AIB Group plc

Good morning and welcome to the AIB Group Q3 2025 Trending Update conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be question and answer session. To ask a question during the session, you need to press star 11 on your telephone keypad. You will not hear an automatic message advising your hand is raised. To withdraw a question, please press star 11 again. Finally, I would like to advise all participants that this call is being recorded. I will now pass you over to our speakers for today's session, CEO Colin Hunt and CFO Donald Galvin. Mr. Hunt, please go ahead.

Thank you so much, Nadia. Good morning, everybody. We are pleased to report another strong performance in the third quarter of this year, demonstrating the ongoing resilience of our business. On the back of this morning's release and pretty clear visibility now to the end of the year, we are nudging our NII guidance higher to greater than €3.7 billion for the year as a whole. We're reporting 5% growth in new lending to the end of September with some particular strength being seen in personal lending and in our capital markets and UK businesses. Our lending book remains very resilient and we are now guiding our cost of risk for the full year at the lower end of the previously advised 20 basis points to 30 basis points range. The domestic economic backdrop remains supportive of our business and we will enter 2026 with good momentum in terms of both activity and pipeline. I'm going to stop there for the moment and I'm going to open to the floor for questions.

And now we're going to take our first question. And it comes from the line of David Sheridan from Davie. Your line is open. Please ask a question.

Good morning, Donald. Good morning, Colin. Thank you for taking my questions. Maybe firstly on net interest income, obviously, Colin, you referred to nudging off. I guess I wonder what the implications for 2026 are. If you look at the run rate in Q3, I guess we're going to assume there's going to be a little bit of growth given some of the other factors that you talked to in terms of balance sheet growth. So Is a level of around 3.8 billion, is that acceptable or is that something that you think is possibly achievable for 2026 net interest income? And just secondly, I appreciate it's Q3 and it will be decided upon at Q4. thoughts in terms of capital and distributions obviously another very strong quarter in terms of of capital generation uh it's not in the number appreciate um but if we look out um how much capital do you think you can return to get back to that 14%? Because you're trending very, very strongly at the moment. Each quarter is a little bit stronger than expected there. So is it still your expectation that you can get to 14% by full year 2027? Thank you.

Hi, Dermot. Thank you very much. Look, on NII... I think as the year has progressed, we've got increasingly more confidence on the outturn for the year, which is why we're very happy to upgrade our guidance to greater than 3.7 billion euros. Obviously, the moving parts there are interest rates, where I think we have, well, certainly for 2026, a lot of confidence on where they're going to be. On the asset side, we do see growth of 3%. and we are expecting a strong fourth quarter from lending. And on the liability side, that has been really, really strong throughout the year. I think we'd started the year off with kind of a 2% growth target. It's more like 4% as we are now. November, December, normally quieter months for obvious reasons with respect to growth, but overall a really, really strong outturn on deposits. I think that's going to have a natural follow-through into 26 and 27. We're not going to give guidance for 26 or 27, but I think if you take the 26 outturn, that is going to inevitably lead to a stronger performance for 26 and 27, and then you can adjust wherever you see ECB rate moves beyond that. But look, overall, very, very happy with the outturn for 2025. On the distribution side, as you know, our goal is always on the 1st of January to come in and deliver as strong a performance as we possibly can. We're very pleased with the performance here today, really strong capital appreciation. We also managed to resolve and agree with the government the retiring of the warrants, which is a very significant I think that's positive news for us and for investors as well, just having a potentially dilutive instrument off the balance sheet. And in Q4, we also have in early December, we're going to look to close a mortgage SRT transaction. So a lot of positive things still to come towards the back end of the year. Look, as you rightly say, we engage in conversations with both our board and our regulator towards the back end of the year. And normally, we will update the market at year-end results with respect to our distribution thoughts. you will see that we have throughout the year not reported in-year earnings, really just to accrue those, and that's to give the board maximum flexibility around its distribution deliberations. With respect to medium-term targets and reaching that greater than 14% CET1 target, like all of our medium-term targets, These are very much key areas of focus for the organization, and we will drive towards exceeding and beating all of those targets.

Thank you. Now we're going to take our next question. And it comes to the line of Dennis McGoldrick from GoodBody. Your line is open. Please ask your question.

Good morning, Colin and Donna. Thank you for taking my questions. Just two, please, if I may. One is just in relation to loan book growth. So that was up 1% year to date to the end of September. Maybe if you could talk us through the reasons why you're still comfortable that you can deliver the plus 3% this year and then the CAGR of 5% over the medium term. And then secondly, just on exceptional items in 2025, Obviously, that's been upgraded now to a credit of 150 million. Maybe, again, just talk us through the moving parts. Has the gain on merchant services landed a little bit higher than you expected? Thank you.

On the loan book growth, Dennis, good morning to you. On the loan book growth, we've got 10-month activity now fully booked, and we've got a very big clear line of sight to the end of the year. We're very comfortable where the pipeline is and very comfortable with our expectation that we will deliver low growth for the full year of the number that you alluded to earlier. So it's requiring less forecasting at this point of the year, as doubtless you're aware, but the pipeline is strong. And momentum into 2026 is going to be very good as well. So the business is in very good shape and we're very happy with where we're positioned across the various products.

Yeah, and I would add to that. I mean, we had imagined we'd see growth of 5% in 2025 on a reported basis. We've adjusted that to 3% really to account for changes in foreign exchange of around a percent. And then we would have deleveraged some non-core assets, which had an effect of a percent as well. But the underlying business areas and the business growth and where we'd expect to see the growth is very much in line with our expectations, which is why we're very comfortable with the 3% for 25 and, indeed, the 5% for 26 and 27. On the exceptional side, a couple of things. You know, the gain on sale from AIB merchant services is obviously the main driver there. But, you know, as we would have talked about previously, we've put behind us a lot of the old legacy type of items that may have found their way through that line in the past. So there's just very little costs coming through related to any of those legacy type of items. I wouldn't be imagining that there will be gains going forward, but certainly given those big restitutions and legacy items are closed going forward, we don't expect to see charges coming through that line.

Thank you. The next question comes to the line of Benjamin Thoms from RBC. Your line is open. Please ask a question.

Thanks for taking my questions. The first one, just in relation to your NRI guidance, going into next year, one of your peers has talked about or implied, guidance implies a material pickup in competition impacting margins into next year. How are you currently thinking about the potential for the increase in competitive pressure as we go into 2026? And then secondly, you've reiterated your cost guidance of less than 2 billion for next year. Consensus isn't quite there yet. What are your confidence levels on this guidance and what are the moving parts here? Thank you.

Okay. Good morning, Benjamin. On the competitive pressure, obviously we've seen very significant structural change in the Irish banking market in the past five years with the departures of KBC and Ulster. We put ourselves into a position where we were the lead consolidator for the market, welcoming investors. roughly half of all the customers who were migrating from the departing banks. But the competitive landscape doesn't include just three financial institutions. We get competition every single day from credit unions, from neobanks, from fintechs, from the post office. So we are living in a competitive environment, I would argue, already, and I don't see a material change in terms of the competitive landscape as we move into 2026. It is important to note that we have a pretty consistent approach in this business about how we price box. We always maintain that we price them rationally, that we underwrite conservatively, and we're not driving our business forward on the back of of significant temporary tightening of margins. We're very, very comfortable with where we stand and we're very comfortable with the medium to long-term focus of our approach to pricing and underwriting.

Yeah, just coming in there on cost, certainly for 2025, between now and the end of the year, we're comfortable to... to hold that 3% number. Main driver really there is slow, gradual decrease in overall headcount, which you will have seen over the last number of quarters. That's obviously going to move into 2026 as well. As we continue to automate and make our processes more efficient, we would expect to see headcount gains. What I would say, though, is against that, you're obviously going to have inflationary impacts, which remain quite volatile, and then investment in technology that we make in our business as well. So all of those things put together is making up the overall cost base. But look, our medium-term target is €2 billion, and like all of our medium-term targets, we will look to achieve or beat all of those.

Thank you. Now we're going to take our next question, and it comes from Chris Khan from Autonomous. Your line is open. Please ask your question.

Good morning. Thanks for taking my questions. I just wanted to ask about capital, please. So, Donald, you mentioned an SRT transaction in the fourth quarter. I think consensus has in 58 and change RWAs for year 25. So with the SRT, is that the right place for us to be sat please. Just consciously, we're actually a bit below that in the first half. And I know there's a bit of back-end loaded growth, but if you could give us a steer, because I think some banks have talked about opera-scarred inflation coming through in the fourth quarter too, that would be helpful. And then just in terms of thinking about the capital ratio, if I take your 59 pro forma for the warrant and I add in the year-to-date profits of $250,000, you had a 46 bps interim dividend, and then you've got another quarter of profit to come, it looks like you should be coming out somewhere around 18.7 in the fourth quarter, and maybe a little bit higher if there's a meaningful impact from the SRT. If I think about where consensus is on an equivalent basis, a kind of pre-distribution, it looks like consensus is about 18.5, I think. But just if you could comment on that, because the capital, I understand why you've done the non-accrual of profit, but it does make it quite difficult to track how the business's capital position is trending relative to consensus. It looks to me like even with the warrant surprise, which is 70 bits rather than the 40 you guided earlier in the year, it looks like the business is probably 20 bits ahead of consensus at the year end and maybe a touch higher given the SRT. Thank you. Yeah, thanks very much, Chris.

Look, your walk through the CET1 numbers are absolutely bang on the money. So they're accurate. You know, as you referenced, we have not reported any of our in-year profits. And really the reason for that, we feel, is it is a conservative position and it also gives us maximum flexibility in our deliberations and conversations with both the board and the regulator at year-round when we review what our overall payout makeup is going to look like. Look, I think as you rightly say, and as I look at consensus, it's probably fair to say that the benefit or the impact of the mortgage SRT is not fully incorporated. Now, I do accept that at the half year, I didn't provide very much detail on that, but we will look to transact in early December on a mortgage SRT There'll be €2 billion worth of loans. We'll look to save €1 billion of RWAs, and we expect the cost of equity of that to be less than 5%, and the CET1 benefit will be between 20 and 30 basis points. So I think that's perhaps where consensus could be slightly behind, so I'd encourage you to adjust for that. But look, overall, as you rightly say, the business is very capital generative at the moment. And notwithstanding the fact that we are generating a lot of core earnings from our business, we will continue to execute transactions like SRTs where we think they make sense from an overall capital perspective so that we can be as efficient with our overall capital stack as possible.

Thank you. The next question comes line of Borja Ramirez from CT. Your line is open.

Hello. Good morning. Thank you very much for taking my questions. I have one in particular linked to the Irish national development plan, which seems to be a sizable investment into infrastructure and housing. I would like to ask what could be the potential opportunities for mortgage growth and maybe SME lending as well. Please.

Okay. Good morning, Borca. The most pressing issue facing the Irish economy and Irish society today is housing output. We've built something of the order of 33,000-34,000 units in 2025 against a market backdrop which probably needs something of the order of 60,000 units. And recognising the primacy of the concerns around housing, the government has published a national development plan which will commit total capital expenditure of about €275 billion, so a very substantial amount of resource in the context of the size of the Irish economy, and that commitment is for a 10-year period, very much focused on, I suppose, enabling a significant increase in housing and, indeed, investment in transport and other critical social services as well. Some of the resource will be deployed in... modernising our electricity grid and in investing in water utilities and in so doing enabling an increase in the supply of service land which should lead to an increase in total housing output. If you think about the housing market as it stands today, we finance the development of about a third of the output. So if you are going to see investment which enables a significant increase in output, that is obviously going to have a positive impact in terms of the amount of capital we deploy to support residential development in this country, and we have an appetite so to do. It will obviously also have a positive impact in terms of the amount of mortgages being drawn in the economy as well. So certainly on the supply side, the NDP will have a pretty positive impact on the medium and long-term performance of the business. And in the event that there needs to be support coming from the private sector for that capital deployment, We're very well equipped given our expertise and project finance in our climate and infrastructure capital division to support the rollout of that much-needed investment.

Thank you. And now we're going to take our next question. And it comes from Oman Raka. Your line is open. Please ask your question.

Good morning, gents. Thanks very much for the chance to ask some questions. I had two, please. One was... Just on your deposit guide for full year, I just want to check if you're expecting any meaningful seasonality in Q4 in deposits. I think at face value, your guide for full year deposits probably implies a flat outturn in Q4, Q on Q. So I kind of just wanted to interrogate whether that was a conservative comment or there's any kind of noise in the balance sheet that you might want to point us to. Obviously, it's an important driver of net interest income at the moment. So that'd be helpful. A follow-on capital. Clearly, you're set to end the year with really quite substantial levels of surplus capital despite the warrant charge, particularly post-SRTs. I was kind of interested in what some of the constraints are that we should think about around your potential or prospective deliberations around distributions at year-end. It looks like, based on consensus and your prior comments, that the payout ratio is above 100% is clearly not an issue. So, you know, could you help us think about what the kind of parameters are that you'll be looking to operate within and to what extent it's kind of within AIB's control to determine how much it wants to distribute versus, say, you know, a conversation with the regulator? Thank you so much.

No problem. Listen, I would say on the liability side, we have really strong performance and out-turn performance on growth throughout 2025, particularly in the Republic of Ireland, which is our core market, and that's across retail consumer segments and also SME and business segments. We're not that prevalent large in the wholesale corporate space. It's a little bit more competitive, but in that retail and SME space, very, very strong. So we've given guidance overall of 4%, which is an upgrade from 3%. We're always a little bit cautious, really just coming into the end of the year, December, given one can naturally expect to see increased expenditure. Maybe a little bit conservative there. I would say technically it's probably more like 4.5% growth. but historically we have seen liabilities flatline throughout November and December. Overall, I would say trajectory throughout the year, really consistent. We do expect to see maybe just flat for November, December, and then January 26th, probably return to that more normalized type of runnings. On the capital side, as you know, You know, our dividend policy will state that there's a 40% to 60% cash dividend payout, and then anything above that would be deemed as special or exceptional. So the 40% to 60% conversation is within the gift of AIB and the board, and that will be reviewed and agreed upon in December, where we'll also look at our overall capital policy. our overall capital position and the trajectory looking forward. The outlook is very important. How do we see the macro environment? Do we see any significant troubles ahead? And obviously in a world of increased uncertainties, there's always different scenarios you can imagine. But first and foremost, it's the responsibility of the board to get comfortable and agree and approve whatever applications are made to the regulator. And there are conversations that happen throughout November and December, and we feel like we've put ourselves in a very strong position with a very strong performance, and obviously we've maintained a conservative stance with respect to our CE2-1 reporting by not reporting any of our in-year profits.

Thank you. And now we're going to take our next question. It comes from the line of Shilsha. Your line is open. Please ask a question.

Great, thank you. Can I ask about your level of confidence for the 2026 target of less than 2 billion costs, please? Because that would imply maybe a sort of a flattish to maybe even down cost trajectory from 25 to 26. And considering, you know, inflation's maybe running a touch hotter than expected in Ireland, IT expenditure, cyber and whatever else is probably going up investments are probably increasing as well. So just understand some of the moving parts to get to that 2 billion number, especially because consensus may be less optimistic on that number compared to where you stand. Thanks.

Thanks, Gilles. What I would say on all of our targets, we obviously set them about two years ago now, and we remain very committed to them. They are the key metrics by which we manage the business. And on the cost target of less than two billion for the end of 2026, that is a vitally important management tool for us as we steer the bank through the months and quarters ahead towards the end of 2026. It is a real target, it is a firm target, and it is one that the executive team and the board remain very, very committed to. It is worth, I suppose, pointing out that we are seeing through retirements and natural attrition, we are seeing an ongoing reduction in our total headcount. So if you look at the position at the end of September this year compared to the end of September last year, our total headcount is down by something of the order of about 3%. And that's a trend that we would expect to see continuing as we move through 2026. We're not planning, nor will we be doing, any sort of special severance packages, special voluntary severance programs. But we are seeing ongoing attrition, and of course you always then have retirements in the normal course. And I would expect that the combination of that will see our headcount edging lower as we move into 26 and towards the end of next year.

And now we're going to take our last question for today. And it comes to the line of Robert Noble from Deutsche Bank. Your line is open. Please ask your question.

Morning. Thanks for taking my questions. Can I just, the numbers on capital generation in Q3, it looks like you generated 100 basis points in profit. Does that include the exceptional gain from merchant services, or is that just pure organic capital? If it is, I presume that if it's pure organic capital, I presume the cost of risk is near zero this quarter. Is that the right way to think about it? And just on whether you put profits in capital or not, I'm not really sure what the difference is. I mean, we all know it's there. How does that actually legitimately change the conversation with the board or the regulator? Because it's exactly the same. What payout ratio difference does it make in reality? Thanks.

Yeah, look, I'll take the second question first. I think from the way I look at it, it's a very strong statement of intent and from the very start of the year with respect to management's ambitions, with respect to how they view distributions and overall returns. And we wanted to be very clear and very strong on that from the very start of the year for that reason and no other. Yeah, on the Q3 profits, the gain on sale from merchant services is included in there, so that's obviously a one-off item. And then I think you touched on cost of risk there. Overall, as Colin said, it looks like it will be at the lower end of the range, at 20 to 30 basis points, but we will look at our macros and our weightings in November or December as we normally do, and that's going to have an impact as well. Obviously, in the first half of the year, things looked a little bit more uncertain post-liberation day. And we're really just trying to figure out how we see the macro environment in Ireland playing out in the coming years. But I would say it looks marginally better now than what it did six or nine months ago.

Thank you. Dear speaker, there are no further questions for today. This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.