Earnings Call: H1 2019

Jul 29, 2019

Okay. Good morning, everyone, and welcome to Bank of Ireland's 2019 interim results. I'll share a number of highlights from our first half performance, and then Andrew will provide a more detailed update on the financials. I'll also set out our view of the external environment and 1 year on from the publication of our strategy our outlook and actions from now until 2021. I'm pleased to report a solid financial performance with an underlying profit of 1,000,000 and a 9% increase in our pre provision operating profit. There are a number of highlights that have contributed to this performance. The first is net lending growth. For the 6th year in a row, Bank of Ireland is the largest lender to the Irish economy with total new lending of €7,700,000,000 and net lending growth of €1,200,000,000. We've seen a strong performance in corporate banking, and we're the largest lender to Irish SMEs and the agriculture sector. The second highlight is assets quality improvement. Bank of Ireland already has the lowest non performing exposure NPE ratio of any bank in Ireland, but we're very clear on our ambition to drive NPs down further. That's good for our bank and good for the health of the wider Irish economy. In the first half, we've delivered a further reduction in our NPE ratio to 5.3% down 1,000,000. We are now within touching distance of our near term target of NPEs below 5% by the end of this year. The third highlight is business transformation. This means transforming our culture, our systems, and our business model We're investing in our transformation at the pace we set out previously. We're delivering key milestones and we're demonstrating cost reduction and other benefits. I'll look at each component parts within our transformation program. Culture is a commercial imperative. Good culture attracts and retains the talent we need to develop our businesses. And good culture reduces risk and costs and builds customer loyalty. We're making good progress and our culture is strengthening. On systems transformation, we've delivered a number of key milestones. We've completed the largest customer migration in the history of the bank. We've moved 2,100,000 customers to a new first data platform for debit card and ATM transactions. This gives us and our customers more stable systems for 100 of millions of transactions each year. We've also modernized our payments infrastructure and automated over 100 processes to improve customer experience. On business model transformation, we are creating a leaner, simpler, and more agile organization. We are removing management layers, reducing headcount by 4% year on year and making changes to our UK business model. We have sold our UK cars business and exited nonprofitable current accounts and ATM operations. The 4th highlight is cost reduction. We've set a clear cost target as part of our strategy. And we're delivering. We've reduced our costs by 3% compared with the first half of twenty eighteen. That's after absorbing costs linked to IT investments, various regulatory requirements, and wage inflation. Excluding IT investments, we have reduced our day to day operating costs by close to 5%. With revenue up and it to strong capital generation. In the first half, we generated organic capital of 90 basis points. Our CET1 ratio increased by 40 basis points and now stands at a robust 13.6%. And we have made an accrue of 1,000,000 in respect of a dividend in 2019 in line with our policy. We've delivered a strong performance in the first half, and we are, of course, influenced by the external environment. In Ireland, the economy is strong. GDP growth is well above the euro area average. The labor market is growing and unemployment is at a historically low rate. While in the UK, we see more moderate growth, we still see a growing labor market with low unemployment. Nonetheless, aspects of the external environment are more challenging than when we set out our strategy a year ago. In particular, the interest rate outlook has moved significantly and lower for longer rates are impacting margins. As an illustration since the start of the year, there has been a 100 basis points reduction in market expectations for 5 year swap rates in 2021. In addition, Brexit uncertainty has still not been resolved, This remains a concern, especially to businesses in Ireland and the UK, which is impacting sentiment and also credit demand. Mindful of these challenges, I will shortly deep dive into our island and UK businesses and our transformation program. And I will set out the actions that we are taking to offset the uncertainties and to guide our business between now and 2021. I'll first hand over to Andrew to go through the financials. But before I do, you will know we recently announced that Andrew will be moving on from Bank of Ireland towards the end of the year. So I would like to take this public opportunity to personally thank him for his exceptional commitment to the bank especially since taking on the role of CFO in 2012. Andrew has played a key role in the Bank of Ireland story since that time and on a more personal level since I I've been in the role has provided excellent support to me. Thank you. Okay. Well, thank you Franchesca for those very kind words. And as well as for your support, to me since you joined. It's been the enormous privilege for me to have been the CFO and director of this great bank for the past seven and a half years. I'll certainly miss, everyone and wish, you all well. So on to the financial results for the May 16th and final time. So we've had a good start to 2019. We've grown our loan book We've reduced our costs, and we've reduced our NPEs while improving our strong capital position. Over the last 6 months, we generated an underlying profit of 1,000,000. Total income increased by 1% and we reduced our costs by 3%. And as a result, we've grown our pre provision operating profit by 9% to $435,000,000. Our impairment charge was €79,000,000 or 21 basis points. Included in our non core items was customer redress charges relating to the confusion of the tracker mortgage examination. The associated amount of 55,000,000 covers 3 things. Compensation payments, additional costs associated with the program, together with an increase in the provision for a potential fine. Turning now to lending volumes. We grew our loan book by 1,200,000,000 in the first half of the year All geographies of Ireland, the UK, and international contributed to this growth. In Ireland, we lent €3,800,000,000. To Irish customers and businesses. And as Francesca has already said, that makes us the largest lender to the Irish economy. In our mortgage business, we lend 1,000,000,000 and our market share was 23%. We've maintained our track record of commercial discipline on risk and pricing. In addition, we're investing in developing our product propositions, expanding our distribution network, and progressing our reentry into the broker channel. The SME market is a very strong element of our franchise. By some distance, we're the leading bank for SMEs in Ireland. And 1,500,000,000 of new lending in the last 6 months. Despite Brexit uncertainties, we've grown our market share, and we're well positioned to support and benefit from expanding credit demand in this sector. We're the number one corporate bank in Ireland. Our business has performed strongly, contributing 1,000,000 of lending growth in the last 6 months. In the UK, we're broadening our distribution network, and we've selectively investing our capital in those sectors that are generating more attractive returns. And that's enabled us to prudently grow our loan books by 600,000,000 in higher return sectors, such as consumer, despite mortgages and corporate portfolios. Finally, our international corporate business grew by 1,000,000. We've continued our conservative approach to asset selection. Typically, we only underwrite the 1 in 5 loans that meet our strict credit criteria. Moving to our net interest margin, which was 216 basis points for H1. We continue to maintain our strong commercial discipline on pricing. Over the last six months, the yields on our liquid assets have been lower at 17 basis points negative. However, we've seen total loan book spreads stable at 2.84 basis points. We've grown the loan book at front book spreads that continue to be higher than the back book and there's been a stabilization in the level of competition in U. K. Mortgages. When I spoke to you in February, I expected that the tailwinds to our NIM would support its growth into the 2 20s over the next couple of years. As you all know, since then, there's been a very significant and a material reduction in the interest rate environment. And that's a headwind for all retail and commercial banks, including Bank of Ireland. As a result of that lower for longer interest rate environment, I now expect our name for the full year 2019 will be slightly lower than the 2 16 basis points for the first half. Looking to 2020 2021, the trend will be for a net reduction in her name, of mid to high single digit basis points from that 2 16 level. Francesca will set out shortly the actions that have been taken to mitigate these financial impacts so that our ROCE will continue to grow to target levels. On to fees and other income. As you know, we're exiting UK cards and ATMs, and they contributed 21,000,000 of fee income last year. So on a like for like basis, our business income of $311,000,000 was 9000000 or 3% higher than last year. Retail Ireland was broadly stable, while our wealth and insurance business benefited from the investments we're making increased activity and economic growth. Valuation and other items gave rise to a net gain of 1,000,000 in the first half. On to costs. We continue to make good progress on our commitments to reduce our costs with a net 3% reduction in the period. Staff costs reduced by almost 5% reflecting a decrease in FTEs and a change in mix with fewer management layers. Taking other costs and depreciation together, they reduced by a net 14,000,000 half and half. And this net reduction reflects the benefits from the ongoing transformation of our processes. And from strategic sourcing and partly offset by higher depreciation associated with technology investments. Exiting UK cards and ATMs reduced our costs by 26,000,000. All of the efficiencies that we're generating are enabling us to absorb wage inflation, regulatory costs, and the ongoing investment in our transformation program. We're on track to deliver our commitment to reduce costs every year to 1,700,000,000 in 2021. Turning now to asset quality. In the first half of the year, we reduced our NPE ratio by 100 basis points to 5.3%. This is the lowest NPE ratio of any Irish bank. The securitization of an Irish buy to let mortgage portfolio unlocked 30 basis points of capital. We expect further reductions in NPEs, and we're keeping all of our strategies under review. Our impairment charge was 21 basis points in the first half. And absent the change in the economic environment or outlook, we expect that our net impairment charge will be between 2030 basis points in the next couple of years. On funding and capital, We have strong liquidity and leverage ratios. Our customer deposits are primarily sourced through our retail distribution network. And while our loan to deposit ratio is below 100%, it gives us the funding and capital to support our growth and strategic objectives. We have our MREL targets, which are very manageable. We'll be issuing 1,000,000,000 to €2,000,000,000 of holdco securities this year and next. Moving now to capital. Our position and outlook is very strong and our guidance is unchanged. We increased our capital ratio by 40 basis points since January, and it's now 13.6% on a fully loaded basis. We continue to generate strong capital organically, ninety basis points in the first half. And in addition, the NPE securitization unlocked a further 30 basis points. In terms of our guidance, we continue to expect to maintain a CET1 ratio in excess of 13%. So on a regulatory basis and on a fully loaded basis, by the end of the OCI phase in period. Over the last 12 months, I've set out clearly how we invest and allocate that capital. In the first half of this year, we invested 30 basis points of capital in supporting the growth in our loan book. And we invested 25 basis points in our transformation program. In terms of future regulatory capital demands, the 80 basis points I guided you to in February is unchanged. Finally, on dividends and distributions, At the half year, we accrued for a dividend of €100,000,000. And that's equivalent to an annualized dividend of $0.185 per share an increase from $0.16 last year. There's no change to our dividend guidance. We continue to expect that dividends will build on a prudent and progressive basis towards a payout ratio of 50 percent of sustainable earnings. So in summary, We've made good progress with our strategic objectives and targets, and we expect that to continue in the second half. As we look to the full year out turn, we'll grow our loan book further. Our total costs will be lower than last year, and we'll reduce our NPEs below 5% while strengthening our capital position. We're committed to increasing our return on tangible equity to the target level of in excess of 10% and thereby delivering on our commitments to our shareholders. I'll now pass you back to Francesca. Thank you all very much. Thank you, Andrew. Early I set out our view of the evolving external environments. Much of that is outside our direct control. But what we can control are the actions that we take to grow and transform Bank of Ireland and to deliver on the strategic ambition that we set out 1 year ago. These actions are especially important for our Irish and UK businesses and for our systems transformation. Island is one of the fastest growing economies in Europe with increasing population, employment, wealth, and construction. We are Ireland's leading retail and commercial bank with over 2,000,000 customers and strong market shares. This gives us a strong position from which to capitalize on Ireland's development and grow our business. Our multiyear strategy leans in to this. We are the leading supporter of home building and buying and are financing the construction of more than 6000 new homes in Ireland. We see We also see upside potential in an expanding mortgage market. We're accelerating the onboarding of new mortgage brokers in what is a growing section of the market. And we're innovating. We recently launched a billion sustainable finance fund with a range of home and business loan offerings, including a green mortgage discount. In business lending, domestic demand still lags European peers. But as the leading business bank in Ireland, we are well placed to benefit from growth in credit formation. An island's growing population and increasing disposable income brings demand for Wealth Management. We are Ireland's only bank insurer and are uniquely positioned to benefit from this. When we set out our strategy in June 2018, we spoke about investing, improving, and repositioning our UK business to increase returns. In terms of investment, we have launched higher margin bespoke mortgages in the UK. This pivots us away from mainstream and more inter niche. Within 100 days, we have £100,000,000 worth of bespoke mortgage offers. We've all increase new lending in higher margin personal loans and grown our profitable Northridge car finance business. These actions are shifting our product mix and increasing returns. In terms of improvement, we have reduced operating costs in the UK by 19% in the first half. This has delivered a cost income ratio of 60% down from 66% year on year. We completed a transaction to diversify our funding base which also reduced our cost of funding. Our focus is on further reducing our costs and optimizing margins in lending and deposits. And in terms of repositioning, we've exited our UK cast business as well as nonprofitable ATMs and current account operations. Combined, these actions are improving information, we're making progress achieving several key milestones and all within the budget we set out last year. This includes migrating customers to a new platform for ATM and debit card transactions and modernizing our payments infrastructure. Our focus is on translating our work and investment That includes the release of our new mobile app later this year with customer migration continuing into 2020. This app will expand the services available to our customers on mobile, but it will also give us the platform from which we can enhance services on a rolling basis into the future. And in Wealth And Insurance, where we're already generating income growth, We are launching new digital platforms this year. These will transform how our customers access advice, get a quote, and purchase a product. So we've set out our progress in the first half and delved into our Irish and UK businesses and our systems transformation. And we've also clearly called out the evolving external environment, which is more challenging than when we set out our strategy a year ago. Rotte in excess of 10% is the key financial target for Bank of Ireland. We are committed to this. And while it will be more difficult to achieve, there are a number of actions we are taking to hit the target. We're keeping a relentless focus on costs. This is not new. Cost reduction has been a top priority at Bank of Ireland for the past 18 months. And it's clearly working. Costs will continue to reduce every year from now until 2021, and we're confident in achieving our cost base target. We are now looking at other efficiencies to reduce operating expenses further We're targeting selective growth in key areas. This means growing where we see high quality and attractive returns. For example, in capital light, wealth, and insurance, and by building on our unrivaled SME franchise in Ireland. We will maintain our pricing discipline across all segments and stay focused on simplifying our business and delivering our systems transformation. These actions will create revenue capacity, reduce risk, improve customer experience and support growth, as well as deliver further efficiencies. And we will continue to manage our capital efficiently. We keep all options on the table to optimize capital, and we allocate it prudently to support our growth. We'll provide updates on key actions in our next reporting cycle I'm pleased with our performance for the first half and the highlights that we have shared this morning. We see further opportunity in our Irish business in home building and buying business lending and in Wealth And Insurance. The actions we are taking in the UK are improving returns, and our transformation is delivering with more to come. Looking ahead, our actions respond to the external environments, and they set out how we will develop our business to 2021 to achieve our strategic ambition. Thank you for your attention. And we very much look forward to answering your question. Okay. So we'll questions in the room first if you then go on, onto the the the line. If you don't mind giving your name and your institution, help everyone in the room. We'll go with Dearmid First. Good morning. It's Dearmid Sheridan from Davy. Thank you for the presentation. Firstly, Francesca may be starting where you finished off around return on tangible equity and meeting your 10% plus target. It very much feels like that will be a cost based lever that you will look to pull. So I just wonder if you could comment a little bit further around when we might get some visibility of when that might be achievable, and what specific areas you might be looking at? Secondly, maybe Andrew would be remiss on one final time not to ask about margin. So your outlook obviously is lower on the rate impact. I wonder if you could maybe just detail that a little bit further for us, please. And then finally on the capital intense of your loan book growth. Obviously, you've set out targets of 200 to 250 basis points of overall capital intensity to reach the 90,000,000,000 target 30 basis points this year followed by 40 basis points last year. It feels like it's still quite heavily capital intense when should we expect that to be maybe a little bit lower in terms of that? And are you still comfortable with your guidance around the capital intensity of the growth? Thank you. Thanks, Jim. So I'll start on ROCE and then pass to, to Andrew. So we're committed to the, target of over 10% RoTE by 2021. We've acknowledge it will be more difficult because of lower for long interest rates and some of the uncertainty around Brexit impacting credit formation. But we have options and we have choices, and things that we certainly can control, and I outlined the 6 of them, at the end of of the presentation. Cost is one of them. It's not the only one. But we have demonstrated over the past 18 months our capability and the opportunity to take out costs strategically. And, you know, we talked about 3% down, but if you exclude our core banking investment, that's closer to 5. And that the same time as investing in our business. So the actual gross savings are 1,000,000 in the first half. So we feel confident about that. And there is there is potential to do more. Obviously, the interest rate environment has changed relatively recently, and we're not providing a new guidance or target on hospital options today. If we when we do, if we do that, it will be on the basis of a really well thought through and grounded plan. But there are other areas that we also see opportunity to further contribute to ROCE. So we talked about the growth in the key areas, wealth insurance, we're well positioned, capital light, we are unrivaled in our SME proposition. And, it's not a separate question, but even though we've seen more of the, net loan book growth coming through from corporate banking, in the 1st 6 months, we would expect more of the growth to be coming from our retail operations in Ireland in the second half and beyond. I'm not gonna go through each of those levers, but I would say on the prudent price management, Our loan asset spread is slightly up. We have been consistently disciplined commercially in how we price. Our front book margin is around 300 basis points across the entire bank, and that's higher than our back book. And the discipline that we have around growth. It's always about risk, then pricing, then volume, and and that philosophy hasn't changed. Just on simplification, we gave a lot of examples about the UK and what we have done successfully in the first half to simplify and make our our our UK business model more profitable. But when we look to the future, we also see, across, in Ireland of Vine as well from an end to end process perspective, there are opportunities to improve the efficiency of our processes. And not all of that is dependent on core banking and technology. Some of that are just better practices and and and changing our approach to to reengineering. So if you like that sort of builds our, you know, stairway to to to ROCE, and we feel that we have those those levers in our control, and we'll be providing an update on the combination of those levers that we're pulling to achieve ROCE in our future reporting cycles. I'll pass to Andrew. The I would just add on the 3rd around corporate banking is that we've seen more proportionally more growth in corporate banking, in in terms of the 1st 6 months. But that is high quality, road to accretive, and good risk quality business. And as the National Champion Bank the ambition to the National Champion Bank in Ireland, supporting corporate Ireland, and investing in infrastructure has a knock on impact to SME credit formation and household incomes, which is obviously, part of our strategy. Andrew? Great. Okay. So thank you, Franchesca. So, Damon, on the name, maybe a couple of comments in relation to that. You know, as Francesca has said, the commercial discipline that we have in terms of risk and in terms of pricing has long been a feature in a hallmark of Bank of Ireland. And as you've heard Francesca say that philosophy is completely unchanged and is going to continue. And in terms of the first half, we achieved our name of 2 16, liquid assets were off a little bit but as we pointed out in the presentation this morning, the loan asset spread increased by a basis point or so. The, there has been, though, this very significant change in a material downgrade in terms of the interest rate environment and interest rates, you know, across the piece are, you know, have been lower. And so in addition to the normal sort of, you know, 1% sensitivity that we gave, we thought it was important to set out how we think our net interest margin is going to perform over the next couple of years in our presentation this morning. So as I think about the through the full year 2019, while we've done 2 16 in the first half, I think the average for the year is likely to be slightly lower, thinking like maybe a basis point, maybe 2, that sort of space. As you go into 2020 2021, the trend because of the interest rate environment, that that trend is going to be for a lower name. It's going to be somewhere in this sort of mid to high single digit basis points from the 216 level, okay? And it's it'll be a trend down to that level rather than sort of a use a stairway common, it won't be in that space. It'll be more of a trend in that direction. You know, the the the the growth of the loan book plus the commercial discipline point, act as some mitigant to that but we still think the name will lower because of the 100 basis points decline in the interest rate environment in the last couple of months. Switching then to capital. So when we set out the, Investor Day in June of last year, as you say, we allocated between 20250 basis points of capital to support the growth in our loan book. And that 2.50 basis points was to cover a 20% growth in retail, Ireland. A 10% net growth in our retail UK business and a 1,000,000,000 growth in our corporate business. And so what's happened in the last kind of 18 months has been that, you know, the corporate businesses that Tom leads has being at the front of the telephone. We always would have expected that. They've generated about a €3,000,000,000 of balance sheet growth over the last 18 months. So very much within our expectation of about 1,000,000,000 of balance sheet growth for our corporate. And so of course, that business is more capital intensive than, for example, mortgages that are in Ireland or the UK. But that's fully accommodated within the 200 to 250 basis points that we set out. In terms of going forward from here, while corporate has been a very important part of the growth. And as Francesca said, I mean, it's very high quality business from a risk perspective and from a return, a rare off perspective. But as we think about the next two and a half years, the proportion of the balance sheet growth is going to come more from the less capital intensive areas. So more from mortgages, more from SME, more from consumer. And so that will mean that over the next couple of years, the capital allocation of between 20250 basis points continues to be the appropriate amount of capital to support the growth that we have. We're not going to continue to grow our balance sheet in the same pace with the same mix of capital intensive lending as has been the case over the 1st 18 months. Let me go to Owen X and I'll come to Eamon Onford. Owen Kallen from Investec. Just three quick questions if I may. On the UK, you've obviously made 3 kind of strategic moves or decisions around how to refocus that business this year in terms of the cards business, the ATM network, and the current account proposition. Do you feel you have the right kind of model or business mix they're now going forward? Or is there other kind of business lines or operations that you may be still looking at whether they should be part of that? On costs, you've had a very consistent kind of 3% annualized reduction over the last couple of years which is very impressive. Is there still the ability to go with that kind of run rate into the second half of the year and into 2020? Or is it does it get a bit stickier and a bit more difficult to find that level of cost savings going forward still. And then just on the Wealth And Investment, it's one of the kind of standout areas in terms of your mid dash weak volume and weak margin environment, we've been talking about the Wealth And Insurance, rather, division has been able to kind of really show some strong growth. Is there other opportunities you're looking at within that broader space, as regards, M and A? And, obviously, I'm sure you're always willing to look at something, but is that let's say, a relatively active consideration or is it very much organically focused at the moment? Okay. We'll both do a little bit of all of those 3. So just in the UK, you're right. We've been very clear. I think we've made good progress in the first half in terms of the invest, improve reposition. I we've made it quite a deliberate shift in the product mix of new origination. So within mortgages, taking a step back, not entirely, but reducing our emphasis and our weighting on the lower loads of value re mortgage space, which is very tight margin, focusing more on the pivots in niche. We're seeing high quality and an underserved segment that isn't necessarily well served designed to be well served by some of the larger banks. And, I'm very pleased with the initial progress we've we've made. I mean, it's 100 days, so it's early, but, high quality good profile and well received by the broker network that we distribute through. In terms of, the the product mix we we are originating more from our personal lending and northridge business. And that isn't because we've loosened credit criteria or changed our risk appetite that is very much reflection of deepening our distribution. So personal loans will be predominantly from the AA, but also the post office and some from our Northern Ireland franchise and we've improved the processes there. We've actually improved our margins while we've been growing. So we're not just priced for volume. We're priced for risk in the appropriate way. And on Northridge, this is a business that we've had many years of experience in We've broadened, the number of partners that we work with and also covered more of the the the the UK geography. So the the the business mix, we are we are happy with the changes we're making and and always looking for for new opportunities. To create more value. But the I think the model that we are creating now is providing better returns than we had previously. On costs, and I I wouldn't read too much into the 3% every, every half. We've talked about year on year reductions, but we've not given guidance on half on half. And you asked whether it gets more sticky. I think we've made some sticky and difficult decisions already to get to the numbers we've we've achieved. So it's not it's not about low hanging fruit. We've made difficult decisions around reducing our senior management by 7%. We've closed 30 or service centers. And we've exited some businesses that we've been active in in the UK for for for a while. So those were tough decisions, and we'll continue to make the right decisions to improve the efficiency of our of our of our business, in the UK, but also across the group. And on in terms of wealth and insurance, the the backdrop of the Irish economy and the demographic change really supports us. So households are becoming wealthier job security has increased. You've got good, demographic trends around aging population that's probably under protected or under pensions, and you've got more younger people well educated entering the workforce who need wealth management needs and protection. And and we also have the advantage of a a large retail customer base. So the penetration of our customer base, last time we presented our results, we would have talked about a 26% penetration, which was up from 23, we now saw in the first half of 29% penetration. So the backdrop is helping us, but our positioning and our customer base is there's fantastic opportunity for us to do more from a digital perspective, and that's one of the key milestones that we've set our sales as well. But I'll pause there and and Andrew may want to cover some of the detail also on costs. Yeah. So I suppose just on on the costs, Owen, I mean, I think, you know, we said a year ago, a very care target to take our cost down every year and to hit 1,000,000,000 in 2021. And clearly, we've evidenced the reduction in that cost as we've gone through each of the periods. And that continues to be our focus right now. Of course, we said that the external environment has changed in terms of the interest rates, and that's going to be a headwind to top line revenue. So you'd expect us to see what levers, what self help options we have to pull and cost is a very obvious one of those And so we are looking at what further opportunity is there for greater efficiencies, to bring us below, a figure of 1.7. We're not announcing a a different number today. But we are going to work as you'd expect. And as we are doing, we'll work out what opportunities are there to be more efficient, even than that 1.7 What it also says is that when we set out that plan to 1.7, we fully, accommodated the inflation around, wages for example, for our colleagues, but also around the higher depreciation charges associated with the investments that we're making in technology. And of course, the higher cost of complying with some of the expectations and regulations of our regulator. And so We've gone beyond. We've absorbed all of those costs, and I think that's important, and still brought our overall cost level down 3% as you saw in the presentation this morning. And that continues to be our focus. This is about reducing the absolute level of costs as we go through to 2021. And in that's as well as a mechanic really to help support our overall strategic ambition to increase our RoTE up to that target level of 10%. Thank you, Eamon. Eamon Hughes and Goodbody. Can I just kind of come back to the name just in terms of first question? I wanted to ask about capital and MPs as well, but just in terms of name, you mentioned kind of Andrew in terms of consumption over the next couple of years. So can we take it that that NIM kind of guidance over the medium term is still kind of premised when hitting a $90,000,000,000 loan target? It's it's obviously important in terms of recycling, and you were talking earlier about the new business being higher than the stock. So just to get a bit of comfort around that. Secondly, this was just kind of the first time we've been able to chat to you publicly since the SRB discussions that were out there. So maybe thoughts around kind of future capital targets, whether there's any offsets around or things like that, how you're feeling about that. And then finally, maybe in terms of MPs, you know, you've kind of stuck to the or hitting the 5% number by the end of the year. That's great. You're making progress there, obviously, which is fantastic. Just maybe thoughts over the next year or 2. In terms of future targets around that because it would be important in relation to the capital number. Okay. Thank you, Eamon. Let me just talk a bit more broadly about the 90,000,000,000 total loan book targets because it's something that's a guidance that we were quite explicit about a year ago. We're pleased with the progress in the billion net increase and continuing as the largest lender in Ireland. But we recognize that lending growth reflect, it depends on the external environment, and it's lesser to now than it was a year ago, mainly because of Brexit. I think a year ago, we would have assumed that Brexit it would have been resolved. And the Brexit uncertainty is creating some reticence, particularly in Irish SME Growth. So the issue isn't, if 90,000,000,000 is the right number, it's when, and I'm keen to get through another 6 months of trading. And hopefully, the next 6 months, the other side of Brexit, just to have a better idea of that credit formation, and some of those external events will inform our journey to 90,000,000,000. Regardless, we've never chased volume at the, price of of commercial discipline or risk. So our philosophy around when we look at lending opportunities looking at risk than price, and then volume is is unchanged in that context. I'll leave Andrew to talk about, NIM and capital a bit more detail. Just in terms of NPEs, just sort of sort of key message there is we are at 5.3%. We talked about being in touch teaching distance of being sub-five percent. We are about €300,000,000, of being a 5% based on loan book loan growth outlook for the end of this year, that would be important. We're not just doing that as a result of the inorganic actions we've taken. So of the 800,000,000 reduction we've seen so far this year, a little bit more than half of that is working out solutions customers, and the rest would have been the securitization that we've done. Even just through organic working through with customers, we feel confident about the 5% But we've said it before and we'll reiterate it. All options to reduce NPEs are on the table, and that can include other securitization or or loan book sales. The the trajectory and the the go forward, pace of reduction beyond 5% does depend on other factors such as the rollouts and or definition of default in which we expect in 2020. And but when we look at the normalized level of NPE ratios amongst European peers, you'd expect seeing that to to continue to go beyond 5% over time. Andrew? Okay. So if I if I speak to the capital piece, even so I mean, the systemic risk buffer, clearly the central bank have looked for the authority to look at that. But as was as we sit here this morning, you know, we don't know, you know, if or when it's going to be introduced to whether it applies to Bank of Ireland, and, you know, what the offsets might be in terms of of, whether it's the outside buffer or whether it's a P2R, etcetera. I think there is some developments out of European legislative space as well, which might influence both the timing and the the potential quantum of what might come in. I think your point is right in terms of P2R. And then we have the same P2R today as we had 5 years ago. Okay? And obviously in that last 5 years, the risk profile of the bank has changed and strengthened very significantly from the investments that we've made in reducing NPEs, sustainable profits, volatility and capital ratios, etcetera. Are the regulators ever going to adjust the P2O ahead of a Brexit type scenario? I mean, not, you know, that's very understandable. But certainly as we think about the progress that the bank has made over that time period, and the improved resilience of the balance sheet and the derisking of the balance sheet, we'd be very optimistic about the opportunity for teach war, but we have to get beyond the Brexit piece I think, unlocking capital in the balance sheet is, is is something that is important. We've we've emphasized the RoTE has been has been the very major target. You've seen us take some actions in the first half of the year in terms of unlocking 30 basis points of capital to do with the buy to less securitization We are looking at doing further transactions to unlock capital. Clearly the decision to exit out of UK cards also unlock capital in the second half of the year. And that's something we're going to continue to do over the next number of years, Eamon, to make sure that our capital is optimized and appropriately allocated and supportive of our overall targets. Thank you. So one more question in the room. We'll go to the call and come back to the room. Gentlemen? Just two two questions for me. Just on mortgage pricing and market share, just, I suppose, how you feel about the moves you made earlier in the year on on mortgage pricing and and and the impact that might have had on share and where you see that going forward. And then just on the credit impairment, what what's a kind of a are you happy with that level of of credit impair impairment? Is that a normalized rate we can look at going forward. Thank you. Thank you. I'll do, I'll answer from mortgages and Andrew on credit payment. So, our market share in Irish mortgages for the first half of this year was 23%. We we don't chase volumes, and we've never set a a specific market share target. And, again, it's, you know, risk than price than volume. But we have, I've previously said that the we feel most comfortable with a market share in market share range of 25% to 30% in Irish mortgages. So during the first half of this year, we would have set slightly outside of that. 2 key drivers, from our perspective, one is the rise in the broker channel. So brokers are now 25%, 1 in 4 mortgages in Ireland are originated through a broker channel through a broker. And we have reentered that channel less than 1 year ago. So it's still a relatively new channel, which we are growing. We've expedited our growth within in a sensible way. So we were previously mentioned that we were looking to have 50 broker partners by the end of 2019. We have that this week. So we, we've, we've got, we've developed more relationships to more brokers, more quickly, but in an appropriate way. So as well as the that market share reflecting our relative newness in the broker channel. There's also a pricing factor. So, we would have increased some of our prices in January, which we believe was the right thing to do at the time given the interest rate environment and the outlook Since then, the interest rate environment has changed quite significantly. And we've reflected that in some of the propositional and pricing changes we've made recently. So we would have changed some of our our 5 10 year fixed rates, to ensure that we remain competitive and we're not leaving good business on the table. But we also did some innovation. We we tested that for some higher value mortgages and customers prefer a lower rates in the cash back offer. Many of our customers, particularly first time buyers, really like the cash back offer. But we found that some actually just wants to better rate. So for mortgages over 1,000,000, we are offering rate of 2.5% at the moment. And and we also offer a 20 basis point discounts for people buying a new home that is sort of BRA rated energy efficient. So those are some of the examples of innovation. And as we look into the second half, feeling comfortable with our our pipeline, I'm excited about the opportunity to originate more through the broker channel. And I feel confident about our trading, but the largest lender in Ireland don't, I don't overly exercise myself on day, you know, week to week or month to month market share numbers on on mortgages. So, Pierce, you asked about the impairment. And and, yes, I mean, 20 to 30 basis points is the kind of the guidance that we've set out a year ago and restated this morning. And we think that's certainly, you know, we're getting more into that sort of normalized, level clearly with the NPs coming down now to 5.3% touching distance as Francesca said, and obviously we go beyond that, as we go forward. One of the things that if you think about the first half charge appears there were probably a very small number, 2 or 3 discrete cases in corporate banking where we had a particular provision that we set up for those those cases. And then we also took an opportunity to increase the coverage ratio in our Irish mortgage portfolio. So you'll see that the coverage ratio has increased from directionally 2021% to directionally 25%. And the reason we're doing that is really as is part of preparation to get ahead of our in advance of the the NPE counter provisioning issue that is a upcoming, start at the back end of next year. For various technical reasons, it's much more capital efficient to take, to take some of those charges through the P and L, a lot of them to do it as a sort of a capital deduction And therefore, you'll see us looking to increase your coverage ratio within the context of 20 to 30 basis points guidance that we've set out appears. You know, so if we happen to get, you know, some collections post write off or something like that, you'll see us taking the opportunity to actually up our coverage in advance of an in preparation for the NPE kind of revision because of the capital efficiency that comes with that. So yeah, comfortable with 2030. And why don't we take a few questions on the conference call? The first question we have today on the line comes from Alastair Ryan from Bank of America. Please go ahead. Thank you. Good morning. One specific and one more general, please. So the $0.185 dividend you've accrued for the first half, how good an indication should we think that is, for where you ended for the full year? Is that a floor now or that's where you're expecting the board to land. Obviously, it's quite early. I appreciate, but that's quite important. So, yeah, the second more general, just a few more pointers on how you're getting on with the core banking platform, the implementation of the new IT structure. You sound pretty confident, but it's just very hard for me outside for us to see where you've got to. What are the best pointers for us to look at? Thank you. Thank you, Alastair. We'll go first on Andrew on the dividend. Okay, Alastair, good morning. So, yeah, we've, I suppose the the board, first thing I'd say is the board has made no decision about dividend, for this year yet. Quite obviously, the timing of that decision will be in sort of the, you know, as part of the year end preparation in sort of December, January, February time. The the board's policy on dividends is very, very clear, which is that it's going to increase this year over last year. It'll increase, of course, prudently and progressively towards our longer term target of 50 percent of sustainable earnings. At this half year point, we must make an accrual for the dividend in line with the capital rules. And the board has gone for around some number of €100,000,000. That happens to, equate to 18.5¢, which is obviously an increase on the 16¢. But I don't think you could take it as being a particular guidance either way in relation to that. It is an accrual. It is consistent with the policy. But ultimately, the decision around dividend will be won that the board will take at a later stage. You've seen over the past couple of years when we restarted the dividend 2 years ago, that we've been we've almost had a track record of inconsistency if you like in terms of the half year accrual versus the year end piece. It is a half year accrual piece. And the decision for the board. The board has not taken that decision. The board will take that decision in December, January time. Thank you. If I answer the question about core banking in two ways, one is about progress in regards to spend and another one is progress in terms of milestone achievement. So you'll remember, Alastair a year ago, where we talked about our broader transformation strategy, which includes systems change, but also business model change. And we broadened and deepened that to the 1,000,000,000 between that point in 2021. And we guided that would be equal to 50 to 60 basis points of capital or an average spend of 1,000,000 per per annum. And obviously, that will help us improve efficiency, competitiveness and reduce expenses over time. And core banking is an important component of it. But when we look at the overall transformation spend, what we're, what we've shared today is the first half. We spent €138,000,000 25 basis points. So we're not a penny or a basis point over where we said it would be. So that that the spend is exactly where, where we indicate is. And in terms of milestones, so we've talked more broadly, but these are key aspects of our being the single largest migration of customers in history of the bank, our our big milestone deliveries in in in the first half, We've also done, made some progress in some of the cyber and security deliverables in the first half and improving our insurance underwriting process. The second half, the the the big focus for us is on the mobile banking app. We have the technical functionality now, and we are going to be rolling that out to customers over during the second half of this year, although the rollout will continue into the new year. I don't wanna rush rollouts. We wanna sure that we're doing it in a very sensible and appropriate way, for our customers. There's other areas operationalizing single view of customer. I've talked about having that functionality rolling it out so that we are using it to, engage with our customers will be important. And I've mentioned the Wealth Insurance Investments and how we would change our origination to give competitive advantage there. So the spend is, as we said it would, I mean, it'd be more explicit on on milestones that we've delivered against and that we will deliver to, over the coming months. Thank you. Thank you very much. The next question comes from the line of Andrew Coombs from Citi. Please go ahead. Good morning. If I could have some follow-up questions on the interest margin guidance, you talk about mid to high single digit down. Over 2020 to 2021? And could I firstly ask if that's a cumulative impact rather than a per annum guidance? Secondly, can you just provide the trajectory? Is it front loaded? Is it spread on a linear basis in your view? And the third question relating to that NIM guidance would be, how does that split out between the UK versus Republic for Ireland? I'm searching by NIM questions for my broader question just to finish out. You've reiterated the greater than 10% return target despite the the lower NIM guidance, is the same true of your less than 50% cost income target as well? Thank you. Let me talk about the NIM, Andrew first. So, just to clarify, yes, the mid to high single digit is cumulative and is not per annum. Okay. So by the end of 2021. My expectation is that the NIM in 2021 will be mid to high single digit lower than 2016 not per annum. Okay. So just be very clear on that piece. I think the the trend is for it to to trend down to that level. You know, is it going to be precisely linear or, you know, kind of slightly, you know, in that space? I mean, I think it's the expectation is that it is going to trend in that sort of space I can't confirm it's exactly going to be a dead straight line in relation to that, but it will be trending down to that point. And I and I think in terms of UK and ROI, clearly, you know, our our our Irish name and our UK name are very different There are different, drivers behind those. But the interest rate environment in both geographies has been, you know, pretty, pretty equal. UK probably has come down on a similar measure by sort of 75 basis points, euro by about a 100 basis points. So there'll be some, some impact from those, both interest rates, environment updates have been factored into the NIM guidance that I've shared with you this morning. So I think we're just going to talk about the ROCE and cost income. Yes, I'll talk, I mean, the cost income, specifically, so when we talk about cost. We gave 3 very clear pieces of guidance. 1,000,000,000 cost base by 2021. We're saying today that we're confident about that and looking at there are opportunities to go beyond. We talked about a reduction year on year. We're achieving that. That's that still stands. And we talked about cost income ratio. So we'll see cost side of that is is progressing well. The cost income ratio does depends on, on revenue, but if you look at our cost income ratio in the group, it's gone down from 66 to 65. So there's still more to go. You look at parts of our business where we've really focused on improving profitability such as the UK, and the cost income ratio there has gone from 66 to 60. So it just shows you the opportunity for us to do cost takeout while growing as we have in the UK. We've we've talked about positive jaws today, and that's not a a substitute for our cost income ratio target, but it does show you the positive trajectory that we are we are on with revenue at 1% and cost down 3. And it is challenging, but it is still part of our our cost guidance. When we just take a step back and look beyond ourselves and look at our UK or European peers, you know, banks like us are getting closer to the 50%. So it feels like absolutely the right thing to do to be driving our efficiency, over over the coming, strategic peer Thank you. Thank you, Andrew. We'll take another couple on the line and come back to the room. The next question on the phone today comes from the line of Chris Kent from Autonomous. Please go ahead. Good morning. Thank you for taking my question. I just wanted to come back on NIM and understand exactly what driving the pressure here. You referenced the front book NIM of around 300 bps that hasn't changed and you cited lower swap rate expectations in your presentation. So is it the structural hedge that is weighing on your NIM guidance? And could you provide some detail on your structural hedge program for us so we can understand this? What's the current contribution to NII? How big is the hedge in terms of the notional? What's the tenure of the swaps you're using there? And just as one further minor point of detail, you referenced capital efficiency with regards to taking provisions in the P and L rather than waiting for a capital deduction. Is that just the tax that you're referring to there that you get a tax shield on the provisioning charge? Thank you. Okay, Chris. Good morning. Maybe I'll take those questions. Let me start from the capital side. So, no, obviously, from a from a, the tax isn't, isn't what I'm thinking about, while of course, we get a tax deduction. You'll be familiar with the fact we have a large deferred tax asset. And so from that perspective, it's it's not in that space. Really, I suppose from a technical perspective, Chris, I'm thinking about the interplay between provisions and the regulatory expected losses. And so we have a, if you like, our capital ratio of 13.6% today, this morning, It's after taking the, deduction for the IFRS 9 provisions, but in addition, it's after taking a further €400,000,000 or 80 basis points deduction for the higher level of regulatory expected losses. And so as the IRS 9 provisions were to increase the level of regulatory losses wouldn't automatically increase by similar level. And so there's an opportunity there in terms of that $400,000,000 to deal with that from a capital efficiency perspective. Just on the net interest margin. I mean, again, we've given, in terms of the sensitivity, you'll have seen that they kind of instantaneous impact of the, of 100 basis points up or down. We've given that usual, disclosure that, that others give on sort of slide 39. But I think, you know, like the the the that's obviously a kind of a instantaneous static balance sheet, no changes, etcetera. But, you know, so what we have factored into the guidance of the mid to high single digit reduction in margin over the next couple of years, cumulatively to, Andrew's point earlier, is the fact that we we have the benefits from the tailwinds from the higher front book spreads and a growing balance sheet. But certainly in terms of the yields you've seen on our liquid assets, of course, is is coming down because that very much reflects the, the interest rate environment. In terms of our structural hedge, you know, we have continued with our our usual approach there. Which is effectively we hedge the free funds at a an average of three and a half years. So we essentially have a portfolio of swaps that get rolled over. So every year in broad terms, 15% of the swaps mature. And then we reinvest in a new swap and effectively in a new 7 year swap. And so as that, caterpillar hedge sometimes people refer to it as, as that caterpillar hedge continues to progress, you'll see that's where you get the impact from the 100 basis points reduction in the, for example, the market's expectation for 5 year that we highlighted this morning. So they're they're the dynamics that are happening, Chris, in relation to the, the net interest margin. So the tailwinds that we've seen in the first half that we're continuing, which are driven by our commercial discipline and pricing, which are driven by, growing the balance sheet, which are driven by growing the balance sheet with, better front book spreads than the back book, for factors like rolling off of trackers, etcetera, are positives, but they are being impacted then by the impact of the interest rate environment on liquid assets and on that caterpillar hedge. In terms of the hedge, are you able to share a number on the contribution if I think about some of the large UK bank it's about 10% to 12% of NII is generated from the structural hedge. Is that about the right level, higher, lower? Any guidance that would be all. Thank you. Sure. I'm sorry, Chris. I don't have that number with me this morning. If if I, if we decide to disclose that, I'll come back and tell everybody, in relation to that. We'll look at that certainly between now and the year end in terms of the closure. But if there's an opportunity to disclose it in advance of that, we'll look to do that. Okay, thank you. Thank you. Thank you, Chris. Another question on the line. Thank you very much. The next question today comes from the line of Chang Sowell Yoon from UBS. Turn regarding the split between euro and sterling in a slightly different way. Can you split the rate sensitivity you disclosed in the slide $39,000,000 into sterling and euro, if that's possible, please. And secondly, on royalty, so when I see consensus 2021 number, it has a royalty of 9%, 9.1% for an underlying PBT of 1,100,000,000, slightly below 1,000,000,000. Suggesting that, you will need probably 1,200,000,000 on the line PBT to hit 10% royalty target. But given the top line pressure you flagged, it looks like reasonable to me that billion consensus will probably come down to a touch below below 1,000,000,000. So effectively you require about 1,000,000 of cost savings plus fee income growth to hit 10% royalties. So firstly, can I please check if this math is broadly reasonable? And if not, where you see consensus is wrong, maybe loan book growth or fee income or even capital base, please? Thank you. I probably won't get into a kind of a auditing your spreadsheet this morning, a chancell, if that's all right. In terms of the euro and sterling interest rate sensitivity, I mean, we don't give that disclosure. So that's not something that I can help you with, in relation to that. In terms of the ROCE, I mean, I think, you know, certainly there is top line revenue pressure as we call it this morning. And we are, as Francesca said, looking at, self help options, Francesca set out on the slide and in her presentation, 6 levers that we're looking at. Cost theory is, you'd have noticed was the first one of those 6, that's not an accident as you'd expect. And we are looking at opportunities to be more efficient than is implied by the 1,700,000,000, but not an update on that number this morning. But we'll continue to to look as you'd expect. And as we are doing, look at further opportunities there. But there are other levers in terms of, that will help bridge the gap caused by that revenue headwind, across the various levers, self help options, you know, so whether it's capital efficiency or capital light, wealth and insurance, etcetera. So there's a range of things we can look at there, not exclusively on the cost side. Okay. Thanks, Chancellor. Thank you. I just want to check how many questions there are in the room still. Any more questions in the room? Yes, please. Book growth in the period and your comfort around risk appetite, which you've already commented on, but maybe just to get a little bit more, the first just on leverage acquisition finance, seen particularly the Central Bank flag that as an area of possible concern for the 2 Irish banks. And I noted in the period in addition to the growth you've opened up a further office in Madrid. So maybe if you can just highlight that added comfort through historic loss experience, maybe diversification of particular sectors? And secondly, just in the U. K, I think it mentions in the deck that part of the personal loan volume growth was improved credit risk process in the period driving increased applications. Could you elaborate a bit more on that? And then that comment around Northridge, below industry rears and losses, etcetera. Could you maybe just elaborate a bit more, give us some comfort on those numbers? Thank you, Steven. So on our leverage acquisition finance business, this is a profitable part of the Bank of Ireland franchise, 1,000,000 of of PBT last year. We've been doing this since 1997. We've had a low loan loss track record during that period. So an average of 70 basis points per annum from 20 from 2002 to 2018. And this is a high margin business that is appropriately risk price So, high margin of around 4.3 percent plus fee income. And it's also relatively low cost or not high dependent on the infrastructure of the rest of the organization. So the cost income ratio in that part of our business would be in the sort of sub-twenty percent space. It does provide, material diversification in terms of product, but also geography for us. Which we we we feel comfortable about. We've also got a diversified client base. So we've actually broadened our client base by 9% in the first half of this year, but we continue to work with repeat business and in partnerships with, well, establish and and large sponsors who've got a good track record, and our average deal size would be around 1,000,000. So And, again, that diversification within a diversified portfolio is important. So the top 10 deals would represent about 8%. So we feel we feel comfortable in, obviously, we're very cognizant of risk, 80 85 percent of deals we reject, with nearly 80% covenanted on the total book. So it's something that we keep close to, but it it does provide profitable vacation for us. In terms of the U. K, so we would have been quite explicit in our strategy a year ago about the investing part of our strategy to, grow and and and diversify. And and we talked about targeting, growth in our personal lending and Northridge businesses, and we're doing exactly what we said. These are prime, mass lending only. So in personal lending, we do that pro predominantly, not exclusively through the AA. It's about half bit more than half of the business, but also the post office. So 2 very trusted brands. Plus our Northern Ireland franchise. We've we've got we've demonstrated very good growth, half on half or year on year. But just in terms of market share, we're 2.6% of the market, and we operate exclusively in the prime area. So even if as we grow, we would still be in the up to sort of 3% market share range that we feel comfortable with. Net lending credit quality is up Margid is up. We have invested in prescreening tools. We've also invested in our processes. So We are getting, you know, customers quicker than we did in the past. We would rank very positively, compared to, other prime players in the UK. You don't want to be the slowest process because you get adverse selection and we're the opposite of that. And and we've also, to give ourselves assurance, we've done some external benchmarking on the quality of our origination versus peers. We would see that we are more conservative than many of our peers. Our high our minimum income is higher, and the minimum age of applications is higher. And we have higher, Bureau school. So we feel we feel comfortable in terms of that origination. And on Northridge, Again, it isn't about loosening credit scores or risk appetite. It is about broadening distribution. So we have about 2% market share and we have broadened our dealer relationship, all 99 plus percent of our new business is dealer or broker led. And the dealership in particular in the southeast of the UK we've broadened. We've been conservative in terms of sort of residual value assumptions as well. We're we're we're we're very cost conscious as we broaden the distribution of that consumer lending portfolio. Thank you. Yep. We've got 3 callers on the line. So let's go through those pending questions. Thank you very much. The next question today comes from the line of Alicia Chung from Exane. Good morning, everyone. So I just wanted to turn back to, NPEs and some of the future regulatory headwinds. Is that K as my first question. So obviously you previously guided to 80 bps negative impact from TRIM definition of default and NPE coverage ratios, which is very useful to get that forward looking view. I understand now that TRIM is broadly complete and you're not expecting a material impact on the corporate loan portfolio. So as such, is there any reason that we couldn't expect you to lower the guidance of negative 80 bps impact? And secondly, as you increase your coverage ratios, can we expect that capital impact to fall even further from there? So that's the first question. And then the second one is just looking at the your corporate loan spreads, which you give on slide it's on slide 40. What is driving the increase in corporate loan spreads over the last half year, despite the fact that swap rates have fallen, is this reflective of market trends? Or is this specific to Bank of Ireland? And has your change in the mix of corporate lending, has the mix in corporate lending changed for Bank of Ireland? Okay. I'll pass to Andrew on both. Just on the capital guidance, we've been very clear in previous reporting cycles about view of regulatory capital requirements. And we've been explicit. It reflects our desire to be prudent and transparent in our approach to capital guidance. The only change is just in terms of timing, of the 80 basis point headwinds that we would have communicated before, we would have been conservative in thinking that was more 2019, 2020, realistically probably more likely to be 2020, 2021, but Andrew can expand a bit more. Sure. Yep. So, so hi, Alicia. Good morning. So, look, the 80 basis points was obviously the, the net impact of a range of different, regulatory programs that are underway. You mentioned TRIM definition default. MPE also things like RRP repair, etcetera. And so what we told was useful in February. And, again, we're stating the number today to basically put all that together, you know, and and you don't need us to break it down kind of program by program. Let's say, look, the net impact from from those programs is a is a headwind to our capital of 80 basis points. And clearly, you've seen this morning that we're effectively prefunding for some of those headwinds by unlocking, for example, the 30 basis points out of the NPE securitization that we did. TRIM is done for mortgages, Ireland and UK at this stage. And so that's in the balance sheet this morning. Definition of default. That's something that's more likely to come in in 2020, and obviously that'll that'll impact on the amount of capital we need to put against the regulatory, defaulted assets and will impact the pace of NPE reduction next year. On the NPE provisioning, that obviously kicks in at the back end of 2020, Alicia. And as I was explaining to Chris earlier, it is capital efficient for us to you know, where that's possible within the 20 to 30 basis points guidance to, to start doing some preparatory work in relation to that because, we were able to, get some advantage and offset in relation to the level of regulatory provisions that are already set up and that are already a deduction from our capital ratio. And we think 80 basis points continues to be the right level. Clearly, that's not a We're not targeting to to use 80 basis points, but we think that's a a reasonable estimate of what the net impact of those various regulatory programs are. And clearly as we go through those and to the extent we see some, some upside associated with that, of course, we'll we'll keep you up to date. I think the key thing for us is that when we look at our capital position, I mean, our capital position is very strong and the outlook is is clear certain and, and positive. I mean, ultimately, we've done, our operations have generated 90 basis points of organic capital in the first half. We unlocked the 30 basis points by doing the first transaction on NPEs. We're we're looking at a second transaction at this stage. And very much trying to, pre fund the impact of that. So we're at 13.6% today. That's an increase of 40 basis points since January. And and obviously continuing to generate capital on a daily basis and that's above our long term guidance of excess 13%. Sorry. On the corporate loan spreads, you had a question there. That's really just a mix, issue, Alicia. Within the corporate portfolio, there's clearly we we think about it is that there are 4 portfolios between, corporate Ireland, corporate UK, property, and love. And you'd have seen the numbers that were disclosed in the in the deck this morning. And so the couple of basis points increase in the corporate and treasury, spray. Well, it's not even a spray. It's the gross, it's the gross rate that the customers pay us. So it's before taking off the cost of money. That's increased by by, high single digit basis points and that really reflects, you know, as far as our commercial discipline in terms of the pricing that we're doing for new origination in that sector together with just the evolving mix in relation to that. Thank you, Alicia. Lovely. Thank you very much. Thank you very much. The next question today comes from the line of Arman Racker from Barclays. Please go ahead. Good morning team. Yeah, it's Arman Racker from Barclays. First of all, Andrew, congratulations on your Simon Bank of Ireland. I wish you the best of luck in your new role. I just had 3 quick questions. First of all, regarding your NIM guidance, so it looks like it reflects the move in a longer term interest rate environment in Europe. I was wondering, does that factor any movement in policy rates? So if we had a cut in the depot rate or any movement in the refi rate, I mean, on the depot rate, it looks like you've quite significantly reduced your balances at Central Bank, so presumably not a big impact there. But any kind of color you could give would be helpful. Secondly, on mortgage pricing, Andrew, I was wondering if I could kind of invite you to update your comments that you gave at full year. Regarding mortgage pricing, you suggested that perhaps mortgage pricing could rise in Ireland. I wonder if you still kind of thought that was a relevant comment, particularly in light of fairly substantial mortgage risk weight increase AIB as they basically ignored on Friday is a bit bigger than perhaps the market is expecting. And then I guess the third one on cost perhaps for Francesca is, and I think you've indicated a few times now the potential cost levers that you've got to pull. I was wondering kind of what exactly would cause you to kind of re appraise your cost target? Is it a significant deterioration in the operating environment from here? So that the interest rate environment softening even further than the forward curve implied? Is that bigger moves on policy rates? Is that pricing pressure in Ireland, the UK? Or is it actually just a matter of timing? And it's just you kind of really want to fully prepare that cost plan probably quite inevitably going to come back to the market. Thank you. Thank you. We'll take a minute order. Okay, great. Well, man, good morning, and thank you very much for your your kind comments. In terms of the NIM, I mean, certainly, if I think about the ECB rates, you know, certainly we we factor that into, our thinking. Obviously, DCB are considering what their policy is around, the, depot rates, etcetera. I think we're not really expecting a change in our, in the, in the refi rate, from the ECB. I think there are, you know, reasons that you don't understand where, you know, that feels less likely to us. But, you know, we have factored in, adjustments to the depot rate that the ECB are currently reflecting on you know, in terms of, you know, pricing generally, you know, clearly, we, you know, my comments earlier about maintaining our very commercial approach to risk and to pricing, are the kind of appropriate comments. And that's something we keep under review, at all stages. For Jessica. Sure. Yeah. On costs, so, it reflects the opportunity we see to be more efficient. It's I said this before, it's very easy to take costs out badly. So, we obviously don't wanna do that, and we haven't been doing it. We've been very strategic in what we've done, just why I'm not giving more guidance or or targets. Today because we want to make sure that any plans, if we were to go, beyond the guidance we reset are well thought through, you may recall me talked about our cost reduction and there were there were sort of five areas. One was simplifying our organization, and that's where we've seen a lot of the, the cost so far. So in the million gross saves that we achieved in the 1st 6 months of this year, about 1,000,000 of that would have been from simplifying our organization from some headcount reduction year on year, but also the the the changes we've made in the structures and the spans and layers within the bank. Another area resourcing strategically. So this is about how we, we use externals, suppliers, key strategic contracts, and about 10,000,000 of the 60 so far this year is from strategic sourcing, and and we would see opportunity to do more there. A third area is delivering the digital bank And that isn't an area that necessarily, some of the, the costs that we've shared so far, reflects. And a big, you know, enable of that will be as we roll out our new mobile banking app and other digital innovation. And that will enable us to be more efficient. So we see potential there And also in terms of enabling brilliant customer journeys, I touched on our sort of end to end journeys and some of the opportunities just to be slicker and that doesn't require heavy tech investments. But some of that can be done as a precursor to some of our core banking milestones And it takes out costs that often trips up our customers in terms of, you know, callbacks or some paper based or manual processes. And the last point is actually a really good cost to be taking out, and that is about enabling a more agile way of working. Because in a competitive labor market in Ireland, the demand for more agility is incredibly high. And we've reduced our physical Dublin office space. So it is not about branches, but our head office space by about 24% over the last 18 months. And that isn't because we've reduced, necessarily headcount. It's because we've allowed more agility. We have, you know, more agile enabled deaths. So those sort of opportunities, tell us that there is there is scope to be more efficient, but also we need to right size our cost base, to revenue. And the interest rate environment is impacting many European Banks and is impacting margins. So a it's a natural place to look at, but it isn't the only lever or option that is open to us. Thank you. We have one more one more caller on the line, with a question, and then we'll finish up in the room. The last caller on the phone at the moment is the line of Martin Litgead from Goldman Yes, good morning. Just two questions from my side. And the first one is a follow-up on earlier comments on mortgages in Ireland. And I just wanted to understand whether you expect to increase your market share in Ireland from here? And this just follows some comments by one of your competitor who decrease pricing and there's a consequence expected share to increase from here. So I was just wondering whether you still expect your share we had a broker channel and so forth overall to increase in Ireland? And the second question is just broader on ECB, monetary policy and the impact. And I'm just trying to understand, just looking at where your deposit costs in Ireland around 7 basis points. Do you expect to be able to pass on some of the address pressure headwinds which are coming from monetary policy to customers. So would we expect to pass on something to retail customers so that that's current account pricing, interest rates? Or is your thinking here that given the pricing here that there's little you can do on the liability side to offset? Okay. Thank you. I'll answer first one on mortgage market share. So at 23%. We previously talked about a range of 25 to 30. I feel our proposition and our distribution and our pricing is more competitive as we go into the second half than, than where we were in the first half, but I we don't chase market share. I don't have. You know, when we look at our internal targets and scorecards, market share, isn't isn't isn't off the list. We will price appropriately. We won't trade shareholder value for pure volumetric, achievement. And, you know, I I I think I believe we are competitive. I know pipeline for the second half. There's some seasonality in there. We're we're looking forward to a a good trading next period. Great, Martin. Your your second question was just in relation to a ECB policy. And I suppose, really, I think you're interested here in terms of kind of a negative rates. So, you know, we already, do apply negative interest rates to our, institutional large corporate and, top end of SME customers. So, with certain various thresholds around, volume of deposits and negative rates that are, you know, that vary between sort of minus 40 basis points and minus 100 basis points depending on the size and nature of the counterparty. Your particular question was around whether we would start looking to apply negative rates to, personal customers. That's not something we've done to date. The, you know, some the other feature, I suppose, that's, that's in that space is around, Central Bank regulation around fees, etcetera, for personal customers and for small business customers So that's a that'll be an issue that, you know, we'd have to reflect on as well. So as well as in simple terms, I think currently our position is that we haven't yet are having to date, charge negative rates. That's not something that we're planning to do, but I can't give a a guarantee that that won't be something we may have to revisit at some moment, but it's not, it's not a a focus for for now, Martin. Okay. Thanks very much. Thank you. We finished or causing the line. Anything else in the room? If not, I'll just say a few words just to thank you for your time this morning. And for some really good questions both in the room and on the on the line, just to recap, we've reported a solid performance for the first half We've reported good progress versus the strategy we set out a year ago. We're cognizant of the evolution and the external environment, particularly around interest rates and uncertainty, but we've reiterated this morning our commitment to the 10% RoTE. It's very much our financial north star. And we have options open to us and within our control to achieve that target. Thank you very much for your attention.