Good morning, everyone. I'm Eamonn Hughes, Investor Relations Officer, and you're all very welcome to Bank of Ireland's 2025 Results and Strategy Update. Myles will shortly take you through an overview of our business and how it performed over the last cycle. Mark will then go through the key points from our 2025 financial results, and then we'll turn to our strategy update, covering our plans for the next three years to 2028. We'll wrap up with the investment case for the group and open to the floor for your questions. Over to you, Myles.
Good morning, everyone. For those with us in person in London and those on the call. You're very welcome to our 2025 results and strategy update. I'd like to start by giving you an overview of the unique shape and deep reach of Bank of Ireland's franchise. Put simply, we have an unrivaled position in Ireland with complementary international businesses. What you see on the first slide is that unrivaled position across mortgages, everyday banking, corporate and commercial lending, and Wealth and Insurance. Our position is underpinned by four long-established, respected brands, Bank of Ireland, Davy, New Ireland, and Bank of Ireland U.K. . This embeds the group into every community in Ireland, its economy, and indeed, its society. This is key to our growth over the coming years, complemented by supportive businesses outside of Ireland. Being embedded in Ireland means being embedded in one of Europe's fastest-growing economies.
This is a highly attractive market driving balance sheet growth. Ireland's average annual GDP growth is forecast to be 3% out to 2028. Its demographics are also highly supportive. These include a population expected to increase by 17% by 2040, a structural growth story in wealth management, sustained credit formation, and at this point, private sector credit grew 6% last year, and Ireland's National Development Plan. This plan aims to drive Ireland forward with a EUR 275 billion public investment in infrastructure, unlocking economic and balance sheet growth. We're also mindful of the risks presented by the geopolitical uncertainty. Ireland is navigating these risks well with a resilient and growing economy. Healthy public finances can help to shield against volatility, and Bank of Ireland's strong balance sheet is well-positioned to manage potential future challenges, underpinning a bright future for the group.
Bank of Ireland's unrivaled position in Ireland and the strength of the Irish economy come together on slide 8. This combination is driving outstanding business performance. Over the past 3 years, new to bank customers increased by 18%. This has been supported the balance sheet momentum you see here. Our Irish loan and deposit book grew 6% in 2025, while wealth assets under management increased by 9% to an all-time high. Capital generation was 270 basis points last year, bringing the total over the cycle to 920 points. That's EUR 5 billion of capital generation. On slide 9, we recap on the returns profile since 2022. In early 2023, we committed to a range of financial targets which have been delivered. That's ROTE, cost income ratio, a progressive dividend, and returning surplus capital.
This performance has supported strong distributions, totaling EUR 3.6 billion over the last cycle, equivalent to 37% of our starting market capitalization. For 2025, this includes EUR 1.2 billion of distributions, which equates to 100% total payout of earnings, comprising a progressive dividend per share of EUR 0.70 and the EUR 530 million approved share buy-back we are announcing today. We enter 2026 and our new cycle to 2028 with real momentum and strong capital generation. I'll share more on this with you shortly. For now, I'll pass over to Mark, who will take you through last year's financial performance.
Thanks, Myles. Good morning, everyone. We've had a strong financial performance in 2025. Slide 12 sets out the key highlights, including continued momentum in Irish loans and deposits, both up 6%, growing fee income led by our Wealth and Insurance franchise, ongoing cost discipline, and robust asset quality. All of these contributed to capital generation of 270 basis points and support total shareholder distributions of EUR 1.2 billion. Subject to shareholder approval, the ordinary dividend will be EUR 0.70 per share, up 11% compared to last year, reflecting our confidence in the bank's prospects. We've had a good NII performance in 2025, with balance sheet growth, bond purchases, and our structural hedging helping to counter the impact of lower interest rates and planned de-leveraging.
We expect NII to grow from 2025 levels to around EUR 3.4 billion in 2026, above our expectation of the high three threes. The key dynamics here are business momentum and hedging playing remaining interest rate and de-leveraging impacts. Including our recently announced intention to run down our US acquisition finance book. We expect stronger growth in 2027, where we're upgrading our prior guidance of the mid three fives with NII of greater than EUR 3.6 billion now expected. As part of our strategy update, we've published new guidance for 2028 today, with NII of greater than EUR 3.85 billion expected, with the potential for further upside beyond. The support of Irish macro backdrop that Myles spoke to earlier and the breadth of our franchise both contributed to the strong growth in Irish loans in 2025.
Our Irish mortgage business had another excellent year, with a greater than 40% share of new lending for the third year running, while retaining our commercial and risk disciplines. International corporate contractors as planned due to the portfolios and runoff, FX was a headwind in 2025. In 2026, we expect to see net lending growth of around 4%, once again led by our Irish books. We saw good growth in customer balances in 2025. This was led by our Irish everyday banking propositions, where flow to term dynamics reduced as expected. Retail U.K. balances were higher, with a good performance by our Northern Ireland business. For 2026, our expectation is around 3% growth in deposits, led by continued strong growth in Irish everyday banking.
Slide 16 provides more detail on our structural hedge, which is one of the key drivers of our NII trajectory into 2028 and beyond. Rollovers and additions meant the average yield in the hedge rose 16 basis points to 1.89% in 2025, with an exit yield of 1.98%. There's more to come this year. Helped by our modest growth in our hedge volumes and the rollover dynamic, we see fixed leg income increasing by 10% in 2026. The group's total fee income increased by 7% last year. Wealth and Insurance, which now accounts for nearly half of total fee income, had a really good performance, with fee income up 12%, reflecting the benefits of our strategic execution over the past 3 years.
For 2026, we expect to see around 4% growth in fee income, driven by Wealth and Insurance. Operating expenses rose 3% last year, meeting our guidance. Staff and other costs were higher. This reflects a number of factors, including wage inflation in the competitive Irish labor market and ongoing investment in digital capabilities and customer experience. Efficiencies from our restructuring investment activity were equivalent to around 2% of the cost base. We'll see more of this over our new strategic horizon. On slide 18, I'd also note the non-core charge of EUR 430 million. Majority of this relates to U.K. motor finance. EUR 153 million of restructuring costs supported the delivery of our efficiency program. One presentational change to call out here is that from 2026 onwards, restructuring costs will be included above the line.
We expect to see total costs of around EUR 2.2 billion in 2026. This is comprised of two parts. Firstly, underlying operating expense growth of around 2%, reflecting inflation and investment, including targeted higher investment to support strategic delivery offset by efficiencies. Secondly, restructuring costs that are expected to be in line with the 2025 outturn. Looking further out, we expect total costs to be stable at around EUR 2.2 billion over the strategic cycle. Moving now to slide 19. The impairment charge in 2025 was EUR 193 million or 23 basis points cost to risk. Better than we anticipated following a strong final quarter. Within that, net loan loss experience and portfolio activity was EUR 65 million, with net write-backs in H2 reflecting the team's execution on the ground.
Macroeconomic and model updates account for the balance of the charge, with a geopolitical PMA of EUR 40 million providing protection against potential volatility. The NPE ratio finished 2025 at 2.2%, down 40 basis points in June, reflecting the H2 progress. Looking ahead, we expect the cost of risk to be in the low to mid 20 basis points. Group is a very capital generative business model. Organic capital generation was 270 basis points last year. Around a quarter of this was consumed by investment in lending and CRT amortization. IRB model scalers consumed a further 40 basis points, with an objective to at least partially mitigate these over time. We've today announced distributions totaling 225 basis points in respect of 2025 performance.
Our reported CET1 ratio was 15.1% after EUR 1.2 billion of distributions and with a 100% total payout ratio, which compares to 80% last year. For 2026, we expect net organic capital generation of around 250 basis points. We've updated our CET1 guidance for the new strategic cycle to around 14.5%, which we believe is an appropriate level to both protect the bank and support the ambitious growth plans we are setting out today. Our objective is to operate at this new CET1 guidance. Slide 21 recaps the building blocks of our 2026 financial guidance that produce our around 12.5% statutory ROTY expectation for 2026. On this slide, I would note that the changes to the presentation of a number of our key metrics.
Having taken on board market feedback and reflecting on peer approaches, from 2026 onwards, we will simplify our reporting by including restructuring costs within our operating expenses and within our cost-income ratio and presenting ROTE on a statutory basis. To conclude, as we start 2026, we have real momentum across our franchises, which sets us up very well as we start our new strategic cycle. I'll pass you over to Myles now, who will take us through our new strategy.
Thanks, Mark. The strategy we are setting out today is centered on three priorities. The first is continued business model momentum in Ireland driving growth. Earlier, I spoke to the very strong balance sheet growth over the 3-year period to 2025. That growth story continues. We expect lending growth of 4% per year, deposit growth of 3%, and AUM growth of 10%, and in turn, creating more value from a highly attractive Irish economy. The second is allocating capital to optimize returns. We're allocating more capital to the island of Ireland while capturing the most attractive opportunities in our corporate and U. K. franchises. The third, investing for the future, improving resilience, customer experience, and efficiency. This ambition underpins the financial targets we are setting out today. We see income growing at an annual growth rate of more than 4%.
This top-line momentum, supported by our investments in cost discipline, is transforming operating leverage. This is reflected in our cost-income ratio, expected to fall to mid-40s by 2028, with an ambition to go beyond. Combined, this sees our return on tangible equity, that's a clean statutory ROTE, increasing by more than 500 basis points to greater than 16% by 2028. As set out on slide 25, the group has a strong portfolio with complementary capabilities across our businesses. These interlinkages between our retail, Wealth and Insurance, and corporate and commercial teams offer significant potential. Examples include 2.2 million retail Ireland personal customers, of whom more than 150,000 are affluent, and this offers an important opportunity to Davy Wealth.
Connecting our corporate customers with New Ireland corporate pension solutions, leveraging our Davy Capital Markets business to offer more complex solutions for our corporate customers. We have the opportunity to serve more than 4 million customers at every step and stage of their financial lives. Our everyday banking franchise in Ireland, a core value driver for the group, has very attractive market positions. From a position of strength, we have a growing deposit franchise, with EUR 87 billion of customer balances, equivalent to around a third of total Irish private sector deposits. We expect continued growth in our deposit and current account franchise. Our ambition here is threefold. One, to strengthen customer loyalty through improving experience and to protect customers from the ever-increasing scourge of fraud.
Two, to grow our customer and deposit base, supported by product innovation, for example, our SmartStart account for youth customers and our Coming2Ireland product for people who are returning to Ireland. Three, to drive more efficiency through technology. Delivering our strategy allows Bank of Ireland to command a leading share of new business, to deepen customer relationships, and to drive further cross-sell. We are Ireland's number one mortgage provider, and our strategic objective is to retain that position. In the last cycle, we captured a growing share of Ireland's growing mortgage market. Rising housing output, underpinned by Ireland's strong demographics, represents a clear structural growth opportunity for mortgages, supporting an expected 5% average annual book growth. Over the next cycle, we will maintain our right to win in this market while continuing to maintain pricing discipline.
We continue to enhance our capability, making it easier and faster for customers to secure a mortgage approval. Our overall ambition is to be the unrivaled leader in Irish home buying. We are Ireland's leading wealth provider. Our Davy and New Ireland Assurance businesses have more than 650,000 customers. Total AUM was a record EUR 60 billion at the end of last year. This has grown by more than 50% since we completed the acquisition of Davy in 2022. It's supported by favorable dynamics across all segments, high net worth, affluent, and corporate pensions. We expect AUM to grow to more than EUR 75 billion by 2028, with an objective to hit EUR 100 billion by 2030. I expect this business to be the largest source of capital light fee income growth out to 2028 and beyond.
This is supported by the strong Irish macroeconomic fundamentals, investment in our digital platforms, and further cross-sell into our retail customer base. We have successfully repositioned our retail U.K. business in recent years. Our reshaped loan book and improved funding base are delivering attractive, sustainable returns. Our U.K. subsidiary reported an underlying ROAE of 16% last year, continuing the trend of strong returns from this business. Throughout the new cycle, we expect growth through selective lending and mortgage products and strengthening propositions and capabilities in Northern Ireland, complemented by our specialist lending propositions in Great Britain. Slide 30 covers our corporate and commercial banking division. With a very strong market position, including an SME lending share of more than 50%, we are well-placed to benefit from increased house building and infrastructure investment in Ireland.
We're also deepening our relationships with our corporate customers, growing lending and fee income, leveraging our broader business model, including treasury services and Davy Capital Markets. This underpins our strategic objective to retain our leadership position in Ireland. To deliver those business line performances I've just spoken to requires ongoing digital investment. In 2025, we delivered important enhancements. This includes the rollout of a new SME lending platform, SEPA instant payments, and a wide range of customer service improvements in our contact centers. We also progressed our new mobile app and Zippay instant payments, both due for launch in the coming months. With the new strategic horizon, we are making a conscious decision to invest more than previously planned to protect and grow our core Irish franchise and capitalize on our unique position in wealth.
Priority areas of investment include operation resilience, including cyber protection, a new commercial digital platform, and as referenced earlier, a scaled wealth platform and automated credit decisioning for mortgages, and a new U.K. savings platform to support long-term funding needs. These investments offer a better customer experience and allow the group to deepen and grow our customer base. Earlier, I said the group was embedded physically and online in every community in Ireland. The combined power of this presence is a winning formula for our customers and a source of value creation for the group. We're also embracing AI. My focus is on creating tangible value and setting out an ambition that truly captures the positive and profoundly disruptive benefits of AI. We see emerging tangible value from our deployments to date.
Contact center call transfers have reduced by more than 40% as AI connects with the help they need better and faster. AI is also protecting our customers, assessing over 1 billion card transactions last year to help prevent fraud. We are targeting increased efficiency, reinventing our approach to KYC and customer onboarding. These are just some examples. We see real potential for AI to fundamentally improve a range of areas. These include customer sales and servicing, middle and back-office functions, and changes to our technology delivery. Bringing this together, this strategy builds on our strong momentum, delivering business and revenue growth, combined with a stable operating cost base, which creates significant operating leverage. We expect to see considerable top-line growth in the coming years, and I referenced earlier income growing on average by more than 4% per year.
Over that period, a continued focus on cost discipline and efficiency. As I said earlier, we are targeting a mid-40s cost-income ratio by 2028, with an ambition to go beyond. Now, that equates to a circa 6% operating efficiency improvement over the next 3 years. To meet our efficiency objectives, we have identified EUR 250 million of cost reduction, and there are three main elements to this. One. Firstly, our operating model, where we have redesigned, and we are simplifying our organization and footprint. Two, redesigning our customer journeys and internal processes. I referenced KYC earlier. Three, r igorously ensuring our third-party providers create maximum value for Bank of Ireland. Related to this, we have radically reduced the number of third parties we work with, focusing on a much deeper, more strategic relationship with a smaller number.
Mark will provide more detail on this objective later. Slide 35 sets out how our strategy will continue to drive significant shareholder value. At its core is a more than 500 basis point increase in statutory ROAE to greater than 16% by 2028. That equates to compound earnings per share growth in the mid to high teens, all of which underpins continued attractive distributions to our shareholders. We are achieving this by driving growth in Ireland from a structurally advanced economy, the strength of our balance sheet, making the best use of our capital, investing for the future in support of customers and shareholders, maintaining a very sharp focus on efficiency and competing hard, always with a focus on price discipline and risk management. Mark will now take you through our financial targets.
Thanks, Myles. Slide 38 sets out the macro context that underpins the balance sheet growth we expect to see over the new strategy. We expect to see CAGRs of around 3% for deposits, around 4% for loans, and around 10% for AUM. For deposits and lending, we've been pragmatic in embedding some of a growing market going to new players, an assumption which sees continued growth momentum for Bank of Ireland's balance sheet. This balance sheet growth and structural hedge dynamics will help total income grow at a CAGR of more than 4%, rising to greater than EUR 4.75 billion in 2028. NII is expected to increase from around EUR 3.4 billion this year to more than EUR 3.85 billion in 2028, with the growth rate accelerating as we move through the cycle.
Given the strong balance sheet drivers and the multi-year benefits from our structural hedge, which I'll come back to shortly, I see the potential for NII to reach EUR 4 billion after 2028. We expect fee income to grow by around 4% a year over the plan, with WNI growing at a faster pace. The structural hedge is an important part of our revenue outlook. We see it providing a gross tailwind of around half a billion euros over the next three years as the yield moves towards the 2.5% level. Hedge volumes will grow over the coming years as customer balances evolve.
While other hedging, for example, on our fixed rate mortgages also need to be factored into our NII, the key message here is that the structural hedge is a material positive driver, which should mechanically flow into our NII as hedges roll over. We are guiding for total costs to be stable at around EUR 2.2 billion over the strategic horizon, with a CAGR of around 1% from 2025 levels. The key moving parts are inflation and investment, with investment higher than prior plans to support our strategic delivery, offset by material efficiencies driven by our investment in restructuring activity and lower restructuring costs over the period. As part of this, given that around half our costs are staff-related, we expect staff numbers to fall by around 3% each year, largely from natural attrition.
As Myles said earlier, operating leverage is a key outcome of our strategic plan, with our cost income ratio improving by around 6% from 52% last year to the mid-40s in 2028, with an ambition to go further beyond that. Slide 42 provides details on our three areas of efficiency focus, each of which contribute broadly a third to meeting our total efficiency target of around EUR 250 million that Myles spoke to. Key initiatives include completing our organization redesign, the exit of non-strategic business lines, material consolidation of third-party suppliers, optimization of KYC and onboarding journeys, and transforming our U.K. operations. Slide 43 summarizes the key drivers in our statutory ROAE building to greater than 16% by 2028 from a starting position of 12.8% last year, excluding the Motor Finance impact.
Franchise growth predominantly reflects the power of our brilliant Irish retail business and wealth franchises. As I noted earlier, the structural hedge benefits are realized as hedges roll over at rates close to 2.5%. While our TNAV increases, the growth is lower than RWA growth due to DTA utilization over the next couple of years. The momentum in our franchises gives us confidence that ROAE can increase further in 2029 and beyond. We expect organic capital generation to build to more than 270 basis points by 2028, averaging around 260 basis points over the cycle. Of this, around a quarter is required to support business and lending growth. We also guide to a progressive ordinary dividend per share, supported by a payout ratio of around 50%.
This will leave us with significant amounts of surplus capital, which will be returned to shareholders unless there are more compelling strategic opportunities. Our objective is to operate at our 14.5% CET1 guidance subject to customer approvals. Slide 45 recaps on our key financial targets with growth, operating leverage, and returns at the heart of our updated strategy. Two items I've mentioned here are, firstly, we see net capital generation of around EUR 3.7 billion over the plan, equivalent to around a quarter of our end 2025 market cap, and our expectation for mid to high teens CAGR in earnings per share growth through this new cycle. I'd note that the EPS guidance does not make allowance for buybacks. Thank you, I'll now pass it back to Myles.
Thanks, Mark. bringing our presentation to a close, let me recap. Today we're setting out a strategy to create significant shareholder value, by driving growth in Ireland, optimizing capital for maximum benefit, and investing for the future. Strategy stands on the back of Bank of Ireland's unrivaled embedded position in one of Europe's best performing economies and is underpinned by our proven track record of strategic delivery, which has built the foundation, enabled the momentum that drives us forward to 2030. Thank you very much for your interest in Bank of Ireland. We'll now open the floor to questions, Eamonn, over to you. Thanks.
Okay. As Myles said, we'll now open to the floor for questions from analysts, actually first taken in the room before moving to those who have joined us online. Actually, for those of you in the room, you'll note that there's actually a microphone, I think, in the front, just in front of you there. Please raise your hand, and we'll take them in turn. Actually just Andy, we'll take you first, if that's okay.
Just one from me really. The increase in the CET1 target to 14.5. I thought there was probably more of a chance that you might re-reduce that at some point rather than increasing it. What, what feedback have you had from your, maybe your debt holders that, I can't imagine that they were unhappy with anything, but what was it that made you increase that number? Because it probably looked like there was room to reduce that rather than increase?
Thanks, Andy, for that. As we embark on a new strategic cycle, our updated capital guidance to 14.5 allows the group to protect and safely grow our business. It supports strong shareholder distributions, balance sheet growth, and indeed business model investment. At this capital level, we see growth coming through in the strong ROTE momentum. We're with an updated clean ROTE of more than 16% by 2028 underpinned by average capital generation of 260 basis points. This is the very nice balance between growing our balance sheet safely with a strong capital position and generating very strong capital returns. Of course, we can link that to distributions. The communication of a EUR 1.2 billion distribution for 2025, that's distributing 100% of profits.
It's a progressive DPS of 11%. It's an increase in payout from 80% last year to 100% this year. It's in that context that we've thought about our capital position out over the next three years.
Thanks, Andy. Okay, Dermot's next.
Thanks, Dermot for that. The question in the heart, the competition question, I mean, firstly, I called out three really important components to our strategy today. Driving growth in Ireland, optimizing capital allocation and investing. Really that growth in Ireland is the big story here. We expect the lending book to grow by on average 4%, the deposit book by 3%, and our wealth assets on average by 10%. Of course, driving top line growth of 4% on income, translating with operating leverage into ROTE improvement of 500 basis points. With that as a backdrop, I mean, from a competitive perspective, for sure, Ireland is an attractive market. You heard me say it earlier, but it's also a competitive financial services market across a range of products.
There's about 20 market players, including traditional and fintech providers. Growing our Irish business, part of that strategy, again, very encouraged by the great momentum coming out of the last cycle, growing lending and deposits by 6%, AUM by 9%. We enter 2026 from a position of strength, a very strong franchise. Competition is picking up a little bit for sure. Like, we compete on 3 pillars. 1 is the footprint that offers a deep business relationship and customer service. 2 is an ever-increasing digital capability. I referenced earlier a new mobile app and faster peer-to-peer payments coming out soon. The third pillar, of course, is always gonna be to offer value to our customers while maintaining pricing and risk discipline.
From a guidance perspective, Dermot, I think we've been pragmatic in embedding some of a growing market going to new players. I think that's a reasonable assumption, an assumption which sees Bank of Ireland balance sheet and franchise grow. On the capital point, certainly in setting out an updated capital target of 14.5%, I mean, two observation. One is in moving to a statutory ROTE with a target of greater than 16% is a sign of our conviction to operate in line with this new guidance. You know, meaning if we hold excess capital and clearly statutory ROTE would be reduced. On a related point, by looking forward, we expect to operate at 14.5 each year.
Given the need to hold about 25% of cap gen for loan growth, a 100% payout would not be a constraint, looking forward. I think that's it. Thank you. Thanks, Dermot.
That's okay. We'll move to Sanjena next. Actually, just if you can press the button on the mic, I think it'll help in terms of getting picked up the question.
Thank you. Good morning. Sanjena Dadawala from UBS. I'm trying to better understand the net capital generation number of EUR 3.7 billion, which as I understand is the capital available for distributions after growth. While the P&L to 28 is in line to ahead of consensus, the net cap gen prediction is below what consensus currently has in terms of total distributions of EUR 4.2 billion or so. Potentially half of the cap can be explained by higher RWAs, but if you could help reconcile the rest. Secondly, on fee income, the growth number of 4% per annum, while still good, is lower than the usual 5% that we've talked about in the past. Are there any specific factors weighing on this? Thank you.
Super, Sanjena. Thank you for that. I'll ask Mark to take some of those. Just maybe to frame the, the capital gen question. That EUR 3.7 billion, underpinned by average capital generation of 260 basis points per year. That's really important to make that point because that momentum continues, and again, of course, in support of a ROTE that is growing. Mark, some of the moving parts and.
Good morning, Sanjena. On the net cap gen, maybe a couple of things there. One, we need about 25% of organic cap to invest in growing the business. That's certainly one factor. A second factor you might just think about is our DTAs. Actually, that benefit we have in 2026 and 2027, we actually use our DTAs by the middle of 2028. Those are probably two things just to bear in mind as you think about that. On the fee income, the fee income about 4% over the cycle. Maybe two things that I'd call out there. One is we had a really strong performance in 2025. Really pleased with that.
We do call out in the detail in the report, some modest one-off benefits, in our life business. I think when you adjust for that. The second thing is in our retail Ireland business, we expect a change in interchange arrangements from the beginning of 2027, which costs about 15 million EUR a year, so we've allowed for that in the 4% as well.
Maybe just as a final point, I spoke earlier about the ability for our wealth business to really supercharge our fee income. Against a backdrop of AUM growth of 10%, that fee income component that's coming from wealth is a hugely important part of our capitalized income model growth. Thanks, Sanjena.
Can I just follow up on the first one? You mentioned TNAV growing less than RWAs, but would you be happy to put some numbers to that?
For sure. loan growth around 4%, as we say, Ireland growing faster within that, Sanjena. If you think about RWA growth as a second leg on that, a little bit less because the mix factors, for example, Irish mortgages, U.K. mortgages, will carry lower risk weights than corporate. TNAV, because of the benefit of the DTA in particular, growing at about 1%-2% a year over the cycle.
I think Guy just had his hand up first. Sorry. We'll move to him next.
Thank you. It's Guy Stebbings at BNP Paribas. The first question was on net interest income. Thanks for all the exhaustive guidance today. Beyond 2026, just two particular points I want to focus on. On the structural hedge, there was some sort of useful color, but maybe can you just be a bit more specific in terms of maturing yields beyond 2026 or where you expect the yield for the total hedge to go to? Then on competitive dynamics, I think you talked a little bit about maybe some share giveaways perhaps, but in terms of any impact on product spreads in, you know, captured in the guidance, that'd be helpful.
Back on capital again, I guess I'm trying to understand, is the 14.5% the number because that's what's practical given the strong starting point, the strong capital generation and what you can realistically distribute, or is that the number because that's the right number you think the business should run to even well beyond 2028? Thank you.
Thanks for that. Mark, I'll pass on the NII-related questions to you . On capital, again, it's just that point that we start into a new strategic cycle. Hopefully you've got a very strong sense that this is a growth story for Bank of Ireland out over the next three years. We wanna make sure we grow our balance sheet, grow our business really safely, and make sure we've got the right capital to ensure that we can reward shareholders, that we can grow our balance sheet, that we can invest in our business model as well. It's in that context.
I'd make the point that linking a 14.5% capital that we can run the business at, combined with a target statutory ROTE of 16%, I think is a good balance to think about how we think about our conviction around that level of ROTE performance. Mark?
On the NII, maybe just to stand back for a second. This is a real story of continuing real momentum here in our NII trajectory. I think we were out with you a year ago. We gave a positive outlook on our NII trajectory to 2027. We've upgraded that outlook several times since, and we're upgrading again today. Again, specifically we're upgrading 2026 around EUR 3.4 billion, previously high EUR 3.3 billion . 2027 now greater than EUR 3.6 billion, previously mid three fives. The new guidance today of greater than EUR 3.85 billion. The key drivers before that balance sheet growth largely in Ireland and the benefit of the structural hedge.
I did note in the presentation that I see the potential for the business to reach EUR 4 billion, but after 2028. Specifically on the structural hedge maturing yields, actually, we've got some details in the slide materials, but in 2027, 116, and in 2028, 106. Again, when you think about the reinvestment yield, that is quite a delta between the reinvestment and the maturity.
Okay. Perlie, I think we can go to you next. Perlie, you can just press the button actually.
Oh, sorry. Hello. Sorry about that. On NII, yes, you've mentioned that you've upgraded guidance a few times. If I look at the building blocks to 2026, based on today's rates and what happened in Q4 implied, I think one could make the case that even 3.4 looks like there's some conservatism embedded in that. What are some of the areas that could drive it higher or lower? Competition you've mentioned. What about deposit migration to term? It's looks like it's a little bit slower than expected, so just what are you assuming over there? On the cost side, you've mentioned 3% reduction in headcount. Is that in relation to the EUR 250 million AI efficiency saves that you identified?
Thanks, Perlie , good to see you this morning. I'll ask Mark to take the dynamics on interest income and certainly any potential for upside. On the cost piece, maybe if I anchor my response to the question in terms of what we're doing with operating leverage, really important. In the context of top line growth of income of 4%, also creating significant operating leverage from efficiencies. I've spoken about a mid-40s CIR, cost income ratio by FY28. That's a 6 potential point improvement versus FY25. Certainly when we get to that up around in the mid-40s, we want to do more and do better.
The EUR 250 million cost savings that are built into that overall outlook for that mid-40% CIR there are three components that we called out. Much of the work has been done to get those benefits, it's the operating model we have deployed. It is our going after our customer journeys and our internal processes, and also making our third parties work really hard. Within the EUR 250, I would say of those savings in the region of about 20% are coming from AI. That's important because when we go beyond 2028 and our objective to create more leverage and take our CIR lower again, AI will play a bigger role in supporting that further improvement in operating leverage.
Perlie, good morning to you. Just on the NII, maybe way to think about this is just year-on-year, and we can look at this in different ways. If I think about year-on-year, three moving parts relative to 2025. Firstly, rates, and FX are lower, relative to 2025. ECB rate at 25 bps lower, on the year. BOE also lower as well, so about EUR 110 million of a headwind there. The deleveraging portfolios, and I think probably the market probably hasn't fully taken into account the impact of our US acquisition finance announcements, about EUR 70 million impact over three years, about EUR 30 million of that this year. Together they're almost EUR 200 million of a headwind.
Against that, we've got the balance sheet growth, the structural hedge, the full year impact of the bond purchases we've conducted, and they're more than offsetting that. That gets us to the circa EUR 3.4 billion. Happy to get into that in more detail, but those are the big moving parts.
Okay. I'll move down to actually Sheel here next. Just press the button, Sheel.
Great. Sheel Shah at JPMorgan. I've got two questions, please. Firstly, on the capital. Again, I'm struggling to understand the point around protecting the bank. You know, you've got RWAs that are growing, you've got a capital base that is also growing, but the capital ratio has now increased on the back of that in terms of the target. Are you holding anything back for maybe M&A or, you know, further growth opportunities beyond the organic that you're seeing across the plan? Secondly, on costs, could I ask around the investments that you're making and the timing of these investments and the timings of the efficiencies? You mentioned that the bulk of the investments have already been made around the org design.
You know, could I just press you as to the shape of these costs? I appreciate the total cost base is looking flattish, but more around the cost investments and the efficiencies. Thanks.
Very happy to, Sheel. Let me take the capital and M&A related question, and Mark the profile of those cost savings. Sheel, I mean, this morning we are, we're presenting an organic strategy for Bank of Ireland out to 28. Everything we've set out today is organic growth in the context of that lending book growth, the deposit book growth, and of course our wealth business as well. Nothing included in today's material for M&A. Of course, we do have the benefit of two transformative acquisitions in recent years, Davy Wealth, and of course the KBC back book as well. My experience is that M&A can be opportunistic.
Certainly, if any opportunities present themselves, I spoke about the importance on driving growth in Ireland, that will generally be my focus in that regard. We'll always think about an acquisition in the context that it must be aligned to our strategy, hence the Irish story. Two, that we could integrate it to ensure we generate synergies. Thirdly, that it generates strong, attractive returns. It's not an explicit linkage, but I think we can say that we are keeping a very strong capital position to grow our business and also, of course, be ready to avail of any opportunities should they present themselves. Mark?
Hi, Sheel. I mean, EUR 250 million targeted over this cycle, maybe just give a bit more color on it. At somewhere about between around 12% and 14% of our addressable cost base, that's offsetting inflation and also the material investments we're making. And the three buckets we spoke about, op model, our third party, and AI-enabled process excellence. If I think about the phasing of that EUR 250, somewhere around 40/20 over the 3 years. There are clear initiatives in place, and I'll just come back to those in a second. Just to give you a sense of momentum on that, actually in our disclosures for 2025, you can see we've got EUR 38 million of efficiencies.
That's mostly H2 weighted, so about a sort of run rate of somewhere between 2% and 3% second half of last year. We need to get above about 4% in our cost base. We're building towards that. Actually a note, actually, the members of our exec team are actually all in the room this morning, so I know they'll be really excited afterwards to tell you about what they're working on. Just to give you an example to bring it to life, and we mentioned about material consolidation on our third party providers. One of the things we would've worked on last year and would've been incorporated in the restructuring costs of last year was on our change providers. Okay? Reducing the number of providers there significantly down to around five.
All the hard work and the thinking, the RFP process, et cetera, all run, during the back part of last year, now that's actually coming to life and we're getting the benefits in this year. It's just one example, but there are many examples.
Okay. Sorry. Benjamin Toms from RBC. Thanks for taking my questions. The first on competition. Can you just give us some color about what kind of competition changes you've got baked into the plan? Have you been relatively conservative there? Irish banks have been relatively conservative historically. Does it make any difference, do you think, that one of your peers potentially might get purchased over the next 6 months to competition in Ireland? Secondly, on net interest margin, could you just help us a little bit with the shape potentially of net interest margin for this year to kind of give us an idea of the exit rate? Thank you.
Super. Thank you. On competition, I won't, as you expect, I won't comment on the particular transaction in the Irish market. I think it is interesting in the context of somebody willing to come into the market. From my perspective, maybe on the harder end of it, I referenced earlier on the guidance point, like, I think we're being pragmatic. We simply say that this is the Irish market is going to continue to grow. The loan book is gonna grow. The system loans will grow. For example, mortgages, that's a structural positive fact. I referenced earlier private sector credit grew 6% last year. Business sentiment is quite strong. I expect that to grow as well.
System deposits are also gonna grow, and certainly demographically, wealth assets will also grow, and we're particularly well-positioned to get the benefit of that. We have been pragmatic in assuming that a growing market, some of that will go to, will go to an alternative provider. Very focused on ensuring that we continue to compete. I spoke earlier to competing based on our physical footprint plus our ever-increasing digital capabilities. I regard that as a winning formula. We enter this period of maybe a slightly increase in competition but in a very, very strong position.
Just on net interest margin. Last year, 2.68%, broadly flat, half and half, and we expect the net interest margin going forwards to track our NII guidance.
Okay. Aman.
Hi, guys. I t's Aman Rakkar from Barclays. Had a follow-up question on capital. I'll start with that one. Follow-up question on capital. You're talking about the 100% payout ratio. You're talking about not being constrained going forward, it appears to have been a constraint today. I think you've kind of, your distribution outturn for the year has come in below market expectations, right? We're all expecting a payout ratio above 100%. Why did you not pay out above 100%? You clearly got the capital to do it. I guess I'm asking that question in the context of what it feels like pretty negative signaling here around capital, right?
You've increased your target CET1 ratio, and you've kind of come in below market expectations for distribution. Can you tell us exactly what's gone on in terms of this print and what it means going forward? My second question was around AI, actually. It's a clear market concern in the last couple of weeks, the highly disruptive potential impact of AI on actually the revenue streams of banks. And I look at yourself and Irish banks, you've got some of the richest product margins in Europe. Interested in kind of your reflections. I know it's an unfair question given this is kind of an emerging theme in real time. Just, you know, given your vantage point, interested in whether you share that view and actually to what extent you see yourself well-defended. Thank you.
Super. Thanks, Aman. Let me take both of those. On the capital question, I understand the question, and I mean, just to reiterate, I mean, today we're announcing a EUR 1.2 billion distribution. I call that out again because it's 100% of profits, and that's an increase of a payout from 80% last year to 100% this year. That consistent objective of returning surplus capital back to shareholders through a combination of a progressive DPS, that's up 11% on the year, but also surplus capital. It's always gonna be a point-in-time decision. Maybe to anchor it back, over the past 3 years, we've returned EUR 3.5 billion to shareholders, representing 37% of our opening market cap in 2023.
Again, as a measure of our commitment, of course, to hold capital to invest appropriately in our business, but also to reward shareholders as well, is an absolute priority for us. It always has been, and it will continue to be so as well. On the go-forward piece, again, I would just point to the very strong capital-gen momentum that we see. On average, 260 basis points of capital being generated on average for the next 3 years. That's capturing momentum, it's capturing growth, it's capturing operating leverage, all of which translates into that ROTE target of greater than 16 and that EPS growth of mid to high teens. That's how I think about it, and certainly that priority on returning capital is unchanged.
I do think there is a dynamic that's worth calling out, maybe to the heart of part of your question. If I think about looking forward, we expect to operate at 14.5% each year. I know I'm repeating myself a little bit here, but given the 25% investment in loan growth, that 100% payout would not be a constraint going forward. On AI, y ou're right, Aman. I've spoken to it as a positive disruptor, and that's what it is. Any disruption, of course, comes with risks. Not unique to Bank of Ireland, and not unique to banks, actually. I mean, for all sectors.
I mean, some of those risks are sector dislocation potential employment risks into the longer term, and maybe also deflationary pressure as well. They're very much into the long term. I don't think they're a clear and present risk. It's important that we absolutely harness the benefits of AI, but also we've got a keen eye on the risks. Again, if I link that to. It's a broader response to the question, but I think it's relevant. If I think about Ireland and its position, it's very strong economic growth expected over the next three years that's been driven by very strong sector performance in the domestic economy. The multinational sector where we export, that's holding up well, employment is up.
Really importantly, I think to the heart of your question is that, the Irish government's commitment to its National Development Plan, EUR 275 billion out over the next 10 years, like, that's going to drive and maintain economic growth in Ireland for some time. I think we can take that as a positive, and of course, as we appropriately manage those risks.
Sorry, at the back here.
Good morning, Eammon. Owen from Cyprium Partners. Just coming back on capital again. You're buffered to your minimum requirements now over 300 basis points. Should we think about that 14.5? Should we link it to your minimum requirements, so you'll run with a 300 bit buffer? If it comes down, it should mechanically come down. Then you just talked about the National Development Plan. I mean, your loan growth targets don't seem that ambitious given what's coming through there. I guess if growth were to surprise on the upside on loan growth, you know, what gives? Is it the payout ratio, or should we expect that 14.5 to come down? Then just maybe on NI, Mark, you said going to maybe EUR 4 billion after 2028.
Is that 2029 or 2030, and what's driving that? Is it rates staying at 225? Is it loan growth? Is it hedge? Is it a mix of everything? Thanks.
Great. Thanks for that. Let me take the first question, then I'll pass to Mark. Actually, you know, in setting our target to be at 14.5 for a CET1 ratio, we'll always check in as to where we stand against the rest of the market. When I look across eurozone banks, that's about 40 banks in total. The average buffer above MDA, as you say, is about 300 basis points. We're pretty much comfortably in the pack in that. Certainly any mechanical change in regulatory requirements, I think would have an impact on overall requirements as well. I think you can take that as a reasonable assumption. On the loan book growth, we've got an incredibly strong Irish franchise.
We've seen that in the last 3 years. Loan book growth last year, deposit book growth of 6%. We have factored in very strong growth into the future. For example, the mortgage book to grow at 5% per year. That's growing faster than the Irish economy. Certainly if the economy performs stronger, if some of that 10-year National Development Plan happens sooner, then we're very much well-placed. We've got the balance sheet capability to support that growth. That growth, I don't believe would come at a cost to getting the balance right with distributions as well.
Hi, Owen. Good morning to you. Just to add on that last point, obviously we've got EUR 1.7 billion of deleveraging portfolios as well, so that's gotta come through. A lot of that, 2026, a little bit less of a drag, 2027, 2028. In terms of the NII beyond 2028, as obviously we've given guidance on the targets is more into 2028, not going beyond. You know, my view is I don't think you'd have to wait for too long. You know, if I think about the drivers, on that, Eoin, really, you were talking about a pretty stable rate environment at that point.
There's still some benefit from the hedge, at that point into 2029, but it's really back to the balance sheet growth of those, that deposit and loan growth, particularly in Ireland.
Okay. It's Okay. There doesn't appear to be any further questions in the room.
Hi. It's Jordan from Mediobanca. On the loan growth point, I was just gonna ask, it hasn't really been mentioned, but about 10% + consumer lending growth this year. I wonder what was driving that. Obviously, that's a lot higher margin than on the mortgage or the corporate side. It's, you know, quite an important driver if you continue at that sort of run rate. T hat'd be super helpful, a bit of color on that and where you see that piece going in the future.
Thanks, Jordan. T he consumer book is a relatively small component of the overall Bank of Ireland balance sheet. But what is encouraging about it, that growth in the book, I see that as a measure of, importantly, of consumer confidence and willing to borrow. That's important because consumer confidence is the starting point for businesses having confidence to invest in their business. Yes, of course, we will support that consumer book. The encouraging element of it is that I referenced earlier private sector credit in Ireland up 6% last year. When I look at our business on the ground, we've seen very strong performance in manufacturing, in engineering, retail, holding up really well.
In fact, that book is growing, supported, I think, by consumer confidence, which again, gives us confidence to the growth story for Ireland.
Thanks, Jordan.
Okay. A few hands went up there. Sorry, Mike.
Mike Evison from Autonomous. Just two questions please. On the fees, thanks for giving more detail there. You're obviously guiding for some very strong AUM growth and about EUR 0.1 billion contribution to the income growth through 2028. It'd just be interesting to understand where you think that growth is coming from. Is it competitive market share? Is it just general new growth? In that context, how you think about any lost NII on that growth. Obviously deposits generate strong profits in Ireland, and are you assuming any, in your cross sale, any movement from the deposit book across the AUM book? The second question on the cost guidance. I'm just trying to put together some of the numbers.
You've obviously given the mid-forties cost income ratio target for 2028 and then said a lower than you're aiming or would expect to do a lower than 45% by FY 2030. Should we be implying from that the mid, forties in FY 2028 is higher mid-forties, or should we be looking mid mid-forties there?
Okay. Thanks Mike for that. Let me take those questions. I mean, on the fee income, I referenced earlier that our wealth business is a hugely important part of where we expect to grow, capitalize fee income. It's been an incredibly strong success story, two amazing brands with Davy and New Ireland. Davy in particular looking after our high net worth customers and of course in New Ireland, a life and protection business supporting pensions. We want those two businesses to continue to do what they do so well, but also, growing from that, there are areas that we know there are opportunities, in particular, the affluent market.
I referenced earlier we've got about EUR 2.2 million retail Ireland customers, EUR 2.5 million retail customers if we include Northern Ireland, where Davy is present as well. Within that it's about EUR 150,000 affluent customers. We want to target that. Much of our, I referenced earlier, we're spending a bit more on our investment profile. Part of that investment spend is in digital and CRM capabilities within the Wealth business. That's an area that we want to step into and that will not only generate short to medium term benefits, but also today's affluent customers, many tomorrow or down the line become high net worth customers. That's a good thing to go after as well. The other area that we are focused on is in pensions.
Many private workers in Ireland don't have a pension, so using the New Ireland brand to support corporate pension growth is another area. Certainly getting all our different businesses to interlink together for those cross-sells. Stepping back from it a little bit, the demographic piece is really important as well. We called out a 7% expected growth, wealth, household wealth growth out to 2030. That's a huge part of this story as well. Was there a second question or did I answer both? On the cost piece.
Again, the operating leverage piece around getting to mid-40s, I'd say it's about a 6%. Think about the delta.
It's a 6% improvement in leverage in part from a top-line revenue growth of 4% and keeping our costs as a CAGR of about 1% or less than 1%, we'll call it stable cost mark. But in that we have EUR 250 million of cost savings. So I'd say it's probably just, you know, you can take 6 off the current position. But I think at the heart of your question is that we don't stop in 2028. There's real momentum here to go beyond that. And we'll push hard for that. Thanks, Mike.
Okay. Anymore? Sorry, Aman back to you.
Thanks very much. Let me ask another question. I t's just about the revenue mix. I think you're around 81% net interest income this year, and I think in terms of your forward-looking guidance, you're effectively you know, indicating increasing shift towards net interest income from here. Is that just a reality of the banking system that you operate in, the position that you operate in, the opportunity set that's in front of you? You know, are you inclined to do anything about that? Do you want to try and address that revenue mix at some point? Can you?
I mean, it's an interesting question because if you know the backstory to Irish banks, typically the fee income has been a smaller component, Aman, of the total revenue. Now we have the fantastic opportunity to grow our net interest income, which Mark has spoken to, and of course we want to do that. That's a good story. But also of course, we want to increase our wealth fees, our fee income. I mean, our wealth business accounted for just under 50% of our total fee income. And that's gonna grow more. And of course it's not happening, but had net interest income remained static, then fee income would've become a greater component. It's great from a diversified income perspective, both are growing.
Certainly, I would say, again, I referenced earlier today is a, is an organic story, but certainly if there's anything, any opportunities that were to present themselves that would offer an ability to positively shift that mix we'd certainly have a look at that.
I might just come in on it as well because I think, if you think about one of the pieces we outlined in today, which is actually getting behind our wealth position, we've got fantastic positions, getting behind it more, investing a little bit more there. Talked about the impact in the near term and costs. Actually, we see benefits in 2028, but we see benefits, even more benefits into 2029 and 2030. We're making that conscious decision to invest now, recognizing that the medium term opportunity here is really, really attractive. I think we'll see further benefits beyond 2028.
Thanks, Mark. We just might give some people online an opportunity now. We can come back to the room. At this time we invite those analysts wishing to ask a question to click on the Raise Hand button, which will be found at the bottom of your screen. When it's your turn, you will receive a prompt and be promoted as a panelist. Please accept, wait a moment, and once you have been introduced, you may unmute yourself, turn your video on and ask your question. We'll just wait for a moment now for the queue to form. Looks like our first is from Borja Ramirez in Citi, please. Borja, you may unmute your audio now, turn on your video and ask your question. Borja, if you can hear us. We'll move on to the next question.
We can come back if, Rob Noble is there from Deutsche. Okay, we might just try and kind of come back to the room and try and resolve that any more questions.
Morning. Thank you for taking my questions. Just on the capital generation point, I don't understand how 25% of the capital gets consumed by RWA or growth, right? You're saying 4% loan growth and RWAs grow less than that because of the mix. If we call it 3%, I don't understand how you'll get anywhere near 25% of the capital being consumed. Is there something in there that I'm missing or doing wrong? I guess linked to that is, you'll do 12.5% ROTE, your numbers, 12.5% ROTE this year, generate 250 basis points capital. How come 16% in 2028 is only 270? It seems that it should be materially higher than that, even if you take off the DTA partially dropping off.
Last one is on the U.K.. There's a lot of spread pressure in the U.K. . What spreads are you writing on mortgages at the moment? What ROE do you see the U.K. within the mix of the group, and are you still happy with that business adds value overall? Thank you.
Good morning, Rob, and thank you for that. I'll respond to the broader question on our U.K. business, and then ask Mark to take some of your detail on capital and these spreads as well. I mean, we're very pleased with our U.K. business, Rob, where this is a business we've worked very hard in recent years, I called it out in my script earlier, to get that business performing well. It's a combination, I think, of a full service offering in Northern Ireland. That's particularly important because that offers efficient funding to support what I would describe broadly as a specialized lending in Great Britain. That's working, so that specialized lending supported by efficient funding, also an efficient operating model. We've taken costs out of that business as well.
T hat's resulted in for last year, if we use our UK PLC business as a proxy, it's a return on equity of 16%, and that trend has continued. Earlier I spoke about three components to our strategy: driving growth in Ireland, optimizing capital allocation, and three, investing for the future. The U.K. business sits comfortably in that second bucket where we are optimizing our capital allocation, and I'm very comfortable with that business and how we have repositioned it in recent years. Mark?
O n the RWA point, Rob, again, we're guidance morning loan growth of around 4% over the cycle. RWA is around 3%. I think the other factors probably you need to think about are OpRisk RWA, and obviously given our outlook, we'll have a higher OpRisk RWA based on earnings. Also CRT movements, which can move in individual periods as well. When you bring all that together, around 25%, we think is appropriate guidance at this point. Obviously in individual periods, we could do better than that, but I think about 25% overall. On the stat ROTE and the organic cap generation, yes, there's a DTA point.
I think the guidance maybe though is greater than 270, so just to note the greater than. Obviously, we'll think about the average, higher risk weights, as our balance sheet grows as well in terms of the denominator.
Thanks, Rob. Okay, Rob. Okay, our next question comes from Denis in Goodbody. Denis, if you can turn on your video, unmute your line, go ahead, and I'll obviously wait a couple of seconds for you to appear.
Great. Thanks. Good morning, Myles and Mark, and thank you for taking my questions. Just two please, if I may. One is the statement this morning referred to a 40 basis points impact from IRB model scalers. Just if you could give us a little bit more detail on that, please, and what areas of the loan book it's referring to. Secondly, maybe just more broadly on the Irish loan growth guidance, and the National Development Plan that you mentioned, Myles. I guess, how do you think about development finance lending in the, in that context? Is it an area you expect to move into more? Is it considered within the guidance, or are there any constraints which might stop you from leaning in a bit more into that space? Thanks.
Thank you very much, Denis, and good morning. T he strategy to grow our Irish business, within the lending piece of that, absolutely, there are two Significant structural opportunities in one we know very well, which is in relation to housing and the supply of homes. Our mortgage book has performed very well. It grew 9% last year as a book, expected to grow further out over the next 3 years. Of course, in support of that, infrastructural lending is hugely important to us, and we are, we're an active player in that market. There are different components to it. For example, on the house building side, we hit a target last year to support the development of 25,000 homes.
That's really important because we typically support the building of affordable and efficient homes, and that's the right thing to do from a societal perspective, but also plays in very nicely to our mortgage business. Beyond that, the infrastructure spend, that EUR 275 billion by 2035, about EUR 105 million, I think, over the next 5 years or thereabouts. We're very well poised to support that. That spend is going to focus on roads, infrastructure, energy. I should say we've built up capability in that regard and that team over the last 18 months, we're well-positioned to support that growing part of the market as well. On IRB, Mark.
That relates to scalers applied pending the approval of certain IRB models, about EUR 2.7 billion of RWA, 40 basis points CET1 now have some capital buffers that we held. Primarily U.K. mortgages, expect to at least partially recoup that over time. That is not built into our guidance, so that's actually a plus.
Okay. Thank you.
Thanks, Denis.
That's great. Thank you.
Okay. We're now gonna see if we can get Borja in Citi. Just give it a few seconds.
Thank you. Thank you very much for your time and for taking my questions. Apologies, my video is not on, but I'm currently traveling. I would like to ask two questions, please. Firstly, the capital generation target of over EUR 3.75 billion, it seems conservative in my view. I did a back of the envelope estimate, and I get to like EUR 600 million or higher net profit cumulative over the 3 years. If I use the P&L targets compared to the capital generations, I think maybe there's EUR 600 million of upside cumulatively. Then a link to this, I think that's I mean, there's also upside to your distribution compared to consensus, right?
I think if we assume like a payout of around 100%, there's still around I think 10% upside to consensus distributions for the next 3 years. I think that's interesting because with your EPS target growth, which does not include the share buybacks, you're already going to be towards the higher end of the European banks in terms of EPS growth. I think that's very, very interesting. Then my second question would be on cost of risk. I understand that you are deleveraging in those portfolios that have a higher cost of risk, like US acquisition finance, CRE, and U.K. corporate book. Also, I guess macro is very supportive with the, with the stimulus.
I understand there's maybe also some potential to surprise positively in the cost of risk in the medium term. That would be my second question. Thank you.
Thanks, Borja, good that we were able to patch you in. I'll ask Mark to take those questions. I mean, other than to offer an overarching comment, which is that to the extent that there is an ability to outperform any of the targets that we set out today, we'll always push ourselves hard to outperform. Certainly if we do, that offers opportunities to reward shareholders more to invest in our business model and indeed to grow our business. Mark, over to you.
Thanks. Morning, Borja. M aybe a couple of thoughts on the capital generation question or observation, I would say. One is, I agree, we're upgrading our guidance today over the cycle, particularly for 2028 from the emerging consensus I can see for 2028. I think we're upgrading by around 3% or 4% relative to that. If I think about the cap gen specifically, we do have higher net profit, you're right, over the period. You also have to think about other moving parts and getting from profit to cap gen. For example, the changes in the expected loss allowance would be one that would be within that as well.
As I mentioned earlier, about 25% of that strong organic capital generation we need to invest in growing our business. We've, we factored all that in. We factored in the delta between the 15.1 and the 14.5 and arriving at the EUR 3.7 billion. As Myles said, absolutely, if we can outperform that, we will absolutely do it. We think we've, I think, made realistic assumptions overall, but we'll obviously look to outperform those. Then the cost of risk, actually a really good performance in the second half of last year. So, you know, our NPE ratio down to 2.2%.
That's its at its lowest level over the last 15 years, we're in really good shape. That reflects a lot of hard work, I'd say, on the ground in the second half of the year, particularly strong last quarter to the year. We're really pleased with that. If you think about the low to mid-20s guidance for 2026 then, I think it's a similar level beyond actually, by the way. You know, I think that's an appropriate level, Borja. One of the things we've done actually looking back over the last sort of 5 or 6 years is testing the cost of risk over that cycle. You're right, we have made decisions during that time in terms of strategic reallocation of capital most recently on US LAAF.
That does support a lower cost of risk, but I'd say that at this point, low to mid-twenties is an appropriate level to think about.
Thanks, Borja.
Thank you.
Okay. Borja was the last online, we just come back to analysts in the room. Fatima. Just go and press the button if you remember it.
Hi. T hank you for taking my question. The forward-looking guidance that you have for 2028 NII was a lot better than what people were expecting, and a big part of that is you growing the size of your structural hedge. For that, you assume a swap rate of 2.5%. Is there any risk of the long end of the yield curve coming down? What would the risk be on that NII guidance? I think swap rates today are 10 basis points lower than what you'd guided to. Would that maybe incentivize you to change your hedging behavior, so perhaps ramp it up a bit more slowly or think about increasing your duration at all?
Thanks, Fatima. Mark, do you wanna take that?
A bsolutely, Fatima. You're right. I mean, the structural hedge is a key part of our revenue outlook. If I think about we've given the details in the presentation, a lot of the benefit is locked in, certainly for 2026, more than 90%, more than 70% next year. I think the other piece that came up in the question earlier is you think about the maturing yields. The maturing yields here are closer to 1% over the period. Yeah, of course, there's an impact, and you can think about EUR 9 billion a year rolling off. You can sort of do the math in terms of if there's any delta in terms of the reinvestment rate.
We think getting to 2.5%, so even on today's curves, is absolutely reasonable and realistic.
Okay.
Okay. Any more questions from analysts in the room? We've one at the back on the phone.
it looks like the Irish government are gonna introduce sort of tax-free investment wrappers like there are in the U.K. with the ISA type structure. I was just wondering if you've embedded anything in your targets in outer years for that.
Thanks, Owen. The backdrop that of course is, if I understand the question correctly, is the European initiative on Savings and Investments Union, which is about empowering customers with better tools for wealth growth and retirement. I would say that is entirely aligned with Bank of Ireland's strategic objective to grow our wealth business. As Ireland's national champion bank, our job is to offer choice, whether that's a simple deposit account, whether that's a passive wealth account, or whether it's a more discretionary approach to it. Certainly, I would be very supportive of the introduction of an ISA type product. That would be a progressive step, and we'll be very happy to support that.
In many ways, the products that we're developing, are in essence that for affluent and mass affluent market. It's aligned with our strategy, and we would support it.
Okay. Any more questions in the room? F olks. Look, thanks everybody for your participation this morning. For those of you here with us in the room, you're welcome to stay for refreshments and to meet the members of the group executive who are here in kind of the front rows. We look forward to also meeting as many of you as possible on our roadshow. If you have any follow-up questions, obviously please reach out to us in Investor Relations as well. Thanks again. Have a great day.
It's a busy day in the market, guys, so thank you for being here today.
Thank you.
Thanks a lot.