Good day, and thank you for standing by. Welcome to the AIB Group plc Third Quarter 2026 Trading Update Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be the question-and-answer session. To ask a question during the session, please press star one one on your telephone keypad. You will hear an automatic message advising your hand is raised. To withdraw a question, please press star one one again. Please be advised that this conference is being recorded.
I would now like to hand the conference over to our first speaker today, Colin Hunt, CEO. Please go ahead.
Thank you, Nadia. Good morning, everyone, and I am joined today by Kevin Gahan, our Group Financial Controller, and we will be taking questions later. I am very pleased that we are announcing another strong performance by AIB, and we are 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 longstanding ambitions in that space.
Our costs are ahead by 3%, but we are continuing to guide to a circa 2% outturn for the full year, aided by an ongoing rolling reduction of 3% in our total headcount. 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 are very much looking forward to announcing our full-year results and unveiling our strategy to 2030 in March of next year.
With that, I will turn the floor over to you for your questions.
Thank you so much. Dear participants, just a quick reminder, if you wish to ask a question, please press star one one. Now we are going to take our first question, and it comes from the line of Denis McGoldrick from Goodbody. Your line is open. Please ask the question.
Good morning, Colin, and thank you for taking my questions. Just two, please, if I may. 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? Secondly, you've upgraded loan growth to between 5%-6% this year, which is obviously positive. How should we think again about that mix of loan growth moving into 2027 also? Thanks.
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. Certainly, we've obviously now returned three 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. 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. 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%. Now, as we now get closer to the end of the year, we've raised our forecast for modified domestic demand to 3.8%. 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 & Infrastructure Capital businesses, given the length of visibility that we have on pipelines right the way across those businesses.
I'll turn over to Kevin for some commentary on the NIM.
Yeah. I suppose before we get to the NIMs, just on that loan growth, we're really happy with that momentum. That year to date is 5.6%, up to EUR 76.3 billion for the year. That's as a result of the new lending of EUR 12.3 billion for the year, up 17%. 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. 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 to the 5%-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. In terms of the NIM, again, we have 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 three. That quarterly improvement supported predominantly by higher average lending volumes. Based on the expected volume in Q4, we expect that to remain resilient into the year end.
Thank you. Now we are going to take our next question. This comes to the line of Sheel Shah from J.P. Morgan. Your line is open. Please ask your question.
Great. Thanks for taking my questions. Two, please. If I could 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 are annualizing that, you add on a rate hike or so from the ECB, possibly more. It looks like there is a fairly good level of NII progression coming through for 2027. Just to get some more color on the moving parts there.
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 2027? Thanks.
I will kick off with the NII question, and if I divide that into two parts, one, just the 2026, and then move into 2027. In terms of 2026, in the first instance, we are 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 three. That strong performance underpins the upgrade that we talked about, or that Colin Hunt referenced earlier, of greater than EUR 3.85 billion for the full year. We see quarter three is broadly representative of the quarter four run rate, recognizing that there is 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 provides a floor on our outlook for the year. In terms of potential headwinds, we are not expecting anything material in Q4 that would change our view. 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 will not have much of an impact on 2026, with any benefit more relevant to 2027 and beyond.
If I then move to your question around 2027 on 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 100 basis points increase in rates would benefit NII by circa EUR 260 million, and the September sensitivity is broadly similar to that June. 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 2027 and 2028, and we remain broadly comfortable with that consensus for both years. I suppose that is as far as I would go at this point on those. Did you have a Oh, yeah. In relation to the fee question, the total fees up 7% year-on-year, so a really good performance there. That is made up of two constituent parts. If I talk about net fee and commission income first, that was 5% lower. The number of moving parts behind that. The prior year benefited from one-off Visa rebate, which we have referenced before. During this year, we had a transition to a more simplified flat fee structure in July.
As disclosed in our half-year financial report, we gave a one-month free banking to our customers to transition across to that new fee structure. 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 non-recurring lumpier items, which we recognized in the first half. 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 that we have previously referenced. Got it?
Yeah.
Thank you. The next question comes to the line of Fatima Ghaznavi from KBW. Your line is open. Please ask your question.
Hi, guys. Thanks a lot for taking my question. Firstly, on deposits and deposit competitions, we have seen some pricing action recently in the deposit market. It looks like, from your update, that your deposit beta is unchanged, and also volumes are tracking quite well here. I guess, are there any parts of the deposit book where you are seeing any pressures yet, or has that not really been impacting you? Secondly, I know you have seen a reduction in your Pillar 2 guidance. How are you thinking about capital 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 are guiding 20% for the full year, and we have not 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 are 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 are very happy to see the ECB reducing our P2R by a further 20 basis points down to 220 basis points. If you go back eight years, that number was standing at 315 basis points.
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, the executive team are putting the finishing touches to our strategy or recommendations to board at this very moment, and we will be having a discussion with board about the strategy, the strategic direction of the group for the next four 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 will 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. As I said, it would be premature of me at this stage to speculate on where those numbers will lie because these are debates that are yet to happen. 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.
Thank you. We are going to take our next question. The question comes line of Mike Evison from Bernstein Autonomous. Your line is open. Please ask your question.
Morning. Thanks for taking the questions. Just two from me, please. 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 are thinking about that guidance?
On competition, obviously the mortgage market share looks to have dipped a little bit in the quarter. I just wanted to see if you are seeing any sort of mortgage market competition. I know some rates have moved recently, albeit on very specific products. I just want to understand anything you are seeing there, please.
Well, just taking note of your second part of your question first. We have 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 one rate in one of our three brands. Our strategy or our strategic approach to the mortgage market is completely unchanged, and we will continue to offer an attractive range of products across our three brands, with a clear preference for the direct-to-customer channel, where our market share is very strong at 45%.
Yeah. I will take the first question if I can. I have given you guidance in relation to Q4 versus Q3, and I have also called out the floor that we have set in terms of our NII guidance for the year. Just picking up on your SRT question, we did complete a third SRT in October 2026 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, in the previous question.
Yeah. You should read greater than has given us a floor. We are saying EUR 3.85 billion is a floor for the full year.
Thank you. We are going to take our next question. And the question comes line of Benjamin Toms from RBC. Your line is open. Please ask your question.
The first one's on costs, and cost growth is tracking slightly ahead of guidance.
Sorry, Benjamin, you're coming across very, very low volume. Could you speak up? We can't quite--
Hi, both. Sorry about that. Morning, Ben Toms from RBC. Thanks for taking my questions. The first one's on costs. Cost growth is tracking slightly ahead of guidance. Is the expectation that there's some cost saves that come through in Q4? Should we think about the backend dated cost saves in 2026 as a good start point in terms of how we think about costs going into 2027, so you have good momentum going into next year? Secondly, on distributions, you speak of the optionality regarding share buybacks and specials in the release. Is the key factor in that decision where your shares are trading, and are we anywhere close to a share price where specials could be more appealing? Thank you.
Well, just in relation to distributions, Kev will take the first part of your question. In relation to distributions, what I would say is that obviously the business is very strongly capital generative, 260 basis points of capital generated organically in the first nine months of the year, and we're expecting a very, very strong finish to the year. What we've done is not to include that number in terms of our CET1 outturn, which is at 15.7%. Again, it would be in the same way that it's premature to speculate on the outcome of discussions we've yet to have with the board in relation to the strategy. That too applies to distributions.
We'll be having those discussions with the board and indeed with the regulator over the course of the next number of weeks and months. We'll make all the necessary disclosures when we get to the presentation of the full-year results in March of next year. If I was to say one additional thing, it would be that, in my view, the past is a useful guide.
Just picking up then on your cost question, costs are up 3%, with a cost-income ratio of 44%. If I talk through the components of that, staff costs up 4%, primarily salary inflation and other employee benefits, partially offset by the lower staff numbers. We continue to see that FTE headcount drifting downwards organically, with a 3% reduction year-on-year. If I talk about G&A, up 1% year-on-year. There's one or two one-off items in there. Finally, depreciation up 4%, again with a one-off impairment charge in there. We're comfortable with the circa 2% guidance for 2026. A number of key drivers for lower Q4, including continued cost discipline within the business.
Then, if I think beyond 2026, we see simplification, automation, AI as important levers to create capacity, improve productivity, and moderate the underlying rate of cost growth. All targets, including costs, will be refreshed and provided with our strategy 2030 update, which Colin referenced, we will update on in March 2027.
If you look back on the last strategic cycle, we set out three priorities. One was putting our customers first, two, greening our business, and thirdly, driving ever greater operational efficiency and resilience through the organization. Those priorities have delivered very, very strongly, and I believe that we will be very committed to driving ever greater operational efficiency and resilience through the organization, taking advantage of the opportunities presented not only by AI, but also by enhanced productivity across the group.
Thank you. Now we are going to take our next question. The question comes from the line of Borja Ramirez from Citi. The line is open, please ask your question.
Hello. Good morning. Thank you very much for taking my questions.
Morning, Borja.
I have two questions, please. Firstly, on the deposits, I can see that the system deposit growth for September should actually better growth year-on-year compared to August. I see that this is very strong also in the current accounts. I think here you have a higher weight of market share in current accounts and payroll accounts. So maybe if you could provide a bit more color on these trends, maybe if you could have a bit of indications on expectations for next year, that would be very useful. Then my second-- Yes?
Go on, yeah.
Sorry. And very briefly as well, if you could kindly update on the structural hedge, because given the stronger deposit growth, maybe that could be also an opportunity to increase the structural hedge. Also, if you could remind me the years of the maturities of the hedges for this year, please. Thank you.
Okay, thanks, Borja. I will take the deposit question. We have had a number of updates to the macro expectations for Ireland this year, and indeed for the macro performance of Ireland this year. One of those updates, one of those upgrades came in relation to the savings ratio. I think the last time we were speaking, back in July, the savings ratio was estimated to be running at about 14%. It is now estimated to be running at about 18%. Given the fact that we bank 40% of this country's retail customers, and a higher percentage of the country's corporate and commercial customers, you are going to see that buoyancy in terms of savings ratios being reflected in terms of the deposit base.
As we look into 2027, there is one unusual feature of the Irish economy, which I think that people lose sight of occasionally, and that is in relation to the impact of budgetary policy or the impact of fiscal policy on household finances. In marked contrast to what we are seeing in many other countries, fiscal policy is supportive of household incomes. The measures that were announced in the budget in October are going to be supportive of household incomes right the way across the income distribution, with gains of up to EUR 1,600 per household expected in 2027. That will be a key underpinning, we believe, for the trajectory for deposits as we move into 2027.
If I pick up your question on the structural hedge. No new news from the first half. The quantum remains unchanged since June, EUR 65 billion in total. That is made up of EUR 59.4 billion in euro and EUR 4.6 billion in sterling. EUR 6 billion of that reinvest this year, and we expect the exit fixed yield for 2026 to be 2.3% with a weighted average life of five years. In terms of the maturity profile, looking ahead, circa EUR 5.6 billion of the hedge matures in 2027, and we expect to roll or replace that. But we are comfortable with the size of the hedge, but it is one of those items that we keep under constant review, particularly in the light of deposit growth.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one one. The next question comes line of Jordan Bartlam from Mediobanca. Your line is open. Please ask your question.
Good morning, and thank you for the questions. One on NII and one on other income, please. On the NII point, you said that you are happy with consensus in 2027. You spoke a little bit in terms of the 4Q projections, but even if you see a little bit of growth in 4Q, you are already annualizing pretty much the consensus at EUR 4.07 billion next year. It really does not seem like there is any benefit in there from the rollover of the hedge or further balance sheet growth into next year, leaving aside any rate assumptions. I just want to know what the key headwinds or offsets to that are, maybe even a bit of color on where you are seeing deposit pricing. That would be really, really helpful.
Then on the other income side, fees, as you have said, are tracking slightly weaker this year. Part of that was due to the current account pricing structure. I just want to understand if there is any risk of having to make further changes to that pricing structure, just as you look to compete with the lower-cost fintech players, particularly maybe for the lower or the younger cohorts. Those would be my two questions. Thank you.
Thanks, Jordan. I will take the question in relation to the changes we made to the subscription model. This is something we have been considering doing for quite some time, and we have, by introducing this model, significantly simplified our fees and commissions arrangement with our customers. We gave it a huge amount of thought over an extended period of time, and myself and my colleagues are very content with where we have landed. We are very content with how it is being responded to by our customers, and certainly there are no plans for us to have any further adjustments.
The plans that we will be announcing in 2027 will be focused on continuing to deliver a very high quality of service to our customers, but there is absolutely no intention of us having a material change to the subscription model that we already introduced earlier this year, which of course then had that impact in the summer, in the month of June, from having the one month of free fees as we transitioned to a new service model.
If I pick up your question on the hedge, as I referenced earlier, EUR 5.6 billion of that matures over the course of 2027, and that will refix during 2027 as it matures, and we will keep that under review as to whether we roll that or not. We have good momentum, as I referenced earlier. We are happy with consensus, and any further guidance I will leave till March in terms of a more granular guidance and outlook for 2027.
Thank you. Now we are going to take our next question, and the question comes line of Thomas Ryan from Davy. Your line is open. Please ask your question.
Good morning, Colin and Kevin, and thank you for taking my questions. Just two, if I can. Firstly, on costs, I was wondering if you could provide some color maybe into the future on what level of operating leverage is in the business, and for the ability to grow the business without seeing costs grow to the same extent. Secondly, just back on the structural hedge, I was wondering if you could provide some color on the earnings progression of the structural hedge in the coming years in 2027 and 2028, relative to the current earnings progression in 2026. Thank you.
Thanks so much, Thomas. I'm going to resist the urge to give a preview of where our plans are going to rest for the business over the course of the next number of years. I would reference the track record of delivery in terms of cost management in the past number of years. I've made it clear on a number of occasions that we will continue to manage headcount gently lower in the organization, driven very much by natural attrition and retirements in the normal course. That's obviously going to be a key driver of cost momentum as we move towards 2030.
I've said on a number of occasions that our ambition is to reduce our headcount on a rolling basis by about 3% per annum, and that is certainly something that I think is reasonably instructive as we look out to the next number of years. I'm not, at this juncture, going to have an early unveil of what we intend to do in terms of the drivers of the balance sheet and the drivers of our profit/loss, including costs, as we head into our new strategic cycle. You're going to have to wait a few.
In relation to your structural hedge question, I've given you the end-of-year average rate or the end-of-year closeout fixed rate of 2.3%, the average weighted life of five years. EUR 5.6 billion of that, as a reference, will be maturing in 2027. That will refix at the then rates in 2027. I think any further updates.
Thank you. Dear speakers, we will now proceed with our final question for today. The question comes line of Seamus Murphy from Carraighill. Your line is open. Please ask your question.
Hi. Two quick questions, please. The market broadly expects 50- 75 basis points rise in the ECB rate over the next 12 months, and I think you've got 2.5% in your numbers. Can you just provide us, I know you've provided sensitivity to the movement for 100 basis points, but can you just let us know what the deposit beta is that underpins that assumption of the 100 basis points move equal to 262?
Secondly, just another question on the structural hedge. I know you have a maturing yield, I think, or sorry, you said you have EUR 6 billion maturing in 2027. Can you just let us know what the maturing yield is on that EUR 6 billion, please? Thank you.
Excuse me, dear speakers.
Hello? Hello?
That does conclude our conference for today. Thank you for participating. I will now disconnect. Have a nice day.