Earnings Call: H1 2020

Aug 5, 2020

Good morning and you're very welcome to our 2020 interim results presentation. We meet today during what continues to be an exceptional period. The impacts of COVID-nineteen is reflected in our results. Our priority throughout the pandemic has been to support our customers, colleagues, and communities, and while managing the crisis, stay focused on our longer term strategic initiatives. These include the transformation of our IT systems, the consistent reduction of our cost base, and improvement of returns in our UK business. In the first half of twenty twenty, we delivered stable net interest income and a net interest margin of 2.02 percent net lending growth of 1000000000 continued cost discipline with a further 3% reduction, increased market share in key products such as Irish Mortgages, and pre impairment operating profit of 1,000,000. However, the challenging backdrop is also very clear we have taken a €937,000,000 credit impairment charge. 332,000,000 of this relates to updated IFRS 9 models that reflect our macroeconomic outlook. 184,000,000 relates to our prudent assessment of the credit risks associated with payment breaks and million relates to actual loan loss experience, mainly from a small number of retail related legacy property exposures. The group's nonperforming exposure or not NPE ratio has also increased by 140 basis points to 5.8%. Miles will provide more information on these items shortly. We've taken a prudent and comprehensive approach in arriving at our impairment charge for the and 85% of our total full year impairment charge subject to no further deterioration in the economic environment or outlook. We have more than a decade of proven expertise of working with customers in financial difficulties to find sustainable solutions And before COVID-nineteen, we had the industry leading NPE ratio of any Irish bank with arrears at a fraction of the market average. Combined, this puts us in a position of relative strength for the effective management of impairments. Despite the challenges, our capital position remains strong Our fully loaded CET1 ratio was 13.6 percent at the end of June. This is down just twenty basis points since the start of the year. Despite the elevated impairment charge. Our regulatory CET1 ratio was 14.9% at the end of H1. Our purpose is to enable our customers, colleagues and communities to thrive. In recent months, we've seen countless examples of this purpose inaction in both weathering immediate challenges and planning for economic reboot and recovery. We have agreed 105,000 payment breaks for personal and business customers across Ireland and the UK. The first of these breaks was granted in March. We have been contacting customers with options at the end of their initial 3 month payment break. Of these customers, 54% of Irish mortgage customers and 62% of Irish SME accounts have availed of an extension. With the remainder resuming capital and interest payments. In the UK, 33% of mortgage accounts and less than 10% of customer accounts have prevailed of an extension with the remainder resuming capital and interest repayments. We are strongly supporting the reboot of the economies where we live and work. Since launch we have issued more than half of all funds drawn down under Ireland's COVID-nineteen working capital loan scheme. And we have approved around 1,000,000 in low to businesses through the UK government schemes, mainly through our Northern Ireland business. As the leading lender to the Irish economy we stand ready to do more. We have expanded our home building funds to 1,000,000,000 and our green lending facilities by a further billion And we will play a strong role in supporting our customers in Ireland through the new COVID-nineteen credit guarantee scheme being launched in the coming weeks. The steps we've taken to support our customers are mirrored in the 10 point improvement in our relationship Net Promoter Scores since the start of the year. We are very proud of how our colleagues have risen to the challenge presented by COVID-nineteen. We have always said that culture is commercial and the transformation of our culture which we have size since 2018 has helped us respond swiftly to a very complex operating environment. Colleague engagement is up 8 points so far this year to a new high of 70%. This surpasses the global financial services benchmark for engagement for the first time. Throughout the crisis, we have also engaged with governments and industry groups and we have supported communities in need through our programs such as begin together. The progress we're making in our responsible and sustainable business approach can be seen in our by Euro Money. Turning now to the macroeconomic outlook, 2020 will be a year that sees a significant contraction across our core markets. There are many uncertainties, including the potential for a second wave and the outcomes of Brexit. However, there have been a number of positive developments since our first quarter trading update. Here in Ireland, the reopening of the economy was accelerated. A majority government has also been formed since our last update. Governments on both sides of the Irish C have increased their fiscal stimulus packages. The Irish government has introduced additional measures to support the economy. Direct spends per capita in Ireland is now amongst the largest in Europe. And high frequency indicators suggest that the worst effects of the economic shock have passed. We have seen a sharp fall in the number of people receiving the pandemic unemployment payment in recipients are now 52% below the peak. Car data shows a strong recovery in consumer spending, This is now broadly in line with pre COVID-nineteen levels, although some of this may reflect pent up demand from lockdown. Housing indicators have firmed as the economy has reopened and our own economic pulse shows an improvement in trading conditions. COVID-nineteen has also accelerated some existing trends. In particular, increased digital engagement by our customers. This further underlines the importance new to decline. In parallel, we've seen good momentum across our digital channels. We successfully launched our new mobile app to customers in May This is supporting accelerated growth in mobile banking which now accounts for over 60% of all our digital traffic. We've also invested in simplifying customer journeys. Today, over 65% of high volume product applications are fulfilled digitally. In that context, our systems transformation is delivering both customer and cost benefits. During H1, we rolled out market leading digital platforms in our Wealth And Insurance business. These strengthened our offerings across pensions, advisory, and the broker channel. And there's more to come. Our roadmap includes further digitization of customer journeys. Building on previous investments, we have a number of additional milestones we will roll out in the coming months. This will deliver increasingly competitive and cost efficient services to our customers. Costs have been successfully reduced in the last five reporting periods. We've achieved over 1,000,000,000 in gross cost savings since 2017. We now expect 2021 costs to be below our previous guidance of 1,000,000,000 and we won't stop there. We will look at all tactical and strategic opportunities to reduce costs further beyond 2021. We'll do this by continuing to invest in digital, simplifying and automating more customer journeys, restructuring our business model, and optimizing our property footprint for more efficiency which will be supported by innovation in our workplace of the future. This morning, We've also announced to our colleagues a bank wide voluntary redundancy scheme. This is a well considered step in our continued cost reduction. We will provide further guidance on costs when we release our full year results. In the UK, we've made good progress against our strategy of invest, improve and reposition. We have grown lending in niche mortgages, higher margin personal loans and in our Northridge business whilst maintaining commercial discipline on risk and pricing. And we have reduced costs and simplified our business. However, the UK market remains challenging. Competition particularly in mortgages is intense. Interest rates have reduced with the outlook pointing to lower for longer. And COVID-nineteen has negatively impacted this outlook further. We have therefore identified further opportunities to restructure in order to improve our UK returns. In Britain, we will reshape our mortgage business by running down lower margin unless profitable segments. This will result in a reduction in the mortgage book size over time. We will also reduce our operating expenses and funding costs to reflect this change in scale. We will leverage our expertise in areas such as car finance and travel money and continue to grow our bespoke mortgage business. And in Northern Ireland, we have initiated a strategic review. This review will assess all options for our retail business in Northern Ireland and we will provide an update on this at our full year results. I will now pass you over to Miles to take you through our financial performance in a bit more detail. Thank you, Francesca, and good morning, everyone. Today, we are reporting a strong capital position with a 13.6% fully loaded CET1 capital ratio and 14.9% on a regulatory basis. An underlying loss of 1,000,000 due to COVID-nineteen a 13% reduction in total income, a 3% reduction in costs, a credit impairment charge of 937,000,000, and net lending growth of 9,200,000,000. Net interest income was stable in the period. Business income declined by 14%. Falling equity markets and widening credit spreads were the key drivers for negative income of 123,000,000 relating to valuations and other items. This was an improvement from the quarter 1 position reflecting some recovery in equity and bond markets. Our impairment charge is a comprehensive assessment. It reflects the expected credit losses under IFRS 9, and this is the first time this accounting standard has been tested in a downturn economic environment. We also want to highlight $136,000,000 within non core for the impairment of intangible assets, which has no impact on our capital ratios. Our net interest income, while average earning assets were up $3,400,000,000, primarily from liquid assets, The impact of structural hedges and competitive pressures in the UK reduced interest income on assets. Lower cost of deposits and liability was a positive factor reducing interest expense. Taking account of these items, our NIM is 12 basis points lower than the outturn for 2019. In terms of the outlook for NIM, we reaffirm the guidance providers at quarter 1 for a full year outturn of circa 195 basis points. Our net interest income due to lower lending volumes and the low rate environment We see our The group delivered net lending growth of now 200,000,000 in H1. This was heavily supported by 1,300,000,000 of revolving credit facilities. Excluding these RCS, our new lending declined 19% year on year. In quarter 2, new lending declined by 48%. This reflects the impact of COVID-nineteen and the 4th shutdown of the Irish and UK economies on all portfolios. However, as the economy begins to reopen, we are seeing a general pickup in business activity in June July. To give one example, our Irish mortgage applications in July were over 30% higher than June. Driven partly by pent up demand at about 70% of 2019 levels, an improvement on the guidance provided earlier this year. COVID-nineteen has had a material impact on business income with lower activity driving a 14% contraction in H1 and 22% for quarter 2. Wealth and insurance income declined by 16%. Backbook revenues mitigated some of the impact of softer new sales. Looking ahead, as Francesca outlined, Technology investments in our Wealth And Insurance business will underpin future growth and recovery post COVID-nineteen. Retail Ireland income reflects lower levels of economic activity. For the full year, we now see business income reducing by 20 to 30% compared to the 2019 performance, reflecting the accelerated reopening of the Irish economy. We have maintained our strong multiyear delivery of cost reduction with a 3% year on year headline fall operating expenses in H1. Excluding COVID-nineteen related costs, the reduction was 5%. We expect our 2021 costs to come in below the 1,650,000,000 previously guided. To achieve this, cost base will require increased cost of voluntary severance. This incremental cost is materially within the business model by 300,000,000, a component of the overall 1,400,000,000 transformation budget. To reduce costs beyond 2021 will require further investment. Guidance on revised cost targets and required investment will be provided at the full 2020 results presentation. I'd like to cover off non core items, which totaled 153,000,000 in H1. A 136,000,000 of this relates to an impairment of software intangibles. We continue to make good progress with our transformation program. During the period, we also have assessed the value of our software assets. In February, we highlighted that transformation will go beyond 2021, and would include the continued modernization of core systems. As we progress with this multiyear program, we are learning more about deploying a broader range of technology solutions than originally anticipated and doing so in a more modular step by step approach. Due to this, earlier infrastructure investment has less value today. In addition, the rapid pace of technology advancement for the banking sector is such that elements of our prior year investment now requires a write down. Ensuring we delivered the right solutions for our customers is fundamentally important. To this end, we remain committed to our transformation investment strategy across back, middle, and front end technologies. We are announcing a 937,000,000 credit impairment charge for H1 today. At the highest level, This charge can be broken down into 3 elements. $432,000,000, capturing the expected credit loss arising from the macroeconomic outlook. This is a model output and is at the heart of IFRS 9, which attempts to capture lifetime expected credit losses on stage 2 performing loans. Assuming there is no significant shift in the economic outlook, we should not expect a material change in this number for the full year. The second element is a management overlay of 184,000,000 for payment breaks provided to mortgages, consumer, and sectors more exposed to COVID-nineteen. This charge is designed to capture the risk of required forbearance as customers come payment breaks in H2. The last element is the actual loan loss experience of $321,000,000 relating to business and corporate exposure. Included within this are a number of legacy pre-2008 investment property exposures amounting to 166,000,000. While uncertainties remain subject to no further deterioration in the economic environment or outlook, The 2020 impairment charge is expected to be in a range of circa 1.1000000000to1.3000000000. Staying with impairments, I provided a range of slides providing more granularity on the staging profile of our loan portfolio. Much of this content you can take away to review, and I'll clip through the most important components of our H1 impairment assessment. On coverage, we increased loss allowances to 1,000,000,000, representing 2.7% of gross loans, while our coverage of Stage 3 loan losses is at 29%. COVID-nineteen has increased the risk profile of our loan book. 80 percent of our loan book remains within stage 1. We have doubled stage 2 loans to 11,300,000,000. Sage 3 loans increased by 1,300,000,000. This includes a null,900,000,000 increase for the new regulatory definition of default. With the balance from credit migration in corporate and property portfolios. Mortgatives account for 57% of our loan book. As you can see from this slide, average LTVs are 60% 62% for Irish and UK mortgages, respectively. Referring back to earlier slides, around half of Irish and a third of U. K. Mortgage customers have extended their initial 3 month payment break. The 149,000,000 ILA we are taking in H1 for this portfolio is largely on performing loans and includes a prudent assessment in respect of customers on payment breaks. Our nonproperty SME and corporate book is well diversified by geography and sector and predominantly secured. Within these portfolios, our sector is potentially more impacted by COVID-nineteen. These include wholesale and retail hospitality, and acquisition finance. Across this portfolio, we had materially increased impairments to 4%. Increasing stage 2 loans by 3,700,000,000 with loan loss allowances of 880,000,000 now on balance sheet. Property and construction accounts for a tenth of our exposures. This is a very different place to where we were at the time of the global financial prices when around a quarter of our lending was to this sector. Similar to our mortgage book, most of our customers have significant equity with 3 quarters of the investment property book on sub 70% loan to values. Within this book, legacy investment property exposures have driven a 1,000,000 increase in Stage 3 ILAs. And largely as a consequence of that, we have effectively doubled our impairment coverage ratio to 5.6% since the start of the year. Consumer lending accounts for 7% of our loan book. The 109 impairment Last allowance increase on our consumer book is largely outperforming loans and reflects management adjustments relating to payment breaks. Our NPE ratio increased from 4.4% to 5.8% during H1. Half of this increase is down to the new definition of default with the balance reflecting credit migration. Sustancially, all of our Stage 3 loans are now classified as NPEs. There are two important points that I'd like to call out here. Firstly, Bike of Ireland has a proven track record of working with customers to implement sustainable solutions. Secondly, We have previously highlighted the potential for MP Transactions in 2020 with a focus on Irish Mortgages. Due to COVID-nineteen, it is more likely that a transaction will occur in 2021. Despite COVID-nineteen headwinds, the group retains a strong capital position. Our capital ratios improved in quarter 2. The fully loaded CET1 ratio is up 10 basis points to 13.6% while the regulatory ratio improved by 50 basis points to 14.9%. 560 basis points above the new minimum regulatory capital requirement. And the previously guided 80 basis points impact of regulatory capital demand by end of 2021 is now materially complete in the H1 results. In terms of how we see our capital evolving, our expectation is for the 2020 fully loaded CET1 ratio to be well above minimum requirements. On the 2020 regular APC AT1 ratio, we expect this to remain above 13.5%. While it is clear, COVID-nineteen will have a very material impact on 2020 performance. Our outlook for the year has improved somewhat compared to quarter 1 IMS. Gross new lending volumes are expected to be at 70% of 2019 volumes. The rate of property supply mortgage demand, Brexit challenges and the impact of fiscal packages are key factors in the eventual outcome. Net interest income is likely to be in the region of 5% lower than last year, with lower lending and structural hedge income driving this. Business income has been significantly impacted by COVID-nineteen and we expect Q3 and Q4 to be subdued. With recovery towards the end of the year and into 2021. We expect to outperform previous guidance on cost taking 2020 one costs below 1,650,000,000. On asset quality, I'm forecasting a full year impairment charge of the order of circa 1.1to1.3000000000, absent any further economic shocks. As previously covered, Capital ratios are expected to remain strong and resilient and no dividend deduction is assumed for 2020. Finally, the longer term impacts of COVID 19 remain uncertain. Therefore, pre COVID 19 medium term targets should no longer be considered current in these circumstances. I will now pass over to Francesca for concluding remarks. Thank you, Miles. I'd like to recap on the key points we've shared. We now see an improved outlook for 2020 relative to what we set out at our Q1 IMS. We're focused on supporting businesses and households. Our capital and funding position is strong. We believe that the charge taken in H1 covers the majority of our 2020 impairments. Transformation remains a strategic priority with culture and systems change delivering benefits. We will continue to reduce our costs and we will restructure our UK business to further improve returns. Thank you. Thank you. We'll now move to Q And A. Ladies and gentlemen, if you wish And we will now take our first question. And this comes from the line of They are made Sheridan from Davy. Your line is now open. Please go ahead. Good morning. Thank you for the detail in the presentation. A couple of questions, if I may. Firstly, just around guidance. I wonder if you might provide an update on trends that you're seeing that are driving the upgrade in in outlook relative to what you provided in Q1? And also how that may play into 2021, please? Secondly, in relation to payment breaks, perhaps you could provide some trends on what you're seeing at present, around what what is happening there? And then finally, around the restructuring in the UK and the further cost initiatives that you're announcing this morning. I wonder if you could maybe provide some details and specifically around whether the cost initiatives are dependent on the restructuring in the UK? Or are they should we look at them as being independent of 100? Thank you, Dimit. I'll start off and I'll pass over to Miles maybe to expand a little bit on outlook in general. So in terms of our, our outlook. I mean, obviously, COVID-nineteen is still going to result in lower levels of economic activity, credit formation and business income, but our outlook for the rest of the year is cautiously more optimistic than where we were in May when we were reporting on our first quarter results. And that really reflects I would say 3 things. One is that the Irish economy has opened up sooner than originally planned in most sectors, not all. And we are beginning to see some positive early trends in some of the high frequency data. For example, house prices are showing much more resilience than expected. And also in Ireland, for example, the claimants of the pandemic unemployment payment are now 52% below the peak. Which we see as a positive. There's a couple of examples there. The second is, since our last update, a majority government in Ireland has formed, and they have launched a material fiscal stimulus package. And that does place, if you look at sort of, the package per capita of the population, it does place islands in the upper end, and quite frankly, we compare it to European peers. And at 11% of G And I, and we think that will help the economy reboot. So the third thing is just the observed behavior and insights that we're getting our personal and business customers every day. And we've seen a pickup in sales. So just to if I just take a couple of examples, Irish Mortgage applications were 30% up in July versus June and actually 25% up year on year. We'll see how that translates to actual drawdown, and a lot of that is dependent on housing supply. But then when we look at our sort of housing market, all construction sites have reopened. And even though the new housing supply will be less than we anticipated pre COVID, we are seeing commentators, increasing upward revisions of how, of the supply of housing in, in 2020. So that's That is what informs our cautiously more optimistic outlook. In terms of an update on payment break, so In, in across the UK and the Irish business, we granted, 105,000 payment breaks and 65,000 of those have now come to an end of initial 3 months. And obviously, we've been very proactive in contacting customers in anticipation of that. 2 thirds of those customers have returned to capital and interest. So they've resumed normal payments, which I think is a good sign. One third have requested an second payment break. And you can see on page 6 of the pack, some of the percentage of customers in Ireland wanting to avail of a second break slightly higher than in the UK. And I would say that it's not they're not like for like comparisons. They're 2 quite distinct markets. And the reason why you're seeing, for example, 4% of mortgage customers rollover in Ireland versus 33% in the UK is that hempbreak started sooner, in Ireland across a range of products. I mean, I think the clarification of some of the UK second payment break regulatory steps were confirmed relatively recently. Another factor is that the UK furlough scheme payment is quite significantly more than the weighted subsidy equivalent in Ireland. And also particularly for SME, this is relevant that the stimulus package for SMEs in the UK came out very early, in the shape of sea bills and bounced back loans in Ireland that has now been legislated and announced, but we are expect the capital guarantee scheme to be finalized in the coming weeks. And just to give us some assurance about relativity, when we look at payment break take up, in Ireland or the payment break, second payment break rollover in the UK, we are broadly in line with the market. And just to answer your 3rd question around cost, we've had really positive momentum in our cost reduction over the last few years. The UK has been part of that. So, UK costs have reduced by 23% since we started this journey in 2017, The overall group is -10 percent, and we've taken over 1,000,000,000 of cost out on a gross basis. I would expect the UK to continue to improve its efficiency. In terms of the strategic review, for example, of the Northern Ireland business that we've announced today, we're not prejudging the outcome of that. So there's no assumption sort of hard baked into the sub 1,650,000,000 revised guidance on costs. Hopefully, that addresses most of your questions. I might just go to Miles to talk more about outlook in general. Thanks, Jessica, and good morning, David. I think firstly, the updated guidance we provided today represents, the material impact of COVID-nineteen on our 2020 performance, important to get that. At quarterone IMF, I would say, we essentially called the floor on income given the level of uncertainty and the scale full lockdown to August and 2 very difficult quarters in quarter 2 and quarter 3 with recovery in quarter 4. And while Q2 has seen a steep decline in activity, the examples include lending down 48% business income down 32%. It was not as severe, as originally anticipated. And we now have the Irish and UK economies opening sooner. And we can see that in some of the emerging activity data for July, which Jessica has called out. So our updated guidance assumed that the level of activity in quarter 2 will be broadly similar in quarter 3 with the beginning of improved trading in quarter 4 then into 2021. Now this assumes no new lockdown or significant second wave of COVID-nineteen And so, just to echo projections points, we remain cautious given the external uncertainties. And just to comment briefly on 2021, so if the current macro environment that's set out plays out, we do see recovery towards the back end of the year and into next year. And when I think about our diversified business lines, I see no material structural revenue issues post COVID. Possibly in the UK Consumer, travel FX may take longer to recover. And finally, while we're not providing specific guidance on 2021 lending or income, and when I think about 2021 consensus, I'm broadly comfortable with the pre provision operating profit for 2021. Thanks so much. Thank you. And we will now take our next question. And this comes from the line of Amen Hughes. Your line is now open. Please go ahead. Hi, Francheska Mas. It's Amen Hughes Govet here. Maybe just picking up Miles a little bit just on those final comments. I know you kind of talked about the pre provision, but you've taken quite an extensive pre active actioned around the impairment number. And I just was running in the context of some of the commentary there about improvement maybe in Q4 and into 2021 on the macro. Is there any sort of signpost to kind of guide us towards in relation to maybe impairment figures? I mean, I think Pritos would be reluctant a normalized impairment rates of trying to get 30%. I presume there'll be still parts of the economy that will get difficult next year, but any sort of kind of guidance in relation to how you think about that figure next year, if you wouldn't mind? Secondly, just in relation to capital, Sorry, Miles again. You talked about regulatory capital guidance greater than 13.5% and then greater than minimum on fully loaded. So just maybe square off in relation to how we think of it fully loaded because the gap at the half year was 130 basis points. Is there sort of factors that might reduce that gap in H2 that consensus and conscious on fully loaded is round about 13. I'm close enough to that myself at the end of the year 12.8. So maybe just how we think about that. And then finally, just in relation to the data on payment breaks, like you gave the breakdown in terms of people moving on, but just in terms of new business and how like are there differentials in how customers, both in Ireland and the UK, are treated in relation to those on wage subsidies on those not? Or there's been a lot of anecdotal and media commentary about it. I'm just wondering as to kind of what's the official sort of Bank of Ireland view in relation to that? Okay. Thank you. Thank you for the questions, Damon. I might, before I hand over to, Marlon on impairment and a little bit more detail, just to Just to share with you, just to step back and just share with you our impairment philosophy, we talked about being prudent and comprehensive in our approach. We are mindful that the the million number is the single biggest judgment that we're making in the first half. And as you do expect, it's had a significant of management focus from myself, Miles and most all of the senior leadership team and also, oversight and deep dive by the board. And we've really challenged ourselves on all our key assumptions and judgments and where appropriate we've We saw external perspectives and some expert advice to ensure that we are capturing the full risk of a pandemic in the impairment charge that we're taking. And also just bearing in mind our track record. So we have over 12 years experience since the 2008 financial crisis. Of working out solutions, predominantly organically, inorganically where it makes sense and the market supports a transaction. Pre COVID, and I would have said this in my opening comments, we've reduced our NPEs to the lowest amongst any Irish bank. Our rears track record is a fraction of the market. And we do see this as a relative competitive advantage within our market. We've got a team with people that average 27 years risk experience. So exactly the sort of scars of the past and the gray hair that we like. So that's why we feel comfortable that we've we have an appropriate level of confidence in our approach in our impairment charge. And I will just cover off the last, the third question very quickly, there's been, media coverage in Ireland around whether people in payment breaks or, people on, wage continuation support would be, not provided, new lending. We have provided new lending, if someone's income has severely reduced, and we'd obviously look at that on a case by case basis, but we're not, we're very much open for business and taking appropriate and so on impairment guidance, So, it's just a comment on the H1 numbers, first of all, briefly. And consistent with with IFRS 9 and this intent, Our ambition for the HFO number is to be as comprehensive as we possibly can and to capture as much of the forward looking risk on balances in the Olympi and L for the results. And so, if in that context, we should think about the guidance of 1.1to1.3 relative to the 937 for H1. And it's probably just worth highlighting that that is that guidance is, essentially underpinned by the macroeconomic forecast that we're currently experiencing. And just to give you some sense of this is set out in the in the detail accounts, Maven, but if we think about the kind of probability weighting, I think this is important to highlight, that we have an arriving at our H1 number and indeed our forecast or our guidance, we have 30% waving to the downside 50% to a central and 20 to the upside. So we're biased towards central to the downside and that reflects that level of uncertainty. And if all of the outside played out, we could expect the charge to be in the region of $330,000,000 higher if all of the upside applied, we could be better to the region of about $215,000,000. And so my final point to make is we're not giving precise guidance to 2021. We all look forward to having COVID in the rearview mirror. But I do think back to pick up on what you said, to the pre COVID impairment guidance, where we set a medium term target was between 2030 basis points. So we were probably picking up towards the upper end of that guidance. That for me in a post COVID environment, feels like a good place be. On capital, on the fully loaded, and so yes, we reported 13.6 percent for H1, strong capital position. And when I think about some of the moving parts for H2, thinking about Bristol's impairment guidance that I've just spoken about. I have an eye on calendar provisioning as well for the end of the year. Some of the benefits from the software, regulatory relief. And also just depending where our lending book ends up for the full year, I would see, full year fully loaded CET1 being around the 13%. So consistent with your own forecast, Alan. Thank you. And we will now take our next question. And this comes from the line of Jason Napier from UBS London. Your line is now open. Please go ahead. Good morning. Thank you for the presentation and the helpful disclosures and guidance. Can I just probe further on two features, please? The first on net interest margin, sort of rough second half, indications of about 190 basis points. And, I guess, given that, that sort of step change is sort of in your guidance. Although volumes are turning out better than expected. I wonder whether you could talk a little bit about the drivers that are inherent in that change in the second half and how those play out into next year. And then secondly, the pivot to a higher margin mix in the UK, I think clearly makes sense. I wonder whether you wouldn't mind giving some more details on how large the low margin book is and sort of what the associated revenues, and potential restructuring charges involved might be. I'm assuming that there isn't much in the way of cost saves to come from that runoff process, but if that's wrong, perhaps you could also correct me in that area? Thanks very much. Okay. Let me take the net interest margin, first of all, Jason. And so, yes, so in the context of a full year guidance of 1.95, I I concur, we see the H2, in around 190 basis points. And so think about that versus, where we're out of half year. First of all, I'm expecting, average interest bearing assets in H2, to decline. And that's consistent with the guidance in relation to we see new lending being at the rate of 70% of where 2019 was at. But the mix is also important because, we're seeing strong liquidity maintained, and actually, I think, deposits are likely to be higher in H2 on average at the main decline towards the end of the year. I'm thinking about tax payments from SME customers, but overall deposits will will most likely be strong. And so that's relevant because that gets us into holding higher levels of liquid assets, which of course are good to hold particularly if credit formation is a little bit subdued because of COVID, putting those deposits into, liquid assets does generate interest income but it also pulls down, the NIM. And so I think when you think about the NIM guidance, you've also got to think about net interest income is at as well and, taking account of lending volumes and also the ongoing impact of just hedges or hedging at lower income streams. And previously, we see interest income down, about 5%. In relation to the UK question, on NIM, we essentially, we've disclosed the full mortgage book in the UK, just under 20,000,000,000 dollars, $20,000,000,000. And essentially what we expect book, I mean, in the main, we would see mainstream mortgages, it has been maturing, over the last number of years in a very competitive market in the UK. And even though I would the team are doing quite well to, to hold margin discipline. Nonetheless, it is reflective of a lower rate environment. And it's for that reason that we are we see ourselves over time coming out of those lower profitability, lower margin, mortgages. But Jessica may want to comment on the cost piece, but I would say that the UK is a valid component of the overall cost program for the entire group. And we've made good progress reducing costs in the UK and we will continue to do so. And if I just add to that, Jason, I mean, 2 points, one on cost, but also just the pivot, and how that's supporting that will support going forward, but in the UK business. So, our bespoke mortgage business, it was So we've written about GBP 320,000,000 in new lending since we launched that. In the first half of this year, with lower swap rates and just more realistic pricing appearing particularly in second quarter, I think a temporary result of COVID. We have continued to write good quality business where we can generate the right returns. So we're shifting our focus away from volume targets and thinking about size to really focus on margin. So our margin on new mortgage business in the first half was 30 basis points better than it was this time last year. And within that, bespoke mortgage margin was 20 basis points better again. So that just gives you a feel of the sort of margin protection, but also the upside that bespoke mortgages represents. In terms of cost, as, as are the back book of lower LTV less profitable mortgages runs down, you can imagine that our cost base, both in terms of operational expenses and sheets, and that is incorporated, into our sort of confidence and, optimism about continued momentum and reducing our costs. Thank you. If I could just follow-up on that point, the, I guess, relative market share suggests that, you could write substantial amounts of business in the bespoke space, but I wonder whether in aggregate your sort of conditioning investors to expect a period of sort of revenue declines driven by that rebalancing or you can replace one with the other as the lower margin material matures? So when I think about the revenue profile of the UK business, the first thing that I think about Jason is ensuring that, the returns are strong. And and I am, I thought it's first priority is to maintain strong margin. Second priority is the actual quantum of income that we generate. And so, over time, I do see that whilst a smaller book should generally be replaced by higher margins. And therefore, I'm comfortable with the overall direction of maintaining revenue streams in the UK. The other point to make of course is that in doing that, in taking those actions to reduce mainstream mortgages, that also allows us to rely less on deposit gathering within the UK, which frankly is expensive. And so overall, I'm comfortable that we're going to maintain in the main income levels to generate a higher quality of income. Thank you, Jason. Thanks. Thank you. And we'll now take our next question. And this comes from the line of Alastair Ryan from Bank of America. Your line is now open. Please go ahead. Always pricing, again, this time in Ireland, please. There's been some headline grabbing moves by competitors, which seem I mean, not well grounded in sort of economic reality, but are you seeing mortgage pricing, would you feel a need to respond to it if your market shares it down or as in H1, where you had pretty good market share outcome. The range of options you've got allow you to keep pricing pretty stable in your market share in the low to mid-20s? Thank you. Hi, Anssam. So yes, there's been a few moves by competitors. We've not made any pricing changes in our our mortgage business in Ireland in the first half of the year. And we saw one of our competitors cut their SVR rates. That was more, I believe, to equalize their front book, back book, variable pricing. It is, it is notable, but it's less relevant to our business. So 90% of our new lending is fit rate, not variable. And our SVR is already equal in terms of front book and back book. We see news about potential new entrants. Let's see. I think the market share of new entrants, smaller entrants in recent years is sort of sub-three percent. I think the competition comes much more from the established players as opposed to, new entrants. We've seen the post office here defer their launch into their entry into the mortgage market. When I sit back and think about our business, we've always said 25% to 30% market share is a comfortable range. We don't chase market share. It's risk, price, and volume in terms of our sort of, you know, order of priorities. I'm pleased with the increased of market share 25%. And like I said, we've done that without price cutting. That has been from embedding good relationships across all our channels. Both our own frontline and our broker partnerships. So yeah, we feel good about our performance in the first half. Thank you. And we'll now take our next question. And this comes from the line of Chris Kent from Autonomous. Your line now open. Please go ahead. On regulatory headwinds, you've obviously taken most of the 80 bps that you've been guiding for a while in the first half, you mentioned calendar provisioning. Is there any risk beyond the 20 bps residual implied from calendar provision or other regulatory change? Are you still comfortable with the 80 bps as the cumulative figure? And on winding down below margin books in the UK, obviously, spreads have widened quite meaningfully year to date in the UK mortgage market. So I'm just curious on the timing of are you basically taking a view that over the medium term, it's not really viable to compete for, bread and butter. I. E. Non specialist mortgage business given your scale? Thank you. Maybe I just quickly give a quick answer to the second one, Chris, and thanks for both questions and over some miles on Richard headwinds. So, yeah, I mean, we've seen, I think there's a sort of temporary reprieve in terms of margins in the low LTV Remo business in the UK. So we have continued to write, the business where we can achieve the right returns in the first half of this year, And our base case is a gradual rundown in parts of our UK standard mortgage book that would be lower margin. And that's over time as redemptions reduced the size of the book. That's the premise, but we're not doing a hard hand brake turn, if we are able to still generate business that is in line with the margin that we aspire to improve returns in the UK. Question. So again, updated guidance has not changed. We've talked about 80 basis points of regulatory headwind. And we've taken, I'd 60 of that in H1. The balance is there to support calendar provisioning. There's a little bit of EL and the capital account helpful for that as well. And so, when we think about the overall guidance that we've given the higher guidance on the reg ratio, and I guess like excellent soft guidance on the loaded on from Eamon's question. That guidance captures the remaining usage of the 20 basis points and assuming that calendar provisioning is adopted by theendoftheyear. Thank you, Chris. Thank you. And we have 3 more questions. And we'll now take the next question. This comes from the line of Aman Karr from Barclays London. Your line is now open. Please go ahead and ask your question. The update. I had a couple of questions. Could I probe you a little bit more on probably one for Miles on your comment on being broadly comfortable with, consensus next year pre process. Could you actually maybe just lay out what your view of that number is? I guess the numbers that I have in front of me are something like EUR750 million of pre provision profits next year predicated on about EUR 2,500,000,000 of income. I mean, the reason I'm asking is think you've basically guided up your most important revenue line by the best part of 1,000,000 for this year. Presumably that bodes well for revenue trajectory into next year. So are you looking for some pretty spectacular drop off in net interest income next year. Is there some kind of offset maybe in business income the streets are about GBP 600,000,000 in for next year, which I don't think is unreasonable if you're looking for some kind of normalization in business income. I mean, It just seems like there's some offset there that I'm not really looking I'm not able to see. So I guess that would be the first question. And just on capital, so it's just a small one. I know that you've basically benefited from the expected loss deduction in CTU on us, protected protected your capital position in the quarter from the heavy impairment build. It does look like you've still got a little bit left. Can you kind of just talk us through, whether that should protect you from any incremental charges in H2 or or do you need to build it to a certain level or does it basically need to stay where isn't it? Everything else that's coming basically is going to feed into through to capital? Thanks, Emmanuel. And, let me just, I guess, comment on the 2021. Look, it is important to start off with saying, we're not giving, guidance on 2021 at this point in time. It is good to see that, trading for 2020 looks like it is improving relative to where we thought it would be in quarter 1. And that's a positive back to Francesca's cautiously optimistic point. But it is premised on, a recovery towards the end of the year, no further events with lockdown or second waves. And I do think there's still a little bit of uncertainty out there. And so I would just urge a little bit of caution on last And therefore, I guess what I'm saying is that, in the general sense, yes, you're right, consensus is at about 750,000,000 pre provision operating profit. One thing I would say to call out to you is that, This year, we have had the benefit of the revolver credit facilities sitting on our balance sheet, $1,500,000,000 in the quarter 1 $1,300,000,000 for the H1. I don't mean they are helpful to have for this year and their support of net interest income, but they are in many ways a feature of COVID, with our corporate customers just taking contingent action to maintain liquidity. And therefore, I don't expect to see that any material way on our balance sheet next year. In some ways, I don't want to see it because it's the function of COVID. And so if that goes off our balance sheet, that's, in a kind of fundamental way, a good thing. But also just to remember, we have, we've signaled that, the impact of hedging the structural hedges, coming off, historic hedges that were quite beneficial from income. Perspective, mindful of the continuation of the low rate environment, that's also going to be a feature of 21. And that's the, the best, I suppose, guidance amount. I can give you at this point in time in relation to 2021. On capital, there is a little bit of the ELS. And I think about it as, yes, it could potentially be helpful to impairment, but I also have my eye on it in the context of the adoption of calendar provisioning by the end of the year. And therefore, I would take it back to the guidance is given on capital on both the regulatory and fully loaded basis. Just as a quick follow-up on that. So thank you very much for that. Just to ensure I understood the income commentary then, I think you're basically saying an element of caution on the business income, but it doesn't sound like you're too uncomfortable with kind of 2019 20, that kind of ballpark is an NII figure next year for the structural regions that you laid out, but also things like the unwind of the RCF? I'm just I'm actually just surprised that that can offset the much better volume dynamic that you guys are are basically laying out. I mean, maybe I can pick it up offline. But why don't we catch up with Peter, my top line R and D with the IR team to see I think the points that I've set out on this call are where we see it out at this point in time. Okay. Thank you. And we'll now take our next question. And this comes from the line of Andrew Coombs from Citi. Your line is now open. Please go ahead. Good morning. Thank you, Patrick, and stay on the same theme and then add one on capital as well. So on the net interest income and your rebase guidance, I mean, your margin guidance is broadly unchanged. Obviously, your slightly better average in sustaining assets. If we look at the mix in the first half, your loans and advances to customers average interest earning assets are broadly flat. The big increase has been in the other interest earning assets, which I think has jumped from 23 $27,000,000,000. I assume part of this is due to the deposit inflow that you've had, which has subsequently been reinvested into the liquid asset portfolio. But can you just elaborate as to the driver of that other in sterling asset line and also how sustainable that is That would be my first question. 2nd question, sorry if I missed this, but I can see that the SME support factors come through in capital. I think the software amortization step change is for the second half. Have you given quantitative guidance on that? Hi, Andrew. And so I think your assessment of the average interest bearing assets is accurate. There has been a buildup, on the liquid asset line. And that has been a function of the fact that our deposits grown. So I think about H2 2019 last year, average deposits were at $81,000,000,000 for H2 on this year that we're going to have $84,000,000. And that's kind of unique, it's a unique phenomenon of this particular crisis of Western and economic shock, we still see very strong liquidity. Now that at the same time with subdued levels of credit, credit demand, means that we find ourselves putting those, deposits into liquid assets. And that will be the feature for H2 as well, where we are we do think that lending will be, you know, will be subdued, a little bit better than where we're at a quarter 1 IMS, but still that's guidance have been about 70% of last year. And therefore, in that context, with strong liquidity, we can expect liquid assets to continue to grow and that is supportive of interest income, but doesn't reflect well on NIM. And in relation to the software assets, I mean, I previously pre COVID, I was pretty fine lined about how beneficial it would be. And it looks like the EBA have come out with some more guidance on that and they seem to be a bit firmer on it themselves. It's for a 2 year period only, so it has a limited impact. But I see it being beneficial to about 20 basis points to capital, which we which we would hope will feature in, in Hayshoo. Thank you. And the last question comes from the line of Kai Stevens. Your line is now open. Please go ahead and ask your question. Good morning all. Thanks for taking my questions. I wanted to firstly just come back to capital and risk weighted assets. Some quite helpful moves, in the period for credit RWAs, obviously supported by the SME sporting factor, but there are no obvious negative credit migration called out some favorable asset quality moves in the period. So I'm just trying to gauge how much of this timing is just too soon for that coming through, and given what we're seeing on the the ECL provision side, should we expect some negative credit migration in the second half based off your sort of central assumptions as it were albeit, I appreciate some new models are less procyclical than some peers. And also on RWA, I just wanted to check the treatment payment holidays. I think one of your peers referenced quite a big pickup in RWAs, specifically payment holidays, yesterday. So I wasn't sure what your treatment would have been here. And then secondly, I just want to ask on customer deposits, which fell healthily over the period. I just wonder whether the exit rate was much lower than the 21 basis points average for the first half. And conscious the UK drives quite a lot of this we're given 100 basis points than in terms of cost there. Taking some of the comments you've made today, I mean, should this be quite a big delta as we look forward? Hi, guys. So just let me take the RWA question and link it to the mortgage 1 in the in time. So we our credit or WA declined by 2,200,000,000 absolute terms and the density, also reduced by 2%. And back to your point about the models, it is important to call out that, 72% of our credit or WA is IRB, which, as you know, is designed to capture true to cycle losses. And that's one of the reasons why we expect less volatility, of the SME support factor and also the change in mix and quality. Now in relation to the mortgage customer break. So, the nature of these payment breaks, of course, is to and try and ensure as much as possible that these customers don't go into forbearance. And of course, we know some will. So that's why on the impairment side, we we've set aside $184,000,000 for the totality of impairment breaks. From an RWA perspective, If they do migrate clearly into forbearance and therefore into stage 3, that will have the the impact of increasing RWAs for mortgages. Now to put that into context, for Bank of Ireland, our ROI mortgage entity has been kicking down over the last few so from 34% in 2018 to 30% in 2019 and to 27% for H1. And while the UK mortgage density fell from 22 percent 2 years ago to 19% of H1. And so the overall quality of the mortgage book relative to the last financial crisis is generally pulling down seen a material increase in RWA as a consequence, of COVID, certainly for 2020. And in relation to deposits, overall, the cost of deposits, I think about page 2, last year, the average cost of 27 basis points, it's down to 21 basis points for H1. And we are seeing reductions, which is a good slide. Actually, if you've got time, 38 gives some detail on the average balance sheet, but you can see it contained there. Ireland deposits down 3 bps. Credit balances including the application of negative rates. Is generating plus 4 basis points as a positive income. UK has come from 109 basis points in H2 last year down to 97 basis. Points. And in our, corporate and treasury, it's more than half than 34 down to 16. So this feels like it's a bit like operating cost, deposit is an area that's within our control where we can create value, we've seen some good experience of that in H1. Thank you, guys. Do you have any more questions on the line? No further questions that came through, ma'am. Okay. Thank you. I'll be forced to bring the call to a close thank you everyone for joining us this morning and for your questions, your time is, and it's precious and it's always appreciated. Yes, thank you. And also can I just say we wish Alastair? Good looking is in the 0.