Ladies and gentlemen, good morning, and welcome to the presentation of our annual results for 2020 as well as an update on the implementation of the strategic plan that we announced back in December and which is now being driven forward at pace. 3 months into our Strategy 2023 transformation plan. We're making very solid progress as we seek to simplify, strengthen and streamline AIB. 2020 was a truly extraordinary year in all our lifetimes. Our customers and the communities in which we operate faced an unprecedented social, health and economic crisis.
But I'm pleased to report that the fundamentals of our business are robust, sustainable and strong. At the outset, I want to pay particular tribute to all our team members across the group for their exceptional performance in supporting our customers and each other at this very difficult time. We are pleased to report progress on both our cost initiatives outlined in December and on our growth initiatives, which are designed to broaden the range of products and services that we present to our customers, to win new customers and to strengthen our business. We were delighted to announce the acquisition of Goebbate earlier this week, a move which will materially improve our ability to fully serve our personal business and corporate customers. In February, as you know, we signed a memorandum of understanding with NatWest Group relating to the potential acquisition of Ulster Bank's €4,100,000,000 corporate and commercial loan book, which, on successful completion, will see us welcoming 5,000 business customers to Ehabit Group.
We are excellently positioned to deliver on these growth initiatives, thanks to the resilience of our capital position with our CET1 ratio of 15.6 percent at year end, which was achieved while taking a conservative, comprehensive and forward looking ECL provision of over €1,400,000,000 despite continuing uncertainty about the near term economic outlook, which is largely dependent on the path of the virus. We believe our economy is poised for a strong recovery in 2021 as vaccine deployment accelerates, as Brexit uncertainty is eliminated, with continuing government supports, a resilient housing market and surging deposits to play an important role in protecting activity levels today while powering growth as the threat of the virus recedes. On the sustainability front, we showed it's possible to do well while doing good, with strong growth in green lending, now accounting for 16% of new lending, with our strongest performing part of the lending book once again, being our energy, climate, action and infrastructure team. But don't just take our word for it. Our progress is recognized independently and externally by both rating agencies and industry bodies.
We are Ireland seeing a financial services provider, and that position is being consolidated and well augmented to the determined implementation of our strategy at pace. Turning now to the economy by a strong external performance, which balanced weakness in domestic demand driven by the virus and its associated restrictions. Expectations now are for an acceleration of activity through 'twenty one and 'twenty two, with the current lockdown serving to delay rather than derail the recovery. The imbalance between housing market demand and supply will remain a feature for some years to come despite a better than expected completion outturn in 2020. We are expecting output in the housing market to be behind last year's level somewhat this year due to delayed commencements.
But that imbalance, something AIB is well positioned to play its part in resolving remains a key support for house prices. Looking at the business sector. PMIs are pointing to positive activity levels with sentiment markedly robust compared to the initial phase of lockdown, thanks to strong fiscal support, the resolution of Brexit uncertainty and hopes for a successful vaccination program. And finally, household balance sheets are in robust health, with deposits surging and leverage levels continuing their significant reduction from the peak seen during the last crisis. The ingredients are now clearly in place for a strong rebound right away across the economy over the quarters ahead.
When COVID-nineteen first hit, our reflex was to support our customers, the team at AIB and the communities that we serve during this period of unprecedented uncertainty. We gave our retail customers over 66,000 payment breaks, with over 88% of those customers now returning to full repayment of principal and interest, which was well in excess of our initial expectations. We kept more than 99% of our branches open, bringing stability to the main streets of Ireland when so many other businesses were forced to close their doors. Over 88% of our over 80% of our employees moved to working from home, while 100 of our team of members on the phone. While we're consistent, we made strong progress with the teams in Britain and in New York.
And which everyone at AIB is the customers and their responsibilities to themselves and share with our families. Also, we have the support program through AIB Together fundraising through targeted of the partnership with the GAAPIsation. At BioMariner versus Ziff, I continue to be on where we work and the priority of the sustainability. And those long term changes are fully reflected in our plan. In terms of our current activity, we wanted of some of our own data with you this morning.
Both weekly card spend and mortgage applications are pretty much in line with the pre pandemic 2020 levels. At the same time, we've seen an ongoing shift to digital in terms of everyday banking with a 39% reduction in ATM, a 71% increase in digital wallet payments, while looking at our mortgage applications, 28% in terms of both volume and value are now completed through our end to end digital journey. The busiest day in our history for our mobile offering was the 1st December with 2,300,000 interactions, while online channel usage increased by 14% in the second half of last year compared with the second half of 2019. And today, some 80% of our customers use an AIB online channel on average once a week. This slide is designed to provide you with an at a glance snapshot of AIB today, highlighting our market leading positions.
We have a really strong franchise. It's an exceptional platform, and we are now well embarked on our strategy to be at the center of our customers' financial lives by presenting an ever growing range of competitive products and services to our personal business and corporate customers. Our strategy is built on 5 key pillars: customer first, simple and efficient, risk and capital, talent and culture and sustainable communities. And I'm pleased to report that across all pillars, we made steady, solid progress in 2020 despite the real challenge of COVID-nineteen. And it is those pillars, the progress made and the implementation of our strategic plan that gives us the confidence today to reiterate our 2023 targets of a cost base below €1,350,000,000 a CET1 ratio above 14% and a ROTE, our Great North Star, greater than 8%.
I now want to take a few moments to update you on the implementation of the strategic plan that we presented just 3 months ago. On the digitalization front, we're amalgamation 5 branches in Cork, Dublin and Galway as previously announced, and that will be completed in the first half of this year. At the same time, we are refocusing our network, reflecting evolving customer behaviors to concentrate more on sales and advice and less on everyday transaction banking, the bulk of which is now completed online. On our end to end credit initiative, full rollout is now well advanced in our asset finance area. And we are also making good progress in SME lending with retail in design and planning.
In terms of the way we work, we exited 2 of our 8 Dublin head office buildings in the closing weeks of the year. And today, we're announcing we will be leaving our Burlington Road premises in the first half of this year. We're well on track here. On changed delivery. Our first recruitment group has been scoped with 155 roles identified, and we have commenced our formal recruitment process with strong initial interest been shown in those positions.
In terms of our business model, corporate advisers have been appointed to advise us on the exit options for our commercial SME business in Britain, and finally, on legacy issues, we signed off to to update you on the progress to broaden and strengthen our product suite. We announced the acquisition of Gogodie earlier this week for an enterprise value of €82,000,000 And this transaction significantly omits of our product suite and would allow us to better serve our personal business and corporate customers, and it will be earnings and RoTE accretive in the 1st full year of ownership. We're also announcing today that we are in exclusive discussions with Great West Lifeco to establish a fifty-fifty AIB branded joint venture. This will allow us to combine the expertise and product range of Great West and our leading franchise and allow us to broaden and enhance of our customer offering in savings, pensions and life products. The launch of the JV is Obviously, it's subject to a successful conclusion of the current negotiations and regulatory approvals, and it's planned for the first half of next year.
We are the leading bank in Ireland in promoting and advancing the sustainability agenda. It sits at the very core of our strategy. We pledge to do even more over the years ahead. We continue to enhance our green product range with clear benefits for the environment for our customers and our lending book with Green Lending enjoying robust growth in 2020. We're committed to backing economic and social inclusion through many initiatives.
And tangible progress has been made here, with highlights including our €300,000,000 social housing fund, our ongoing support for entrepreneurs and the continued promotion of financial literacy across all our customer groups. We recognize that good governance is vital to sustainability. And our ESG program across the group is led by our Board and our Sustainable Business Board Committee. Internally, amongst other initiatives, we're focused on ongoing ESG training and lending exclusions. And externally, we have demonstrated our commitment to our adoption of the UN Global Compact.
In 2020, we did €1,500,000,000 of green and we've pledged to do more, and we will do more. It's an EIA offering potential for very significant, responsible and sustainable growth over the years ahead. So in 2021, we are focused on the execution of our 2023 strategic plan, delivering cost efficiencies and expanding our product range. We'll take a prudent and responsible approach to new lending. Will further strengthen our balance sheet and will reduce NPEs towards our 3% target.
The strength of our business and a expanding range of products and services positions us very well to support the rebooting of the economy while continuing to work with COVID-nineteen impact. We are relentlessly focused on returning our group to profitability, to generating capital and to creating the potential for a return to dividend payments. We will continue to grow our funding book, underpinned by the adoption this year of science based targets and further integration of ESG priorities right away across the group. So while the near term outlook is clouded due to the virus. We are positive about the prospects for targets are set.
Plans have been implemented, and we are to add of all stakeholders. I'll now hand the operator over to the financial details.
Of the operating profit of €700,000,000 a loss after tax of 7 of €1,000,000 a €1,460,000,000 ECL charge, which is a cost of risk of 2 40 basis points, which is in line with consensus and consistent with our comprehensive and forward looking approach. Total income was €2,400,000,000 which decreased 12% on year. Within that, interest income was down 10% and other income was down 19%. Costs of €1527,000,000 were well managed and in line with expectations, An outstandingly difficult operational year from COVID where we maintained full operational resilience, We reduced our headcount by 3% to finish the year at 9,193 employees. Performing loans were €55,200,000,000 which decreased 6% as redemptions exceeded new lending and we had a higher flow to NPEs.
New lending was €9,200,000,000 which was down €3,100,000,000 which is 25%, which is slightly better than where we would have imagined it in Q1. The recovery in H2 was up 9% versus H1 and gives us cause for optimism and a reasonable trajectory. We have a very strong funding position, which has been compounding the excess of liquidity balances. Customer deposits at €82,000,000,000 increased by 14% in the year, contributing to higher cash held at the Central Bank to €19,000,000,000 With respect to MREL, we reached and exceeded our targets throughout 2020 through the issuance of 2 hybrid securities, an additional Tier 1 instrument of €625,000,000 and Ireland's first Green Tier II bonds of €1,000,000,000 Our fully loaded CET1 at the end of the year was very strong at 15.6 percent, of outstanding a large ECL charge, comfortably ahead of all regulatory minimums. I'm not going to dwell on the income statement items for too long.
Really just to call out 2 particular items. Year on year, bank levies, regulatory fees, slight increase of €11,000,000 This is due to the buildup of liabilities and obviously the guarantee scheme which is associated with that. And our associated undertaking, which is really our investment in AIB Merchant Services contributed €15,000,000 slightly down on the year, reflecting lower economic activity. A lot of moving parts here on interest income. It's down 10% on the year from full year 2019.
Consistent with the way I've shown this before, I want to talk about this in interest income terms because The NIM distortions from excess liquidity are continuing to create visual difficulties, should I say. So if I just walk through the different moving parts for 2020. We had a benefit from liabilities of €81,000,000 which is primarily due to lower deposit pricing generally seeking and some parts of negative deposit pricing as well as lower wholesale funding costs. On customer loans, We had a reduction of €152,000,000 This is really from volumes and interest rate effects.
And I
would say, of that, 50% was due to lower volumes on the balance sheet, and the other 50% was due to lower interest rates running through the asset side of the balance sheet. On investment securities, down €83,000,000 on the year. Obviously, any investments from prior years of higher yields, unfortunately, maturing and being replaced with assets at lower levels. And as liquidity grows, we're obviously buying some more government bonds as well, which reduces that number overall. And I'm trying to isolate here the cost of excess liquidity here of 8 basis points.
So that's €50,000,000 for the year. Half of that is related to cash, which is placed with the Bank of England in the U. K. So as the rate cut in the U. K.
Took effect in early March of 2020. Obviously, the return on that is lower. So that had an effect of around €25,000,000 Then the remainder of this, so €25,000,000 is really the cost of excess cash placed with the Central Bank of Ireland, which attracts a negative rate of 50 basis points. I've tried to isolate here the grossing effect of excess liquidity, which I define as 18 basis points. So I just want to explain quite clearly what I mean by this, okay?
If you can imagine a situation where I have €9,000,000,000 of customer accounts or liabilities is at 0. I have a TLTRO quantum of €4,000,000,000 and there's a tiered reserve amount of around €5,000,000,000 Okay. So there's €9,000,000,000 of liabilities paying 0 and €9,000,000,000 of assets, which are paying 0 as well. So no interest costs, no interest expense, yet it's grossing up the balance sheet on both sides by €9,000,000,000 And that's really what I'm trying to isolate here and show the 18 basis points. So the real area for NII focus is on the left hand side of the page as these are the ones which have created the reduction in interest income.
So with respect to excess liquidity, we do have actions in place. We have a tailored negative deposit strategy. Obviously, negative rates implemented in 2014. But what as I would have talked before, since 2019, We would have been charging MBFI's negative rates. In 2020, we would have begun to charge our core business customers.
At the end of 2020, we had around €4,000,000,000 on deposit at negative rates, And this was effectively in line with the threshold of €3,000,000,000 for our business and commercial customers. As we come to 2021, that threshold will be lowered to €1,000,000,000 And we do expect that more and more balances will be captured with this construct. And to give you an idea of within that cohort of business customers, the total quant currently of €20,000,000,000 which we believe over this year will attract. Obviously, that number can go up and it can go down depending on position of firms, etcetera, but I just wanted to try and quantify what that is. So currently and there's only an extra €60,000,000 in terms for our net price deposit pricing strategy.
Well, I talked to Thoreau previously, Jerome, down at September €24,000,000,000 We were certainly fairly committed at the time outlook. We look at 2001, etcetera. We didn't accrue the benefit for that in 2020. It's still a little bit too close to call. We will know at the end of the year, and I'll be able to update you at stage what the benefit for that is going to be.
But as I look to 2021, some headwinds still remain. And while it's reported in terms of the pillars here, which I've talked to previously, in terms of cost of liabilities, we'd expect to make a continued gain in this area of 10 to 11 basis points. On customer loans, Although the bulk of the interest rate impact has been felt or been taken through the balance sheet, We do see a reduction there of 10 to 11 basis points. And the rationale for that is more around volume. We have delevered throughout 2020 around €1,000,000,000 of leveraged assets.
I'll come on to the reason why in the capital slide. We've obviously just executed a portfolio sale, which will have an interest income impact of around €12,000,000 And lastly, as I would have talked about in December, as we delever the SME portfolio in the U. K, There's approximately GBP 1,000,000,000 of assets that will come off the balance sheet. But investment securities, We don't think that there will be too much of a drag in 2021. So that's we expect that to be more like 2 or 3 basis points.
And with respect to excess liquidity, this is obviously going to be dependent in many respects on the on when business activity resumes, what quantums are, but we feel that the bulk of that excess liquidity cost has already been borne. And with a number of actions that we have in place, don't think in 'twenty one that that's going to be any more than one basis points. So for 2021, what we said is various factors to impact interest income, and we expect a moderate decline in full year 2021. Other income, obviously, very heavily impacted by economic activity in the Irish economy, in particular, customer behaviors, etcetera. But year on year, fees and commissions down around 16% and other income down around 19%.
All of the impacts that you see on the fees and commissions line are really all related to both business and retail consumer behavior. But what we have seen throughout 2020, if we're to compare volumes activity from lockdown 1 to lockdown 2 and indeed in the current lockdown which we're in. Most societies, Ireland is no different. People are learning to live with COVID, so activity is higher, albeit lockdowns exist. And we're still not entirely sure in Ireland when different businesses are going to reopen.
But overall, we think that the outturns of volumes are coming up. Our business income includes a couple of items: NAMA subordinated bond at €23,000,000 That's the last dividend that we will receive. We've obviously had an RWA benefit from that bond maturing, but that is not going to repeat. And with other items, as we typically do on a given year, of €101,000,000 to net equities and also a gain when we delevered of some of our leverage loans, taking advantage of strong leverage markets at back end of 20. So for other income, looking into 2021, I think activity levels, we think, will be better, and we do see other income improving by 5% or 6% on the core fees and commissions line.
So overall, for other income, I would say broadly flat year on year is how we see total other income. Costs, Very much in line with our expectations, EUR 1527,000,000 up 2% as guided. A number of factors impacting costs: Increased depreciation of €50,000,000 which I would have flagged to you in December. COVID-nineteen related expenditure, there was various one off costs included in there, branch costs, sanitation, etcetera, etcetera, security, enabling all of our staff to be at home. Against that, we obviously have reduced expenditure from travel, business expenses, etcetera.
And then we have lower FTEs year on year of, on average, 499, which is around a reduction of 5%. We have a further 1500 reductions to realize over the coming years to reach our targeted 2023 number of less than 7,700 employees. So for 2021, in terms of costs, We would expect to see further increase in depreciation of approximately €20,000,000 But within the G and A line, we think that there will be a reduction of around €40,000,000 and staff costs will generally be flat year on year. Overall, you can see on the left hand side, as we would have explained throughout last year, Our FSG nonperforming work unit will have been staffed at full levels, firstly, to ensure Wholesome engagement with customers around payment breaks, but obviously also they've been working on different strategies on legacy NPEs. And as Colm mentioned, we would have executed 2 portfolio sales in quarter 1 of this year.
Exceptional items are €215,000,000 I'll break this out a little bit. €117,000,000 is restitution costs, which is primarily operational in nature, which is really dealing with the old tracker mortgage DONG items. €36,000,000 relates to U. K. Restructuring costs.
So when I talked to you in December about and exceptional cost for the last 2,000. With respect to people and property, of those charges in 2020. We reviewed all of our assets of €30,000,000 This is not on any particular project or any particular system. This is small amounts across the entire register where we had done a full route and branch review as we do every year. There was one off COVID related cost €22,000,000 and that's very isolated just for the implementation of payment breaks.
And it was a small €9,000,000 for voluntary settlements. Because I look through 2021, looking at national items in totality, obviously,
some of
the best of the UK results, acknowledging the ongoing enforcement work with the CBI on in FY 'nineteen will be around €250,000,000 ECL and asset quality, full year charge of €1,460,000,000 conservative, forward looking and comprehensive. The 3 main drivers, as we've talked about all year, macroeconomic scenarios, €400,000,000 downward staging movements, impacts of €700,000,000 and post model adjustments of around €400,000,000 at the cost of risk for 2020 of 2 40 basis points. And we feel we have maintained our strategy to be forward looking and to take as much of the potential credit deterioration into account in 2020. And so I'm happy to reiterate our normalized cost of risk guidance for 2021 at 40 basis points. As we went through the year, there's no doubt the range of outcomes began to narrow a little bit.
Our own Thinking as management and a Board and AIB is that the impact of the COVID-nineteen pandemic will be very different for AIB than the impact of the last global financial crisis. We obviously have come into this in far stronger liquidity and and a capital position. But I would just call out 2 things which are materially different. Number 1 is through the Payment Break construct, like direct engagement and very interactive engagement is a part of that process. So all customers on payment breaks, coming off payment breaks, Irrespective of their financial position, the engagement levels are really, really high, and that gives us a lot of comfort that we'll be able to find very solid solutions for all of businesses and customers in the future.
But there has been unprecedented levels of government support at individual level for wages and even at business level, and that cannot be underestimated. As a percentage of GNI, that is up around 20%. And I think the expectation of total cost of the government between 'twenty and 'twenty one is estimated to be something like €35,000,000,000 So all of that government support is naturally impacting individuals' customers and our conversations with them. Macros, not going to dwell on. No doubt, second half of the year, Ireland Inc.
Performed far better in terms of GDP, HPI. And obviously, a big thing to take off the table was the negotiated Brexit agreement. So you'll see between the first half and the second half, material adjustment in macroeconomic impacts. I've just shown you here quickly the weightings where we've applied our ECLs, 50% base case, Maybe 5% overall to the downside, just reflecting the uncertainty that still exists given the fact that a fairly severe lockdown was announced towards the end of the year. On staging, overall, Just a couple of key points to make here.
On the year, our cover would have increased from €1,200,000,000 to €2,500,000,000 of stock on the entire balance sheet. What we saw throughout the year really was a movement into Stage 2 for the sectors and the industries that we would have been calling out from Q1. No difference in Ireland to anywhere else, really in our corporate and estimating world, hotels, accommodation, non food retail. And when in the commercial real estate world, I would Say in particular, retail parks is an area where we have seen weakness. I think some of the key points to show here, stage 2 cover rate, 9%, which is a large increase year on year.
Within that, those higher risk sectors that I would have called out, Accommodation and some of the construction areas would have Stage 2 cover rates of around 15%. And this is really just to reflect The uncertainty that still exists in these sectors. We don't know when the businesses will be reopening. We don't know what the cash flow position is ultimately going to be like. And we do think it's not it's unlikely to be until the second half of the year that we really begin to see what the impact is as the COVID supports are withdrawn by the government.
But it is comforting, certainly, that the Minister For Finance has reiterated on a number of occasions that supports will remain in place for a long period of time for all of those industries that have been shut down. PMAs, not going to dwell too long on it. €200,000,000 goes to legacy mortgages. I would say that's not really a COVID related effect. This is legacy mortgages from the last GSE, to be perfectly frank.
We need to ensure and wanted to ensure that they are absolutely adequately provided for so that we can really focus our time and our effort on all of the individuals and businesses who may be impacted by COVID. So on the right hand side, the €200,000,000 This is really a representation of an expectation and an understanding that as people roll off payment breaks and the payment break experience was very strong. There is inevitably going to be some businesses and customers who are impacted. Really, what we've done is taken a forward looking estimate for what we think could be impacts coming down the track. Balance sheet overall, really the main item here is on customer accounts.
Loan to deposit ratio reduced €10,000,000,000 of liabilities increase. And obviously, on the asset side, this goes back to the Central Bank. Net loans, point to point, I'm trying to just break out the difference here, down 6%. In terms of performing Exposures, new lending, euros 9,200,000,000 as I would have described. Redemptions in that core portfolio, down €9,900,000,000 Slight reduction.
Redemptions, I would say, are all very much on plan, whereas new lending was impacted by the reduced activity, particularly in Q2. Other items here around the balance sheet would be redemptions of NPEs and ECL charge. And you can see here, again, I've called out the leverage loan disposal of €500,000,000 to leave us at €57,000,000,000 at the end of the year. New lending, €9,200,000,000 but more importantly, up 9% in the second half of the year. Really to give a comparator, I've shown half 1, half 2.
Half 2 growth, very strong across some of the markets, particularly in the retail world, of mortgages personal. And then in the wholesale world, property, corporate and SME, really strong growth in our energy climate change front, reduced appetite in our leverage book and property exposures increasing. For 2021, we don't know if we'll see that overall trajectory, but certainly, the kind of lending quantums that we saw on half 2 on an annualized basis would Give us comfort to say new lending will be above €10,000,000,000 for 2021, but the outlook is still uncertain in some sectors. NPE normalization, as always, remains a priority for the organization. Our NPE ratio would have risen from 5 point 4% to 7.3% in 2020, slightly less, frankly, than what we imagined at the onset of the pandemic.
But earlier this year, as you know, we would have executed 2 portfolio sales, which has had the effect of reducing our quantum of NPEs from €4,300,000,000 down to €3,600,000,000 which is circa 6%. And we remain committed to getting under our circa 3% by 2023. It's going to be very important for us to focus on managing and ensuring we reduce the legacy NPEs so we can spend our time and energy on the COVID impacted NPEs, which we think will appear in H2 2021. Funding and capital, again, here only really to show here of the increase in liabilities. Half is retail, half is business and corporate.
MREL targets met and exceeded very strong capital position, lots of capacity for growth, organic and inorganic, in 2,000 1. Fully loaded capital, 15.6%, very strong outturn. Definitely a few moving parts here for the end of the year, which is worth a little bit of time to talk through. So we've been operating with pro form a CET1 reporting for a period of time. I'm pleased to say that the bulk of that is now gone.
The TRIM impact in totality is around 130 basis points mortgages, 50 basis points, which is not new news. Corporate post our corporate TRIM had an impact of around 20 basis points. And then when we concluded our corporate TRIM review, we would have agreed and accepted with the regulator that for our leverage portfolio, a floor of 125% would be applied. So I would have mentioned earlier that we would have delevered some leverage assets. At the start of 2019, that book was around 4 point €7,000,000,000 at the end of the year is at around €3,500,000,000,000 3,600,000,000 And some of that activity or a lot of that activity was driven by the fact that we had new risk ratings on that book, which forced us to do some portfolio management to optimize returns given the increase in risk ratings.
The regulatory items of 10 basis points, software impact 60 basis points, a little bit better than SME 501 impact, 30 basis points. Calendar provisioning was 60 basis points impact, which is slightly better than I would have talked about last year. Obviously, the higher provisions would have helped reduce that number. And then other IRB models, 20 basis points, that's really our SME model, which we have submitted to the regulator for approval. We've actually made the adjustment for the risk weighting in advance of how that plays out.
So overall, end to end, you can see the impact, Notwithstanding the fact that we have taken a large ECL charge, our fully loaded capital is very strong at 15.6% at the end of the year, which leaves us in a very strong position for the year ahead. Medium term target, 14%, one of the items we would have majored on in December. Strong buffer to MDAs, 5.9% or 9.2% on a transitional basis. For 2021, as we Sit here today, I still see some tailwinds on the capital side. On the SME five zero one, I think There'll be around 40 basis points of benefit that we can still implement this year.
And then on calendar provisioning, I think there'll be a benefit of around 10 basis points for 2021, which we've actually already realized through the execution and sale of the Oak and Iris portfolios. On inorganic opportunities, obviously, Colm would have talked to this for a period of time, good bodies and the AIB Life JV. What I'd say on this is a couple of things. Any item we look at from an inorganic basis has to be accretive to RoTE and obviously in excess of our RoTE target of greater than 8%. If we're to look at some of the businesses which we've disclosed recently, the impact Good bodies from a capital perspective will be around 15 basis points.
The final form of the AIB Life JV is not yet Will it be a JV, an associate, etcetera, etcetera? But I would say that the capital impact should be no greater than the 15 basis points and good bodies. And then on the Ulster Bank MOU, which we have signed and we're working through, it's a bit Too soon to talk about revenue impacts, etcetera, etcetera, because there's a lot of work that we still need to go through with Ulster. But what I would say is, as you look at the quantum of 5,000 customers, €4,000,000,000 of loans, I think an appropriate risk weighting to base your calculations off is probably more similar to AIB's risk weightings, which for the mix of corporate commercial would be around a 90% risk weighting density. Distribution policy.
We're monitoring regulatory developments. Our existing policy is 40% to 60% ordinary dividend payout ratio. We haven't accrued a dividend for 2020, given we've posted a loss, but we will assess the balance between dividends and buybacks at the appropriate time, which we expect to be in 2022, looking at 'twenty one's returns. So despite near term uncertainty, we remain positive in our return to profitability in 2021. Will generate growing and sustainable earnings and resume dividend distributions.
Again, a rerun of our medium term targets. The main one for us, for me, is the cost discipline less than €1,350,000,000 of the enabler for the RoTE greater than 8%. Our strategy to 2023 is set, and we are implementing at pace.
Thank you very much. Thank you very much indeed, Donald. We're now going to turn on the telephone lines and take questions from our audience. And first up is Dermot Sheridan. Good morning, Dermot.
Good morning, Colin. Good morning, Donald. Can you hear me okay?
We can hear you loud and clear.
Great. Thank you for the presentation, and thank you for taking my questions, and I hope you're both well. Maybe firstly, if we could touch on capital allocation. I guess as we look forward, are the majority of the regulatory impacts now behind us at this point? And as such, should we think about capital allocation in terms of inorganic growth and capital distributions?
So that's the first question. Secondly, just on the strategic initiatives, and I appreciate the comments Donal just gave us there. Perhaps you could give us a sense of how meaningful the 3 inorganic initiatives may have in terms of your 8% return target and when we should begin to see those kind of accretions into that dynamic, if you like? And maybe just finally, a clarification for Domo. Just in terms of the cost of risk and your comment on normalizing at 40 basis Is that simply for 2021?
Or should we think about it as 40 basis points in the medium term?
I'll just take the strategic initiatives first, and I'll hand over to you on the other two questions. We're obviously still in negotiation for NatWest Group. We have concluded our MoU. There's a huge amount of effort across the organization in bringing that to a conclusion over the course of the next number of months. And I'm optimistic that we can get those assets on the balance sheet and welcome those customers to the group by hopefully the end of this year.
Goebbenees will now go through a regulatory approval process. That could take 3 to 4 months, but we hope to have it of the group, fully consolidated in the group in the second from the second half of the year onwards. And in relation to the joint venture with Great West Life Company. That's expected negotiations are expected to take another 2 to 3 months, go through regulatory approvals then. And we are planning to actually launch into the marketplace in 2022.
So no impact in 2021, but we do expect in 2022. And in every single one of the cases, the key filter for us, the key determinant of our drive to pursue these initiatives was that they were going to be ROTE accretive and help us to medium term target of delivering an ROTE
in excess of 8% by calendar 2023. Don? Yes. Thanks very much. Yes.
On the capital allocation, capital walk, 15.6% starting point. Looking at some tailwinds there, it gets you up to 16.1%. I think that's the starting point for the analysis. If I look at the time line for model development, redevelopment, etcetera, with the regulator, We have a number of rebuilds in place, and all scalars are already incorporated in our risk weightings to account for that on our main products. So really, it's the SME model for approval.
We'll wait and see what the outcome is. I don't believe or there's certainly nothing on the horizon of a negative nature that I can currently foresee, but I'm going to have to wait and see and would not want to prejudge any outcome there. Look, I think cost of risk, I would, For modeling purposes, use normalized cost of risk, 40 basis points out the years. Obviously, it's going to change. By 'twenty one is the year.
When we sat down looking at the impact of COVID and payment breaks, we thought they'd be finished and let's quantify it by the end of 2020. That just hasn't been the case. So we're pushing forward now. I think Q2, Q3 is a really important time. We've got a large quantum of assets in the higher risk segments in Stage 2.
What you're going to see happening there is an amount will obviously move into Stage 3 inevitably and unfortunately. But obviously, a larger quantum will normalize and go back to stage 1. So I think as we get through the year, that's going to be the important piece of work that we need that we're going to need to figure out. But I think for now, it's it will be safer to use 40 basis points cost of risk out the 3 years. But I think we'll have more information on that as the year progresses.
Okay. Thanks, Ronald. Next we're going to turn to Raul Sinha from JPMorgan. Good morning, Ronald.
Good morning, Colin. Good morning, Donald. A few questions from my side. Maybe the first one on strategic progress. You've made very strong progress already on these growth initiatives.
The question I have is, do you think that after these 3 deals, You have more or less addressed the gaps in the product suite that you foresee or do You think there's more to do after that? That's the first question. The second one is on dividends. Will you accrue an interim dividend? And should we think that any distributions have to wait until for your results 2021, which is early 2022?
Or is there a possibility that you might consider an infill earlier if the restrictions are lifted. And then a third very quick one. I was just wondering, it sounds to me like on the NII front, There are clearly lots of moving parts, but one of the main moving parts is what happens to the loan book. And you talked about the €10,000,000,000 sort of number for 2021. How has the lockdown impacted your loan book early in 'twenty one.
What gives you confidence that you won't have a sort of downtick again like we saw in the first half of last year. Thank you.
Thanks so much indeed, Raoul. I'll take the question in relation to the strategic progress. This weekend, 2 years ago, I was appointed CEO. And at that point, we identified a number of product gaps in our suite. One of the extraordinary things about this bank is the strength of its customer franchise.
And we were very much focused on ensuring that we were able to deliver the complete product suite to our customers as we deliver on our strategic ambition of being at the heart of our customers' financial lives. These transactions allow us to complete the suite. And we are absolutely delighted that we've been able to announce them so early in the implementation of our 3 year plan. So we're done in terms of There may well be 1 or 2 small items we look at on an opportunistic basis over the course of the next number of years, but nothing of the quantum that we have announced either over the course of the past number of weeks or announced this morning. The product suite, when we complete these transactions, will be complete.
Hi, Ro. A question here on dividend around interim considerations. I've got to be honest, I'm not thinking about an interim dividend for 2021. What I am focused on for 2021 is sizing all of the impacts of these inorganic items from a capital perspective, income cost perspective. And if I was able to sit here at the half year results and give you a comprehensive overview of all of the moving parts and the impacts of these items, that would have been definitely a good day's work for me.
So I'm really, really focused on that. And organization, we're going to be really focused on that. So I think for the base case, we're focused on return on profitability in 'twenty one for a dividend to be paid out in 2022. And anything in the interim is going to be focused around the strategy and the integration of the inorganic items. NII, good question.
It's around liabilities, it's around deposits and it's around speed of execution of the price of pricing strategies. On the new growth, look, there is uncertainty due to the lockdown, okay? What we have seen, though, even if you look at Q3, Q4 loan volumes demands, businesses and individuals are becoming more accustomed of living with COVID and operating with COVID. So we are seeing stronger mortgage market balances than what we would have imagined. It's more likely that supply will be a bigger issue in 2021 than demand.
Building sites will close for a period of time, But we do think that, that market will be certainly greater than what it was in 2020. Then in the other areas, whether it be SME, Corporate property, I think there is a lot of business to be done there. I think that Initially, we felt the participation of the Irish banks in the guarantee schemes was could have looked something like the participation of the U. K. Banks in C bills and B bills and those kind of programs.
We just didn't see that in Ireland at all of maybe €3,500,000,000 of available funds or guarantee funds. Only onethree was drawn down across the system. But what was different is that there was also various forms of grants available, maybe up to €800,000,000 €900,000,000 and these were all drawn down, okay? So what's happened is that impacted business are looking to have their wages paid and they're receiving grants whilst they're locked down. As the calendar becomes clear with respect to which businesses can reopen, Obviously, those supports are going to be withdrawn.
And at the same time, we do expect that all of our customers will continue to engage with us and then term out debt to reopen and to grow their business in the coming years. So we do think that there's going to be an amount of credit demand in that area. But again, it's just uncertain. I'd love to be able to give you a lot more clarity, but sitting down with a hotel operator, asking them for a cash flow analysis, It's just a short conversation at the moment.
Sure. That's really helpful. Thank you.
Thanks so much indeed. Given that we haven't closed the transaction, it's probably a little bit premature to describe our next speaker as a colleague. But Eamon Hughes from Goebbate, the floor is yours.
Hello, Donald as well. 3, if you don't mind, just capital kind of costs and maybe revenue stroke market share in mortgages. Just firstly on the capital side. Just in relation to the slide and maybe at Donald directionally on Page 33, You're talking about the existing policy of 40% to 60% ordinary dividends and then obviously considering buybacks. Would it be the case that You consider a dividend within that range and a buyback on top of that?
Or would it all be kind of a total distribution? And I suppose I asked the question just given the very Capital ratio overall and above your targets. The second question maybe on the costs. Two parts, if you don't mind. The first one is just could I be clear just in relation to Donald, if you said personnel costs were expected to be flat this year.
But also just with the acquisitions and standing back coming on board, It sounds like you're still very comfortable on the medium term targets. So presumably, maybe doing a little bit better on the underlying basis, maybe just to clarify that. And then finally, I know you've given kind of the broad loan guidance for the year. Just in relation to your market share, it kind of weakened on the mortgage side as the year progressed. So I was just trying to get a sense how you've maybe opened this year, maybe to get back to kind of where you were and maybe just some sense on that would be great as well.
That's it.
Thank you, Eamon. I'll address the mortgage issue first and then we'll hand over to Donald in relation to the capital ratios and the costs. We had a very strong Q1 of 2020. And given the array of uncertainties that were out there in the Q2, right, we're looking at an extraordinary array of uncertainties. Very, very difficult outlook.
We took a deliberate stance to be very conservative in relation to our mortgage policies. But as that uncertainty dissipated, we were very much open for business now, right away across all our channels, branch, phone, Internet and mobile. And we're seeing very encouraging applications coming to the pipeline currently. Now there's obviously a lag between applications and drawdowns, but we're encouraged by what we're seeing coming through at the moment. And of course, we have an ongoing emphasis on our green product.
We want to see more and more of our mortgage lending being characterized as green, and we expect that to be the case in 2021.
Hi, Eamon. Firstly, on the costs. So I really should have reiterated that our medium term targets and the guidance that I gave was pre any inorganic items. It's a little bit too difficult to precisely size them at the moment, so I've left any of the guidance I gave you around costs, income, capital, etcetera, was really pre any inorganics. And like I said, I will, at the half year, give a much More wholesome overview of the entirety of the impact of those items financially.
In terms of ordinary and buyback, I think, look, focus of 2021 is to get back to profitability. That is the name of the game. And just remember, whenever we look to make dividend payments. The document we'd be discussing with the regulator is an ICAP, okay? So we have to have an ICAP with the implementation of inorganic items, etcetera, etcetera.
And that's really going to be what the focus is going to be for this year. So when I said the reason I refer to buybacks is if we get into 'twenty two and, let's say, equity valuations are where they are currently, I'd be mad not to look at buybacks as opposed to a cash dividend. Okay. Thanks very much
indeed, Will. We're now going to next on the line is Chris Can't from Autonomous.
A couple of points really around the transactions and how that fits into your guidance. Could I just confirm your flat other income guidance or broadly flat other income guidance for 2021 was pretty good, Bobby? I think from Your answer to the last question, it was. But just given you expect inclusion there from the second half, it will be a helpful clarification. And then in terms of Goodbody, I mean, the public disclosure there on the financial is fairly limited, at least based on what I've been able to find.
Given that's sort of a more advanced stage, I appreciate you don't necessarily want to talk about synergies or anything like that at this point, but what is the sort of annualized revenues and costs you're Thinking about including there in terms of how that business has been performing over the last couple of years, just a sense would be helpful. And then on Ulster, that feels like the most significant transaction. When I crunch the numbers on that, it looks very accretive even with the sort of 90% risk weight that you mentioned during your remarks. Are you expecting to pay a big premium to par for that book to reduce that accretion? Am I missing something there perhaps?
Or your RMS announcing that MOU mentioned that staff directly involved in that lending book will transfer across. I assume that means that the costincome ratio on that acquired business is Fairly low, but again, perhaps I'm missing something. As I say, when I crunch the numbers, and I think when others have crunch the numbers, it looks very accretive. I guess the market is pretty skeptical that it looks a bit too good to be true. So any color on anything that might be missing in our analyses would be helpful.
Thank you.
I'll deal with the ulcer question before handing back over to Donald. We've signed the MoU. We're in a very good position here. The negotiations are continuing. We're in very detailed due diligence as we speak, and we hope to conclude matters over the course of the next number of months.
But as I said earlier, all of the transactions that we're doing. All of the activity we're engaged in, in terms of inorganic growth has a simple filter applied to it. Is it going to be accretive to our medium term RoTE target of greater than 8%. So you saw that we're talking about taking in 4,100,000,000 euro of Corporate and Commercial Lending, which currently sits within Ulster Bank. And we're also bringing with those assets, something of the order of about 300 people from Ulster, who are mainly relationship managers, and we look forward to welcoming them to the team here at AIP.
But the key thing is I'm not going to get into detailed negotiations over a virtual line this morning. The decent negotiations are taking place between our team, the team in Ulster and the team in NatWest. But rest assured, this deal will undoubtedly position this bank as Ireland's leading corporate and business bank. It puts it beyond doubt, puts it beyond debate, and it will be accretive to our RoTE target of greater than 8% in 2023. Bill?
Yes. I'd say on the specific Question on my guidance around other income. What I mentioned there, flat year on year, again, that is excluding any impact from good bodies. Obviously, some of the details of the transactions were externalized. It's a bit too early for us to talk to that in detail, okay?
One of the reasons for making this acquisition, very simple, bring our customers to their products. And It's going to take a little bit of time for us to be able to tease that out and give you the kind of color and information that you were looking for. But needless to say, We feel with our customer base, with deal flow that generates that we feel we're missing at the moment, we think that there can be a reasonably material uplift to the good news proposition. And we're working at pace with the management team of good bodies to try and solve and to bottom out what these items could be.
Thank you, Chris. Okay.
Thank you.
We're now going to Dara Quinn from KBW. Good morning, Dara.
Thanks for taking my questions and all the guidance and details you've given. It seems almost Sure. Let's talk for a bit more. But just want to go back to the dividend. We've seen a number of other European banks Look to recover or repay, if you want, the canceled 2019 dividends once the current restrictions are lifted at the end of September.
I mean, given your capital ratio, I mean, I appreciate it's in the context of a number of acquisitions. But was that an option or something that you considered or debated? And then a second question on the restructuring charges and the outlook for costs. You've indicated a €250,000,000 restructuring charge or other provision charges in 2021. Should that be framed against the €400,000,000 number that you gave for 'twenty one and 'twenty two?
And then on the wage guidance for 2021, which I think you indicated as to be roughly flat. If you could just put that in context relative to the number of employees and how we should think about the wage evolution given the declining FTEs? And I guess what is that saying about underlying wage growth? And again, I think you have confirmed it, but all of that guidance around costs excludes of the acquisitions?
Yes. In relation to wages, I'll just take that question first before I pass the baton over to you. In relation to wages. We're currently engaged with the FSU in relation to negotiations for 2021. And I'm very, very comfortable with what Donald just said in relation to overall guidance.
We have made significant progress in reducing our headcount over the 2020 year. And we have a very clear target out there. We have indicated that we are going to embark on a voluntary severance program. We're currently in consultation on that, and it is something that I expect we will bring over the course of the next number of months. But we are going to see steady linear progress over the course of the next 2 years in getting us from the 9,100 level that it was at the end of 2020 down to less than 7,700 on an unchanged business basis at
the end of 20 of the 23. Yes. Thanks very much, Sarah. I think where I may have confused you, and this is my fault, By saying that staff costs will be flat year on year, that is indeed how we see it. It's not due to wage inflation or anything like that.
It's actually linked to some of the G and A reduction as well. If you may remember, in December, we said that we were going to begin to in source some roles in the technology world. So rather than paying all these experts to do stuff for us, we bring in house a certain quantum of these. So you're going to see is a reduction in G and A from that kind of expense because we're going to be doing it ourselves with our own people. So People flat, G and A down is going to be what the way that, that is going to operate.
So it's certainly not a commentary around wage inflation. I think that You'll see you'll continue to see the overall trajectory of the headcount decline in line with the way Colin described. But the interplay and interactions between G and A and staff will change a little bit. That was on wages. On exceptionals, yes, I said €400,000,000 between 'twenty one and 'twenty two.
In effect, what I've done is take an amount of that in 2020. So €200,000,000 has effectively reduced by that €35,000,000 And really, what I'm doing is filling in the gap for what I think the exceptional costs will be for 2021 incorporating, hopefully, the last year of costs associated with the tracker mortgage review, etcetera, etcetera, which is still ongoing. And obviously, the time line is set by the Central Bank of Ireland and not us. And then dividend. Look, I think if we were not embarking on a number of inorganic items And we were working off a clean balance sheet, clean capital environment.
It would have been something that we would have considered. But just given The variety of different items that we are looking at now, €4,000,000,000 of banking assets, a new Lifeco JV, it This didn't seem feasible or credible to be on top of that, looking to talk about Surplus capital, etcetera, what to do with it. So we're really focused in 'twenty one on returning to profitability, Integrating all of these items that we've talked about, been able to describe to you really clearly capital return impacts. If we do that well, we'll be generating lots of capital, and I think the conversation around dividends going forward become a lot more straightforward.
That's great. Thanks.
And now we'll turn to Aman from Barclays.
Can I come back to net interest income, please? And I know 2021 and further out is going to be impacted by various acquisitions. But just the kind of underlying NII of your business as you're kind of guiding to as it is. First of all, what can I ask you for a bit more clarity on moderate in terms of your NII guide? Are you able to describe a percentage rough range for 2021 versus 2020.
I guess the reason I'm asking is I think your kind of exit run rate And in terms of where NII is annualizing at the moment, I appreciate excess liquidity is weighing. To me, it does imply something quite meaningfully below where the Street is next year. So if as part of that, you could help us understand what your exit Average interest earning assets were in Q4. That would be really helpful. Can I ask about Telstra?
So thanks very much for the commentary about the €4,000,000,000 drawdown. I mean, have you do you think you'll meet your balance sheet that is recognized in Canaire. And if so, should we be looking to kind of add 100 basis points to The contribution from that book and is that, to any extent, embedded in any of your guidance? Or is the outlook for the balance sheet a little bit too uncertain? And then I guess on negative interest rates, thank you very much for that disclosure regarding the incremental €16,000,000,000 of deposits.
Just roughly speaking, what kind of rate are you charging those customers? And again, is that kind of captured into your NII guide? And just the final one, sorry, on your investment securities comment. So presumably, that excludes the impact of your structural hedge. So I've not So forgive me if I've not seen it, but I can't see any disclosure on the structural hedge in any of the slides or reports.
So could you help us kind of understand the balance and the yield on that book. And it sounds like you're not really expecting that to be a drag going forward. So I mean, could you confirm and quantify that, please? Thank you.
Thanks, Iman. I'll take the negative interest rate question, then we'll hand over to Donald. Like every bank across the eurozone, we've been grappling with the impact of negative interest rates since 2014. At the moment, we've got a pass through of that minus 50 basis points to customers with a credit balance in excess of €3,000,000 So €3,000,000 the current threshold on that, and we'll be reducing that threshold through the next two quarters so that by the end of the 3rd quarter, all balances, personal and business and corporate, above €1,000,000,000 will be liable to negative interest rates.
Okay. Moderate. One can get into wordsmithing here. I would say moderate is less than 5, certainly in my terminology. TLTRO, I would love to say that this is absolutely nailed on, but it is still pretty close to call.
It certainly isn't going to cost me anything. I think that the TLTRO terms for NEX Drawdown are very, very favorable, and I will be able to update you in March. But it's Just quite close to call. Redemptions impact this as much as new business. So it's very hard to be completely definitive, and I don't want to give you a wrong answer.
But I mean, I have conceptually got my head around taking on TLTRO liabilities, notwithstanding the fact I have quite a strong liability base because of the potential gains once you meet your asset targets. And the guidance I've given you, I haven't included any further impacts or anything beyond the TLTRO3. Obviously, I will we'll be looking to draw down under the new terms of the new TLTRO as well. But I just want to figure out where we are at the end of March 1. AFI gave you a clear guidance there because the number was material.
In terms of SHP, obviously, in a lower rate environment, that's going to perform. In 2019 SHP contribution to NII was around 6%. 2020, SHP contribution to NII was around 8% or 9%. So I didn't incorporate it. It's within that customer loans number.
Again, in 2019, I would have referenced €8,000,000,000 structural hedge with an average life of 5 years. Obviously, throughout 2020, we would have increased that based off the fact that the lower for longer environment is fairly nailed on. So it's more like €10,000,000,000 or €11,000,000,000 now. And as I look to the outer years and why I don't draw attention to it is we see it being pretty consistent at around 8% or 9% of NII in the coming years. So it's not going to create any material changes up or down.
Okay. And next, We've got Guy Stebbings from Exane.
Thanks for taking my questions and for all this morning. I just want to come back to deposits, firstly. Obviously, very strong inflows and banks, all the detail on how it impacts NIM. I guess you're guiding to net interest income on the basis of no acquisitions. But presumably, when you look at those excess deposits, you have an eye to things like the Oilsberg acquisition and therefore the current hit to NII NIM from excess deposits?
Perhaps you're Happy to view it a little bit as transitory in nature? Or would you still seek to manage it down quite meaningfully if you could going forwards? And then on the U. K, sort of similarly, obviously, a healthy or quite a low loan to deposit ratio. You're pointing to €1,000,000,000 of asset sales in the U.
K. Just wondering what the strategy will be with the deposits in the U. K. If you're successful there. And then just a very quick final question.
On unsecured, Quite pleasing to see that it grew in the second half, unlike what we're seeing in some jurisdictions. I appreciate it as well. It's a really small portion of the book. But just wondering how you're thinking about that going forward. I think you said that credit card activity was already back to pre crisis levels.
So should we expect to see growth in that portfolio even before all lockdown restrictions leave?
Okay. At a general level in relation to deposits, The surge that we've seen is driven by an element of precautionary saving, but there's also an element of inability to spend because of the nature of the lockdown restrictions. And we do expect that as those restrictions ease, you will see a significant uptick in consumption and investment, which will go some way towards addressing the surplus liquidity that we're currently dealing with.
Yes. With respect to the U. K, we're as Colin mentioned, we have advisers appointed for the business. It's if I look at the assets and liabilities, GBP 1,000,000,000 worth of assets, liabilities associated with that is around €4,000,000,000 We're dealing with different counterparts at the moment to see what kind of mix and what kind of transaction makes The most sense for customers, counterparties, ourselves. But we would expect if the assets are and the customers are leaving that the liabilities we'll transfer with them.
So that's an effect that we think we'll see throughout 2021. On the personal loans and credit cards, Yes. Again, it's we certainly saw a strong trajectory H1 to H2. We saw a once in a lifetime effect, unfortunately, in January, where credit card Debt was paid down, which is pretty unusual in Ireland. It's normally all maxed out in the 1st 30 days of January, February.
But look, it's linked to ability to spend. And when the opening, reopening timetable is clearer, we do think that, that is going to continue to normalize a lot. We would have presented in the personal banking space a new green personal loan product, very heavily target at buying electric vehicles, retrofitting homes. That comes at a discount to our normalized rate, and that's A product that we think is going to be very attractive in the marketplace, and all of our different distribution channels are rolling that out at the moment. And we think that, that is going to be a really key point of differentiation for us in the whole sustainability type environment.
So that is what gives me cause for optimism.
Okay. And now for our final question this morning, we're turning to Marta Romero from Bank of America.
If I I would like to go back to Ulster, If I may, NatWest management has been very explicit about the contribution of the commercial business, which was slightly over €200,000,000 in 2020. Is this a figure you feel comfortable with? And regarding costs, they've mentioned that you will be onboarding roughly 300 Employees, trying to tally that with the guidance you've given for 2023 in terms of total number of employees. What's your expectation on that and costs, of course? And then the second question is would be on capital And if you could give us an update on progress on your internal models.
You mentioned at the Investor Day that you were investing. Are you hopeful you can bring credit risk density down in your mortgage book? And do you think that after what's happened with Ulster, the Central Bank may be more receptive to the idea that current treatment of Irish mortgage books may be too punitive compared to the Eurozone?
I'll take the last comment, and then I'll hand over to Donald. I think that the we're all well aware of the burden of capital, which Irish banks carry in terms of requirements. And that's a very obvious consequence of the credit experience during the last financial crisis, during the global financial crisis. And my personal view is that I don't expect to see any significant change in that over the near term. We're going to have to see what is the credit experience this time around.
I believe it will be substantially better. But we need to see those data points. We need to see them running through our models over the next number of quarters and indeed years before I would expect to see any relief significant relief on
that front. Donald? Yes. Look, I think the impact of COVID-nineteen, when we see that moving through stages, particularly Stage 3 into resolutions. I think that's a relevant data point because all our models really know at the moment is what happened in the last GFC, which was pretty catastrophic.
So but like Colin says, despite the fact that the last Number of years have been relatively benign. The history is what really tends to hurt us. And the way the models are built is Pretty long dated. So I think it would be naive to think risk weighting density is going to fall any day soon as this hasn't been my experience to date. So I don't think it will get much higher.
I don't think This could get much higher, but we don't certainly bake any benefits of that into our overall thinking about capital. Until that happens, we don't bank it. In terms of Ulster, I clearly need to be Quite careful here, Kevin. It's an MoU. It's very early days.
Other than to say that number seems quite high, that you have mentioned, I'll leave it to you to look through all of the various disclosures. We're specifically looking of assets, people associated with those specific assets. And sometimes, it can get a little bit confusing with ancillary items, which that may or may not be incorporated, such as asset finance and things like that. But I just certainly don't want you getting ahead of yourself a little bit with a number like that.
Okay. There you have it, results 2020 and our update on the strategic plan. Thank you for attending this morning, We look forward to updating you on our first half performance as we move into August. Thank you very much indeed. Good morning.