Earnings Call: H2 2018

Feb 25, 2019

Good morning everyone and welcome to Bank of Ireland's 2018 annual results announcements. Last June, we published our strategy to 2021, and today we'll show how we're delivering against that strategy. We've made particular progress in growing lending and our Wealth And Insurance business, reducing costs, improving asset quality, and transforming our business. We also face some challenges which we are addressing. I'm going to outline our 2018 progress and then Andrew Keating, our group CFO, will take you through the financials in a bit more detail. As we sit out at our Investor Day last June, we have 3 strategic priorities transform the bank to serve customers brilliantly and to grow sustainable profits. We remain highly focused on these priorities and they guide everything we do. I'll go through each in turn. Firstly, transform the bank. This includes 3 elements, transforming our culture, our systems, and our business model. Culture is extremely important. It makes a tangible positive difference for all of our stakeholders including our customers, colleagues, and our shareholders. And that's for a number of key reasons. A healthy culture reduces our cost of risk, it improves the quality of our earnings, and it drives better customer outcomes. So having the right culture actively support our sustainable financial performance, but changing culture isn't easy. It does take time. We're making progress and we will continue to transform our culture in the year ahead. Our systems transformation continues at pace. In 2018, we laid the foundations of our new core banking platform. This is significant in a number of ways. It completes the underlying technology on which our future development will stand. It gives our systems more stability and the capacity for a single view of our customers and it means we're now in a position to start adding products and services to the new platform. In Q4 2018, we successfully moved the first customers to this new platform, trialing personal loan and deposit accounts on a pilot basis. This has allowed us to fully test the system the user experience and our ability to open and service accounts. And later this year, we will launch our new mobile banking app. This is the 1st large scale customer deliverable using our new technology. And with regard to transforming our business model, we're also delivering. We're becoming more streamlined and efficient We've reduced our FTEs by 5%, including an 8% decrease at senior management level. And we've embedded a mindset of cost effectiveness across the bank. For the first time in 5 years, we have delivered a cost reduction. Our second strategic priority is to serve customers prudently, and a cornerstone of our strategy is to grow customer lending. In 2018, we delivered net lending of 1,000,000,000, an increase of 13%. This is the first time we've seen net lending growth in the last decade despite headwinds. We've turned a quarter. In Ireland, we've seen mortgage lending grow by 17% and held our market share. We've reentered the broker markets as set out in our strategy. Personal lending has increased by 25% and our Wealth And Insurance business has achieved a 20% income growth. In the UK, we are continuing to take steps to improve returns. We've delivered new mortgage lending of £3,300,000,000 and new consumer lending of 1,600,000,000. And we've had a strong year serving our corporates and global markets customers. As we set out last June being the leading supporter of homebuilding and buying an island is a core part of our strategy. We funded the construction of more than 5000 homes nationwide. We've seen new lending up 21% to €4,400,000,000 in our corporate bank. And our leverage acquisition finance business, which accounts for around 10% of group income, further grew its customer base. These are strong lending results, but our customers also value the changes we are making. They've been telling us they want us to blend our physical presence and personal touch with more responsive and intuitive digital options. We're listening to them and we're taking action. In 2018, we improved cash services at almost half of all branches in Ireland, we recruited more than 200 colleagues to work in the front line, and we continued to innovate and invest in our digital channels. Because for the majority of our customers, this is how they bank with us. We have over 10 million interactions on our mobile app each and every month, up 25% year on year. And 4 out of 5 of product sales now take place online or on the phone. With more than half being completed entirely digitally. In the coming weeks, we will also launch a new brand campaign, This is of course the strategy we set out last June and supports our drive to build a strong consumer and to become the National Champion Bank in Ireland. I also want to talk about one of the key issues our customers are facing right now and did it something that we're all focused on, Brexit. All of us would, of course, benefit from clarity on this issue but in the absence of clarity, we manage the uncertainty as much as possible. As a bank, we are ready to deal with a challenge. We are prepared whatsoever the outcome. Last year, we were subject to 2 ECB stress tests. These demonstrated our capital resilience in the event of any downturn. And we're working with our customers supporting them to prepare their businesses for Brexit. We offer tailored support to meet diverse needs. This includes an FX facility to support businesses retained certainty on their cash flow and profit margins, and we've launched a €2,000,000,000 Brexit funds. This is designed to help businesses respond to Brexit However, it unfolds as well as to identify potential opportunities and investments, opportunities for investment and also growth. Transforming the bank and serving customers brilliantly will support the achievement of our 3rd priority to grow sustainable profits. Here again, our results show our delivery. Today, we are reporting underlying profit of 1,000,000 with a net interest margin of 2.2%. We have reduced our costs by €48,000,000 equal to 3% compared to 2017. We made further progress in reducing our NPEs, which are down 24% to €5,000,000,000. MPEs now represent 6.3 percent of our customer loans, and our focus is on reducing our NPEs further over the coming year. Our headline return on tangible equity for 2018 was 8.5 percent or 7.2 percent on an adjusted basis. Our CET1 ratio is on target at 13.4 percent. And we generated organic capital of a 180 basis point in 2018. We've invested this in loan book growth, transformation, and meeting ongoing regulatory capital demands. And we are also increasing our dividends from 1,000,000 to 1,000,000 We are 6 months into a 4 40 month strategy, and we're delivering. We're transforming, improving our culture, laying the foundations of our core banking platform and making our business more efficient. We're improving customer service, increasing net lending, and supporting our customers to navigate Brexit. We're growing sustainable profitability with underlying profit of 1,000,000 lower costs, reduce NPEs, strong organic capital generation, and an increasing dividend. And our strategic focus for 2019 and beyond is clear, we are confident that we will drive further lending growth and a further reduction in costs. I'll now hand you over to Andrew to take you through the financial statements in more detail and to give more guidance on the outlook Okay. So thank you Francesca and good morning everyone. So last summer at our Investor Day, we laid out the group's strategic plan over the next few years. And this plan is built on income growth transformation of our cost base and increasing our return on equity to in excess of 10% by 2021. So I'll now take you through our progress during 2018 and on how we're delivering on this plan. For 2018, the group is reporting an underlying profit of 1,000,000. I'll go through the P and L in more detail in the following slides, but the 3 key insights here. Net interest income is lower by about $100,000,000, and that's predominantly driven by the impact of lower margins this year as compared with 2017. This lower net interest income, however, is largely offset by a circa million reduction in our cost base and an improvement of about 1,000,000 in our cost of risk. So turning first to low volumes. We outlined our ambition last June to grow our loan book by 20% with 2 thirds of that coming in Ireland and the balance from our UK and international businesses. In 2018, we grew the balance sheet by 1,000,000,000 and approximately half of that growth was in Ireland and the other half was in the U. K. And international. Taking Arden first where the net loan book has grown by 1,000,000. In our mortgage business, we increased new lending volumes by 17%. That's in line with the growth in the market and it means we've maintained our market share of 27%. We successfully reentered the broker market at the end of the year, and we're well positioned to support and benefit from the expected 50% growth in this market by 2021. Our Irish consumer business also performed strongly and we grew our market share. In the SME market, our market share has also increased. Demand for credit and the size of the SME market continues to be impacted by the ongoing Brexit uncertainties. Our Corporate Banking business, which includes property lending, had a very strong year. The corporate loan book here in Ireland grew by 1,000,000 and that business has now already achieved 40% of their 3.5 year target. Moving to the U. K, where the net loan book has grown by 1000000. Consistent with our strategy, we've invested in those areas which are generating attractive returns. The consumer lending, motor finance and corporate loan books have all grown in 2018. The growth was partly offset by a reduction in UK mortgage in the UK mortgage book as the competitive pressures in that market has been more intense and more persistent than we had anticipated last year. And that's also impacted on our margins, which I'll now turn to. So our net interest margin for 2018 was 220 basis points, and that's a few basis points lower than we had expected. It's primarily due to the margins on UK lending, which have been lower than anticipated. The intensity and persistency of the level of competitiveness in the New lending rates have been lower than expected and the pace of refinancing by customers has increased. Those two impacts have reduced our underlying NIM by 3 basis points and that's expected to persist into 2019. Separately, we've had to make a nonrecurring adjustment of about 1,000,000 to our net interest income in December. That adjustment is one off in nature, about 10 basis points in Q4, but critically, it does not impact our go forward name in 2019. In Ireland, our proven track record of pricing discipline continues You'd have seen that we recently increased our mortgage pricing for longer duration mortgages. Given the quantum of capital that has to be held and the expected future direction of interest rates, we would expect further price increases in the mortgage market over time. Turning to the outlook for our margin for 2019. As we progress towards delivery of our ROTE target in 2021, our margin will benefit from our loan book growth and the fact that our front book margins on average are higher than in the back book. In 2019, however, we expect that those benefits will be largely offset by the ongoing UK competitive pressures. Separately, given the expected disposal of our UK cards portfolio this year and the cost of future umbrella issuance, we're guiding that our margin will dip in the near term to 2 sixteen basis points before recovering in subsequent years back into the 2 20s. Turning now to business income, which was 1000000 in 2018, and that's 1,000,000 higher than the previous year. We're Ireland's only bank issuer and our wealth and insurance fee income has grown significantly. It's up 20% on last year as we benefit from the investments that we're making in that business. Additional gains were modest in 2018, while valuation and other items gave rise to a net charge of 1,000,000, primarily reflecting movements in equity and bond markets during 2018. Turning now to costs. As you know, on Investor Day, we committed to reducing our cost base to 1000000000 by 2021 and that costs will reduce each and every year until then. We're making good progress on that commitment. Despite the pressures from wage inflation about 2.5 percent, higher IT run costs and the higher depreciation charge as we invest in our businesses, Our absolute costs are down 1,000,000 in 2018. So that's 3% lower than the previous year. And we expect costs will be lower again in 2019 and will meet our target as planned of a billion cost base in 2021. So just to give you a little more color on how we're achieving these cost reductions and efficiencies. The transformation program is right across the group and it's across multiple programs. It's broad and it doesn't rely exclusively on new technology to deliver benefits. So for example, key programs that delivered benefits in 2018 include strategic sourcing and simplifying the organization. For example, under strategic sourcing, Today, we have 65 percent less data rate contractors, and we've reduced our non IT professional fees by a third. In terms of simplifying the organization, we've redesigned our spans and layers to enable a more agile organization and we're more than halfway through the execution of that design. It's already supported an 8% reduction in senior management across the group. Turning now to asset quality. In 2018, we reduced our non performing exposures by 24% they're now down to 1,000,000,000. Importantly, this didn't trigger any additional impairment cost In fact, we had a writeback of 1,000,000 in 2018. Our future impairment guidance is unchanged. Absent the change in economic outlook, we expect a net impairment charge of between 2030 basis points in the years 2019 through 2021. Our NPE ratio improved by 200 basis points in 2018 to 6.3%. And we have the lowest NPE ratio of any Irish bank. We expect further reductions in NPEs in 2019 and beyond. Given the evolving regulatory framework, we're keeping all options open to accelerate these reductions. We have the capital and liquidity to support our growth and our strategic objectives. Our liquidity and leverage ratios are strong. Customer deposits primarily sourced through our retail networks are funding 100 percent of our customer lending. And our fully loaded leverage ratio is 6.3%. We also now have our MREL targets from the regulatory authorities, and the issuance requirements are very manageable at about 1 to 1,000,000,000 per annum for the next couple of years. Turning now to capital. Our capital ratio today is strong at 13.4% on a fully loaded basis, and that's after the deduction of the proposed dividend. Our capital guidance is unchanged. We expect to maintain a CET1 ratio in excess of 13%. That's on a regulatory basis and on a fully loaded basis by the end of the OCI phase in period. Our improved position in the recent EBA stress test and the consequent material reduction in our P2G requirement demonstrates the resilience of our capital position and future outlook. We continue to generate capital organically at a rapid pace 180 basis points in 2018. At Investor Day, I clearly set out the framework for how we invest and allocate that capital. First, we have to allocate 200 to 250 basis points to support a 20% growth in our loan book. We invested the first forty basis points of this in 2018. Secondly, we're investing 50 to 60 basis points of capital each year in our transformation programs. And I outlined earlier how these are facilitating the growth in our businesses and the improvements in our efficiency. The 3rd area for capital allocation is regulatory demands. When we assess the various regulatory initiatives that are underway, we expect to allocate circa 80 basis points over the next 2 years to deal with the demands as they arise. Now to be clear, this 80 basis points doesn't impact our capital guidance of 13%. But rather relates to the calculations of risk weights and the stock of capital that we're required to hold against defaulted assets. And then forcefully and crucially, we come to dividends and distributions. The board's clear confidence in our capital position and outlook is reflected in the increase There's no change to our dividend guidance. We expect that the dividends will further increase next year and thereafter, billing to a paled ratio of 50% of sustainable earnings over time. So standing back from all of this, The key purpose of our strategy is of course to deliver attractive and sustainable returns to our shareholders. We've committed to increasing our return on tangible equity to in excess of 10% by 2021. We've made tangible progress on that journey in 2018 and we're fully committed to delivering on that target. In summary and to conclude, we expect to continue growing our loan book out to 2021. Our investment in transformation is delivering. We're continuing to reduce our costs and our NPEs. We're generating capital at a rapid pace. We're increasing returns and we'll deliver on our commitments to our shareholders. Thank you all very much Francesca and I will now take your questions. Okay. So if you could raise your hands, if you have a question, we've got a couple of mics in the room, introduce your name and your institution. We'll take a few questions in the room and we go to the calls and then back into the room. First question, David. Good morning. It's Jeremy Sheridan from Davy. Three questions, if I may. Firstly, on margins. Could you please run through your assumptions for 2019 specifically on the pricing environment in both Ireland and the UK and maybe provide a little bit of maybe some further details in terms of how you think you can achieve your 'twenty one targets of about 'twenty three. On the wealth management performance, obviously that was very good in 2018. I wonder if you could maybe provide some details about the initiatives which took place in 2018 and what further initiatives in 2019 2020 you may have planned in that business? And finally on capital, thank you for the detailed guidance. First of all, on particularly the regulatory consumption please provide your thoughts on why 13% you still believe that's the correct level of capital? And to what extent are there other regulatory kind of initiatives, maybe it's the wrong word, but headwinds that may come through on specifically thinking around BNP and impairment levels, which I think you call out as a Shrep piece in your presentation? Thank you. Okay. Thank you, Dimas. So I'll ask Andrew to comment on margins and capital and then I'll go to talk quite well. Okay, David. So, thank you for that. So, as you say, in terms of 2019, in terms of our net interest margin. And what we've looked at is clearly your exit NIM was at about a level of 220 basis points. And the structural factors that are supporting our net interest margin, which are around growth in our loan book, the fact that on average our full book margins are higher than our back book spreads, continue to act as a positive influence on our net interest margin. However, for 2019, we've projected that those structural benefits will be offset by the persistent competitive environment that we have in the UK as we go forward beyond 2019, and beyond that dip down to 16 basis points, we think that those structural factors and we projected those structural factors will start to have a stronger influence on the interest margin and will offer support to bring the net interest margin over the subsequent periods into the 220s in terms of that piece. In terms of the UK, as I say, I've highlighted the competitive pressures that are there, and they've been intense and persistent. In Ireland. You know, one of the things that you'll have seen, I think I called out in my presentation, you'll see that we increased our prices for longer duration mortgages recently. And we've also made some adjustments for a deposit pay rates, they've come down. And we've also widened the scope of negative interest rates in terms of our customers. If I think about mortgage pricing over time, during the quantum of capital that we need to put against mortgages, together with the expected medium term outlook for interest rates means that we would expect that mortgage pricing in Ireland is likely to increase over the next number of years. And beyond beyond that, I mean, I think if I stand right back from it, and I look at our net interest margin and the drivers behind the net interest margin. I think the next big move with net interest margin is a likely to be upward and B it's more likely to be driven by interest rates. But quite clearly, you know, that's not a that's not something we're factoring into. Our guidance to you this morning you know, in terms of interest rate policy changes, you know, that's something that that is is likely to be further away. On the capital side then, and you know, so pick up a couple of things on that. So one is 13%. So we've been very clear this morning that our capital guidance is unchanged and we expect to have in excess of 13% as our CET1 ratio. One of the things that we've been conscious of is there are a range of regulatory initiatives underway So whether it's trim, whether it's things like definition of default, whether it's NPE coverage ratios, etcetera. So we've looked at all of the regulatory initiatives that are underway. And we wanted to give you two pieces of insight in relation to those. 1 was what's the cumulative impact of all of those different initiatives that are underway today? And that's the 80 basis points that I spoke about. And that's covering the period right out to 2021. And the second thing was the timing of that impact And I think that's where we said from a timing perspective, our expectation is that that 80 basis points of impact is more likely to be to arrive between 2019 and 2020. Clearly, I can't I mean, if the regulators decide to change some of the the other capital requirements, I mean, that's not something that I have any to today. We've had no discussions around that piece, but it's very much in that space. So those 80 basis points have nothing at all to do with the ratio and there are more to do with the calculation of risk weights or the expected losses, etcetera. What gives us confidence around the 13% is the engagements that we have with our regulator I referenced in the speech, the EDA stress test last year, obviously a number of years ago, we had quite a disappointing outcome Our results last year was, we were, in mid table, and then immediately in mid table was where we ended up But I suppose ultimately what that demonstrated was the improvements and the investments that we've made in strengthening the resilience of our balance sheet to capital. And on the back of that EBA stress test, our pillar 2 guidance reduced materially as a direct consequence of that. I appreciate I haven't shared between what the Pillar 2 guidance that's in line with regulatory preference. But that pillar 2 guidance, the reduction of Pillar 2 guidance has meant that it supports our belief, which we set out on Investor Day that our capital of 13% is appropriate. And that's what we would expect to continue to apply over the next number of years. Okay. Thanks, Andrew. So on the wealth and insurance piece, we called that out in our Investor Day as a key area of growth, because the demographic backdrop supports it. So we have a growing population that is getting is becoming more affluent, but it's also aging. So people are getting to start families or thinking about their retirement and the provision of state or employer pension, cover or or or or facilities has has reduced. So there's an opportunity for us to to offer that to to our customers. That we are Ireland's only Bankershora, and that has enabled us to really focus on, penetrating our customer base. So we've increased our our penetration from 23% to 26% in terms of insurance provision. We've increased our market share by about 1 a half percent, and our gross premium income is above €2,000,000,000 for the for the first time since in the last decade. And you see that comes through in the other business income, good good growth and contribution. The way we're doing that is through being very focused on our customer base, but also digitization improving service. So, if you are a first time buyer and you take out a mortgage with us, before the process to also get protection as part of your mortgage conversation was quite cumbersome. We've now streamlined that and made it very digital. So it's 7 questions in 7 minutes. And as a result, 7 out of every 10 first time buyer mortgages, that we provide, take insurance with us. In terms of how we take that forward in 2019, more of the same. So focused on, using, sort of analytics and digitization to better penetrate our base. We're looking at some new technology around screen sharing with our customers so that we can help them through, a protection journey, and, we're also thinking more thematically about the role of financial well-being in islands and how we can support that, and that's something that as we go through our our brands rollout will also be a key feature. Can I just go back to him? Because I think when I spoke to you about the margin in 2019, I'm not sure if I mentioned the UK credit cards in Emerald. So, and just to maybe just to be clear on that, clearly the positive structural factors I spoke about, they will come through. We expect they'll be offset by the competitive pressures in the UK. The 220 underlying will stay broadly in line with that 220 level. I think we've called out that the UK credit cards is going to be sold during 2019, that will have a structural reduction of 3 basis points in our NIM with a modest amount of MREL, taking a basis point off for that and that's where you get from 220 down to 2016. So I think I hadn't covered that when I spoke to you earlier. Okay. Next question. I'll go to Owen. Good morning. Owen Callen from Investec. Just three quick questions for me. Just following up, Andrew, on that credit card point, obviously, it's going to have an adverse impact on NIM if the credit card book is sold. That's presumably dependent on when it's sold. During the year. So if this, if Brexit got kicked out 6 months, would there be less of a negative impact, therefore, presumably, on NIM, depending on when it's sold? And then just on, regulatory charges, I see you are expecting or guiding for a sizable increase in regulatory charges this about 100,000,000 the last couple of years to 115,000,000 to 120,000,000. If you can maybe just go through the moving parts that you're expecting on that. And then on the dividend, You've increased it, obviously, helpful year on year. Is there now enough visibility on dividend payout, you know, guidance or your assumptions are in dividend that we can move to interim, or we still be looking for it next year for a full year? Okay. Andrew will respond on the Reggie charges and the dividend. On just on on UK cards, when you talk about sort of potential timing of any transaction, but the focus in our, our, for the UK cars business is on improving our overall RoTE. So we talk more broadly about our UK strategy. We need to improve our profitability. We've spoken in June about, the need to invest in things are going well, improve things where we have a right to compete, but we need to get better at it. And and reshape, or reposition. And the UK cast portfolio was firmly in the reshape reposition sort of category the impact on our UK rotary of not having a UK card business is about a positive, 80 basis points. So as you can talk about sort of the the NIM and potential timing, but that is a a key driver of our decisioning to improve the roti in our UK business. No problem, yes. So just I mean, just to close out on that, clearly the UK credit card is something that that business is 100% cost information business on and so ultimately the transaction around that will unlock some capital and it will not impact PBT. Of course, individual line items like NII, like fee income and like costs will be impacted by that adding up to that 100% cost information we spoke about. On the regulatory charges, really just sort of 22 small items there. 1 is around the fees we pay to the various regulatory authorities. And they're on a on a they're moving to a new framework of recovery of the cost of that regulation. And so that adds a couple of €1,000,000 to our payment. And the second piece is around the bank levy. So our bank levy is linked very much to the amount of interest we pay on deposits And our share of that contribution will go up by a couple of 1,000,000 just reflecting the allocation methodology that the government put in place in relation to that So that's what's driving it into that kind of 115 type range. On the dividend and the later that we increase the dividend this year 16. And I think our dividend guidance is very clear in terms of that we expect that dividends to increase on a prudent and progressive basis. And so we'll increase in 2019 and we'll build towards a 50% payout ratio over time And I think the idea of an interim dividend hasn't been a strong feature of board discussions today's own. So I think that's one that again, it's a decision of course for the board, but it's not one that I'd be factoring in for 2019. And just to answer to Andrew, compound Andrew, the dividend policy hasn't changed, exactly what we said in our interims and at our Investor Day. Thank you. I think Eamon, I have a hand up, yes. And then we'll go on to, the lines. Amy Hughes and Goodbody. And maybe just pick up a little bit again on the margin, kind of you talked about moving Andrew kind of closer to the 2 20 plus number in 2021. I'm just wondering about the bridge thinking about 2020. Is it possible? You could get to there by then. Secondly, just as with you, again, flagged that you'd made some kind of moves in relation to your mortgage rates. And I know it's early days. It was only a few weeks ago, but what are you seeing as well as in a holistic sense around the approvals and draw downs flows in Q1 to date? Certainly in the Irish mortgage market. And finally, we've seen some media speculation around, and I know you're not going to comment specifically around wage inflation and negotiations with unions, but you are seeing a tick up in wage inflation, is there any sort of offsets elsewhere we could maybe see to give us a bit more confidence about the billion figure in 2021? Okay. I'll ask Andrew to talk on margin. I can give you a bit of an insight to what we're seeing, particularly on the entry to the broker market in mortgages. If you want to cover wage inflation, but more broadly, we can we can both comment on costs that we're very, very pleased in terms of progress. Margin. Okay. Yeah. So in terms of of the name of this margin, Eamon, you know, clearly, you know, that's a that's a very important component. It is just one component of course, the RoTE target, but an important in terms of that. I just say we've taken we've taken action already in terms of in our Irish business in terms of increasing mortgage pricing for Jessica talk about the impact of that. We've also taken action to further reduce certain of our deposit rates it's going to be modest in terms of their certain deposit rates that were sort of 10 basis points and we've taken that right down to 5 basis points. We've also though broadened the scope of customers who for whom we will pay negative rates. So again, those sorts of actions will continue through 2019 and obviously into 2020 and so on. I've signaled is the fact that given the quantum of capital that we need to put against mortgages and given the likely a track of medium term interest rates the recent decision to increase longer duration voyages is likely to that trend is likely to continue as we go forward from here. In terms of in terms of getting back into the 2 20s, that's certainly something that we see beyond 2019. I don't see a getting back into the new 20s in 2019, but I certainly see how we will get there as we go into 2020 and into 2021 the the the name in those years should should average in that sort of 2 20s area. The drivers behind that, is very much going to be linked to the the fact that we still have reductions in our low yielding assets. So things like NPEs, things like trackers in Ireland they will they're continuing to pay down through through in the same direction that we've had over the last number of years And as we replace those with newer assets, those newer assets are clearly at higher, higher spreads. And so on average as the book turns over, and the average spread on new business is higher than the average spread on the back book. And as we go into obviously the loan book has grown in 2018, we expect it to grow further in 2019 and beyond. And as the loan book grows, we'll of course benefit from the spreads that we're generating on the new lending and that will provide that support to the NIM recovering into the into the 220s. And in terms of interest rates, we're not at this stage, we're not expecting any change in the ECB rate environment until 2022. So the guidance isn't trend on and any change in interest rates. Do you want to talk about what we're seeing on the mortgage side and then we can talk about cost Sure. So, on mortgages, we entered the broker markets at the back end of 2018. Today, we have about relationship with about 20 brokers that will more than double to around 50 during the course of 2019. So in terms of our share of that market and the contribution to our market share is still quite muted because it's just in November that we entered. But the broker market is becoming a more important part of the Irish mortgage landscape. So brokers would have represented nearly quarter of business for the total market in 2018. And actually in the fourth quarter, that started to tick up, and we would expect percentage to increase over time to maybe a third. So I'm, I think our our decision, our strategic decision to enter that market was absolutely is the right thing to do because it broadens our distribution reach. We looked at our pricing, at the start of this year, we're a price leader. We reduced our pricing on shorter term mortgages kept them, up 3% for 3 year and slightly increased on on the longer term mortgages. And that reflects the pricing, the value of money, and also the the the capital requirements that we that we have attached to mortgages, it hasn't impacted our competitiveness with the cashback offer with the broker entry. We bought our industry award winning broker platform from the UK in New Orleans. That's been well received by brokers. I've been happy with the business. We've maintained our 27% market share and, you know, there's there's some things we target. And there's some things that we, you know, observe, but I don't lose sleep over, you know, if we our market share and mortgages goes 1% up or down, between 1 month and the other. If we are in the 25 to 30% range for market share mortgages, that feels that feels right. But we don't chase market share. When we look at growing our mortgage business, we look at it from a risk perspective, from a pricing perspective, and how that contributes positively to our ROCE targets. And then, we look at port volume. So I'm pleased with the progress that we've made, this year. And the trading environment on mortgages. So maybe more broadly than on cost then. I mean, I suppose in terms of cost, Eamon, clearly, you've seen us reduce the operating expenses in 2018 is the first time in 4 or 5 years. So those operating expenses have come down. It's very consistent with what we set out at the Investor Day last year. The costs will come down every year. So 2019 costs will be lower than 2018. 2020 will be lower again and we'll approach our target of get our target of 1,000,000,000 by 2021. So we're very clear on the fact that we're fully on track to achieve that target of lower costs every year and arriving at that destination of €1,700,000,000. And within that we of course recognize that there is going to be inflationary pressures So we had in 2018, for example, we had wage inflation on average about 2.5%. We've recently concluded our discussions with the the staff representative bodies and they're going through the next stage of that process. That works out in broad terms at about 3% wage inflation for 2019. We've also have to accommodate higher IT run costs because it was we've got the run costs from the old systems and the new systems and we have of course higher depreciation and amortization charges that you see coming from our P and L. So we've factored those items into our projections, Eamon, And despite those inflationary items, we still have a very clear line of sight on how cost will reduce in absolute and in total terms. And you saw, as I say, the reduction of 3% in total terms, 1,000,000 in 2018 and we will we've tried to share with you this morning a range of the initiatives and programs that are underway that are not, you know, dependent on technology delivery, etcetera. We still see a line of sight to reduce our total level of and of operating expenses in 2019, 20202021 as we approach our our target that we set out. And that's obviously that's really important in terms of thinking about our our commitment around getting RoTE up to in excess of 10% the cost reduction is clearly a very important part of that journey. Just to add to that, when we look at our overall commitment towards rate the cost line is one that we absolutely 100% control. It is an area, a lever that we we're pulling hard. We can pull harder. But we're still investing in our business. So while we've reduced our FTE by 600, about 5%. We've also recruited in other areas that reduction has been, in areas that reflect changes in in customer behavior, and we've also gone further in terms of our strategic sourcing, which has come down by just over 1,000,000 and that's the reduction in dependency on daily rate contractors, non IT consultants, our property, there's an absolute shift in mindset to be more cost efficient, and it is to make us an easier bank to bank with for our customers and working for our people. I might just go to the line now. We've got callers on the conference call. I'll take a few then come back into the room. Thank you. The question comes from the line of Alastair Ryan from Bank of America. Please go ahead. Thanks very much. Good morning. First on the UK, just a little more detail if you could on the post office. That's something you've been working on shifting from sort of a volume driven relationship to one way where pricing is more important. How quickly you think you could take a little bit more out of funding costs there, if at all? And second, just on this sort of net ending regulatory capital inflation I'm sure you're a lot more sick of than we are, but if you did get down the road for selling some NPLs, would that help? I picture that some of the old NPLs a particular subject of increased capital requirements. And therefore, if you did sell them, there'd be some relief to that 80 basis point Thank you. Thank you, Alisa. I'll cover post office and Andrew will talk about capital and MPs. So just broadening the post office question, just in the context of the UK, so we have a low single we had a low single digit Rotte in the UK business. We committed to doubling that to a high single digit RoTE. Still not good enough, but a step in the right direction. And since Invest a, we are moving in the right direction. We've got the 3 levers of improve, invest or reposition. I would say that the post office is a very important relationship with us. We've had for many years. That partnership goes on, there's a, the contractual end of that around 2023. We're absolutely committed, working with the post office beyond that. It's a relationship that has been very beneficial in the past. And and today, and we see that is going forward as well. In terms of sort of improving performance, there is an opportunity for us to reduce costs in the UK, and that's operational costs, and those have gone down 2% in the UK last year, but also the cost of funding, and you'll see that the detail in the book that has also reduced and that's primarily through the post office. Okay. So maybe just to touch on capital. Alister, and again, as I say, just to repeat, you know, the capital of 80 basis points, that does not impact on our capital guidance of 13%. It really goes to the risk weighting and the regulatory expected loss. You know, clearly, I think last, last June, we did signal that, we were going to, given the evolving regulatory framework and clearly, that has obviously continued to evolve further as we've touched on this morning. And that does mean that we're keeping all options open to accelerate the reduction in our NPEs. And and we've set out is that there's hopefully a useful slide in the appendix to our book this morning, slide 46 for your reference. Which sets out our current NPE position in relation to Irish mortgages. And within that, where somewhere between 3 and 5 times better today than the rest of the industry and overall with the lowest NPE ratio in in Ireland. What we have highlighted there is the, the portfolio of buy to less mortgages that are in the arrears And we've given you some disclosure about the quantum of loans that are in arrears for the buy to let, mortgages and also what the net interest income and importantly what the CET1 capital intensity is. So in looking at managing the, evolving regulatory framework, you know, there's clearly an opportunity initially in looking at and the amount of capital that we have invested in the buy to let portfolio. And that's why we've prioritized that particular portfolio in our thinking and why we've given you this closure here. So, you know, that's our focus right now. You know, executing a transaction, which would accelerate the reduction in our NPEs would clearly unlock some of that capital and the evolving capital that we're, the regulators are looking for us to hold. But but also we would say that we have all options on the table in relation to the amount of capital that we've invested clearly in the other NPE portfolios be they owner occupied mortgages, other asset classes, etcetera. Thank you, Alastair. It's good for another question on the line. Our next question comes from the line of David Locks from Deutsche Bank. Please go ahead. Good morning. And 2 for me, please. First one is just on the NIM in the UK. Just wondered if you could tell us a little bit more about what you're expecting around competition. I'm conscious that you're saying in 2019, it's going to be a bit lower. In terms of the NIM and it should rebound into 2020. I mean, how do you feel about that if the competitive pressure stays here for quite a while? And particularly the particular segments that you're operating in within the mortgage market in the UK, it looks like higher LTV pricing has come in quite a bit. Just wanted to give a bit of color on that. And then, secondly, on capital, I guess, two parts for this. The first thing is do you think at any point in the future, there will be some kind of reflection of the extremely high risk weights that you will be holding in Ireland, in other parts of your capital requirements. So in other words, in terms of a lower, Tele2 requirements or a lower, other form of the stack that you're operating at because I think it's the 4th time we've had an upward shift in mortgage risk weights. And it seems like none of these effects really get added together in terms of thinking about the risk of the overall business? And, the second part is just when I look at the loan growth, which was I think 1,000,000,000 for the year, you're saying that you consumed about 40 basis points of capital for that. That feels like a pretty high capital costs for a pretty small amount of lending, round about 100% risk weights. So is that, what's driving that? Is that just because the stuff that's rolling off is very low risk weight? Or is there something in there that we can't see? Thanks, David. So, Andrew will respond again on on on margin and and capital and risk weights, but if I can just make a comment the the the competitive environment in the UK. So, obviously, the UK mortgage sector is is is particularly competitive. Back in our Investor Day, we would have signaled our our our intentional shift away from the sort of lower LTV, re mortgage, business, which is is is very crowded and focusing on on more niche lending and and higher margin segments. And that pivots and niches exactly what we've been doing. So our re mortgage flow is now about a third of our business. That is down, from what was 36% and it's certainly less in the market. The market is closer to about 40%. And we've seen an increase in our first time buyer business and our focus in the niche space, we did some tests and learns around later in life and, family link type propositions. We're now generating some good early business from, more tailored bespoke solutions, for for customers. So the the focus is on building out more in the higher margin, niche space and also on retention of our of our existing book and and improve use of technology to maintain our business. Andrew, do you want to put more NIM and capital? Sure. Yeah. So maybe, well, just if I go and touch on on the capital piece, I mean, just just to deal with the piece around 40 basis points David first. So, clearly at the time of Investor Day, we said we needed to invest or we would expect to allocate about 200 to 250 basis points across the three and a half years. As expected in year 1, our corporate loan portfolios, which include obviously corporate Ireland, but also corporate U. K. And our international leverage acquisition finance businesses have been strong drivers of that 1,000,000,000 growth in our in our balance sheet and that's as we would have expected So those asset classes will clearly attract higher risk weighting than for example you know UK mortgages or Irish mortgages and despite the your comments And so over the next couple of years, clearly, the overall growth in the portfolio, the 20% growth in their balance sheet that we signaled will be more evenly spread by the time we get to 2021 and therefore that will feed in that into that piece. So the 40 basis points it reflects some kind of mix change in the balance sheet just around the what's happening in terms of the redemptions and new drawdowns, but it particularly reflects the fact that the growth in our balance sheet is more concentrated to the corporate portfolios which have attracted higher risk weighting. In terms of more generally in terms of the capital stack, David Again, we try to set out, on again, just for reference slide 51, what the various components of our capital stack are And we call out on that page the fact that the outcome of the EVA stress test last year and you know, clearly, was an improvement in terms of our, our ranking. That's not unexpected given the investments we've made in strengthening the resilience of the balance sheet. Reducing the level of NPEs, further sustainable profits, less volatility in the pension, for example. And so the outcome there is very is very very reflective of the progress we've made over the past couple of years. And we saw that then translate into a material reduction in our Pillar 2 guidance quite apart from the separate adjustments to do with the capital conservation buffers. So that reduction in PTG and I appreciate we don't give you the disclosure on that piece. Because of regulatory preference. But that, you know, that is a, an unimportant sign in terms of as you think about the capital stack. Clearly, when you look at something like P2R, for example, you know, the range of what the P2R could be is between 1 and 2.25%. We're at the top end of that range at 2.25 percent today and certainly when we look at other organizations that we might regard as being at a sort of a similar pace to where we're at could our P2R come down by 50 basis points plus or minus I think over the next number of years I think that's possible. Clearly I can't guarantee that to you because that's a decision for the regulators. But certainly when we we're going to continue to invest in strengthening the balance sheet continuing to reduce our NPEs and certainly our expectation is that that will get reflected in the capital stack over time. And so I think that's their their kind of the questions on the on the capital side. Okay. Thank you very much. Thank you. We'll take another couple of calls on the line then come maybe come back into the room. Yes. Our next question comes from the line of chancellor Yoon from UBS. Please go ahead. Hello. This is Chancellor from UBS. I want to ask two questions, please. So firstly, on margins again, maybe in a different way. So Slide 19 states your 2016 NIM guidance assumes that competitive pressure in UK mortgages can be offset by other lending. And my question is why this couldn't offset compared to pressure in UK in Q4 and why you think this can do it in 2019? How is it different to Q4? And I think it's really important because understanding this will, will help us assessing the resilience of your $216,000,000 guidance. And secondly, and just to follow-up on the UK cards, your cost target of SEK 1,700,000,000 ex levy is it possible that you can do more on cost given the disposal of card book or was this disposal in your $1,700,000,000 target anyway so that there is probably little delta. Thank you. I'll cover off the, the costs and the UK cost piece and then Andrew can talk again about margin. So we could always go further than the billion, but we also want to be investing in our business. So billion is a cost base that also reflects investment in our technology and our transformation and on growth opportunities. If there are opportunities to be more efficient and effective, we'll certainly take them. For the UK cards business, there's an assumption, that we would have, we we wouldn't be, there wouldn't be in our portfolio as part of our cost reduction. So that is one of many steps we're taking to improve our cost, our cost line, Andrew. Okay. So, Chancellor, just in terms of the the margin. So, you know, in terms of the, UK competitive pressures, through 2018, you know, clearly that, that has impacted our Q4 name which obviously makes all that brings it right up to date in terms of the impact of those competitive pressures and it impacted it by the three basis points that we set out. In terms of what we've seen since that time, the the mortgage margins have been more stable in the last couple of months than we would have seen. So they've they're effectively came down to the current level and they've sort of hit a his AA level now, that has been more stable in the past couple of months. For Jessica referenced earlier, the, the fact that as part of our overall strategy as we move into other, kind of niche areas, whether it's, in terms of the lending into retirement, whether it's in terms of recently launched, tailored underwriting, you know, that will offer a, an opportunity to do more volume at the higher margin and and overall that will that will that will help in terms of cushion if there is to be further competition. We assume in terms of giving you that guidance, we don't assume any any improvement in the competitive position during 2019. And and so that's that's the basis in which we are comfortable that the the UK competitive environment will be offset by those structural factors that we that we described. I don't expect this but if this if the UK margins were to reduce by a further 25 basis points from the 1st January, until they haven't, and I don't expect it. But if that was to happen, And the impact on our group margin would be in the region of 1 to 2 basis points, but I don't expect that to happen. Chancellor. I'm just giving you that as a to give you a sense of the resilience of the 2 16 to an unexpected further compression in UK mortgage margins of 25 basis points, which I don't expect. Thanks. Very helpful. So stay on the line. The next question comes from the line of Chris Karch from Autonomous. Please go ahead. Good morning. Thank you for taking my questions. I just wanted to come back to the 80 basis points of regulatory drag that you've cited in the slides, please. Could you Do you unpack how much of that is related to regulatory coverage requirements? Specifically, you also cite in the slide the sort of calendar provisioning requirements which are going to build over time. How much of the '80 relates to that versus sort of further TRIM impact if there are any of those And is the 80 basis points pre or post any mitigation actions you can take? So for example, is the 80 factoring in potential for accelerated NPE divestments to avoid those calendar provisioning requirements That will be the first point, please. And secondly, just to follow-up, David's question really on risk asset intensity. I think you said at the strategy day, the risk intensity of growth would be about 60%. Your RWA loan intensity at the end of the year is now 62. It sounds from this regulatory drag commentary that this is actually going to head higher. So is there any change to that 60% intends on growth, or are you expecting some underlying downdraft from, for instance, improving LGGs as collateral prices improve, etcetera. I mean, I think over the last couple of years, if we haven't seen these periodic hits from higher regulatory requirements, you would have seen your risk, asset intensity declining on an underlying basis just to keep stepping back the other direction you expecting that to continue to still get down to that 60? Questions in reverse order, Chris, if that's all right. And so look, I mean, the risk weighted assets intensely security of the Irish assets are are very high and they continue to be very high and we set that out and we've we've chatted a little bit about that before in terms of in terms of where we're at. And in terms of the translation of that into the capital allocation framework, we've obviously signals the 80 basis points, but the average risk weighting over the three and a half years the 60, sorry, the average 60% intensity in broad terms that will be that will be consistent for the new lending. And clearly it's a that 200 to 250 basis points and covers a range and it also reflects our expectation that the loan growth will come from right across our business. I think we said at Investor Day that about 2 thirds of that loan growth will come from Ireland. And a third from overseas. And that's what we would expect by when we come to the end of 2021 and we see that loan growth that will be in that space and in a broadly in that risk weighted intensely. I'm not changing any guidance associated with that. In terms of the, in terms of the 80 basis points, and obviously there's the, as you, write your point out, you've got the 80 basis points and you've got the impairment guidance of 20 to 30 basis points and you know that we've guided at Investor Day and that we repeated today, no change. That is designed to cover all aspects of regulatory initiatives that are underway. So there's covers all of those It doesn't cover any extra mitigation, Chris over and above what we would be projecting part of normal reduction in NPEs over that time frame. So within my 3 year projections, clearly, I expect the NPEs to continue to reduce further. And we've factored that into the calculation of the 80 basis points but we haven't, considered further or extra mitigation, above that. As we, as we respond to the evolving framework And so that's something that of course you'd expect that we will manage over time, which of course you will. And I think we need to sort of stand back from this Ultimately, our capital today is at 13.4%. We talk about the fact that we'll have in excess of 13%. We're very comfortable with that. We talk about the dividend in terms of how that will trend, again, no change in terms of what we've guided to previously. And we talk about the fact that we're very focused on delivering the RoTE of in excess of 10%. So all of those kind of 3 so they all have to get triangulated in terms of ensuring and supporting our complete focus on delivering on our commitments as we've set them out. Why don't we take one more call, and come back into the room, and then we'll get back to the call line if there are more. The next question comes from the line of Andrew Coons from Citigroup. Please go ahead. To loan growth. First on interest margins, I think we've covered the competitive angle in significant detail, but on MREL, you're guiding to only a one basis point hit I thought it might be a bit larger than that. So could you just elaborate on your 2019 issuance plans and also just remind us what the coupon was on your August and September issuance? 2nd question on loan growth. You've obviously reiterated that the targets for retail Ireland retail UK. But I know there's no quantification on your loan growth expectations for 2019. You have outlined, you do expect net loan growth, but given some of the things you've mentioned, the accelerated NPE rundown, You've got your UK credit card book to come out. You've got the ongoing tracker roll off. Should we expect muted growth in 2019? And then my final question, which is attached to that, is given some of the extra regulatory capital hits you flag today, what do you prioritize now? Do you prioritize hitting those growth targets for 20% in retail and the 10% in retail UK? Or do you prioritize the progressive dividend? I know you'd obviously like to see both, but which one's the priority? Okay. Andrew, do you wanna go first on NIM and MREL? And I can talk about sort of prioritization of what's important to us and our loan growth outlook. Okay, great. So, yes, we've set out, on the, in the, in the document Andrew, what our MREL requirements are going to be in terms of the next number of years. So our target effectively represents about 20 point 4 percent of RWAs. The reference date for that is deck 16. So that comes out at about 13,300,000,000. So to hit that, our MREL issuance is in the region of 1,000,000,000 to 1,000,000,000 per annum and that's what we would expect that MREL issuance will be issued out of Holdco rather than out of the, rather than out of the, Gulf Coast, entity. And from memory, the recent issuance that we did back in August September was in the region of 4%. Okay. So on, on our low bit growth, so we would have stated very clearly in our our strategy day, our ambition to increase our, our total loan book to 90,000,000,000 and by the end of 2021, wasn't a top down target. That was a summation of the opportunities that we saw in retail Ireland, in our UK business and in corporate banking. We are the leading lender in the fastest growing economy in the European area. So we feel, confident about our positioning and our franchise in Ireland, corporate banking, very strong franchise again, and a key focus on supporting home building in Ireland, where we see given the supply demands, dynamics good sustainable and domestic demand for house building in Ireland. And in the UK, we I've talked multiple times about the strategy of of improving investing and reshaping, the improvement and the investing will generate, and we're seeing that come through in some of our our consumer lending improvements in the UK that would also generate, loan book growth. Are we're not chasing volume. When we look at the, what what we prioritize terms of our lending decisions, it is risk, and return and then volume, but we stay committed to the targets that we set out relatively recently. That was when we knew about Brexit. It is predicated on some sort of Brexit deal happening, our our macroeconomic forecasts, our consensus views that also carry that assumption of of a some sort of deal with a reasonable transition period, coming through, but we stay committed to the that end state, and we as I said in my opening, our outlook for 2019 is costs going down and loan book continuing to grow. And just more broadly, when we prioritize, you know, what's important to us, obviously, low book growth, cost reduction, NPE improvement, all very important, but ultimately are seeking to, meet our ROCE commitments that we made back in June about being a roti over, over 10% and and that is our focus. If that that should support and it's a matter for the board, support the continuation of a progressive and prudent dividend policy. And why don't we come up to the room? I have three questions. Good morning. Pierce Byrne, Contra Fitzgerald. Two quick questions, Chandra, for you. If, have you seen any what impact have you seen in the widening of negative rates, on your deposit base? And do you expect your loan deposit ratio to continue to trend lower in FY 'nineteen? And then maybe just in terms of your kind of wider funding plan for, FY 'nineteen. Have you any thoughts on how the impact of a new cultural program by the ECB may impact your funding plans given the capacity that's already on the balance sheet? Okay, Pierce. Yeah. No problem. So look, I mean, like our liquidity position is, is very, very strong, in terms of the, the in the in the year just completed, we've actually repaid a big chunk of our TLTRO. You can see our level of wholesale funding is is very modest in terms of the piece. I mean obviously we have a loan to deposit ratio of just at 100% just under 100% today. They, and so issuance was really going to be done for MREL compliance purposes rolled down for funding purposes. Clearly in terms of the negative rates piece. That really reflects the fact that if we have surplus liquidity then we earn negative rates when we place that money with the central banker with other institutions. And so really we're just having to pass that on to a broader range of customers today. We haven't seen material sort of shifts in relation to that. We set the said those prices taking a very clear account of what's happening from a liquidity and funding perspective, but given the strength of our liquidity and funding position, that's not something that we've been happy to make the decision to both increase the level of negative rates and then to broaden the scope of it. In terms of our loan to deposit ratio, clearly we deferred the loan to deposit ratio went north rather than south. That's what our focus is in terms of growing the terms of growing the balance sheet and we will obviously expect to grow that balance sheet in 2019. And so within that context, we'd be comfortable from a risk appetite perspective for the loan to deposit ratio to be higher than 100, 100% LDR. I know a number of years ago, there was a, a regulatory target of 122% I'm not sure we'd be comfortable back up at that level, but certainly, I mean, the loan's deposit ratio could drift north to a 100% I would say to 110% or even a little bit higher if we make sure that we fund the extra 10 percent through long term wholesale funding. We don't have any appetite for short term wholesale funding. And in terms of if there is to be a further TLTRO in 2019, again, that's a matter for the ECB. We'd obviously evaluate that in terms of the trade off between liquidity and capital in relation to that. But given the strength of our liquidity position, we'd have to look at how we would manage that in terms of the cost of the various funding sources that we would have. So you'd expect us to do that in the normal course. Other questions in the room? Steven? Thanks. Good morning, Stephen Lyons from David. Just a couple of questions for me, please. First of all, just unexpected losses, there was quite a significant increase expected losses in regulatory capital during 2018. Just maybe if you could illustrate what were the actual drivers of that and across what portfolios And then secondly, just on the NPE slide, you've got that comment around Shrep guidance on coverage levels. Maybe if you could just give a bit more specific detail on what are those desired coverage levels over what time? And also did I interpret correctly earlier on when you implied that that was maybe part of your 20s 30 bps guide or Is that separate? Thank you. Okay, Stephen. Yeah. So, so the increase in expected loss, Stephen, will be particularly impacted by the Irish mortgage book effectively TRIM affects both the risk weighting for mortgages, but also the expected loss of total capital treatment that we've called out impacts on both the RWAs, but also the expected loss and that's been a particular driver essentially the way I mean, you'll be very familiar with this in terms of and if our LGRD goes up with the exports the OWA calculation but also the EL calculation. So the predominant increase in expected loss would be linked to the TRIM on Irish mortgages. In terms of NPEs, And you know, so certainly the the SHIP guidelines effectively are that between now and the mid to 2020s, so call it 2025. The guidelines from the regulator is that the coverage ratio for secured and unsecured loans would increase to effectively for an NPE that was seven years old on the secured side would have to have 100% coverage effectively you need to get to a coverage level of about 50% by the by 2020, 2021. That's sort of a zone and then effectively increase that 50% level of coverage up to 100% by the mid-2020s. That's through the secured side and then our unsecured and it's you need to get to a 100% and a coverage again, but at an earlier date, there's like a a 2 to 3 year timeframe And when we look at our, our guidance, which covers both the impairments charge plus the 80 basis points of capital, and that will cover, all of those 2 together will cover all of the impacts from the various regulatory engagements and initiatives that we have and whether it's on the impairment guidance or whether it's on trim, our own definitions of default, our IRB models, guidelines, etcetera. So we've done a complete scan of the horizon to see what everything is. And we've estimated for you what the impact of that will be and over the next 3 years effectively that comes to the 80 basis points plus the impairment guidance that we're sticking to. And just from a timing perspective then, so while the 80 basis points takes us all the way to December 2021, we expect that that 80 basis points is likely to arrive based on the timing of those range initiatives partly in 2019 and partly in 2020. But there's nothing waiting for us to enter 2021. And and just to complement that, that that evolution of regulatory thinking on MPs is what's informing our stance on having all options on the table and and working hard to, to to progress that and giving an update to the market soon. Okay. Let's go to, the phone lines. We have 3, 3 more questions. Thank you. Your next question comes from the line of Aman Lacara, Barclays. Please go ahead. Good morning, Franchesca. Good morning, Andrew. Thanks for the call. Just two questions, if I may. Just a bit more detail on the Irish mortgage market this year. I was interested if you give us an overview on pipeline into Q1 and kind of what your expectations are for that specific part of the that part that market in 2019 in terms of gross lending and your experiences on redemptions would be useful. And the second question is, just to, to, interrogate your 2021 targets, it sounds like you retain the commitment to reach a greater than 10% RoTE target, but it sounds like 6 months down the line, the income environment's a bit more challenging than you were expecting. Just interested if you could update us on basically how you think things are progressing. Do you think that's a fair characterization of things income perhaps a little bit worse the outlook than you were expecting beforehand. It sounds like you've got some costly Paul. And it just sounds like you retain confidence in conviction in your targets. I was just interested for your thoughts there. Okay. Thank you. So, in Ireland, in terms of the, the mortgage market, we've got the the supply the supply demand dynamic that we've talked about, at a length previously, we see increasing demand for housing, and that not being necessarily met by supply. So you need to have a supply of around 35,000 houses per annum to to meet the demand of just domestic, demographic change and and population growth, we don't see that that, demands being met until about 2023. So between now and then, you'll see that increased focus and a bit of pressure on on on pricing in both the Irish mortgage market and also rental markets. Our outlook and this is broad consensus is that there'll be about 23,000 new residential units coming on stream in 2019 mortgage, sorry, house prices increased by about 6.5% last year, predominantly actually outside of Dublin. The consensus view is that we'll will continue around 5% in 2019. Our our focus is very much on the fixed rate offering. We see that Irish consumers like the certainty of fixed rate mortgages. We've been very consistent in our strategy, and we are offering fixed rates when, it was maybe 30 odd percent of the total market, and that's now significantly increased and indeed 92% of all of our new mortgage business is, is fixed rates. Pricing is a factor, so is distribution, but also other elements, whether that's cashback, or flexibility or portability, and those are areas that we're all, highly competitive on. Just more broadly on the the sort you know, how how committed do we are we to the strategy we set out 7 months ago? We continue to be committed to that strategy the, the, the, our outlook, I mentioned this before, is predicated on, the GDP growth that is Sheen Island is more positive than it was on our Investor Day. So, GDP growth for Ireland is 4.5% for 2019. It was 3.6% back in June. So, the outlook for Ireland is is more positive. In the UK, it's it's very similar to what it was back in June. But both of those GDP outlooks are predicated on some type of deal being done on Brexit. And 90,000,000,000 is not the North our target, our roadies. We feel a summation of all of our competitive positions and just broadly maintaining market share and in our current franchises, given GDP growth and market outlook, would get us to 90,000,000,000, but we don't chase that volume. We will look at returns and the risk aspects of those, but right now we are seeing positive low book growth in 2019. I mean, I think just to support that, Francesca, I mean, ultimately, you know, so of course, the, the margin, guidance terms of the UK and competitive pressures there, we've covered at length. And so in terms of your characterization amount, you know what I mean in terms of the net interest income, in the near term, that might be a little bit tougher. You know, offsetting that, you know, we've had a very good performance in our Wealth And Insurance business, where high conviction around costs, etcetera, I think they're all as well as the way I think about them and the way we think about them is that they're all effectively inputs into the RoTE target. And that's the target that is absolutely paramount and that's the one that we're very focused on delivering that in excess of 10% by 2021. And all of the other inputs into that, you know, are things that we're managing microscopically as you'd expect. And if for reasons outside of control, we didn't see that low, but growth come through will pull harder on the levers that we do control in particular cost. Okay. We've got 2 more calls on the line. The next question comes from the line of David Wong from Credit Suisse. Please go ahead. Questions. I just had one question really. I find it interesting that you're about your expectation of actually Orange Mortnages will reprice, I guess for the next couple of years. I mean, I guess my question is that in the context where you've got house price growth, slowing down. How much do you think mortgage credit coming more expensive over time would actually impact the growth and recovery of the Irish housing market, that would be my question. Many thanks. So, David, I mean, I think ultimately in terms of the driver of the, of the mortgage market, you know, clearly is the demand that demand as Francesca has said is in the sort of 35,000 to 40,000 units per annum. And clearly there's been a, you know, while the good news is that we increased as a country. The production of new homes to about 18,000 last year, you know, it's still a long way short of of what's required by about 50% over the next couple of years to 2021. And we expect to see the mortgage market which in total in 2018 was about 1,000,000,000. We see 50% growth in that market over the next 3 years that's the key driver of the, that's going to be the key driver of the volume in the mortgage market. In terms of the price of mortgages, I mean, the price of mortgages clearly has to reflect both the risk, the return on capital as well as the input costs to that mortgage. And so from that perspective, clearly the amount of capital that our regulators wishes to hold against the mortgage book have increased over the last period and we've seen that and we've discussed that at length. And that's what feeds into the price adjustments that we announced recently and our expectation our expectation over the next period. Do I think that that price adjustment is going to is going to in some way dent the growth in the mortgage market. I certainly don't believe that because the underlying drivers are much more linked to the demand for homes and housing, that's the key driver. Yeah. I would just add to that. I mean, you you mentioned David's house price sort of slowing increase slowing down. I mean, it was 6.5% last year. Market views, it would be about 5%. So it's still an increase and probably a lot of first time buyers would welcome that. And I think that's a reflection of supply coming on stream plus an intentional device from macroprudential rules to, to to to make sure that the growth is sustainable. So I I don't think that is problematic that actually points to a more sustainable property market than if we saw price increases actually going beyond the 64.5% we saw in 2018. Thank you. And we'll take the last call on the line and then we'll wrap up with any pending questions on the, in the room. The next question comes from the line of Mark Punez from Goldman Sachs. Please go ahead. Could I just have a follow-up on the UK competitive situation and this time more from the deposit from the funding side? And I was just wondering if you could comment kind of competitive movements in the deposit side and what kind of levels you think you have in order to manage the funding costs in the UK more broader? Thank you. Okay. So in terms of, Martin, in terms of the cost of funding in the UK. There's a number of different components of that. There's obviously the rate we pay our customer. There's the cost of acquisition through through our partnership structures and there's the mix of funding that we have, you know, the mix between deposits different types of deposits and, wholesale funding, of which we have very little, right now. And so one of the things that we look to do of course is to optimize all of those levers and to optimize and reduce the cost of raw materials that feeds into our lending in the UK. Clearly within the broader market, we're mindful of both the surface of liquidity that certain of the ring fenced banks have in the UK and the effect of that in terms of the deposit market. Also the the withdrawal of TFS from the Bank of England. Again, that's something that is that is in our mind. And what we're what we're looking to do all the time is to improve the returns we're generating on the lending in part by looking at the rates, we have to charge our customers, but also in terms of the input costs and the totality of that cost of funding which as I say is dependent on the mix of that funding. It's dependent on the rate we pay to our counterparts and it depends on the cost of acquisition through our or a successful partnership model. Do we have any more questions in the room? If not, we'll bring the session to a close. Thank you very much for your attendance and questions and see many of you very soon. Thank you.