Earnings Call: H2 2020

Mar 1, 2021

Morning, ladies and gentlemen. We'll now extend the Bank of Ireland Results Announcement for 2020 presented by the CEO, Francesca Matana and CFO, Miles Hogrecht, followed by Q and A. Please go ahead. Good morning and you're very welcome to our results presentation. 2020 was an exceptional year with myriad challenges for the people and communities we serve and indeed for all businesses including banks. This morning, we'll set out our full year performance. We'll also update on a number of strategic areas, including our new cost target, Further restructuring of our business model and the tipping points between branch and digital banking that we have reached. At Bank of Ireland, from the start of the COVID-nineteen pandemic, we immediately focused our efforts on protecting and supporting our customers, colleagues and communities. Our previous investment in transforming our culture, systems and our business model meant that we could adapt to the pandemic very quickly. At the same time, we've remained focused on our strategic priorities. Our results reflect this. In summary, they show a return to profitability in the second half of the year with H2 underlying profits of €295,000,000 We maintained our track record on cost management for a 6 reporting period in a row. We achieved a 2% uplift in our Irish mortgage market share, growing to over 25% whilst maintaining discipline on pricing. In the UK, we made further progress in repositioning our business And we concluded our review of our Northern Ireland business. 2020 was also a year of strong delivery on our digital strategy. We've seen a multiyear trend in digital engagement by our customers. In 2020, this was clearly accelerated by COVID-nineteen. We now have reached a tipping point between online and offline banking. Reflecting this permanent shift in customer behavior, We are today announcing a new branch strategy. We will reduce our branch network by around onethree whilst ensuring customers still have a wide range of choices in how they engage with us digitally and offline. Our asset quality metrics reflect the comprehensive approach we've taken during COVID-nineteen. We took €1,100,000,000 impairment charge for the year. Importantly, the experience with customers coming off payment breaks has been more positive than expected. Driven largely by regulatory change, the group's NPE ratio increased to 5.7% in 2020. Myles will provide more information on these items shortly. Despite this large impairment charge, we have maintained our strong capital position. Our regulatory CET1 ratio is 14.9%, down just 10 basis points in the year. On Slide 6, you can see the out comes from our customer focused response to COVID-nineteen. Our Net Promoter Score improved by 5 points last year, our highest to date, both in Ireland and the UK. And we're making banking simpler and more transparent for our customers. For example, We replaced 26 separate charges for our personal current accounts with a single monthly flat fee. Around 100,000 payment breaks were agreed with customers, the vast majority of which have now concluded. More than 9 in every 10 of these customers have returned to their pre COVID-nineteen terms. And we are dealing constructively with the 3% of Payment Break customers who have required further support. Our approach is based on more than a decade of market leading experience in finding sustainable solutions for our customers And maintaining credit discipline in our origination of new business. Turning to the next slide, the response of our colleagues to the challenges of the pandemic has been outstanding. This morning, I want to reiterate my pride in them and appreciation for all that they have done. Our agile ways of working have enabled over 75% of colleagues to work from home. We've delivered physical and mental health initiatives to promote colleague well-being during this time. Our colleagues recognize this. Since 2019, engagement has risen by 5 points. Culture embedding has also climbed by 11 points, We're playing a vital role in economic recovery and reboots in the communities that we serve. Across our portfolios, the group's new lending increased by 30% in H2. Bank of Ireland also announced €4,000,000 in a wide range of community supports. This included emergency funding for a range of charitable groups working with those most impacted by COVID-nineteen and funding for some of the hardest hit sectors. Combined, this hard work is reflected in Bank of Ireland having been recognized We'll now take our next question from the line of John. We'll now take our next question from the line of John. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Our next question comes from the line of John. Thank you. Thank you. Thank you. Our next question comes from the line of John. Thank you. Thank you. Thank you. That saw its GDP grow in 2020. This performance reflected strong and ongoing fiscal support by the Irish government. It was also enabled by the presence of multinationals operating in pandemic resilient sectors such as technology and pharmaceuticals. This growth was not enough to prevent a sharp rise in unemployment in Ireland. However, we forecast much improved labor market dynamics After the economy reopens during 2021. In the UK, the economy is expected to return to growth following a sharp contraction in 2020. We welcomed the conclusion of Brexit trade negotiations between the European Union and the UK in late December. This has provided greater certainty to support investment on both sides of the Irish Sea. On Slide 9, we highlight the factors that lead us to believe that the current K shaped economic recovery in Ireland will become more broad based in the year ahead. We are hopefully coming towards the end of the 3rd lockdown in Ireland. When the economy reopened previously, we saw a rapid fall in recipients of the government's pandemic unemployment payments. As of last week, some 470,000 people were in receipt of this payment. This is close to 1 5th of the labor force in Ireland. Of course, sorry, of those, Just over half worked in retail, hospitality or construction before activity in those sectors was restricted. As these sectors reopen, we should see a step change improvement to the numbers at work, and we expect this to support growth across other segments of the Irish economy. Reopening will provide more opportunities for people to spend and give businesses the confidence to invest. The resources are there to support this. Irish private sector deposits have increased by 15% since 2019. This mirrors the trends in other countries, including the UK, where household and corporate deposits grew 14% last year. And we see clear pent up demand from surveys such as our housing pulse, which rose to a 20 month high in February. Of course, recovery is conditional on the effective delivery of the COVID-nineteen vaccine program. We're all aware of the U. K. Progress in vaccination rollouts. In Ireland, as of last week, around 7% of the population 6 out of 10 of our everyday banking products, such as current accounts or personal loans, were delivered entirely digitally. In 2020, this increased to 7 out of 10. And in 2021, we expect it to increase to more than 8 out of 10. Another example of our digital progress is the 26% increase in registered users of our new mobile app since its launch in 2020. The app has driven increased customer satisfaction, including in the 19 to 30 age group, where we have recorded A remarkable 50 point increase in our customer effort score during 2020. Digital adoption has clearly reached a tipping point. This underlines the importance of our own systems transformation. It also reinforces the need to continue to involve of how we serve our customers. And that's why we've taken the decision to close 88 branches or around 1 third of our physical network in Ireland. Importantly, in taking this step, we've entered into a new partnership with the Irish Postal Service Unpost. This will allow all of our customers access to banking services at local post offices. With Bank of Ireland and Onpus footprint combined, our customers will have access to more than 1,000 places to bank nationwide. As we set out on Slide 11, our systems transformation is delivering both customer and cost benefits and will continue delivering in 2021. We're making strong progress in digitizing everyday banking. This is enabling tangible commercial benefits, Increasing revenue, reducing costs and improving customer satisfaction. For example, our digitization of sales and servicing journeys has delivered more than €21,000,000 of cost savings. We introduced a fully digital mortgage journey for first time buyers in Ireland, which has supported our increase in market share. 38% of our general insurance sales now come via our digital insurance wallet, Reducing our cost to serve. And we launched a new digitized small business lending proposition in 2020, where 2 out of 3 customers that apply for a loan Can now do so digitally in less than 10 minutes. As we look ahead, we feel positive about our digital roadmap for 2021, which includes a range of new initiatives across payments, wealth, security and customer engagement. As you can see on slide 12, costs have reduced consistently in the last six reporting periods. Since 2017, we've reduced our gross costs by over €300,000,000 creating capacity to invest in our people and our technology. We've achieved our original target of a €1,700,000,000 cost base 1 year early. And building on this track record, we plan to do more. Today, we've announced a new €1,500,000,000 cost target for 2023. And we will deliver this new ambition in 5 ways by simplifying and automating more of our customer journeys by concluding the voluntary redundancy scheme, by restructuring our UK business, by continuing to reduce our head office property footprint to reflect new ways of working and by changing the scale of our branch network. Turning to Slide 13. We delivered further strategic progress in the UK in 2020. We grew our operating profits Withdraws of 12%. Our exit margin of 1.82% was well ahead of the full year average of 1.73%. This was supported by our ongoing pivot to higher margin products. We grew our bespoke mortgage proposition, And we reduced our more expensive deposits. In terms of the outlook for our UK business, our financial performance in 2021 will see more evidence of implementing our strategy. In line with our aspiration for a smaller but more profitable business, We expect to see our UK loan book contract by around 10% this year. Margins are expected to be in line with the 2020 exit NIM. We expect to deliver a further 3% reduction in costs and impairment charges should see a material reduction reflecting the improving economic backdrop. As we look forward, we believe that the building blocks are in place to deliver higher returns for our UK business. We have today announced the results of our Northern Ireland strategic review. Acknowledging the dynamics of the local markets, We've taken the decision to materially restructure our business there. We will reduce our cost base by over 15% in the medium term, supported by the closure of about half of our 28 branches. And in line with our strategy for Britain, we will simplify of our product offering in Northern Ireland, leveraging our expertise in mortgages and car finance. Moving now to the next slide, I'd like to focus on our Wealth and Insurance business. We are Ireland's only universal bank insurer. This is a unique competitive position, enabling us to capture the full value of a manufacturing and distribution business. This contributes 38% of group business income and has assets under management of around €20,000,000,000 up 3% last year. Wealth and Insurance's contribution to business income rose 14% in H2, and we've made significant progress in recent years. The penetration of our customer base at 35% has grown by 9 percentage points since 2018. With €33,000,000,000 of personal deposits in our Retail Island division, we see clear opportunities to do more, supported by the rollout of our digital wealth and insurance platforms. On Slide 15, we cover our Responsible and sustainable business strategy, which is a focus for the group. Our new strategy, investing in tomorrow, has 3 key pillars: Enabling all colleagues to thrive, financial well-being for our customers and supporting the green transition. On this slide, you can see some examples of the progress made during 2020. These include our launch of a green bond framework, the expansion of our sustainable finance funds and the integration of climate risk into our frameworks and policies. In terms of our own operations, 100 percent of our electricity consumption is from renewable sources, and we're committed to making our operations net 0 by 2,030. As we come towards the end of our 2018 to 2021 cycle, we will share more detail on our strategy refresh and new medium term targets at an update later this year. I'll now pass you over to Myles to take you through our financial performance in more detail. Thank you, Francesca, and good morning, everyone. Today, we report an underlying loss for the year of GBP 374,000,000 with a return to profitability in H2 of GBP 295,000,000 This performance represents good underlying momentum in the second half of the year and it is ahead of expectations for 3 key reasons. First, the credit impairment of $1,100,000,000 was at the lower end of our guidance range. 2nd, total income reduced by 8% and third, we continue to deliver on costs with operating expenses reducing by 4%. We also finished the year with a strong capital position, 14.9% on a regulatory basis and 13.4% fully loaded CET1 capital ratio. Our income is in line with guidance. Net interest income declined 2% Business income fell by 21%. We took our usual comprehensive approach to impairments with 60% of the charge relating to performing assets. Non core items of $386,000,000 include the voluntary redundancy scheme that we announced in quarter 3 and the impairment of software assets taken in H1. As you can see on Slide 20, we continue to maintain pricing discipline across our lending portfolios as reflected in stable loan asset spreads. Overall, reducing yields on liquid assets and hedging income were the primary drivers of the decline in interest income and margin. Customer deposits increased by $4,600,000,000 in 2020. Against the backdrop of subdued credit demand, Liquid assets increased by $3,600,000,000 In addition to pricing discipline, we took action to address the buildup of the liquidity, including the expansion of negative rates to deposits of €8,500,000,000 with further expansion planned in 2021. Turning to the next slide, net lending growth was stable last year, supported by $700,000,000 of revolving credit facilities. Excluding these RCS, new lending declined 19%, while impairments and FX were further drags on net loans. However, new lending recovered significantly in the second half of the year, increasing by 30% compared to H1. The primary driver for this was a strong recovery in mortgages in both Ireland and the UK. COVID-nineteen's impact on economic activity weighed on business income, contracting by 21% for the year. We experienced this contraction in a range of divisions. Wealth and insurance income fell by 23% from lower sales and existing book experience. Retail Ireland saw an 18% decline in transaction fees and FX of Revenue. Corporate and Treasury fee income fell by 10% due to lower underwriting income. And in the U. K, travel restrictions impacted our joint venture FX business. But once again, H2 demonstrated a good recovery, up 12% on H1. In addition, of Recovering Financial Markets Boosted Valuation Items. As Francesca noted, this is the 6th consecutive period to report lower costs. Last year's 4% net reduction included absorbing unplanned COVID-nineteen related costs of €25,000,000 and wage inflation of 2.6%. Importantly, we achieved our Investor Day target of a $1,700,000,000 cost base 1 year early. Today, we're announcing that we're going further with a new $1,500,000,000 cost target for 2023. This will see us deliver a net reduction of 20% since 2017. A range of actions across all divisions underpin this target. These include the $140,000,000 expected reduction Annualized staff costs from the voluntary redundancy scheme, a smaller property footprint and lower third party costs. And while costs reduce, we will continue to invest in our transformation and business model restructuring. We expect to remain materially within the €1,400,000,000 transformation budget and that investment will help us to meet our target of operating expenses to be below €1,650,000,000 by the end of this year. As you can see on Slide 24, our impairment charge of €1,100,000,000 has 3 key elements. The first is the update to our IFRS 9 models incorporating the latest economic conditions and outlook. This accounts for $515,000,000 an increase of $83,000,000 since H1 from elevated unemployment levels, Partly offset by the improved outlook for house price inflation. The second element is a group management adjustment totaling 181,000,000. On a net basis, this is broadly unchanged compared to H1. Less customers than expected requesting forbearance was offset by increased risk associated with sectors more vulnerable to COVID-nineteen. And the final element is 437,000,000 of actual loan losses. The increase in H2 is €116,000,000 This is primarily from increased impairments on a number of large legacy property exposures. Based on current macroeconomic indicators, we believe the majority of the credit impairment risk associated with COVID-nineteen has been captured. And while the 2021 charge is likely to be higher than pre COVID-nineteen levels, It is expected to be materially lower than 2020. Slide 25 provides an overview of coverage across our loan book. Taking account of the charge for the year, balance sheet stock increased by 71 percent to $2,200,000,000 In percentage terms, Coverage increasing from 1.6% to 2.9%. The biggest increases in coverage are property and construction from 2.8% to 6.9% SME and corporate nearly doubling from 2.4% to 4.7%. There were minimal movements on mortgage coverage because of less than expected Payment break forbearance and a positive outlook on property prices beyond this year. Moving to the next slide, We set out stage migration detail. 2020 resulted in a significant deterioration in credit quality driven by the economic environment, Actual loan loss experience and outlook. Stage 2 loans increased by $10,200,000,000 $6,000,000,000 of this increase relates to SME and corporate, Including sectors more vulnerable to COVID-nineteen, while the balance primarily relating to property and construction. Stage 3 loans increased by 1,300,000,000 of which 0.9 is from regulatory from the regulatory implementation of the new definition of default. 74% of the loan portfolio remains within Stage 1, where credit risk has not increased significantly. Turning to NPEs, the ratio increased from 4.4% to 5.7%. Again, the performance in the second half of the year was materially better with the ratio flat for H2. The $1,000,000,000 increase includes $600,000,000 from the definition of default referred to previously. We expect NPEs to increase in 2021. We will recommence NPE transactions this year starting with an Irish mortgage portfolio. Meanwhile, we continue to have active and early interaction with customers in difficulty to ensure organic NPE reductions. As you can see from Slide 28, our capital ratios have remained resilient throughout 2020. The fully loaded CET1 ratio declined by 40 basis CEO. 13.4 percent with much of the capital shielded from a combination of regulatory interventions, including the SME support factor and software relief, while the expected loss offset absorbed some of the credit impairment charge. On a regulatory basis, the CET1 ratio was 14.9%, providing significant headroom to regulatory requirements. Risk weights reduced by €1,900,000,000 while density also reduced by 2%, Affecting an ongoing reduction in mortgage risk weights and the impact of the SME support factor. I'd like to call out in this slide that the previously guided 80 basis points impact of regulatory capital demand is now materially complete. And so to finish on 2021 outlook. COVID-nineteen will impact H1 with some form of lockdown or restrictions to continue into quarter 2 at least, followed, we hope, by a return to more normalized activity in H2. With this as a backdrop, we expect Total Aitken this year to remain broadly in line with 2020. Our assessment is informed by the following considerations. While we continue to take actions to minimize the impact of the rate environment, Net interest income and margin are expected to fall due to reduced lending volumes, surplus liquidity and negative yields on liquid assets. Offsetting that, business income is expected to improve in 2021 with Wealth and Insurance a significant contributor. At the same time, recovering financial markets support a lower charge for valuation items. As previously said out, Costs are expected to be sub-one €65,000,000,000 while we anticipate the credit impairment charge to be materially lower than 2020. Taking account of our organic capital generation, credit impairment, transformation and other items, capital levels are expected to remain stable. We recognize the importance of distributions to shareholders. Our policy of approving distributions on a prudent and progressive basis remains unchanged. Our focus is on a return to profitability in 2021 and our intention is for distributions to recommence based on performance and capital position. It is also likely that future distributions will include share buybacks. We will refresh our medium term targets on our strategy update later this year. In conclusion, while 2020 was clearly a challenging year, good momentum and profitability in H2 last year provides comfort That 2021 is expected to be a year of recovery and a return to sustainable profitability. Thank you, and I will now pass you over to Francesca for concluding remarks. Thank you, Myles. So in summary, before we open for Q and A, we expect to see recovery this year. Our capital position is strong. We're working with our customers in need of support to find sustainable solutions. We're continuing to transform. We're laser focused on costs and the continued implementation of our UK strategy remains a priority. Thank you. And we'll now go to questions. We have the first question from the line of Dharmaid Sheridan from Davy. Please go ahead. Your line is open. Good morning. Thank you for the presentation. I hope you're both well. A couple of questions, if I may. Firstly, if we start on your income guidance for 20 I think if we look at the second half of the year, it would indicate perhaps a higher run rate into 2021 versus flat. And appreciate your comments around the interest rate environment. Just curious as to what other factors you're thinking about there? Secondly, if we take the distribution guidance that you've provided this morning, and in particular, if we take it within the context of flat Capital guidance. Should we think of that as being the residual once your investments and your loan growth are factored in for And thirdly, on Ulster Bank, just firstly, perhaps your thoughts You're not participating in the back book acquisitions, so just interested in your thoughts on that process. And then secondly, just We'll be very interested in any thoughts that you have in terms of what the exit might mean more generally in the market. Thank you. Sure. Thank you very much, Dimit. Maybe I will go straight to the second and third on distribution and Consolidation in the sector and then I'll invite Miles to comment on income and capital more broadly. So obviously, we recognize the importance of distribution our shareholders and our policy of approving distributions on a prudent and progressive basis is unchanged. As a team, we're Absolutely focused on our return to profitability and also returning to capital distribution as soon as possible. And based on the guidance that we are providing today on 2021 performance, that would support the restart of distribution in relation to 2021 full year performance. And of course, the eventual actual decision depends on sitting by the Board, depends on actual performance and obviously on capital position at the year end. And I think just flagging that our reference to distribution rather than dividend is designed to give more flexibility in how excess capital is returned. And so I think very similar to what Mark said in his presentation, given the bank share price, it's likely that future distributions will include share buybacks. Just to answer the other question on consolidation and NatWest's news the other week, obviously, it's not appropriate for us to comment on an Ongoing transaction, but maybe let me share how we think more broadly about M and A. So we look at all opportunities. It's just interesting to note that Bank of Ireland was the only bank that has done a high level of portfolio deals. We've done 8 in the past 5 years. But we don't do a deal that doesn't create value for our shareholders. And our thinking around M and A is as simple and clear as that. In terms of what it means, the announced exit of Ulster Bank means for the markets, so the Ulster Bank would be a core banking SME lender and active in mortgages, particularly fixed rates. And In comparison, Bank of Ireland is the largest domestic lender to Corporate Ireland with the number one lender to SMEs and our market share of new business in SMEs has been over 50% for each of the past 7 years. In our results Today, we're showing that we're increasing our market share in mortgages and an important component of that is our strength around fixed rate mortgages. So That puts us in a podium position and I feel good about our ability to win new business organically and the opportunity to compete for new business flows that we're already seeing now given Ulster Bank's news. And Separately, we are just keeping an approach on negative interest rates under regular review. And given that there is a potential for more and surface liquidity in the market. We keep our negative interest rate approach under constant review. I'll go to Myles on maybe anything else on the sale capital and also income guidance. Sure. Thanks, Francesca, and good morning, German. I hope you're well. Let me comment on income guidance first of all. So as an overarching point, when I look at consensus, The market is broadly in line with my expectations on income for 2021. In a very challenging rate environment that we're all aware of, We are taking actions to minimize the impact on bottom line. And so overall, at the highest level, I expect interest income to reduce From lower average loans, while the rate environment continues to impact margin. So some of the moving parts. So with the buildup of liquidity negative yields continues to impact our decision to expand the application of negative rates From €8,500,000,000 last year getting closer to €15,000,000,000 this year, that's expected to improve income. It It benefited last year about €31,000,000 and we'll get closer to €80,000,000 this year. So essentially applying negative rates to large deposits is offsetting the impact of negative yields on liquid assets and structural hedges. So we're We're successfully managing the rate environment. However, average loans will be lower in 2021. We entered the year With lower loan assets in 2020 H2, last year, balances were $2,000,000,000 lower than H1. That flows into 2021. And additionally, in line with strategy, while we protect margin, U. K. Mortgages are forecast to reduce 10% over the year, which will pull down interest income a little bit. Moving to business income, which I expect to grow this year and essentially offsetting the impact on interest income. That growth is primarily from Wealth and Insurance Business Lines, while banking fees are expected to remain broadly stable supported by flat fees for current accounts that were introduced last year. So again, in summary, stable total income broadly in line with consensus. Just a follow on comment on capital, just to put the guidance for 2021 into context, 2021 being the year of recovery with a return to profitability. We're generating sufficient organic Capital to support Elevator's credit impairments, transformation, business restructuring to meet cost targets And as Francheska said, the recommence under distributions. I should also say that in any year, items such as expected loss, Pension volatility and NPE transactions can impact capital. And overall, this will result in capital levels remaining stable and in line with December 2020 levels. Hope that's clear, Dermot. That's great. Thank you. Thank you, Dimit. Thank you for your question. We have the next question from the line of Haimo Hughes from Goodbody. Please go ahead. Your line is open. Thank you. Hello, Francesca, hello, Myles. Maybe one on costs, one on impairments and one just in relation to maybe valuation items, Maybe a smaller one. Just in relation to the cost side, you talked obviously the target in relation of $1,500,000,000 for FY 'twenty three. There's quite a significant decline in the number of staff at year on year at the end. So that's kind of clearly hopeful in terms of the trajectory for 2021. But just maybe wanted to get your thoughts about the cost trajectory into 2022 and 2003. Should we think about it more linearly or kind of back end loaded And will there be associated costs involved with that? I mean, you've talked about certainly the existing program within the 1,400,000,000 2021, but will there be more in 2022 and 2003? So that's the first one. Secondly, just in relation to the impairment charge, just notice some of your disclosures you have in terms of your central case kind of declines in HPI in Ireland and the U. K. So directionally, the trend seems to be a little bit firmer than that. Just wondering as what was the thought process on it and could that auger for the impairment number maybe being a little bit better than the guidance if it was has? And then finally, just in relation to valuation items, maybe Miles, you broke down as to why there would still be, it looks like a deduction in relation to valuation items for 20 of 21. That's it. Thank you, Eamon. I'll cover off costs and then pass to Miles on impairment and valuation. So Obviously, we've now demonstrated a really consistent track record in our delivery today and that reinforces our confidence in going beyond that the target that we had previously set. So we achieved 1,700,000,000 1 year early. We're guiding to 1 point or less than 1,650,000,000 2021. We're doing that in a number of ways. It's very broad based around simplification of organization, sourcing strategically, The sort of dividends, the cost benefits of our IT digitization also ways of working. And you mentioned the reduction in headcount. So we would have Included our we closed the voluntary redundancy scheme in September of 2020. That's going to result in 14.50 FT feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet Feet leaving the organization. The majority of that will happen during 2021. So the full year benefits of that will is more likely we'll see more of that in 2020 And obviously, we're staggering those exits from an operational perspective. In terms of the 2021 to 2020 3 kind of glide path to €1,500,000,000 because it is broad based and it's across a number of areas, you could expect that to be sort of broadly linear As opposed to particularly frontal backloses. And yes, we feel confident about the progress we've made and the strategic decisions we're making to execute beyond this year. I'll hand over to Martin over to. Sure. Good morning, Eamon. So let me just deal with the impairment guidance and then I'll come on to the valuation items. And so just in broad terms, There is a central scenario quite correct. And we do apply 5 scenarios overall, which capture essentially upside Base case and downside as well. And as an overarching point in relation to impairments, I've previously set our objective for the 2020 impairment provisioning aligned to IFRS 9 was to capture the majority of the risk associated with this pandemic and arriving at a charge of 1.1 I think we've done that. And I'm also encouraged that we've increased our coverage of performing loans. Having done that, we've actually experienced minimal deterioration in credit arrears in H2, R and D and increase in NPEs in the second half of the year. So That's a positive point. However, given the continued lockdown this year and the continuation of government support, we can expect The impairment charge to be elevated this year, but materially low last year, but above our pre COVID medium term guidance of 30 basis points. And yes, we will update our macro forecast throughout the year. And property prices are holding up quite well. I'd say that plus unemployment are probably 2 of the larger macro factors Which impact credit impairment provisioning. On valuation items, there's a couple of subtleties here. Overall, what I'm saying is that I expect 2021 to benefit from a lower valuation charge having taken an overall charge of $56,000,000 last year. And I say that because, I think we can expect to see a level of stability in the financial markets Both on the equity side and indeed on credit spreads. And as we begin to come out of COVID, that underpinned that guidance. But at the particular point that in the second half of the year valuations had a positive of $67,000,000 because we recovered from the half year. My only point is don't extrapolate that as a number for the full year, but the broader point is that valuations should be a positive factor for 2021. Thank you. Just actually, if you don't mind if there's a follow-up, just the loan book looks like in terms of certainly gross loans, you were stable into Q4 For on certainly H1, I suspect probably close enough in terms of Q3 as well. And just in terms of momentum improving and I'm conscious you kind of flagged earlier on in terms of maybe some NPE disposals, but could we see the loan book actually grow this year? I think our objective I mean, when I think about that in a H1 that is for the most of it will be in lockdown And also mindful that parts of the economy such as construction and House building essentially closed for 3rd of the year to April. That's going to have an impact. But equally, we believe That the second half of the year is going to be more normalized and there will be a level of recovery there. The other point to make Just to remind you that as part of our strategy, we do expect the U. K. Book to decline by about 10% over the course of the year. While margins remain strong, that plan reduction will also play out. So I think in terms of new lending, I expect overall For it to be stable, but you've got those overall factors playing out on the total loan book. Okay. Thanks very much. That's great. Thanks both. Thank you. Thank you, Eamon. Thank you for your question. The next question came from the line of Chris Can't from Autonomous. Please go ahead. Your line is open. Good morning, both. Thank you for taking my questions. 2, if I can. 1 on capital Generation 1 on accounting. So in respect to your stable capital guidance, am I correct in thinking that that is after Any distributions or foreseeable dividends that might be in the mix of the year? And obviously, you're talking about buybacks as a potential option as part of your distributions and they would not be considered foreseeable at year end. So the guidance is a little bit I mean it really depends on what assumption you're making in The mix of dividends and buybacks, if I could ask for some of the related color, your organic capital generation, You're expecting that to be up presumably on the 2020 performance? And could you give us some guidance on some of the below the line charges? I'm just wondering whether there's anything in there that is Bringing the capital back down again. And then on accounting, just in terms of your comments around the strength of the insurance and wealth business as a contributor to of Other Income. Could you give us any color on how you expect IFRS 17 to impact Before I hand over to Miles on both actually, happy to talk about Wealth Insurance more broadly, but I'll leave the IFRS 17 to Miles. What I would say is that On distribution, we mean we're not being it's too early to be definitive on the combination, but we are our reference distribution is to maximize the flexibility in how we return excess capital. So that's well understood. Maarten? Sure. Good morning, Chris. So just to first of all to be clear, the capital guidance to be flat in 2021 is after setting And your point on the below the line impacts, So a couple of points to make. Firstly, we expect to remain materially within the 1,400,000,000 transformation budget to get to our cost base of below 1,650,000,000 But in the context of setting a new cost target of €1,500,000,000 by 2023, we can expect level of investment required over the next number of years. Now we'll give you more detail on that as part of the strategy update later this year, But there is an assumption in that when we call out capital levels being flat. On IFRS 17, I mean it is an interesting accounting standard as you say to be brought in by 2023. And it fits in the context that It is truly an accounting standard meaning that it doesn't actually change the underlying economics of an insurance business or indeed our wealth and insurance. It does impact the timing of when income gets recognized. And so when I think about IFRS 17, Not just for Bank of Ireland, but generally for banks that have a bank insurance model, of R and D standalone insurance companies. There's going to be a communications exercise to explain The underlying economic value that's created aside from the accounting impact in a given year and also particularly from a bank assurance point, What is the value that has been created for the group, whether that's the embedded value of the entity or its overall contribution. So I think it doesn't impact business model or economics of our business, but it does require better explanation of how those numbers are arrived at and somehow I guess reconciling between economics and accounting outcomes. Okay. Thank you. Thanks, Chris. Thank you for your question. Please go ahead. Good morning, Francesca. Good morning, Myles. I had A couple of questions on income and then capital, if I could. So just around the 2021 guidance on NII. Could you help us understand just a couple of things? Have you made any assumptions around TLTRO? Or could you help us think about your appetite for drawing on that? And is that a potential positive That you might want to call out. Also on the UK business, kind of could you help us understand the pace of reduction there And when you would expect the loans to fall away? Basically, I'm thinking I think you're calling out something like €40,000,000 €50,000,000 of less NII from that business. Should we straight line that through the course of next year? Or can you help us kind of understand the shape? That would be really helpful. I guess second one on capital. I was just Thinking about how you guys were thinking about your medium term capital ratio, I mean, you had a pretty material reduction in your Pillar 2R through the course of the year. Presumably, you've got some issuance to do to kind of fill your buckets, etcetera. The kind of 13.5 percent CET1 target level that you guys were hovering around before or at least targeting probably seems a bit too high now. And I guess the reason why that's relevant is if we're now starting to think about possibility of buybacks and sweeping away Additional capital, I guess that's something that could kind of help us in the medium term. I'd be really interested to hear your views on both of those, please. Sure, happy to. So let me take the Telstra question first of all. So we haven't drawn down Telstra to date And just important to highlight that this is probably very obvious, we don't need Telstra for liquidity purposes. We have plenty of liquidity. And I think in the context of COVID and its impact on overall balance sheet Progression over the course, particularly of this year. It's too early to conclude whether we will draw down or not. The next decision point actually is in March this month and we will give a careful consideration. But it does if we were to, It would represent a level of upside, but I would caution a little bit on that just given the progression of the balance sheet this year. On the UK, Directionally, you're right, but I'd say to you just that 10% reduction in lending in the UK will be graduated over the course of the year And actually probably a bit more biased towards the second half of the year. So I wouldn't have the hit Quite a severe amount as you have called out. And actually just as a broad point, how to think about The U. K. Dynamics of the financials, if you think about a balance sheet falling by 10% This year margin improving by 5%, operating costs down by 3%. You're beginning to get a sense of what the model looks like And that general shape, I mean not that perfectly, but that general shape will continue beyond 2021. And On capital, you're right, 13.5 percent, the pre COVID-nineteen capital target. And just to put that into context, that was against at that point in time a capital requirement of just under 12% When everything all of those buffers came in, so a buffer of about 150 basis points including P2G. Now we are in an evolving environment where 1.2% of regulatory buffers were removed because of COVID And just under 1% of P2O requirements are now filled from non CET1 capital. Mindful, we did $975,000,000 of 81 transactions last year. So our capital planning assumptions, we assume that the eventual reintroduction of the 1.2% will happen over time, which will take the regulatory requirements to about 11% based on what we know today. And so I think post COVID, it's appropriate to maintain a management buffer in the region of about 200 points including P2G. So taking all that into the mix, I think your view or your approach is about right. Perfect. Can I just ask one additional question? Actually, it's a bit tangential. But on associate income, I mean, that's a bit In H2, then perhaps we're hoping for. I mean, I guess, what are your expectations for that revenue line next year? I On first glance, it looks like that's probably a touch below where the street is. And then secondly, you know your income guidance flat year on year in 2021. Can I just be clear, does that include associate income? Because you typically do include that in business income or is that a separate line? No, it is included and that's yes, it is included to answer that question. And I mean that associate income essentially is our UK joint venture in retail FX. So people going on holidays, that type of consumer activity. Now That was clearly heavily impacted because no one was traveling. And we do think it's an area That could take longer to recover, but if you presume that eventually people will begin traveling again, will go on holidays, we can expect to see a recovery In that line, the timing of course will be dependent on lockdowns and getting people back onto airplanes again. Thank you so much. Thank you, Herman. Thank you. Thank you for your question. We have the next question from the line of Andrew Combs from Citi. Please go ahead. Your line is open. Good morning. Three questions for me, please. Firstly, the cost guidance, The outlook statement on Slide 29, can you just confirm the basis of the cost guidance, the sub 1.65 for 2021 and the 1 point of 2023, is that all in costs? Or is that excluding regulatory charges and levy? Just first, if you could clarify that, please. Second question would then be on that point or I guess an extension of the first question. I think it was €125,000,000 for regulatory charges in levy for 2020. Can you just confirm what consensus has been in future years? If you don't split that and the consensus you provide to us. That's the first question. 2nd question, non core charges elevated this half Driven by the voluntary redundancies, the software impairment, given your guidance for the cost saves going out, presuming Non core charge below the line is also going to remain elevated. So any guidance you can give on that, please? And then the final one is coming back to TLTRO. Appreciate your comment about group wide lending and the trigger points and why it might not be attractive. Obviously, that's impacted By your decision and what you're doing on the U. K, so is there any way you can structure TLTRO to be based purely on the Irish business And on the Irish loan growth or is that an impossibility given the way the legal structure works? Thank you. Thank you, Andrew. So it's possible to Myles, our cost guidance consistently excludes regulatory charges and levies, just Yes, sure. So the levies, I think about that as a it's a pretty consistent number within the €115,000,000 to €120,000,000 range Driven by essentially the shape of the balance sheet at a point in time when the charge is calculated with the different elements of it, but $115,000,000 to $120,000,000 is about right. There will be if I understood the related question, we talked about Remaining within the $1,400,000,000 transformation spend to deliver on The cost base is below $1,650,000,000 to get to $1,500,000,000 within that is a level of ongoing investment, which we would expect When we cut costs, we continue to invest. But also, I would expect it to be some element of non core over the next number of years as we invest in essentially one off costs to deliver on that cost target. But again, we will be in a position to give more detail on that as part of our strategy update. On the Telstra, It is pretty formula driven and it really comes down to the level of the U. K. Is not a major impact on it because the rules relate to business lending not to consumer loans. And so we'll be looking at that in the context of our business portfolio evolution over the course of this Thank you, Andrew. Thank you for your question. The next question is coming from the line of Irma Sheridan from Davy. Please go ahead. Good morning again. Thank you. Just a follow-up question, if I can, around asset quality, please. So accepting the book of charges that you've taken for the kind of the legacy loans and excluding those, Over what time periods do you think that we should start to see the other two buckets of the charge for 2020 kind of transferring from kind of stage 1, stage 2 into stage 3. Or how should we think about the development of that Build up in charge that has happened. And maybe just in terms of your guidance of materially lower charge for 2021, Just in terms of what you have assumed there visavis the economy and reopening for this year, please? Thank you. Okay. Hi, David again. Yes, so the if you think about the where We've got to our $1,100,000,000 which is underpinned by the macroeconomic forecast that we've set out in the presentation. Now essentially what will happen in this year in 2021 is that as some of those Portfolios go from performing where we've put aside a provision and impairment to be an actual loan loss. And it's a risk of getting technical here. Essentially, your probability of default on those loans goes from being less than 1 to 1. So essentially, you assume A stable macroeconomic outcome, some of those loans that we put aside risk for turns into actual loan losses Driving the PD of 1. That's kind of the math behind it. And again, I have said That I expect the charge to be elevated relative to a medium term Normalized credit charge of about 30 basis points, but well below materially below the 143 bps That we had last year. And maybe just to give you a little bit more color on that. Based on the macroeconomic outlook and when I look at the low to high range that was within consensus And clearly, there's a level of uncertainty given the current lockdown. I don't feel the need to move off consensus materially. And just to link that back The capital clearly we've captured that risk when we say our capital levels remain stable in 2021. That concludes our Q and A session. Okay. Thank you very much everyone. Appreciate your time and Have a good day. Thank you very much. Have a good day. Thank you. Thank you.