Earnings Call: H1 2018

Jul 30, 2018

Good morning, everyone, and thank you for joining our 2018 interim results presentation. This morning, I'll give an overview of some of our key highlights for the 1st 6 months of the year. I'll also give an update on how we are performing against our 3 strategic priorities. Andrew will then take you through the financial performance in a bit more detail. In the first half of this year, we have made good progress in the pursuit of our ambition. That ambition is crystal clear, so be the National Champion Bank in Ireland with UK and Select International Diversification. And it is underpinned by the strategy that we set out recently at our June Investor Day. To unlock growth in our Irish business and grow our loan book, accelerate and broaden our multi year transformation program. Increase returns in our UK business and meet the financial targets we have set ourselves. Turning to our H1 2018 highlights. The group's profitability has increased, supported by growth in our loan books, a reduction in our cost base, improvement in our asset quality, leading to strong capital generation, taking each in turn. We are reporting a strong financial performance with underlying profit before tax of €500,000,000. We have grown our net loan book by €500,000,000 while maintaining commercial pricing and risk discipline. We've seen strong growth in Irish mortgages and in our UK Mortgage And Consumer Business. Gross new lending volume of 1,000,000,000 were 16% higher than the same period last year. We've also reduced costs by 3% when compared to the second half of twenty seventeen. Our target is to reduce costs each and every year until 2021, and we are on track to achieve this. Our asset quality has continued to improve. In the 1st 6 months, our non performing exposures reduced by 10% and now stand at 7.5% of customer loans. Reflecting this ongoing progress, we show a net impairment gain of 1,000,000. We've made consistent progress in the reduction of NPEs from their peak, and we continue to have the strongest performing loan book of any bank in Ireland. We are strongly capitalized. We generated organic capital of 90 basis points during the first half with our CET1 ratio increasing to 14.1%. Bank of Ireland's next chapter is about growth and transformation. The key enablers for this are our strong businesses, our proven strengths, and the attractive markets that we operate in. Combined, we see significant growth opportunities. The economic outlook in Ireland continues to be supportive. We see this through projected demographic change, employment growth, housing demands and economic expansion. Confidence is driving Ireland forward. Credit formation is now increased seeing after many years of deleveraging. Significant investment is also being made in Ireland's property market and infrastructure. This is creating real opportunities for retail, SME, and corporate lending. Each of these will continue to support our loan book growth ambitions. Increasing Prosperity coupled with a demographic shift in age profile is also driving the need for Wealth Management And Retirement Planning. Ireland is our home market, and these factors taken together indicate a positive future. As the largest lender to the Irish economy and Ireland's only bank insurer we are well positioned to benefit from current and future opportunities. As we set out at our June Investor Day, we are committed to the UK market, and our strategy is focused on increasing returns. We see our UK and international diversification as offering us additional attracts opportunities to manage and deploy our capital and liquidity. This is allowing us to develop and grow profitable new business. Earlier this year, I set out 3 strategic priorities for the group: transform the bank, serve customers brilliantly, and grow sustainable profitability. Since defining these priorities, our focus has been on making strong progress towards their delivery. I'll go through each in term. Transforming the bank means changing our culture, our systems, and our business model. And this transformation is critical because it will support Our growth ambitions, improve customer service, and drive greater efficiency. On culture, in late 2017, we announced a major reset. We defined our purpose to enable our customers, colleagues, and communities to thrive. And we started to embed a set of values with each colleague in the bank to be customer focused, accountable, agile and to workers, 1 group 1 team. So far this year, more than 6000 colleagues have attended purpose and value road shows in Ireland and the UK. Now culture doesn't change overnight, but we are seeing staff engagement levels and cultural indicators improve steadily since the end of last year. Our systems transformation is also progressing well, replacing our core banking platform is a big part of this. Phase 1 was completed in April delivering a single customer record for over 2,000,000 customers. We will also test personal loan and deposit products later this year on a pilot basis. And as I set out our June Investor Day, To further support our growth plans, we will launch our award winning UK Mortgage platform in Ireland as part of our reentry to the mortgage broker market later this year, ends our new mobile app and digital wealth channel will be launched in the first half of twenty nineteen. We're also continuing to make Bank of Ireland a more streamlined organization, one that's flatter, less siloed, a better place to work and closer to our customers. This will drive greater efficiency and is completely aligned with and indeed supports our growth ambitions. Another key priority for us is to serve our customers permanently. Customers are the core of our business and their expectations and preferences are changing rapidly. So we are transforming the way we serve our customers. We are listening to what matters to them, and we are taking action. Within our branch network, we are actually increasing the number of full service branches by more than a 160%, and we're putting more staff in the frontline, increasing customer facing roles by more than 15%. In parallel with this, we continue to innovate and invest in our digital channels. In H1, over 40% of customer product sales in Ireland were completed digitally end to end. That is up 20% on the same period last year. Our 3rd strategic priority is to grow sustainable profits. Our strong financial performance in the first half of twenty eighteen demonstrates good progress in delivering on Headline ROCE for the first half of twenty eighteen was 9.6% or 6.8% on an adjusted basis. Our target is to exceed 10% in 2021, and we're on track. Secondly, efficiency, we reduce our costs by 3% compared to the second half of last year. We are committed to reduce costs each and every year to 2021. This is to achieve a reduction in our total cost base to 1,700,000,000 of 13%. Our fully loaded CET1 ratio at the end of June was 14.1%. We expect to continue generating significant capital organically, and this capital will be deployed to support attractive loan growth opportunities to transform our systems and business model improving service and efficiency, meet regulatory capital requirements and to benefit our shareholders. Finally, we remain committed to increasing our dividend. And we'll build over time towards a dividend payout ratio of 50%. We have had a strong H1 2018 performance, against our strategic priorities, and it shows we are well on the way to becoming the bank we want to be by 2021. By then, we see Bank of Ireland as a trusted brand that has retained customer loyalty and acquired new business while enabling the success of the fastest growing economy in Europe, Ireland, a bank that has made some tough calls potential and is recognized as a progressive and diverse employer of choice and a bank with a talented team that is courageous and robust in its execution demonstrating a track record of delivering attractive and sustainable returns for our shareholders. I'll now hand over to Andrew to take you through the financial results in more detail and to give some guidance on the outlook for the rest of 2018. Thank you Okay. So thank you, Francesca. Good morning, everyone. We've had a really good start to 2018. We've grown our loan book cutter costs, we reduced our NPEs and we increased our capital to 14.1%. Over the last 6 months, we generated a profit of €500,000,000 that reflects a solid income performance a reduction in our cost base and net impairment gains and write backs during the period. Total income was 1000000000. We continue to maintain our strong commercial discipline on pricing, And our net interest margin for H1 was 223 basis points. A particular positive in our performance is the actions we're taking to reduce our cost base. Compared with the second half of last year, we reduced our operating expenses by million. That's 3% over the last 6 months. Our transformation program continues to progress. We invested million in the first half, of which million was charged directly to the P and L. On asset quality, we reduced our non performing loans by 10% over the last 6 months. And the positive economic environment and outlook is supporting the ongoing improvement in our asset quality. As a consequence, we had a net impairment gain in the first half of 1,000,000. Separately, we incurred non core charges of 1,000,000, primarily relating to the cost of our restructuring programs, which are an important part of the transformation of our business model. Turning now to the key areas of financial focus from our Investor Day growth, transformation and efficiency, and capital generation. Starting with customer lending and growth, Our loan book grew by €500,000,000 in the first half of this year. New lending was €7,700,000,000. That's 16% higher than the same period last year. Of this, we lent 1,000,000,000 to Irish customers and businesses An important driver of this growth was the increase in our mortgage lending here in Ireland. It was up over 30% year on year. And we maintained our market share at 28%. As we announced previously, we expect to re enter the broker market for Irish Mortgages later this year. And while we'll start cautiously with this, over time, it will provide further support to our growth ambitions in the mortgage market. In the U. K, new lending was 1,000,000,000, an increase of 1000000. That's primarily been driven by the growth in our UK Mortgage business, together with the growth in our motor finance and personal loans businesses. In our corporate division, new lending increased by 9% to 1,000,000,000, with growth in both Irish, and our U. K. And international businesses. We expect further growth in our loan book during the second half of this year. Turning to our net interest margin, which was 2.23% for the first half of the year. Our name of $2.23 reflects the lower yields on our liquid asset portfolio and the IFRS 9 reclassification impact certain NAMA bonds. When it comes to customer lending and deposits, our name is benefiting from the positive impact of higher margins on front book lending. As a leading bank in this market, we will continue to maintain our strong commercial discipline on pricing. We expect the NIM in the second half of twenty eighteen to be in line with our full year guidance of 2.24 basis points. Turning to fees and other income. Sustainable business income from our banking activities were 1,000,000, broadly in line with the same period last year. At our Investor Day, we set out the attractive opportunities that we have to develop and grow our wealth and insurance business. Particularly by unlocking opportunities within our existing SME and affluent customers. In the first half, Our Wealth And Insurance business contributed 1,000,000 to our business income. Moving to operating expenses, which were 1,000,000 in the first half. We reduced our costs by 1000000 or 3% compared with the second half of last year. Total staff costs were marginally lower this year. The impact of salary increases under our career and reward framework were more than offset by the reduction in our staff numbers. Other costs We reduced these other costs by 1,000,000 in the last 6 months and that's reflecting the actions we're taking to transform our business model and drive out further efficiencies. In addition, we continue to make good progress on our broader transformation program. In the first half, we invested a total of 1000000 in this program. Of this, 51000000, 36 percent was charged directly to the income statement. 1,000,000 or 28 percent was capitalized as an intangible asset. And the remaining 1,000,000 was charged as a non core restructuring cost. This strategic and multi year program will drive long lasting efficiencies and support revenue growth in our business. We will reduce operating expenses every year between now 2021 to meet our cost targets of 1,000,000,000 and 50 percent costincome ratio. Turning to asset quality. In the first half of this year, we reduced our level of NPEs by 10% to 1,000,000,000. Our NPE ratio is 7.5% and it's the lowest in Ireland. In response to recent changes in the regulatory capital framework, we'll continue to keep our successful NPE reduction strategies under review. We expect further reductions in our NPEs in the second half of twenty eighteen and beyond. This is our first reporting period under the new IFRS 9 accounting standard. Over the last six months, the group's loan portfolios have performed strongly. We achieved better than expected outcomes on the resolution of NPEs We had higher than expected recoveries from loans that were previously written off and the economic environment and outlook today is more positive than we had expected at the start of the year. As a consequence, we had a net impairment gain of 1000000 in the first half. Looking forward and absolute deterioration in the economic outlook, we expect that we will have a net impairment gain for the full year 2018. Up to 20 to 30 basis points. Moving to funding and capital. We have the liquidity and capital to support our growth and to achieve our strategic objectives. All of our liquidity ratios continue to be robust. Our customer deposits account for 100% of our loans and they are sourced predominantly through retail distribution channels. Our wholesale funding requirements remain modest. Our MREL target is around 1,000,000,000 by January of 2021. To comply with this, we anticipate Emerald related issuance of between 1000000000 and 1000000000 over that timeframe. Turning to capital. We increased our fully loaded CT1 ratio to 14.1% at the end of June. And that was predominantly driven by our strong organic capital generation of 90 basis points. We continue to rigorously manage the allocation and investment of that capital. In the first half, we invested 20 basis points of capital in supporting the growth of our loan book, and we invested 30 basis points of capital in our transformation program. With regard to the regulatory capital framework, there have been 2 recent developments. At the start of July, the Central Bank of Ireland announced the introduction of a countercyclical buffer of 1% from the middle of next year. In line with the proportion of our risk weighted assets in Ireland, this will impact us by 60 basis points. Separately, the TRIM process with respect to our Irish mortgages completed at the end of last week. As a result, we expect to make changes to the credit risk models for Irish mortgages in the second half of this year. The estimated pro form a impact would be a reduction of around 70 basis points in our CET1 ratio. As you know, we executed a CRT transaction last November to pre fund the 1st 50 basis points of this impact. And we have a range of potential options to offset the remaining capital impacts. Our capital and dividend guidance remains unchanged. The group continues to expect to maintain a CET1 ratio in excess of 13%. On a regulatory basis and on a fully loaded basis, by the end of the OSI phase in period. And that includes meeting applicable regulatory capital requirements plus an appropriate management buffer. On dividends and distribution, our policy is also consistent and clear. We expect our dividends to increase. From the $11.50 we paid earlier this year. The increase is on a prudent and progressive basis and over time, the payout ratio will build to around 50%. Our CET1 ratio of 14.1 percent at June is after making a provision for dividend in line with regulatory requirements of 1,000,000, and that's equivalent to an annualized dividend of $0.14 per share. So in summary, we've had a strong first half and we expect that to continue. As we look forward, we're well positioned to benefit from the economic growth here in Ireland and in the UK, We expect further growth in our loan book in the second half with a net interest margin of around 2.24 basis points. We'll further reduce our costs and operating expenses. We'll continue to reduce our NPEs and we'll have net impairment gains for the full year 2018, assuming there's no change in economic conditions, and we'll continue to generate strong organic capital. In this way, we'll progress towards all of our 2021 targets. So thank you very much. Francesca and I will now take your questions. Okay. So if you can raise your hand, we can go first to Damid at the front there. Thank you. Good morning. It's Jeremy Sheridan from Davy. Thank you for a very clear presentation. Three questions, if I may. We've obviously seen quite a bit of movement in the mortgage market recently with some pricing reductions. I wonder if you could possibly provide your view, of the market and how you're positioned in the context of those cuts. I suppose that kind of leads us on need to my second question around TRIM, obviously, higher than expected impact guided. I wonder when you think about that. How you believe you might offset some of those impacts in terms of bringing down the very high risk weighted asset intensity that that's implying And finally, around Brexit, I mean, we've seen a lot of noise, probably more noise than we have certainty around what the outcome of Brexit will be. I wonder how you view that against your near and more longer term strategy for particularly the UK business? Thank you. Thank you, Dimmit. I will I'll respond on on Brexit first, then mortgage, then, Andrew can can cover trim. So with Brexit, we we we always think of Brexit in three ways. 1, as, our legal entity in the UK and the impact it can have, on our UK operations. And given the UK is a ring fenced entity, it separately regulated, it's self funded by retail to granular retail deposits with a relatively low dependency or requirement of wholesale funding, we are in a a decent position as we go into Brexit We hedge our capital ratios against exchange rate movements, and I believe we are taking all appropriate steps to deal with any technical aspects of of of Brexit in terms of our UK legal entity. What exercises us much more is the impact that Brexit may have on customers both here in Ireland and and also in the UK. So it's simply to your question on the UK. We 6 weeks ago at our Investor Day, shared our our multiyear strategy, including for the UK, we confirmed our commitments to the UK market. And that was, you know, 6 weeks ago, there there was, you know, we still knew that Brexit was going to happen. We still see the UK as a market of scale, growth opportunity, and end diversification, And despite the Brexit uncertainties, we still see opportunities for targeted and disciplined profitable growth in the UK. I mean, the UK economy despite the uncertainty still has a growth forecast. So our outlook is for a GDP forecast of 1.6% in 2019. And we've got you've seen in the UK, we've seen statistics where unemployment at 4.2% is the lowest in 42 years. Earnings growth is decent and and and slightly lower inflation. So even though we set out a target to improve and reshape some of our the parts our business, the strategy that we set out 6 weeks ago is unchanged. Or economic environment, but our strategy hasn't changed in the last 6 weeks. I think what what is, a very live debate at the moment is the impact and the the the the the sentiment amongst our Irish customers. So I think consumer households in Ireland feel very positive, but it's the small businesses SMEs, but also some of the larger corporates who, we're in constant contact with to understand their individual needs, but the overall sort of consensus or sentiment. I think every time there is any negative coverage, speculation around political outcomes, around Brexit, we do see the cons the the business confidence dip. And the sort of conversations that we're having with our customers are how to help them diversify their suppliers, a lot of them are looking at alternatives to, UK suppliers potentially to avoid border or ports logistical issues, we see customers also looking at, diversifying into other European markets and maybe markets they haven't considered before. So so Brexit become a bit of a catalyst for Irish companies to look at expansion beyond the UK. And then there are some larger corporates who are actually increasing their manufacturing or their presence in the UK, as a So we're not seeing any Brexit specific credit issues in our portfolio. We haven't made any changes in our policy or strategy, but we stay incredibly close to, to to to to the matter as as as it evolves over time. On mortgages, so we We stated our aim is to be the leading supporter of home building and home buying in Ireland. We have outperformed the market in the first half. So our lending growth in in in mortgages in Ireland was 30 percent year on year. The market grew by 22%. We've held our our market share of 28%, very positively. We don't set market share targets, but we'd always expect to be in the 25 to 30% range, and particularly for think first time buyers is a very is a very important part of the Irish mortgage market. They're now nearly half of all new business in the total industry. And that's an area we have actually we've sort of over indexed in in our market share. We keep pricing under review. We've seen and noted movements by some of our competitors. We still period of of that mortgage, but we we we keep our our pricing under review. We're also looking in the sort of broader context. We see that the cost of money to banks and the the amounts or because of capital, the amount of capital that's allocated to mortgage businesses increase. So, in in recent months, So when we look at opportunities to change our our prices, it's not a folk an area of focus at the moment. What an area of focus is is is kind of improving our efficiency and our processes so that our cost and ability to originate is better. And as Andrew said, you know, broadening our distribution channels by the entry into the broker, market for mortgages in the latter part of this year. I'll pass to Andrew who's talk more on trim. Okay, great. So, Germit, as you say, the TRIM impact for Irish margins is 70 basis points. We prefunded about 50 basis points of that. So it's a little bit higher than that. But very manageable in the context of a 14.1% fully loaded CET1 ratio. I think the big the big piece from my perspective, German is the fact that this we have now clarity and certainty over this particular issue And we've had a theory, as you can imagine, we've had quite a number of our colleagues who've been working very hard in dealing with the process and the engagement, etcetera, with the ECB, and that came to be closed on on last week. And what that gives us now is the opportunity to actually focus away from the process calculations and really focus on the strategic issues, how much capital have we invested in our mortgage NPEs that's significant amount of capital. And so there are very clear opportunities that we want to start assessing now that we have that certainty and that clarity and that's something that we'll be taking forward as we go through the next number of months. Thank you. Next question I'll go to Owen. Thank you, Owen, from Investec. Just three questions as well, please. The first one on MPs, I know you said that their, MP reduction strategies will be kept under review in response to the associated evolving regulatory capital framework. I was wondering if you could maybe give us a bit of color on what you're thinking of there and maybe which options maybe higher up the part of this than others and also maybe how that interacts with the previous answer you gave on TRIM and obviously the increasing regulatory requirements, around capital. Secondly, then on dividends, obviously, you've accrued a certain amount of capital against a full year potential dividend and you've said that's $0.14 on an annualized basis. Should that be the sort of guidance without asking you to preannounce the full year 'eighteen dividend today? Is that the sort of guidance that we should be looking to build in the full year. And then, finally, on costs, obviously, if you look at this year on year, you know, it's about 1% lower if you look at it versus the second half of it's about 3% lower. And then obviously, lots of those cost cuts would have only been arriving midway or towards the end of the period. So how much of a tailwind are we starting to see build there that we should look to really start to kick in in the second half of this year and even into 2019. Thank you. Thank you, Owen. So I'll cover our NPE strategy and and and Andrew, can talk one on the dividend. So on our MP strategy, we've, as you know, we've had a very successful strategy over the years in reducing our MPEs. We've reduced more than any other bank, down nearly 75% versus their peak. Our arrears performance simply mortgages is four times better than the wider industry. And, you know, we have another 10% down. So we've gone from 8.3% at the end of last year of NPEs as a potential total book to 7 point percent. So we're well on route to get to the 5%, at or below that we would like to. We would if we carry on with our existing strategy, we would expect to to get sub 5% in the next 18 to 24 months. And and that has that has worked well to date. But to be honest, the question and the debate right now is is less about our ability to get below 5% NPEs, and it's much more about how we deploy capital in a, in a optimal way to support our broader growth and transformation strategy. So the reality is that the amount of capital that we're required to hold against our nonperforming exposures is significant, and it is rising. So this real incentive to get to the 5% as soon as possible. You know, when we when we look at our capital, it can go in one of, you know, four ways. It can be used to invest in new lending. And to support our business and personal customers and corporate customers, particularly in Ireland. It can be used to in our transformation to make us more efficient, improve service, and and and, transform our business models, it can be used to meet it must be used to meet regulatory requirements, and then, finally, the reward of our our shareholders by paying a dividend. So within a finite you know, set pool of capital if one of those factors, so in this case, regulatory requirements increases then it reduces the amount of capital that we have available for the other 3, you know, important strategic pursuits. So as a consequence of that, we have change our wording from saying no no, no immediate plans to being open to, to all capital is not free and there's a cost associated with it. We have to be optimal in the way that we manage it. So we are looking at and considering all options. Nothing is off the table in terms of how we further reduce our MPs. In in terms of costs, so I think we're pleased with the progress we've made in the first half. So 1,000,000 down, 1,000,000 or 3% less than the second half of last year. And that's been achieved at the same time as some of the cost lines have increased. So the career reward framework, the salary increases to our more junior colleagues has gone up by 2 a half percent, and we also are funding or paying for the additional depreciation for transformation in previous, in previous periods. So NESNET, we we've still managed to, have a more cost efficient base in the first half. A lot of that is from better negotiation of third party contracts and and better sourcing strategically. But we also have seen some of our our our employee numbers reduce. And our outlook for the second half of this year is that we would expect operating expenses including transformation to further reduce in the second half. And then annually, we we sit with our guidance still quite recent around our our annual cost reducing every year from 2018 to 2021. Free fees and levies will remain more or less in line with the full year, 2017. So that's around a €100,000,000, and the transformation spend of about at €475,000,000 per annum are typically to to to continue, but our outlook is positive in terms of meeting cost income ratio of 50 percent in 2021, reduced cost year on year, and getting to that 1,700,000,000 cost base in in 2021. Okay. Maybe on the dividend, Francesca, I know you won't be disappointed. I'm not about to pre announce the full year dividend board security. That's a matter for them to to look at at the turn of the year. And I I suppose at this stage in the year, we do have a regulatory requirement to make a deduction for a dividend, foreseeable dividend. And that that deduction, the quantum of that deduction must be consistent with our policy. It has to be an increase in last year, prudent and progressive associated with that. And that's that was what when the board and I were discussing this, we said we'd put in the $0.14 per share as a is a level which was consistent with that piece in line with the requirement from a regulatory perspective. The decision around the full year dividend will be made at the full year. It will be around that time, and it'll be very much consistent with our dividend policy, which is you know, you know, again, very consistent and very clear, which is that it will be a higher dividends than last year. It'll increase prudently progressively And we the the board is not on their philosophy to hoard, excess capital to the extent we have excess capital. We'll deal with that. That's what our policy is. It's very clear in terms of that piece. And that's what we'll the the board will use as a framework for making the decision at the, I am, at the year end point. David. Yeah. Ehmond Hughes and Gilberty. Just three, if you don't mind. Francesca, can I just pick up just the business lending number? It looks like it was kind of flat to slightly down. So what I kind of tied out, I can see your earlier comments around brags and maybe implications on Irish customers. Secondly, just on deposits, maybe Andrew on page 31, that great slide that has all the detail. Your UK deposits and C and T deposit costs were up. Is that a base rate impact from tail end of last year? Or how should we think about the exit rate at June? And maybe kind of trajectory over the next 12 or 18 picking up, particularly in the Capital Markets Day, you talked about those costs potentially going down. And then finally, just on page 40 on the capital detail, you have kind of flagged kind of the profile over the next number of years as soon as you throw in a PTG there as well. I'm just kind of picking up on the earlier comments around comfort 13% CET, which is great. But again, maybe should the countercyclical buffer in time continue to tick up? Would that be something that could be under review? Okay. Let me just, quickly cover off the business lending, and then I'm sure you can go through, there's a few questions. So you're actually right. SME lending, was €1,400,000,000 in the first half. That is 6% down versus the same period last year. And what we've seen is, just the couple of good things in that you've got a growth economy in a lot of businesses, our cash generative and they don't necessarily need to borrow, but also that's combined, with some concerns or reticence around the impact of Brexit. And we've seen after, I think we had the the regular pulse that we do with our business customers we have sort of 23 month high. And then the last, in the last month or so, we've seen a dip. And and that is quite volatile, and that is very responsive to coverage of economic or political scenarios. So we continue to support our customers during those periods, we believe that over time, assuming that there isn't a incredibly hard or disruptive Brexit that the normal credit formation will continue to grow, in in SME lending, but at the moment, we are seeing a a little bit a little bit more softness in that confidence and customers deferring some of their decisions, to to a bit later in the year. Okay. Amin, just to cover deposits and then capital. I mean, deposits, I mean, what you what you've highlighted is is exactly correct. I mean, this the, the growth rates we pay to our customers. And so there is, of course, a base rate impact in relation to that. As you know, when you look at the, the, the, fact of interest rate rises, you see the benefit of that coming through the asset side as well as a slight tick up in terms of the actual growth rate we pay to our customers. But ultimately interest rate rises in the UK and we'll see what Mr. Kearney does later on this week. They're an opportunity for us to widen our margin in the in the UK and that will come through repricing of the asset side and, you know, some more modest repricing on the deposit or the liability side you know, our focus, as we said at the Investor Day is to increase and continue to increase the margin in our UK business and to support the doubling of our RoTE from low single digit to high single digit. And clearly, that's a lever that we have available to pull. In relation to the capital, as you say, the slide sets out what the, trajectory of our our capital is, the pillar 2 guidance is it's not disclosed, aiming in terms of that was in line with the regulators preference. As we look at our capital target, I think we've been very clear this morning that we continue to expect that in excess of 13% is the appropriate capital level that we would have. That's obviously on a regulatory basis, and we're vaulting over that piece, but on a fully loaded basis as well. And by the end of the period. And of course, we're at 14.1% today. And even if you pro form a the 70 basis points of TRIM, we're still significantly above our our our target capital level. There are, as we go through the next number of years, there are, pluses and minuses that might happen to the regulatory capital requirements country cyclical was introduced this year, perhaps if the economy continues to develop and grow as we would expect over time, could that increase, we'll have to see what happens in relation to that. I mean, it was it was when they announced 2 or 3 weeks ago, it hasn't applied yet. So, you know, we'll see what happens On the other side of that, I think our, we, you know, we would have an expectation that when you look at the continued development of the bank and the business and the over the next number of years as we continue to see the effectiveness of the hedging on the pension side and less volatility associated with that. When we see, you know, continued years of sustainable profit, and, I suppose, in particular, when we see the ongoing progress that we're making with reducing INPs and getting down to that level, you know, we would see, an opportunity for some of the regulatory capital requirements in terms of PTG, etcetera. To, to, abate and to come down. So when we look at the, you know, the potential for pluses and potential for minuses over the next number of years, Eamon, you know, we we continue to believe that the in excess of 13% is the appropriate capital target for us out to 2021. And and of course, you know, as as the different range of regulators make their decisions on a on an annual basis, you know, we'll continue to keep that, keep you folks on that. But right now, when we look out over the period 2021, we would think that in excess 13% is indeed the appropriate target. Thanks, Andrew. We still have no questions on the conference line, so stay in the room. Please. Good morning. Pierce Murray, Country Fitzgerald. I just have two quick questions. One on loan growth given the positive start to the year and a couple of tailwinds into the second half of this year. Is there any change to the guidance for net loan growth? And second question, you've touched on a lot of it on Eamon's question just around deposits. The, on a kind of a longer term timeframe, how do you view kind of the slowness of the ECB to react to rate rises and how is that going to affect deposit strategy going forward. Mean, look, I mean, ultimately, the the decision of DCB are are clearly for DCB, and they have their own processes for for making those. You know, I think from from our perspective, And, you know, we have to deal with the interest rate environment that's in front of us, you know, in that to rate rises in Eurozone have been kind of manana, manana, euros made for a long period. And I think our own expectation, I think at Investor Day, we set out very clearly that we don't expect the interest rate rises to happen in Europe until the very back end of 'nineteen, maybe not even until 2020. And that's the type of environment that we're expecting. And clearly, if rate rises were to happen more quickly or were to happen more quickly, more at a faster pace. And over the next couple of years, that would be a positive from our perspective. I mean, like all retail and regional and commercial retail and commercial banks, we're leveraged higher interest rates. And we set out some of the usual sensitivities in the appendix to your slide deck this morning. Rate rises, we will generate more margin and more revenue but that's not something that we're focused on today or we are focused on is continuing to grow our loan book, which we think will help our margins given the attracting us to fund book margins and executing the other aspects of our strategic transformation. You know, but certainly from our perspective, When it feeds into the overall margin, we've had a number of years where we've had the very strong and continuing commercial focus we have on the asset pricing side, the very significant work we've taken to reduce our cost of money over the last number of years. Let's call that kind of phase 1 if you like our margin story. If I look at the next phase of our margin story, I think that it's much more likely in the next couple of years to be driven by loan book growth. You know, and we've covered some of that. And then beyond that, you know, maybe as you get out into the later stages of our plan, there is the potential for interest rate policy changes to have a positive further tailwind effect to our margin at that time, but it's not something that we're factoring in in the next 1 to 2 years. On loans, there's no change to guidance. So we set out an investor day, a 20% increase in our total loan book from 70 to 90,000,000,000. Today, we're showing in the 1st 6 months that's increased by, 500,000,000. We always said that wouldn't be a sort of flat line. It would be more back ended as normal credit formation comes through, in Ireland. So we we exactly where we would have expected to be, and we're confident, subject to obviously, the external environment, that that will continue to grow, in the latter part of 2018, partly because of as a seasonality, particularly around Irish mortgages where you always see more business coming through in in in the second half. Up. We have some questions on the line. Can we go to the conference call, please? From Alastair Reins, Bank of America. Please go ahead. Thank you. Good morning. First, just a question on seasonality in your second typically a bit faster than your first half on volumes. Can you give us any sense of how that's playing out this year, please? Second, I mean, the regulators dropped a number of things on you that you hadn't expected at the beginning of the year and we hadn't account cyclical buffer the size of the trim. Are you aware of anything else they've got going on at present? I know they picked up can cyclical buffer out of nowhere, but Is there anything more on that side? And finally on the UK, just on mortgages, it's been quite a difficult market in the first quarter, better in the second quarter. Could you give us a sense of volume and margin progress in UK mortgages? Please. Thank you. Okay. Thank you very much, Alastair. And I'll I'll ask Andreas Giffer, so there's a full question about, yeah, regulator. So look, we choose, Alastair to work in regulated markets. I guess you guys choose to cover regulated markets and that comes with the with the with the number of features. You know, I mean, like ultimately, I suppose we've we've set out, in the slide deck on page 40, the full range of the, different components of our regulatory capital requirements and, you know, who sets them and what frequency to set them with and the sort of ranges and where they how they might evolve. And that's really to try and sort of help people, you know, in terms of of the essence of your question. Certainly, countercyclical, I think we would have been thinking about the fact that, obviously, when the UK introduced their countercyclical buffer, that might be something that Ireland would look to do Did it happen a little bit earlier than we thought? It probably did, but ultimately over the thinking about the the multi year period for our strategy, you know, I think it's it's kind of very much in line with what we expected. Trim. You know, I think we've been working through the trim process for, you know, quite a period of time. I think we had done the pre funding for 50 basis points it came out at 70 a little higher than we expected. As I said earlier to Dearmid, I think the key thing for me is that we now have clarity and certainty in relation to what the trim impact is in Rx mortgages. And that allows us to switch your attention and focus away from the process and the calculations and much more towards the strategic allocation of capital that we have to our NPEs And as I said, maybe at the start of the answer, we do choose to work in regulated markets and we have to, we have to just learn to adapt and deal with happening from that perspective. You know, certainly as we look at all the information we have today, you know, our our capital guidance is unchanged. It's the excess 13 percent I spoke to Eamon about. And in terms of our dividend and distribution policy, that's entirely unchanged. You know, from what I would have said to you previously. So, you know, hopefully that gives you some comfort in terms of the of the, excitement that we've seen over the last number of months. Okay. Alastair, on seasonality in the Irish market, particularly in the mortgage market, I mean, I can't, so give you a a firm projection, but typically the second half, particularly around mortgages, and given the dynamic of the Irish mortgage market, we would expect to see more volume coming through in the second half. Also, we have a good pipeline of business. We're looking at ways to better manage that pipeline through better processes and and better service to customers. So it's not just about price differentiation, where we do have very competitive offering, but there's opportunities for us to get better at reducing the the cost of origination the shareholder, but also improving the experience for the customer. We'll also be entering the mortgage broker market in the latter part of of 2018. I don't think that's going to have a huge impact in terms of volumes or or market share, at the entry point, because it'll just be towards the end of the year. But it will and I've entered a broker market before. You don't wanna go too and and and at the very beginning, but that will be a, a gradual opening up of a channel, which it's becoming more and more important in the Irish market. So the broker market is now about 22, 23 percent of the total, mortgage market in in Ireland, and we obviously want to participate in in in that part of the business. In terms of U. K. And specifically U. K. Mortgages, I mean, this is a fiercely competitive market. You've got 65 lenders and 5000 products on the shelf in in one shape or form, and our focus is to reposition away from sort of the the mainstream re mortgage market where the competition is particularly intense and focus on some of the underserved segments, particularly first time buyers, We've looked at sort of later in life offers as well and some very profitable niches, which don't don't necessarily, you know, they don't they're not the focus of the larger scale High Street Banks, we are strictly controlled in our credit approach to to those segments. It's a well diversified book I'm I'm I'm confident about the the quality. I mean, we are in line with industry averages, in terms of lending criteria, prudent, and, you know, we're not overly focused in the the London market. It's interesting. I've looked at the sort of London market and given, commentary at the moment about London property prices, our average balance in in greater London overall is they're about £190,000 and the vast majority 94% are at LTVs below 70%. So much lower risk profile. But, we continue to compete, and we've seen some some decent growth there, but we're very focused in terms of our risk and pricing and not chasing volume. We will now take our next question from David Locks from Deutsche Bank. Please go ahead. Morning. Thank you for the presentation. I've got 3, please. First one is just coming back on your comments about non performing loans. I think you said that it would take another 18 to 24 months. To get down below the 5%. Just wondered given that one of your competitors, which has a much higher NPE balance, is targeting the end of 2019, perhaps why you're not expecting to get to the 5% level faster given where you are. I just wonder if you're inferring any kind of slowdown or kind of headwinds in reducing that non performing loan book over the coming kind of coming results periods? Second question is on other income. I know Retail Ireland was a bit weaker due to the strategic customer initiatives and solutions that you cite. Wondered if those initiatives are now complete or if we should expect some further pressure going forward. And then finally on the TRIM impact, appreciate the commentary around your look at potential measures to offset this. I guess, one of those measures could be a sale of those NPEs. Or some kind of transaction. I just wonder if you could give us roughly the income that is associated with your NPE book as it would help us work out any kind of yield on that NPE book at the moment? Okay. Thank you, David. I'll touch an MPs, but then that will lead into the trim, response to Andrew, and and he'll also cover the the the other income, particularly from, retail island. So And on on MPs, we've talked about getting to 5% between 18 24 months. That's that's quite conservative. We would expect to be if we carry on doing what we're doing and based on our experience and track record to date and the improvement we've seen in the first half, we'll probably be getting there within 18 months. That's the back end of 2019. But we have, you know, I I've I've said that we are now keeping all options under review, and we wouldn't roll out any approach at this stage. Given the additional capital that's being allocated to NPEs, which is I don't want that to impact our growth and transformation strategy. So we are looking actively and how everything is on the table. If we were to use another approach, we could get to the 5% in a in a quicker period of time. I mean, in terms of, in terms of the yield on the mortgage, the NPE for the mortgages, I don't think we give quite that disclosure, David, just maybe to help you. If I look at the mortgage book in as a whole, you know, roughly about half of it is in trackers, and then the the rest is split between fixed and variable. The NPE book would be more to be a slightly higher proportion of track in there than in the total book, and the slightly lower proportional fixed rate mortgages just because if you think about the the, origination profile of the mortgages in Ireland. So I think if you look at the proportions that are in those 3 categories from a total book and then slightly, more trackers in the NPE book, slightly lower number of fixed rates that are in the in in the NPE book To the extent we were to do any transactions, we'd give you that disclosure at that time so that you can model out what that impact might be. In terms of Beach and Ireland, you know, certainly, I mean, I think, you know, we will continue to look at the, the, the propositions that we have. I mean, I think, you know, we had a a number of particular items that we wanted to do as we We're looking at, the use of robotics, but also as part of a preparation for IFRS 9. When we when we looked at, as we were preparing for I IFRS 9, we were looking at a range of, impairment triggers that might arise. And that might be if somebody missed a a payment on their credit card or if they went, over their overdraft limit on an out of course type of way. So, obviously, within the IFRS 9 framework, the whole policy and purpose of IFRS 9 is to have you know, larger provisions and earlier recognition and to derisk, impairment triggers that might come from customers, you know, just from an administrative perspective or just they forgot to make the payment, etcetera. Rather than that, creating a trigger for IFRS 9, we used, our robotics capability to start enhancing the customer service by basically sending them a text message to say, don't forget your bill is due next Friday. And of course, customers are reacting positively to that. And they're, you know, paying their bills on time. They're paying the the, they're not going overdrawn as they might have previously. So, of course, that has a short term impact terms of the revenue that we might get, the fees that we might get from late payments or from out of course payments. But those, you know, that cost and you see that coming through in kind of slightly less fees on the in the financial results, but that's significantly outweighed by 2 things. 1 is, the, improvement in customer experience and the improving customer satisfaction. And in particular, as well, the much better IFRS 9 outcomes than, we might otherwise have had. And so as we look at that trade off that's something that we thought was, was something that was, you know, we we would do that every day to week and twice on Sunday. That was a particular piece, which you do see reflected in in this morning's results. That was done as part of the preparation for IFRS 9. And so I'm not it's not that I'm expecting a maturity more of those types of impacts as we go forward. David. And just to follow-up, on TRIM, I just wondered if there was any kind of offset that you might expect in Pillar 2 on Pillarateg specifically for TRIM? I know you've talked about how those 2 should come down over time as the NPEs reduce. But is there a component of Pillar 2 R and Pillar 3G, which would have related to the uncertainty of the TRIM process? Thank you. So again, maybe I'll take that for Jessica. I mean, I think I don't think it's quite as a as a granular as that, David, in terms of, you know, their individual line items, you know, certainly, you know, if that is the case in in in Frankfurt, you know, it's not something that's been that's been shared with me. I think, I think within the, P2G, I think that's you know, set more, taking account of the overall risk profile of the institution. And and as I said, I said earlier, you know, we would see opportunity with the continuing reduction of NPEs, the continuing demonstration of the effectiveness of the hedging of the pension scheme together with the, probes we're making on transformation and, you know, the increasing track record of sustainable profitability that that offers you know, particular opportunity for the PTG to come down. I think on the, on the NPEs, and the the trim effect associated with that, you know, MPs are going to come down. The only question is over what's the sort of the sequence or the time frame in relation to that. And that's where there may be some trade offs and opportunity to accelerate that reduction and unlock the capital that we have invested, the significant capital we have invested in the mortgage NPEs and doing that more quickly. So we'll we'll look at those opportunities, as we as we go forward, but I don't think it will impact directly onto the regulatory capital target But of course, as we get the NPs down and unlock the capital that's invested in RWAs, well then, of course, that will improve the the actual reported capital position that we have. Great. Thank you very much. Thank you, David. And let's stay on the conference call for a few more questions. We will now take our next question from Chris CATCH from Ana Todd. Please go ahead. Hi there. Thanks for the call, and thanks for taking my question. I just wanted to come back on this discussion that's been ongoing on, in PE even, the TRIM impacts. From the way you're talking about it sounds like quite a lot of the increase in mortgage risk assets as a function of TRIM relates to NPD's specifically the way you're talking about needing to reduce entities or potentially taking more aggressive action to release capital sounds like quite a lot of that, 70 bps is related to MPs specifically. So is that the correct inference And then secondly, if you can reduce NPEs more aggressively, I'm looking at your Slide 41, which gives the sort of average risk densities by country. Obviously, Ireland's a huge outlier on the mortgage book. Your 70 bps just quick math suggests you're going to something like a 35% to 36% risk density for Irish mortgages. Where would you expect to end up if you could divest of all of your mortgage and should we get that lower towards sort of Italy, Portugal type level? Chris, one for Andrew. Okay. No problem. And so, I mean, I think in terms of, so the training process affects, a number of things, Chris, it affects NPEs, and it affects the models for expected loss, okay? And then within that, as you say, it impacts both the performing book as well as the non performing book. So, it does it does affect both of those. I would say, you know, probably, maybe about 50% or a little under 50% would be on the MB book. I think the more relevant piece though is the actual quantum, post trim. Now we've got certainty on trim. The quantum of capital that we have invested in our NPE book, which is a combination of both the expected loss and the risk weighted assets. Is quite material. I mean, that's what's why we're drawing attention to that part of the capital allocation this morning. And we have certainty now, and we now look at that gives us the opportunity to focus our attention on, you know, are we are we comfortable with that that allocation of capital would come from with the return profile of the NPEs for the quite significant amount of capital that we have. And to the extent that we have opportunities to optimize that, Well, of course, we're going to do that. As, as Francesca said earlier, you know, we have, you know, we have lots of opportunity to invest our capital in terms of supporting our loan growth. Terms of supporting our transformation to make the, the, you know, the bank better for our customers, colleagues, stakeholders, and more efficient, and of course, to reward our shareholders. And so, you know, now that we've come to the end of the process of discussion and calculation, etcetera, you know, that does unlock the capacity for us to to focus on that. In terms of the, the risk weighting, you know, certainly it is it is high that does reflect the fact that we still have the level of NPEs in the, mortgage book. And as they come down, then that will have a positive impact on the average risk rates I just say once we apply the updates to the the models, the 29% on page 41 will increase, but then we obviously would expect it to to reduce as we bring down those NPs through whatever strategy is is considered to be appropriate. You know, and it is it is expectations that it will come down closer to the level of some of the other European countries. I don't know in terms of within those countries, if they have similar TRIM type exercises that are ongoing, that's not something I'm familiar with, but if they have it could be that the 19%, for example, in Portugal or the 18% in Italy sorry, in Italy, that they may go up I don't know. We'll have to see how that how that emerges. But certainly, I would expect that with the NPs, at a much lower level than they are on the mortgage book, but then that will have a material reduction in the average risk weights that we see within the portfolio. Thank you, Chris. Should we stay on the line? Another question on on from the conference call? We will now take our next question from Charles Young from UBS. Please go ahead. Hi. So thanks for the presentation. I've got three questions mainly on U. K. So firstly, U. K. New lending I see that consumer new lending has grown by 80% year on year and it now accounts for 35% of the total new book. And I just wonder if this will be the right level of mix we should expect going forward? And secondly, follow-up on the UK margin expansion, is it fair to assume that margin at the higher yields at actually came from the SEK 2,500,000,000 sterling, the business book on the back of higher LIBOR. Or did you see higher yields on other books as well? And lastly, and also very quickly, can you please update on the progress of legacy book rundown in the UK? I think you had 5,600,000,000 at the year end. Okay. Maybe Andrew Stottom, margin and legacy, and I'll talk about the, the new origination. Okay. So mean, I think I think in terms of the margin for our UK loans, Chancellor, I think there is, there are 2 effects there as you as you've identified. 1 is the base effect. And and one of there is a slight mix effect where we would have an increase in the level of consumer lending, which is clearly at higher yields as compared, and if if consumer lending and as consumer lending is now a slightly higher percentage or mix of our total UK business, Well, then that will feed through to a slightly higher margin as, distinct from, say, mortgages, which are materially much lower and, yields than the personal lending. I think in terms of legacy UK, I think there are 2, 2 legacy portfolios that we signaled at the Investor Day, Jamsel, the mortgages and also the, the commercial book. I think the commercial book will reduce over the next number of years. Effectively, it will reduce to 0 over the next number of years by 2021. That's where I would expect that to go. I think on the mortgage side though, I think the mortgage, the book that's in our legacy branch, from, memory was about 4, £4,500,000,000. I think that's likely reduced by about 20, 25% over the next number of years. It's not likely to to, and and that's what our experience has been in the first half of the year. It's not that we expect it to, to all, to amortize by the 2021. So the commercial book, which is about the we'll go probably to 0 and the more just I think that may have mentioned starting €4.5, it's likely to be down by about 20, 25% over the period to 2021. Okay. On, the growth in the UK, so what we're seeing in the UK and our currency in the UK is entirely consistent with the guidance that we gave, in our Investor Day. Sometimes we see different seasonality and different trends, so we can see more seasonality comes through in the Irish book potentially growing more for mortgages. We've got the impacts of some uncertainty because of Brexit sentiment in Ireland. And that has resulted in some of the the the growth in, in the net loan book improvement coming from the UK. Predominantly in mortgages and in, our unsecured lending, I mean, that the unsecured lending is from Northridge, which is a great business. We acquired Marshall Leasing last year. It's a very good platform. We continue to improve from a as opposed to taking on more credit risk. It's more about our distribution, our geographical coverage, and exactly the same with personal lending to the AA. So that's key partnership. It's still a relatively new partnership, and we've talked to, in the past about the the opportunity to to do more and deepen the AA relationship, and what we're seeing is an expansion of distribution and, improvement in the relationship as opposed to going in a different space on the credit curve. We will now take our next question from David Wong from Credit Suisse. Please go ahead. Good morning, all. Thank you for taking my questions. I had 3, please. Just First, just on Slide 25, I just wanted to focus a bit on the corporate banking, gross new lending. It's up year on year, but I think one of your peers which reported earlier is actually talking about a very strong year on year growth in the corporate side of the business. I think you're talking about things like real estate finance, commercial real estate, finance, which has been driving debt. I'm it will be helpful. Perhaps if you could help us understand the dynamic, which are applying to your corporate book over here if possible. Then the next would be on the next question would be on Slide 27. Just a quick question on the UK mortgage mix. It's in terms of the gross lending from year end 2017 to H1 2018, actually the buy to let book that's growing slightly. I'm just curious to know if that's actually segment, you're also targeting more. And then the last question is just on Slide 31. I'm just picking up a bit on the deposit costs which we covered, early on discussion. You know, if you enjoyed a period where you've been able to use the deposit cost offset some of the pressures on earning assets that come through. Do you think that we are actually at a sort of turning point in terms of the overall deposit cost for the group, given that Ireland deposit has now been stable and UK and the corporate treasury deposit costs have actually gone up half on half. Many thanks. Okay. Thank you, David. So, if I go to sort of, well, page 27, you talked about the UK mortgage, book changing. I mean, it it is, if you look at it, it's a relatively small change from the 7,500,000,000 to the 7,700,000,000 in in buy to let. That isn't a reflection of a fundamental change in strategy. That is a, and you can see from the average LTVs that we're in a space there on the, on on the on the BTLs, that isn't a fundamental shift in our appetite or change in our risk appetite. That's absolutely within the disciplined approach that we've taken to date. In terms of, corporate banking growth, so you can see there on the previous page, page 25, that property has been strong, and that's very linked to our ambition around being the leading supporter of home, building and buying We have very strong relationships, in in Ireland, and we are seeing, given the supply and demand, gap property construction coming through, despite it not necessarily being at the level to meet the demands from Irish consumers. You've seen there also, Corporate Banking, UK, some growth. The big change there, the Delta is the leverage acquisition finance, which has reduced slightly, that is a reflection of, our risk appetite as well whenever we look at taking on new lending in any part of our portfolio we look at risk first, then pricing, then volume. So we don't chase deals and and we see see no if it doesn't necessarily meet our our our risk appetite. Okay, David. I mean, in terms of the cost of the deposits, I mean, slide 31, you know, it sets out the growth rates that we pay to our customers. You know, clearly in the Irish side, at this stage now, we have about €50,000,000,000 of, deposits and including current accounts, checking accounts at an average cost of about 5 or 6 basis points. It doesn't feel to me that there is, materially more opportunity in those in those books to reduce the cost further. And we already have a couple of 1,000,000,000 of deposits we're paying negative rates, associated with that. I think in terms of, you know, and and this was the the those prices are likely to sort of stay at that level until there's a change in the interest rate environment in in Europe. And, you know, I think, Mr. Draghi has been pretty clear that's not likely to happen until the back end of 2019. And it might well be that he doesn't actually get to change rates you know, it is a tenure. I think more, if you look away from the euro zone, you look at sterling and you look at dollars, clearly, rates, interest rates are going up in the US, and you see some of that impacting the corporate and treasury deposit growth rates to be paid for a customer. In the UK, similarly, rates have already started to tick up. We'll wait and see what mister Carney decides to do later on this week. And I think the the the the the bigger issue though is really about if rates go up, we will benefit. What will happen is we, you know, we may end up paying a little bit more on the side, but we will actually more than offset that and increase that on the asset side of the balance sheet. So we will the the assets will reprice and to reflect the higher yield curve and higher interest rates and the it is likely that there would be a lag, or not all of the any interest rate policy changes will be passed on on the liability side And that's where the margin will expand, and the revenue will expand associated with higher interest rates. We set out on page 30 of the slide deck what are sensitivity is to, to higher rates. And like all, retail and commercial banks, we do our we are quite heavily leveraged towards higher rates. And this sensitivity theory follows the usual. Okay. It's kind of an it's a it's a mechanistic piece to give people a sense of what the impact is. But, you know, certainly as rates do start to go up, that is an opportunity for us to increase rates. But how it's likely to manifest is higher yields on the asset side, and, you know, higher, but less on the deposit and funding side. We've got a couple more questions on the conference call, and then we'll come back into the room. So on the line, We will now take our next question from Ahmed Racker from Barclays. Please go ahead. Good morning, Francesca. Morning, Andrew. Arman Racca from Barclays. Most of my questions have actually been asked. I've just got one small one actually. So your liquidity coverage ratio, I've noticed it's gone up 3% half on half, but that's actually already from quite high numbers. You're operating at 139%. Just kind of thinking about, are you running with significant surplus liquidity? What do you see as your kind of stable LCR? And if so, kind of why is that, you've talked about liquid assets being a drag on NIM for quite a while now. Just kind of wondering how you kind of think about that going forward? Sure, Alan. I mean, I think, look, in terms of the, when we look at the the liquidity ratios, you know, we're we're pretty comfortable in terms of where the rest the the LCR is a shorter term type of, metric. It looks out over a period. It's really over kind of, you know, the next 1, 2, 3 months. The, net stable funding ratio, you know, has a slightly longer duration, and that's at about the 127%. You know, I think we're we're broadly comfortable when we look at peers across Europe, And these or or ratios that we are running to are not out in line with what we would expect to see from from others. Clearly, we're in a very, comfortable position from an liquidity perspective. And for us, it's about optimizing the mix, the duration, and the cost of that liquidity. You know, I wouldn't be signaling that the ratios are going to and change materially up or down in terms of where the rash, you know, at this current broad level. We'll now take our next question from James Bergwood from Societe Generale. Please go ahead. Hi, good morning, everyone. I just had a couple on the broker channel, please, in Ireland. Just wondering if you can tell us when you launch what proportion of the broker market will you be covering, and where do you think that number is going to be say at the end of next year, just so that we can, see how this channel will ramp up. And then in terms of the products, are you going to be offering precisely the same products as you do through your existing channels, are you going to be varying kind of pricing and credit quality metrics? Thanks, James. As you can imagine, this is a a very competitive market. So, in terms of our positioning, as we enter the broker market, we will announce that in due course when, when we are when we're good and ready and when it's the right time, the 2 things I can say is, one, This is about also improving the end to end experience, in both our interaction with the broker and with the customer. So we're bringing across from our UK business, which is very focused on in intermediary market, which is a very developed market. We're bringing our award winning broker platform from the UK to Ireland, which I think is is is a great example of the synergy of having, both the UK and Irish businesses. And, the other key point is one of cautiousness. I I've entered broker market before, It is a different dynamic. It's 22, 23% of the total market now, our participation in that may cause an increase, it it it it it it may not necessarily, that we will go slow at first as we develop relationships with brokers as we build up our volumes, so I would expect, any increase in market share to come through in the latter part of of 2019. It would be a a a cautious and considered expansion on of of what could be a very important channel for us. Okay. Thank you. Thank you very much. There are no more questions on the line, so I'll just come back into the room to see yes. Good morning. Darmogany Marine Capital. I wouldn't say a technical question, but I'm just looking at Page 22, there's a slight net interest income and operating profit. Obviously, over the last few years, they've they've both been trending down. We very much know about your outdoors regarding operating costs, but I mean, can we expect an improvement sitting here next year in both the net interest income and operating profits? Great, Darren. So maybe I'll take that question for Jessica. I mean, I think certainly, Darren, in terms of the dynamics behind, what their pre provision operating profit, loan book, we already have seen 500,000,000 growth in our loan book and we'd expect to see that further growth and we've guided that. So we're going to see further loan book growth in the second half of this year And then obviously we've got our medium term target of growing our loan book by 20% by 2021. Obviously, there's a timing effect that comes through with that in terms of we when when the assets get put on the on the balance sheet, but that will be positive. We've said that the, on the net interest margin, we've said that, there are, tailwinds to our net interest margin in terms of, you know, phone book pricing being, being hired and backward pricing, etcetera, as as people repay on the tracker side of, for example, in Irish mortgages, as you put on new new assets, that will that will be, helpful to our margin. Obate, we are mindful of the competitive pieces there. And that's why, but again, we're giving very clear guidance in terms of that the margin will increase by a basis point in the second half of the year. On fee income. Again, we have a very diverse and sustainable, fee income line. We're continuing to invest in our Wealth and Insurance business. You know, we we picked up some of that on Investor Day, and that's something that we see continue to progress on. And on the the other obviously a big dynamic of the pre provision profit is our operating expenses. They've come down sort of in the sequential periods by 3% We're guiding that the second half of this year will be down a bit more. I would say that next year, the 2019 costs will be, will be lower again So, you know, I think when you put all that together, I think we would expect to see the, the operating profit and improve from the level that it's asked in 20172018. Maybe the final question. Steve? Thanks very much. It's Stephen Lyons from Davy. Just a couple of questions just firstly on the UK credit card outlook. You mentioned that the capital markets say that that was a lending line that was under review. Any developments on that front? And maybe just as a pro form a impact, if you no longer had that business, what might that do from a returns perspective for the U. K? And then secondly, this is a nice IFRS 9 question to round it off. If I look at the day one adoption, the provision stock went up in the period, yet it was a surprise to see that the regulatory EL deduction she also went up, I would have thought that the reverse would have actually happened. So how should we actually think about that? Is that possibly a risk to the provision stock? Or is it more a betting in process that if we look forward, maybe we might see that EL number actually come down? Okay? Thank you. So the UK credit cards, we mentioned in the Investor Day that we were doing a strategic review. That strategic review continues. I look forward to giving a an update at the right time. If we were not to have that business, in on our books, we would see an improvement in our routing. It is a business that we know is fairly competitive. It's dominated by 0% balance transfer and it has a high cost base. And even though we've had success in in in in in aspects of that business, we just don't see the opportunity to to be, RoTE accretive. It would, Andrew, just help me on this number. That would be an, a 0.8%. So just under 1% improvement in ROCE if we were selling the U. K. Credit card book at book value. So that's quite a big number. So it's important to clarify. And and we'll give an update in terms of where we are with that portfolio, as soon as we can. Okay. So maybe to deal with the very straightforward and commercial question, Stephen, on the expected loss, Look, I the so there's 2 things happening. Right? You've got your expected loss and you've also got the IFRS 9 provisions, as was told, we'll be you'll see that we've had a net impairment gain on the IFRS 9 provisions the not all of that translates into the expected loss, which is calculated on the regulatory basis. And so for a set amount of, for, you know, if the expected loss level is consistent from period to period. If you've got a write back on the IFRS 9 provisions, then your expected loss deduction, which is a which is a delta to the IFRS 9 provision, will go up. And it's as simple as that. I think the more commercial aspect is that the key focus there really goes back to the comments I made earlier, but mortgages, we have a very significant amount of capital invested in mortgages that's linked to both the RWAs but also to the level of expected loss that is calculated using the regulatory calculations. And that total quantum of capital, you know, is is material, and we've signaled that we want to reassess whether the return profile of that is sufficient to support the amount of capital we've allocated to our M and P mortgage book, and that's something we'll be keeping a close eye on over the next period of time. Thanks so much. Thank you. Stephen, do you have any more questions in the room? No. It not, I'll bring the session to a close, and I just wanna thank you all for your time and attention and really good questions both in the room and and on the line and, Andrew, myself and the team. We'll look forward to seeing many of you soon. Thank you very much. Thank you very much. Thank you.