Earnings Call: H1 2020

Aug 4, 2020

Good morning, and welcome to our 2020 interim results presentation. I'm going to give a short presentation on the progress the bank has made in the first half of twenty twenty, after which I will provide a more detailed review of our financial performance. I'll be happy to take any questions after that. We turn to slide 3 with regards to highlights. The first half of twenty twenty has been an unprecedented period of time where customer and colleague experience have changed so profoundly. The sudden outbreak of COVID-nineteen in March of this year has impacted the bank's operational and financial performance. However, the strength built up in the bank's balance sheet and business model has ensured that we are able to support our customers and the Irish economy. We've approved more than 10,500 mortgage payment breaks equating to GBP 1,600,000,000 in loan value, and that represents 10% of the bank's gross loan book. The average loan size of a payment break is around €152,000 and the average yield is 2.8%. At the end of July, we've seen a 50% reduction in the number of active payment breaks since they peaked in May of this year. Business performance has started very well started the year very well, in particular in mortgage lending. Before the country's response to COVID-nineteen impacted all new lending activity. The bank wrote CHF 600,000,000 in total new lending in the first half of the year. However, this is a reduction of 16% when compared to the same period in 2019. Total new mortgage lending of CHF 530,000 reduced by 14% year on year. The mortgage market itself reduced by 16%, and as a result, our market share increased to 15.2%, up from 14.7% in the 1st 6 months of 2019. In recent days, we've announced significant changes to our mortgage pricing for both new and existing customers. These rate reductions go a long way to addressing the discrepancy, which additionally existed between the bank's pricing for new and existing customers and combines enhanced competitiveness with increased furnace. The bank is reporting a loss before tax of £57,000,000 which compares to a profit before tax of £28,000,000 for the same period last year. Operating profit of £23,000,000 for the first half compares to operating profit of £47,000,000 in the prior year, with net interest income reducing by 6% year on year. The bank's net interest margin of 175 basis points is showing a decrease of 7 basis points on the previous 6 months of 2019 and a 5 basis points reduction versus the 2019 outturn. I'll cover this in more detail in the financial summary. Underlying operating expenses, excluding regulatory costs and costs associated with COVID-nineteen, were CHF 142,000,000 and that's CHF 3,000,000 or 2% lower year on year. As the bank continues a strong discipline and cost management, reflecting the lower cost, Regulatory charges were £20,000,000 for the first half, and this is £2,000,000 higher than the previous period, and this is due to the higher level of insured deposit balances. The total impairment charge for the first half was £75,000,000 and this compares to a £5,000,000 charge for the same period in 2019. The impairment charge is largely driven by the update of the macroeconomic inputs to reflect the impact of COVID-nineteen on the longer term economic outlook. Non performing loans were €1,100,000,000 and that remains broadly in line with the balances as of the end of 2019. The NPL ratio increased slightly to 6.8% from the 6.4% level at the end of 2019. The bank continues to actively manage the NPL portfolio and is still committed to reducing the NPL ratio to mid single digits in the medium term while protecting capital. The common equity Tier 1 ratio was 13.9% 16.5% on a fully loaded and transitional basis, respectively. This compares to the bank's pro form a CET1 ratio of 15% and 18.1% as at the end of 2019 on a fully loaded and transitional basis, respectively. Capital ratios remain above management and regulatory minimums. The reduction in capital ratios is primarily driven by the increase in the impairment charge and approved increase in the bank's risk weighted assets associated with the payment break population. The Central Bank of Ireland has provided additional flexibility to banks under their supervision in the context of the COVID-nineteen crisis, and this is designed to support the sustainable provision of credit to the economy. Now turn to Slide 4. COVID-nineteen has caused a sudden severe contraction in economic activity across the world. The global health pandemic quickly became a global economic crisis. Job losses came in waves aligned to the increasing levels of public health restrictions, the greatest impact coming from sectors such as construction, retail, hospitality and leisure. The number in receipt of the pandemic unemployment payment peaked in early May at more than 600,000, but has declined over the last 8 weeks to around 290,000. And following a sharp increased job loss across all sectors, the labor market is expected to begin to recover in line with the phased reopening of the economy. However, the labor force is expected to be smaller over the forecast horizon with unemployment estimated at around 12% by the end of this year. Employment growth is estimated to be at 9% in 2021, bringing the forecast unemployment rate back to around 8% by the end of 2021, but these are still well above the pre COVID-nineteen levels. We now turn to slide 5. Household deposits stand now stand at an all time high, recently reported at €118,000,000,000 This suggests that households have a significant source of funds to support a future recovery in consumer spending. Demand for CREF declined in March following the introduction of the initial containment measures with a significant blow reported in mid April. Demand sustained has picked up showing signs of recovery, especially in consumer credit. Mortgage inquiries remain subdued through April May, but there's been a good recovery in applications since early June. The latest data on residential property market transactions suggest that activity is returning to more normal levels. Updates to the property price registered at the end of July showed an increase week on week. However, activity is still 30% below the 2019 levels. The mortgage market having grown to €9,600,000,000 in 2019 is now expected to decrease by 26% to around €7,000,000,000 in 2020 before expected growth of about 20% in 2021 to a market size of €8,400,000,000 House completions of 21,800 in 2019 are expected to be much lower with estimates of 13,800 house completions in 2020, and that's a decrease of 37% year on year. House prices were forecast to reduce by up to 2% with some recovery in 2021. However, we've yet to witness these reductions in the market with some commentators suggesting a lower impact. If we now turn to Slide 6. As mentioned at the outset, the bank is fully committed to supporting our customers, colleagues and communities through the COVID-nineteen pandemic. Proactive measures were undertaken for early 2020 to protect the health and welfare of our colleagues and customers. We've put in place a large sorry, excuse me, a range of supports for our customers, including the approval of 10,000 500 more payment breaks to give our customers the financial breathing space they needed at the time at a time of crisis the introduction of an online portal to facilitate mortgage and term loan payment breaks. And in the coming weeks, this portal will also offer online statements of financial suitability or SFS returns, and that's required for processing customers who require assistance at the end of payment break 2. We've also offered customers temporary overdraft and credit card limit increases, and we've given over €1,000,000 in cash back and incentives and rewards to explore current account customers. We've increased the limit on contactless payments from €30 to €50 per transaction, facilitating customers to pay using their card as a safer option during these unprecedented times. And arising with this, 92% of customers are now using contactless payments over cash. Around €40,000,000 contactless payments were made by customers since the beginning of the year. And as a result, we've experienced a 60% reduction in over the counter cash during the 1st 6 months. In addition, we have kept all of our branches open to serve our customers. We deployed over 100 staff and mobilized 4 new regional centers to further support in answering customer queries. Our colleagues' response to the COVID-nineteen pandemic is a reflection of the positive customer focused culture in the bank as over 100,000 of our branch colleagues work face to face with customer daily to provide an essential service to people right across the country and with no bank location closing. We also introduced priority banking hours for elderly and vulnerable customers and kitted out all our branches with social distancing and hygiene measures. COVID-nineteen has accelerated the move towards digital channels for both our customers and our colleagues. Personal service will remain at the heart of everything we do. However, as both customer and colleague experience have changed so profoundly, digital will play an ever increasing role in our service offering and our future ways of working. 72% of customers are now choosing to bank using online channels, and we've seen a 43% increase in mobile app logins versus last year. The teams across technology were focused heavily on providing a quick response to both customers and colleagues building a COVID-nineteen portal on our website and enabling over 1200 of our colleagues to work from home within a very short period of time. We introduced Zoom and WebEx functionality as well as Skype for Business with instant messaging and chat enhancing communication from remote sites. And communication was indeed a main focus of the bank, right, because we kept colleagues informed as the weeks progressed. And the bank issued more than 150 internal communications, which was welcomed by all during these unusual times. The coronavirus pandemic has accelerated many trends and we are already seeing that we were already seeing. And we will be looking over the coming years at how both the workforce and the workplace may change in the future. The immediate actions taken by the bank to support customers during the pandemic has been recognized by our customers, and we're pleased to say that the bank's relationship net promoter score or NPS score, and that's the degree to which our existing customers recommend us to potential customers, has increased to a score of 14 plus 14, and that's a clear first in the market as at the end of June. If we now turn to slide 7. When I was appointed Chief Executive some weeks ago, I spoke of my pride in the community roots of this bank, roots that stretch back over 200 years to the Building Society and Trustee Savings Bank movements of long ago, Our huge ambition for permanent GFE and despite these unprecedented times, I do believe that we've all agreed to become a clear number 3 in the market. Further building trust with customers will be at the heart of our approach. And in my 1st 6 weeks as CEO, I've set out a new purpose for the organization, which is centered on building trust with our customers and connecting with the banks, community, heritage. Our purpose is to work hard every day to build trust with customers and to ensure that we live up to our promise of being a community that serves the community. We will do this by building a sustainable organization that is transparent and fair with customers. Our ambition is to be Ireland's best personal and small business bank. Best doesn't necessarily mean the biggest, but it does mean being the best of what we do for both our personal and business customers. And to achieve this ambition, we will be focused on a number of key priorities, including increasing loyalty with our customers, enhancing our digital capability, embedding an open, intrusive and risk aware culture, simplifying our business and by focusing on doing the right things, I have no doubt that we can build a successful and profitable bank that we can all be proud of. To achieve these priorities, we need to focus on building trust and loyalty with our customers and to work on transforming some key elements of the bank to build a sustainable future for the bank. If we now turn to Slide 8. Since my appointment, I've been focused on putting our purpose into action for our customers. And clear examples of this are major changes to our mortgage interest rates announced last week and our recent 3 year partnership with Oculon Housing. The positive customer focus changes to our mortgage interest rates goes a long way to addressing the discrepancy, which traditionally fits between our pricing for new and existing mortgage customers. We will continue to evolve our mortgage pricing strategy in this direction as we move forward, and that's in line with our ambition to build trust with customers and to reposition the bank as a customer and community focused bank. We are also supporting valuable societal projects in communities such as our recent partnership with Okulon Affordable Housing. Okulon the Okulon Co Housing Alliance is an approved housing body who develop fully integrated, cooperative and affordable schemes in communities across the country. As part of our partnership, the bank will donate €350,000 in funding, which Okoulon will use to fund the resources required to accelerate their development plans, including more than 1800 affordable housing, formerly family homes across the country. And as I previously mentioned, COVID-nineteen has accelerated the move towards digital channels for both our customers and our colleagues, evolving the way we work and the way we bank. Personal service will remain at the heart of everything we do. However, as both customer and colleagues' experiences have changed so profoundly, digital is playing an ever increasing role in our service offering and our future ways of working. In the first half of twenty twenty, we had 47,000,000 successful logins online and with customers accessing their accounts via desktop or using their mobile device, and this is an increase of 30% year on year. The bank has now more than 650,000 active online customers, and this is an increase of 8% year on year. And most importantly, 94% of term loan lending applications have now been completed online. As previously referenced, despite Irish sentiment being at its lowest level since recessionary times, the bank has made significant gains in relationship NPS with an increase to a score of 14 at the end of June, And this compares to a score of plus 3 at the end of 2019. And the main drivers here have been around customer care and how relevant the bank is for what the customer needs. And our purpose is centered on building trust for customers, and we've worked hard in this regard and are pleased to see our trust goal move from 50 at the end of 2019 to 55 at the end of June 2020. And this is an increase of 10% in the first half of this year, placing the bank joined first in the market. And trust here refers to the proportion of main bank customers who would endorse the bank as being trustworthy. The source of this comes from the WebSeas research poll, which was commissioned by the bank in June of this year. The customer focus is a key priority of the bank, and our aim is to enhance customer journeys both on and offline to leverage that these will be leveraged by digital capabilities to improve our service offering and to reposition our brand to ensure customers are enabled can enable are enable to bank at any time and place of their choosing with a product and service that they need. And we expect success in the medium term with further significance in the customer satisfaction, trust and loyalty by being the clear number 3 mortgage provider in Ireland, being the best bank for small businesses in Ireland, having a simple digitally enabled customer journey, providing products and services and process that are easy to use and simple to access, a repositioned brand where we are known for meeting the changing customer needs as their expectation evolve and in essence, being a customer focused bank. And we're making good progress in building a valuable franchise whilst respecting that we, like others, have a way to go before we build the trust and respect needed for a fully functioning banking market. If we turn now to Slide 9, We are making good progress on our multiyear digital transformation program, building digital capability for our customers that will enable them to bank at a time and place of their choosing. Together with enhancing our IT infrastructure, we are simplifying our processes all the time as a means to driving sustainable cost efficiencies, for example, with the introduction of robotic process automation. Later this year, we will be bringing to market an end to end current account, and this is a new digital onboarding journey that will allow customers to open a current account from the safety of their home in approximately 6 minutes. In addition to enhancing personal customer journeys online, the bank is also building digital services for our business customers, and this is a priority focus for us for the remainder of 2020 beyond. We now confirm mortgage applications within 72 hours and we will extend approval in principle to 12 months in the near term. We will be following our end to end current account delivery with the introduction of a digital mortgage journey and the rollout of a mobile payment capability later this year as well. The SME market is the key focus of the bank, and I'm pleased to announce that we will be working with the SPCI and participating in the government backed Future of Growth loan scheme. This will be live for customer applications from October onwards, and we obviously welcome those applications. The bank has been on journey to improve its culture for the last number of years, and this has included a bank wide organizational culture program. And positive indicators of cultural change are evident with 98% of our colleagues believing that the bank continued to support the well-being of our customers through COVID. And in addition, the employee net promoter score of plus 13 was very positive in the first half of twenty twenty. We're also actively involved in improving the culture across the banking industry as an active member of the Irish Banking Culture Board. We're absolutely focused on rebuilding trust and improving our culture for the better of our customers and all of our stakeholders. And our ambition in the medium term is deliver a strengthened culture that is diverse, inclusive and risk aware a positive impact on the communities in which we operate a streamlined organization with effective organizational design, delivering capability and efficiency with a clear reduction of both product and process complexity. We want to grow quality earnings across diversified income streams with the 3 main streams being mortgages, consumer finance and SME loans and provide our customers with the choice they require to address banking proposition, which will enhance the customers' experience. If I turn now to Slide 10, as previously mentioned, the environment in which the bank operates has changed materially and is more challenging. However, the strength built up in the bank's balance sheet and business model has ensured that we are able to support our customers and the Irish economy. Our ambition in the medium term is to grow our business through diversified income streams, reporting net loan book growth and increasing noninterest income from a loyal customer base. Balance sheet management with lower cost funding, acquisition and servicing together with new propositions for small businesses targeting underserved customer segments will be a key focus for us going forward. We will also provide our customers with competitive commercial pricing that is within the bank's risk appetite and will ensure asset quality is of a good standard. And we will drive efficiencies, transforming the bank's cost base and reporting absolute cost reduction year on year. Efficiency will be critical success factor. Our goal is for improved returns with a robust capital position. I'll now bring you through the financial summary. If we just turn to slide 12. The key message I want to convey today is despite a good business and financial performance in quarter 1, the effects of the COVID-nineteen pandemic at quarter 2 performance had a material impact on the bank's profitability. We're reporting an underlying profit before impairment and exceptional items of CHF 23,000,000 and the total income has top line income is reduced by 6%. We're looking at net interest income and we will look at apologies, we'll look at net interest income in more detail on the next slide. Fee in commission income of £16,000,000 is 9% represents 9% of total income and added 6% or £1,000,000 below the prior year. And this is due to reduced transactional banking activity as a direct result of the impact of COVID-nineteen in the economy, together with the additional rewards the bank has paid to customers during quarter 2 and this was supporting them through what has been a difficult time for everyone. Net other income is showing a loss of £2,000,000 and this is driven by a prudent revaluation of the stock of properties in possession that we have available for sale. And it compares to income of €12,000,000 in the prior year, and this was actually due to primarily gains on the disposal of properties and possession, which we affected during 2019. Operating expenses have reduced by 2% or €3,000,000 as efficiency savings offset investment and inflation pressures. This reduction in cost is evidence that the bank is maintaining a steady cost discipline. The most significant impact of COVID-nineteen is seen in the net impairment charge and a H1 charge of €75,000,000 reflects a significant deterioration in the economic outlook during the Q2. Under IFRS 9, the bank is required to look forward and estimate future expected credit losses based on a range of potential outcomes using multiple economic scenarios. And as a result, the overall balance sheet impairment provision has increased as we build additional balance sheet resilience. Given the economic outlook, the bank assumes a prudent approach to provisioning. The full year loan loss experience will be directly linked to the emerging macroeconomic indicators and the impact of payment breaks issued in 2020. Exceptional items of £5,000,000 for the first half primarily relate to costs incurred in the bank's immediate response to COVID-nineteen and ensuring the continuity of service in a safe and secure way as the country embraced the government imposed lockdown. We'll turn now to the net interest income and net interest margin slide, which is Slide 13. Net interest income reduced by 6% or £10,000,000 and this was due to lower income on the maturity of higher yielding treasury assets, which had an impact of £11,000,000 and lower income from NPLs and this had an impact of £5,000,000 these were offset by increased forming loan income and lower funding costs. Net lending income, and this is the which is performing loan book income less deposit costs grew by 5% to £177,000,000 in the first half of the year. The net interest margin was 175 basis points, which is 5 basis points lower than that reported in 2019. The total asset yield was 1.95 percent and this is a 10 basis points reduction when compared to the same period of 2019. And this reduction in asset yield was due to the continued maturity of high yielding legacy treasury assets, the cost of ECCOS liquidity with price reductions, but also with price reductions for the bank's fixed rate mortgage product offer. We continue to actively manage the cost of funds with the first half cost of 22 basis points, and this is a 5 basis points lower cost when compared to the same period in 2019. And this reduction was achieved primarily through continued active management of deposit costs, which offset the impact of an MTN issuance in the second half of twenty nineteen. Overall, we expect the NIM trajectory to be in the low 170 basis points area for the for 2020. If we now turn to the loan book slide on slide 14. Total new lending reduced by 16% year on year. Mortgage lending, which represents almost 89% of total new lending, reduced by 14% when compared to the same period of 2019. And indeed the mortgage market itself reduced by 16%. We are pleased to report that the market share of new mortgage drawdown increased from 14.7% for the 1st 6 months of 2019 to 15.2% for the 1st 6 months of 2020. And while our share of application has been slightly lower through the early part of this year, it has improved to 14.4% for the month of July June. As mentioned previously, we've taken action by introducing a reduced new mortgage pricing for new and existing customers. And just to remind ourselves of that, over 70,000 customers will benefit from the reductions to the standard variable rate, which is reduced by 0.5% and the managed and managed variable rates, which are reducing by up to 30 basis points, and they're both from early September. We've also had a reduction in fixed rates for all existing customers and we're aligning the front and back book rates. And we've also had a reduction in 3 5 year fixed rate for new customers for mortgages over 250,000 and these rates now are as low as 2.5%. The mortgage market is expected to reduce to around €7,000,000,000 in 2020 and that provides that presents a challenging backdrop for our business and is very important for us to remain competitive for our customers. We believe that efficient distribution and disciplined pricing coupled a strong intermediary position, the 3 of those together positions us well for the future and we can continue to be a competitive force in the mortgage market. Personal term lending was €46,000,000 and this is a 35% reduction year on year with April May 2020 see little demand for consumer loans. The majority of our personal loan applications now originate through direct channels. We've fully automated the personal term lending journey such as that real time decisions, document upload and payout can all be fulfilled digitally, thereby eliminating the need for manual intervention. SME lending was €25,000,000 for the 1st 6 months. And going forward, we are confident we can build a real market presence in this business in the business segments we choose. If we now turn to slide 15. Our total home loan performing book was €11,600,000,000 at the end of June, and this was a slight decrease versus the end of 2019. This movement is reflective of the quarter 2 COVID impact and the continued competition within the mortgage market. The performing mortgage book has an average yield of 2.59% and that's more or less flat year on year. And you can see from the top right hand side of the slide that the first half twenty twenty average yield of new mortgage loans were 2.86%, and this is a reduction of cloud basis points versus 2019. This reduction is in line with the market trends and is in line with our aim to remain competitive while maintaining price discipline. The bank rose over €500,000,000 of new mortgage business in the first half of the year and 90% of this was on fixed rates with an average yield of 2.88%. The home loan book naturally pays at around 5% per annum, and the first half of twenty twenty outflows, and this is both repayments and redemption, was €600,000,000 42% of this was from tracker mortgages and they had an average yield of 1.29%. Tracker mortgages now account for 44% of the home loan performing book and this is down from 54% at the end of 2017. Fixed rate mortgages account for 34% of the home loan performing book and this is an increase of 25 percentage points in the last 3 years. Variable rate mortgages, which consist of both standard and managed variable rate products, make up the balance of 23% of the performing home loan book. This has decreased by 14 percentage points over the last 3 years. Only 3% of the performing home loan mortgage book is on an interest only product. We now turn to Slide 16. In terms of our buy to let mortgage book, this has reduced by 4% from £3,300,000,000 as at the end of December 'nineteen to £3,100,000,000 at the end of June. The buy to let mortgage book is primarily a legacy tracker mortgage book made up of 90% tracker, 9% variable and 1% fixed rate. And you'll see from the top right hand corner of the slide that the average yield on this buy to let portfolio is 1.42%, and it was flat versus the same period of June 2019. 84% of the tracker buy to let book has an average yield of just 109 basis points. As previously outlined, the majority of the bank's interest only mortgages are within the buy to let book. And as of June 2020, 60% of the buy to let book are on interest only. Now let's turn to operating expenses. Total operating expenses have reduced by 2% year on year. Operating expenses for depreciation, amortization and regulatory charges, and we refer to these as our addressable costs, were CHF 123,000,000 in the first half of twenty twenty, and that's a decrease of €5,000,000 or 4% year on year. The primary movers of operating costs were wage inflation of €1,000,000 investment in business and technology programs of another €1,000,000 and these were offset by lower cost paid contractors together with other savings initiatives, including lower legal and professional fees. Staff costs were €77,000,000 and they've remained unchanged year on year and with a 2% increase in staff and wage inflation being offset by lower numbers of daily rate contractors and associated costs. Non staff costs reduced by £6,000,000 or 10% year on year with ongoing savings initiatives across discretionary costs allowing for investment reinvestment spend. The 3 year investment program technology, which known internally as Project Forte, together with some other investment initiatives remain on track with continued cost reduction efficiency gains being realized. As a result of this, you will see the underlying depreciation and amortization costs has increased by 12%, and you can expect this line to continue to increase in the medium term as progress is made in completing our investment programs. We will continue our rigorous focus on cost management and we expect underlying addressable costs to continue to reduce over the medium term as the cost of investment is funded from sustainable operational efficiencies within the cost base bank's cost base. On a like for like basis, the underlying cost income ratio, and this is when you exclude regulatory costs, was 78%, which is 9 percentage points higher than the previous year, but this is actually due to lower total income. We now turn to slide 18. We'll cover the mortgage payment breaks in detail. So for March 2020, the bank has approved around 10,500 mortgage payment breaks. The average mortgage size on the payment break was 152,000. The average loan to value on the payment break population is around 70%. The average yield on the payment breaks is 2.8% and around 50% of payment breaks are tracker mortgages. As at the end of July 2020, the bank has 9,400 expired payment breaks, 40% or 3,700 have moved on to payment break 2, 14% or 1300 are in discussion with the bank with regard to the option they will pursue with regard to moving forward, 46% or 4,300 did not require a payment break and have now returned through normal repayment terms. And the bank has 4,000 active mortgage payment breaks as of the end of July and the average yield on these is slightly lower, 2.7 percent. Turning now to Slide 19 on NPLs. Nonperforming loans at the end of June were 1,100,000,000 and this is broadly in line with the 2019 year end balance. When compared to the prior year, we see that the balance has reduced by 35% from €1,700,000,000 to €1,100,000,000 bringing the NPL ratio from 10% to 6.8% over the last 12 months. And this reduction was primarily a result of the second half twenty nineteen transaction called GLOS 2, where we sold 500,000,000 of non performing loans with that transaction being capital accretive. Organic and technical cures during the period were around €100,000,000 Looking forward, we are committed to meeting the mid single digit NPL ratio. And through this, we estimate that 44% of current NPLs are on a path to cure through organic and technical cure means, and we expect that to happen over the next 12 to 18 months. For the remaining 66% of NPLs, we will consider all options in connection with reducing this balance. And our main aim as we reduce our NPL position is to protect capital. As you'll see from the table on the bottom left hand side of the slide, our asset quality and level of provision cover remains at an appropriate level, with an expected credit loss of 350,000,000 €1,100,000,000 of nonperforming assets. From that, we have an overall 31.9% coverage ratio, which we believe is appropriate. The guidance from the regulator under the structure process and coverage levels on secured NPLs over 7 years remains unchanged. And for the end of 2020, the requirement is to have 40% coverage on these 7 year on these NPLs over 7 years, and that increase that coverage ratio increases to 100% on a linear basis to 2026. We'll move now to Slide 20 to cover our funding position. Our funding positions have remained strong in spite of the COVID-nineteen pandemic. Our strategy is to continue to fund our balance sheet by customer deposits while keeping other funding lines open and accessible, and that's exactly where we are today. And as you can see from the table on the top right hand side of the slide, at the end of June, the bank's liquidity and funding races have continued to move positively since the year end. We are now 95% funded by customer deposits with retail balances remaining stable year on year. The bank has revised sorry, the Central Bank has revised the bank's current NREL requirement in order to reflect a reduction in the countercyclical buffer, which reduced 1% to 0% and has extended the transitional period to comply with the requirement by 6 months to June 2021. And we expect confirmation of a revised target with a new MREL decision in the first half of twenty twenty one, and that's using the bank's resolution and recoveries directive 2 framework. I should also note here that the bank's excess liquidity held with the Central Bank as of the 30 June was around €300,000,000 and it was attracting a negative 50 basis points cost. At the end of July, that is now reduced to around €200,000,000 and we will actively manage our liquidity as we move forward. We just move now forward to Slide 21 and cover capital. Our regulatory capital ratios remain comfortably above the regulatory minimum requirements. The CET1 ratio on a fully loaded basis has decreased by 1.1% to 13.9% at the end of June 2020, and this compares to a pro form a level of 15% at the end of December 2019. On a transitional basis, we also decreased our core equity Tier 1 ratio by 1.6% to 60.5% when compared to the pro form a level of 18.1% at the end of December 2019. The reduction in capital ratios is primarily a result of the net impairment charge of £75,000,000 in the P and L, together with a prudent approach to reflecting higher risk rates on the payment break population. Risk rates have increased from €9,700,000,000 as of the end of last year to €10,000,000,000 at the end of June, capturing the risk which has not yet materialized with regard to the payment rate population. As mentioned in an earlier slide, the Central Bank in response to the COVID-nineteen pandemic have introduced measures to support the sustainable provision of credit in the economy and specifically the removal of the countercyclical buffer of 1%, but also the early introduction of COD5 regulatory of the COD5 regulatory amendment, which lowers the CET1 on a traditional basis by 1.51%. Therefore, the CET1 minuteimum SREP requirement is now set at 8.94% and having reduced from 11.45% since the end of 2019. And the total capital ratio requirement has reduced from 13.9% sorry, it was reduced to 13.95%, and that's from a level of 14.95% and both of these on a transitional basis. The management our management target for fully loaded corected Tier 1 still remains at a 13% level. The bank maintains a robust leverage ratio with the Tier 1 capital fully loaded ratio at over 7% and the Tier 1 traditional level at over 8%. So it's just quite safe at those levels. So the outlook, let's talk about 2020. The first half of twenty twenty has been challenging not only for the bank, but also for the Irish economy and for society as a whole. The outlook remains uncertain. Recovery is dictated by the containment of the COVID-nineteen virus and the government led phases of reopening the economy. As previously indicated, lower business activity in quarter 2 has impacted gross lending volumes. However, July has shown more positive signs of recovery, and therefore, we anticipate 2020 new lending volume could be 40% lower than the volume in 2019, and that was €1,700,000,000 Net interest income will be lower as the remaining higher yielding treasury assets mature. Our net interest margin is expected to decline to the low 170 basis points level, and this reflects the low interest rate environment and slight growth in liquid assets. We will continue to review non interest income. We're currently it currently represents 9% of total income, and we will look to grow this in terms of it being 10% greater than 10% of total income in the medium term. Achieving cost reductions in the current economic environment will prove challenging. However, the bank retains its outlook that operating costs will remain stable for 2020, and we're committed to delivering cost savings in the medium term. To be noted that 90% 7% of total performing assets are secured by residential mortgages, and as such, the full year loan loss experience will be directly linked to the emerging macroeconomic indicators, the impact of the payment breaks issued in 2020 and house price inflation. The reopening of the economy, recent declines in unemployment data and the resilience of the housing market and the government stimulus program now in place shows more encouraging indicators than would have been previously anticipated. The bank will keep expected credit loss on the constant review throughout the second half of the year, And our capital remains strong, having access to a range of scenarios and having access to a range of scenarios, the CET1 ratio will remain well above the bank's minimum monetary requirements. So just turning to Slide 23, which is the final slide. In summary, we continue to remain strong funding and liquidity positions and our capital ratios are well above the regulatory minimum requirements. We remain competitive in the mortgage market with our ambition to be the clear number 3 in the market together with solid growth in both SME and consumer lending. We are implementing a bank wide initiatives to reduce complexity and improve efficiency. As a result, we are making cost savings to pay for our digital transformation program, and we are focused on reducing costs over the medium term. And lastly, we believe we're well positioned for the challenges that it faces in 2020 and will continue to face it through the remainder of the year. And we will take opportunities as they come on which to grow our balance sheet and our profitability. So thank you very much for your time, and I'll be happy to take questions now over the phone. So thank you very much. Thank you. We do have a question coming through from the line of Eamon Hughes calling from Goodbody. Please go ahead. Hi, Eamon, how are you? Eamon Hughes, Goodbody. Eamon, can I just pick you up maybe a little bit around the revenue guidance in terms of new lending? So if you think about the it's kind of less worse in one sense. You had guided at the time of the IMS down new lending 40% to 50%. You're now saying 40%. So at the better end of that. You were down 16% in H1, and I suppose just that would imply down roughly 60% to 65% in H2. Conscience as well, commentary around the market being a little bit better in July and even the kind of the market guidance that you gave there, which might be an amalgam of few figures, but it's kind of guiding down 25% to 30%. So just kind of your thoughts around the momentum. It feels like it might be even a little bit better than you're guiding in relation to that minus 40%. So that's just the first thing. And then just I should just be on my own hand in relation to the NIM guidance. You just did 175. I know kind of an uptick in terms of deposit number, but I think the number, if memory serves you right, was 180 at the half year. So it would feel like you're assuming kind of only a marginal decline in terms of H2 NIM. So maybe just to be clear on that. And then maybe finally, if I'm allowed, kind of one last point. Just in relation to the cost side, slightly up. I mean, I'm kind of splitting hairs here, a couple of million year on year, your guidance kind of flat for the full year. So would it be helpful that there's maybe a little bit more progress around some of the costs, maybe there's some costs in H1 around open the branches and creating all the social distancing measures that some of that clearly probably drops out in H2, but that might help terms of the cost momentum maybe a little bit in H2. Thanks, Eamon. Thanks for those questions. So what we've seen, particularly since early June, that applications have recovered. They're not to the level that we would have recovered. They're not to the level that we would have expected, but they are close. I mean, they're 80% to 90% what we would expect. So we are seeing momentum in the housing market. I think also, while it's too early to say, we would sense some momentum outside the urban locations, particularly as people get used to working from home and see the ability of maybe a different work style in that regard. And obviously, with our branches spread across the country, we are very well positioned to take advantage of the more regional spread of potential mortgage growth. But the key message here is that we've seen momentum as the lockdown requirements have released. We obviously have to be very careful in cases of further lockdown measures as the pandemic maybe rears it totally ahead again. But that we are relatively positive. And I would say that maybe it may not be as bad as 40% lower. We could beat that. We are being slightly conservative in that regard. Around 170 basis points, we have naturally, we have cut some back book pricing on our SVOR and our MBOR. That equates to around 1 to 2 basis points annualized. Those savings will arrive for customers from early September. So with a 4 month of those savings in our impact in our NIM guidance this year. We also have we have some excess liquidity, as I mentioned. We have reduced it to around €200,000,000 We have to be conscious that people are saving. My own desire is to beat that new number. So we will be doing our best to try and do it. And also the MREL will help us by way of and over the next year now by way of we expect that the level of MREL that we require will be lower than we would have indicated in the past, but we've yet to see that. So the NIM number is all to play for and we're working hard to maintain it. By way of costs, the geography in our presentation there has COVID costs in exceptional items. If you look at our financials and we presented that to show the underlying cost reduction, We've sunk in the region of €4,000,000 associated with the COVID costs in the first half. But our digestion costs are reasonably positive. While our headcount has increased, our level of daily rate contractors have decreased significantly. So we're really working closely with regard to how we manage those resources, how we manage project resources and how we're making sure that we get the proper return from the spend we're making. In previous years, I would have talked about saving £20,000,000 last year in costs and in the previous year that we reinvested into the business. And as we progress our digital programs, our level of reinvestment will reduce because we're making progress there. I mentioned the online current account will go live in the autumn, which will allow customers open an account within 6 minutes. 94% of term loan volume is now going direct. We will have a direct overdraft offering in the old as well. And we have a significant number of our deposit customers who are also transacting online. So that in itself is bringing its own cost savings, and we will be looking to reap those savings over the coming years. So I would be hopeful based on our experience that we can demonstrate a continued debt reduction there. Okay. Thanks, Sam. Can I just maybe I just want to follow-up just and I know, look, the world has kind of changed in the last 4 months or 5 months or whatever, but there was some kind of initiatives that were set out there back in early March, late February? And the loan book is clearly shrinking, and that's going to change the whole kind of revenue cost trade off dynamic and all that. But any sort of sense in terms on your only end of job as well, but could we be thinking maybe when we see again in Fairby in terms of FY 2020 that you'll have thought or worked through in terms of all the number crunch, as we know exactly where we've hopefully ended up in terms of COVID if things flow through that we'll have a better sense in terms of medium term targets from yourselves? Or I presume it's still right to work in progress? Eamon, so I would intend to provide that clarity at the next level of results. Naturally, the COVID impact is still uncertain. And there's ripple effects coming from that either globally or in Ireland. We have to be conscious of that. But it would be my intention at the next set of results to provide that direction over the coming years. And that's something we'll be looking quite closely onto the autumn as we lay out our plans for the next 3 years. So the answer is yes. Okay. Thank you. Thanks, Eamon. Thank you. The next question comes in from the line of Ebrahim Saeed calling from DB. Please go ahead. Hi, there. Good morning. I just had a couple of questions. First, on your capital, does the capital position reflect sort of the regulatory relief measures provided in Q1, Q2, including for software intangibles and so forth? And then secondly should I go through all my questions or should we go 1 by 1? Well, maybe it's easier for me to answer 1 by 1. So it reflects about a 25 basis points positive impact with regard to those measures. 25 bps. Yes. And that's already included in the 13.9 fully loaded? Yes. That's right, yes. All right, fine. And then on the 40 basis point increase in your NPL ratio, could you explain that? Is that due to recent impairments? Or I didn't quite understand the standard execution reference that was made. Yes. So it is a net increase by about €50,000,000 by way of the our NPL level it was. We were at 1 we're now at €1,100,000,000 We were €50,000,000 lower than that at the end of last year. We've had some organic cures in that population, which is around €100,000,000 And we've had some default flow on through the first half of the year. So that makes up the difference there. And the key thing here is we believe around 44% of that 1,100,000 will cure either by way of organic cure or technical cure over the coming 18 12 to 18 months. Indeed, we were hoping to be slightly further ahead on technical cures in the first half of the year. But due to COVID pandemic, our resources in this area were looking elsewhere naturally with regard to payment breaks and ensuring we look to ask the customers. So that's something we'll look back at in the second half of the year. And I would expect to see a reduction as we move into the second half of the year, as we move through those organic and technical cures. So that's the answer there. Okay. And do you obviously, you had some very successful NPL disposal transactions over the last few years. Are there any in the pipe in sort of the latter part of this year? And do you find that sort of revenue pressures might push that further out in terms of your ambition to get to low mid digit? Well, the answer is there's nothing in the pipeline at all. Indeed, I think it's fair to say that of any Irish bank, we've made significant progress in this area over recent years. And indeed, when we look at this crisis, if we had not made that promise, I think our discussion today would be slightly different. So that has been quite a positive out of turn for us. We are relatively confident with regard to how we think about NPLs. We have the lowest nominal level of NPLs in the Irish market at 1,000,000,000. I've already communicated that a significant portion we believe will cure and the remaining portion can be dealt with through in a professional and proper manner. The market itself, I'd suggest, is slightly closed at the moment given the uncertainty with COVID and the uncertainty with property prices. So we are not active in this area. We naturally keep all options open. And as I mentioned, I believe we're in a relatively good position at this moment. Okay. And just the final one. On the MREL, I appreciate you raising guidance on your updated requirements. If I recall correctly, it was $1,000,000,000 previously and you'd issued, I think, around $300,000,000 or $300,000,000 $400,000,000 last year. Is there any intention to issue a further Volco instrument this year? Or do you think it gets pushed to next year or further out? So our MREL requirement was €1,000,000,000 then we actually reported it reduced to €800,000,000 And indeed, we expect the of which €300,000,000 was issued in last year. And we expect it to reduce even further as we get the new guidance next year. We await that guidance, but it could be we are required to issue about another €300,000,000 of MREL. But that is yet to be confirmed, but it just shows you that our demand is not enormous in that area. And naturally, that does assist our P and L as we move forward. With regard to other instruments, we actively manage our capital. We do have an AT1 instrument in the market, which is due to mature in sorry, due to coal or we have an option to coal, I should say, in April of next year. And that's something we will consider in due course, but it's not something that is there for today. But we consider all the instruments that we can put into the market. And we will I suggest you wait for the next results, and we'll update you then. Okay, fine. On the AT1 specifically because it's issued out of the OpCo and it's not fully included, is there any possibility like one of your peers to potentially buy back partially instrument? Or is that something you've sort of discussed with the regulator? No. We're not at that stage yet. It's slightly early in our discussions. But the clue is probably in the earlier part of your question, which is the current structure of that AT1 is not at a level that is efficient. And that's something we have to consider as we look at the water market conditions and where we are from a capital perspective. So these are things we will deal with through the autumn, and we'll be back talk to the market early next year about how we will progress them. Okay. Thank you so much for taking all my questions. Thanks. Thank you. The next question comes in from the line of Jermaine Sheridan calling from Davy. Please go ahead. Good morning. Thank you, Eamon, for the presentation. A couple of questions, if I may. Firstly, around the impairment line and maybe your expectations for the rest of the year. I mean, I assume given the significant charge in the first half, we should assume that it should be lower given that you've now put significant changes in the macroeconomic assumptions into your model? The second question then around risk weighted assets and how we should think about those stage 2 loans, particularly those where the payment break where they've migrated. As they move back on to repayment, should they move back to Phase 1? Is there a time frame that they would move back? And what type of impact might that have on your risk weighted assets in the second half of the year perhaps? And then maybe finally just a comment around the SME market and maybe just tease out a little bit your ambition for that market going forward, particularly now that as you've announced your acceptance into the guarantee scheme at the which is obviously very helpful? Thank you. Thank you very much. So the £75,000,000 charge is based on our models based on IFRS 9 models, which reflect the updated macroeconomic environment. So as those models work, if the macroeconomic environment does not deteriorate, we would expect that the lion's share of provisioning has been reflected at this moment. Naturally, we have to be cognizant of 2 key things in that. With 97% of our balance sheet secured by property, we obviously have to be aware of where property prices are going. In our models, we're showing a 9% reduction in house price inflation. So that's something we'll have to keep an eye on closely. The second thing relates to the payment breaks. So this is how the actual payment breaks will end with regards to payment break 2. Will the customers move back into the factory remain performing? And indeed, the situation associated with the request for a payment break will be clear in that regard. They would move into stage 1. And then we would have to consider the level of provision that would be required for customers who are in default NPL classified coming out of the payment rate population. But I'll just go back to a point I made in the presentation, which is these the average LTV on this customer base is 70 percent. So it is quite a healthy LTV on average with regard to how those payment breaks will end up. And we will be working closely with customers to try and reach solutions that make sense for them and being very conscious of vulnerable customers within that group. With regard to RWAs, we've taken a very prudent approach here to RWAs and that we are reflecting in the region of 500,000,000 of additional RWAs on the stack. That equates to about €65,000,000 in provision, if you think of it from a capital perspective. So this relates to while the €75,000,000 covers the expected loss, we believe the RWA increase in covers unexpected loss. And I'm giving you to the level of provision amount there as an equation to equate that. But as those customers remain performing by way of the payment population, you would see that RWA level reduce and indeed our capital position to improve on that basis. So as I say, it's built and this is really safe. It's very conservative. It's built and braces by way of our approach from a capital perspective. And as I believe, the we'll wait and see how payment breaks work out, but we believe we've reflected the downside scenario in our capital numbers at this moment. With regard to SME, we actually have through our 76 branches, we actually have quite strong relationships with customers who come to us for mortgage and personal business, but they actually do their business banking elsewhere. And we believe there's a significant opportunity within the market to have a competitor that's credible, that's in the locality, that's in the community and can provide competition to the other players in this area. Our ambitions here really, we've undertaken GBP 25,000,000 in the 1st 6 months. We have a relatively strong pipeline as we move into the 2nd 6 months, and this excludes the SBCI engagement. And this is an area that we'd like to build over the coming years. And we would like to get in excess of 5% of new business, new SME origination going forward, and that's something that we are we want to build for the next number of years. It's something I will give more guidance on and clarity on at the next set of results as regards to our approach. But we have built we're building a team. We believe we can be competitive, and we believe we can be relevant to customers and provide them with another option by way of a bank that can go to in their local community to do business with. So I hope that answers your 3 questions, Fermil. That's great. Thanks, Iain. The next question comes in from the line of Jakob Zitschbach calling from RBC. Please go ahead. Hi there. Thanks for holding the call. One question I had is around coverage, Page 3, 32%. So you're saying it remains appropriate. Just to clarify, Fani, does that already reflect the 40% guidance from end 2020 and it's just a result of some younger vintages in there and that's why they're not provisioned as high 40% or I mean did you given that you made a comment that NPL market is a bit close, I know it can be temporary, but I'm thinking whether you will have to be booking the provisions as per the schedule if you cannot actually work out for them? So thank you, Jakob, for your question. Obviously, the 31.9% coverage is across all book. Not all of the book is over 7 years. So the coverage on the exposures that are over 7 years is at a much higher level and much closer to 40%. So we believe the distance to get to 40% is not a challenge for us with regard to 2020. Naturally, as you move into future years by way of the straight line coverage on those NPLs, it becomes less attractive from a capital perspective. But for 2020, we're in good shape. And as I mentioned and as we've evidenced, in recent years, we've been very efficient around NPL deleveraging, and we've had proficiency in the bank to manage that as and when that bank market comes back. We will look at all options with regard to our NPLs. So I think I believe we're quite well provisioned and covered in that regard. It's also worth noting that a significant portion of our NPLs are not past days due. So they tend to have a technical stamp by way of NBL exposure rather than being deep in arrears. And you can see that in in our NPL deleveraging that we've done, you will see that in those transactions, we have sold at net book value or slightly above. And again, that gives us additional confidence that we are well provisioned and well covered with regard to those assets. So I hope that answers your question, Jakub. Yes. Thank you. Thank you. The next question comes from the line of Guy Stebbings calling from Exane BNP. Please go ahead. Good morning. Thanks for taking my questions. Just had a couple around risk. Firstly, coming back to risk weighted assets and the treatment for payment holidays. Just trying to understand sort of what assumptions are being baked in here? Is it kind of a certain proportion move to permanent arrears? And also, how much is yourselves being particularly prudent in your treatment here? And how much was this sort of encouraged by the regulator? And then the second question was just on coverage of Stage 2, which fell over the half year, which on the face of it looks odd. I'm sure I probably just missed it in disclosure somewhere. But can I just check, is that just mix working through and perhaps more home loans entering Stage 2 and lower AG LTVs? Does that sort of explain the move in the first half? Thanks. Okay. So just to take your second question first, and we have moved about €700,000,000 of exposure relation to payment breaks into Stage 2. So again, a conservative approach. And that highlights to you why it appears that the coverage level has reduced. It's purely just related to that point. With regard to the what we've done on our order release, it is a prudent approach. And we are adopting a very prudent approach with regard to capital. We believe our capital is quite strong, and we want to highlight to the market that covering more severe eventualities, we still have a strong capital position as an organization. And that has obviously been supported by the capital we've generated through deleveraging over recent years together with underlying profitability. By way of the what does it represent by way of how much, by way of default? I don't have that number to give you, but I did mention that it does equate to about €65,000,000 of provisioning. If you look at the customers that are left on payment break too, it's about 50% or between £700,000,000 €800,000,000 of exposure that has moved on to Payment Break 2. And I also mentioned that about there's about a 70% LTV on that book. So I would suggest you take those various price points and various piece of information into view that we are very, very we are conservatively provisioned from a capital perspective. And we've taken account of not only the expected loss, but also the unexpected loss that could occur in this book. And we wait and see how that plays out. So they are very simple. Okay. Thank you. Very helpful. Thank you. There currently are no further questions coming through. Okay. We do have some additional questions coming through. The next question comes in from the line of Jacob Ligwa calling from RBC. Please go ahead. Hi, there. I apologize. Just a follow-up. The guidance on NIM, does that actually incorporate the potential issuance of NREL debt or not the 170? It doesn't because it refers to 2020. And we have achieved an extension of the MREL debt issuance out to June 2021. While we are looking at the market to see the opportunity of market conditions, I would see that MREL issuance has been more in the earlier part of next year rather than the later part of this year. Got it. Very clear. Thank you again. Thank you. The next caller in queue is Eamon Hughes calling from Goodbody. Eamon, please go ahead. Sorry, Eamon, just to be back again one more. Just to be clear in my own mind, is the RWA pickup is in relation to payment breaks, is that and so the impact on capital, is that reflective of the figure at the end of June? Or is it at the reduced figure at the end of July, just to be clear? It's June, Eamon. It's June. So all of the things being equal, you should already be starting to see some relief from that as customers move back to payments? Yes. Yes. Okay. Thank you. Okay. And the final question comes in from the line of Stephen Lyons calling from Davy. Please go ahead. Good morning, Eamon. Just a couple of questions for me, if I can. First, just a point of clarification. I think you're quizzed on the regulatory relief from the changes in tangible software treatments. I think you mentioned 25 bps. Is that the benefit that is to come? And separately, just on margin, there's quite a step down in the running yield on the treasury book during the period. Just trying to get a sense of what that might trend into next year and what might that represent by way of kind of an additional drag on the NIM? Thank you. So it's reflected the on your first question, the 25 basis points benefit is reflected in the 13.9 percent level of fully loaded core equity Tier 1. So it is reflected. So it's there. With regard to treasury yields, we've seen a significant reduction in income from treasury assets due to the maturity profile. I don't expect that reduction. We'll see some further reductions in income in the second half naturally as the year moves on. But next year, we would see that flattening it out and not having such a material impact on our net interest margin moving forward. And I don't have the number for you, Stephen, at this moment, but I can come back to you separately on that question. Okay. Maybe just one final question. Just on the CET1, I mean, we've seen a lowering of buffers during H1 and we've seen the P2R composition change. And yet you still have the CET1 target of 13% plus. Mia, is it feasible that as we move into next year and market conditions are favorable as you optimize your capital structure further, particularly I'm thinking about the AT1 that, that 12% could move lower? I wouldn't see it at this moment. We still maintain we still are like OpEx across Europe now have the dividend restriction by way of how we think about that capital structure. There's still naturally uncertainty with regard to how the market is going to and how the wider economy is going to operate over the next 6 to 18 24 months by way of we can just see the impacts on aviation and other aspects of what was normal business life. So we just have to wait and see. I wouldn't be suggesting that we would be reducing at this moment until we get a better view of how things are going to play out across the board. Okay. Thanks very much. Thanks for that. Thank you. Thank you. That does conclude today's question and answer session. So I shall turn the call back across to yourself for any closing remarks. Now I'd just like to thank everyone for the wide range of questions and interest and for listening to us this morning. So thank you very much. Thank you for joining today's call. You may now disconnect your hands.