how you're thinking about that guidance? . And then on competition, obviously, the mortgage market share looks to have dipped a little bit in the quarter. I just wanted to see if you're seeing any sort of mortgage market competition. I know some rates have moved recently, albeit on very specific products. So I just wanted to understand anything you're seeing there, please?

Well, just taking your second part of your question first, like we've consistently said over many, many years that we do not explicitly target a mortgage market share. We are very much focused on writing good business at the right price with all our customers. And the rate adjustment that we made last month was very targeted, very focused and related to a subset of win rate in one of our 3 brands. Now our strategy -- our strategic approach to the mortgage market is completely unchanged, and we will continue to offer an attractive range of products across our 3 brands with a clear preference for the direct-to-customer channel where our market share is very strong at 45%.

Yes. So I'll take the first question, if I can. So I've given you guidance in relation to Q4 versus Q3, and I've also called out the floor that we've set in terms of our NII guidance for the year. And just picking up on your SRT question, so we did complete a third SRT in October '26 on a portfolio of project finance assets totaling EUR 2.5 billion. The completion of that SRT delivered a positive CET1 impact of 30 basis points, driven by a reduction in RWAs of EUR 1.2 billion, and that will be included in our full year 2026 CET1 number. But again, the NII is, as I referenced in the last question.

Yes. So -- and you should read greater than it has given us a floor. So we're saying EUR 3.85 billion is a floor for the full year.

Now we're going to take our next question. And the question comes from the line of Benjamin Toms from RBC.

First one is on costs and cost growth is tracking slightly ahead of guidance.

Sorry, Benjamin, you're coming across very low volume. Could you just speak up?