Good afternoon Chairman and members of the committee. We very much welcome this opportunity to give the committee an overview of the bank's progress during the time of colossal trauma and change in the world. We will endeavour to answer all of the members' questions and to take on board their views today. Our direct engagement with the committee is a valuable means of understanding its expectations, while allowing us to explain the bank’s position in terms of supporting the economy and our 2.8 million customers in current and future challenging times. With me today are Mr. Jim O’Keeffe and Ms Helen Dooley.
While the human misery caused by the Covid-19 pandemic can never be calculated, the ultimate cost of the enormous shock to the global economy has yet to be fully assessed. As with the rest of the country, the pandemic crisis, coupled with the uncertainty created by Brexit, tested the resilience of the banking sector at every level. It was a time for AIB to prove that it could focus its resources on playing a major and positive role in helping the country through the crisis and be part of the solution.
Fortunately, the bank had robust capital strength, a good quality balance sheet and digital capability when the pandemic took hold, facts that allowed us to take immediate actions to mitigate the economic impact of lockdown on our customers. With banks deemed by Government to be an essential service, we were required to mobilise our response at speed. We provided almost 80,000 payment breaks with nearly 90% of those customers now having returned to full repayment of principal and interest. More than 80% of our employees moved to working from home, while hundreds of our team members remained in their locations keeping more than 99% of our branches open and dealing with a 400% increase in contacts to our call centres. As the Government introduced unprecedented supports across the economy, AIB rowed in behind the State’s Covid-19 credit guarantee scheme, with an allocation of €746 million to help businesses through the crisis.
As Dr. Michael Ryan of the WHO said during the pandemic, "speed trumps perfection". In the face of the deepening crisis, the bank embarked on compressing what would normally take years of organisational and systems changes into weeks and, in some instances, into days. There were occasions when I wished we could have moved even more swiftly but, within the prevailing constraints, a quick fix was simply not always appropriate. However, at all times, we sought to ensure the best protections were provided to our customers.
As AIB harnessed its resources to help deal with the short- to medium-term effects of Covid-19 on our customers and the wider economy, we also embarked on a longer-term programme to facilitate the bank’s future growth. In December 2020 we updated our three-year strategy to specifically address gaps in our product and service offerings to customers.
Members are all very much aware that one of Ireland’s oldest financial institutions, Ulster Bank, is preparing to exit the market in the Republic of Ireland. When it became apparent that its parent, NatWest, was conducting a review of its Irish operations, we began a process that ultimately led to AIB signing a deal earlier this week to acquire Ulster Bank’s €4 billion portfolio of performing corporate and commercial loans. This will involve the transfer of approximately 280 employees to AIB Group from Ulster Bank.
AIB is currently in the process of seeking regulatory approval for the acquisition of Goodbody Stockbrokers, which will allow it to merge the expertise of both companies and broaden its range of customer offerings. Let me again use this opportunity to nail the canard that the acquisition of Goodbody was a means of circumventing the Government's pay restrictions. Nothing could be further from the truth. The remuneration arrangements at Goodbody are entirely separate and ring-fenced from those at AIB and the Government's restrictions on pay remain fully intact at the bank.
In order to streamline and avoid duplication of services, a very small group of employees from the bank will transfer to Goodbody. None of these can receive remuneration that exceeds the Government pay cap. In addition, apart from this group, Goodbody will not be permitted to hire anybody who has worked for AIB in the course of the previous two years.
Last week also we formally announced to the Stock Exchange a joint venture with Great-West LifeCo to augment our life, pensions and savings propositions, providing comprehensive choices for customers and diversification of the bank’s income streams at a time of sustained low interest rates.
Covid-19 has accelerated customers move to digital and this is reflected in our strategy for branches and offices. For example, we have seen branch transactions fall to 39,500 per day compared with a rise to, on occasion, 2.3 million daily interactions with our mobile app – developments that have led us to examine how to best balance the need for traditional local banking services and customer adoption of new technologies. Banking is evolving but be assured that AIB will maintain its very strong branch presence throughout the country, continuing our personal and business customer relationships in the local community while increasing sales and advisory services.
We have recently amalgamated five branches in Dublin, Cork and Galway that were in close proximity to each other and plan to further review a small number of locations in mainly urban areas where overlaps occur. Our almost 20 year old relationship with An Post continues to deepen to the point where 4 million AIB banking transactions are conducted in post offices every year.
Due to the majority of our employees’ preference for a hybrid working model that allows them to work outside of the urban centres, our need for large office space in Dublin has also shrunk. As a result, we have decided to exit three of our main office buildings in Dublin.
As we emerge from the pandemic, it is imperative that AIB remains resilient and well-positioned to support Ireland’s economy. In spite of the fallout of Covid-19 and the sustained low interest rate environment, the group returned to profitability in the first quarter of 2021. We are confident this recovery will continue as the wider population is vaccinated and the economy returns to solid growth. A robust balance sheet, strong digital capability and an extensive community-based branch network all combine to facilitate the bank’s credit flow to Ireland’s homes and businesses as well as underpinning critical national infrastructure such as renewable energy projects and home building.
Addressing the housing supply deficit is of course one of the country’s most urgent social and economic imperatives. AIB is able to play a crucial role in funding the construction of social, affordable and private homes. We are currently the primary lender to schemes delivering 10,000 new units. Last year, we launched a €300 million social housing fund to deliver more than 2,000 new sustainable energy-efficient social housing units across the country. I am pleased to confirm that this fund has been fully allocated and AIB is about to launch an additional €500 million social housing fund, leading to a build of more than 3,000 homes. Meanwhile, the bank has been providing more than 400 suitable vacant properties to the Housing Agency in what has become a very successful relationship.
The immense challenge of climate change is something that confronts us all and, again, the financial sector has a key role in supporting measures to counter it. Supporting the transition to a low-carbon economy, reducing our own carbon footprint and helping our customers to invest in green projects, such as retrofitting, are now intrinsic to our business model. Green lending amounted to almost €1.5 billion last year, the strongest performing part of our book. Our ambition is that that will account for 70% of overall new lending by 2030.
Green lending amounted to almost €1.5 billion last year. That is the strongest performing part of our book. Our ambition is that it will account for 70% of overall new lending by 2030. In this space, AIB has a €5 billion climate action fund for lending into the Irish economy. We have raised €1.75 billion in green bonds to fund projects with clear environmental and climate change benefits. We have the lowest green five-year fixed-rate mortgage in the Irish market and discounted green retrofitting and car loans.
While AIB operates in a shrinking banking market, competition remains intense, and is set to increase with the arrival of more digital payment companies. We must be equipped to deal with competition from non-traditional lenders. It is for these reasons that I am unwavering in implementing strategies to put the bank on the strongest possible footing, so that we continue as a stable contributor to the economy and Irish society.
We are cautiously emerging from the pandemic. I am glad to say that AIB was able to withstand an economic shock the likes of which we just experienced yet managed to protect our customers from the most severe financial impacts. We remain strongly positioned to contribute to Ireland’s economic growth and employment, helping households, communities, farming, and businesses to meet their financial and social needs. Our entire focus now is on proactively supporting these customers, particularly those facing financial difficulty.
AIB is a central part of Ireland’s economic infrastructure. To give the committee an idea of the scale of the bank’s activities, our total balance sheet is over €110 billion; new lending was €9.2 billion in 2020, in spite of the pandemic; and AIB processes over €870 billion in payments for our business and personal customers annually. These are just snapshots of the extent of our reach. AIB will continue to be a key financial enabler in the economy and in the communities that we serve, contributing positively to our society and working to return the taxpayers’ investment when Government decides the time is right. I thank the committee for its time and we look forward to questions.