aibg-2022-12-31-en

INSIDE THIS REPORT


ANNUAL REVIEW
1	AIB Description
1	Presentation of information
2	Business Performance
4	Business Model
6	Our Strategic Progress
7	Risk Summary
8	Principal Risks
11	Emerging Risks and Uncertainties


BUSINESS REVIEW
13	Operating and Financial Review
28	Capital

AIB description


GOVERNANCE AND OVERSIGHT REPORT
31	Directors' Report
34	Corporate Governance Report
39	Board of Directors
43	Executive Committee
45	Report of the Board Audit
51	Report of the Board Risk Committee
54	Report of the Nomination and Corporate Governance Committee
56	Report of the Remuneration Committee
59	Corporate Governance Remuneration Statement
66	Internal Controls


RISK MANAGEMENT
70	Risk Management Approach
74	Individual Risk Types


FINANCIAL STATEMENTS
150	Statement of Directors’ Responsibilities
151	Independent Auditor’s Report
163	Consolidated Financial Statements
168	Notes to the Consolidated Financial Statements
281	Notes to Allied Irish Banks, p.l.c. company financial statements


GENERAL INFORMATION
342	Forward Looking Statement
343	Glossary of Terms
348	Principal Addresses

AIB is a financial services group. Our main business activities are retail, business and corporate banking, as well as mobile payments

and card acquiring. The Group operates predominantly in Ireland and the United Kingdom. Whether it’s adapting to a greener way of

living, planning for the future, growing a business or simply navigating day-to-day life, our ambition as a Group is to be at the heart of

our customers’ financial lives every step of the way. Our three core segments are: Retail Banking, Capital Markets and AIB UK.

Presentation of information

The information contained in this Annual Financial Report is that of Allied Irish Banks, p.l.c. and its subsidiaries. In this Annual Financial

Report, and unless specified otherwise, the terms ‘Allied Irish Banks, p.l.c.’ or ‘the Company’ refer to the parent company, ‘the Group’ or

‘AIB’ refers to the parent company and its subsidiaries, ‘the holding company’ and ‘owner’ refers to AIB Group plc and ‘AIB Group’ refers

to AIB Group plc and its subsidiaries.

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General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

BUSINESS PERFORMANCE

2022 RESULTS

FINANCIAL PERFORMANCE



	NET INTEREST INCOME
	€2,152m


	Interest income up 20% Benefiting from the impact of a rising interest rate environment and higher average customer loan volumes



	NET CREDIT IMPAIRMENT (CHARGE) / WRITEBACK
	€(7)m


	Small charge reflecting cautious approach H2 charge of €316m to address emerging headwinds and downside risks from inflation and interest rates. H1 writeback of €309m which reflected the economic environment in Ireland with robust credit quality and repayments



	PROFIT BEFORE TAX
	€881m


	Profit before tax up 39% to €881m Operating profit1 up 56% to €1,082m (operating income up 21% with operating expenses up 8%) and income from equity accounted investments of €37m partially offset by an impairment charge of €7m and exceptional items of €231m



	NEW LENDING
	€12.6bn


	New lending up 22% Strong growth in Irish mortgage lending (up 53%, market share 32%) and in property lending partially offset by lower syndicated lending



	NET LOANS
	€59.6bn


	Net loans increase by €3.1bn to €59.6bn Net loans up €3.1bn driven by the Ulster Bank portfolio acquisition and strong new lending exceeding redemptions



	NON-PERFORMING EXPOSURES2
	€2.2bn


	3.5% of gross loans Non-performing exposures (NPEs) decreased by €0.9bn to €2.2bn. NPE ratio now 3.5% with legacy2 NPEs of €0.2bn or 0.4% of gross loans



	ABSOLUTE COST BASE3

	€1.66bn


	Costs up 5% excluding Goodbody Cost income ratio 57%



	RETURN ON TANGIBLE EQUITY

	9.6%


	Return on Tangible Equity (RoTE) benefiting from increased profitability



	CET1 RATIO (FULLY LOADED)4

	16.3%


	Strong capital position Proposed dividend €166m and share buyback €215m

1. Operating profit before impairment losses and exceptional items.

2. Non-performing exposures (NPEs) refers to non-performing loans (NPLs)

and excludes €99m of off-balance sheet commitments. Legacy NPEs are

exposures that entered into default prior to 31 December 2018.

3. Before bank levies, regulatory fees and exceptional items. For exceptional

items see pages 17 and 26.

4. Excludes the impact of the proposed buyback of €215m, CET1 impact -0.4%.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

NON-FINANCIAL PERFORMANCE

Our approach continues to evolve in line with ESG reporting frameworks, which may result in variations in methodologies

and reported outcomes over time.



	GREEN FINANCE
	Amount of new lending per year for climate action
	€3.3bn


	Growth in green finance delivered by strong performance in green mortgage products and continued lending for green buildings and renewable energy
	TARGET
	€2bn per year



	DIGITALLY ACTIVE CUSTOMERS
	Number of active customers on digital channels
	2.10m


	A strong increase in digitally active customers with increased mobile enablement
	TARGET
	>2.25m by 2023



	CUSTOMER SATISFACTION
	Transactional Net Promoter Score1 Measured after customer transactions for key touch points
	+39


	Customer First is a core pillar of AIB’s strategy and we know that we have more to do. We have taken on board our customers’ feedback and are committed to enhancing their experience in 2023 and beyond
	TARGET
	+53 by 2023



	INCLUSION & DIVERSITY
	Women as % of management
	42%


	Continued progress on our gender diversity target, maintaining gender balance across Board, Executive Committee and all managements
	TARGET
	Gender Balanced (Ongoing)2



	REDUCTION IN OPERATIONAL EMISSIONS
	% reduction in Scope 1 & 2 GHG emissions year-on-year
	10%


	Our property strategy and energy efficiency investments have been instrumental in reducing our GHG emissions to date
	TARGET
	Net Zero by 2030 (Own Operations)

1. Transactional Net Promoter Score (NPS) is an

aggregation of 20 customer journeys across

Homes, Personal, SME, Digital, Retail, Direct

and Day-to-Day Banking.

2. The Equileap annual Gender Equality Global

Report & Ranking equates 'gender balanced'

with between 40% and 60% women.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

BUSINESS MODEL

HOW WE CREATE

SUSTAINABLE VALUE



OUR RESOURCES	OUR STRATEGY


GROWING CUSTOMER BASE c. 3.2m Customers of AIB Group OUR PEOPLE 9,590 Employees across the Group LARGEST BRANCH NETWORK 170 AIB branches in Ireland TRUSTED SUPPLIERS c. 4,000 Active suppliers		CUSTOMER FIRST
		SIMPLE & EFFICIENT
		RISK & CAPITAL
		TALENT & CULTURE
		SUSTAINABLE COMMUNITIES


CREATING VALUE SUSTAINABLY Underpinned by our strong commitment to our sustainability strategy		CLIMATE & ENVIRONMENT

OUR VALUES	ELIMINATE COMPLEXITY		DRIVE PROGRESS

Allied Irish Banks, p.l.c. Annual Financial Report 2022



HOW WE CREATE VALUE		VALUE CREATED IN 2022
Our ambition is to be at the heart of our customers’ financial lives


Market-Leading Franchise Along with our Mobile App and Internet and Phone Banking services, AIB maintains the largest branch network in Ireland, with market-leading positions across multiple personal, SME and corporate products and services.	Leading Mortgage Provider With a dedicated team of mortgage experts, AIB provides application options in-branch, over the phone or online. EBS is our mortgage-focused brand and Haven is the Group’s broker channel. AIB, EBS and Haven all offer competitive Green Mortgage products.	€12.6bn New Lending €4.6bn New Mortgage Drawdowns c. 11k Homes Under Development c. 570 Social Homes Funded €3.3bn Green & Transition Lending €10.7m Community Investment

Leading Sustainability Agenda We are committed to supporting our customers in the transition to a low- carbon future while making progress on our own Net Zero ambitions. Along with personal and SME Green Loan products, including mortgages, AIB works with corporate clients on large-scale projects, and has issued €4.25bn in ESG bonds since 2020.	Corporate Focus AIB supports corporates in their daily banking and funding requirements. While we offer relationship-driven supports to all industry sectors in Ireland, we are focused on mid to large corporates in certain sectors in the UK. Our US team is focused on syndications, with an increasing focus on syndicated renewables finance.

Bespoke Treasury Solutions AIB provides a range of Treasury services, including foreign exchange, interest rate risk, trade finance and corporate cash management solutions. We regularly undertake and publish economic research to keep our customers and stakeholders informed on the evolving macroeconomic environment.	Wealth & Pensions Management To support our customers to achieve their financial goals we provide a range of pensions, savings and investment options and advice. With the recent addition of Goodbody to AIB Group and regulatory approval for AIB life, our joint venture with Great-West Lifeco, we expect further growth in this area.


ECONOMIC & SOCIAL INCLUSION			FUTURE PROOF BUSINESS

	OWN THE OUTCOME	SHOW RESPECT		BE ONE TEAM

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

OUR STRATEGIC PROGRESS

GROWTH &

TRANSFORMATION

In 2022, AIB made significant progress towards completion of a multi-year strategic

transformation programme, enabling the Group to deliver on our growth agenda.


	2022 focus	Update

1 CUSTOMER FIRST	DELIVERING FOR CUSTOMER NEEDS ACROSS THE GROUP	•c.450,000 new accounts opened in 2022, a 76% increase on 2021 •€2.1bn of Ulster Bank corporate and commercial loans migrated to AIB; full loan book transfer expected H1 2023 •Agreed acquisition of c. €5.7bn Ulster Bank performing mortgage portfolio with c. 47,000 customers; CCPC clearance received in early January 2023 •Enhanced wealth management proposition: Goodbody integrated; regulatory approval for joint venture with Great-West Lifeco received – available to AIB customer base later this year

2 SIMPLE & EFFICIENT	CUSTOMER & CHANGE DELIVERY, RESILIENCE FOCUS	•Delivered enhanced digital services for customers, including new digital account opening solutions; c. 70% of eligible customers chose to open their new account with AIB digitally •Strategically investing in building our future workforce, including recruitment of over 300 digital, data and change roles, strengthening in-house core capabilities and supporting the delivery of our transformation agenda •Ongoing progress on cyber enhancements and operational capabilities, ensuring our digital services are secure for our customers

3 RISK & CAPITAL	CAPITAL, CREDIT AND LEGACY ITEMS	•Revised medium-term RoTE and absolute cost targets with continued focus on enhancing shareholder value and delivering sustainable returns •Completed a Share Buyback Programme, repurchasing 40.9m ordinary shares for an aggregate of €91m; resumption of capital distribution including payment of ordinary dividend of €122m (4.5c/share) •State shareholding reduced from 71.12% to 56.89% in 2022, as a result of disposals as part of a pre- arranged trading and two share placings in an accelerated book building process to institutional investors •Progress made on legacy items; further reduction of NPEs; conclusion of Tracker Mortgage Enforcement programme; review of Belfry investment funds

4 TALENT & CULTURE	FACILITATING FUTURE OF WORK MODEL; INCLUSION & DIVERSITY	•Flexible hybrid working model implemented, enabled by clear principles, best-in-class technologies, national property footprint and people policies •I&D strategy embedded; ‘Investors in Diversity’ Gold accreditation •Agreement with Financial Services Union on three-year pay deal and increase in minimum entry salary, providing certainty on pay to March 2025

5 SUSTAINABLE COMMUNITIES	ENVIRONMENT	•Raised €1.5bn in two green bond issuances •26% of new lending in 2022 was green and transition •Completed emissions reduction target-setting for Corporate loan portfolio; set Financed Emissions Targets for 75% of our loan book •Signed Corporate Power Purchase Agreement (CPPA) with NTR plc to provide 80% of AIB’s energy requirements from solar farms

	SOCIAL	•Raised €1bn in the first social bond issuance by an Irish bank •Supported social housing by providing funding of €91m in 2022, representing c. 570 homes •Broadened our human rights due diligence across Corporate and Retail Banking, HR, Risk and Procurement to identify potential ‘salient’ human rights impacts relevant to the Group for action •Supported 70 local charities in Ireland and the UK through the AIB Community €1 Million Fund •Contributed €500k to the Ukraine Emergency Appeal •Three-year partnership with AsIAm, Ireland’s national autism charity

	GOVERNANCE	•AIB ranked in the top 5% of banks globally by Sustainalytics •Maintained Low ESG Risk rating from Sustainalytics (and achieved their 2023 Industry and Region Top Rated badges), AA Leader rating from MSCI and membership of the S&P Global Sustainability Yearbook with a score of 69/100 in their 2022 Corporate Sustainability Assessment •Goodbody now a member of Sustainable Trading, an ESG benchmark in financial markets trading •New ESG Framework to integrate ESG into existing Committees •Experienced and gender balanced Board with appropriate combination of independent skills



Key:	Digitalisation	Ways of working	Sustainability	Business model

Allied Irish Banks, p.l.c. Annual Financial Report 2022

RISK SUMMARY

OUR APPROACH

TO RISK

Our risk framework supports the Group in achieving

our strategic objectives, protects our customers and enables

us to identify opportunities to grow our business safely.



	The Group’s risk management principles, included in the Group's Risk Management Framework, are as set out below:
	Strategy
	1.	The Board has ultimate responsibility for the governance of all risk taking activity in the Group and risks assumed through our investments in joint ventures.
	2.	The Group has adopted a three lines of defence (3LOD) model and risks are managed in line with the model.
	Identification and assessment
	3.	The Group identifies, assesses and reports all material risks through the Material Risk Assessment process.
	4.	Risk management is embedded in the strategic planning, performance management and strategic decision making processes of the Group.
	5.	The Group develops and uses models across a range of risks and activities to inform key strategic business and financial decisions.
	6.	The Group accepts that certain additional measured risks may be taken across the short to medium term to support environmental, social and governance (ESG) initiatives for the benefit of all stakeholders over the long term.
	Monitoring, escalating and reporting
	7.	The Group operates and manages risks in line with the Group's Risk Appetite Statement (RAS).
	8.	The Group understands, manages, measures, monitors and reports all risks it takes or originates.
	9.	The Group aims to provide clarity in all communications which will help to better inform business decisions.
	Risk culture
	10.	The Group supports the delivery of a strong risk culture.
	11.	Risk management capabilities are valued, encouraged and developed.
	Control environment
	12.	The Group has in place a system of internal control designed to mitigate rather than eliminate risk.
	13.	A comprehensive, fit-for-purpose framework and policy architecture is in place to support risk management and is reviewed regularly.
	The Risk Management section, from pages 70 to 148 gives more detail on how risk is managed within the Group.

The Group’s Risk Management Framework

(RMF) supports our business activities and

the delivery of our strategies by setting

out how we mitigate and manage risk.

It outlines how we identify, monitor and

escalate risk issues, and provides clarity

on the risk governance structures to

ensure accountability for each material risk

facing the Group.

In 2022, reflecting the importance of

sustainability, a new principle around ESG

initiatives (number six) was approved in

the RMF and is supported by the new

ESG Framework. The Group continues to

embed ESG considerations into its lending

and investment processes.

A key part of our RMF is the identification

of emerging risk drivers as part of the

Group’s material risk assessment, which

are described on page 11. Our emerging

risks continued to evolve at a fast pace

during 2022.

The Group’s view of the principal risks

it faces are described on page 8 to 10.

The RMF is subject to annual review and

approval by the Board, as recommended

by the Board Risk Committee (BRC).

Risk performance is measured against the

Group’s risk appetite on a monthly basis.

Risks to future performance are assessed

by conducting forward looking stress tests

and scenario analysis, the results of

which are considered regularly by both

Management and the Board. The Group's

consideration of viability and going

concern are set out on pages 31.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

PRINCIPAL RISKS

Principal risks are those risks that

could have a material adverse effect

on our customers or the financial or

operational outcomes or reputational

standing of the Group.

Principal risks and uncertainties are identified by the Group’s on-

going risk management practices as well as the Material Risk

Assessment (MRA) process. The Group considers risks that arise

from the impact of external market developments, geopolitical

events or other emerging risks which could potentially impact on

our customers, earnings, capital and liquidity, as well as on our

operations or reputation. Each of the principal risks is assigned

a first and second line accountable executive who regularly report

on, and manage, the risk.

ESG risks continue to be identified as key risk drivers

impacting all of the Group's principal risks, especially

Credit Risk.



	A.	BUSINESS MODEL RISK


WHAT IS THE RISK? The risk of not achieving the agreed strategy or approved business plan, for example as a result of an inadequate implementation plan, or failure to execute the implementation plan as a result of the inability to secure the required investment. This also includes the risk of implementing an unsuitable strategy or maintaining an obsolete business model in light of known internal and external factors.

HOW WE RESPONDED IN 2022 The risk assessment of the potential acquisitions (i.e. Ulster Bank portfolios) and their impact on the Group’s risk profile continued to be a key focus in 2022. Risk introduced a new strategic investment policy to formalise our approach to assessing strategic investment opportunities. The impact of rising rates and inflation on the Group’s risk profile has been central to our risk oversight and in our review and challenge of the financial plan and associated stress tests. As interest rates rise, we continued our focus on product pricing strategies and risk adjusted returns on capital (RAROC).

KEY RISK INDICATORS •Operating Profit (before exceptional charges) •Risk Adjusted Return on Capital (RAROC)
à Read more: page 143



	B.	CREDIT RISK


WHAT IS THE RISK? The risk that the Group will incur losses as a result of a customer or counterparty being unable or unwilling to meet contractual obligations and associated credit exposure in respect of loans or other financial transactions.

HOW WE RESPONDED IN 2022 Our credit portfolio continued to recover strongly as the economic threat from COVID-19 receded during 2022. We are closely monitoring risk arising from the macroeconomic environment, notably energy-driven inflation, supply chain challenges, rising interest rates and further weakening of the UK economy. Our credit risk management principles provide the foundation for through-the-cycle credit management with a number of credit approval metric updates to reflect the current environment. Our Expected Credit Losses (ECLs) reflect our comprehensive approach to assessing the credit environment, ensuring the level of ECL stock remains appropriate. We remain proactive in adapting credit risk management processes and policies to capture ESG risks. Migration of the Ulster Bank portfolio of corporate and commercial loans has progressed on a phased basis throughout the year and has been subject to the appropriate credit review and grading processes. Migration is expected to conclude by mid-2023.

KEY RISK INDICATORS •Non-Performing Exposures (NPEs) outstanding as % of customer loans •Migration to Stage 2 and Stage 3
à Read more: page 75 to 128



Link to strategy:
	Customer first	Simple & efficient	Risk & capital	Talent & culture	Sustainable communities

Allied Irish Banks, p.l.c. Annual Financial Report 2022



	C.	OPERATIONAL RISK		E.	REGULATORY COMPLIANCE RISK


WHAT IS THE RISK? The risk arising from inadequate or failed internal processes, people and systems, or from external events. This includes legal risk, but excludes strategic and reputational risk.			WHAT IS THE RISK? The risk of legal or regulatory sanctions, material financial loss, or loss to reputation which the Group may suffer as a result of a failure to comply with principal laws, regulations, rules, related self-regulatory codes and related supervisory expectations which relate to the Group’s regulated banking and financial service activities, i.e. those activities in which the Group is licensed to conduct business.

HOW WE RESPONDED IN 2022 2022 brought a heightened focus and challenge on key areas of operational risk in the current environment, namely cyber and information security risk, change risk, operational resilience, third party management and technology-related risk. The key areas of focus included ongoing oversight, review and challenge of the transformation agenda, a refreshed operational risk assessment and risk-integrated cyber strategy in response to the evolving external threats, prioritisation of sustainment and operational resilience and enhanced oversight of third party service providers to drive improved resilience. Progress has been made to reinforce strong operational risk practices, through the provision of in- house online courses and initiatives such as Risk in Conversation Week.			HOW WE RESPONDED IN 2022 During 2022, the Compliance function provided risk oversight across strategic growth and regulatory initiatives, including the integration of Goodbody, the acquisition of the Ulster Bank corporate and commercial loans, the new joint venture between the Group and Great-West Lifeco. and the opening of accounts for new customers from KBC and Ulster Bank. In respect of the overall management of regulatory compliance risk within the Group, positive engagement with the business was evident on the Group’s management of regulatory change, such as the EBA Loan Origination and Monitoring programme making significant progress in meeting regulatory obligations, and the mobilisation of major programmes to implement Basel IV and Individual Accountability Framework. The Group swiftly applied new sanction requirements as new sanction regimes were rolled out in different jurisdictions.

KEY RISK INDICATORS •Cumulative operational risk losses •Cyber security metric			KEY RISK INDICATORS •Number of data protection incidents •Number of suspicious transactions reported within 30 days
à Read more: page 143 to 144			à Read more: page 145 to 146



	D.	CONDUCT RISK		F.	PEOPLE AND CULTURE RISK


WHAT IS THE RISK? The risk that inappropriate actions or inactions by the Group cause poor or unfair customer outcomes or negatively impact market integrity.			WHAT IS THE RISK? The risk to achieving the Group’s strategic objectives as a result of an inability to recruit, retain or develop resources, or the inability to evolve the culture aligned to our values and behaviours.

HOW WE RESPONDED IN 2022 In 2022, we focused on the progression of a number of strategic and regulatory initiatives including the oversight of our new customers from Ulster Bank and KBC and prioritising our supports available to vulnerable customers due to the cost of living challenges and increased interest rates. Conduct Risk continues to be a primary area of focus for the Group and progress has been noted in terms of conduct risk management, business engagement and meeting Central Bank's focus on the Group’s operational resilience to ensure consumer protection is at the forefront of decision making. During 2022, the Group progressed a series of conduct milestones including the completion of the tracker mortgage examination, the commencement of customer migration from Ulster Bank and KBC and the redress for customers resulting from the Belfry programme.			HOW WE RESPONDED IN 2022 The Group has a number of defined strategic initiatives and programmes of work underway, such as wellbeing and engagement, retention and attractiveness strategies, and our workforce planning support to adapt to new ways of working. There has also been significant investment in terms of developing capabilities across the Group, including running a number of Leadership Development programmes during the year. Several progressive family leave policies have been introduced such as surrogacy, fertility treatment and pregnancy loss to support our people through difficult times. We continue on our culture development journey and much progress has been made including significant enhancements to our wellbeing, engagement and inclusion and diversity (I&D) strategies and reinforcement of our Speak Up process.

KEY RISK INDICATORS •Number of complaints and time taken to resolve •Number of overdue product reviews			KEY RISK INDICATORS •Attrition of top performers •Completion of mandatory courses
à Read more: page 144 to 145			à Read more: page 146 to 147



Link to strategy:
	Customer first	Simple & efficient	Risk & capital	Talent & culture	Sustainable communities

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

PRINCIPAL RISKS CONTINUED



	G.	CAPITAL ADEQUACY RISK		I.	LIQUIDITY AND FUNDING RISK


WHAT IS THE RISK? The risk that the Group breaches, or may breach, regulatory capital ratios and internal targets measured on a forward-looking basis, across a range of scenarios, including a severe but plausible stress.			WHAT IS THE RISK? The risk that the Group will not be able to fund our assets and meet our obligations as they come due, without incurring unacceptable costs or losses. Funding is the means by which liquidity is generated, e.g. secured or unsecured, corporate or retail. In this respect, Funding Risk is the risk that liquidity cannot be obtained at an acceptable cost.

HOW WE RESPONDED IN 2022 Our ongoing stress-testing activity in 2022 continued to demonstrate the robustness of the Group’s capital position. A range of scenarios and risks were considered including Covid-19 and the withdrawal of government supports, the impact of the Ukraine crisis, supply chain challenges, rising energy costs, potential gas supply shortages and cost of living impacts from rising inflation and higher interest rates. Our Internal Capital Adequacy Assessment Process (ICAAP) continues to be used in the assessment of acquisitions, in addition to the assessment of proposed dividends and buybacks, to ensure that they are sustainable from a capital perspective. Our approach to climate stress testing continues to develop and we participated in the inaugural ECB Climate Stress Tests in 2022. We continue to review our capital risk appetite considering changes to regulatory capital requirements, outcomes from our stress testing and internal capital models and our assessment of the prevailing risk.			HOW WE RESPONDED IN 2022 Customer deposits have continued to grow, reflecting inflows from former Ulster Bank and KBC customers transferring to the Group and from higher income and employment levels in the Irish economy generally. There has also been an increase in precautionary saving due to the heightened economic uncertainty and increasing inflationary pressures. This has contributed to high volumes of excess liquidity held with the Central Bank of Ireland (CBI). The higher interest rate environment, facilitated the introduction of a new one-year interest bearing fixed term deposit. In addition, we reduced our central bank funding accumulated via the third series of targeted longer-term refinancing operations (TLTRO III), the Group repaid €10bn in December 2022.

KEY RISK INDICATORS •Fully Loaded CET1 ratio •Fully Loaded Total Capital Ratio •Fully Loaded Internal Capital Buffer			KEY RISK INDICATORS •Liquidity Coverage Ratio (LCR) •Survival Period •Net Stable Funding Ratio (NSFR)
à Read more: page 147			à Read more: page 129 to 135



	H.	MODEL RISK		J.	FINANCIAL RISK


WHAT IS THE RISK? The potential loss the Group may incur, as a consequence of decisions that could be principally based on the output of models, due to errors in the development, implementation or use of such models.			WHAT IS THE RISK? The uncertainty of returns attributable to fluctuations in market factors. Where the uncertainty is expressed as a potential loss in earnings or value, it represents a risk to the income and capital position of the Group.

HOW WE RESPONDED IN 2022 Improvements in the control environment and model monitoring along with approved expansion of monitoring standards and the migration of the model inventory to a more robust platform were key delivery items across Model Risk in the last year. In the second half of the year, an enhanced Internal Rating Based (IRB) rollout plan was approved by the Board. The plan incorporates an acceleration of the rollout of IRB models to material portfolios which aims to deliver broad benefits, spanning regulatory compliance, capital management, enhanced business decision making and operational benefits through streamlining and automation opportunities. The IRB Mortgage and SME models have been submitted to the regulator and formal approval is awaited prior to implementation.			HOW WE RESPONDED IN 2022 Rising inflation led to sharp interest rate hikes and increased market volatility as the period of low-to-negative interest rates and central bank stimulus programmes came to an end. The Group responded by adapting our interest rate hedging strategy to stabilise our exposure to market volatility, in particular as it related to net interest income (NII).

KEY RISK INDICATORS •Quarterly risk assessment of approved models in use			KEY RISK INDICATORS •Earnings Sensitivity •Interest Rate Capital at Risk (CaR)
à Read more: page 148			à Read more: page 136 to 142



Link to strategy:
	Customer first	Simple & efficient	Risk & capital	Talent & culture	Sustainable communities

Allied Irish Banks, p.l.c. Annual Financial Report 2022


EMERGING RISKS AND UNCERTAINTIES
The Group identifies emerging risks that have the potential to increase in significance which could have a material impact on the Group’s strategy, operations and on our customers over the medium to long term. The below sets out the top emerging risks identified as part of the Group's Material Risk Assessment which continued to evolve during the year.


Emerging risk		How we respond	Links to principal risks on pages 8 to 10	Trend 2022


	Environmental, Social and Governance (ESG) Risks: The risk of any negative financial or non-financial (e.g. reputational) impact on the Group stemming from current or prospective impacts of ESG factors on its lending or invested assets.	•The Board approved a new Environmental, Social & Governance Framework in December 2022 to strengthen the accountability for ESG at all levels of the Group, supporting the sustainability agenda for our customers, society and communities. •The Group’s Risk Management Framework incorporates ESG requirements and climate risk has been identified as a key risk driver for each material risk. •During 2022, the Board approved a new climate risk exposure metric within the Group’s Risk Appetite Statement. •Updated qualitative statements for climate risk have been approved to guide our green and climate lending to customers. We will continue to refine and enhance these statements in line with evolving best practice and data analysis. •We raised €1bn through the issuance of a social bond and €1.5bn through the issuance of two green bonds in 2022; we have raised a total of €3.25bn in green bonds to date. •The Group participated in the ECB’s first European-wide Climate Stress Test in 2022.		Increasing


	Cost of Living and Inflationary Pressures: The risk of increases in the price of goods and services, arising from energy costs, supply chain constraints or other sources that have a negative impact on our customers' ability to meet their loan obligation.	•The Group’s credit risk principles govern a series of risk management activities across the first and second line to ensure timely, appropriate and customer-focused actions. •The Group’s underwriting criteria for new lending was amended where appropriate, based on the risk insights of the portfolio assessments along with analysis of prevailing economic conditions. •A series of assessments across the portfolios was undertaken to identify the sectors impacted by the higher energy costs, supply chain challenges, labour costs, inflationary pressures and rising interest rates. •We use a system of Early Warning Indicators (EWIs) to appropriately manage higher risk sectors through the Sector Risk Assessment Forum. •We support our customers on a case-by-case basis through affordable, fair and sustainable solutions.		Increasing


	Unexpected Macroeconomic Changes and Geopolitical Risks: The risk that a macroeconomic downturn, such as a market shock and geopolitical risks, could negatively impact the Group’s revenues, ability to raise capital, or result in other financial impacts.	•The Group commenced and maintained a Risk Working Group through 2022 to ensure that any potential issues from the Ukraine conflict were closely reviewed and managed. •We updated the Group’s credit application guidelines to assess any direct or indirect impacts of the Ukraine crisis. •The Group’s capital adequacy and liquidity are reviewed regularly through the governance committees ensuring compliance with risk appetite and regulatory requirements. •The Group applied new sanction requirements as these were implemented in various jurisdictions. •The Group identifies economic headwinds and geopolitical risks on at least a quarterly basis, through financial planning and ongoing stress testing activity. These risks are considered under a range of alternate scenarios. This ensures that the approved financial plan is supported by a robust capital plan and assessment of the risks, and is aligned with our risk appetite.		Increasing


	Cyber Attacks: The risk of diminished operational capability of the Group’s systems and customer data risk exposures. In addition, the potential for legal liability or loss of reputation with our customers due to an evolving cyber threat landscape and heightened threats associated with cyber criminals and rogue nation states.	•The Group ensures that our proactive threat intelligence capability, including active engagement with law enforcement agencies, coupled with an industry- leading practice cyber risk programme, continually drives a defence in-depth approach to the protection of confidential data and the availability of vital business services. •A Group user awareness programme is in place including mandatory cyber training for all employees, education communications on potential internal and external threats, frequent phishing testing and reporting facilities for suspicious activities. •The Board receives quarterly cyber updates, annual cyber training, and has been involved in cyber attack simulations to help identify vulnerabilities and inform an understanding of the overall resilience of the cyber ecosystem. •Cyber risk is governed, challenged and reviewed on an ongoing basis, through senior organisational risk forums.		Stable

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

BUSINESS REVIEW



		Page
	Operating and financial review	13
	Capital	28

Allied Irish Banks, p.l.c. Annual Financial Report 2022

BUSINESS REVIEW

1. OPERATING AND FINANCIAL REVIEW

BASIS OF PRESENTATION

The operating and financial review is prepared using IFRS and non-IFRS measures to analyse the Group’s performance, providing

comparability year on year. These performance measures are consistent with those presented to the Board and Executive Committee.

Non-IFRS measures include management performance measures which are considered Alternative Performance Measures (“APMs”).

APMs arise where the basis of calculation is derived from non-IFRS measures. A description of the Group’s APMs and their calculation

is set out on page 26. These measures should be considered in conjunction with IFRS measures as set out in the consolidated financial

statements from page 163. A reconciliation between the IFRS and management performance summary income statements is set out on

page 27.

Figures presented in the operating and financial review may be subject to rounding and thereby differ to the risk management section

and the consolidated financial statements.

Basis of calculation

Percentages are calculated on exact numbers and therefore may differ from the percentages based on rounded numbers. The impact

of currency movements is calculated by comparing the results for the current reporting period to results for the comparative reporting

period retranslated at exchange rates for the current reporting period.



	2022	2021	%
Management performance - summary income statement	€ m	€ m	change
Net interest income	2,152	1,791	20
Other income(1)	744	598	25
Total operating income(1)	2,896	2,389	21
Personnel expenses(1)	(779)	(738)	6
General and administrative expenses(1)	(575)	(512)	12
Depreciation, impairment and amortisation(1)	(305)	(284)	7
Total operating expenses(1)	(1,659)	(1,534)	8
Bank levies and regulatory fees(1)	(155)	(162)	-5
Operating profit before impairment losses and exceptional items(1)	1,082	693	56
Net credit impairment (charge)/writeback	(7)	238	—
Operating profit before exceptional items(1)	1,075	931	16
Income from equity accounted investments	37	21	76
Profit before exceptional items(1)	1,112	952	17
Restitution costs	(94)	(173)
Restructuring costs	(93)	(132)
Inorganic transaction costs	(53)	(21)
Gain/(loss) on disposal of loan portfolios	36	(5)
Other	(27)	13
Total exceptional items(1)	(231)	(318)
Profit before taxation	881	634	39
Income tax (charge)/credit	(115)	16	—
Profit for the year	766	650	19

(1) Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of performance

year on year. The adjusted performance measure is considered an APM.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

Net interest income

€2,152m


	2022	2021	%
Net interest income	€ m	€ m	change

Interest income(1)	2,332	1,797	30
Interest expense(1)	(180)	(6)	—
Net interest income	2,152	1,791	20
Average interest earning assets	124,210	113,401	10

	%	%	Change
Net interest margin (NIM)	1.73	1.58	0.16


Net interest income
€2,152m	Net interest income of € 2,152 million increased by € 361 million or 20%

compared to 2021.

Interest income

Interest income of € 2,332 million in 2022 increased by

€ 535 million compared to 2021 primarily due to:

•Increased asset yields driven by the higher euro, sterling

and US dollar interest rates.

•Higher average customer loan volumes reflecting the acquisition

of performing Ulster Bank corporate and commercial loans and as

new lending exceeded redemptions and disposals.

In the second half of 2022 the ECB increased euro interest rates

by 250 basis points. During 2022 the Bank of England increased

the base rate by 325 basis points and the Federal Reserve

increased the federal funds rate by 425 basis points.

Interest expense

Interest expense of € 180 million in 2022 increased by

€ 174 million compared to 2021. The increase in funding

costs was primarily due to:

•Higher subordinated liabilities and other debt issued funding

costs.

•Deposits by banks which reflects the impact of TLTRO III

funding including an additional income benefit of € 26 million

recognised in 2022 (2021: € 66 million additional income benefit

following the achievement of relevant lending targets).(2)

Customer accounts interest includes the impact of the negative

pricing strategy which was discontinued in the second half

of 2022.


Net interest margin
1.73%	NIM increased by 15 bps to 1.73% in 2022 compared to 1.58% in 2021

due to:

•Higher interest income primarily due to the impact of higher

interest rate environment c. +42bps partly offset by;

•Increase in interest expense c. -11 bps;

•Higher average interest earning assets c. -16 bps.

Average interest earning assets of € 124.2 billion in 2022

increased by € 10.8 billion from 2021. This was due to an

increase in excess liquidity placed with central banks driven

by higher non-interest bearing customer account balances

and a € 6 billion TLTRO III funding drawdown in June 2021.


		Year ended				Year ended
Average balance sheet	31 December 2022			31 December 2021
	Average		Average	Average		Average
	balance	Interest(1)	rate	balance	Interest(1)	rate
Assets	€m	€ m	%	€m	€ m	%
Loans and advances to customers	58,681	1,957	3.33	57,697	1,846	3.20
Investment securities	16,456	192	1.17	17,676	65	0.37
Loans and advances to banks	49,073	183	0.37	38,028	(114)	(0.30)
Average interest earning assets	124,210	2,332		113,401	1,797	1.58
Non-interest earning assets	7,754			6,294
Total average assets	131,964	2,332		119,695	1,797

Liabilities & equity
Deposits by banks	11,108	(11)	(0.10)	7,722	(102)	(1.32)
Customer accounts	48,419	(11)		48,439	(3)	(0.01)
Other debt issued and subordinated liabilities	7,660	191		7,140	99	1.38
Lease liabilities	315	11	3.35	364	12	3.28
Average interest earning liabilities	67,502	180		63,665	6	0.01
Non-interest earning liabilities	51,443			42,518
Equity	13,019			13,512
Total average liabilities & equity	131,964	180		119,695	6

Net interest income		2,152	1.73		1,791	1.58

(1) Negative interest income on assets amounting to € 96 million in 2022 (2021: € 129 million) is offset against interest income. Negative interest expense on

liabilities amounting to € 83 million in 2022 (2021: € 158 million) is offset against interest expense.

(2) For further information see note 4 ‘Interest and similar income’ in the consolidated financial statements.

(3) Loans and advances to banks and Deposits by banks include Securities financing.

BUSINESS REVIEW CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Other income

Other income(1)

€744m


	2022	2021	%
Other income(1)	€ m	€ m	change

Net fee and commission income	596	488	22
Net gain on equity investments (FVTPL)	88	58	51
Net trading income/(loss)	36	15	—
- Loan acquisition forward contract	62	—
- Other	(26)	15
Net gain on loans on advances to customers (FVTPL)	13	20	-33
Other operating income	9	14	-38
Dividend income	2	3	-25
Other income	744	598	24


Other income(1)
€744m	Other income of € 744 million increased by € 146 million or

24% compared to 2021. This reflects the full year impact of

Goodbody following acquisition in the second half of 2021 and an

underlying increase of € 107 million or 19%.


	2022	2021	%
Net fee and commission income	€ m	€ m	change

Customer accounts	226	208	9
Card income	112	78	45
Customer related foreign exchange	83	67	24
Lending related fees	50	50	1
Other fees and commissions	45	46	-2
Payzone	17	15	1
	533	464	15
Goodbody	63	24	—
Net fee and commission income	596	488	22

Net fee and commission income of € 596 million in 2022

increased by € 108 million compared to 2021 reflecting the full

year impact from Goodbody and an increase in underlying net fee

and commission income of € 69 million or 15%.

The increase in underlying net fee and commission income

primarily reflected higher transaction volumes driven by

a recovery in economic activity and the onboarding of customers

from the banks exiting the Irish market as well as higher card

interchange fees.

Goodbody fee income of € 63 million reflects a full year end

impact following acquisition in the second half of 2021 (2021:

€ 24 million for four months) and is comprised of stockbroking

client fees and commissions as well as asset management and

advisory fees. Fee income in 2022 was negatively impacted by

challenging external market conditions.

Net gain on equity investments of € 88 million in 2022 (2021:

€ 58 million) included a gain of € 61 million following the partial

conversion and disposal of Visa Inc Series B Preferred Stock.

Net trading loss (excluding the loan acquisition forward contract)

of € 26 million in 2022 decreased by € 41 million compared to

a net trading income of € 15 million in 2021 mainly due to

unfavourable movements on non-customer foreign

exchange contracts.

A gain of € 62 million was recognised in 2022 in respect of a

forward contract to acquire corporate and commercial loans from

Ulster Bank(2).

Net gain on loans and advances to customers (FVTPL) of

€ 13 million in 2022 (2021: € 20 million) represents income

recognised on previously restructured loans carried at fair value

through profit or loss.

Other operating income of € 9 million in 2022 includes a € 7 million

gain on disposal of investment securities (2021: € 7 million gain).

IFRS basis

On an IFRS basis other income, including a net gain of € 18 million

on exceptional items(1), was € 762 million in 2022 compared to

€ 590 million in 2021.

(1) Other income before exceptional items. A net gain of € 18 million on exceptional items in 2022 comprises a € 18 million net gain on disposal of loan portfolios

(2021: Net loss on disposal of loan portfolios € 5 million).

(2) For further information see note 43 Fair value of financial instruments in the consolidated financial statements.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

Operating expenses

Total operating expenses(1)(2)

€1,659m


	2021	2020	%
Operating expenses(1)(2)	€ m	€ m	change
Personnel expenses	779	738	6
General and administrative expenses	575	512	12
Depreciation, impairment and amortisation	305	284	7
Total operating expenses	1,659	1,534	8

Staff numbers at period end(3)	9,590	8,916	8
Average staff numbers(3)	9,221	9,154	1


Total operating expenses(1)(2)
€1,659m	Total operating expenses of € 1,659 million increased by

€ 125 million compared to 2021. This reflects the full year impact

of Goodbody following acquisition in the second half 2021 and

an underlying increase of € 75 million or 5%.

Personnel expenses

Personnel expenses increased by € 41 million compared to 2021

primarily due to the full year impact of Goodbody of € 30 million.

Personnel expenses excluding Goodbody increased € 11 million

due to salary inflation partially offset by lower average

staff numbers.

Staff numbers at 31 December 2022 were 8% higher than

31 December 2021 reflecting an increase in staff numbers to

support higher business volumes, insourcing and an initial transfer

of staff from Ulster Bank as part of the acquisition of the corporate

and commercial loan portfolio.

General and administrative expenses

General and administrative expenses increased by € 63 million

compared to 2021 driven by the full year impact of Goodbody,

the cost of onboarding customers from banks exiting the Irish

market, inflationary pressures and an increase in customer fraud

related costs.

Depreciation, impairment and amortisation

Depreciation, impairment and amortisation increased by

€ 21 million compared to 2021.


Cost income ratio(1)(2)
57%	Costs of € 1,659 million and income of € 2,896 million resulted in a cost

income ratio of 57% in 2022 compared to 64% in 2021.

Bank levies and regulatory fees

€155m


	2022	2021
Bank levies and regulatory fees	€ m	€ m
Irish bank levy	37	37
Deposit Guarantee Scheme	55	48
Single Resolution Fund	38	53
Other regulatory levies and charges	25	24
Bank levies and regulatory fees	155	162

Bank levies and regulatory fees of € 155 million decreased by

€ 7 million compared to 2021 primarily due to lower Single

Resolution Fund (SRF) fees offset by higher Deposit Guarantee

Scheme fees.

The SRF fee for 2022 reflected an industry wide increase in the

target funding rate by the Single Resolution Board. The SRF

fee in 2021 includes a provision of € 25 million following

a reassessment of the liability due in respect of previous years.

IFRS basis

On an IFRS basis total costs, including bank levies and regulatory

fees of € 155 million and the cost of exceptional items(3) of

€ 249 million, were € 2,063 million in 2022 compared to

€ 2,006 million in 2021. This results in a cost income ratio

(IFRS basis) of 71% in 2022, compared to 84% in 2021.

(1) Before bank levies and regulatory fees and exceptional items.

(2) Staff numbers are on a full time equivalent (“FTE”) basis.

(3) The cost of exceptional items of € 249 million in 2022 (2021: € 310 million) comprised: Personnel expenses € 17 million (2021: € 58 million),

General and administrative expenses € 195 million (2021: € 209 million) and Depreciation, impairment and amortisation € 37 million (2021: € 43 million).

BUSINESS REVIEW CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Net credit impairment charge

€7m

There was a net credit impairment charge of € 7 million in 2022

comprising:

•a € 316 million charge in the second half of the year which

incorporates post model adjustments to address emerging

headwinds and downside risks from inflation and interest rate

impacts on credit quality.

•a € 309 million writeback in the first half of the year reflecting the

economic environment in Ireland with robust credit quality &

repayments, updated macroeconomic assumptions as well as

some release of post-model adjustments.

The net credit impairment charge of € 7 million in 2022 reflected a

€ 5 million charge on loans and advances to customers (net

remeasurement of expected credit loss ("ECL") allowance charge

of € 50 million and recoveries of amounts previously written-off of

€ 45 million) and a € 2 million charge on investment securities.

There was a net credit impairment writeback of € 238 million in

2021 comprising a € 233 writeback on loans and advances to

customers (net remeasurement of ECL allowance writeback of

€ 158 million and recoveries of amounts previously written off

of € 75 million) and a € 6 million writeback for off balance

sheet exposures. There was also a € 1 million charge on

securities financing.

For further information see pages 75 to 128 in the Risk

Management section.

Income tax charge

€115m

The income tax charge was €115 million in 2022, representing an

effective tax rate of 13%, compared to a tax credit of € 16 million

in 2021. The tax credit in 2021 reflected an increase in the

carrying value of deferred tax assets in respect of losses

recognised in the UK in earlier years.

For further information see note 14 Taxation and note 26 Deferred

taxation of the consolidated financial statements.

Total exceptional items

€231m


	2022	2021
Total exceptional items	€ m	€ m
Restitution costs	(94)	(173)
Restructuring costs:	(93)	(132)
- Termination benefits	(7)	(51)
- Property transformation	(44)	(58)
- Loss on UK portfolio sale	(18)	(10)
- Other restructuring	(24)	(13)
Inorganic transaction costs	(53)	(21)
Gain/(loss) on disposal of loan portfolios	36	(5)
Other	(27)	13
Total exceptional items	(231)	(318)

These gains/costs were viewed as exceptional by management.

Restitution costs include a charge of €101 million related to a

series of investment property funds (known as Belfry) which were

sold to individual investors during the period 2002 to 2006,

reflecting an increased provision for customer redress of € 82

million and associated costs of €19 million (2021 charge of € 100

million including € 25 million for legal and settlement costs). It also

includes the writeback of customer redress provisions recognised

in prior periods and costs relating to the tracker mortgage

examination.

Restructuring costs reflect the implementation of the Group’s

strategy (Strategy 2023) including termination benefits,

impairment and other costs associated with the reduction in the

Group’s property footprint, changes to the Retail network in ROI

and the exit from the SME market in Great Britain.

In December 2020 the Group announced Strategy 2023 and

outlined restructuring costs of c. €400 million to deliver annualised

cost savings as a key driver in achieving the medium term targets.

Restructuring costs of € 259 million have been incurred by the end

of 2022.

Inorganic transaction costs includes costs associated with the

acquisition of a portfolio of performing Ulster Bank corporate and

commercial loans and the acquisition of a portfolio of performing

Ulster Bank tracker (and linked) mortgages.

Gain/(loss) on disposal of loan portfolios relates to the disposals

of non-performing loan portfolios.

Other in 2022 reflects a charge of € 27 million relating to the

conclusion of the Central Bank of Ireland enforcement

investigation in respect of tracker mortgages at AIB and EBS

under which the Group agreed to pay a fine of € 96.7 million,

with a provision of € 70 million having been recognised in prior

years. In 2021 it reflected the writeback of a provision for

regulatory fines.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

Assets


Net loans to customers		New lending
€59.6bn		€12.6bn


	31 Dec	31 Dec
	2022	2021	%
Assets	€ bn	€ bn	change
Gross loans to customers	61.2	58.4	5
ECL allowance	(1.6)	(1.9)	-14
Net loans to customers	59.6	56.5	5
Investment securities	16.3	16.9	-4
Loans and advances to banks	39.7	44.0	-10
Securities financing	6.3	3.9	62
Other assets	7.9	6.6	21
Total assets	129.8	127.9	2


Net loans to customers
€59.6bn	Net loans, excluding the negative impact of foreign exchange

movements of € 0.3 billion, increased by € 3.1 billion compared

to 31 December 2021 driven by the acquisition of loans from

Ulster Bank and new lending exceeding redemptions partially

offset by the disposal of non-performing and UK SME loans.

The Group has completed the acquisition of €2.1 billion of

performing Ulster Bank corporate and commercial loans by 31

December 2022. The migration of the remaining eligible loans

of €1.2 billion is expected to be largely complete by June 2023.


New lending
€12.6bn	New lending of € 12.6 billion in 2022

was € 2.2 billion or 22% higher than in 2021.

Mortgage lending of € 4.6 billion was 48% higher driven by

strong Irish mortgage lending of € 4.5 billion, up 53%,

representing a market share of 32%. Property related lending

was up 50% to € 2.7 billion. Non-property lending of € 4.3 billion

was 5% lower as higher renewable energy & infrastructure and

corporate lending in Ireland was more than offset by lower

syndicated and UK lending. Personal lending was up 10% to €

1.0 billion.

New lending comprises € 10.8 billion term lending in 2022

(€ 9.1 billion in 2021) and € 1.8 billion transaction lending

(€ 1.3 billion in 2021).


Non-performing loans		Non-performing loans ratio
€2.2bn		3.5%

Non-performing loans decreased by € 0.9 billion or 31% to

€ 2.2 billion at 31 December 2022 primarily reflecting the

disposal of loan portfolios of € 0.5 billion and redemptions of €

0.6 billion partially offset by net flow to non-performing of € 0.3

billion.

Legacy NPEs (exposures that entered into default prior to

31 December 2018) amount to € 0.2 billion or 0.4% of total

loans at 31 December 2022.

Non-performing loans ratio

Non-performing loans as a percentage of gross loans to

customers was 3.5% at 31 December 2022 compared to 5.4%

at 31 December 2021.


ECL allowance		Non-performing loans cover
€1.6bn		35%

The ECL allowance on loans (at amortised cost) of € 1.6 billion

at 31 December 2022 decreased from € 1.9 billion at 31

December 2021 primarily reflecting the disposal of non-

performing loans in 2022.

Non-performing loans cover

The ECL allowance cover rate on non-performing loans has

increased to 35% at 31 December 2022 compared to 32% at

31 December 2021.

Summary of movement in loans to customers

The table below sets out the movement in loans to customers from 1 January 2022 to 31 December 2022.


	Performing	Non-performing	Loans to
	loans	loans	customers
Loans to customers	€ bn	€ bn	€ bn
Gross loans (opening balance 1 January 2022)	55.3	3.1	58.4
New lending	12.6	—	12.6
Redemptions of existing loans	(10.3)	(0.6)	(10.9)
Portfolio acquisition	2.1	—	2.1
Portfolio disposals	(0.3)	(0.5)	(0.8)
Write-offs and restructures	—	(0.1)	(0.1)
Net movement to non-performing	(0.3)	0.3	—
Foreign exchange movements	(0.3)	—	(0.3)
Other movements	0.2	—	0.2
Gross loans (closing balance 31 December 2022)	59.0	2.2	61.2
ECL allowance	(0.9)	(0.7)	(1.6)
Net loans (closing balance 31 December 2022)	58.1	1.5	59.6

BUSINESS REVIEW CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Assets continued

The tables below summarise the credit profile of the loan portfolio by asset class and include a range of credit metrics that the Group

uses in managing the portfolio. Further information on the Group’s risk profile and non-performing loans is available on pages 75 to 128

in the Risk management section.


	At amortised cost					At FVTPL(1)
	Residential	Other	Property and	Non- property
Loan portfolio profile	mortgages	personal	construction	business	Total	Total	Total
31 December 2022	€ bn	€ bn	€ bn	€ bn	€ bn	€ bn	€ bn
Gross loans to customers	30.3	2.7	8.6	19.4	61.0	0.2	61.2
Of which: Stage 2	1.1	0.3	1.4	3.2	6.0		6.0
Non-performing loans	0.6	0.2	0.4	0.8	2.0	0.2	2.2
Total ECL allowance	0.3	0.2	0.3	0.8	1.6		1.6

Total ECL allowance cover (%)	0.9%	6.5%	3.7%	4.3%	2.7%
ECL allowance cover Stage 2 (%)	3.3%	13.7%	8.4%	14.1%	10.7%
ECL allowance cover non-performing (%)	31.2%	64.4%	29.3%	34.7%	35.1%

31 December 2021	€ bn	€ bn	€ bn	€ bn	€ bn	€ bn	€ bn
Gross loans to customers	29.4	2.7	7.4	18.7	58.2	0.2	58.4
Of which: Stage 2	1.5	0.2	1.4	3.7	6.8		6.8
Non-performing loans	1.0	0.2	0.6	1.1	2.9	0.2	3.1
Total ECL allowance	0.4	0.2	0.3	1.0	1.9		1.9

Total ECL allowance cover (%)	1.3%	8.2%	4.3%	5.2%	3.2%
ECL allowance cover Stage 2 (%)	2.8%	15.5%	6.6%	14.4%	10.4%
ECL allowance cover non-performing (%)	30.1%	64.4%	27.5%	28.6%	31.9%

Investment securities

Investment securities of € 16.3 billion, primarily held for liquidity

purposes, have decreased by € 0.6 billion from 31 December

2021 due to the impact of negative fair value movements whilst

purchases exceeded maturities and disposals during the year.

Loans and advances to banks

Loans and advances to banks of € 39.7 billion, including

€ 32.6 billion of cash and balances at central banks, were

€ 4.3 billion lower than 31 December 2021. The reduced

placement with banks was primarily due to the repayment

of TLTRO funding, loan book growth and increased securities

financing partly offset by higher customer account balances

and proceeds from the issuance of debt.

Securities financing

Securities financing of € 6.3 billion has increased by € 2.4 billion

from 31 December 2021.

Other assets

Other assets of € 7.9 billion comprised:

•Deferred tax assets of € 3.0 billion(2), € 0.2 billion increase from

31 December 2021.

•Derivative financial instruments of € 2.5 billion, € 1.6 billion

increase from 31 December 2021 primarily reflecting interest

rate movements in the period.

•Remaining assets of € 2.4 billion, decreased by € 0.5 billion

from 31 December 2021.

(1) Total loans at FVTPL relate predominantly to the property and construction asset class.

(2) For further information see note 2 Critical accounting judgements and estimates ‘Deferred taxation’ in the consolidated financial statements.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

Liabilities & equity


Customer accounts		Equity
€102.4bn		€12.3bn


	31 Dec	31 Dec
	2022	2021	%
Liabilities & equity	€ bn	€ bn	change
Customer accounts	102.4	92.9	10
Deposits by banks	0.5	10.4	-95
Debt securities in issue	1.0	1.9	-46
Subordinated liabilities	7.6	5.6	36
Other liabilities	6.0	3.4	77
Total liabilities	117.5	114.2	3

Equity	12.3	13.7	-10
Total liabilities & equity	129.8	127.9	1

	%	%	Change
Loan to deposit ratio	58	61	-3


Customer accounts
€102.4bn	Customer accounts, excluding the negative impact of currency

movements of € 0.5 billion, increased by € 10.0 billion compared

to 31 December 2021 driven by an increase in Retail Banking and

Capital Markets, which includes inflows from banks exiting the

Irish market, offset by the expected reduction in balances in AIB

UK due to the exit from the SME market in Great Britain.

Loan to deposit ratio

The loan to deposit ratio decreased to 58% at 31 December 2022

compared to 61% at 31 December 2021 as growth in customer

accounts outpaced the growth in loans to customers during

the year.

Deposits by banks

Deposits by banks of € 0.5 billion decreased by € 9.9 billion

compared to 31 December 2021 driven by the repayment of

TLTRO funding of € 10.0 billion in December 2022.

Debt securities in issue

Debt securities of € 1.0 billion decreased by € 0.9 billion from

31 December 2021.

Subordinated liabilities

Subordinated liabilities of € 7.6 billion have increased by € 2 billion

from December 2021.

Other liabilities

Other liabilities of € 6.0 billion comprised:

•Derivative financial instruments of € 3.0 billion, € 1.9 billion

increase from 31 December 2021 primarily reflecting interest

rate movements in the period.

•Securities financing € 0.9 billion, € 0.9 billion increase from

31 December 2021

•Remaining liabilities of € 2.1 billion, € 0.2 billion reduction from

31 December 2021.


Equity
€12.3bn	Equity decreased by € 1.4 billion to € 12.3 billion compared to

€ 13.7 billion at 31 December 2021

The table below sets out the movements to 31 December 2022.


Equity	€ bn
Opening balance (1 January 2022)	13.7
Profit for the year	0.8
Distributions paid	(0.3)
Other comprehensive income:	(1.9)
Cashflow hedging reserves	(1.6)
Investment securities reserves	(0.2)
Foreign currency translation reserve	(0.1)
Closing balance (31 December 2022)	12.3

The decrease in the cash flow hedging reserves during the year

primarily reflected fair value movements on receive fixed interest

rate swaps driven by an increase in euro and sterling interest

rates and additional hedging activity.

BUSINESS REVIEW CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Segment overview

The Group’s performance is managed and reported across the Retail Banking, AIB Capital Markets (“Capital Markets”), AIB UK and

Group segments. Segment performance excludes exceptional items.

Retail Banking

Our leading Irish retail franchise provides a comprehensive range of products and services to over 2.9 million customers delivered

through our branch, digital and phone banking channels; with an expanded reach into the retail customer base via EBS, Haven, AIB

Merchant Services, Payzone, Nifti and AIB Life.

•Homes & Consumer are responsible for meeting the homes and everyday banking needs of customers in Ireland by delivering

innovative products, propositions and services and for growing our market leading positions. Our aim is to achieve a seamless and

transparent customer experience across all our products and services including mortgages, current accounts, personal lending,

payments and credit cards, deposits, insurance and wealth.

•SME serves our micro and small SME customers through our sector-led strategy and local expertise with an extensive product and

services offering. Our aim is to help our customers create and build sustainable businesses in their communities.

•FSG is our dedicated centre of excellence for the management of the vast majority of the Group’s non-performing exposures (NPEs),

with the objective of supporting our customers in difficulty and delivering the Group’s strategy to reduce NPEs.

Capital Markets

Capital Markets provides institutional, corporate and business banking services to the Group’s larger customers and customers

requiring specific sector or product expertise. Capital Markets’ relationship driven model serves customers through sector specialist

teams including: corporate banking, real estate finance, business banking and energy, climate action & infrastructure.

In addition to traditional credit products, Capital Markets offers customers foreign exchange and interest rate risk management

products, cash management products, trade finance, mezzanine finance, structured and specialist finance and equity investments, as

well as Private Banking services and advice. Capital Markets also has syndicated and international finance teams based in Dublin and

in New York. In 2021 Goodbody became part of Capital Markets, bringing additional capability in wealth management, corporate

finance, asset management and wider capital markets propositions.

AIB UK

AIB UK offers corporate, retail and business banking services in two distinct markets;

•a sector-led corporate bank supporting mid to large corporates focused on renewables, infrastructure, housing, commercial real

estate, health and manufacturing/industrial businesses across both Great Britain and Northern Ireland, where the Bank has

recognised expertise. Services include lending, treasury, trade facilities, asset finance and invoice discounting.

•a full service retail bank in Northern Ireland (“AIB (NI)”) to personal and business customers with a focus on mortgage and business

lending.

Group

Group comprises wholesale treasury activities and Group control and support functions. Treasury manages the Group’s liquidity and

funding positions and provides customer treasury services and economic research. The Group control and support functions in the

period included Technology, Operations, Finance, Risk, Legal, Corporate Governance & Customer Care, Human Resources,

Sustainability and Corporate Affairs, Enterprise Development and Group Internal Audit.

Segment allocations

In 2022 the Group made changes to the methodologies used to allocate cost and income across operating segments in order to

enhance the management of standalone segment performance. Under the Group’s revised cost allocation methodology, substantially all

of the costs of the Group’s control, support and Treasury functions are now allocated to Retail Banking, Capital Markets and AIB UK

whereas the previous methodology resulted in overheads which were managed centrally being reported in the Group segment. In

addition, certain Bank levies and regulatory fees, such as the Irish bank levy, which were previously reported in Group segment are now

allocated to the Retail Banking and Capital Market segments. Figures for the prior year have been restated on a comparative basis.

Funding and liquidity income/charges are based on each segment’s funding requirements and the Group’s funding cost profile, which is

informed by wholesale and retail funding costs. Income attributable to capital is allocated to segments based on each segment’s capital

requirement.

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Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Retail Banking


Retail Banking contribution statement	2022 € m	2021 € m	% change
Net interest income	1,186	1,042	14
Other income	418	367	14
Total operating income	1,604	1,409	14
Total operating expenses	(1,151)	(1,082)	6
Bank levies and regulatory fees	(50)	(49)	2
Operating contribution before
impairments and exceptional items	403	278	45
Net credit impairment writeback	144	86	67
Operating contribution before
exceptional items	547	364	50
Income from equity accounted investments	7	16	-56
Contribution before exceptional items	554	380	46


Net interest income
€1,186m	Net interest income has increased by € 144 million compared to 2021 driven by the favourable impact of a rising interest rate environment partly offset by higher funding costs.


Other income
€418m	Other income increased by € 51 million compared to 2021 mainly due to an increase in net fee and commission income reflecting higher transaction volumes driven by a recovery in economic activity and the onboarding of customers from the banks exiting the Irish market as well as higher card interchange fees.


Total operating expenses
€1,151m	Total operating expenses increased by € 69 million in 2022 reflecting salary inflation, the costs to on- board customers from banks exiting the Irish market and higher customer fraud related costs.


Net credit impairment writeback
€144m	There was a net credit impairment writeback of € 144 million on loans and advances to customers (net remeasurement of ECL allowance writeback of € 101 million and recoveries of amounts previously written-off of € 38 million) and a € 5 million writeback for off-balance sheet exposures. There was a net credit impairment writeback of € 86 million in 2021.


	31 Dec	31 Dec
Retail Banking	2022	2021	%
balance sheet metrics	€ bn	€ bn	change
Mortgages	4.5	2.9
Personal	1.0	0.9
Property	0.1	0.1
Non-property business	0.9	0.9
New lending	6.5	4.8	34


Mortgages	28.7	27.7
Personal	2.6	2.6
Property	0.5	0.6
Non-property business	3.0	3.2
Gross loans	34.8	34.1	2
ECL allowance	(0.7)	(1.0)	-30
Net loans	34.1	33.1	3

Current accounts	45.4	37.9	20
Deposits	30.4	27.3	11
Customer accounts	75.8	65.2	16


New lending
€6.5bn	New lending was 34% higher at € 6.5 billion due to a strong increase in mortgage lending of € 1.6 billion or 53% and higher personal lending.


Net loans
€34.1bn	Net loans increased by € 1.0 billion primarily due to growth in performing loans as new lending exceeded redemptions partly offset by the disposal of non performing loans.


ECL allowance
€0.7bn	The ECL allowance of € 0.7 billion in 2022 decreased by € 0.3 billion from € 1.0 billion at 31 December 2021 primarily reflecting disposal of non-performing loan portfolios.


Customer accounts
€75.8bn	Customer accounts increased by € 10.6 billion compared to 31 December 2021 driven by higher personal balances and includes inflows from banks exiting the Irish market.

BUSINESS REVIEW CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Capital Markets


Capital Markets contribution statement	2022	2021	%
Capital Markets contribution statement	€ m	€ m	change

Net interest income	565	479	18
Other income	233	137	70
Total operating income	798	616	30
Total operating expenses	(325)	(256)	27
Bank levies and regulatory fees	(12)	(11)	9
Operating contribution before
impairments and exceptional items	461	349	32
Net credit impairment (charge)/writeback	(102)	137	—
Operating contribution before
exceptional items	359	486	-26
Income from equity accounted investments	25	1	—
Contribution before exceptional items	384	487	-21


Net interest income
€565m	Net interest income increased by € 86 million compared to 2021 primarily due to an increase in average loan and investment securities volumes as well as the favourable impact of a rising interest rate environment partly offset by higher funding costs.


Other income
€233m	Other income increased by € 96 million compared to 2021. This reflects the full year impact of Goodbody following acquisition in the second half of 2021 and an underlying increase of € 58m million driven by a gain in respect of a loan acquisition forward contract to acquire corporate and commercial loans from Ulster Bank. There was also an increase in net fee and commission income which was offset by lower income from equity investments.


Total operating expenses
€325m	Total operating expenses increased by € 69 million compared to 2021 primarily due to the full year impact of Goodbody and higher personnel expenses.


Net credit impairment charge
€102m	There was a net credit impairment charge of € 102 million in 2022 comprising of a net remeasurement of ECL allowance charge of € 97 million and an € 8 million charge for off-balance sheet exposures offset by recoveries of amounts previously written off of € 3 million. There was a net credit impairment writeback of € 137 million in 2021.


Income from equity accounted investments
€25m	Income from equity accounted investments increased by €24m reflecting the profit on disposal of an investment in an associate entity.


	31 Dec	31 Dec
Capital Markets balance sheet metrics	2022	2021	%
Capital Markets balance sheet metrics	€ bn	€ bn	change
Mortgages	0.1	—
Personal	—	—
Property	2	1.3
Non-property business	2.6	2.8
New lending	4.7	4.1	15

Mortgages	0.5	0.5
Personal	0.1	—
Property	6.4	5.1
Non-property business	12.2	10.4
Gross loans	19.2	16	20
ECL allowance	(0.7)	(0.6)	17
Net loans	18.5	15.4	20

Investment securities	2.2	1.5	47

Current accounts	12.4	11.1	12
Deposits	3.8	3.4	12
Customer accounts	16.2	14.5	12


New lending
€4.7bn	New lending of € 4.7 billion increased by € 0.6 billion compared to 2021 with strong new lending in property, and to a lesser extent in renewable energy & infrastructure and corporate lending, partially offset by lower syndicated lending.


Net loans
€18.5bn	Net loans of € 18.5 billion at 31 December 2022 increased by € 3.1 billion compared to 2021 driven by the acquisition of € 2.1 billion of Ulster Bank corporate and commercial loans and new lending exceeding redemptions.


ECL allowance
€0.7bn	The ECL allowance of € 0.7 billion as at December 2022 increased by € 0.1 billion from 31 December 2021 driven by the net credit impairment charge recognised in 2022.


Investment securities
€2.2bn	Investment securities of € 2.2 billion were € 0.7 billion higher than 31 December 2021.


Customer accounts
€16.2bn	Customer accounts increased by € 1.7 billion compared to 31 December 2021 and includes inflows from banks exiting the Irish market.

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Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

AIB UK



	2022	2021	%
AIB UK contribution statement	£ m	£ m	change
Net interest income	250	195	28
Other income	48	46	5
Total operating income	298	241	24
Total operating expenses	(147)	(160)	-8
Bank levies and regulatory fees	(1)	(1)	-1
Operating contribution before
impairments and exceptional items	150	80	87
Net credit impairment (charge)/writeback	(42)	13	—
Operating contribution before
exceptional items	108	93	16
Income from equity accounted investments	4	3	24
Contribution before exceptional items	112	96	16
Contribution before exceptional items € m	133	112	19


Net interest income
£250m	Net interest income increased by £ 55 million compared to 2021 driven by rising UK interest rates partly offset by lower average loan volumes primarily due to the exit from the SME market in Great Britain.


Other income
£48m	Other income of £ 48 million in 2022 was broadly in line with 2021.


Total operating expenses
£147m	Total operating expenses decreased by £ 13 million compared to 2021 driven by a reduction in personnel expenses.


Net credit impairment charge
£42m	There was a net credit impairment charge of £ 42 million in 2022 which reflected the deteriorating macroeconomic outlook in the UK. There was a net credit impairment writeback of £ 13 million in 2021.


	31 Dec	31 Dec
	2022	2021	%
AIB UK balance sheet metrics	£ bn	£ bn	change
AIB GB	1.1	0.9	26
AIB NI	0.2	0.4	-55
New lending	1.3	1.3	1

AIB GB	5.2	4.9	5
AIB NI	1.2	2	-39
Gross loans	6.4	6.9	-7
ECL allowance	(0.2)	(0.2)	4
Net loans	6.2	6.7	-8

Current accounts	5.2	6.9	-25
Deposits	2.9	3.0	-4
Customer accounts	8.1	9.9	-19


New lending
£1.3bn	New lending of £ 1.3 billion in 2022 was in line with 2021 as an increase in corporate lending was offset by a reduction in mortgage and SME lending in Great Britain.


Net loans
£6.2bn	Net loans of £ 6.2 billion decreased £ 0.5 billion compared to 31 December 2021 primarily driven by the disposal of loans of £0.3 billion following the Group’s decision to exit the SME market in Great Britain.


ECL allowance
£0.2bn	The ECL allowance of £ 0.2 billion at 31 December 2022 was in line with 31 December 2021.


Customer accounts
£8.1bn	Customer accounts of £ 8.1 billion at 31 December 2022 were £ 1.8 billion lower primarily due to the Group's decision to exit the SME market in Great Britain and an increase in spending activity due to higher costs of living.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

Group


	2022	2021	%
Group contribution statement	€ m	€ m	change
Net interest income	107	43	—
Other income	37	41	-10
Total operating income	144	84	71
Total operating expenses	(11)	(10)	10
Bank levies and regulatory fees	(92)	(101)	42
Contribution before exceptional items	41	(27)	—


Net interest income
€107m	Net interest income of € 107 million increased by € 64 million compared to 2021 reflecting the impact of a rising interest rate environment.


Other income
€37m	Other income decreased by € 4 million compared to 2021 mainly due to unfavourable movements on non- customer foreign exchange contracts which were largely offset by higher income from equity investments.


Total operating expenses
€11m	Total operating expenses of € 11 million are in line with 2021.


Bank levies and regulatory fees
€92m	Bank levies and regulatory fees decreased by € 9 million compared to 2021 primarily due to lower Single Resolution Fund fees partially offset by higher Deposit Guarantee Scheme fees.


	31 Dec	31 Dec
	2022	2021	%
Group balance sheet metrics	€ bn	€ bn	change
Investment securities	14.1	15.5	-9
Securities financing	6.3	3.9	62
Customer accounts	1.2	1.3	-8


Investment securities
€14.1bn	Investment securities of € 14.1 billion, primarily held for liquidity purposes, decreased by € 1.4 billion from 31 December 2021 primarily due to the impact of negative fair value movements during the year.


Securities financing
€6.3bn	Securities financing of € 6.3 billion has increased by €2.4 billion from 31 December 2021.


Customer accounts
€1.2bn	Customer accounts were € 1.2 billion at 31 December 2022 compared to € 1.3 billion at 31 December 2021.

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Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022


Alternative performance measures
The following is a list, together with a description, of APMs used in analysing the Group’s performance, provided in accordance with the European Securities and Markets Authority (“ESMA”) guidelines.
Average rate	Interest income/expense for balance sheet categories divided by the corresponding average balance.
Average balance	Average balances for interest-earning assets are based on daily balances for all categories with the exception of loans and advances to banks, which are based on a combination of daily/monthly balances. Average balances for interest-earning liabilities are based on a combination of daily/ monthly balances, with the exception of customer accounts which are based on daily balances.


Absolute cost base	Total operating expenses excluding exceptional items, bank levies and regulatory fees.
Cost income ratio	Total operating expenses excluding exceptional items, bank levies and regulatory fees divided by total operating income excluding exceptional items.
Cost income ratio (IFRS basis)	Total operating expenses divided by total operating income.
Exceptional items	Performance measures have been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of performance year on year. The adjusted performance measure is considered an APM. A reconciliation between the IFRS and management performance summary income statements is set out on page 27. Exceptional items include:
	•Restitution costs includes a charge related to a series of investment property funds (known as Belfry) which were sold to individual investors during the period 2002 to 2006. It also includes customer redress compensation and associated costs. •Restructuring costs reflect the implementation of the Group’s strategy (Strategy 2023) including termination benefits, impairment and other costs associated with the reduction in the Group’s property footprint, changes to the Retail network in ROI and the exit from the SME market in Great Britain. •Inorganic transaction costs includes costs associated with the acquisition of a portfolio of performing Ulster Bank corporate and commercial loans and the acquisition of a portfolio of performing Ulster Bank tracker (and linked) mortgages. In 2021 it also included costs associated with the creation of a joint venture with Great-West Lifeco Inc. •Gain/(loss) on disposal of loan portfolios relates to the disposals of non-performing loan portfolios. •Other in 2022 reflects a charge in respect of the Central Bank of Ireland enforcement investigation in respect of tracker mortgages at AIB and EBS. In 2021 it included a writeback of a provision for regulatory fines.
Loan to deposit ratio	Net loans and advances to customers divided by customer accounts.
Net interest margin	Net interest income divided by average interest-earning assets.
Non-performing exposures	Non-performing exposures as defined by the European Banking Authority, include loans and advances to customers (non-performing loans) and off-balance sheet exposures such as loan commitments and financial guarantee contracts.
Non-performing loans cover	ECL allowance on non-performing loans as a percentage of non-performing loans.
Non-performing loans ratio	Non-performing loans as a percentage of total gross loans.
Return on Tangible Equity (RoTE)	Profit after tax less AT1 coupons paid, divided by targeted CET1 capital on a fully loaded basis. Details of the Group’s RoTE is set out in the Capital Section on page 30.
Management performance – summary income statement	The following line items in the management performance summary income statement are considered APMs:
	•Other income •Total operating income •Personnel expenses •General and administrative expenses •Depreciation, impairment and amortisation •Total operating expenses	•Bank levies and regulatory fees •Operating profit before impairment losses and exceptional items •Operating profit before exceptional items •Profit before exceptional items •Total exceptional items

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

Reconciliation between IFRS and management performance summary income statements

Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting

comparability of performance period on period. The adjusted performance measure is considered an APM. A reconciliation of

management performance measures to the directly related IFRS measures, providing their impact in respect of specific line items and

the overall summary income statement, is set out below.


			2022		2021
IFRS - summary income statement			€ m		€ m
Net interest income			2,152		1,791
Other income			762		590
Total operating income			2,914		2,384
Total operating expenses			(2,063)		(2,006)
Operating profit before impairment losses			851		378
Net credit impairment (charge)/writeback			(7)		238
Operating profit			844		616
Income from equity accounted investments			37		21
Profit before taxation			881		634
Income tax (charge)/credit			(115)		16
Profit for the year			766		650

Adjustments - between IFRS and management performance
Other income	of which: exceptional items
	(Gain)/loss on disposal of loan portfolios	(18)		6
	Other	—	(18)	2	8

Total operating expenses	of which: bank levies and regulatory fees		155		162
	of which: exceptional items
	Restitution costs	94		173
	Restructuring costs	75		122
	Inorganic transaction costs	53		21
	Other	27		(6)
			249		310

Management performance - summary income statement
Net interest income			2,152		1,791
Other income(1)			744		598
Total operating income(1)			2,896		2,389
Total operating expenses(1)			(1,659)		(1,534)
Bank levies and regulatory fees(1)			(155)		(162)
Operating profit before impairment losses and exceptional items(1)			1,082		693
Net credit impairment (charge)/writeback			(7)		238
Operating profit before exceptional items(1)			1,075		931
Income from equity accounted investments			37		21
Profit before exceptional items(1)			1,112		952
Total exceptional items(1)			(231)		(318)
Profit before taxation			881		634
Income tax (charge)/credit			(115)		16
Profit for the year			766		650

(1) Performance has been adjusted to exclude items viewed as exceptional by management and which management view as distorting comparability of performance

period on period. The adjusted performance measure is considered an APM.

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Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Objectives*

The objectives of the Group’s capital management policy are to at all times comply with regulatory capital requirements and to ensure

that the Group has sufficient capital to cover the current and future risk inherent in its business and to support its future development.

Detail on the management of capital and capital adequacy risk can be found in ‘Risk management 2.9’ on page 147.

Regulatory capital and capital ratios(1)


	Transitional basis				Fully loaded basis
	31 December 2022		31 December 2021		31 December 2022		31 December 2021
		€ m		€ m		€ m		€ m
Equity		12,266		13,664		12,266		13,664
Less: Additional tier 1 Securities		(1,115)		(1,115)		(1,115)		(1,115)
Proposed ordinary dividend		(166)		(122)		(166)		(122)
Regulatory adjustments:
Intangible assets and goodwill		(537)		(552)		(537)		(552)
Cash flow hedging reserves		1,470		(149)		1,470		(149)
IFRS 9 CET 1 transitional add-back		411		565		—		—
Pension		(12)		(39)		(12)		(39)
Deferred tax		(2,192)		(1,977)		(2,724)		(2,801)
Calendar provisioning (3)		(115)		(136)		(115)		(136)
Other (2)		(65)		(37)		(65)		(37)
		(1,040)		(2,325)		(1,983)		(3,714)
Total common equity tier 1 capital		9,945		10,102		9,002		8,713

Additional tier 1 capital
Additional tier 1 issuance		1,115		1,115		1,115		1,115
Other		(3)		—		(3)		—
Total additional tier 1 capital		1,112		1,115		1,112		1,115
Total tier 1 capital		11,057		11,217		10,114		9,828

Tier 2 capital
Subordinated debt		1,500		1,500		1,500		1,500
Instruments issued by subsidiaries that are given recognition in tier 2 capital		27		24		29		28
IRB Excess of provisions over expected losses eligible		135		133		135		133
IFRS 9 tier 2 transitional adjustment		(135)		(133)		—		—
Other		(3)		—		(3)		—
Total tier 2 capital		1,524		1,524		1,661		1,661
Total capital		12,581		12,741		11,775		11,489

Risk-weighted assets
Credit risk		50,886		47,646		50,661		47,367
Market risk		291		446		291		446
Operational risk		4,302		4,435		4,302		4,435
Credit valuation adjustment and settlement risk		79		110		79		110
Total risk-weighted assets		55,558		52,637		55,333		52,358

		%		%		%		%
Common equity tier 1 ratio		17.9		19.2		16.3		16.6
Tier 1 ratio		19.9		21.3		18.3		18.8
Total capital ratio		22.6		24.2		21.3		21.9

(1) Prepared under the regulatory scope of consolidation.

(2) Other includes prudent valuation adjustment which has increased with the addition of the Ulster Bank forward contract.

(3) Calendar provisioning is a Supervisory Review and Evaluation Process ("SREP") recommendation to ensure minimum coverage levels on long term NPE

exposures. The difference between the SREP recommended coverage levels and the IFRS 9 ECL coverage is taken as a CET1 deduction.

*Forms an integral part of the audited financial statements

BUSINESS REVIEW – 2. CAPITAL

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Key Points

•The Group is reporting a fully loaded CET1 ratio of 16.3% at

31 December 2022.

•Including the impact of the proposed share buyback, the fully

loaded CET1 ratio is 15.9%, against a requirement of 10.23%.

•The impact of the acquisition of the Ulster Bank tracker

mortgage portfolio is expected to be c. -0.6%.

Capital requirements

The table below sets out the capital requirements at 31 December

2022 and the pro forma requirements for 31 December 2023 and

31 December 2024.


	Actual	Pro Forma
Regulatory Capital Requirements	31 Dec 2022	31 Dec 2023	31 Dec 2024
CET1 Requirements
Pillar 1	4.50%	4.50%	4.50%
Pillar 2 requirement (P2R)	1.55%	1.55%	1.55%
Capital Conservation Buffer (CCB)	2.50%	2.50%	2.50%
Other Systemically Important Institutions Buffer (O-SII)	1.50%	1.50%	1.50%
Countercyclical buffer (CCYB) Impact	0.18%	1.05%	1.45%
CET1 Requirement	10.23%	11.10%	11.50%
AT1	2.02%	2.02%	2.02%
Tier 2	2.69%	2.69%	2.69%
Total Capital Requirement	14.94%	15.80%	16.20%

In addition, under Article 104a any shortfall in AT1 and Tier 2 must

be held in CET1(1). The table does not include Pillar 2 Guidance

(“P2G”) which is not publicly disclosed.

The Bank of England (“BOE”) has reintroduced the UK

Countercyclical capital buffer (“CCyB”) at 1% in December 2022,

increasing to 2% in July 2023. The Central Bank of Ireland (“CBI”)

is also reintroducing the CCyB for Irish exposures at 0.5% in June

2023, increasing to 1.0% in November 2023 and potentially to

1.5% in 2024.

Capital ratios at 31 December 2022

Fully Loaded Ratio

The fully loaded CET1 ratio decreased to 16.3% at 31 December

2022 from 16.6% at 31 December 2021.

Profit for the year attributable to equity holders of the parent less

proposed ordinary dividend (+1.2%) is offset by increased Risk

Weighted Assets (“RWAs”) (-0.9%), a reduction in the investment

securities reserve (-0.4%) and a share buyback programme

completed in May 2022 (-0.2%).

The increase in RWA is mainly as a result of the acquisition of the

Ulster Bank corporate and commercial loan book.

The fully loaded total capital ratio decreased to 21.3% from 21.9%

at 31 December 2021. The decrease in the ratio was primarily

driven by the CET1 ratio movements outlined above.

Transitional Ratio

The transitional CET1 ratio decreased to 17.9% at 31 December

2022 from 19.2% at 31 December 2021. This decrease is driven

by the fully loaded CET1 ratio movements detailed above and an

additional year’s phasing of the deferred tax asset deduction and

the IFRS 9 transitional addback.

At 31 December 2022 the transitional total capital ratio decreased

to 22.6% from 24.2% at 31 December 2021.

Acquisition of Ulster Bank tracker mortgage portfolio

The Group estimates that had the Ulster Bank tracker transaction

completed on 31 December 2022 the increase in the Group’s

RWAs would have led to a reduction in the CET1 ratio of c.-0.6%.

As CCPC approval had not yet been received at 31 December

2022, the impact is not reflected in the capital position. CCPC

approval was received in January 2023 and therefore the impact

will be recognised by way of an Article 3 adjustment in the first

quarter of the year.

Model Redevelopment

The regulatory review of the Group’s previously submitted

mortgage model is near completion. The current estimated capital

impact is a reduction of c. 30 basis points on the CET1 ratio. The

impact will be included in the Group’s capital position following

receipt of regulatory approval expected to be in the first six

months of 2023.

Further headwinds may be faced as SME and corporate models

are redeveloped and submitted for regulatory approval.

Distributions

Proposed Dividend

The Board proposes to pay an ordinary dividend of 6.2 cent per

share from 2022 profits (totalling € 166 million based on the total

number of ordinary shares currently outstanding). This is subject

to shareholder approval at the Annual General Meeting in

May 2023.

Proposed buyback of ordinary shares

The Group has received regulatory approval from the European

Central Bank to undertake a buyback of its ordinary shares in an

aggregate consideration amount of up to € 215 million.

Discussions with the Department of Finance in relation to a

potential directed buyback of ordinary shares by the Minister for

Finance are currently underway. Any buyback of ordinary shares

would be subject to the approvals of the Board and the Minister

for Finance.

The combined proposed ordinary dividend and buyback

represents c. 50% of 2022 distributable profits. In determining

distributable profits, the Group considers profit after tax adjusted

for the deferred tax asset utilisation, less AT1 coupons paid.

The pro forma capital impact of the proposed share buyback at

31 December 2022 is c.40 basis points which would reduce the

fully loaded CET1 ratio to 15.9% from the reported 16.3%.

(1) The AT1 shortfall at 31 December 2022 is 1bp and accordingly increases the CET1 requirement to 10.24%.

Annual Review

Business Review

Governance Report

Risk Management

Financial

Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Leverage ratio

The fully loaded leverage ratio is 7.6% at 31 December 2022

(7.6% at 31 December 2021).


	2022	2021
Leverage Ratio Metrics	€m	€m
Total Exposure (Transitional)	133,971	130,894
Total Exposure (Fully Loaded)	132,968	129,373
Tier 1 Capital (Transitional Basis)	11,057	11,217
Tier 1 Capital (Fully Loaded)	10,115	9,828
Leverage Ratio (Transitional basis)	8.3%	8.6%
Leverage Ratio (Fully Loaded)	7.6%	7.6%

Finalisation of Basel III

As the Basel III implementation nears completion, the Group

continues to closely monitor regulatory developments to ensure

that the Group maintains a strong capital position.

Initial assessments signal some upward pressure on RWAs,

mostly in relation to operational risk. In relation to RWA floors,

the Group’s high RWA density makes it less likely to be severely

impacted by their introduction.

Minimum Requirement for Own Funds and Eligible Liabilities

(“MREL”)

At 31 December 2022 the Group has a MREL ratio of 33.7% of

RWAs (31.9% at 31 December 2021).

The Single Resolution Board (“SRB”) set the Group’s binding

intermediate MREL target under the BRRD II legislative

framework to be complied with by 1 January 2023 at 28.5% of

RWAs including the combined buffer requirement. The Group

anticipates that the final target (1 January 2024) will be higher

as the final elements of the MREL calibration are phased in.

The MREL target including the combined buffer target will also

be impacted by any changes in the overall capital requirement.

The Group’s MREL ratio is in excess of the target for 2023 and

there is currently sufficient loss absorption and re-capitalisation

capability.

The Group continues to monitor changes in MREL requirements

together with developments in the SRB’s MREL policy which has

the potential to impact on the Group’s MREL target.

Ratings

AIB Group plc and Allied Irish Banks, p.l.c. are rated at investment

grade with Moody’s and Standard & Poor’s (S&P).

AIB Group plc

On 13 May 2022, Moody’s upgraded the credit rating by one notch

to A3 following an upgrade of Ireland’s sovereign debt rating and

an improvement in the operating environment. The Stable outlook

was reaffirmed.

On 16 May 2022, S&P revised the outlook to Stable from

Negative and reaffirmed the ratings. This reflects S&P’s view that

profitability pressure for AIB is easing.

On 22 December 2022, S&P further revised the outlook to

Positive from Stable and reaffirmed the ratings. This reflects

S&P’s view that asset quality and profitability are improving

for AIB.

As part of a wider review of AIB’s rating agency requirements,

AIB are no longer soliciting a rating from Fitch. Prior to withdrawal,

on 20 January 2023 Fitch affirmed the BBB / Stable rating.


	31 December 2022
Long term Ratings	Moody’s	S&P
Long term	A3	BBB-
Outlook	Stable	Positive
Investment grade	√	√


		31 December 2021
Long term Ratings	Moody’s	S&P	Fitch
Long term	Baa1	BBB-	BBB
Outlook	Stable	Negative	Stable
Investment grade	√	√	√

Allied Irish Banks, p.l.c.

As part of a wider review of AIB’s rating agency requirements,

AIB are no longer soliciting a rating from Fitch. Prior to withdrawal,

on 20 January 2023 Fitch affirmed the BBB+ / Stable rating.


	31 December 2022
Long-term Ratings	Moody’s	S&P
Long term	A1	A-
Outlook	Stable	Positive
Investment grade	√	√


		31 December 2021
Long term Ratings	Moody’s	S&P	Fitch
Long term	A2	A-	BBB+
Outlook	Stable	Negative	Stable
Investment grade	√	√	√

Return on Tangible Equity ("RoTE")*

The RoTE for 2022 is 9.6% (2021: 8.2%).


Return on Tangible Equity (RoTE)	2022	2021
Return on Tangible Equity (RoTE)	€m	€m
Profit after tax	765	645
AT1 coupons paid	(65)	(65)
Attributable earnings	700	579

Average RWA	53,846	52,469
RWA * 13.5% CET1 target	7,269	7,083


Return on Tangible Equity	9.6%	8.2%

The Group’s RoTE target of greater than 9% was revised in

December 2022 to a target of greater than 13% in 2024.

Return on Assets

The Return on Assets (RoA) at 31 December 2022 is 0.5%

(2021: 0.5%).

* RoTE is considered an Alternative Performance Measurement.

BUSINESS REVIEW – 2. CAPITAL CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

DIRECTORS’ REPORT

for the financial year ended 31 December 2022

The Directors of Allied Irish Banks, p.l.c. (‘the Company’) present

their report and the audited financial statements for the financial

year ended 31 December 2022. The Statement of Directors’

Responsibilities is shown on page 150. For the purposes of this

report, ‘the Group’ comprises the Company and its subsidiaries in

the financial year ended 31 December 2022.

Results

The Group’s profit attributable to the ordinary shareholders of AIB

Group plc amounted to € 768 million and was arrived at as shown

in the consolidated income statement on page 163.

Dividend

On 2 March 2022, the Board approved an interim dividend of

€20m and recommended for approval by the Company’s sole

shareholder, AIB Group plc, a final dividend of €122m for the year

ended 31 December 2021. The interim dividend was paid by the

Company to AIB Group plc on 14 March 2022. The final dividend

was approved by the Company’s sole shareholder AIB Group plc

on 5 May 2022 and paid by the Company to AIB Group plc on 13

May 2022.

Buyback of ordinary shares

At the Annual General Meeting (“AGM”) of AIB Group plc, the

Board (of AIB Group plc) normally seeks, and has received, a

renewal of its authority from shareholders to undertake on-market

purchases of up to 10% of its ordinary shares. At the AGM on 5

May 2022, the authority of the Group to make off-market

purchases of its ordinary shares from the Minister was renewed.

At the 2021 AGM, approval had been sought and was received to

enter into a Directed Buyback Contract (the “DBB Contract”) with

the Minister for Finance, the terms of which would permit the AIB

Group plc to make off-market purchases of shares from the

Minister of up to 4.99% of the AIB Group plc’s issued share capital

in any 12 month period, with the agreement of the Minister at that

time. Any such off-market purchases would be made at the

relevant market price, the calculation of which was set out in the

DBB Contract. Shareholder authority to make such off-market

purchase was renewed at the 2022 AGM.

An on-market share buyback programme, to be undertaken in

conjunction with the off-market purchases from the Minister

pursuant to the DBB Contract, was announced by AIB Group plc

on 5 May 2022. The Company completed a share buy back

programme in parallel with AIB Group plc's buyback programme

which resulted in the repurchase of 40,952,764 ordinary shares by

the Company from AIB Group plc for an aggregate consideration

of €91m. These shares were subsequently cancelled and the

nominal amount of €25m was transferred from share capital to

capital redemption reserves.

AIB Group plc and the Company has each received regulatory

approval from the European Central Bank to undertake a buyback

of its ordinary shares in an aggregate consideration amount of up

to €215 million. Discussions with the Department of Finance in

relation to a potential directed buyback of ordinary shares by AIB

Group plc from the Minister for Finance are currently underway

and it is anticipated that the Company will undertake a

corresponding buyback of its shares from AIB Group plc. Any

buyback of ordinary shares would be subject to the approvals of

the Boards of AIB Group plc and the Company and the Minister

for Finance.

Going concern

The financial statements for the financial year ended 31

December 2022 have been prepared on a going concern basis as

the Directors are satisfied, having considered the principal risks

and uncertainties impacting the Group, that it has the ability to

continue in business for the period of assessment. The period of

assessment used by the Directors is 12 months from the date of

approval of these annual financial statements.

In making their assessment, the Directors considered a wide

range of information relating to present and future conditions.

These included financial plans covering the period 2023 to 2025,

liquidity and funding forecasts and capital resources projections,

all of which were prepared under base and stress scenarios.

In addition, the Directors considered the principal risks and

uncertainties which could materially affect the Group’s future

business performance and profitability and which are outlined on

pages 8 to 11.

Directors Compliance Statement

As required by section 225(2) of the Companies Act 2014,

the Directors acknowledge that they are responsible for securing

the Company’s compliance with its relevant obligations (as

defined in section 225(1) and section 1374). The Directors confirm

that:

a.a compliance policy statement (as defined in section 225(3)

(a)) has been drawn up that sets out the Company’s policies

and, in the Directors’ opinion, is appropriate to ensure

compliance with the Company’s relevant obligations;

b.appropriate arrangements or structures that are, in the

Directors’ opinion, designed to secure material compliance with

the relevant obligations have been put in place; and

c.a review of those arrangements or structures has been

conducted in the financial year to which this report relates.

Capital

Information on the structure of the Company’s share capital is set

out in note 35 of the consolidated financial statements.

Accounting policies

The principal accounting policies, together with the basis on which

the financial statements have been prepared, are set out in note 1

to the consolidated financial statements.

Review of principal activities

The operating and financial review on pages 13 to 27 contains an

overview of the development of the business of the Group during

the year, of recent events, and of likely future developments.

Directors

At 31 December 2022, the Board of Directors of the Company

was comprised of Mr Jim Pettigrew, Ms Anik Chaumartin,

Mr Donal Galvin, Mr Basil Geoghegan, Ms Tanya Horgan,

Dr Colin Hunt, Ms Sandy Kinney Pritchard, Ms Elaine MacLean,

Mr Andy Maguire, Mr Brendan McDonagh, Ms Helen Normoyle,

Ms Ann O’Brien, Mr Fergal O’Dwyer, Mr Jan Sijbrand and Mr Raj

Singh.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

DIRECTORS’ REPORT CONTINUED

Since the last Directors’ Report was issued, the following Board

changes occurred with effect from the dates shown:

•Ms Carolan Lennon resigned as Independent Non-Executive

Director of the Board on 30 June 2022.

•Helen Normoyle was appointed Senior Independent Non-

Executive Director on 1 July 2022 taking over this responsibility

from Ms Lennon. Ms Normoyle has served as an Independent

Non-Executive Director since December 2015.

Biographical details for Ms Normoyle is provided on page 41.

The appointment and replacement of Directors, and their powers,

are governed by law and the Constitution of the Company.

Directors’ and Secretary’s Interests in Shares

The beneficial interests of the Directors and the Company

Secretary in office at 31 December 2022, and of their spouses

and minor children, in AIB Group plc’s ordinary shares as the

parent company of Allied Irish Banks, p.l.c. are as follows:


Ordinary shares	31 December 2022	1 January 2022*
Directors:
Anik Chaumartin	—	—
Donal Galvin	—	—
Basil Geoghegan	9,835	9,835
Tanya Horgan	—	—
Colin Hunt	60,000	40,000
Sandy Kinney Pritchard	10,000	10,000
Andy Maguire	—	—
Brendan McDonagh	20,000	20,000
Helen Normoyle	2,000	2,000
Ann O’Brien	—	—
Fergal O’Dwyer	10,000	10,000
Jim Pettigrew	25,000	—
Jan Sijbrand	—	—
Raj Singh	—	—

Company Secretary:
Conor Gouldson	50,210	15,210

* Or date of appointment if later.

There is no requirement for Directors, or the Company Secretary,

to hold shares in the parent company AIB Group plc.

There were no changes in the interests of the Directors and the

Company Secretary shown above between 31 December 2022

and 6 March 2023.

Directors’ Remuneration

The Group’s policy with respect to Directors’ remuneration is

included in the Corporate Governance Remuneration Statement

on pages 59 to 65. Details of the total remuneration of the

Directors in office during 2022 and 2021 are shown in the

Corporate Governance Remuneration Statement on page 64.

Non-Financial Statement

Regulations on non-financial information, which were transposed

into Irish law by the European Union (disclosure of Non-Financial

and Diversity Information by certain large undertakings and

groups) Regulations 2017 as amended by Statutory Instrument

No. 410 of 2018, require that the Group reports on specific topics

such as: environmental matters; social and employee matters;

respect for human rights; and bribery and corruption (‘key non-

financial matters’). The Group is committed to maintaining

sustainable and ethically responsible corporate and social

practices in every aspect of its business. The table included on

pages 44 to 47 of the AIB Group plc Annual Financial Report,

together with the information it refers to, is intended to assist

shareholders to understand the Group’s position on key non-

financial matters.

A description of our business model is included on pages 14 and 15

of the AIB Group plc Annual Financial Report 2022 and the table on

pages 22 to 26 summarises the linkage between the Group’s

strategic pillars, the principal risks and uncertainties, and the

Group’s material risks. The material risks primarily impacted by key

non-financial matters include operational risk, credit risk, people and

culture risk, regulatory compliance risk and conduct risk. Further

details of the Group’s risk management governance and

organisational framework can be found on pages 129 to 133 of the

AIB Group plc Annual Financial Report 2022.

Substantial interests in the share capital

At 31 December 2022, the Company had 2,673,428,474 Ordinary

Shares of 0.625 each in issue. AIB Group plc is the sole

shareholder, holding 100% of the issued share capital of the

Company.

There was no other interests disclosed to the Company in

accordance with the Market Abuse Regulation and Part 5 of the

Transparency Regulations and the related transparency rules

during the period from 31 December 2022 to 6 March 2023.

Corporate governance

The Corporate Governance report is set out on pages 34 to 38

and forms part of this report.

Political donations

The Directors of the Company have satisfied themselves that

there were no political contributions that require disclosure under

the Electoral Act 1997.

Accounting records

The measures taken by the Directors to secure compliance with

the Company’s obligation to keep adequate accounting records

include the use of appropriate systems and procedures,

incorporating those set out within ‘Internal controls’ in the

Corporate Governance report on pages 66 and 67, and the

employment of competent persons. The accounting records are

kept at the Company’s Registered Office at 10 Molesworth Street,

Dublin 2, Ireland and at the principal addresses outlined on page

349.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Principal risks and uncertainties

Information concerning the principal risks and uncertainties facing

the Group, as required under the terms of the European Accounts

Modernisation Directive (2003/51/EEC) (implemented in Ireland

by the European Communities (International Financial Reporting

Standards and Miscellaneous Amendments) Regulations 2005), is

set out on pages 8 to 11.

Branches outside the State

The Company has previously established branches, within the

meaning of EU Council Directive 89/666/EEC (implemented in

Ireland by the European Communities (Branch Disclosures)

Regulation 1993, in the United Kingdom and the United States of

America.

Auditor

Deloitte Ireland LLP (“Deloitte”) were appointed as the Group’s

auditor on 20 June 2013 following shareholder approval at the

2013 Annual General Meeting (“AGM”) on that date. Their

continued appointment as Auditor of the Group was approved at

the last AGM held on 5 May 2022 and they shall continue to hold

office until the conclusion of the AGM of the Group on 4 May

2023, pursuant to section 383(2) of the Companies Act 2014.

A formal external audit tender process was completed by the Audit

Committee on behalf of the Board in 2021 and

PricewaterhouseCoopers (“PwC”) have been selected by the

Board as the proposed new Statutory Auditors in respect of the

financial year ending 31 December 2023. A shareholder resolution

at the AGM to be held on 4 May 2023 is required for the

appointment of the new Statutory Auditors and the Board is

recommending that PwC be appointed.

Subject to shareholder approval of PwC as the Group’s new

Statutory Auditor, Deloitte, having served as the Group’s Statutory

Auditor for the maximum legally permitted unbroken tenure in

office of 10 years, intend to resign upon conclusion of the 2022

financial year end process. Deloitte have confirmed, in

accordance with Section 400 of the Companies Act, that there are

no circumstances connected with their resignation which should

be brought to the attention of the members or Creditors of the

Company.

Other information

Other information relevant to the Directors’ Report may be found

in the following pages of the report:


	Page
2022 Results – Financial Performance	2
Risk management	69
Non-adjusting events after the reporting period	280

Statement of relevant audit information

Each of the persons who is a Director at the date of approval of

this report confirms that:

a.so far as the Director is aware, there is no relevant audit

information of which the Company’s auditor is unaware; and

b.the Director has taken all the steps that he/she ought to have

taken as a Director in order to make himself/herself aware of

any relevant audit information and to establish that the

Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in

accordance with the provisions of section 330 of the Companies

Act 2014.

The Directors’ Report for the financial year ended 31 December 2022 comprises these pages and the sections of the report referred to

under “Other information” above, which are incorporated into the Directors’ Report by reference.



Jim Pettigrew Chair		Colin Hunt Chief Executive Officer

07 March 2023

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

CORPORATE GOVERNANCE REPORT

Dear Shareholder,

On behalf of the Board, I am pleased to introduce the Corporate

Governance Report for 2022.

This report, which is aligned to the requirements of the UK

Corporate Governance Code 2018 documents the Company's

approach to compliance with that Code. Further information on

governance practices in place in the Company are available on

the AIB Group plc website at www.aib.ie/investorrelations.

The Board is committed to ensuring that the highest standards of

corporate governance are in place and see it as critical to

achieving our strategy and enhancing our culture.

We recognise that a robust governance structure with an effective

risk management framework is integral to delivering sustainable

growth and shareholder returns.

Jim Pettigrew

Chair

Corporate Governance Framework

Statements of Compliance

For the purposes of this report, which discusses corporate

governance arrangements, ‘the Group’ comprises Allied Irish

Banks, p.l.c. and its subsidiaries. This report, in conjunction with

the Statement of Directors’ Responsibilities, Corporate

Governance Remuneration Statement, Risk Governance section

of the Risk Management Framework report and the Statement on

Internal Control sets out the Group’s approach to governance in

practice, the work of the Board and its Committees and explains

how the Group applied the principles of the Central Bank of

Ireland’s Corporate Governance Requirements for Credit

Institutions 2015 (the “2015 Requirements”), European Union

(Capital Requirements) Regulations 2014 (S.I. 158/2014) (“CRD”)

and UK Corporate Governance Code 2018 (the “Code”) during

2022.

Central Bank of Ireland’s Corporate Governance

Requirements for Credit Institutions 2015 and European

Union (Capital Requirements) Regulations 2014

Allied Irish Banks, p.l.c., which is 100% owned by AIB Group plc,

is a credit institution and is subject to the 2015 Requirements,

including compliance with requirements specifically relating to

‘high impact institutions’ and additional corporate governance

obligations on credit institutions deemed significant for the

purposes of the CRD (which is publicly available on

www.irishstatutebook.ie).

During 2022, Allied Irish Banks, p.l.c. was materially compliant

with all of the 2015 Requirements and with the corporate

governance aspects of CRD.

UK Corporate Governance Code and Irish Corporate

Governance Annex

Allied Irish Banks, p.l.c. is not directly subject to the UK Corporate

Governance Code 2018 (the “Code”) which is publicly available on

www.frc.org.uk or the Irish Corporate Governance Annex (the

“Irish Annex”). AIB Group plc, the holding company, by virtue of its

listing on the London Stock Exchange and on the Euronext Dublin

Stock Exchange, is subject to the provisions of the Code and of

the Irish Annex. The governance arrangements for AIB Group plc

and the Company are mirrored. Additional details on compliance

by AIB Group plc with the Code are available in the AIB Group plc

Annual Financial Report 2022.

Board Leadership and Company Purpose

Role of the Board

The Group is headed by an effective Board which is collectively

responsible for the long term, sustainable success of the Group,

generating value for shareholders and contributing to wider society.

The Board, including the Chief Executive Officer (“CEO”), is

supported by the Executive Committee ("ExCo"), being the most

senior management committee of the Group. The Executive

Committee has primary responsibility for the day-to-day operations

of, and the development of strategy for, the Group.

The Board supports, and strives to operate in accordance with,

the Group’s purpose and values at all times and challenges

Management as to whether the purpose, values and strategic

direction of the Group align with its desired culture, or if they do

not, whether there are options to mitigate negative stakeholder

impacts.

The Board ensures a clear division of responsibilities between the

Chair, who is responsible for the overall leadership of the Board

and for ensuring its effectiveness, and the CEO, who manages

and leads the business. The governance framework

and organisational structure are sufficient to ensure that no one

individual has unfettered powers of decision or exercises

excessive influence. Key roles and responsibilities are clearly

defined, documented and communicated to key stakeholders via

the Group’s website (www.aib.ie/investorrelations). The Board is

supported in executing its duties by a number of Board and

Advisory Committees.

Whilst arrangements have been made by the Directors for the

delegation of the management, organisation and administration of

the Group’s affairs, certain matters are reserved specifically for

decision by the Board which are reviewed at least annually to

ensure they remain relevant and are available on the Group’s

website (www.aib.ie/investorrelations).

Board Focus

Information on the focus of the Board during 2022 is outlined on

page 85 of the AIB Group plc Annual Financial Report 2022 which

is available on the Group’s website (www.aib.ie/investorrelations).

Matters considered by the Board Committees, which in certain

cases were also considered by the Board as a whole, are detailed

in individual Board Committee reports which follow over pages 45

to 58.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Conflicts of Interest

The Board approved Code of Conduct and Conflicts of Interest

Policy for Directors sets out how actual, potential or perceived

conflicts of interest are to be evaluated, reported and managed to

ensure that Directors act at all times in the best interests of the

Group and its stakeholders. Executive Directors, as employees of

the Group, are also subject to the Group’s Code of Conduct and

Conflicts of Interests Policy for employees.

Stakeholder Engagement

The five principal stakeholder groups in AIB are Customers,

Employees, Investors, Society, and the Group’s Regulators. In

order for the Group to meet its responsibilities to its stakeholders

and to take stakeholder views into consideration in its decision

making, the Board strives to ensure that effective engagement is

maintained with these groups. In terms of our investors, since

Allied Irish Banks, p.l.c. and AIB Group plc have common

Directors and concurrent Board meetings, this ensures that the

Board of Allied Irish Banks, p.l.c. is aware of shareholder issues

and concerns, as they arise.

The Group engages with stakeholders through various means

such as face-to-face meetings including regular and structured

engagement and also out of course meetings on specific topics,

research, focus groups and surveys, media engagement, direct

partnerships and collaboration, sponsorship and community

initiatives, participation in expert forums and events, and through

the Group’s in-house experts liaising directly with associated

business, public or charitable groups.

Further details on the Group’s stakeholder engagement can be

found on pages 93 and 94 of the AIB Group plc Annual Financial

Report 2022 which is available on the Group’s website

(www.aib.ie/investorrelations).

Relationship with the Irish State

The Group received significant support from the Irish State (the

“State”) in the context of the financial crisis due to its systemic

importance to the Irish financial system. Following a reduction in

its shareholding during 2017, and a further reduction in 2022

to date, the State held 55.93% of the issued ordinary

shares of AIB Group plc as at 7 March 2023.

The relationship between the Group and the State is governed

by a Relationship Framework which is available on the Group’s

website (www.aib.ie/investorrelations).

Within the Relationship Framework, with the exception of a

number of important items requiring advance consultation with or

approval by the State, the Board retains responsibility and

authority for all of the operations and business of the Group in

accordance with its legal and fiduciary duties and retains

responsibility and authority for ensuring compliance with the

Group's regulatory and legal obligations.

In considering the matters reserved for the Board, it should be

noted that certain of those matters require advance consultation

with, or consent from, the Minister for Finance. The conditions

under which such prior consultation or approvals are required are

outlined in the Relationship Framework.

Board Meetings

The Board met on 16 occasions during 2022. The Chair and the

Chairs of each Committee ensure Board and Committee meetings

are structured to facilitate open discussion, constructive challenge

and debate. The Board receives a comprehensive Executive

Management report on a regular basis. The remainder of its

agenda is built from the indicative annual work programme,

strategic items for consideration, any activities out of the ordinary

course of business, requested in depth reviews and scheduled

updates on key projects. There is a set escalation process in

place through Executive and Board Committees which ensures

the Board receives the necessary information at the appropriate

time to enable the right decisions to be taken. The Chair leads the

agenda setting process, supported by the CEO and Company

Secretary.

In its work, the Board is supported by its Committees which make

recommendations where appropriate on matters delegated to

them under their respective terms of reference. Each Committee

Chair provides an update to the Board on matters discussed or

decided at the preceding Committee meeting.

Attendance at the Board and Board Committee meetings is

outlined below. The Non-Executive Directors also met throughout

the year in the absence of Executive Directors or other members

of Management.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

CORPORATE GOVERNANCE REPORT CONTINUED


	Board		Board Audit Committee		Board Risk Committee		Nomination and Corporate Governance Committee		Remuneration Committee
	Eligible to attend	Attended	Eligible to attend	Attended	Eligible to attend	Attended	Eligible to attend	Attended	Eligible to attend	Attended
Anik Chaumartin	16	15	14	14
Donal Galvin	16	15
Basil Geoghegan	16	13			13	12
Tanya Horgan	16	15			13	13
Colin Hunt	16	16
Sandy Kinney Pritchard	16	16	14	14	13	12
Carolan Lennon	10	10					6	5
Elaine MacLean	16	14					10	10	8	8
Andy Maguire	16	15			13	13
Brendan McDonagh	16	16	14	14	13	13	10	8	8	8
Helen Normoyle	16	16					10	10
Ann O’Brien	16	15	14	13					8	7
Fergal O’Dwyer	16	16	14	14
Jim Pettigrew	16	16					10	10	8	8
Jan Sijbrand	16	14			13	12
Raj Singh	16	15			13	12

The composition of the Board and Board Committees of AIB Group plc and Allied Irish Banks, p.l.c. are mirrored and meetings are held

concurrently.

Professional Development and Continuous Education

Programme

The Board’s professional development and continuous education

programme continued throughout 2022 and was designed in

conjunction with the indicative work programme to ensure that

training was delivered at a time when it would be of most benefit

or relevance to the Board.

The sessions were delivered by a mix of internal and external

subject matter experts and the topics included Data Protection,

Sustainability Regulatory Training, Cryptocurrency, Model Risk

Training, Cyber/Operational Resilience, Anti-Bribery and

Corruption, and the Future of Banking from a technology

perspective. Directors also have access to an online Corporate

Governance Library and a suite of Group specific online training

courses. Additional training and individual sessions with subject

matter experts on areas of interest to the Directors are facilitated

upon request.

A structured induction programme is ready to be delivered to

any incoming Director and includes a series of meetings with

senior management, relevant briefings, together with any specific

training identified during the course of the appointment of the

individual.

Access to Advice

There is a procedure in place to enable the Directors to take

independent professional advice, at the Group’s expense,

on matters concerning their role as Directors. The Group holds

insurance cover to protect Directors and Officers against liability

arising from legal actions brought against them in the course of

their duties.

Composition, Succession and Evaluation

Board Composition

At 31 December 2022, the Board consisted of the Chair, who was

deemed independent on appointment, twelve Independent Non-

Executive Directors and two Executive Directors, being the Chief

Executive Officer and the Chief Financial Officer.

Board Succession Planning and Appointments

The review of the appropriateness of the composition of the Board

and Board Committees is a continuous process and

recommendations are made based on merit and objective criteria,

having regard to the collective skills, experience, independence

and knowledge of the Board along with its diversity requirements.

The Board Succession Plan is reviewed alongside the Board

Skills Matrix by the Nomination and Corporate Governance

Committee at each scheduled meeting to allow for proactive and

continuous succession planning and, in turn, the timely

commencement of Director search processes. The Board

Succession Plan details planned Board composition as well as

Board Committee membership, the likely tenure of Non-Executive

Directors and upcoming actions to be undertaken. The skills

included in the Board Skills Matrix were identified taking into

account the Group’s strategic priorities and relevant regulatory

requirements. Each Director was selected for appointment on the

basis of their knowledge, skills and experience which enable them

to effectively discharge their duties, ensure the effective

governance of the Group, and contribute to its long term,

sustainable success.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

In addressing appointments to the Board, a role profile for the

proposed new Director is prepared by the Group Company

Secretary on the basis of the criteria laid down by the Nomination

and Corporate Governance Committee, taking into account the

existing skills and expertise of the Board and the anticipated time

commitment required. The services of experienced third party

professional search firms are retained for Non-Executive Director

appointments where required and deemed necessary by the

Nomination and Corporate Governance Committee. In all Director

recruitment activity, the Group ensures a formal and rigorous

process is followed.

Prior to a recommendation for appointment of any given

candidate, a comprehensive due diligence process is undertaken,

which includes the candidate’s self-certification of probity and

financial soundness, external checks and enhanced due diligence.

The due diligence process enables the Nomination and Corporate

Governance Committee to satisfy itself as to the candidate’s

independence, fitness and probity, and capacity to devote

sufficient time to the role. A final recommendation is made to the

Board by the Nomination and Corporate Governance Committee.

The Relationship Framework specified by the Minister for Finance

(the “Minister”), which governs the relationship between AIB

Group and the Minister, on behalf of the Irish State as

shareholder, requires the Group to consult with the Minister before

appointing, reappointing or removing the Chair or Chief Executive

Officer and in respect of any other proposed Board appointments.

A Board approved policy is in place for the assessment of the

suitability of members of the Board, which outlines the Board

appointment process, and is in compliance with applicable joint

guidelines issued by the European Securities and Markets

Authority and the European Banking Authority.

Terms of Appointment

Non-Executive Directors are generally appointed for a three year

term, with the possibility of renewal for a further three

years on the recommendation of the Nomination and Corporate

Governance Committee. Any additional term beyond six years is

subject to annual review and approval by the Board. In

accordance with practice in recent years and the provisions of the

Code, all Directors submit themselves for re-election at each

Annual General Meeting. Details on the length of tenure of each

Director is available from their appointment dates included in their

biographies on pages 39 to 42.

Letters of appointment, as well as dealing with terms of

appointment and appointees’ responsibilities, stipulate that a

specific time commitment is required from Directors. Copies of

Directors’ letters of appointment are available to shareholders for

inspection at the Annual General Meeting and at the Registered

Office during business hours or on request from the Company

Secretary.

Time Commitment

Non-Executive Directors are required to devote such time as is

necessary for the effective discharge of their duties. The

estimated minimum time commitment set out in the terms of

appointment is 30 to 60 days per annum including attendance at

Committee meetings.

Before being appointed, Directors disclose details of their other

significant commitments along with a broad indication of the time

absorbed by such commitments. Before accepting any additional

external commitments, including other directorships that might

impact on the time available to devote to their role, the agreement

of the Chair and the Company Secretary, and in certain cases the

Board as a whole and/or the Central Bank of Ireland, must be

sought.

There is a procedure in place to assess and seek Board approval

for any additional external roles proposed by Directors to ensure

that there will be no impact on their ongoing suitability or ability to

continue to dedicate sufficient time to their Group roles. There is

also a procedure in place to monitor Non-Executive Director time

commitment on an ongoing basis and the results of this

monitoring are reported to the Nomination and Corporate

Governance Committee.

Balance and Independence

Responsibility has been delegated by the Board to the Nomination

and Corporate Governance Committee for ensuring an

appropriate balance of experience, skills and independence on

the Board. Non-Executive Directors are appointed so as to

provide strong and effective leadership and appropriate challenge

to Management.

The independence of each Non-Executive Director is considered

by the Nomination and Corporate Governance Committee prior to

appointment and reviewed annually thereafter. It was determined

that the following Non-Executive Directors in office during 2022,

namely Ms Anik Chaumartin, Mr Basil Geoghegan, Ms Tanya

Horgan, Ms Elaine MacLean, Mr Andy Maguire, Mr Brendan

McDonagh, Ms Helen Normoyle, Ms Ann O’Brien, Mr Fergal

O’Dwyer, Ms Sandy Kinney Pritchard, Mr Jan Sijbrand, and Mr

Raj Singh were independent in character and judgement and free

from any business or other relationship with the Group that could

affect their judgement.

In determining that they should properly be considered to be

independent, the Board gave due regard to the following matters:

the nature and history of the shareholding and the alignment of

the Irish State’s interests with other shareholders, the nature of

the individuals nominated and the process followed in identifying

them for nomination, their performance and nature of their

contribution to the business of and matters discussed at the Board

and the Relationship Framework with the Irish State. The Board is

satisfied that in carrying out their duties as Directors, Ms O’Brien

and Mr Singh are able to exercise independent and objective

judgement without external influence.

The Chair, Mr Jim Pettigrew, was determined as independent on

appointment.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

CORPORATE GOVERNANCE REPORT CONTINUED

Inclusion and Diversity

Employee inclusion and diversity in the Group is addressed

through policy, practices and values which recognise that a

productive workforce comprises of diverse backgrounds, cultures,

experiences, characteristics and work styles. The Group has

implemented a Diversity and Inclusion Code and opposes all

forms of unlawful or unfair discrimination. The efficacy of related

policy and practices and the embedding of the Group’s values is

overseen by the Board which in 2022 endorsed the Group’s

inclusion and diversity strategy supported by short term activities

and targets as one of the key focus areas of the Culture

Programme. The Board also considers inclusion and diversity as

part of the Group’s People strategy and Future of Work strategy.

The Board is supported in its oversight by its Committees,

specifically by the Nomination and Corporate Governance

Committee which considers diversity as a key element within

the context of succession planning for the Executive Committee

and its succession pipeline within the Group.

With regard to diversity among Directors, there is a Board

Diversity Policy in place which sets out the approach to diversity

on the Board. This Policy is available on the Group’s website at

www.aib.ie/investorrelations.

The Nomination and Corporate Governance Committee (the

‘Committee’) is responsible for developing measurable objectives

to effect the implementation of this Policy and for monitoring

progress towards achievement of the objectives. The Policy and

performance relative to the target is reviewed annually by the

Committee, in conjunction with Board succession and skills

planning, and any proposed changes to the Policy are presented

to the Board for approval. The Boards target, as set out in its

Diversity Policy, is that it shall maintain at least 40% female

representation and at least one Board member shall be from a

minority ethnic group.

The Board recognises that diversity in its widest sense is

important, is inclusive of all individuals and is focused on ensuring

a truly diverse board. The Board embraces the benefits of

diversity among its members and through its succession planning,

is committed to achieving the most appropriate blend and balance

of diversity possible over time.

In terms of implementation of the Board Diversity Policy, the

Committee reviews and assesses the Group Board composition

and has responsibility for leading the process for identifying and

nominating, for approval by the Board, candidates for appointment

as Directors. In reviewing the Board composition, balance and

appointments, the Committee considers candidates on merit

against objective criteria and with due regard for the benefits of

diversity, in order to maintain an appropriate range and balance of

skills, experience and background on the Board and in

consideration of the Group’s future strategic plans. Where

external search firms are engaged to assist in a candidate search,

they are requested to aim for a fair representation of both genders

to be included in the initial list of potential candidates so the

Committee have a balanced list from which to select candidates

for interview.

At 31 December 2022, the percentage of females on the Board

stood at 40% and one Director was from a minority ethnic group,

thereby meeting its Board Diversity Policy targets as well as

regulatory requirements on gender diversity and best practice

guidelines on ethnicity. Additionally, and in line with the UK Listing

rule requirement which will become effective for years

commencing 1 April 2023, one female Director held a senior board

position.

Board Effectiveness

The effectiveness of the Board and that of the Board committees

is reviewed annually, with the 2022 review being externally

facilitated by Praesta Ireland Limited (“Praesta Ireland”). With

significant membership changes during 2020, the Board chose to

undertake the external review after just two years instead of

awaiting the Code requirement of every three years as the Board

sees the review as a way to reflect, examine and find ways

to improve.

The evaluation included the Board and each of its Committees.

Overall, the final report was positive and demonstrated the

strength of the Board and its Committees. A full overview of the

2022 effectiveness evaluation and its results are outlined on page

91 of the AIB Group plc Annual Financial Report 2022 which is

available on the Group’s website at https://aib.ie/investorrelations.

Audit, Risk and Internal Control

The Board has delegated responsibility for the consideration and

approval of certain items pertaining to audit, risk and internal

control to the Board Audit Committee and Board Risk Committee.

Where required, topics will be referred onward to the Board as a

whole for further discussion or approval.

Information on the activities of the Board Audit Committee and

Board Risk Committee in 2022 can be found in their respective

reports on pages 45 to 53.

Remuneration

The Board has delegated responsibility for the consideration and

approval of the remuneration arrangements of the Chair,

Executive Directors, Executive Committee members, the Group

Company Secretary and certain other senior executives to the

Remuneration Committee. A group of senior management is

responsible for recommending to the Board the fees to be paid to

Non-Executive Directors within the limits set by shareholders in

accordance with the Articles of Association.

Information on the activities of the Remuneration Committee in

2022 can be found in the Report of the Remuneration Committee

on pages 56 to 58.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

BOARD OF DIRECTORS




JIM PETTIGREW Chair Non-Executive Director	ANIK CHAUMARTIN Independent Non-Executive Director	BASIL GEOGHEGAN Independent Non-Executive Director	TANYA HORGAN Independent Non-Executive Director

DATE OF APPOINTMENT 28 October 2021 NATIONALITY British	DATE OF APPOINTMENT 1 July 2021 NATIONALITY French	DATE OF APPOINTMENT 4 September 2019 NATIONALITY Irish	DATE OF APPOINTMENT 14 September 2021 NATIONALITY Irish

COMMITTEE MEMBERSHIP AND TENURE 1y 1y	COMMITTEE MEMBERSHIP AND TENURE 1.5y	COMMITTEE MEMBERSHIP AND TENURE 3y	COMMITTEE MEMBERSHIP AND TENURE 1.5y 1.5y

SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Extensive financial services experience, retail banking, customer and conduct, governance, strategy and culture development. Background & Experience: Jim has over 35 years’ experience in UK and international financial services leadership in public listed and private company environments, including at board level, as CEO and as Chair. He was Chair of Scottish Financial Services, the Scottish financial services trade body. He also served as Co-Chair of Scotland’s Financial Services Advisory Board and is a former President of the Institute of Chartered Accountants of Scotland. He retired as Chair of Virgin Money and CYBG plc in 2020. He has built considerable non-executive experience over the past 12 years across retail, wholesale and investment banking, asset and wealth management and the insurance sectors. Jim is a Chartered Accountant and Fellow of the Association of Corporate Treasurers. He has a LLB from Aberdeen University and a DipACC from Glasgow University.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Deep technical accountancy and audit expertise in financial services, talent and culture development, and stakeholder management. Background & Experience: Anik has over 37 years' international and professional services experience. She was a partner in PwC in Paris for 27 years, and held various leadership positions in the firm for 15 of those years. During her time in PwC she has acted in the roles of Global Client Relationship Partner and Lead Audit Partner for a number of major banking and financial services organisations.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: In-depth knowledge of international finance, corporate banking, strategy and risk management. Background & Experience: Basil is a partner in the Strategic Advisory Group at PJT Partners in London. Previously, Basil was a Managing Director at Goldman Sachs, Deutsche Bank and Citigroup in London and New York. He has broad M&A, corporate finance and strategic advisory experience in the US, UK, Ireland and internationally. He qualified as a solicitor with Slaughter and May. Basil is Chair of daa plc and is a Patron of The Ireland Fund of Great Britain. He holds an LLB from Trinity College, Dublin and an LLM from the European University Institute.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Extensive risk management, compliance, finance, accounting and audit, customer and conduct, and technology skills. Background & Experience: Tanya is a Chartered Accountant with extensive industry-based experience in the areas of compliance, internal audit and risk management and has over twenty years’ experience in publicly listed companies. Tanya trained and qualified with PwC. She has since held roles in a number of organisations including Tesco, Mercury Engineering, Paddy Power Betfair plc and, most recently, was the Group Chief Risk Officer of Flutter Entertainment plc. Tanya currently serves as the Chief Risk Officer of Primark. She has a B.Comm in Accounting from University College Cork.

KEY EXTERNAL APPOINTMENTS Chair of BlueBay Asset Management Chair of Scottish Ballet Chair of Dundee Industrial Heritage Trust	KEY EXTERNAL APPOINTMENTS Non-Executive Director of ALD Automotive Non-Executive Director of La Banque Postale Non-Executive Director of Saol Assurance dac	KEY EXTERNAL APPOINTMENTS Chair of daa plc Patron of The Ireland Fund of Great Britain Partner at PJT Partners	KEY EXTERNAL APPOINTMENTS Chief Risk Officer of Primark

BOARD COMMITTEES

Remuneration

Nomination

& Corporate

Governance

Board Audit

Board Risk

Sustainable

Business

Advisory

Technology

& Data

Advisory

Committee chair

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

BOARD OF DIRECTORS CONTINUED




SANDY KINNEY PRITCHARD Independent Non-Executive Director	ELAINE MACLEAN Independent Non-Executive Director	ANDY MAGUIRE Independent Non-Executive Director

DATE OF APPOINTMENT 22 March 2019 NATIONALITY Irish	DATE OF APPOINTMENT 4 September 2019 NATIONALITY British	DATE OF APPOINTMENT 15 March 2021 NATIONALITY Irish

COMMITTEE MEMBERSHIP AND TENURE 3.5y 3.5y	COMMITTEE MEMBERSHIP AND TENURE 3y 2y	COMMITTEE MEMBERSHIP AND TENURE 2y 2y

SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Expertise in finance, accounting and audit, governance, regulation, customer and conduct, risk management, wealth management, retail and investment banking. Background & Experience: Sandy is a University College Dublin graduate, with a distinguished career across the financial services industry. She is an accountant who previously was a senior partner at PricewaterhouseCoopers LLP and has held a number of Non-Executive Directorship roles, including at Irish Life and Permanent TSB plc, Skipton Building Society, the FSCS, TSB Bank plc and MBNA Ltd.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Significant experience in remuneration and governance, organisational structures, and people and culture development. Background & Experience: Elaine is a highly experienced human resources director specialising in financial services and retail. Following her early retail career with roles at Harrods, Windsmoor and later as Retail Operations Director and Human Resources Director with Arcadia, Elaine moved to financial services culminating in her appointment as Group Human Resources Director for Legal and General plc in 2006. Elaine holds an MA in English Literature and Psychology from the University of Glasgow. She is the Designated Non-Executive Director for workforce engagement.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Extensive retail banking, technology and digital, transformation, and risk management skills. Background & Experience: Andy has extensive financial services experience spanning 35 years, including 16 years with the Boston Consulting Group where he rose to become Managing Partner of the London office covering the UK and Ireland, prior to which he held several global roles including Global Head of Retail Banking. From 2014 to 2020, Andy was the Group Chief Operating Officer for HSBC Holdings plc with responsibility for operations, technology, real estate, change and transformation and operational resilience. He holds a BA and a BAI from Trinity College, Dublin.

KEY EXTERNAL APPOINTMENTS Non-Executive Director and Chair of the Audit Committee and the Remuneration Committee of Credit Suisse (UK) Ltd	KEY EXTERNAL APPOINTMENTS None	KEY EXTERNAL APPOINTMENTS Chair of Napier Technologies Limited Chair of Thought Machine Group Chair of CX Holdings (Cennox Group)

AIB DIRECTORS

BOARD

GENDER

AGE

TENURE

NATIONALITIES

BOARD COMMITTEES

Remuneration

Nomination

& Corporate

Governance

Board Audit

Board Risk

Sustainable

Business

Advisory

Technology

& Data

Advisory

Committee chair

Allied Irish Banks, p.l.c. Annual Financial Report 2022




BRENDAN MCDONAGH Independent Non-Executive Director and Deputy Chair	HELEN NORMOYLE Senior Independent Non-Executive Director	ANN O’BRIEN Independent Non-Executive Director	FERGAL O’DWYER Independent Non-Executive Director

DATE OF APPOINTMENT 27 October 2016 NATIONALITY Irish	DATE OF APPOINTMENT 17 December 2015 NATIONALITY Irish	DATE OF APPOINTMENT 25 April 2019 NATIONALITY Irish	DATE OF APPOINTMENT 22 January 2021 NATIONALITY Irish

COMMITTEE MEMBERSHIP AND TENURE 4y 3y 4.5y 6y	COMMITTEE MEMBERSHIP AND TENURE 6.5y 2.5y 2y	COMMITTEE MEMBERSHIP AND TENURE 2.5y 3.5y 2y	COMMITTEE MEMBERSHIP AND TENURE 2y

SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Significant global financial services experience in retail and commercial banking, strategy, governance, regulation, and risk management. Background & Experience: Brendan started his banking career with HSBC in 1979, working across Asia, Europe, North America, and the Middle East, where he held various roles such as Group Managing Director for HSBC Holdings plc, membership of the HSBC Group Management Board, and CEO of HSBC North America Holdings Inc. Brendan is a former Director of Ireland’s National Treasury Management Agency (NTMA). He was previously the Executive Chair of Bank of N.T. Butterfield & Son Limited. Brendan was appointed Deputy Chair with effect from 24 October 2019.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Deep knowledge and experience of sustainability, customer and conduct, digital, stakeholder management, and culture development. Background & Experience: Helen is a highly experienced marketeer with 30 years’ experience in consumer marketing and market research across a range of sectors and geographies. A graduate of the University of Limerick, she started her career with Infratest+GfK. From there she moved to Motorola, where she held a range of roles including Director of Global Consumer Insights and Product Marketing and Director of Marketing. After working in broadcast and telecoms regulation at Ofcom as the Director of Market Research, she held Marketing Director and Chief Marketing Officer roles at the BBC, DFS, Countrywide and Boots, where she was also the Chair and Director of the Boots Charitable Trust. Helen also serves on the Board of AIB Group (UK) p.l.c. Helen was appointed Senior Independent Director with effect from 1 July 2022.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Significant technology and digital expertise, and highly-skilled in the areas of sustainability, strategy and leadership. Background & Experience: Ann has over 30 years’ experience in the financial services industry. A graduate of UCD and later Trinity College Dublin, Ann has led complex management consulting engagements at many of the world's largest global banking and securities organisations. Her most recent role was as a Principal with Deloitte in New York where she was based for 10 years. Ann was appointed by the Board, on the nomination of the Irish Minister for Finance, under the Relationship Framework between the Minister for Finance and AIB Group.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Extensive experience in finance and accounting, treasury and liquidity management, strategy, and capital markets. Background & Experience: Fergal is a Chartered Accountant with significant experience in financial management, treasury, strategy, capital deployment and development. Fergal retired in 2020 from DCC plc, the Irish headquartered international sales, marketing and business support services group, which is a FTSE100 constituent company, where he began as an Associate Director, later progressing to Chief Financial Officer in 1992, and Executive Director in 2000. Prior to joining DCC, Fergal worked in PwC and KPMG.

KEY EXTERNAL APPOINTMENTS Non-Executive Director and Chair of Audit & Risk Committees of Bradford & Bingley Limited and NRAM Limited Chair of PEAL Capital Group Limited Serves on the Board of The Ireland Funds, Ireland Chapter Council Member of Global Advisory Council, Impact Ireland Fund Chair of Trinity Business School Advisory Board	KEY EXTERNAL APPOINTMENTS Co-founder and Executive Director of My Menopause Centre Non-Executive Director of Thame and London Ltd	KEY EXTERNAL APPOINTMENTS Non-Executive Director of Royal London Asset Management Limited Independent Non-Executive Director of Euroclear UK & International	KEY EXTERNAL APPOINTMENTS Non-Executive Director of ABP Food Group Unlimited Board member of Focus Ireland and Focus Housing Association Director of Blackrock Healthcare Group Unlimited

BOARD COMMITTEES

Remuneration

Nomination

& Corporate

Governance

Board Audit

Board Risk

Sustainable

Business

Advisory

Technology

& Data

Advisory

Committee chair

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

BOARD OF DIRECTORS CONTINUED




JAN SIJBRAND Independent Non-Executive Director	RAJ SINGH Independent Non-Executive Director	COLIN HUNT Chief Executive Officer & Executive Director	DONAL GALVIN Chief Financial Officer & Executive Director

DATE OF APPOINTMENT 14 September 2021 NATIONALITY Dutch	DATE OF APPOINTMENT 25 April 2019 NATIONALITY United States	DATE OF APPOINTMENT 8 March 2019 NATIONALITY Irish	DATE OF APPOINTMENT 28 May 2021 NATIONALITY Irish

COMMITTEE MEMBERSHIP AND TENURE 1y 6m	COMMITTEE MEMBERSHIP AND TENURE 3.5y 3.5y	COMMITTEE MEMBERSHIP AND TENURE 4y

SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Highly skilled in the areas of risk management, retail and commercial banking, governance, financial regulation and oversight. Background & Experience: Jan has had an extensive executive career including roles in Royal Dutch Shell plc, Rabobank Nederland, ABN AMRO Holding N.V. and NIBC Bank N.V. and was a member of the Executive Board and Chair for Supervision at De Nederlandsche Bank N.V. (the central bank of the Netherlands). Jan is currently a member of the Supervisory Board and Chair of the Public Interest Committee of PwC Nederland and served on the Global Board of PwC up until June 2022. Jan has an MSc in Applied Mathematics and a PhD in Mathematics, both from the University of Utrecht.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Significant international experience in risk management, governance, retail and corporate banking, insurance, wealth and asset management and sustainability. Background & Experience: Raj has 36 years’ business, risk and governance experience gained in large and complex global listed financial services organisations including Citibank, Allianz, Swiss Re, Standard Life Aberdeen and EFG International with the last 20 years at the executive committee level as Group Chief Risk Officer. He has served as a Non-Executive Director of a national credit bureau and two listed financial institutions as well as many of the banking, insurance, reinsurance and asset management subsidiaries of those firms. Raj was appointed by the Board, on the nomination of the Irish Minister for Finance, under the Relationship Framework between the Minister for Finance and AIB Group.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Strategic leadership, extensive executive experience covering risk, treasury, research, capital markets, customer focus and sustainability. Background & Experience: In March 2019, Colin was appointed Chief Executive Officer of AIB Group. He joined AIB in August 2016 as Managing Director of Wholesale, Institutional & Corporate Banking. Prior to joining AIB, he was Managing Director at Macquarie Capital in Ireland. Previously, he was a Policy Adviser at the Departments of Transport and Finance, Research Director at Goodbody Stockbrokers, Head of Trading Research at Bank of Ireland Group Treasury and a country risk analyst at NatWest. He has a PhD in Economics from Trinity College, Dublin and BComm and MEconSc degrees from University College Cork.	SKILLS, EXPERTISE AND EXPERIENCE Key Skills: Significant international retail and wholesale banking, capital, liquidity, treasury, investor relations, and risk management skills Background & Experience: Donal joined AIB as Group Treasurer in September 2013 and was appointed to the role of Chief Financial Officer in March 2019 and to the Board in May 2021. Donal has gained significant experience working in domestic and international financial markets over the last 25 years. Prior to joining AIB, Donal held a number of senior executive roles including Global Head of Asian Fixed Income & Equities at Mizuho Securities in Hong Kong and a number of senior Global Financial Market Roles across Europe and Asia Pacific for Rabobank. He serves as a Non- Executive Director of Goodbody.

KEY EXTERNAL APPOINTMENTS Non-Executive Director of PwC Nederland	KEY EXTERNAL APPOINTMENTS Non-Executive Director of The Co-operative Bank plc Non-Executive Director of Vanguard Ireland Limited	KEY EXTERNAL APPOINTMENTS Serves on the Board of The Ireland Funds, Ireland Chapter Ibec clg Board Member	KEY EXTERNAL APPOINTMENTS None

BOARD COMMITTEES

Remuneration

Nomination

& Corporate

Governance

Board Audit

Board Risk

Sustainable

Business

Advisory

Technology

& Data

Advisory

Committee chair

Allied Irish Banks, p.l.c. Annual Financial Report 2022

OUR EXECUTIVE COMMITTEE


			SKILLS, EXPERTISE AND EXPERIENCE


		CJ BERRY Chief Enterprise Development Officer	CJ joined AIB in 2002 and brings with him a wealth of experience across Irish, UK, US and European markets. Over his 20 year career in AIB, he has driven significant transformative change and business development in the Group’s corporate and retail businesses. CJ served as Chief Operating Officer Designate from December 2020 until taking up his current role in July 2022. As Chief Enterprise Development Officer, CJ oversees the bank’s corporate development and strategy formulation. CJ is an Economics & Philosophy Graduate from Trinity College, Dublin.


		CATHY BRYCE Managing Director of Capital Markets	Cathy started her career in investment banking with Morgan Stanley and subsequently ABN AMRO. She joined AIB in 1996, holding a range of leadership roles in debt capital markets, most recently leading the international leveraged finance business. In 2018 she joined the National Treasury Management Agency where she was part of the executive management team as Director of NewERA and National Development Finance Agency. In 2019 she returned to AIB as Managing Director of Capital Markets. She is a Business graduate of Trinity College Dublin and holds an MBA from INSEAD.


		GERALDINE CASEY Chief People Officer	Chief People Officer Geraldine, is a graduate of University College Cork, joined AIB in January 2020 from her most recent role as Director of People, Communications & IT at Tesco Ireland. She was a member of the Executive Board of Tesco for five years prior to joining AIB and has a wealth of experience working closely with internal and external stakeholders. Geraldine has led large teams through culture, process and organisational change, and has brought that experience to bear in driving AIB’s inclusion, culture, people and future of work agendas. Geraldine joined the Board of AIB Group (UK) plc as a Non-Executive Director in May 2021.


		FERGAL COBURN Chief Technology Officer	Prior to his appointment to Chief Technology Officer, Fergal was Chief Digital & Innovation Officer, responsible for the strategy and development of AIB’s digital businesses. Over the previous 20 years, he held leadership positions across all aspects of AIB’s digital and technology businesses. He currently serves as a Director on the Boards of First Merchant Processing (Ireland) DAC and Payzone Ireland Limited. An electronics engineer, before joining AIB Fergal spent five years in the oil and gas exploration industry as a senior wireline engineer followed by five years with Eircom in network support systems development. He holds Bachelor’s and Master’s degrees from Trinity College Dublin.


		HELEN DOOLEY Group General Counsel	Helen was appointed Group General Counsel in 2012. She had previously worked in private practice in the City of London, Hong Kong and Dublin, before taking up an in-house role as Head of Legal in EBS Building Society in 2005, which became part of AIB Group in 2011. Over the last 20 years, in addition to her legal role, Helen has also held the Company Secretary position and managed the regulatory compliance and HR functions. Helen is currently responsible for the Legal, Corporate Governance and Customer Care function.

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Business Review

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Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

OUR EXECUTIVE COMMITTEE CONTINUED


			SKILLS, EXPERTISE AND EXPERIENCE


		HILARY GORMLEY Managing Director of AIB Group (UK) plc	Hilary has over 30 years’ experience in AIB, enjoying a wide and varied career across retail, commercial and corporate banking, holding a number of senior roles and leading teams across different geographies. She has successfully completed highly strategic priorities for the Group, from leading strategic change programmes to completing large portfolio transactions. Hilary holds a Bachelor’s degree in Financial Services from University College Dublin, has completed the Harvard General Management Programme, and is a member of the Institute of Bankers.


		MICHAEL FRAWLEY Chief Risk Officer	Michael joined AIB as Chief Risk Officer in July 2022. A senior risk professional with a 25 year banking career spanning retail, commercial, wholesale, asset management, trade finance, strategy implementation and risk management experience, he also has extensive international experience from his previous roles at HSBC in the UK, Asia and the Americas. His most recent role prior to AIB was as Chief Risk Officer of Permanent TSB. Michael holds an MBA from Columbia Business School, New York and a B.Comm from University College, Cork.


		ANDREW MCFARLANE Chief Operating Officer	Andrew joined AIB in July 2022 and has over 25 years’ experience working primarily in the financial services sector, in banks and management consulting firms. His international career has spanned Canada, Australia, England and Ireland and he has held posts such as Managing Director, Accenture Financial Services, Canada and more recently Executive Director of Modernisation & Corporate Strategy, and Chief External Relations Officer at Payments Canada. Andrew holds a Bachelor of Business (Banking & Finance) and a Graduate Diploma in Applied Finance and Investment.


		JIM O’KEEFFE Managing Director of Retail Banking	Jim has held key roles in transforming AIB’s retail customer relationships, overseeing the bank’s digital services, branch banking and Group mortgages. He also worked at a senior level for AIB’s former operations in Poland. In 2015, he joined AIB’s Executive Committee as Head of Financial Solutions Group reducing the bank’s Non-Performing Exposures (NPEs) while supporting thousands of customers in difficulty. In 2018, he became Chief Customer & Strategic Affairs Officer and since January 2020 has overseen AIB’s retail customer franchise, leading c. 4,500 colleagues who serve over 2.8m customers. Jim is also responsible for a number of Group entities and joint ventures including AIB Mortgage Bank, EBS, Haven, AIBMS, Payzone, Nifti and AIB’s planned new joint venture with Great West Lifeco. Most recently, Jim was appointed President of Banking & Payments Federation Ireland in January 2023.


		MARY WHITELAW Chief Sustainability & Corporate Affairs Officer	Mary joined AIB in 2007 and her experience has spanned the retail, corporate and treasury businesses. She has held a number of senior leadership roles across the Group including Group Chief of Staff, Head of Strategy & Business Performance for Corporate and Institutional Banking and Head of Corporate Treasury Sales. Prior to joining AIB, Mary trained as a Charted Accountant and Chartered Tax Advisor with PwC. She is a graduate of University College Dublin. Mary is also a Non-Executive Director of Goodbody.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

REPORT OF THE BOARD AUDIT COMMITTEE

SANDY KINNEY PRITCHARD,

Committee Chair

“The Committee has focussed on quantifying

the impacts of economic volatility on the

financial statements, with attention to the

integrity of the related financial disclosures

and the supporting internal control

environment.”



	Q&A
	Q. What have been the challenges the Committee has faced this year? A. Working closely with the Board Risk Committee, the Committee has spent a considerable amount of time assessing the potential impact of the prevailing macro-economic environment on the IFRS 9 Expected Credit Loss ("ECL") allowance for the Group. This assessment was completed through the detailed review and challenge of the macroeconomic scenarios, and the appropriate weighting of those scenarios, with the need for a nuanced approach to the various jurisdictions in which the Group operates, as well as the application of management judgement and related adjustments as required. The Committee is satisfied that the outcome of a total ECL allowance of €1,618 million is stage appropriate and reflective of the outcome of those considerations. Q. What do you see as one of the Committee’s key priorities in the coming year? A. Along with the standing work programme for the year ahead, and critical to the successful discharge of the Committee’s responsibilities over 2023 will be the oversight of a seamless and effective transition of the External Auditor role, ensuring continued focus on the integrity of the financial statements and associated control environment. Additionally, the Committee will prioritise the evolution of internal reporting capabilities and disclosure requirements relating to ESG reporting as the Group strives to deliver against increasing external reporting requirements and standards.

On behalf of the Board Audit Committee (the ‘Committee’),

I am pleased to report on the Committee’s primary areas of focus

and how it has discharged its responsibilities for the year ended

31 December 2022.

In line with its Terms of Reference, which can be found on the

Group’s website at www.aib.ie/investorrelations, the objective

of the Committee is to monitor the Group’s financial and non-

financial reporting process, reviewing and monitoring the

effectiveness of risk management and internal control systems,

overseeing the Group’s Internal Audit function, ensuring

appropriate whistleblowing arrangements are in place and

advising the Board on the appointment and independence of the

Group’s External Auditor. The Committee reports to the Board on

how it discharges its responsibilities on an ongoing basis and

makes recommendations to the Board during the year. Over the

course of 2022, the Committee continued to provide oversight of

minor enhancements to an already robust and effective control

environment, which is considered a critical enabler for the Group

in delivering on its strategic ambitions.

As reported last year, Deloitte will complete their maximum

allowable term of 10 years in office as statutory Auditor when they

report in 2023 on this financial year. Following the approval by the

Board of the appointment of PwC as incumbent Auditor, this will

be presented to the shareholders for approval at the Annual

General Meeting on 4 May 2023. The effective transition of the

audit has been a matter of focus for the Committee over the year,

with the incoming Auditor fully engaged in the established

governance processes since the end of 2022.

The Committee currently comprises five Non-Executive Directors,

all of whom are considered by the Board to be independent and

whom the Board have determined have the skills, competence

and recent and relevant experience to enable the Committee to

discharge its responsibilities. With no changes to Committee

membership, Members have had the opportunity to further

enhance its deliberations during the year, with particular strength

in the areas of finance, accounting, audit and technology.

To ensure co-ordination of the work of the Committee with the

Board Risk Committee, two members of the Committee are

also Members of the Board Risk Committee, with this common

membership providing ongoing oversight of risk and finance

issues. Effective 1 January 2023, one Member of the Committee

will also sit on the Sustainable Business Advisory Committee

to ensure alignment and shared oversight of Non Financial

Disclosure requirements in relation to ESG matters. A number of

joint meetings of the Committee and the Board Risk Committee

were also held during the year to allow discussion on matters

of common interest. The biographies of Committee Members are

set out on pages 39 to 42, with details of the Committee’s

Membership and attendance at meetings outlined on page 34.

The Chief Financial Officer, Group Chief Risk Officer, Group Head

of Internal Audit and the Lead Audit Partner from Deloitte normally

attend all Committee meetings and have also been joined in more

recent times by the incoming Lead Audit Partner from PwC.

In order to provide additional opportunity for open dialogue and

feedback, the Committee holds closed sessions with members of

Executive Management, the Group Head of Internal Audit and the

Lead Audit Partner throughout the year without members of

Management being present.

The Committee has exercised its authority delegated by the

Board for ensuring the integrity of the Group’s published financial

information by reviewing and challenging the disclosures made by

Management, and the judgements, assumptions and estimates on

which they are based. The Committee has applied judgement in

deciding which of the issues it considered to be significant in the

financial statements, and the following pages set out the material

matters that it has considered in those deliberations.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

AUDIT COMMITTEE CONTINUED

Towards the end of 2022, the Committee invested significant time

in specific education sessions on ESG matters, which focussed on

an overview of external expectations and requirements on non

financial sustainability disclosures and related regulations,

emerging industry practises on disclosures, and potential industry

challenges with data quality and limitations. These education

sessions were undertaken in advance of the Committee taking

on responsibility for the review of the detailed Non Financial

Disclosures set out in the Sustainability chapter of this

Annual Report, and enabled the Committee to develop their

understanding of the disclosure requirements and underlying

processes in place. In addition to discharging its assigned duties

and responsibilities, I expect this work of the Committee to

continue into 2023, with further development of the control

environment to support ESG related disclosures anticipated.

The Committee will continue to work closely with the Sustainable

Business Advisory Committee in this regard, with a view to

ensuring that the impact of climate change on the financial

statements is well understood, and disclosed appropriately by the

Group.

I would like to take this opportunity to sincerely thank the outgoing

Audit Partner, John McCarroll, and the wider Deloitte team for

their professionalism, expertise and engagement with the

Committee over the past ten years.

I would also like to thank my fellow Committee Members for their

unwavering support and dedication during 2022.

Sandy Kinney Pritchard

Committee Chair

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Financial reporting

A key activity for the Committee is the consideration of significant matters relating to the Annual Financial Report, with key accounting

judgements and disclosures subject to in depth review with Management and the External Auditor. A summary of these judgements is

set out below, and are disclosed in detail within note 2 “Critical accounting judgements and estimates”.



ACTIVITIES FOR THE YEAR


KEY ISSUES	COMMITTEE CONSIDERATIONS	COMMITTEE CONCLUSION

DEFERRED TAXATION	The Group has recognised deferred tax assets for unutilised losses of €2,742 million (€2,840 million in 2021). The recognition of deferred tax assets is reliant on the assessment of future profitability and the sufficiency of those profits to absorb losses carried forward. In assessing the recognition of the deferred tax assets, significant judgements are made as to the projection of long term future profitability of the Group, given the period over which recovery extends. Through its deliberations, the Committee considered a range of positive and negative evidence presented by Management, which is further detailed on page 195. Based on the Group’s three year financial plan and the application of a profit growth rate of 2% from 2026, the Committee noted that it will take less than 15 years for the Irish Deferred Tax Asset to be utilised. The Committee further noted that c.65% of the Deferred Tax Asset will be utilised within 10 years. In considering the utilisation period, the Committee noted that there are inherent uncertainties in the long term financial assumptions and projections applied, given the range of macroeconomic effects that may impact the Group’s long term profitability. For the UK, 15 years is the period that taxable profits are considered more likely than not.	In light of the evidence presented by Management, the Committee provided their continued support of the recognition policy in place for deferred tax assets. The Committee also agreed that the Management judgements applied were appropriately supported by the Group’s long term financial and strategic plans.


IFRS 9 AND THE IMPAIRMENT OF FINANCIAL ASSETS	The process for undertaking the assessment of the appropriateness of ECL requires use of a number of accounting judgements and estimates, some of which are highly subjective and very sensitive to risk factors, including: •Changes to macroeconomic conditions; •The determination of the criteria for a significant increase in credit risk; •The application of the definition of default policy for classifying financial instruments as credit impaired; •The efficacy of IFRS 9 models in use; and •The estimation and methodology for post-model adjustments (“PMAs”). In assessing these key judgements and estimates, the Committee received and reviewed regular reports from Management on the ECL position, as well as reports from the Risk function on the outcome of assurance processes relating to ECL levels and the strength of the underlying governance in place to support the ECL calculation. The Committee met in joint session with the Board Risk Committee on a number of occasions in order to review, challenge and subsequently recommend the proposed changes to the macroeconomic scenarios in use in the ECL models to the Board for approval. Consideration and approval of the weightings applied to these scenarios was also granted by the Committee. PMAs, whereby modelled outcomes are adjusted for management judgements, totalling €608 million were also approved. These PMAs were considered appropriate in the context of the execution of the Group’s Non Performing Exposure resolution strategy and emerging headwinds arising from the macro environment, including cost of living challenges. They also incorporate a specific assessment of the potential impact of a more challenging UK macro economic environment outlook.	Following detailed assessment of the conclusions made by Management, and the approval of the underlying scenarios therein, the Committee is satisfied that the judgements and assumptions utilised in determining the total ECL provision stock of €1,618 million, and year end charge of €7 million, are appropriate.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

AUDIT COMMITTEE CONTINUED



ACTIVITIES FOR THE YEAR


KEY ISSUES	COMMITTEE CONSIDERATIONS	COMMITTEE CONCLUSION

PROVISIONS FOR LIABILITIES AND COMMITMENTS	The Group recognises liabilities where it has present legal or constructive obligations as a result of past events and it is more likely than not that these obligations will result in an outflow of resources to settle the obligations. A degree of judgement is applied based on a range of information available at the time. Further details of the Group’s overall provision for liabilities and commitments of €262 million are shown in note 33 to the financial statements. This note includes further detail in relation to the FSPO decision regarding tracker mortgage customers. A number of separate provisions are not considered to have a significant risk of material adjustment in the next financial year. Significant Management judgement and estimation is required in this process which, of its nature, may require revisions to earlier judgements and estimates, particularly in establishing provisions and the range of reasonable potential losses. It is accepted that a range of outcomes are possible, however, the provision in place at 31 December 2022 reflects Management’s best estimate of provision amounts based on the available information.	Based on the assessments undertaken, the Committee is satisfied that the provision for liabilities and commitments is reasonable, and reflective of the related uncertainties and the judgemental nature of key assumptions.


RETIREMENT BENEFIT OBLIGATIONS	There is a significant degree of judgement and estimation in the calculation of retirement benefit liabilities. The Committee gave due consideration to the reasonableness of defined benefit obligations and of the underlying actuarial assumptions in use, including the discount rate, inflation rates and pensions in payment increases, and approved these assumptions as inputs in the calculation of the IAS 19 pensions position for the AIB Group Irish pension scheme.	Based on the work performed, the Committee is satisfied that the assumptions supporting the retirement benefit obligations are reasonable.



GOING CONCERN	The Directors are required to make an assessment and confirm whether they have a reasonable expectation that the Group will be able to continue to operate and meet its liabilities as they fall due for a specified period. In considering the assessment of the Group as a going concern, the Committee considered a range of factors, including the Group’s detailed financial planning forecasts, as well as the capital position of the Group, with due regard for potential stress events and the impact of the macroeconomic environment. The Committee also assessed a number of activities undertaken over the course of the year relating to the risk profile, capital, liquidity and funding positions, and recovery and resolution planning.	In the absence of any material uncertainties or doubts as to the Group’s ability to continue as a going concern, the Committee recommended to the Board that the financial statements be prepared on a going concern basis.

Allied Irish Banks, p.l.c. Annual Financial Report 2022



	KEY AREAS OF FOCUS
	Financial Reporting
	During the course of the year, the Committee considered each of the areas above and the significant matters pertaining to this Annual Financial Report and the Group’s Half-Yearly Financial Report for the six months ended 30 June 2022. The Committee concluded that it could recommend to the Board for approval on the basis that the annual report and accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary for shareholders to assess the Company’s position and performance, business model and strategy. In addition, as integral to that review of both this Annual Financial Report and the Half-Yearly Financial Report, the Committee considered the minutes of the Group Disclosure Committee, an Executive level Committee which is tasked with providing oversight of material Group disclosures, in advance of making any recommendations to the Board. Periodic Pillar 3 reporting is also subject to robust governance and review processes, and the Committee reviewed and approved the year end 2021 and Half-Yearly 2022 Pillar 3 disclosures.

	Internal Audit
	The Committee is responsible for considering and approving the remit of the Internal Audit function, approving the internal audit plan, and ensuring it has adequate resources and appropriate access to information to enable it to perform its function effectively and in accordance with the relevant professional standards. It also receives the function’s reports and evaluates the adequacy and timeliness of the Group’s responses to them. The Committee ensures that the Internal Audit function has adequate standing and is free from management or other restrictions which may impair its independence. Following significant engagement with and due consideration by the Committee Chair and wider Committee, a revised Target Operating Model for Group Internal Audit (“GIA”) was considered, with implementation of that operating model tracked by the Committee. Increased resourcing has been focussed on specific skillsets such as Credit Risk and Data Analytics, with a view to ensuring that the Internal Audit function is well positioned to protect the Group and our Customers into the future. In addition, the Committee has also worked with the Group Head of Internal Audit to implement a number of enhancements over the period, including revised reporting processes. Following approval of the annual audit plan, the Committee receives updates on a regular basis regarding audit plan delivery, and any revisions to the annual plan, which are considered with due regard for the overall risk profile of the Group. Significant findings of internal audit reports and Management’s responses were discussed at meetings of the Committee throughout the year. Any overdue actions were reviewed and challenged by the Committee. The Group Head of Internal Audit provides the Committee with regular assessments of the skills and resources required to deliver the audit plan and whether the internal audit budget is sufficient to recruit and retain staff, or to procure subject matter expert resources with relevant experience. During the year, the Chair of the Committee met regularly with the Group Head of Internal Audit between scheduled meetings of the Committee to discuss audit issues arising and insights into the control environment. The Committee also considered the annual and half-year internal audit opinion in relation to the overall control environment, as well as enhancements to the methodology utilised to arrive at that assessment. Additionally, the Committee considered GIA’s approach for ensuring adherence to Article 191 of the Capital Requirements Regulation including the output of the Annual General Risk Assessment relating to Internal Models and the related annual work plan as detailed in the 2022–2024 Audit Plan. The Group Head of Internal Audit has unrestricted access to the Chair of the Board Audit Committee.

	External Audit
	The Committee has primary responsibility for overseeing the relationship with, and performance of, the Group’s external Auditor, Deloitte. The Audit Committee reviewed the terms of engagement and monitored the independence and effectiveness of the Auditor. The remuneration of the Auditor for the year 2022 was also considered by the Committee and recommended to the Board for approval. The Committee provided oversight of the Auditor, including a review of the Auditor’s internal policies and procedures for maintaining independence and objectivity and consideration of their approach to audit quality and materiality. The Committee carefully considered the half-year review report and audit plan as presented by Deloitte to the Committee. The Committee also reviewed the performance of the Auditor and assessed the qualifications and expertise of their resources as well as considering the Auditor’s findings, conclusions and recommendations arising from their work. In line with monitoring the objectivity, independence and effectiveness of the Auditor and in accordance with the EU Audit Regulations 537/2014 and Directive 2014/56/EU, which was transposed into Irish law on 25 July 2018, an update was received in relation to the Group’s policy on the hiring of former employees of the Auditor. The Group’s policy is that the Auditor and its affiliates may be used for non-audit services that are not in conflict with the Auditor’s independence and where sound commercial reasons exist. This policy, which outlines the types of non-audit fees for which the use of the Auditor is pre-approved or requires specific approval, was reviewed and approved by the Committee and all non-audit services and fees were approved in accordance with Group policy. Further details on the approach can be found at the Group’s website at: https://aib.ie/investorrelations. Details of fees paid for audit and non-audit services are outlined in note 13.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

AUDIT COMMITTEE CONTINUED



	KEY AREAS OF FOCUS
	Deloitte were appointed as the Group’s Auditor in 2013 and, in accordance with the relevant regulatory requirements, will complete their maximum term of 10 years with the audit for the year ended 31 December 2022. Following the approval by the Board of the appointment of PwC as Auditor of the Group with effect for financial year end 31 December 2023, a resolution to this effect will be presented to the shareholders at the Annual General Meeting of the Company on 4 May 2023. The Committee will remain focussed on the smooth transition of the external audit from Deloitte to PwC over the coming months.

	Speak Up and Code of Conduct
	The Group is committed to providing a safe, respectful and inclusive environment for all staff. The Committee reviews the arrangements in place that allow workers to raise any concerns, in confidence, about possible wrongdoings in financial reporting or other matters. Given this important role in relation to whistleblowing and protected disclosures, the Committee Chair met with the Group Head of Speak Up to discuss material cases and enhancements to Speak Up arrangements over the course of the year, and also participated in a panel discussion with employees as part of the “Speak Your Mind” week. The Group has a Speak Up Policy, which allows workers to report concerns safely and confidentially about suspected wrongdoing related to the Group through designated channels, including through a dedicated Speak Up channel and to nominated senior leaders. Annual training on the Speak Up policy is available for employees, with 94% of the workforce undertaking this training in 2022. The Committee also undertook their annual review of the Code of Conduct Framework, with no enhancements to the existing framework identified at this time. The Committee also received updates from Management on the operation of the Speak Up process and the Committee further considered reports on the operation of the Group Code of Conduct.

	Internal Controls
	The Group’s internal control and risk management systems are embedded within the organisation structure and it is the Committee’s responsibility to review the adequacy and effectiveness of the control environment on behalf of the Board. Throughout the year the Committee: •Received updates from the Chief Financial Officer, aligned to the half-year and year end reporting timelines, regarding the testing, operation and effectiveness of the system of controls over financial reporting. •Received updates from the Director of Sustainability and Customer Affairs regarding the testing, operation and effectiveness of the controls in place to support mandatory Non-Financial Disclosures. •Reviewed and advised the Board on the appropriateness of the Directors’ statements in this Annual Financial Report relating to the Group’s systems of internal controls. •Reviewed the outcomes of half-year and year end overall assessments of the control environment undertaken by Group Internal Audit. •Reviewed quarterly reports from the Group Chief Risk Officer regarding the credit control environment. •Received updates regarding the approach to aligned assurance across the three lines of defence, with progress updates on delivery of the aligned assurance plan provided over the course of the year. The Committee, having assessed the above information over the year, is satisfied that the internal control and risk management framework is operating effectively.

	Subsidiary Oversight
	Over the course of the year, the Committee Chair met with a number of the material subsidiary audit committee Chairs outside of the regular scheduled Committee meetings in order to discuss audit committee priorities and to gain a full understanding of matters of relevance or concern for the individual subsidiaries. In his role as Chair of the Goodbody Audit Committee, Committee Member Fergal O’Dwyer also provides a strong link from the Committee to that entity. The Committee Chair also attended a number of material subsidiary audit committee meetings throughout the Group. The Committee received an annual report from the audit committees of each of AIB Group (UK) p.l.c., EBS d.a.c., AIB Mortgage Bank u.c., and Goodbody and also regularly reviewed the minutes of those audit committees to ensure effective oversight and awareness of any issues and discussion themes.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

REPORT OF THE BOARD RISK COMMITTEE

BRENDAN MCDONAGH

Committee Chair

“The Committee maintained risk oversight

of the implementation of the Strategy with

an enhanced focus on Change Risk and

Operational Capacity. It also considered the

risks arising from the deteriorating economic

environment, including geo-political risk,

inflationary pressures and the cost-of-living

and energy crisis.”



	Q&A
	How is the Board Risk Committee addressing Environmental, Social and Governance (“ESG”) risk and the risks associated with climate change? A.Sustainability is a key pillar of the Group’s Strategy and continues to be a key area of focus. In terms of its oversight role, the Committee received updates on climate risk during the year and reviewed in detail, and recommended to the Board for approval, the Group ESG Framework. The purpose of the ESG Framework is to ensure the overall approach to the management of key components of the ESG agenda are clearly defined and well understood across the Group and to enable the achievement of the Group’s strategic objectives in line with our risk management framework while delivering on regulatory requirements and the commitments made to our stakeholders. How is the Committee considering the risks associated with the cost-of-living and energy crisis? A. The Committee considered in detail the risks associated with the economic environment and assessing the impact of the cost of living and energy crisis on our customers and the Group, leveraging the frameworks adopted during Brexit and COVID-19 pandemic. The Committee also reviewed actions taken by the Group to manage credit risk in light of these challenges maintaining a strong focus on the Group’s credit risk profile and its trajectory during the year.

Chair Overview

On behalf of the Board Risk Committee (‘the Committee’), I am

pleased to report on the Committee’s activities and how it has

discharged its duties during 2022. The purpose of this report is

to provide an insight into the workings of, and the key matters

considered by, the Committee over the course of the year.

The primary purpose of the Committee is to assist and advise the

Board in fulfilling its risk governance and oversight role. In addition

to fulfilling its comprehensive responsibilities as set out in the

Committee’s Terms of Reference, detailed consideration was

given to a broad range of existing and emerging risks, such as

the continued uncertainty posed by the changing economic

environment including rising interest rates, inflation, the cost-of-

living and energy crisis and the war in Ukraine, along with the

impact of these events on the Group’s risk profile and the Group's

customers. The Committee provided oversight and challenge from

a risk perspective on the integration of Goodbody Stockbrokers

into the Group as well as on the acquisition of the Ulster Bank

portfolios. Consideration was given to the impact of these

acquisitions on the Bank’s risk profile as well the application of

the Group’s suite of risk frameworks and policies to Goodbody

and the Ulster Bank portfolios. The Committee also provided risk

oversight of the implementation of the Group Strategy with a

particular focus on Change Risk and Operational Capacity.

A summary of the key areas of focus for the Committee

throughout 2022 is set out overleaf for your information.

Committee Membership

The Committee currently consists of seven Non-Executive

Directors, all considered by the Board to be independent.

To ensure co-ordination between the work of the Committee and

that of the Board Audit Committee, Ms Sandy Kinney Pritchard,

Chair of the Board Audit Committee, and I are members of both

Committees. This approach assists with providing effective

oversight of risk and audit and finance matters. To ensure co-

ordination between the work of the Committee with that of the

Sustainable Business Advisory Committee, Mr Raj Singh and

Mr Jan Sijbrand are members of both of these Committees.

To ensure the Group’s remuneration policies and practices

are consistent with and promote sound and effective risk

management, I also sit on the Remuneration Committee. Details

of the membership of each of the Committees and attendance

at meetings are outlined on page 36.

The Group Chief Risk Officer has unrestricted access to the

Committee and attends all Committee meetings. The Chief

Financial Officer, Group Head of Internal Audit, the lead External

Audit partner and the Chair of AIB Group (UK) p.l.c. are also

invited to attend all Committee meetings.

Looking ahead to 2023, the Committee’s focus will continue to

be on the management of emerging risks, ensuring appropriate

oversight of the Group’s risk appetite, risk management structure,

frameworks and policies to ensure the Group delivers on its

Strategy in an appropriate risk controlled regulatory compliant

manner. Aligned to the emerging risk profile and the external

operating environment, there will also be continued emphasis on

the Environmental, Social and Governance risk agenda and on

the threats posed from the external cyber risk landscape as well

as focus on macroeconomic risk issues such as inflationary

pressures, the impact of the cost of living and energy crisis and

geo-political risks. Such risk areas, will continue to be monitored

through the ongoing reporting provided to the Committee. The

oversight of the delivery of the Group’s IRB rollout Plan will also

be a key focus area of the Committee during 2023.

In what has been another busy year for the Committee, I would like

to thank my fellow Committee Members and Executive colleagues

for their significant contributions over the past twelve months.

On behalf of the Committee, I would also like to take this

opportunity to welcome Mr Michael Frawley who was appointed

as Group Chief Risk Officer in July 2022. We look forward to

working with Michael in the coming years.

Brendan McDonagh

Committee Chair

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

BOARD RISK COMMITTEE CONTINUED



	KEY AREAS OF FOCUS
	PRINCIPLE RISK CONSIDERATIONS
	Operational Risk & People and Culture Risk
	The Committee reviewed the ongoing operational risk profile throughout 2022, and considered deep dives on areas such as Fraud and the Transformation and Change programmes. Given the pace and level of change in the Group, the Committee were very much focused on Execution Risk, People Risk and organisational capacity, recognising the challenges faced with respect to delivering the additional business demands arising from the delivery of key change initiatives including regulatory programmes, responding to changes in the Irish banking market, the Group's inorganic growth strategy as well as the business as usual agenda in a customer focussed, safe and controlled manner. The Committee also focused on ensuring that an effective framework for managing operational risk was in place, including detailed consideration of the Operational Resilience Framework, which was subsequently recommended to the Board for approval. Updates were received with respect to third party risk management, providing oversight of key outsourcing and critical arrangements across the Group. The Committee also reviewed in detail and provided feedback on a proposed Group Outsourcing Strategy. Work on the Outsourcing Strategy will continue into 2023 to ensure an appropriate framework is in place so that outsourcing decisions are made in a risk-controlled manner and in line with the Group’s Business Strategy. Throughout 2022, the Committee received regular updates on Cyber Security covering the main internal and external cyber threats facing the Group and including updates on the findings from cyber simulation exercises run during the year. Additionally, cyber and operational resilience training was provided to the Board as a collective as part of its continuous education programme. Cyber capability and IT resilience continues to be a key focus area for the Group, with a refresh of the current Group Cyber Strategy planned for 2023.

	Credit Risk
	During 2022, the Committee regularly considered the overall asset quality and credit risk profile of the Group with a particular focus on credit performance and trends given the uncertain economic environment and cost of living crisis. The Credit Risk profile was reported to the Committee as remaining stable during 2022 and the Committee remained alert to any potential emerging signs of stress through regular monitoring of the credit risk profile and overall business performance. There was also continued focus on the Group’s credit control environment. The Committee remained cognisant of the external pressures on customers arising from inflation and the impact of the cost of living and energy crisis, as well as any residual long-term impact of COVID-19 and this was reflected in an update to the Group’s overall credit risk appetite in quarter four 2022. The Committee also considered and challenged, in conjunction with the Board Audit Committee, the macroeconomic scenarios and appropriate weighting of those scenarios, for use in the Group’s Expected Credit Loss models.

	Regulatory Compliance Risk Management
	Oversight of the Group’s adherence to and delivery of regulatory compliance commitments continued to be a key focus for the Committee. Throughout the year, the Committee received regular updates from the Group Chief Risk Officer and the Group Chief Compliance Officer regarding the status of the regulatory compliance risk profile including updates on prudential regulation, conduct of business regulation, Financial Crime and Data Protection, at each of its scheduled meetings. The Committee also received updates regarding the delivery of specific regulatory change programmes, including the European Banking Authority Loan Origination and Monitoring programme, the Strong Customer Authentication eCommerce programme and delivery against implementation of the 5th Anti-Money Laundering Directive. Financial Crime risk was considered throughout the year, through ongoing reporting as well as standalone updates provided by the Money Laundering Reporting Officer. The Committee received reports regarding the outcome of the 2022 Group Financial Crime Business Risk Assessment, which reviewed the Anti-Money Laundering/Counter Terrorist Financing and Financial Sanctions control environment across the Group. Given the enhanced level of Financial Sanction activity arising from Russia’s invasion of Ukraine, this was also a key focus area for the Committee. The Committee also received updates in relation to the embedding of an enhanced Financial Crime Operating Model in the Group.

	Financial and Market Risks
	The Committee received regular updates with respect to financial and market risk throughout 2022 including the impact of financial market volatility on the Group’s overall risk profile as a result of the war in Ukraine, inflation, interest rate rises and credit spread volatility. The Committee also considered financial risk deep-dives on Interest Rate Risk in the Banking Book and Funds Transfer pricing within the context of liquidity risk management.

Allied Irish Banks, p.l.c. Annual Financial Report 2022



	KEY AREAS OF FOCUS
	Conduct Risk
	The management of Conduct Risk and delivering fair outcomes for customers continued to be a core objective for the Group. In addition to the regular reporting received throughout the year regarding the status of the Conduct Risk profile, including updates on current trends, the status of restitution programme and customer complaints metrics, the Committee considered how Management was taking a holistic customer focused approach to respond to the changing macroeconomic environment including actions taken by the Group to manage credit risk during the current cost-of-living challenges.

	Capital, Funding and Liquidity
	Throughout 2022 the Committee assessed reports from Management to ensure that the Group had appropriate buffers in place in excess of the Group’s own minimum Capital & Liquidity targets, as well as regulatory Capital & Liquidity requirements. To this end, the Committee reviewed and recommended capital, funding and liquidity planning, including consideration of Group ICAAP and ILAAP reports, with particular reference to the contingent capital and the related Group wide stress test scenarios. Following an in- depth review with the Board Audit Committee, the Committee recommended macroeconomic scenarios for use within the ICAAP to the Board for approval. The Committee are satisfied that the capital and liquidity adequacy of the Group has been well demonstrated in a range of scenarios. The Committee also welcomed the ICAAP and ILAAP assessments that were undertaken as part of the analysis and due diligence of potential strategic acquisitions.

	Business Model Risk
	The Committee focussed on Business Model Risk throughout 2022, receiving regular reports regarding the status of this risk in the context of delivery of the Financial Plan and medium-term targets. The Committee focussed on strategic execution risk and the potential risks arising from the delivery of the Group’s inorganic growth initiatives, both in terms of the business model risk profile and the operational risk profile. In providing oversight of the risks associated with these key change initiatives, the Committee received updates on the onboarding of the entities and portfolios and the manner in which these would be integrated into the overall risk management framework of the Group. The Committee remains cognisant of the potential risks arising from further deterioration of the economic environment, and how this might impact Business Model Risk and so this will remain an area of continued focus in 2023.

	Model Risk
	The Committee continued to receive regular reports on model capabilities across the Group, as well as progress against key regulatory deliverables. The Committee considered regular IRB model updates as well as looking in detail at a revised IRB Rollout plan, which was subsequently recommended to the Board for approval. Additionally, regular Model Risk Reports for all model types – IRB and IFRS 9 – were considered, with an assessment of model risk improvements and progress against deadlines undertaken. The status of the quality and adequacy of models were assessed through independent validation, the outcome of which was also reported to the Committee.
	OTHER RISK CONSIDERATIONS
	Climate Risk
	Climate Risk continues to be recognised as a key risk driver with significant impact across the Group’s material risks. During the year, the Committee considered and recommended to the Board for approval a new quantitative risk statement and a review of the existing qualitative appetite statements related to climate risk to reflect the Group’s Strategy and external commitments within the Group’s RAS. The Committee also received updates on climate risk quantification and considered in detail the ESG Framework which ensures that the overall approach to the management of key components of the ESG agenda are clearly defined and well understood across the Group. In addition, the Committee approved amendments to its Terms of Reference to enhance the governance arrangements supporting the oversight and decision making undertaken by the Board and Board Committees in relation to ESG matters, including co-ordination with the work of the Sustainable Business Advisory Committee and Board Audit Committee in this area.
	Regulatory Engagement
	Throughout the year, the Committee considered regular updates regarding the status of Risk Mitigation Programme action plans, as well as the upstream regulatory horizon. The Committee also considered and recommended, as appropriate, Management action plans put in place to address findings identified as part of regulatory inspections. Consideration was also given to any relevant regulatory correspondence which required the Committee’s attention. The Chair of the Committee met with the Joint Supervisory Team on two occasions in his role as Chair of the Committee, which were helpful and instructive engagements in furthering the Committee’s understanding of the key areas of focus of the JST.
	Risk Appetite, Risk Profile and Risk Strategy
	The Committee reviewed and recommended the 2023 Group Risk Appetite Statement (“RAS”) to the Board for approval during the year and also exercised oversight of performance against the 2022 Group RAS, making recommendations to the Board as appropriate. Oversight was achieved through the ongoing monitoring of the risk profile against agreed Group RAS metrics, as well as consideration of an updated risk posture in light of the changing macroeconomic environment, whilst ensuring alignment to the Group’s strategic objectives. The Committee reviewed regular reports from the Chief Risk Officer which provided an overview of the status, profile and trajectory of the Group’s key material risks. The Committee also considered and recommended the assessment of the material risks facing the Group to the Board for approval.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

REPORT OF THE NOMINATION AND CORPORATE

GOVERNANCE COMMITTEE

ELAINE MACLEAN

Committee Chair

“Central to succession considerations

are diversity, gender balance and the

tailored development of core competencies

that reflect a changing business and

regulatory environment.”



	Q&A
	Q. Following the appointments to the Board in 2021, has there been a change in the Committee’s assessment of the size and composition of the Board? A. At 31 December 2022, the Board consisted of the Chair, who was deemed independent on appointment, twelve Independent Non- Executive Directors and two Executive Directors, being the Chief Executive Officer and the Chief Financial Officer. There were significant changes to the size and composition of the Board during 2021 following the appointment of six independent Non-Executive Directors and one Executive Director. The increased size and breadth of skills on the Board have enhanced its capacity to manage future succession needs as and when they arise. Ensuring that there is continuity of leadership and oversight is central to the Committee’s ongoing assessment of the suitability of the size and composition of the Board. These needs and related risks are also assessed from the standpoint of the Committees of the Board. Q. How does the Committee oversee the rollout and application of consistent standards of governance across the Group? A. The Committee annually reviews the governance and organisation framework for the Group and the framework supporting the oversight of its subsidiary companies, including associates and joint ventures. Any necessary changes to the frameworks require the approval of the Group Board. In 2022, the frameworks were updated to reflect new and evolving regulatory requirements and to respond to changes in the Group’s organisational structure, including the integration of Goodbody following its acquisition in 2021. Central to the Committee’s considerations is the need to ensure the continued and efficient alignment between the frameworks of the Group and its subsidiary companies.

Chair Overview

This report provides an overview of the Committee’s key areas

of focus for the year ended 31 December 2022 and its priorities

for the year ahead. Following the changes to the composition and

size of the Board in 2021, the focus of the Committee in 2022 has

been on assessing and planning for the Board’s future succession

needs which is supported by the Board Skills Matrix.

The Committee oversees the onboarding and induction of the

new Executive and Non-Executive Directors and the Committee

continued to oversee appointments to the Goodbody Board

during 2022.

In 2022, the Committee completed its annual assessment of the

independence of the Non-Executive Directors, which confirmed

the continued independence of the Non-Executive Directors.

On the recommendation of the Committee, the Board appointed

Ms Helen Normoyle as Senior Independent Director (following

the retirement of Ms Carolan Lennon on 30 June 2022).

The Committee has also continued its focus on the development

of the succession plans and processes for the members of the

Group’s Executive Committee and Heads of Control Functions as

they are critical to the delivery of the Group’s strategy. Central to

such considerations are diversity, gender balance and the tailored

development of core competencies that reflect a changing

business and regulatory environment.

In addition to its review of the Corporate Governance

Frameworks, the Committee also reviewed the schedule of

Matters Reserved for the Board and the Group’s Conflict

of Interest Policy and there were no material changes.

Committee Membership

The Committee consists of four members: three Independent

Non-Executive Directors, namely Ms Elaine MacLean, Committee

Chair, Mr Brendan McDonagh and Ms Helen Normoyle, Senior

Independent Director, and the Chair of the Board, Mr Jim

Pettigrew. In addition to being a Committee member, Mr Brendan

McDonagh is also the Chair of the Board Risk Committee and this

cross-membership supports information flow and co-ordination

between the work of the two Committees. The biographies of the

Committee Members and a record of attendance at meetings are

set out on pages 39 to 42 and page 36.

Meeting Participation

The Chief Executive Officer and Chief People Officer attended

Committee meetings except where the business of the meeting

related to their successors. The Committee also regularly met with

no Management present during 2022.

A summary of the other key areas of focus for the Committee

throughout 2022 is set out below.

I would like to thank my fellow Committee Members for their

continued commitment through another busy year.

Elaine MacLean

Committee

Allied Irish Banks, p.l.c. Annual Financial Report 2022



	KEY AREAS OF FOCUS
	Board Succession Planning, Renewals and Board Committee Composition
	The Committee recognises that having the right balance of skills, experience and diversity of background on the Board is key to supporting the continued delivery of the Group’s strategy. The size, structure, composition and succession plan of the Board, Board Committees and Corporate Officers was a standing item on the agenda of scheduled Committee meetings in 2022. During the year the Committee identified deputies or successors to the Chairs of the Board's main Committees to ensure that succession arrangements are clear and that leadership of the Committees is secured.

	Chair Reappointment
	In line with the CBI Corporate Governance Requirements for Credit Institutions 2015, the Board having considered the Committee’s recommendation approved the reappointment of Mr Jim Pettigrew as Chair of the Board.

	Executive Succession Planning & Appointments
	Review of the Executive Committee composition and succession planning was considered on an ongoing basis by the Committee during the year. In addition to broader succession planning activities, the Committee considered specific proposals regarding Heads of Control Function and Executive Committee member appointments. The Committee approved the appointment of preferred candidates for the roles of the Chief Operating Officer and Chief Enterprise Development Officer. The Committee remains focussed on the succession arrangements for the Executive Directors and has instructed a refresh of these succession plans.

	Diversity
	The Committee reviewed the Board Diversity Policy and recommended the inclusion of an ethnic diversity target of at least one Board member from an ethnic minority background, which reflects the Group’s commitment to diversity. Our gender diversity statistics for the Board can be found on page 40. Senior management, which for this purpose is considered to be the Executive Committee, was 42% female and 58% male, and of their direct reports was 37% female and 63% male.

	Board Evaluation
	In accordance with the CBI Governance Requirements and the UK Code the Board is required to complete an annual self- evaluation, which should be externally facilitated at least every three years. While the next external evaluation was not due until 2023, the Board agreed with the Committee’s recommendation that there was merit in commissioning an externally facilitated evaluation in 2022 as the Board Chair and the most recently appointed Directors were more than a year in office. Following a tender process, the Committee recommended the appointment of Praesta Ireland to carry out the Board effectiveness evaluation. The key findings of Praesta Ireland's review are described on page 38.

	Corporate Governance
	The Committee oversees and monitors corporate governance arrangements and makes recommendations to the Board to ensure that the standards and arrangements across the Group are consistent with existing corporate governance standards and emerging best practice. The Committee undertook its annual schedule of work in relation to the Group’s governance arrangements, corporate governance compliance, and related policies including: •a review of the internal policies on the assessment of suitability of members of the Board and key function holders; •a review of the governance framework for the Group and its subsidiaries; •a review of the Board’s Code of Conduct and Conflicts of Interest Policy for Directors; •a review of the Board Diversity Policy and diversity targets; •a review of the ongoing independence of Non-Executive Directors; •a review and assessment of sufficient time commitment for incoming Directors and existing Board members; •a review of the ongoing collective suitability of the Board; •oversight of compliance with applicable corporate governance requirements and guidelines; •oversight of upstream regulatory developments in corporate governance and best practice; •oversight of the external Board Effectiveness Evaluation 2022; and •consideration of workforce engagement processes via the Designated Non-Executive Director. Further details on a number of these matters are available in the Corporate Governance Report.

	Subsidiary Board and Committee Composition
	The Committee considered a number of executive and non-executive appointments to the Group’s material subsidiary Boards and the respective Board Committee membership, including for AIB Group (UK) p.l.c., AIB Mortgage Bank u.c., EBS d.a.c. and Goodbody Stockbrokers u.c. Such appointments included the recommended appointment of independent Non-Executive and Executive Director members of the Group Board to the subsidiary Boards and Committees, where established, to ensure appropriate information flow, oversight, consistency and alignment between the Group and its subsidiaries. The Committee also considered Non-Executive Director term anniversaries and made recommendations for re-appointment to the subsidiary Boards where relevant, taking account of ongoing suitability considerations.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

REPORT OF THE REMUNERATION COMMITTEE

ELAINE MACLEAN

Committee Chair

“The Department of Finance Retail Banking

Review published in November 2022 is

expected to form a central feature of the

Committee’s work programme in 2023, as

the current remuneration restrictions are

partially eased.”



	Q&A
	Q. How do the Group’s remuneration policies and practices support the Group’s Strategy and Values, and promote long-term sustainable success? A. The Group’s Remuneration Policy is aligned with the culture of the Group and its five strategic pillars, and support employees to consistently perform at the highest level and in the interests of customers. The Group’s Remuneration Policy is designed to attract, motivate, engage and retain employees to grow and sustain the Group’s business. The performance management process, Aspire, also provides a clear link between performance and remuneration. The Group’s remuneration model and structure also promotes a strong risk management culture and risk-taking that is consistent with the Group’s Risk Appetite Statement. Q. What have been the key risks and challenges in implementing a competitive, performance-based remuneration model across the Group? A. The operation of the Group’s Remuneration Policy has been constrained by the remuneration restrictions contained in the State Agreements following the recapitalisation of the Group in 2010 and 2011 and, consequently, the Group has been unable to implement a performance related, competitive market-driven compensation and benefit structure to retain and incentivise senior talent. This has been a key risk to the future stability and performance of the Group as the loss of senior talent could have a significant, negative impact on the Group’s strategic ambition and direction. Following the publication of the Retail Banking Review in November 2022, which confirmed the easing of the remuneration restrictions, Management has engaged with the Committee in relation to potential changes to the Group’s remuneration model and structure, including variable remuneration and employee benefits. Q. Are risk considerations central to the business of the Committee? A. Yes, firstly the Group Chief Risk Officer is a permanent attendee of the meetings of the Committee and each material proposal for decision is accompanied by a Risk View paper. Furthermore, the Group Risk function annually reviews the Group’s Remuneration Policy (including any changes considered by Management); oversees the setting of the risk adjustment process for variable remuneration (for Goodbody); and assesses the appropriateness of the process for identification of Material Risk Takers. The Chair of the Board Risk Committee is also a member of the Committee, which supports coordination between the two Committees.

Chair Overview

This report provides an overview of the Committee’s key areas of

focus for the year ended 31 December 2022 and its priorities for

the year ahead.

In 2022, the Committee maintained its focus on the governance and

oversight of the remuneration structures in place across the Group,

including oversight of the variable remuneration arrangements for

Goodbody employees, which remains a separately regulated legal

entity within the Group and operates a variable remuneration

structure for its employees. The Committee believes that such

activity will assist it during 2023 in its consideration of any changes

to the Group’s remuneration model and structure following the

easing of the remuneration restrictions. The Committee also

considered Gender Pay, including the publication of the Group’s

Gender Pay figures in the UK and Ireland.

Priority for 2023

A key area of focus for the Committee in 2023 will be its

consideration of the governance of the Group’s evolved

remuneration model and structure, including the introduction of

variable remuneration and employee benefits across the Group.

The Committee will engage with Management to ensure that

such changes meet regulatory requirements and best practice

guidance, and will be in the best interests of employees,

shareholders and other stakeholders, in particular, customers,

by supporting and promoting the long-term, sustainable success

of the Group. The retention by the Government of the salary

cap means that the Group is not able to remunerate senior

management on an equal footing with its competitors and the

Committee will continue to monitor the impact of the cap on the

recruitment and retention of senior talent.

Further detail on the Group’s Remuneration Policy and the

oversight of the Committee is available in the Corporate

Governance Remuneration Statement which follows this report.

Other key areas of focus for the Committee during 2022 are set

out below.

I would like to thank my fellow Committee members for the

commitment they have shown throughout 2022.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Committee Membership

The Committee consists of four members: three Independent

Non-Executive Directors, namely Ms Elaine MacLean, Chair,

Mr Brendan McDonagh and Ms Ann O’Brien, and the Chair of the

Board, Mr Jim Pettigrew, who joined the Committee with effect

from 1 January 2022. In addition to being a Committee member,

Mr Brendan McDonagh is also the Chair of the Board Risk

Committee and this cross-membership supports information

flow and co-ordination between the work of the two Committees.

The biographies of the Committee members and a record of

attendance at meetings are outlined on pages 39 to 42 and 36.

Meeting Participation

The Chief Executive Officer, the Chief People Officer and other

members of Management are invited to attend meetings at the

Committee’s request and where required for the business of

relevant meetings. The Chief Risk Officer is a permanent attendee

at meetings to provide a risk view on any matters submitted for

the Committee’s consideration except where the Committee is

considering the Chief Risk Officer’s own remuneration or that

of peers. The Committee operates under the principle that no

individual shall be involved in decisions regarding their own

remuneration and no member of Management is permitted to

attend where a matter for discussion relates to their own

remuneration.

Support for Committee

The Committee was supported in its work by the Group Reward

team and by PricewaterhouseCoopers LLP (PwC UK) as the

external remuneration consultants appointed by the Committee in

2019. Following a review of potential advisers and the services

provided, Korn Ferry were appointed as the external remuneration

consultants, effective October 2022, replacing PwC UK, whose

appointment term ended at that time. Both Korn Ferry and PwC

UK are signatories to the voluntary code of conduct in relation to

remuneration consulting in the UK.

Aside from their work supporting the Committee, during 2022

PwC UK and its network firms provided professional services in

the ordinary course of business including advisory, regulatory and

taxation related services to AIB which ended on 30 September

2022, and, from time to time, provide services to individual

Directors as part of directorships or executive roles held outside of

the Group. The Committee is satisfied that the advice received is

independent and objective.

Elaine MacLean

Committee Chair

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

REMUNERATION COMMITTEE CONTINUED



	KEY AREAS OF FOCUS
	Remuneration Policy
	The Committee conducted its annual review of the Group’s Remuneration Policy and noted that while the Policy has been significantly constrained by the terms of the State Agreements following the recapitalisation of the Group in 2010 and 2011, it is operating effectively and as intended, and within its prescribed principles and parameters. The Group’s Remuneration Policy was also confirmed to be Gender neutral. The annual review of the Policy was undertaken by Group Reward with input from Group Risk. Apart from the updates to the Policy in relation to Goodbody (for variable remuneration), there have been no material changes to the Group’s Remuneration Policy, practices or structure in 2022. The Group’s Chief Risk Officer presented to the Committee on the Risk function’s annual review of the Remuneration Policy and there were no significant regulatory compliance issues. Group Internal Audit also completed an annual audit of remuneration compliance with EBA Guidelines, Capital Requirements Directive and the State Agreements, including the process for the identification of Material Risk Takers and no material actions were identified. The Committee also considered how executive remuneration aligned to wider employee remuneration and confirmed that as the Group's Remuneration Policy applies to all employees and executives, all remuneration is based on the same policy and principles. For the vast majority of Group employees, the current remuneration structure predominantly consists of fixed pay elements, including base salary, employer pension contributions and non-financial benefits. Increases in remuneration are performance based, determined by performance against objectives that reflect the Group’s strategy, goals and values and such assessments typically occur as part of the annual pay review process. Increases may also arise through progression and promotion and, in exceptional cases only, through out-of-course salary increases to retain key talent and skills. The Committee confirmed that these processes continued to be closely managed and monitored in line with financial performance and budgetary parameters. The Committee also confirmed that the Group’s remuneration policies and practices were transparent to the wider employee population; the Group’s Remuneration Policy was published on the external website and the internal intranet; and pay related policies such as the Progression Reward Policy are also available to employees on the internal intranet. Further details on the Group’s Remuneration Policy are available in the Corporate Governance Remuneration Statement which follows this report.
	Goodbody Stockbrokers Remuneration Governance – Variable Remuneration
	During 2022, the Committee continued its oversight of remuneration matters within Goodbody and the engagement and communication mechanism between the Goodbody Board and the Group Board on remuneration matters. The Committee considered and approved the identification of a number of Goodbody roles as Material Risk Takers of the Group.
	Remuneration of Individuals
	The Committee considered a number of individual remuneration proposals at Executive Committee and Head of Control Function level in line with its terms of reference.
	Subsidiary Chair and Non-Executive Director Fees
	The Committee considered proposals to revise the fee structure in place for the Non-Executive Directors of its material subsidiary, AIB Group (UK) p.l.c. These changes were recommended to the Board for approval with a view to ensuring market alignment in the fees offered.
	Gender Pay Gap Reporting
	The Committee received updates on analysis and benchmarking undertaken with regard to the Group’s inaugural public reporting of Gender Pay in Ireland and the UK. The Committee, supporting the Board, will continue to oversee Management’s progress to narrow Gender Pay gaps.
	Compliance and Annual Reviews
	The Committee conducted its programme of annual reviews including a review of the process for identifying Material Risk Takers and the limited variable commission schemes in operation across the Group. Each review was accompanied by a view from Group Risk to support the Committee in its oversight of same. Further details on the identification of Material Risk Takers are available in the Corporate Governance Remuneration Statement which follows this report.
	Directors’ Remuneration
	Details of the total remuneration of the Directors in office during 2022 and 2021 are provided in the Corporate Governance Remuneration Statement on pages 59 to 65.
	External Directorships held by Executive Directors
	Dr Colin Hunt is a Non-Executive Director of The Ireland Funds, Irish Chapter. He was a Non-Executive Director and President for 2021/2022 of the Institute of Bankers in Ireland. During 2022, Dr Hunt was appointed as a board member of Ibec, the Irish Business and Employers Confederation. He received no remuneration for any of these roles. Mr Donal Galvin does not hold any Non-Executive Directorships outside of the Group. He is a Non-Executive Director of Goodbody. Mr Galvin does not receive remuneration for this role. Limitations on such external directorships are outlined in the Capital Requirements Directive and both of the Group’s Executive Directors are fully compliant with these limitations.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

CORPORATE GOVERNANCE

REMUNERATION STATEMENT

Remuneration Constraints

The Group has been required to comply with executive pay and compensation restrictions following the Group’s re-capitalisation by the

Irish Government in 2010 and 2011. AIB’s inability to implement market aligned remuneration practices and, in particular, the inability to

offer senior management remuneration on an equal footing with competitors for talent in the market represents a key risk to the Group.

The Remuneration Committee (the ‘Committee’) monitors and endeavours to address this risk on an ongoing basis.

In December 2022, the Irish Government eased most remuneration restrictions impacting the Group, while retaining the cap on base

salaries of €500,000 and a limit on variable remuneration of €20,000 per employee in each twelve-month period. The Government’s

consent is required for payments above these amounts and the Excess Bank Remuneration Charge continues to apply. Consequently,

to better align with industry practice and following on from the Government’s easing of remuneration restrictions, AIB has updated its

Remuneration Policy as described below.

As part of the acquisition of Goodbody in 2021 (it was agreed with the Department of Finance that the remuneration restrictions that

apply to AIB would not apply to Goodbody employees, and that they could continue to remain eligible for variable remuneration.

Remuneration Policy and Governance

The Group Remuneration Policy (the 'Remuneration Policy') sets the framework for all remuneration related policies, procedures and

practices for all employees and Directors of the Group. The principal aim of the Remuneration Policy is to support AIB in becoming

a bank to believe in, recognised for outstanding customer experience and superior financial performance.

The Remuneration Policy is designed to:

•Foster a truly customer focussed culture;

•Create long term sustainable value for our customers and shareholders;

•Attract, develop and retain the best people; and

•Safeguard the bank’s capital, liquidity and risk positions.

Both the Committee and the Board recognise that the long-term success of the Group is dependent on the talent of employees,

in particular, the ability to consistently perform at the highest level in the best interests of our customers.

The Group’s remuneration philosophy aims to ensure that remuneration is aligned with performance and that employees are rewarded

fairly and competitively for their contribution to the Group’s success and growth. The Group is committed to a simple, transparent and

affordable reward structure, which is fair, performance based, and both externally and risk aligned.

The scope of the Remuneration Policy includes all financial benefits available to all employees and Directors of the Group and extends

to all individual subsidiaries, entities and branches, including all employees of the Group at consolidated and sub-consolidated levels.

The Remuneration Policy is governed by the Committee on behalf of the Board. The Committee is responsible for determining the

Remuneration Policy and for overseeing its implementation. The Committee oversees the operation and effectiveness of the

Remuneration Policy, as well as the process for the identification of Material Risk Takers ('MRTs').

The Committee further ensures that the Remuneration Policy and practices are reviewed at least annually, taking into account the

alignment of remuneration to the Group’s culture, and market and regulatory developments. The annual review is informed by input

from the Group’s risk and internal audit functions to ensure that remuneration policies and practices are operating as intended, are

consistently applied across the Group and are compliant with regulatory requirements.

The Committee’s governance role in this respect is outlined in its Terms of Reference, which are published on the AIB website at

committee-terms-of-reference and the Remuneration Policy is also published on the AIB website.

The Group continues to comply with the applicable requirements of the UK Corporate Governance Code (the “Code”) and uses the

Code to inform the Group’s decision making and disclosures. The Group also complies with the Shareholder Rights Directive II (“SRD

II”) in Ireland to the extent applicable. Due to the historic constraints on variable remuneration, certain requirements of the Code and

SRD II were not applicable to the Group for 2022 and prior years. The Group will continue to review applicable Code requirements

following the easing of the restrictions on variable remuneration by the Irish Government.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

CORPORATE GOVERNANCE REMUNERATION STATEMENT CONTINUED

Regarding provision 40 of the Code, the Remuneration Policy sets the framework which underpins remuneration policies and practices

for executive directors. In particular:

•Clarity – Remuneration arrangements have defined parameters which are clearly outlined in the Remuneration Policy.

•Simplicity – The Group is committed to a simple reward structure as outlined in the Remuneration Policy.

•Risk – The Group’s existing fixed remuneration arrangements have operated under strict Government remuneration constraints.

The design of the new and any future variable remuneration schemes will have a robust link between pay and performance with

safeguards in place to ensure outcomes are appropriate, including risk adjustment. The Committee will be able to adjust formulaic

outcomes for Executive Directors and members of the Executive Committee (the 'ExCo') to ensure alignment with performance and

risk-based considerations.

•Predictability – When a variable scheme is introduced in the future specific details, including maximum opportunity levels,

performance targets and worked examples, of directors’ future remuneration will be included in any new proposed remuneration

policy.

•Proportionality – The Group’s existing remuneration structure only provided for the awarding of limited individual awards in certain

circumstances in 2022. In future years, where variable remuneration can be awarded, the Committee will have the ability to adjust

formulaic outcomes where they are not proportionate to the financial or non-financial performance of the Group.

•Alignment to Culture – The Remuneration Policy is aligned to the Group’s culture and values. Performance measures used to

determine the outcome of variable remuneration arrangements will reflect the culture and values of the Group, including its

commitment to ESG.

In relation to provision 41 of the Code:

•Executive Director remuneration is governed by the Remuneration Policy and determined by the Committee.

•Career levels have been established with market related pay ranges for each level. All employees are mapped to a career level and

associated pay range based on their level of accountability.

•The Report of the Committee describes the operation of the Remuneration Policy.

•As a result of the announcement by the Irish Government in December 2022 to ease certain remuneration restrictions, we have

updated the Remuneration Policy (as summarised below). Given the limited nature of these changes and the fact that the previous

remuneration restrictions generally remained in place during 2022, shareholder engagement was not required in this area during

2022.

•The Corporate Governance report references engagement with the workforce.

•Given the general absence of variable remuneration during 2022 discretion has not been a material factor.

It should be noted that some of the provisions of the Code (notably Principle R, provisions 36 and 37) were not entirely applicable to AIB

in 2022, as the Group did not operate variable incentive arrangements for the Executive Directors during the year or in previous years

due to Government restrictions.

Summary of Changes

The Remuneration Policy has been updated to provide for:

•The introduction of a short-term variable remuneration scheme for all employees, including Executive Directors and ExCo members,

not exceeding €20,000 per employee per year based on company performance (as summarised in the Remuneration Elements table

below). Employees will be offered the choice of taking any award in cash or, where feasible, in shares or a combination of both.

•The provision of healthcare benefits to all employees.

•The satisfaction of regulatory requirements that had previously not been applicable due to the Government’s remuneration

restrictions.

Following the introduction of the short-term variable remuneration scheme, the Group will explore the potential to use vehicles such as

An Approved Profit Share Scheme (“APSS”) in the Republic of Ireland and a Share Incentive Plan (“SIP”) in the UK. The Group is also

considering the introduction of an SAYE (Save As You Earn) scheme for all employees. Details regarding the final design of the short-

term variable remuneration scheme will be disclosed in AIB’s 2023 Annual Financial Report.

In respect of Executive Directors, proposed remuneration structures will be as detailed in the Remuneration Elements table below.

In the event of the removal of the salary cap, AIB will consider the impact of such change.

Compliance with Relevant Regulatory Requirements

Remuneration policies, procedures and practices reflect the provisions, where applicable, of national and EU legislation, continuing Irish

Government remuneration restrictions, the Capital Requirements Directive (“CRD”), the Investment Firms Directive (“IFD”), corporate

governance requirements issued by the Central Bank of Ireland, and relevant guidelines issued by the European Banking Authority

(“EBA”) and other regulatory authorities. The provisions of the EBA Guidelines on sound remuneration will be applied to AIB’s proposed

new variable remuneration scheme. In particular, the Remuneration Policy incorporates the provisions of the EBA Guidelines in relation

to the ongoing design, implementation and governance of remuneration.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Pillar 3 and Other Remuneration Disclosures

The Group publishes additional remuneration disclosures in the annual Group Pillar 3 Report. These disclosures provide further

information about the Group’s remuneration policies and practices and, more specifically, qualitative information about:

•The bodies that oversee remuneration; the design and structure of the remuneration system for those individuals who have been

identified as MRTs.

•The ways in which current and future risks are taken into account in the remuneration processes.

•The ratios between fixed and variable remuneration set in accordance with the regulatory requirements.

•The ways in which the Group seeks to link performance and remuneration.

•The ways in which the Group seeks to adjust remuneration to take account of long-term performance.

•The main parameters and rationale for the variable remuneration scheme for which MRTs are eligible and the use of derogations in

Article 94(3) of the CRD.

These disclosures also include quantitative information, in aggregate form, about the amounts and structure of the remuneration of

MRTs.

The Group’s Pillar 3 Report is available on the Group website.

EBA remuneration benchmarking requirements require the Group to disclose remuneration data in respect of all staff, MRTs and high

earners (those earning above €1 million) to the Central Bank of Ireland. The Group continued to comply with these reporting

requirements during 2022. There were no employees whose total remuneration exceeded € 1 million during 2022.

During 2022, the Group published its Gender Pay Gap Report for 2021 in relation to its UK based employees. The disclosures are

available on the AIB (GB) website, www.aibgb.co.uk. With the introduction of gender pay gap legislation in Ireland, AIB also published

its Irish Gender Pay Gap Report in 2022 in respect of its employees based in the Republic of Ireland. The disclosures are available on

the AIB website, www.aib.ie.

Material Risk Takers and Risk Oversight

The Group is required to maintain a list of employees whose professional activities have the potential to have a material impact on the

Group’s risk profile. The list of MRTs is prepared using a combination of qualitative and quantitative criteria in accordance with the

relevant EU regulations and guidelines together with additional criteria specific to the Group’s structure, business activities and risk

profile. The list is prepared at Group and subsidiary levels.

The Group’s risk function provides an assessment of the risks impacting the Group and performance against the Group’s Risk Appetite

Statement to ensure that the Remuneration Policy is aligned with the Group’s risk profile. The Group’s Chief Risk Officer reviews the list

of MRTs in conjunction with Group Reward and provides the Committee with an annual assessment of the risks facing the Group to

ensure that policies and practices are consistent with and promote sound and effective risk management.

Reward Structure and Operation in 2022

During 2022, remuneration across the Group continued to be principally comprised of fixed pay elements encompassing base salary,

allowances, employer pension contributions and non-financial benefits. Base salary is the principal component of fixed remuneration

and is designed to be fair and competitive and set according to appropriate salary ranges which reflect the size and level of

responsibilities attached to each role.

Allowances mainly consist of non-pensionable cash allowances which are payable to eligible senior employees to recognise equivalent

benefits and allowances available in the market. AIB places considerable emphasis on the need for employees to plan for an

appropriate standard of living in retirement and a pension scheme is available to all employees for that purpose. All of the Group’s

defined benefit pension schemes were closed to future accrual by 31 December 2013 and all Group employees accrue pension benefits

on a defined contribution basis from 1 January 2014. Further details in respect of the Group’s fixed pay elements are provided in the

table below.

Increases to salary in 2022 were awarded following the annual pay review process, through promotion, progression and, in exceptional

cases, through out-of-course increases to retain key talent and skills.

In 2022, the Group agreed to a 3 year pay deal which provides pay certainty for our employees at Career Levels 1-3. Employees at

Career Levels 4-6 received pay increases which were linked to their performance.

The Group operates “Appreciate”, a non-cash staff recognition programme for employees. In 2022, following approval from the

Department of Finance, a cost-of-living award to the value of €1,000 was made to all AIB employees (in Career Levels 1-5 in the

Republic of Ireland, UK and US).

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

CORPORATE GOVERNANCE REMUNERATION STATEMENT CONTINUED

The remuneration of Executive Directors and members of ExCo was determined and approved by the Committee. All remuneration to

directors and employees was compliant with the relevant remuneration constraints in place during 2022.

The Group operates three business specific variable commission schemes, which are designed to protect the rights and interests of

customers via robust customer centric performance criteria, the prevention of conflicts of interest and the assessment and mitigation of

risks to the customer. For those limited numbers of employees who currently participate in these schemes (and no Executive Director

participates in these schemes), sustainability risk is considered as part of the determination of final award outcomes. The maximum

amount payable to any individual per year is €20,000. There is also a separate EBS Tied Agency Remuneration scheme, for which the

required monitoring is performed by the EBS d.a.c. senior management team. This ensures that payments made do not provide any

incentive for excessive risk taking or the mis-selling of products. Details of the EBS Tied Agency Remuneration Scheme are reported to

the Board of EBS d.a.c.

As stated earlier, a separate reward structure applies to employees of Goodbody, which was not subject to the remuneration restrictions

in place for AIB Group during 2022, as agreed with the Department of Finance. The remuneration structures at Goodbody comply with

all applicable remuneration regulatory requirements.

Remuneration of Executive Directors and Executive Committee Members

The remuneration of Executive Directors and members of the ExCo is determined by the Committee on appointment by reference to

external benchmarks to provide an appropriate level of competitive remuneration, within the parameters of remuneration restrictions,

commensurate with the size and functional responsibilities attaching to their roles. No Director nor employee is involved in the decision-

making process around their own remuneration.

In line with remuneration restrictions on variable pay and a cap on individual salaries and allowances of €500,000, which were in place

during 2022, remuneration during 2022 principally consisted of base salary, allowances and pension contributions. Allowances

consisted of non-pensionable cash allowances of up to €30,000, subject to salary and allowances remaining within the current

€500,000 cap, while employer pension contributions of 20% of base salary were payable to Executive Directors and ExCo members.

Following a review of compliance with the Code, the pension arrangements of Executive Directors and ExCo members were considered

by the Committee and deemed to be appropriate, and in line with the remuneration restrictions in place during 2022. This is an area that

will be kept under review.

The Chief Executive Officer and the Chief Financial Officer were Executive Directors of the Group during 2022. In line with the cap on

salaries and allowances imposed by existing remuneration restrictions during 2022, the Chief Executive Officer was paid a base salary

of €500,000 together with an employer pension contribution of 20% (€100,000) to a defined contribution scheme.

The Chief Financial Officer received a base salary of €485,000, with a non-pensionable allowance of €15,000 and an employer pension

contribution of 20% (€97,000) to a defined contribution scheme.

There were no bonuses, shares or other incentive schemes paid or awarded to Executive Directors or ExCo members in 2022. The

Committee undertakes a periodic review of the remuneration of Executive Directors and ExCo members against external benchmark

data.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Remuneration Elements

The principal remuneration design elements are outlined below:



Pay Element	Rationale and alignment to Strategy	Design and Operation	Performance Assessment and Maximum Potential Value
Base Salary	To attract, motivate and retain the right calibre of individuals to support the Group’s future success and growth.	Base salary is set according to appropriate salary ranges which reflect the size, skills and level of responsibilities attaching to each role. Base salaries are typically reviewed annually as part of the annual pay review process with increases taking effect from 1 April. Base salaries of Executive Directors and members of the ExCo are reviewed by the Committee on behalf of the Board.	Increases in base salary are typically performance based, determined by performance against objectives which reflect the Group’s strategy, goals and values and typically occur as part of the annual pay review process. Increases may also arise through progression and promotion and, in exceptional cases, through out of- course increases to retain key talent and skills. Base salaries of all employees (excluding Goodbody employees), including Executive Directors, are managed in accordance with continuing remuneration restrictions. The annual base salary for each Executive Director is set out in the Directors Remuneration Report. In the event of the removal of the salary cap, AIB would consider the impact of this, including the introduction of shareholding requirements as recommended under the Code.
Allowances	To provide a contribution to market aligned benefits and allowances generally available in the market.	Non-pensionable cash allowances are provided to eligible employees according to their career level.	Non-pensionable allowances for senior career levels range from €10,000 to €20,000 per annum (£8,300 to £11,000 in the UK). Allowances of up to €30,000 per annum (£14,000 in the UK) are payable to ExCo members.
Short Term Incentive Plans	The introduction of variable remuneration will help support the performance culture within the Group. All variable remuneration arrangements will be designed in a way that promotes the interests of our stakeholders and fully complies with applicable regulatory requirements.	Variable remuneration schemes for all employees based on company performance.	A limit of €20,000 per annum on any award or combination of awards per employee will apply. For Executive Directors, awards will be based on a performance period of one financial year. Awards will be assessed on a combination of financial and non- financial performance. Awards will be payable in a combination of cash and shares. AIB will ensure that the form of awards will comply with regulatory obligations around the nature and form of payments under the plan. It will be possible to reduce the level of the award to reflect risk adjustments. Awards will be subject to the Group's policy on malus and clawback (where applicable), including where participants leave the Group during the year. AIB will aim to establish vehicles such as an APSS in the Republic of Ireland and a SIP in the UK.
Pension	To enable employees plan for an appropriate standard of living in retirement.	Employees are entitled to participate in one of the Group’s defined contribution schemes with a monthly contribution based on a percentage of base salary. Executive Directors and ExCo members are also entitled to participate in one of the Group’s defined contribution schemes. In the UK, employees may elect to receive cash in lieu of their pension contribution.	A standard contribution of 10% of base salary is made plus an additional matching contribution of up to 8%, which can be availed of depending on the age of the employee. Executive Directors and ExCo members are entitled to an employer pension contribution of 20% of base salary.
Other Benefits	To provide affordable benefits in accordance with general market practice.	Benefits include medical insurance, income protection, death-in-service cover and free banking services. Relocation costs, including tax advice, accommodation and flight allowances, may be provided in line with market practice. The Committee retains the right to provide additional benefits subject to continuing remuneration restrictions. AIB is also considering the introduction of an SAYE (Save As You Earn) scheme for employees.	A functional car policy is in place based on role requirements. The Group does not provide company cars outside of the functional car policy. Executive Directors and ExCo members may occasionally avail of a pool car and driver.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

CORPORATE GOVERNANCE REMUNERATION STATEMENT CONTINUED

Directors’ remuneration*

The following table details the total remuneration of the Directors in office during 2022 and 2021:


					2022					2021
	Directors’ fees (1)	Salary	Pension contri- bution(2)	Annual taxable benefits(3)	Total	Directors’ fees (1)	Salary	Pension contri- bution(2)	Annual taxable benefits(3)	Total
Remuneration	€ 000	€ 000	€ 000	€ 000	€ 000	€ 000	€ 000	€ 000	€ 000	€ 000
Executive Directors
Colin Hunt		500	100	—	600		500	100	—	600
Donal Galvin		485	97	15	597		283	56	13	352
(Appointed 28 May 2021)
		985	197	15	1,197		783	156	13	952

Non-Executive Directors
Anik Chaumartin	75				75	38				38
Basil Geoghegan	75				75	81				81
Tanya Horgan	80				80	22				22
Sandy Kinney Pritchard	95				95	95				95
Elaine McLean	85				85	85				85
Andy Maguire	80				80	64				64
Brendan McDonagh	135				135	218				218
(Deputy Chair)
Helen Normoyle	165				165	115				115
Ann O'Brien	91				91	95				95
Fergal O'Dwyer	115				115	71				71
Jim Pettigrew	365				365	63				63
(Chair)
Jan Sijbrand	78				78	22				22
Raj Singh	80				80	80				80
	1,519				1,519	1,049				1,049

Former Directors
Carolan Lennon	53				53	109				109
(Resigned 30 June 2022)
Anne Maher(4)					16					17
Tomás O’Midheach							59	8		67
Total	1,507				2,785	1,158				2,194

(1) All Non-Executive Directors were paid a basic, non-pensionable fee in respect of service as a Director of €65,000 and additional non-pensionable remuneration

in respect of other responsibilities, such as through the chairmanship or membership of Board Committees or performing the role of Deputy Chair or Senior

Independent Director. Current or former Directors who serve on the board of any Group Irish subsidiary company are also paid a non-pensionable flat fee for

their services as a Director, chairmanship or membership of Board Committees. In that regard, Mr. Fergal O' Dwyer earned fees during 2022 of €55k in his role

as Director and Chair of the Audit Committee of Goodbody. Current or former Non-Executive Directors of AIB Group plc and Allied Irish Banks, p.l.c., as

applicable, who also serve as Directors of AIB Group (UK) p.l.c. (“AIB UK”) are separately paid a non-pensionable flat fee, which is independently agreed and

paid by AIB UK, in respect of their service as a Director of that company. In that regard, Ms Helen Normoyle earned fees during 2022 of €65k (2021: €30k);

(2) “Pension Contribution” represents agreed payments to a defined contribution scheme to provide post-retirement pension benefits for Executive Directors from

normal retirement date. The fees of the Chair, Deputy Chair and Non-Executive Directors are non-pensionable;

(3) “Annual Taxable Benefit” represents a non-pensionable cash allowance in lieu of company car, medical insurance and other contractual benefits; and

(4) Ms Anne Maher is a former Non-Executive Director of Allied Irish Banks, p.l.c. who has, since her resignation, continued as a Director of the Corporate Trustee

of the AIB Irish Pension Scheme and of the AIB Defined Contribution Scheme, in respect of which she earned fees as quoted, during 2022.

*Forms an integral part of the audited financial statements

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Directors’ remuneration* continued

Interests in shares

The beneficial interests of the Directors and the Company Secretary in office at 31 December 2022, and of their spouses and minor

children, in the ordinary shares of AIB Group plc are set out in the Directors’ Report on page 32.

Share options

No share options were granted or exercised during 2022, and there were no options to subscribe for ordinary shares outstanding in

favour of the Executive Directors or Company Secretary at 31 December 2022.

Performance shares

There were no conditional grants of awards of ordinary shares outstanding to Executive Directors or the Company Secretary at

31 December 2022.

Apart from the interests set out in the Directors’ Report on page 32, the Directors and Company Secretary in office at 31 December

2022 and their spouses and minor children, have no other interests in the shares of AIB Group plc.

The year end closing price of the AIB Group plc's ordinary shares on the Main Market of the Euronext Dublin Stock Exchange was

€ 3.616 per share.

Service contracts

All Executive Directors have a service contract whereas all Non-Executive Directors have a letter of appointment.

In respect of Executive Directors, no service contract exists between the Company and any Director which provides for a notice period

from the Group of greater than one year.

Non-Executive Directors are appointed for an initial term of three years. Terms of office for Non-Executive Directors will not be extended

beyond nine years in total unless the Board, on the recommendation of the Nomination and Corporate Governance Committee,

concludes that such extension is necessary and appropriate.

All Directors, should they choose to stand, are subject to annual re-election by shareholders.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

INTERNAL CONTROLS

Directors’ Statement on risk management and

internal controls

The Board of Directors is responsible for the Group’s system

of internal control, which is designed to manage the risk of failure

to achieve business objectives, and can provide only reasonable

and not absolute assurance against material misstatement or loss.

The Group has implemented a framework and policy architecture

covering business and financial planning, corporate governance

and risk management. The system of internal controls is designed

to ensure that there is thorough and regular evaluation of the

Group’s risks in order to react accordingly, rather than to eliminate

risk. This is done through a process of identification,

measurement, monitoring and reporting. This process includes an

assessment of the effectiveness of internal controls, which was in

place for the full year under review up to the date of approval of

the financial statements, and which accords with the Central Bank

of Ireland’s Corporate Governance requirements for Credit

Institutions 2015 and the UK Corporate Governance Code.

Supporting this process, the Group’s system of internal controls is

based on the following:

Board governance and oversight

•The Board has ultimate responsibility for risk appetite and

reviewing the effectiveness of the system of internal control on a

continuous basis and is supported by a number of sub-

committees including Board Audit Committee (“BAC”),

Board Risk Committee (“BRC”), Remuneration Committee,

Sustainable Business Advisory Committee (“SBAC”),

Technology and Data Advisory Committee (“TDAC”), and

Nomination & Corporate Governance Committee.

•The BRC is appointed by the Board to assist the Board in

fulfilling its oversight responsibilities. It is responsible for

fostering sound risk governance across all of the Group’s

finances and operations (including all operations, legal entities

and branches in ROI, the UK and USA) taking a forward looking

perspective and anticipating changes in business conditions.

The Committee discharges its responsibilities in ensuring that

risks within the Group are appropriately identified, reported,

assessed, managed and controlled. It ensures that the Group’s

overall actual and future risk appetite statement and strategy,

taking into account all types of risks, are aligned with the

business strategy, objectives, corporate culture and values of

the institution while promoting a risk awareness culture within

the Group. BRC oversees and challenges the risk management

function, which is managed on a day-to-day basis by the Chief

Risk Officer (“CRO”), and liaises regularly with the CRO to

ensure the Risk Function is adequately resourced and has

appropriate access to information to enable it to perform its

functions effectively and in accordance with relevant

professional standards. BRC provides qualitative and

quantitative input to the Remuneration Committee on the

alignment of variable remuneration to risk performance for

material risk takers. The Committee further provides advice on

the ongoing viability of the Group, taking into account the

Group’s overall position and principal risks. The committee

is composed of Independent Non-Executive Directors and

operates under Board approved terms of reference.

•The BAC is appointed by the Board to assist it in fulfilling its

oversight responsibilities in relation to the quality and integrity of

the Group’s accounting policies, financial and narrative reports,

and disclosure practices. The Committee also ensures the

effectiveness of the Group’s internal control, risk management,

and accounting and financial reporting systems and the

adequacy of arrangements by which staff may, in confidence,

raise concerns about possible improprieties in matters of

financial reporting or other matters. It also ensures the

independence and performance of the internal and external

auditors. The BAC is composed of Independent Non-Executive

Directors and operates under a Board approved terms of

reference.

•The Chief Financial Officer (“CFO”), the Chief Risk Officer

(“CRO”) and the Group Internal Auditor are involved in all

meetings of the BAC and BRC, where appropriate.

•The Remuneration Committee is responsible for the design and

implementation of the Group’s overall Remuneration Policy for

employees and directors, designed to support the long term

business strategy, values and culture of the Group as well as to

promote effective risk management, and reward fairly and

responsibly, with a clear link to corporate and individual

performance in compliance with applicable legal and regulatory

requirements.

•The SBAC was established by the Board to act as an Advisory

Committee, supporting the execution of the Group’s sustainable

business strategy in accordance with the approved Group

Strategic and Financial Plan. The Strategy includes the

development and safe guarding of the Group’s “social licence to

operate” through Environmental, Social and Governance

activities, alignment with the United Nations Environmental

Programme Finance Initiative (“UNEPFI”) Principles for

Responsible Banking, UN Global Compact and the Group’s

Pledge to Do More.

•The TDAC is appointed by the Board to assist in fulfilling its

oversight responsibilities by reviewing and challenging the

strategy, governance and execution of matters relating to

technology, data and cyber security.

•The Nomination and Corporate Governance Committee’s

responsibilities include, amongst others, supporting and

advising the Board in fulfilling its oversight responsibilities

in relation to the composition of the Board by ensuring it is

comprised of individuals who are best able to discharge the

duties and responsibilities of Directors, to include leading

the process for nominations and appointments to the Board and

Board Committees as appropriate, and making the

recommendations in this regard to the Board for its approval. It

also supports and advises the Board in fulfilling its oversight

responsibilities in relation to the composition of the Group’s

Executive Committee and the composition of the Boards

of its material subsidiaries. It keeps Board governance

arrangements, corporate governance compliance

and related policies under review and makes appropriate

recommendations to the Board to ensure corporate governance

practices are consistent with best practice standards.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

Executive Risk management and controls

•The Executive Committee (“ExCo”) is the most senior executive

committee of the Group. Subject to financial and risk limits set

by the Board, and excluding those matters which are reserved

specifically for the Board, the ExCo has primary authority and

responsibility for the day-to-day operations of, and the

development of strategy for the Group. The ExCo works with

and advises the CEO, ensuring a collaborative approach to

decision making and collective ownership of strategy

development and implementation, including promoting action to

address performance issues as required.

•The Group Risk Committee (“GRC”) was established by, and is

accountable to, the ExCo to set policy and monitor all risk types

across the Group and to enable delivery of the Group’s risk

strategy. It is the primary second line of defence risk

management committee of the Group. It provides oversight and

monitors strategic business initiatives that have material

implications for the Group to ensure they align and are

consistent with the Group risk appetite and other risk policies as

approved by the BRC.

•The Group Asset and Liability Committee (“ALCo”) is a sub-

committee of the ExCo and acts as the Group’s strategic

and business decision making forum for balance sheet

management matters. It sets policy and is responsible for

effective balance sheet management and alignment to Group

strategy for funding and liquidity risk, market risk and capital

adequacy risk.

•There is a centralised risk control function headed by the CRO,

who is responsible for independent challenge, ensuring that

risks are understood, managed, measured, monitored and

reported on, and for reporting on risk mitigation actions.

•The Risk function is responsible for establishing and embedding

risk management frameworks, ensuring that material risk

policies are reviewed, and reporting on adherence to risk limits

as set by the Board of Directors.

•The Group’s risk profile is measured against its risk appetite and

exceptions are reported to the GRC and BRC through the CRO

report. Material breaches of risk appetite are escalated to the

Board and reported to the Central Bank of Ireland/Joint

Supervisory Team (“JST”).

•The centralised credit function is headed by a Chief Credit

Officer who reports to the CRO.

•Compliance, which is part of the Risk function, provides

interpretation and assessment of compliance risk, specifically,

laws, regulations, rules and codes of conduct applicable to its

banking activities.

•There is an independent Group Internal Audit function which is

responsible for independently assessing the effectiveness of the

Group’s corporate governance, risk management and internal

controls and reports directly to the Chair of the BAC.

•AIB employees who perform pre-approved controlled functions/

controlled functions meet the required standards as outlined in

the Group’s Fitness and Probity programme.

For further information on the risk management framework of the

Group, see pages 70 to 73 of this report.

In the event that material failings or weaknesses in the systems of

risk management or internal control are identified, Management is

required to attend the relevant Board forum to provide an

explanation of the issue and to present a proposed remediation

plan. Agreed remediation plans are tracked to conclusion, with

regular status updates provided to the relevant Board forum.

Given the work of the Board, BRC, BAC and representations

made by the ExCo during the year, the Board is satisfied that the

necessary actions to address any material failings or weaknesses

identified through the operation of the Group’s risk management

and internal control framework have been taken, or are currently

being undertaken.

Taking this and all other information into consideration as outlined

above, the Board is satisfied that there has been an effective

system of control in place throughout the year.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

SUSTAINABILITY

AND CLIMATE

CHANGE

We recognise that the scale

and impact of our business

confers on us a responsibility

and role across the economy

and society. At the heart of our

strategy is a commitment to

help ensure a greener

tomorrow by backing those

building it today.

Our strategy for Sustainable

Communities is focused on

three areas: Climate &

Environment, Economic &

Social Inclusion, and Future

Proof Business. Our priorities

for each area are the result

of extensive stakeholder

engagement, including

an independent bi-annual

materiality and

evaluation process.


	Further disclosures on Sustainability in AIB can be found on pages 27 to 54 of the AIB Group plc Annual Financial Report and within our Sustainability Report 2022, which highlights the progress we are making against our strategy and commitments.
	à Read more on aib.ie/sustainability

Allied Irish Banks, p.l.c. Annual Financial Report 2022

RISK MANAGEMENT



1	Risk Management Approach	70
1.1	Risk strategy	70
1.2	Identification and assessment	71
1.3	Monitoring, escalating and reporting	72
1.4	Risk culture	73
1.5	Control environment	73

2	Individual risk types	74
2.1	Credit risk	75
2.2	Liquidity and funding risk	129
2.3	Financial risks	136
	(a) Market risk	136
	(b) Pension risk	141
	(c) Equity risk	142
2.4	Business model risk	143
2.5	Operational risk	143
2.6	Conduct risk	144
2.7	Regulatory compliance risk	145
2.8	People and culture risk	146
2.9	Capital adequacy risk	147
2.10	Model risk	148

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Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

1.RISK MANAGEMENT APPROACH

1. Introduction

The risk summary on pages 22 to 26 provides an overview of the

Group’s core risk management principles and the key areas of

focus during 2022. This full risk management section provides

a more in-depth picture of how risk is managed, supporting the

Group in achieving its strategic objectives, protecting customers

and enables us to identify opportunities to grow the Group

business safely. A full analysis of the principal risks categories

are set out on pages 23 to 26, the framework by which risks are

identified, managed, monitored and reported. Each principal risk

category is described using standard headings.

The Group uses a comprehensive risk management approach

across all risk types. This is outlined in the Group’s risk

management framework, including the key practices that are

implemented in managing risks, both financial and non-financial.

It is aligned to the Group’s purpose to back its customers to

achieve their dreams and ambitions and is designed to support

appropriate risk-taking. The framework is reviewed, updated and

approved by the Board at least annually to reflect any changes to

the Group’s business or consideration of external regulations,

corporate governance requirements and industry best practice.

The Group’s independent Risk function designs and maintains the

framework. The Risk function is led by the Chief Risk Officer who

provides oversight and monitoring of all risk management

activities. At the end of June 2022, Deirdre Hannigan retired as

Chief Risk Officer and was succeeded by Michael Frawley.

The landscape of the Irish retail banking market is changing with

the exit of Ulster Bank and KBC. In April, the Group received

Competition and Consumer Protection Commission (“CCPC”)

approval for the acquisition of the Ulster Bank corporate and

commercial loans, commencing the migration of loans on a phased

basis. In June, the Group entered into a binding agreement with

NatWest Group plc for the acquisition of a performing Ulster

tracker mortgage portfolio and subsequently received in January

2023 clearance from the CCPC. Risk remains committed to

maintaining the support we give to our existing and new customers

by assessing these transactions as part of the Group’s risk

management processes including the material risks assessment

and within its prudent risk appetite.

1.1 Risk strategy

Integration of key risk management processes

The following section sets out at a high level the Group and Risk

strategy setting applicable across the Group, its subsidiaries and

joint ventures.

Group strategy

The Group’s strategic ambition is to be at the heart of its

customers’ financial lives by meeting their evolving needs at every

life-stage, and providing an exceptional customer experience,

while simultaneously delivering a bank with compelling,

sustainable capital returns and a considered, transparent and

controlled risk profile. The Group’s strategy is driven by the five

strategic pillars that determine the areas of focus and drive

investment. The strategy is defined within the boundaries of the

Group’s Risk Appetite Statement and approved by the Board.

The Group’s Risk Appetite Statement defines the amount and

type of risk that the Group is willing to accept, in pursuit of its

strategic goals.

Risk strategy setting

The risk strategy, articulated through the annual risk plan and the

risk objectives, is a key element of the Board’s understanding of

how risk is to be managed in the short, medium and long term.

The Group has a set of strategic risk objectives which support the

delivery of the Group’s strategy, with a specific focus on the Risk

and Capital pillar.

Sustainability

Sustainability is a key strategic objective of the Group and

Sustainable Communities is one of the Group’s five Strategic

Pillars. Managing the sustainability related aspects of the Group

involves identifying and managing all related risks that relate to

both day-to-day and future operations. See pages 29 to 54 for

more details on Sustainability in the Group.

Risk governance and oversight

The Group’s Governance and Organisation Framework

encompasses the leadership, direction and control of the Group,

reflecting policies, guidelines, statutory obligations and ensures

that control arrangements provide appropriate governance of the

Group’s strategy, operations and mitigation of related material

risks. This is achieved through a risk governance structure

designed to facilitate the reporting, evaluation and escalation of risk

concerns, from business segments and control functions upwards

to the Board and its appointed committees and sub-committees.

Board of Directors

The Board of Directors is ultimately responsible and accountable

for the effective management of risks and for the system of

internal controls in the Group. The Board has delegated a number

of risk governance responsibilities to various committees. The

roles of the Board, the Board Audit Committee, the Board Risk

Committee, the Remuneration Committee, Sustainability Business

Advisory, Technology and Data Advisory Committee and the

Nominations and Corporate Governance Committee are all set out

in the Governance and Oversight – Corporate Governance report

on pages 75 to 128.

Executive Committee

The Executive Committee has primary authority and responsibility

for the day-to-day operations of, and the development of strategy

for the Group. The core overarching areas of oversight and

decision-making for the Executive Committee are:

•Strategy and Business Development

•Performance and Operations

•Business Structure and Risk Management

•Talent and Culture

•Stakeholder Management

While the Executive Committee has delegated its powers and

authorities to other committees, it retains ultimate accountability

for the functions delegated.

Group Risk Committee

The Group Risk Committee is the most senior management risk

committee and is accountable to the Executive Committee to set

policy and monitor all risk types across the Group to enable

delivery of the Group’s risk strategy.

The roles and responsibilities of the Group Risk Committee are:

•Approving risk frameworks, such as the new ESG Risk

Management Framework, Risk Appetite Statements, risk

policies and limits to manage the risk profile of the Group;

•Monitoring and reviewing the Group’s risk profile

(enterprise wide);

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

•Periodically reviewing the effectiveness of the Group’s risk

management policies for identifying, evaluating, monitoring,

managing, and measuring significant risks;

•Providing oversight and challenge of regulatory, operational

and conduct risk related matters;

•Providing oversight and challenge of credit risk management

related matters and periodically reviewing the credit portfolio

exposures and trends;

•Providing oversight and challenge of risk measurement matters;

•Overseeing the development of the Group’s risk management

culture;

•Monitoring and reviewing the Group’s risk profile and the

business segment limits for equity risk;

•Providing advice to the Board Risk Committee on risk

governance, current and future risk exposures and risk appetite;

•Reviewing the annual risk assessments prepared by the first line

of defence to identify and evaluate all significant risks and

related risk management activities;

•Considering the annual Money Laundering Reporting Officer’s

report; and

•Considering and assessing management’s response to Group

Internal Audit findings.

The sub-committees of the Group Risk Committee are the Group

Credit Committee, the Regulatory and Conduct Risk Committee,

the Risk Measurement Committee and the Operational Risk

Committee:

•The Group Credit Committee is responsible for the approval

of material credit transactions in line with authority levels

outlined in the Group Credit Risk policies, to review, approve

or recommend to a higher authority Credit Risk Policies and to

monitor and review credit management, performance and other

credit matters that arise within the Group. The Group Credit

Committee also reviews and challenges ECL levels for onward

recommendation to the Board Audit Committee;

•The Regulatory and Conduct Risk Committee is responsible for

the governance and oversight of regulatory and conduct risks;

•The Risk Measurement Committee is responsible for the

governance, oversight and approval of all aspects of the

Group’s risk measurement systems, material model

methodologies as well as the maintenance of existing material

models; and

•The Operational Risk Committee is responsible for the

governance and oversight of operational risks.

Group Asset and Liability Management Committee(“ALCo”)

ALCo has been established as a sub-committee of the Executive

Committee. ALCo is the Group’s strategic and business decision

making forum for balance sheet management matters. ALCo is

tasked with decision-making in respect of the Group’s balance

sheet structure, including capital, funding, liquidity, interest rate

risk in the banking book (“IRRBB”) from an economic value and

net interest margin (“NIM”) perspective, foreign exchange (“FX”)

risks and other market risks to ensure it enables the delivery of

the Group’s Strategic Plan. The Committee manages the funding

and liquidity, capital, market and equity/investments risk and

balance sheet pricing in line with the relevant risk frameworks

and policies in accordance with risk appetite.

Three lines of defence model

The Group operates a three lines of defence model which defines

clear responsibilities and accountabilities, ensures effective

independent oversight and assurance activities take place

covering key decisions. The first line of defence lies with the

business line managers who are required to have effective

governance and control frameworks in place for their business

and to act within the risk appetite parameters set out. The second

line of defence comprises the Risk function, and oversees the first

line, providing independent constructive challenge, setting the

frameworks, policies and limits, consistent with the risk appetite

of the Group. The third line of defence comprises Group Internal

Audit who provide an independent view on the key risks facing the

Group, and the adequacy and effectiveness of governance, risk

management and the internal control environment in managing

these risks.

The Board and its Sub Committees, Board Risk Committee

(“BRC”) and Board Audit Committee (“BAC”) are ultimately

responsible for ensuring the effective operation of the three

lines of defence model. They are supported by the Executive

Committee (“ExCo”) and its sub-committees. The Terms of

References for the BRC and BAC are available on the

Group’s website.

1.2 Identification and assessment

Risk is identified and assessed in the Group through a

combination of on-going risk management practices and the

following:

•Material risk assessment;

•Risk and control assessment;

•Annual Financial Plan;

•Internal Capital Adequacy Assessment Process (“ICAAP”);

•Internal Liquidity Adequacy Assessment Process (“ILAAP”);

•Stress testing;

•Recovery planning; and

•Resolution planning.

Material risk assessment

The material risk assessment is a top down process performed

on an at least annual basis for the Group which identifies the key

material risks and the identification of emerging and evolving

risks. This assessment makes use of horizon scanning and takes

into account the Group’s strategic objectives and incorporates

both internal and external risk information. The Board Risk

Committee is responsible for the annual approval of the Group

material risk assessment.

Risk and control assessment

The first line of defence is responsible for ensuring that

detailed bottom up risk and control assessments are undertaken

for all businesses or business processes falling under their

responsibility. These assessments are performed regularly and

whenever there is a material change in organisation, business

processes or business environment.

Annual Financial Plan

The financial plan is integral to how the Group manages its

business and monitors performance. It informs the delivery of the

Group’s strategy and is aligned to the Risk Appetite Statement.

It enables realistic business objectives to be set for Management,

identifies accountability in the Group’s delivery of planning targets

and identifies the risks to the delivery of the Group’s strategic

goals and the mitigants of those risks. The plan is produced under

a base scenario and assessed under a range of alternative

scenarios over a three year time horizon. This assessment forms

the basis for consideration of business model risk and internal

capital adequacy.

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Internal Capital Adequacy Assessment Process (“ICAAP”)

It is the Group’s policy to maintain adequate capital resources at

all times, having regard to the nature and scale of its business and

the risks arising from its operations. The ICAAP is the process by

which the Group performs a formal and rigorous assessment of its

balance sheet, business plans, risk profile and risk management

processes to determine whether it holds adequate capital

resources to meet both internal objectives and external regulatory

requirements. Multiple scenarios are considered for each ICAAP

including both systemic and idiosyncratic stress tests ranging from

moderate to extreme and are applied to the Group’s material risks

as identified through its material risk assessment. The stress time

horizon of three years is aligned with the planning horizon.

Internal Liquidity Adequacy Assessment Process (“ILAAP”)

The Internal Liquidity Adequacy Assessment Process (“ILAAP”) is

the process by which the Group performs a formal and rigorous

assessment of its balance sheet, business plans, risk profile and

risk management processes to determine whether it holds

sufficient liquid resources of appropriate quality to meet both

internal objectives and external regulatory requirements. Multiple

scenarios are considered for each ILAAP including both firm

specific and systemic risk events and a combination of both to

ensure the continued stability of the Group’s liquidity position

within the Group’s pre-defined liquidity risk tolerance levels.

The stress time horizon of three years is aligned with the

planning horizon.

Stress testing

Stress testing is recognised as a key risk management process

by the Group. It seeks to ensure that risk assessment is dynamic

and forward looking, and considers not only existing risks but also

potential and emerging threats. Stress test methodologies are

developed to assess the material risks identified in the material

risk assessment process.

The Group’s stress testing programme embraces a range of

forward looking stress tests and takes all the Group’s material

risks into account. These include:

•ICAAP stress testing undertaken on an annual basis in support

of the Internal Capital Adequacy Assessment Process and is

integrated with the Group’s annual financial planning process.

This aims to highlight the key vulnerabilities of the Group and

inform potential future capital needs including capital buffers,

in excess of minimum regulatory capital requirements, and

internal capital requirements under both base and stressed

conditions over the planning horizon;

•Internal capital stress tests on all of the material risks of the

Group. These consider the implications of a severe shock

across the Group’s material risks and additional supporting

scenarios as deemed appropriate;

•Annual ILAAP stress testing applied to the funding and liquidity

plan to formally assess the Group’s liquidity risks;

•Reverse stress testing undertaken at least annually to explore

the vulnerabilities of the Group’s strategies and plans in extreme

adverse events that would cause the Group to fail. The Group

will adopt an action plan to prevent and mitigate in the strategic

plans;

•Ad hoc stress testing on key core portfolios as required, of

emerging risks identified from the material risk assessment

process and as well as in response to regulatory requests; and

•Sensitivity analysis assesses the marginal impact of an

incremental change in one risk parameter on the Group’s capital

and liquidity position.

Stress testing methodology

Across all of the Group’s material risks, the methodology will be

an appropriate blend of model based and expert judgement

approaches. Assumptions and outputs are reviewed by impacted

businesses and central functions, and via Risk review, to ensure

they are plausible and intuitive. All models used in the stress

testing process are subject to model validation as per the Group’s

Model Risk Management Framework. The stress tests comply

with all regulatory requirements, achieved through the

comprehensive review and challenge of macroeconomic

scenarios and stress test outcomes, and the ongoing validation

of stress testing models. The Group participated in the ECB’s

inaugural European-wide Climate Stress Test in 2022.

Recovery planning

The Group’s recovery plan sets out the arrangements and

measures that the Group could adopt in the event of severe

financial stress to restore the Group to long term viability. A suite

of indicators and options are included in the Group’s recovery

plan, which together presents the identification of stress events

and the tangible mitigating actions available to the Group to

restore viability.

Resolution planning

Resolution is the restructuring of a bank by a resolution authority

that has failed or is likely to fail, through the use of resolution tools

in order to:

•safeguard the public interest;

•ensure the continuity of the Group’s critical functions;

•ensure financial stability in the economy in which it operates;

and

•minimise costs to taxpayers.

The Group is under the remit of the Single Resolution Board

(“SRB”) due to its systemic importance. The SRB, in cooperation

with the National Resolution Authorities, (Central Bank of Ireland

for Ireland and Bank of England for the UK) draft the resolution

plan for the Group. The resolution plan describes the Preferred

Resolution Strategy (“PRS”), in addition to ensuring the continuity

of the Group’s critical functions and the identification and

addressing of any impediments to the Group’s resolvability.

The PRS for the Group is a single point of entry bail-in via AIB

Group plc. The resolution authorities set the loss absorbing

capacity requirements for Minimum Requirements for own funds

and Eligible Liabilities, in addition to any work programmes

required to mitigate any perceived impediments to resolvability.

Senior management are responsible for implementing the

measures that are needed to ensure the Group’s resolvability and

there are a number of governance fora such as subject matter

working groups and a Resolution Steering Committee that

provides governance and oversight around resolution planning.

Key deliverables to the SRB are approved by Resolution Steering

Committee, GRC/ExCo (Group and UK) and Board (Group and

UK).

1.3 Monitoring, escalating and reporting

Setting risk appetite

The Board sets the risk appetite for the Group informed by the

material risk assessment. Risk appetite is the nature and extent of

risk that the Group is willing to take, accept, or tolerate in pursuit

of its business objectives and strategy. It also informs the Group’s

strategy, and as part of the Risk Management Framework, is a

boundary condition to strategy and guides the Group in its risk

taking and related business activities. The financial plan is tested

to ensure it is within the risk appetite.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

The Group Risk Appetite Statement is an articulation of the

Group’s appetite for, and tolerance of risk expressed through

qualitative statements and quantitative limits and thresholds. The

Group Risk Appetite Statement seeks to encourage appropriate

risk taking to ensure that risks are consistent with the Group

strategy and risk appetite. The Group Risk Appetite Statement

cascades into key business segments with separate Risk Appetite

Statements for each licenced subsidiary reflecting the risk appetite

of the subsidiary as a standalone entity.

Risk measurement

Each of the material risks has a specific approach to how the risk

is measured. The Group Risk Appetite Statement and the

separate Risk Appetite Statements for the licensed subsidiaries

contain metrics which are measured on a monthly basis against

the limits set.

Risk management

The material risk types are actively managed and measured

against their respective frameworks, policies and processes on

an ongoing basis. Risk models are used to measure credit,

market, liquidity and funding risk, and where appropriate, capital

is allocated (taking account of risk concentrations) to mitigate

material risks. The management and measurement of the Group’s

risk profile also informs the Group’s strategic and operational

planning processes.

Risk reporting

Risk reporting facilitates management decision-making and is

a critical component of risk governance and oversight. Risk

reporting processes are in place for each of the material risks

under the relevant risk frameworks and policies. This enables

management, governance committees and other stakeholders

to oversee the effectiveness of the risk management processes,

adherence to risk policies, and (where relevant) adherence to

regulatory requirements.

The CRO reports actual performance against Risk Appetite

Statements to the Board Risk Committee. A material breach of

a Risk Appetite Statement limit is reported to the Board and the

Group’s regulator when appropriate.

1.4 Risk culture

Risk culture is an integral part of the Group’s overall culture and

is vital for the Group to achieve its strategic objectives. The risk

culture defines how risk is managed and owned throughout the

Group. It is the values, behaviours, beliefs, knowledge, attitudes,

awareness and understanding of, and towards risk shared by

people. It sets the foundation for how the Group manages risk

in a consistent and coherent manner. An effective Group Risk

Appetite Statement is highly dependent on risk culture. Risk

culture is one of the key elements of the Group’s Risk

Management Framework; it is through the risk framework and

policy documents that an awareness of risk and control is set

and cascaded throughout the Group including a Conduct Risk

Framework which emphasises the criticality of ensuring fair

customer outcomes. The Group’s promotion of risk learning

through recommended risk training and education supports the

embedding of risk culture. These ongoing activities are supported

by an annual Group wide risk awareness week to reinforce key

risk themes.

1.5 Control environment

The Group has implemented testing and assurance activities with

the objective to provide assurance to the Board, and its delegated

sub-committees on the design and operating effectiveness of the

control environment within the Group. The material risk types are

continuously tested and assured in line with the Group assurance

methodology, which distinguishes between risk management, risk

control and risk assurance. Each line of defence is responsible for

preparing business controls testing plans with consideration of the

adequacy of the risk identified and the design and effectiveness of

the controls in place. The combined assurance is the alignment of

governance, risk and assurance activities, linked with the Group’s

strategy with the objective to provide better co-ordinated efforts,

risk reporting, and to continuously improve performance

and resilience.

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2.INDIVIDUAL RISK TYPES



	2.1 Credit Risk	75
	Definition	75
	Credit risk organisation and structure	76
	Measurement, methodologies and judgements	80
	Credit profile of the loan portfolio	94
	Loans and advances to customers – Asset class analysis	100
	Residential mortgages	100
	Other personal	105
	Property and construction	107
	Non-property business	109
	Gross loans and ECL movements	118
	Credit ratings	125
	Forbearance	126

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Key Developments in 2022:

•The migration of the Ulster Bank portfolio of corporate and commercial loans has progressed on a phased basis throughout the

year and has been subject to the appropriate credit review and grading processes.

•In June 2022, the Group entered into a binding agreement with NatWest Group plc for the acquisition of a performing tracker

mortgage portfolio from Ulster Bank. Work has commenced from a credit management perspective in preparation for the migration

of this loan portfolio.

•The credit quality of the portfolio has remained relatively stable during the year, however the Group is closely monitoring risk

arising from the macroeconomic environment notably energy-driven inflation, rising interest rates and further weakening of the

UK economy.

•The ongoing conflict between Russia and Ukraine has contributed to the uncertain economic backdrop.

•The Group remains focused on its sustainability agenda, including the impact of climate risk which continues to be incorporated

and embedded within the credit assessment process.

Definition of Credit risk

Credit risk is the risk that the Group will incur losses as a result of

a customer or counterparty being unable or unwilling to meet their

contractual obligations and associated bank credit exposure in

respect of loans or other financial transactions.

Based on the annual risk identification and materiality

assessment, credit risk is grouped into the following three sub

categories:

i.Counterparty risk: The risk of losses arising as a result of the

counterparty not meeting their contractual obligations in full

and on time and the resulting credit default risk / risk of loss

leading to a risk to capital;

ii.Concentration risk: The risk of excessive credit concentration

including to an individual, counterparty, group of connected

counterparties, industry sector, a geographic region, country,

a type of collateral or a type of credit facility; and

iii.Country risk: The risk of having exposure to a country, arising

from possible changes in the business environment that may

adversely affect operating profits or the value of assets related

to the country.

Credit risk exposure derives from standard on-balance sheet

products such as mortgages, loans, overdrafts and credit cards.

However, credit risk also arises from other products and activities

including, but not limited to: “off-balance sheet” guarantees and

commitments; securities financing; derivatives; investment

securities; asset backed securities and partial failure of a trade in

a settlement or payment system.

Group Risk Appetite Statement

The Group’s Risk Appetite Statement (“RAS”) defines the amount

and types of risks that the Group is willing to take, accept, or

tolerate in pursuit of its business objectives and strategy as set by

the Board. As part of the overall framework for risk governance, it

forms a boundary condition to strategy and guides the Group in its

risk-taking and related business activities. Credit risk appetite is

set at Board level and is described, reported and monitored

through a suite of qualitative and quantitative metrics. The credit

risk metrics cover the three sub risks identified as part of the

AIB Group material risk assessment process – counterparty risk,

concentration risk and country risk, and include concentration

limits on quantum of new lending, balance sheet exposure and

credit quality. Risk appetite is stress tested to ensure limits are

within the risk-taking capacity of the Group. The Group’s risk

appetite for credit risk is reviewed and approved at least annually.

Credit risk management

The activities which govern the management of credit risk within

the Group are as follows:

•Establish governance authority fora to provide independent

oversight and assurance to the Board with regards to credit risk

management activities and the quality of the credit portfolio;

•Formulate and implement a comprehensive credit risk strategy

that is viable through various economic cycles, supported by

a suite of credit policies, is aligned to the Group’s approved Risk

Appetite Statement and generates appropriate returns on capital

within acceptable levels of credit quality;

•Operate within a sound and well defined credit granting process,

within which risks for new and existing lending exposures,

including connected exposures, are consistently identified,

assessed, measured, managed, monitored and reported in line

with risk appetite and the credit risk policies;

•Ensure all management and staff involved in core credit risk

activities across the three lines of defence are fully capable of

conducting their duties to the highest standard in compliance

with the Group’s policies and procedures;

•Establish and enforce an efficient internal review and reporting

system to manage effectively the Group’s credit risk across

various portfolios including, establishing and enforcing internal

controls and assurance practices to ensure that exceptions to

policies, deviations to credit standards and limits are monitored

and reported in a timely manner for review and action;

•Ensure a sound methodology exists and credit policies are in

place to proactively assess credit risk, to identify deteriorating

credit quality and take remedial action to minimise losses,

provide customers with affordable and sustainable solutions and

maximise recovery for the Group. This includes consideration of,

and the granting of, forbearance measures;

•Utilise quality management information and risk data of

appropriate quality, to ensure an effective credit risk

management and measurement process when reporting on the

holistic credit risk profile of the Group, including any changes in

credit risk profile and emerging or horizon risks;

•Mitigate potential credit risk arising from new or amended

products or activities, including the identification and analysis

of existing and potential risks inherent in any credit product or

activity; and

•Develop and continuously reinforce a strong, credit risk focused

culture across the credit risk management functions through

the credit cycle, which supports the Group’s goals and enables

business growth, provides constructive challenge and avoids

credit risks that cannot be adequately measured.

The Group’s credit risk framework supports these credit activities

and encompasses a suite of credit policies and standards which

support the credit risk sanctioning policies and policy guidance

and provide a common and consistent approach to the

management of credit risk.

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2.1 Credit risk

Credit risk principles and policy*

The Group implements and operates policies to govern the

identification, assessment, approval, monitoring and reporting of

credit risk. The Group Credit Risk Framework and Group Credit

Risk Policy are overarching Board approved documents which

set out the principles of how the Group identifies, assesses,

approves, monitors and reports credit risk to ensure that robust

credit risk management is in place. These documents contain the

minimum standards and principles that are applied across the

Group to provide a common, robust and consistent approach to

the management of credit risk.

The Group Credit Risk Policy is supported by a suite of credit

policies, standards and guidelines which define in greater detail

the minimum standards and credit risk metrics to be applied for

specific products, business lines, and market segments.

Credit Risk, as an independent risk management function,

monitors key credit risk metrics and trends, including policy

exceptions and breaches, reviews the overall quality of the loan

book, challenges variances to planned outcomes and tracks

portfolio performance against agreed credit risk indicators. This

allows the Group, if required, to take early and proactive mitigating

actions for any potential areas of concern.

Credit approval overview

The Group operates credit approval criteria which:

•Include a clear indication of the Group’s target market(s),

in line with Group and segment risk appetite statements;

•Require a thorough understanding and assessment of the

borrower or counterparty, as well as the purpose and structure

of credit, and the source of repayment; and

•Enforce compliance with minimum credit assessment and facility

structuring standards.

Credit risk approval is undertaken by professionals operating

within a defined delegated authority framework. However, for

certain selected retail portfolios, scorecards and automated

strategies (together referred to as ‘score enabled decisions’) are

deployed to automate and to support credit decisions and credit

management (e.g. score enabled auto-renewal of overdrafts).

The Board is the ultimate credit approval authority in the Group.

The Board has delegated credit authority to various credit

committees and to the Chief Credit Officer (“CCO”). The CCO is

permitted to further delegate this credit authority to individuals

within the Group on a risk appropriate basis. Credit limits are

approved in accordance with the Group’s written risk policies

and guidelines.

All exposures above certain levels require approval by the Group

Credit Committee (“GCC”) and/or Board. Other exposures are

approved according to a system of tiered individual authorities

which reflect credit competence, proven judgement and

experience. Depending on the borrower/connection, grade or

weighted average facility grade and the level of exposure, limits

are sanctioned by the relevant credit authority. Material lending

proposals are referred to credit units for independent assessment/

approval or formulation of a recommendation and subsequent

adjudication by the applicable approval authority.

Credit risk organisation and structure

The Group’s credit risk management systems operate through

a hierarchy of lending authorities. All customer loan requests are

subject to a credit assessment process. The role of the Credit

Risk function is to provide direction, independent oversight of and

challenge to credit risk-taking.

*Forms an integral part of the audited financial statements

Internal credit ratings*

One of the objectives of credit risk management is to accurately

quantify the level of credit risk to which the Group is exposed

through the initial credit approval and ongoing review process.

All relevant exposures are assigned to a rating model and within

that to an internal risk grade (rating). A grade is assigned on the

basis of rating criteria within each rating model from which

estimates of probability of default (PD) are derived.

Internal credit grades are fundamental in assessing the credit

quality of loan exposures, and for assessing capital requirements

for portfolios where prior regulatory approval has been received.

Internal credit grades are key to management reporting, credit

portfolio analysis, credit quality monitoring and in determining the

level and nature of management attention applied to exposures.

Changes in the objective information are reflected in the credit

grade of the borrower/loan with the resultant grade influencing the

management of individual loans. In line with the Group’s credit

management lifecycle, heightened credit management and special

attention is paid to lower quality performing loans or ‘criticised’

loans and non-performing/defaulted loans which are defined

below.

Using internal models, the Group has designed and implemented

a credit grading masterscale that gives it the ability to categorise

credit risk across different rating models and portfolios in

a consistent manner. Masterscale consolidates complex credit

information into a single attribute, aligning the output from the risk

models with the Group’s Forbearance and Definition of Default

and Credit Impairment policies. Masterscale grades are driven by

grading model appropriate through the cycle (TTC) PDs combined

with other asset quality indicators such as default, forbearance

and arrears in order to provide the Group with a mechanism for

ranking and comparing credit risk associated with a range of

customers. Masterscale categorises loans into a broad range of

grades which can be summarised into the following categories:

strong/satisfactory grades; criticised grades; and non-performing/

default loans. Page 98 and 99 sets out the profile of the Group’s

loan portfolio under each of the above grade categories.

The IFRS 9 PD modelling approach uses a combination of rating

grades and scores obtained from these credit risk models along

with key factors such as the current/recent arrears status or the

current/recent forbearance status and macroeconomic factors to

obtain the relevant IFRS 9 12 month and Lifetime PDs (i.e. point

in time). The Group has set out its methodologies and judgements

exercised in determining its expected credit loss (“ECL”) under

IFRS 9 on pages 80 to 91.

Strong/satisfactory

Accounts are considered strong/satisfactory if they have no

current or recent credit distress and the probability of default is

typically less than 6.95%, they are not in arrears and there are no

indications that they are unlikely to repay.

Strong (typically with PD less than 0.99%): Strong credit with no

weakness evident.

Satisfactory (typically with PD greater than or equal to 0.99% and

less than 6.95%): Satisfactory credit with no weakness evident.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Internal credit ratings* continued

Criticised

Accounts of lower credit quality and considered as less than

satisfactory are referred to as criticised and include the following:

Criticised watch: The credit is exhibiting weakness in terms of

credit quality and may need additional management attention; the

credit may or may not be in arrears.

Criticised recovery: Includes forborne cases that are classified

as performing including those which have transitioned from non-

performing forborne, but still require additional management

attention to monitor for re-default and continuing improvement in

terms of credit quality.

Non-performing/default

The Group’s definition of default is aligned with the EBA

‘Guidelines on the application of the definition of default’ under

Article 178 of Capital Requirements Regulation and ECB Banking

Supervision Guidance to Banks on non-performing loans.

The Group has aligned the definitions of ‘non-performing’,

‘classification of default’ and IFRS 9 Stage 3 ‘credit impaired’, with

the exception of loans measured at fair value through profit and

loss, and those loans which have been derecognised and newly

originated in Stage 1 or POCI (purchased or originated credit

impaired) which are no longer classified as credit impaired but

continue to be classified as non-performing and in default. This

alignment ensures consistency with the Group’s internal credit risk

management and assessment practices.

Loans are identified as non-performing or defaulted by a number

of characteristics. The key criteria resulting in a classification of

non-performing are:

•Where the Group considers a borrower to be unlikely to pay

their loans in full without realisation of collateral, regardless of

the existence of any past-due amount; or

•The borrower is 90 days or more past due on any material loan.

Day count starts when any material amount of principal, interest

or fee has not been paid by a borrower on the due date.

The Group’s definition of financial distress and forbearance are

included in the Group’s Forbearance Policy. Identification of non-

performing exposures and unlikeliness to pay are included in the

Group’s Definition of Default and Credit Impairment Policy.

Credit risk monitoring*

The Group has developed and implemented processes and

information systems to monitor and report on individual credits

and credit portfolios in order to manage credit risk effectively.

It is the Group’s practice to ensure that adequate up-to-date

credit management information is available to support the credit

management of individual account relationships and the overall

loan portfolio.

Credit risk, at a portfolio level, is monitored using key risk

indicators and early warning indicators which are reported

regularly to senior management and to the Board Risk Committee.

Credit managers proactively manage the Group’s credit risk

exposures at a transaction and relationship level. Monitoring

includes credit exposure and excess management, regular review

of accounts, being up-to-date with any developments in customer

business, obtaining updated financial information and monitoring

of covenant compliance. This is reported on a regular basis to

senior management and includes information and detailed

commentary on loan book growth, quality of the loan book and

expected credit losses including individual large non-performing

exposures.

Changes in sectoral and single name concentrations are tracked

on a regular basis highlighting changes to risk concentration in the

Group’s loan book. The Group allocates significant resources to

ensure ongoing monitoring and compliance with approved risk

limits. Credit risk, including compliance with key credit risk limits,

is reported monthly. Once an account has been placed on a watch

list, the exposure is carefully monitored and where appropriate,

exposure reductions are effected.

As a matter of policy, non-retail facilities are subject to a review

on, at least, an annual basis, even when they are performing

satisfactorily. Annual review processes are supplemented by more

frequent portfolio and case review processes in addition to arrears

or excess management processes. Borrowers in Stage 2 are

subject to an ‘unlikely to pay’ test at the time of annual review, or

earlier, if there is a material adverse change or event in their credit

risk profile.

Through a range of forbearance solutions as outlined on

page 126, the Group employs a dedicated approach to loan

workout, monitoring and proactive management of non-performing

loans. A specialised recovery function focuses on managing the

majority of criticised loans and deals with customers in default,

collection or insolvency. Their mandate is to support customers

in difficulty while maximising the return on non-performing loans.

Whilst the basic principles for managing weaknesses in corporate,

commercial and retail exposures are broadly similar, the solutions

reflect the differing nature of the assets.

Further details on forbearance are set out in ‘Risk management

2.1 Additional credit quality and forbearance disclosures on loans

and advances to customers’.

Credit risk mitigants*

The perceived strength of a borrower’s repayment capacity is

the primary factor in granting a loan. However, the Group uses

various approaches to help mitigate risks relating to individual

credits, including transaction structure, collateral and guarantees.

Collateral and/or guarantees are usually required as a secondary

source of repayment in the event of a borrower’s default. The

main types of collateral for loans and advances to customers are

described under the section on collateral. Credit policy and credit

management standards are controlled and set centrally by the

Credit Risk function.

Occasionally, credit derivatives are purchased to hedge credit risk.

Current levels are minimal and their use is subject to the normal

credit approval process.

The Group enters into netting agreements for derivatives with

certain counterparties, to ensure that in the event of default, all

amounts outstanding with those counterparties will be settled on

a net basis. Derivative transactions with wholesale counterparties

are typically collateralised under a Credit Support Annex in

conjunction with the International Swaps and Derivatives

Association (“ISDA”) Master Agreement.

The Group also has in place an Interbank Exposure Policy which

establishes the maximum exposure for each counterparty bank,

depending on credit grade rating. Each bank is assessed for the

appropriate maximum exposure limit in line with the policy. Risk

generating business units in each segment are required to have

an approved bank and country limit prior to granting any credit

facility, or approving any credit obligation or commitment which

has the potential to create interbank or country exposure.

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Credit risk mitigants* continued

Collateral

Credit risk mitigation may include a requirement to obtain

collateral as set out in the Group’s lending policies. Where

collateral and/or guarantees are required, they are usually taken

as a secondary source of repayment in the event of a borrower’s

default. The Group maintains policies which detail the

acceptability of specific classes of collateral.

The principal collateral types for loans and advances are:

•Charges over business assets such as premises, inventory and

accounts receivable;

•Charges over other assets such as plant and machinery, marine

vessels etc.;

•Mortgage/legal charge over residential and commercial real

estate; and

•Charges over financial instruments such as debt securities

and equities.

The nature and level of collateral required depends on a number

of factors such as the type of the credit facility, the term of the

credit facility and the amount of exposure. Collateral held as

security for financial assets, other than for loans and advances,

is determined by the nature of the instrument. Debt securities and

treasury products are generally unsecured, with the exception of

asset backed securities, which are secured by a portfolio of

financial assets.

Collateral is not usually held against loans and advances to

banks, including central banks, except where securities are held

as part of reverse repurchase or securities borrowing transactions

or where a collateral agreement has been entered into under

a master netting agreement or where the bank purchases covered

bonds as part of its liquidity portfolio.

For non-mortgage/non-property lending, where collateral is taken,

it will typically include a charge over the business assets such as

inventory and accounts receivables. In some cases, a charge over

property collateral or a personal guarantee supported by a lien

over personal assets may also be taken. Where cash flows arising

from the realisation of collateral held are included in the expected

credit loss ("ECL") assessments, in many cases management rely

on valuations or business appraisals from independent external

professionals.

Methodologies for valuing collateral

Details on the valuation rule methodologies applied and

processes used to assess the value of property assets taken as

collateral are described in the Group Property Valuation Policy

and Property Valuation Guidance. Both documents are subject to

an annual review.

As property loans, including residential mortgages, represent

a significant concentration within the Group’s loans and advances

to customer’s portfolio, some key principles have been applied in

respect of the valuation of property collateral held by the Group.

The value of property collateral is assessed at loan origination

and at certain stages throughout the credit lifecycle in accordance

with the Group Property Valuation Policy e.g. at annual review

where required.

In accordance with the Group Property Valuation Policy and

guidelines, the Group employs a number of methods to assist in

reaching appropriate valuations for property collateral held:

*Forms an integral part of the audited financial statements

a.External valuation firms on the Group’s Valuers Panel, are

engaged by the Group to undertake valuations of immovable

property collateral in accordance with the rules set out in the

Group Property Valuation Policy.

b.Independent professional internal valuations are completed in

limited circumstances (e.g. agricultural land) using a desktop

valuation approach by professional qualified internal valuers

who are independent of the credit process in the second line of

defence. The assets being valued by this means must have an

independent professional external valuation completed within

the past 3 years.

c.Internal valuations are completed by first line of defence case

managers pursuant to the rules in the Property Valuation Policy

and in line with the Property Valuation Guidance, which

provides appropriate valuation methodology guidance. These

include the following valuation methodologies:

I.Index valuation approach – used for residential property;

II.Comparable valuation approach – a basic level of valuation

methodology used to value agricultural land or as a sense

check for the valuation of residential, commercial or

development land;

III.Commercial investment valuation approach – used for the

valuation of commercial property using the Group’s

commercial investment yield matrices;

IV.Residual valuation approach – used for the valuation of

development land or land with development potential; and

V.Profits valuation approach – used for the valuation of

trading assets i.e. hotels, licensed, convenience stores etc.

using the Group’s stabilized EBITDA matrices.

Collateral and ECLs

Applying one or a combination of the above methodologies, in

line with the Group Property Valuation Policy, has resulted in an

appropriate range of discounts to original collateral valuations,

influenced by the nature, status and year of purchase of the asset.

The frequency and availability of such up-to-date valuations

remain a key factor in ECL determination. Additionally, relevant

costs likely to be associated with the realisation of the collateral

are taken into account in the cash flow forecasts. The spread of

discounts is influenced by the type of collateral, e.g. land,

developed land or investment property and also its location.

The valuation arrived at, is therefore, a function of the nature

of the asset.

When assessing the level of ECL allowance required for property

loans, apart from the value to be realised from the collateral, other

cash flows, such as recourse to other assets or sponsor support,

are also considered, where available. The other key driver is the

time it takes to receive the funds from the realisation of collateral.

While this depends on the type of collateral and the stage of its

development, the period of time to realisation is typically one to

five years but sometimes this time period is exceeded. These

estimates are periodically reassessed on a case by case basis.

When undertaking an ECL review for individually assessed cases

that have been deemed unlikely to pay, the present value of future

cash flows, including the value of collateral held, and the likely

time required to realise such collateral is estimated. An ECL

allowance is raised for the difference between this present value

and the carrying value of the loan.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Credit risk mitigants* continued

Summary of risk mitigants by selected portfolios

Set out below are details of risk mitigants used by the Group in relation to financial assets detailed in the maximum exposure to credit

risk table on page 92.

Loans and advances to customers - residential mortgages

The following table shows the estimated fair value of collateral held for the Group’s residential mortgage portfolio at 31 December 2022

and 2021:


					2022					2021
	At amortised cost					At amortised cost
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Fully collateralised(1)
Loan-to-value ratio:
Less than 50%	15,109	691	375	45	16,220	13,192	703	447	35	14,377
50% – 70%	9,340	375	176	31	9,922	8,657	486	237	39	9,419
71% – 80%	2,288	56	40	5	2,389	3,843	158	86	13	4,100
81% – 90%	1,452	15	12	1	1,480	1,040	54	51	8	1,153
91% – 100%	123	6	11	—	140	102	19	51	1	173
	28,312	1,143	614	82	30,151	26,834	1,420	872	96	29,222
Partially collateralised
Collateral value relating to loans over 100% loan-to-value	43	9	12	—	64	61	18	28	1	108
Total collateral value	28,355	1,152	626	82	30,215	26,895	1,438	900	97	29,330

Gross residential mortgages	28,396	1,158	638	87	30,279	26,937	1,446	921	103	29,407
ECL allowance	(40)	(38)	(196)	(9)	(283)	(34)	(41)	(276)	(31)	(382)
Net residential mortgages	28,356	1,120	442	78	29,996	26,903	1,405	645	72	29,025

(1) The value of collateral held for residential mortgages which are fully collateralised has been capped at the carrying value of the loans outstanding at each

year end.

For residential mortgages, the Group takes collateral in support of

lending transactions for the purchase of residential property.

Collateral valuations are required at the time of origination of each

residential mortgage. The value at 31 December 2022 and 2021 is

estimated based on property values at origination or date of latest

valuation and applying the CSO Residential Property Price Index

(Republic of Ireland) and Nationwide House Price Index (Great

Britain & Northern Ireland) to these values to take account of price

movements in the interim.

Securities financing

In addition to the credit risk mitigants outlined on the previous

pages, the Group, from time to time, enters securities financing

transactions. Securities financing consists of securities borrowing,

securities lending, sale agreements and repurchase agreements.

At 31 December 2022, the total fair value of the collateral received

was € 6,282 (2021: € 3,890 million) in relation to repurchase

agreements, reverse repurchase agreements and securities

borrowing agreements (note 22).

*Forms an integral part of the audited financial statements

Derivatives

Derivative financial instruments are recognised in the statement of

financial position at their fair value. Those with a positive fair value

are reported as assets which at 31 December 2022 amounted to

€ 2,511 million (2021: € 882 million) and those with a negative fair

value are reported as liabilities which at 31 December 2022

amounted to € 2,982 million (2021 2,220 million at 31 December

2022 (2021: € 529 million). The Group also has Credit Support

Annexes (“CSAs”) in place which provide collateral for derivative

contracts. At 31 December 2022, € 795 million (2021: € 570

million) of CSAs are included within financial assets as collateral

for derivative liabilities and € 245 million (2021: € 100 million) of

CSAs are included within financial liabilities as collateral for

derivative assets (note 39 to the consolidated financial

statements). Additionally, the Group has agreements in place

which may allow it to net the termination values of cross currency

swaps upon occurrence of an event of default.

Investment securities

At 31 December 2022, government guaranteed senior bank debt

which amounted to € 259 million (2021: € 317 million) was held

within the investment securities portfolio.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements*

Introduction

The Group has set out the methodologies used and judgements

exercised in determining its expected credit loss (“ECL”)

allowance for the year to 31 December 2022.

The Group, in estimating its ECL allowance does so in line with

the expected credit loss impairment model as set out by the

International Financial Reporting Standard 9 Financial Instruments

(“the standard”). This model requires a timely recognition of ECL

across the Group. The standard does not prescribe specific

approaches to be used in estimating ECL allowance, but stresses

that the approach must reflect the following:

•An unbiased and probability weighted amount that is determined

by evaluating a range of possible outcomes;

•Underlying models should be point in time and forward looking –

recognising economic conditions;

•The ECL must reflect the time value of money;

•A lifetime ECL is calculated for financial assets in Stages 2 and

3 and Purchased or Originated Credit Impaired (“POCI”); and

•The ECL calculation must incorporate reasonable and

supportable information that is available without undue cost or

effort at the reporting date about past events, current conditions

and forecasts of future economic conditions.

The standard defines credit loss as the difference between all

contractual cash flows that are due to an entity in accordance with

the contract and all the cash flows that the entity expects to

receive (i.e. all cash shortfalls), discounted at the original effective

interest rate (“EIR”) or an approximation thereof.

ECLs are defined in the standard as the weighted average of

credit losses across multiple macroeconomic scenarios, with

weights assigned based on the probability of each scenario

occurring and are an estimate of credit losses over the life of

a financial instrument.

The ECL model applies to financial instruments measured at

amortised cost or at fair value through other comprehensive

income. In addition, the ECL approach applies to lease

receivables, loan commitments and financial guarantee contracts

that are not measured at fair value through profit or loss.

A key principle of the ECL model is to reflect any relative

deterioration or improvement in the credit quality of financial

instruments occurring (e.g. change in the risk of a default).

The ECL amount recognised as a loss allowance or provision

depends on the extent of credit deterioration since initial

recognition together with the impact on credit risk parameters.

Bases of measurement

Under the standard, there are two measurement bases:

1.12-month ECL (Stage 1), which applies to all financial

instruments from initial recognition as long as there has been

no significant increase in credit risk; and

2.Lifetime ECL (Stages 2 and 3 and POCI), which applies when

a significant increase in credit risk has been identified on an

account (Stage 2), an account has been identified as being

credit-impaired (Stage 3) or when an account meets the POCI

criteria.

Staging

Financial assets are allocated to stages dependent on credit

quality relative to when assets were originated.

*Forms an integral part of the audited financial statements

Credit risk at origination

Credit risk at origination (“CRAO”) is a key input into the staging

allocation process. The origination date of an account is

determined by the date on which the Group became irrevocably

committed to the contractual obligation and the account was first

graded on an appropriate model.

For undrawn credit facilities, the Group uses the date of

origination as the date when it becomes party to the irrevocably

contractual arrangements or irrevocable commitment. For

overdrafts which have both drawn and undrawn components, the

date of origination is the same for both.

The Group uses best available information for facilities which

originated prior to a credit risk rating model or scorecard being in

place.

For accounts that originated prior to 1 January 2018, a neutral

view of the macroeconomic outlook at the time is used, i.e. where

macroeconomic variables are used in the Lifetime PD models,

long-run averages are used instead of historical forecasts.

Stage 1 characteristics

Obligations are classified Stage 1 at origination, unless POCI, with

a 12 month ECL being recognised. These obligations remain in

Stage 1 unless there has been a significant increase in credit risk.

Accounts can also return to Stage 1 if they no longer meet either

the Stage 2 or Stage 3 criteria, subject to satisfaction of the

appropriate probation periods, in line with regulatory

requirements.

Stage 2 characteristics

Obligations where there has been a ‘significant increase in credit

risk’ (“SICR”) since initial recognition but do not have objective

evidence of credit impairment are classified as Stage 2. For these

assets, lifetime ECLs are recognised.

The Group assesses at each reporting date whether a significant

increase in credit risk has occurred on its financial obligations

since their initial recognition. This assessment is performed on

individual obligations rather than at a portfolio level. If the increase

is considered significant, the obligation will be allocated to Stage 2

and a lifetime expected credit loss will apply to the obligation. If

the change is not considered significant, a 12 month expected

credit loss will continue to apply and the obligation will remain in

Stage 1.

SICR assessment

The Group’s SICR assessment is determined based on both

quantitative and qualitative measures:

Quantitative measure: This measure reflects an arithmetic

assessment of the change in credit risk arising from changes in

the probability of default. The Group compares each obligation’s

annualised average probability weighted residual origination

lifetime probability of default (“LTPD”) (see ‘Credit risk at

origination’) to its current estimated annualised average

probability weighted residual LTPD at the reporting date. If the

difference between these two LTPDs meets the quantitative

definition of SICR, the Group transfers the financial obligation into

Stage 2. Increases in LTPD may be due to credit deterioration of

the individual obligation or due to macroeconomic factors or a

combination of both. The Group has determined that an account

had met the quantitative measure if the average residual LTPD at

the reporting date was at least double the average residual LTPD

at origination, and the difference between the LTPDs was at least

50bps or 85bps in the case of residential mortgages. The

appropriateness of this threshold is kept under review by the

Group.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements* continued

Qualitative measure: This measure reflects the assessment of

the change in credit risk based on the Group’s credit management

and the individual characteristics of the financial asset. This is not

model driven and seeks to capture any change in credit quality

that may not be already captured by the quantitative criteria. The

qualitative assessment reflects pro-active credit management

including monitoring of account activity on an individual or portfolio

level, knowledge of client behaviour, and cognisance of industry

and economic trends.

The criteria for this Qualitative trigger include, for example:

•A downgrade of the borrower’s/facility’s credit grade reflecting

the increased credit management focus on these accounts; and/

•Forbearance has been provided and the account is within the

probationary period.

Lender assessed SICR triggers: The qualitative SICR criteria for

non-retail portfolio Stage 2 classification have been further

enhanced and embedded in the year. Further specific qualitative

SICR indicators have been identified in order to ensure

appropriate and timely identification of increased credit risk, which

when occur, trigger a SICR event.

The criteria for this lender assessed trigger include, for example:

•A post distressed restructure payment default occurs where the

borrower is neither in default nor forborne;

•A material adverse event has occurred for the borrower which

may impact the borrower’s ability to repay such as: adverse

publicity which raises concerns over the viability of a business;

loss of key personnel (CEO/CFO/COO) which raises concerns

over the strategy/viability of the business or significant negative

macroeconomic events (including but not limited to economic or

market volatility, changes in legislation and technological threats

to an industry, changes in access to markets) where the

financial impact to the borrower is deemed material.

Backstop indicators: The Group has adopted the rebuttable

presumption within IFRS 9 that loans greater than 30 days past

due represent a significant increase in credit risk.

Where SICR criteria are no longer a trigger, the account can exit

Stage 2 and return to Stage 1.

Stage 3 characteristics

Defaulted loans (with the exception of newly originated loans that

are in Stage 1 or POCI) are classed as credit impaired and

allocated to Stage 3. Where default criteria are no longer met, the

borrower exits Stage 3 subject to probation period, in line with

regulatory requirements.

The key criteria resulting in a classification of default are:

•Where the Group considers a borrower to be unlikely to pay

their loans in full without realisation of collateral, regardless of

the existence of any past-due amount; or

•The borrower is 90 days or more past due on any material loan

(day count starts when any material amount of principal, interest

or fee has not been paid by a borrower at the date it was due).

Identification of non-performing exposures and unlikeliness to pay

are included in the Group’s Definition of Default and Credit

Impairment Policy.

Purchased or originated credit impaired (“POCI”)

POCIs are assets originated credit impaired and that have a

discount to the contractual value when measured at fair value.

The Group uses an appropriate discount rate for measuring ECL

in the case of POCIs which is the credit-adjusted effective interest

rate. This rate is used to discount the expected cash flows of such

assets to fair value on initial recognition.

POCI obligations remain outside of the normal stage allocation

process for the lifetime of the obligation. The ECL for POCI

obligations is always measured at an amount equal to lifetime

expected credit losses. The amount recognised as a loss

allowance for these assets is the cumulative change in lifetime

expected credit losses since the initial recognition of the assets

rather than the total amount of lifetime expected credit losses.

Measurement of expected credit loss

The measurement of ECL is estimated through one of the

following approaches:

i.Standard approach: This approach is used for the majority of

exposures where each ECL input parameter (Probability of

Default – PD, Loss Given Default – LGD, Exposure at Default –

EAD, and Prepayments – PP) is developed in line with

standard modelling methodology. The Group’s IFRS 9 models

have been developed and approved in line with the Group’s

Model Risk Management Framework. (An overview of credit

risk models is outlined on pages 82 and 83).

ii.Simplified approach: For portfolios not on the standard

approach, the Group has followed a simplified approach. This

approach consists of applying portfolio level ECL averages,

drawn from similar portfolios, where it is not possible to

estimate individual parameters. These generally relate to

portfolios where specific IFRS 9 models have not been

developed due to immateriality, low volumes or where there are

no underlying grading models. As granular PDs are not

available for these portfolios, a non-standard approach to

staging is required with reliance on the qualitative criteria

(along with the 30 days past due back-stop)

iii.Discounted cash-flows (“DCFs”): Assets are grouped together

and modelled based on asset classification and sector with the

exception of those Stage 3 assets where a DCF is used. DCFs

are used as an input to the ECL calculation for Stage 3 credit

impaired exposures where gross credit exposure is ≥ € 1

million (Republic of Ireland) or ≥ £ 500,000 (UK). Multiple DCFs

are captured where gross credit exposure is ≥ € 5 million

(Republic of Ireland) or ≥ £ 5 million (UK) or cases in scope for

the Group Leveraged Lending Policy, to reflect the case

specific impacts of up and downside scenarios for these higher

value exposures.Collateral valuations and the estimated time

to realisation of collateral is a key component of the DCF

model. The Group incorporates forward looking information in

the assessment of individual borrowers through the credit

assessment process. Where a single DCF is utilised this

assessment produces a base case ECL. This is then adjusted

to incorporate the impact of multiple scenarios on the base

ECL, by using a proportional uplift obtained from ECL modelled

sensitivities in the same/similar portfolio. Where a range of

scenarios are captured through multiple DCFs these are

probability weighted to produce the final ECL. An adjustment is

made for cases with very low final ECL to ensure a minimum

level of ECL is maintained, this is derived through reference to

ECL model outputs.

iv.Management judgement: Where the estimate of ECL does not

adequately capture all available forward looking information

about the range of possible outcomes, or where there is a

significant degree of uncertainty, management judgement may

be considered appropriate for an adjustment to ECL. The

management adjustment must consider all relevant and

supportable information, including but not limited to, historical

data analysis, predictive modelling and management experience.

The methodology to incorporate the adjustment should consider

the degree of any relevant over collateralisation (headroom) and

should not result in a zero overall ECL unless there is sufficient

headroom to support this. The key judgements in the 2022 year

end ECL estimates are outlined on pages 90 and 91.

*Forms an integral part of the audited financial statements

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2.1 Credit risk

Measurement, methodologies and judgements* continued

Effective interest rate

The ECL must incorporate the time value of money discounted to

the reporting date using the effective interest rate (“EIR”)

determined at initial recognition or an approximation thereof.

•The Group uses an approximation approach based on the

account level interest rate when calculating ECL which is

applied to both drawn and undrawn commitments.

•This approach is subject to an annual assessment that all

approximations remain appropriate and do not result in a

material misstatement of the ECL.

•The Group has tested the appropriateness of using current

interest rates as an approximation for the discount rates

required for measuring ECLs. This testing determined that using

the current interest rates as the discount rates is an appropriate

approximation.

Policy elections and simplifications

Low credit risk exemption

The Group utilises practical expedients, as allowed by IFRS 9, for

the stage allocation of particular financial instruments which are

deemed ‘low credit risk’. This practical expedient permits the

Group to assume, without more detailed analysis, that the credit

risk on a financial instrument has not increased significantly since

initial recognition if the financial instrument is determined to have

‘low credit risk’ at the reporting date. The Group allocates such

assets to Stage 1.

Under IFRS 9, the credit risk on a financial instrument is

considered low if:

•the financial instrument has a low risk of default;

•the borrower has a strong capacity to meet its contractual cash

flow obligations in the near term; and

•adverse changes in economic business conditions in the longer

term may, (but will not necessarily) reduce the ability of the

borrower to fulfil its contractual cash flow obligations.

This low credit risk exemption is applied to particular assets within

the debt securities investment portfolio and for loans and

advances to banks, specifically, assets which have an internal

grade equivalent to an external investment grade rating (BBB-) or

higher.

If an asset does not meet the above criteria for the low credit risk

exemption, further assessment is required to determine stage

allocation. If such assets are on a watch list, they are allocated to

Stage 2.

Short term cash

The Group’s IFRS 9 Impairment Policy does not require

calculation of an ECL for short term cash at central banks and

other banks which have a low risk of default with a very low risk

profile. The calculation of the ECL at each reporting date would be

immaterial given these exposures’ short term nature and their

daily management.

Lease receivables and trade receivables

For lease receivables, the Group has elected to use its standard

approach for both stage allocation and the ECL calculation and

has elected to use an expedient (simplified approach) for trade

receivables.

IFRS 9 ECL Credit Risk models

The IFRS 9 ECL models provide the risk parameters which are

the inputs into the model driven estimate of ECL which is used

across all Stage 1 and Stage 2 portfolios plus all non-DCF Stage

3 exposures.

*Forms an integral part of the audited financial statements

IFRS 9 Portfolio Delineation

The IFRS 9 models are delineated into retail and non-retail

portfolios. The retail IFRS 9 portfolios provide exposure level risk

parameter estimates which take into account borrower level

characteristics and metrics where appropriate, whilst the non-retail

portfolios provide metrics which are either borrower or connection

level estimates.

Probability of default

Probability of default (“PD”) is the likelihood that an account or

borrower defaults over an observation period, given that they are

not currently in default, for each year of the expected contractual

lifetime of the exposure. The PD is a point in time estimate which

is reflective of the current and expected economic conditions.

In order to capture the appropriate risk dynamics across the

lifetime of the exposure the development process considers:

•Macroeconomic effects captured through factors such as

unemployment rate and GDP;

•Cross-sectional risk discriminators in particular the internal

rating model outputs plus other factors such as forbearance and

days past due; and

•Seasoning factors such as product type, delinquency and

forbearance status.

Loss given default

Loss given default (“LGD”) is a current assessment of the amount

that will not be recovered in the event of default, taking account of

future conditions. It can be thought of as the difference between

the amount owed to the Group (i.e. the exposure) and the net

present value of future cash flows less any relevant costs

expected to be incurred in the recovery process. If an account

returns to performing from default (excluding any loss making

concession) or if the discounted post-default recoveries are equal

to or greater than the exposure, the realised loss is zero.

The LGD modelling approach depends on whether the facility has

underlying security and, if so, the nature of that security. The

following sets out the general approaches for the retail and non-

retail portfolios:

–Retail portfolios

For unsecured loans, a cash flow curve, which estimates the

cumulative cash received following default until the loan is written-

off or returns to performing, is used to estimate the future recovery

amount. This is discounted at the effective interest rate and

compared to the current outstanding balance. Any shortfall

between the recovery amount and the outstanding balance is the

LGD used to estimate ECL. Where appropriate, this may then be

adjusted to reflect economic conditions.

For secured loans the following may be considered:

•The value of underlying collateral is estimated at the

forecasted time of disposal (taking into account forecasted

market price growth/falls and haircuts on market values that

are expected at the date of sale plus associated costs) in

order to calculate the future recovery amount;

•The potential for the exposure to be deleveraged through a

portfolio sale taking into account the costs associated with

same; and

•Paths for returning to the performing portfolios such as

forbearance and self-cure.

–Non-retail portfolios

For unsecured loans, characteristics such as borrower sector

and nature of collateral linked to affiliated accounts under the

same customer group are used to determine future losses

based on historical experience of discounted recoveries.

For secured loans, the value of the underlying collateral is

estimated at the reporting date. This is used to estimate the

ECL based on historical experience of discounted recoveries.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements* continued

Exposure at default

Exposure at default (“EAD”) is defined as the exposure amount

that will be owed by a customer at the time of default. This will

comprise changes in the exposure amount between the reporting

date and the date that the customer defaults. This may be due to

repayments, interest and fees charged and additional drawdowns

by the customer.

Prepayments

For term credit products, prepayment occurs where a customer

fully prepays an account prior to the end of its contractual term.

For revolving credit products, ‘prepayment’ is defined as the

cessation of use and withdrawal of the facility provided that the

account was not in default prior to closure.

Prepayment is used in the lifetime ECL calculation for Stage 2

loans to account for the proportion of the facilities/customers that

prepay each year.

Determining the period over which to measure ECL

Both the origination date and the expected maturity of a facility

must be determined for ECL purposes. The origination date is

used to measure credit risk at origination.

The expected maturity is used for assets in Stage 2, where the

ECL must be estimated over the remaining life of the facility.

The expected maturity approach is:

•Term credit products: the contractual maturity date, with

exposure and survival probability adjusted to reflect behaviour

i.e. amortisation and prepayment;

•Revolving credit products: the period may extend beyond the

contractual period over which the Group is exposed to credit

risk, e.g. overdrafts and credit cards. The Group’s approach for

these is to assume an appropriate remaining term based on the

characteristics of the portfolio.

Forward looking indicators in the models

For ECL calculations reliant on models in the standard and

simplified approaches, forward looking indicators are incorporated

into the models through the use of macroeconomic variables.

These have been identified statistically as the key macroeconomic

variables that drive the parameter being assessed (e.g. PD or

LGD). The final model structure incorporates these as inputs with

the 12 month and lifetime calculations utilising the macroeconomic

forecasts for each scenario. See ‘macroeconomic scenarios and

weightings’ section for more detail on the process for generating

scenarios and associated key macroeconomic factors relevant for

the models. In circumstances where there is a risk that the

modelled output fails to capture the appropriate response to

changes in the macroeconomic environment such as inflation and

interest rate changes, these risks are captured through the use of

post model adjustments.

*Forms an integral part of the audited financial statements

Write-offs

When the prospects of recovering a loan, either partially or fully,

do not improve, a point may come when it will be concluded that

as there is no realistic prospect of recovery, the loan and any

related ECL will be written-off. The Group determines, based on

specific criteria, the point at which there is no reasonable

expectation of recovery. When the following criteria exist (or

comparable circumstances arise), the loan can be subject to a

partial or full write-off:

•A decision has been taken to enforce on a loan, due to no

agreement with the customer for a restructure / settlement and

all customer engagement with the Bank regarding their loan

agreement has ceased;

•Inception of informal insolvency proceedings has commenced or

is about to commence;

•Receivership or other formal recovery action (e.g. where

expectation of recovery of collateral is expected through

enforcement activity but no additional recoveries above the

collateral value are anticipated) has commenced or is about to

commence; and

•A loan is substantially provided for or no material repayments

have been received for a period of time (minimum 12 months)

and all customer engagement with the Bank regarding their loan

agreement has ceased.

Debt forgiveness may subsequently arise where there is a formal

contract with the customer for the write-off of the loan. In addition,

certain forbearance solutions and restructuring agreements may

include an element of debt write down (debt forgiveness). Details

of forbearance are set out in Risk management 2.1 Additional

credit quality and forbearance disclosures on loans and advances

to customers.

The contractual amount outstanding of loans written-off during the

year that are still subject to enforcement activity are outlined on

page 117 and relate to non-contracted write-offs, both full and

partial. The Group recognises cash received from the customer in

excess of the carrying value of the loan after a non-contracted

write-off as ‘recoveries of amounts previously written-off’ in the

income statement.

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Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements* continued



	Critical Judgements during the year: •ECL allowance stock relating to post model adjustments (PMAs) has increased by € 54 million in the year to € 608 million. ECL allowance stock relating to PMAs as a percentage of total ECL stock is 37% (2021: 29%). New PMAs in the year seek to capture potential impacts due to inflationary and interest rate pressures including elevated probability of default in performing commercial real estate exposures and an increase in ECL stock relating to non-legacy NPE exposures reflecting the economic uncertainty. Further details are outlined in the management judgements section on pages 90 and 91. •Despite recovering strongly following the COVID-19 recession, the Irish economy has been impacted through the course of 2022 by a number of headwinds affecting the global economy which are likely to weigh on the outlook (Base scenario) in 2023 and 2024. These include higher inflation and interest rates, tight labour markets, supply chain bottlenecks, a less supportive fiscal stance and further, albeit less severe, waves of COVID-19 infections. Against this backdrop, the economies in which the Group operates are projected to grow at more modest rates over the next two years (the UK is an exception as a mild recession is expected in 2023 and 2024) with a gradual rise in unemployment rates in prospect. Inflationary pressures in these markets should dissipate somewhat in 2023 but are unlikely to revert toward the 2% target rate set by central banks until 2025 onwards. •The Group is of the view that risks to the economic outlook are firmly tilted to the downside and, for the purposes of IFRS 9 ECL reporting, has applied the following weightings for year-end 2022 with Base 45% (change -5% compared to year-end 2021), Moderate Upside 10% (change -10%), Moderate Downside 30% (change +5%) and Severe 15% (change +10%). Further details are outlined in the macroeconomic scenarios and weightings section below. •The Group’s sensitivity analysis to the macroeconomic scenario weightings are outlined on page 89. Under the 100% downside ‘Energy shock and persistently high inflation’ scenario, this would result in a 15% increase compared to the reported ECL allowance stock.

Macroeconomic scenarios and weightings

The macroeconomic scenarios used by the Group for ECL

allowance calculation purposes have been developed in a

consistent way with that set out in the 2021 Annual Financial

Report and have been subject to the Group’s established

governance process covering the development and approval of

macroeconomic scenarios used for planning and internal stress

testing purposes. The macroeconomic scenarios and attached

probabilities are reviewed by the Asset and Liability Committee

(“ALCo”) regularly, and such reviews took place frequently during

2022 in response to economic developments. The

macroeconomic scenarios are then reviewed by the Board Risk

Committee (“BRC”) and approved for use by the Board. The

scenario probabilities are approved by the Board Audit Committee

(“BAC”).

The parameters used within the Group’s ECL models include

macroeconomic factors which have been established as drivers of

the default risk and loss estimates. Therefore, a different credit

loss estimate is produced for each scenario based on a

combination of these identified macroeconomic factors. The credit

loss estimates for each scenario are then weighted by the

assessed likelihood of occurrence of the respective scenarios to

yield the ECL outcome.

Macroeconomic scenarios:

Following the Russian invasion of Ukraine in February 2022,

global energy and food commodity prices surged. This intensified

pre-existing inflationary pressures caused by supply bottlenecks in

many economies as they recovered following the lifting of

COVID-19 restrictions. Against this background, the greatest risk

to the outlook (Base scenario) is for persistently elevated inflation

coupled with higher interest rates which depress economic

activity. A range of possible scenarios has been considered in

formulating the ECL calculation, as at the financial reporting date.

These entail credible risks and uncertainties to the economic

outlook including inter alia possible energy supply rationing, a

deterioration in financial conditions, renewed short waves of

COVID-19 infections, as well as a prolonged period of elevated

inflation – all possible triggers of a future economic downturn.

*Forms an integral part of the audited financial statements

AIB have used four scenarios in the ECL calculation consisting of

a base scenario, along with three alternative scenarios. These

consist of one upside; a mild downside scenario entailing

disruptions to energy supplies and a re-emergence of the

COVID-19 virus; while a more severe downside considers a cut-

off of Russian gas supplies to Europe with persistently high

inflation which necessitates a hike in official interest rates. Non-

linear effects are captured in the development of risk parameters

as well as through the inclusion of both the single upside and two

downside scenarios.

The Group’s Economic Research Unit (“ERU”) provide the

scenario forecasts over five years. These are then independently

reviewed and challenged, on both a quantitative and qualitative

basis, by the Group Risk function. The Base case is benchmarked

against the outlook available from official sources (e.g. Central

Bank of Ireland, Bank of England, Department of Finance, ESRI,

ECB, IMF, etc.) to ensure it is appropriate. Upside and downside

scenarios, relative to the Base case, are provided to ensure a

reasonable range of possible outcomes is available for the IFRS 9

process. These scenarios are benchmarked to alternative

scenarios from official sources, where possible. The longer term

economic projections (beyond five years) are sourced from a

reputable external provider with the internal scenarios converging

on a linear basis towards the external forecasts from years 5 to 8.

External long term forecasts represent long term base line

forecasts for the parameter/economy in question. The forecasted

scenarios are kept under review by the Group ALCo and

approved by the Board.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements* continued

Macroeconomic scenarios and weightings continued

The long term projections reflect the relatively limited climate

change mitigation policies, mainly comprising the continued

gradual substitution of gas for coal, that have been announced so

far. Without significantly enhanced mitigating actions, the world is

on course to warm by about 2°C above pre-industrial levels by

2050. The AIB long term baseline scenario seeks to follow the

IEA’s “stated policies” scenario and implies emissions remaining

roughly constant. The Group participated in the ECB Climate

Stress Tests in early 2022; it was evident that the scale of the

economic shocks applied was quite modest compared to those

applied in stress testing for ICAAP and ECL calculations. The

impacts considered under this ECB Climate Stress Test process

will be repeated every second year. The nature of the shock is

different with a long term horizon compared to front loaded shocks

as part of quarterly stress tests.

The scenarios used for the year-end ECL process are described

below and reflect the views of the Group as at the reporting date.

Base case: A combination of a very sharp acceleration in inflation,

partly owing to the war in Ukraine, and marked tightening of

monetary policy & financial conditions has seen a pronounced

slowdown in global growth in 2022, which is expected to extend

well into 2023. The economic backdrop has become far more

challenging as we move into a period of weak growth, elevated

inflation and rising interest rates. As a result, global growth

forecasts for 2022-23 have been scaled back significantly from

earlier in the year.

The Base scenario assumes very weak GDP growth in the US

and Euro Area of 0.7% and 0.5% respectively in 2023, with the

latter seeing a technical recession. The UK economy is expected

to contract by 1.0% in 2023. As a small open economy, in line with

this global trend, Ireland is expected to see growth moderating

albeit remaining relatively strong given a continued favourable

product mix in its large multi-national sector. Overall Irish GDP

growth of 4% is projected, which is somewhat below most official

forecasts reflecting a higher inflation projection by AIB.

A moderate pick-up in global growth is anticipated from 2024

onwards (boosted by real household incomes and easing financial

conditions) which will mean a continued solid expansion for the

Irish economy where average GDP growth of close to 4% is

assumed for 2024 and 2025. The UK market will remain weak

however (contraction in both 2023 and 2024) with the economy

recovery delayed until 2025.

House price growth in Ireland is expected to moderate

significantly over the forecast period but remain positive due to the

ongoing supply shortfall, high savings and a relatively strong

labour market. By comparison the UK housing market is expected

to contract as the sharp increase in interest rates and reduction in

disposable incomes take hold. Given the challenges it faces, most

especially from remote working, both Irish and UK Commercial

property prices are forecast to contract sharply in 2023 (by 9%

and 8% respectively).

Unemployment is expected to rise only moderately over the period

2023 to 2025, as most labour markets are characterised by a

shortage of workers and high job vacancies. For Ireland the

unemployment rate is expected to remain in a low range of

4.5-5.0% over the period 2022-27.

*Forms an integral part of the audited financial statements

The combination of weakening activity and positive base effects,

should see Irish inflation fall back to circa 2% by end 2024.

Although a similar trajectory is expected in the major economies,

with inflation still running above levels they are comfortable with,

Central Banks are expected to continue to hike interest rates

aggressively into 2023, hitting 3.5% in the Euro Area and 4.75% in

the UK.

Downside 1 (‘Lower growth in 2023’): In the AIB Moderate

Downside scenario, risks to growth prove to have a more negative

impact on activity than provided for in the Base scenario. For

Ireland these are primarily driven by global conditions. In

particular, the war in Ukraine has a more significant impact on

growth than expected, with ongoing disruptions of gas supplies to

Europe from Russia. There are continuing short waves of

COVID-19 infections necessitating some restrictions on activity,

most notably in China.

As a result, the major economies all experience a significant

recession in 2023, with the downturn continuing in the UK in 2024.

This is followed by a sluggish recovery in activity. In Ireland’s

case, GDP growth slows sharply to 2.5% in 2023 and 2024. There

is a marked rise in unemployment everywhere, climbing to circa

7.5% in both the UK and Ireland during 2025.

There are significant falls in property prices. House prices in

Ireland & the UK decline by circa 9% and 15%, respectively, over

the 2023-2024 period. There are even bigger falls in commercial

property prices of circa 16% in both markets in 2023-24.

Interest rates peak at the end of 2022, with central banks

implementing rate cuts in 2023-24 on the view that leaving policy

unchanged would see inflation fall to 2% by end 2024 onwards.

Rates are cut to 0.5% in the Euro Area/UK and circa 0.63% in

the US.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk continued

Measurement, methodologies and judgements* continued

Macroeconomic scenarios and weightings continued

Downside 2 (‘Energy shock and persistently high inflation’):

Under the second downside scenario, the war in Ukraine has a

much more severe impact on global economic activity than

anticipated. Inflation stays very high in 2023-2024 with ongoing

interruptions in European gas imports from Russia, continuing

disruptions to global supply chains, greater second round price

effects and wage inflation picking up. Central banks are forced

into a very sharp tightening of monetary policy. Conditions in

financial markets tighten further, with a surge in bond yields, blow

out in credit spreads and more sharp falls on stock markets.

Emerging markets come under severe pressure in particular.

The combination of energy and financial market shocks as well as

the very sharp tightening of monetary policy triggers a severe

global recession in 2023-24. The main economies see GDP

decline by circa 2% in 2023 and 2.0-2.5% in 2024. Irish GDP

growth slows to 1.0-1.5% in 2023-24 and is 6.3% lower by 2025

than in Base scenario. There is a moderate pick up in global

activity from 2025.

Unemployment rates rise to very high levels in the main

economies with Irish unemployment increasing sharply to 10% by

end 2025 and remaining high in 2026-2027. In line with the global

trend, Irish inflation remains high in the initial period (8% in 2023 V

5.2% in base) before graduating to 2.0% in 2026 due to the

slowdown in economic activity led by the tighter financial

conditions.

The sharp fall in economic activity and confidence levels imply

very large property price falls in Ireland and the UK. Irish and UK

residential property prices fall by 24% and 29%, respectively,

between 2023 and early 2025 and are circa 26-28% lower versus

the Base scenario by 2025. CRE prices in Ireland and the UK fall

by circa 35-36% in the period 2023-25.

Central banks raise rates to 5.25-5.38% in the UK and US and

4.0% in the Euro Area in the first half of 2024. Inflation falls back

in the second half of 2024 allowing central banks to lower rates

aggressively. Rates do not return to previous lows as inflation

settles around its 2% target in 2025-26. Thus, rates come down to

1% in the Euro Area/UK and circa 1.13% in the US, some 250 to

300 basis points below the levels assumed in the Base scenario.

Upside (‘Quick economic recovery’): In the upside scenario, the

key assumptions consist of a combination of a relatively quick

cessation of hostilities in Ukraine in early 2023 coupled with an

accelerated deployment of vaccines globally which brings about a

quicker than expected suppression of the coronavirus. In addition,

a strong rebound in business and consumer confidence facilitates

a rundown of personal and corporate savings. The confluence of

these developments helps boost global growth and consequently

this feeds into the Irish economy.

In this scenario, GDP is some 3.2% higher in most economies

than in the base case by 2025. Irish GDP growth averages 5%

over the period 2023-2025 before returning to more moderate

rates of growth (3-4%) over 2026-27. As a result, unemployment

falls further reaching 3.6% on 2026-27 (5.0% in base). With a

stronger economy, inflation goes even higher and is slower to

decline than in the base case, only getting back to 2% in 2027.

With the stronger growth in economic activity, Irish and UK

property prices perform much better than in the base case

scenario. Irish house price rise by 4-5% per annum over 2023-25,

with UK prices up 2-3%. Meanwhile, Commercial property prices

rise by circa 3% per annum over 2023-2025 in both countries.

Central banks hike rates at a quicker pace than in the base. Rates

rise to circa 5.13%% in the US, 5% in the UK and 3.75% in the

Euro Area.

The table below sets out the five year average forecast for each of

the key macroeconomic variables that are required to generate

the scenarios or are material drivers of the ECL under (i) Base, (ii)

Downside 1, (iii) Downside 2 and (iv) Upside scenarios at 31

December 2022 (average over 2023-2027) and at 31 December

2021 (average over 2022-2026).


	December 2022 5 year (2023-2027) average forecast				December 2021 5 year (2022-2026) average forecast
Macroeconomic factor (%)	Base	Downside 1 (‘Lower growth in 2023’)	Downside 2 (‘Energy shock and persistently high inflation’)	Upside (‘Quick economic recovery’)	Base	Downside 1 (‘Lower growth in 2022’)	Downside 2 (‘Persistent high inflation’)	Upside (‘Quick economic recovery’)
Republic of Ireland
GDP growth	3.6	3.4	2.6	4.3	3.8	3.4	2.6	4.5
Residential property price growth	2.5	0.2	(4.3)	3.8	2.9	1.4	(2.1)	5.0
Unemployment rate	5.0	6.8	8.5	3.9	5.7	9.7	11.9	4.8
Commercial property price growth	1.0	(1.6)	(6.6)	2.7	1.7	0.3	(4.6)	4.0
Employment growth	1.6	1.1	0.2	1.9	2.6	2.0	1.4	2.9
Average disposable Income growth	5.1	4.3	3.4	6.0	3.5	2.6	1.8	3.8
Inflation	2.7	2.7	3.9	3.5	1.7	1.3	2.4	2.2
United Kingdom
GDP growth	0.4	0.3	(0.3)	1.5	2.4	1.8	1.1	3.0
Residential property price growth	0.2	(1.6)	(5.7)	2.2	2.0	(0.1)	(3.7)	3.0
Unemployment rate	5.1	6.8	8.3	3.7	4.6	6.6	8.0	4.3
Commercial property price growth	0.2	(2.2)	(6.9)	2.6	1.5	(0.6)	(5.1)	3.6
Inflation	3.3	3.3	4.4	4.2	2.0	1.7	2.5	2.4

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements* continued

Macroeconomic scenarios and weightings continued

Additional information is provided in the table below which details the individual macroeconomic factor forecast for each year across the

four scenarios, at 31 December 2022.


	Estimate	Base					Downside 1 (‘Lower growth in 2023’)
Macroeconomic factor	2022 %	2023 %	2024 %	2025 %	2026 %	2027 %	2023 %	2024 %	2025 %	2026 %	2027 %
Republic of Ireland
GDP growth	8.0	4.0	3.7	4.0	3.5	3.0	2.5	2.5	3.5	4.0	4.5
Residential property price growth	5.0	2.5	2.5	2.5	2.5	2.5	(7.0)	(2.5)	5.0	3.0	2.5
Unemployment rate	4.6	4.8	5.0	5.0	5.0	5.0	5.6	6.8	7.4	7.5	7.0
Commercial property price growth	(3.5)	(9.0)	5.0	3.0	3.0	3.0	(12.5)	(4.5)	3.0	3.0	3.0
Employment growth	6.0	1.5	1.5	1.7	1.6	1.5	0.6	0.4	0.9	1.4	2.0
Average disposable income growth	3.5	6.5	5.3	4.7	4.6	4.5	5.0	4.0	4.0	4.0	4.5
Inflation	8.3	5.2	2.5	2.0	2.0	2.0	5.2	2.5	2.0	2.0	2.0
United Kingdom
GDP growth	4.3	(1.0)	(0.5)	0.6	1.3	1.5	(1.5)	(1.2)	0.8	1.5	1.7
Residential property price growth	4.5	(3.0)	(1.0)	1.0	2.0	2.0	(11.0)	(4.5)	1.5	3.0	3.0
Unemployment rate	3.9	4.6	5.2	5.5	5.3	5.0	5.5	6.7	7.5	7.5	7.0
Commercial property price growth	(3.5)	(8.0)	(2.0)	3.0	4.0	4.0	(12.5)	(4.0)	1.5	2.0	2.0
Inflation	9.2	7.5	3.0	2.0	2.0	2.0	7.5	3.0	2.0	2.0	2.0


	Downside 2 (‘Energy shock and persistently high inflation’)					Upside (‘Quick economic recovery’)
Macroeconomic factor	2023 %	2024 %	2025 %	2026 %	2027 %	2023 %	2024 %	2025 %	2026 %	2027 %
Republic of Ireland
GDP growth	1.0	1.5	2.5	3.5	4.5	5.5	4.5	5.0	3.7	3.0
Residential property price growth	(8.0)	(15.0)	(1.0)	1.0	1.5	5.0	4.5	4.0	3.0	2.5
Unemployment rate	6.0	7.8	9.3	10.0	9.5	4.3	4.1	3.8	3.6	3.6
Commercial property price growth	(17.0)	(18.5)	(4.0)	2.5	4.0	4.0	3.0	2.5	2.0	2.0
Employment growth	(0.1)	(0.9)	(0.6)	0.6	2.0	2.3	2.1	2.0	1.7	1.5
Average disposable Income growth	4.0	3.0	3.0	3.0	3.8	8.0	6.5	5.5	5.2	5.0
Inflation	8.0	5.0	2.5	2.0	2.0	6.0	4.0	3.0	2.5	2.0
United Kingdom
GDP growth	(2.3)	(2.5)	—	1.5	2.0	1.0	1.5	2.0	1.7	1.4
Residential property price growth	(14.0)	(16.0)	(1.0)	1.0	1.5	3.0	2.0	2.0	2.0	2.0
Unemployment rate	6.0	7.8	9.0	9.5	9.0	3.8	3.7	3.6	3.7	3.8
Commercial property price growth	(17.0)	(18.5)	(5.5)	2.5	4.0	3.5	3.0	2.5	2.0	2.0
Inflation	9.0	6.0	3.0	2.0	2.0	8.0	5.0	3.7	2.5	2.0

The key changes to the scenario forecasts in the reporting period

have been driven by the outbreak of war in Ukraine, following the

Russian invasion, in addition to mounting inflationary pressures

and monetary policy tightening by global central banks. The wider

economic impact of the war in Ukraine has generated elevated

uncertainty with respect to the economic outlook largely due to

concerns over energy security and a surge in pre-existing

inflationary pressures largely driven by much higher commodity

prices (in particular gas and raw foodstuffs). These developments

feed directly into the Irish economy and have resulted in

a significant re-assessment of the outlook and balance of risks

during 2022.

*Forms an integral part of the audited financial statements

The four scenarios detailed above are used to reflect a

representative sample of possible outcomes. The ECL allowance

reflects a weighted average of the credit loss estimates under the

four scenarios.

Similar to the scenario forecasts, the probability weight assigned

to each scenario is proposed by the ERU, with a review and

challenge from the Group Risk function. These are reviewed

regularly at Group ALCo and are subject to approval at Board

Audit Committee. The probabilities described below reflect the

views of the Group at the reporting date.

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2.1 Credit risk

Measurement, methodologies and judgements* continued

Macroeconomic scenarios and weightings continued

The weights for the scenarios are derived based on expert

judgement, with reference to external market information where

possible. Given the unprecedented nature and impact of

COVID-19 (‘cliff edge’ effect on economic activity), the standard

quantitative approaches, such as statistical distribution analysis

of Irish GDP growth over different time horizons informed by

historic patterns in the economic data, used to assess scenario

likelihoods are less useful than normal in this environment.

As a result, they have not been a key driver in determining the

selection of weightings at the reporting date.

These weightings are reviewed regularly by Group ALCo and

adjusted where required. The key drivers of the weightings are:

•The Base scenario assumptions were regularly benchmarked

against consensus projections which were subject to downward

revision in light of the weak global backdrop and downside risks

facing the macroeconomic outlook.

•Forecasts released in the closing months of 2022 from the IMF,

OECD, ECB, ESRI, Central Bank of Ireland and the Department

of Finance were close to the AIB projections. The AIB forecasts

remain on the conservative side of most recent external

benchmarks, especially in relation to Ireland. Most releases of

Irish economic data, have been trending stronger than our

forecasts. This includes variables such as GDP, Modified Final

Domestic Demand, unemployment and house prices.

•The balance of risks to the forecasts is still heavily skewed to

the downside with revisions to consensus forecasts for growth in

2023-2024 trending firmly downwards. Forecasters also

highlight that the balance of risks to their latest projections

remain tilted to the downside, with real concerns that the world

economy could be hit by recession in 2023 – the AIB moderate

downside and severe scenarios entail significant recessions in

the major economies and a significant departure from its trend

growth rate in the case of Ireland.

•The risk that inflation will prove slow to fall back remains a real

concern, which would pose a downside risk to Irish growth

prospects in 2023-24 in terms of an ongoing hit to real

disposable incomes and consumer spending. The war in

Ukraine has added to downside risks, especially in relation to

the flow of European gas supplies in 2023-24.

The weightings that have been applied as at the reporting date are:


Scenario	Weighting		Weighting
	December 2022		December 2021
Base	45%	Base	50%
Downside 1 (‘Lower growth in 2023’)	30%	Downside 1 (‘Lower growth in 2022’)	25%
Downside 2 (‘Energy shock and persistently high inflation’)	15%	Downside 2 (‘Persistent high inflation’)	5%
Upside (‘Quick economic recovery’)	10%	Upside (‘Quick economic recovery’)	20%

In assessing the adequacy of the ECL allowance, the Group has considered all available forward looking information as of the balance

sheet date in order to estimate the future expected credit losses. The Group, through its risk management processes (including the use

of expert credit judgement and other techniques) assesses its ECL allowance for events that cannot be captured by the statistical

models it uses and for other risks and uncertainties. The assessment of ECL at the balance sheet date does not reflect the worst case

outcome, but rather a probability-weighted outcome of the four scenarios. Should the credit environment deteriorate beyond the Group’s

expectation, the Group’s estimate of ECL would increase accordingly.

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements* continued

Sensitivities

The Group’s estimates of expected credit losses are responsive

to varying economic conditions and forward looking information.

These estimates are driven by the relationship between historic

experienced loss and the combination of macroeconomic

variables. Given the co-relationship of each of the macroeconomic

variables to one another and the fact that loss estimates do not

follow a linear path, a sensitivity to any single economic variable is

not meaningful. As such, the following sensitivities are provided

which indicate the approximate impact on the current ECL

allowance before the application of probability weights to the

forward looking macroeconomic scenarios. The sensitivities

provide an indication of ECL movements that include changes in

model parameters, quantitative ‘significant increase in credit

risk’ (“SICR”) staging assignments with post model adjustments

sensitivity predominantly reflected only where scenario specific

features form an integral part of the adjustment. Further details on

post model adjustments are outlined on pages 90 and 91.

Relative to the base scenario, in the 100% downside ‘Lower

growth in 2023’ and ‘Energy shock and persistently high inflation’

scenarios, the ECL allowance increases by 9% and 21%

respectively. In the 100% upside scenario, the ECL allowance

declines by 7%, showing that the ECL impact of the two downside

scenarios is greater than that of the upside scenario. For

31 December 2022, a 100% downside ‘Lower growth in 2023’ and

‘Energy shock and persistently high inflation’ scenario sees a

higher ECL allowance sensitivity of € 142 million and € 342 million

respectively compared to base (€ 56 million and € 256 million

respectively compared to reported).

Higher relative impacts are observed for the AIB UK portfolio

partly due to a scenario specific post model adjustment being

applied to reflect greater impact within the downside scenarios

than that currently observed, based on the deployed

macroeconomic scenarios.


	ECL allowance at 31 December 2022
	Reported	100% Base	100% Downside Scenario (‘Lower growth in 2023’)	100% Downside Scenario (‘Energy shock and persistently high inflation’)	100% Upside Scenario (‘Quick economic recovery’)
	Total	Total	Total	Total	Total
Loans and advances to customers	€ m	€ m	€ m	€ m	€ m
Residential mortgages	283	275	284	318	271
Other personal	177	175	179	185	173
Property and construction	320	298	331	385	282
Non-property business	838	790	878	977	711
Total	1,618	1,538	1,672	1,865	1,437
Off-balance sheet loan commitments	59	55	60	65	53
Financial guarantee contracts	19	17	20	22	13
	1,696	1,610	1,752	1,952	1,503
Of which:
AIB UK segment	245	214	259	336	196


	ECL allowance at 31 December 2021
	Reported	100% Base	100% Downside Scenario (‘Lower growth in 2022’)	100% Downside Scenario (‘Persistent high inflation’)	100% Upside Scenario (‘Quick economic recovery’)
	Total	Total	Total	Total	Total
Loans and advances to customers	€ m	€ m	€ m	€ m	€ m
Residential mortgages	382	376	392	434	370
Other personal	222	216	237	257	213
Property and construction	313	284	378	473	266
Non-property business	968	921	1,074	1,236	895
Total	1,885	1,797	2,081	2,400	1,744
Off-balance sheet loan commitments	53	49	63	80	45
Financial guarantee contracts	26	24	30	35	22
	1,964	1,870	2,174	2,515	1,811
Of which:
AIB UK segment	268	266	277	321	253

*Forms an integral part of the audited financial statements

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2.1 Credit risk

Measurement, methodologies and judgements* continued

Management judgements

Post model adjustments (PMAs) are applied where Management

believe that they are necessary to ensure an adequate level of

ECL provision and to address known model limitations and/or

emerging trends not captured in the models. All PMAs are

approved under the ECL governance process through which the

appropriateness of PMAs are considered against the backdrop of

the risk profile of the loan book, recent loss history or changes in

underlying resolution strategies not captured in the models and

Managements view of emerging trends.

The PMAs approved for 31 December 2022 (and 2021

comparison, where applicable), are set out below and categorised

as follows:

•NPE resolution – ECL adjustments where the current model

does not take into account alternative resolution strategies such

as portfolio sales and to ensure that downside risks are

appropriately incorporated into the final loss estimate.

•Emerging headwinds – ECL adjustments required where the

modelled outcomes are not sensitive to the uncertainties

associated with the impact of current emerging economic

headwinds.

•Macroeconomic factors – ECL adjustments reflecting a greater

impact from downside scenarios / timing of certain

macroeconomic factors.

•Other – ECL adjustments where it was judged that an

amendment to the modelled ECL was required


					2022
	Residential mortgages	Other personal	Property and construction	Non-property business	Total
Management Judgements	€ m	€ m	€ m	€ m	€ m
NPE resolution	140	—	37	73	250
Emerging headwinds	43	11	69	124	247
Macroeconomic factors	20	—	10	20	50
Other	—	—	—	61	61
PMA Total	203	11	116	278	608


					2021
	Residential mortgages	Other personal	Property and construction	Non-property business	Total
Management Judgements	€ m	€ m	€ m	€ m	€ m
NPE resolution	207	5	26	28	266
Uncertainty due to the impact of COVID-19	18	9	5	153	185
Macroeconomic factors	29	—	—	—	29
Other	1	—	1	72	74
PMA Total	255	14	32	253	554

NPE resolution

At 31 December 2022, the Retail Banking PMA mainly related to

mortgages which have been classified as non-performing for a

considerable length of time has been retained to reflect expected

outcomes from alternative strategies which may be adopted, such

as portfolio sales. LGD models are based on empirical internal

data assuming business as usual resolution and given that the

models do not account for alternative strategies, post model

adjustments have been applied to reflect the potential outcomes,

pending model redevelopment.

The completion of a non-performing portfolio sale in the year has

resulted in a reduction in this PMA, particularly within residential

mortgages where the ECL PMA stock has reduced from

€ 207 million at 31 December 2021 to € 140 million at

31 December 2022.

A new post model adjustment was introduced for year end 2022

in order to increase the ECL cover for non-performing exposures

classified as non legacy (defaulted subsequent to December

2018). This adjustment reflects management judgement that the

downside scenario for these cases may be more severe than

currently reflected through the modelled process.

The impact of potential reductions in future cash flows and

security values, particularly within commercial real estate and

small and medium enterprise exposures, have been considered

as part of the governance process.

*Forms an integral part of the audited financial statements

This PMA primarily impacts the Retail Banking and Capital

Markets property (€ 29 million) and non-property business

(€ 51 million) portfolios.

Similarly in AIB UK, a post model adjustment of £ 26 million

includes the impact of the above non-performing PMA and also

reflects the impact of alternative strategies such as portfolio sales.

Emerging headwinds

Particular focus from management was on assessing portfolios

impacted by the combined effects of cost of living challenges,

persistent inflationary pressures and rising interest rates on

customers' ability to repay. The ultimate impact of these effects is

highly uncertain, however should they lead to a reduction in

customers' ability to meet their loan repayment obligations, there

could be an increase in credit risk which could have a negative

impact on the asset quality of the Group’s loan portfolios.

Within the Retail Banking portfolio, a PMA of € 72 million has been

introduced to reflect the increased probability of default due to

rising interest rates and increased cost of living. The PMA has

been applied within the performing portion of the residential

mortgage portfolio, € 43 million, personal portfolio, € 11 million,

and non-property business portfolio, € 18 million.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk

Measurement, methodologies and judgements* continued

Within Capital Markets a PMA of € 163 million represents the

potential impacts on the non-property business (€ 99 million) and

property (€ 64 million) portfolios due to the potential impact of

inflation (including higher energy costs) and higher interest rates

on non-property business and property exposures resulting in an

increase in borrower forbearance arrangements. This has been an

area of particular focus for management.

Within AIB UK, a new PMA of £ 10 million (£ 7 million non-

property business and £ 3 million property) also reflects the

impact of higher interest rates and a slowdown within CRE.

While COVID-19 specific PMAs have now been significantly

released, those affected borrowers whose recovery may be

impacted by emerging headwinds are incorporated within this

PMA.

Macroeconomic factors

In Retail Banking, an ECL adjustment continues to be applied to

reflect limitations within the mortgage model relating to the house

price index (HPI) growth. This is to ensure that the ECL remains

appropriate for the underlying portfolio acknowledging the

limitations within the model.

The HPI index parameter, which assumes growth over the long

term, has reduced the LGD thereby impacting ECL cover on

Stage 1, Stage 2 and Stage 3 loans (not covered by the NPE

resolution strategy adjustment above). An adjustment has been

made to reflect the Group’s potential alternative recovery

strategies for the impacted loans that are or could become credit

impaired.

This adjustment amounted to € 20 million (Stage 1: € 5 million,

Stage 2: € 5 million and Stage 3: € 10 million).

In addition, in AIB UK, an ECL adjustment of £ 27 million (Stage 1:

£ 11 million and Stage 2: £ 16 million) has been applied

predominately in the non-property business (£ 18 million) and

property (£ 9 million) portfolios to reflect a greater impact within

the downside scenarios than that currently observed, based on

the deployed macroeconomic scenarios at 31 December 2022.

Other

For the Syndicated & International Finance (SIF) portfolio in

Capital Markets, it was previously determined that historically

observed relationships between default rates and macroeconomic

factors in the modelled probabilities of default needs to be

increased for this portfolio.

Accordingly, expert credit judgement has determined a post model

adjustment is required of € 61 million at 31 December 2022

(Stage 1: € 17 million and Stage 2: € 44 million).

Other post model adjustments in this category are not individually

significant.

ECL governance

The Board has put in place a framework, incorporating the

governance and delegation structures commensurate with a

material risk, to ensure credit risk is appropriately managed

throughout the Group.

The key governance points in the ECL allowance approval

process during 2022 were:

•Model Risk Committee;

•Asset and Liability Committee;

•Business level ECL Committees;

•Group Credit Committee; and

•Board Audit Committee

*Forms an integral part of the audited financial statements

For ECL governance, the Group’s senior management employ

expert judgement in assessing the adequacy of the ECL

allowance. This is supported by detailed information on the

portfolios of credit risk exposures, and by the outputs of the

measurement and classification approaches described above,

coupled with internal and external data provided on both short

term and long term economic outlook. Business segments and

Group management are required to ensure that there are

appropriate levels of cover for all of the credit portfolios and must

take account of both accounting and regulatory compliance when

assessing the expected levels of loss.

Assessment of the credit quality of each business segment and

subsidiaries is initially informed by the output of the quantitative

analytical models but may be subject to management

adjustments. This ECL output is then scrutinised and approved at

individual business unit level (ECL Committee), which also

includes subsidiaries, prior to onward submission to the Group

Credit Committee (“GCC”). GCC reviews and challenges ECL

levels for onward recommendation to the Board Audit Committee

as the final approval authority.

Credit risk management consideration of ESG risks

The Group continues to adapt its credit risk management

processes and policies to capture environmental, social, and

governance ("ESG") risks. Throughout 2022, the Group has

remained focused in embedding the following key initiatives:

•Continued use of heat mapping exercises in order to scale

individual sub-sector exposures to levels of climate change and

environment risks.

•Relevant Business Credit Application Guidelines/Procedures

and Credit Sanctioning policies requirements in respect of the

assessment of certain borrowers' exposure to ESG factors, in

particular environmental factors and impact of climate change

and the appropriateness of mitigating strategies as set out by

the borrower are continuing to embed.

•The ESG questionnaire was implemented in our credit risk

management process in 2021 for certain cohorts requiring a

more intensive analysis of borrowers in sub-sectors considered

as part of the heat mapping exercise to have a higher risk to

climate change related and environmental risks. In 2022 work

commenced to further enhance and refine this tool, broadening

the scope of coverage at both counterparty and sector level.

•The property valuation process continues to obtain BER/EPC

ratings where applicable, which are captured in collateral

valuations and recorded on the Group’s systems.

•A Sustainable Lending Framework was introduced in 2021 and

continues to categorise and identify relevant lending activities as

green/transition for internal tracking and external disclosure

purposes.

•The impact of climate risk was considered as part of the ECL

governance process for the position at 31 December 2022 and it

was deemed that insufficient evidence of the likely loss impacts

from climate events is available to adjust ECLs. The impact of

climate risk will continue to be monitored in 2023 to ensure

ECLs appropriately reflect latent risk from potentially emerging

climate risks.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk - Credit exposure overview



	Key Credit Profile Metrics in 2022: •There was a € 7 million net credit impairment charge in the year (2021: € 238 million writeback). This comprised of a € 316 million charge in the second half of the year which incorporates post model adjustments to address emerging headwinds and downside risks from inflation and interest rate impacts on credit quality; and a € 309 million writeback in the first half of the year reflecting the economic environment in Ireland with robust credit quality & repayments, updated macroeconomic assumptions as well as some release of post model adjustments. •Total gross loans and advances to customers have increased from € 58.4 billion to € 61.2 billion in the year which was due to new lending and the ongoing Ulster Bank corporate and commercial portfolio acquisition. ECL stock of € 1.6 billion represents 2.7% ECL cover (2021: € 1.9 billion, 3.2%). •Total new lending in the year was € 12.6 billion which reflects an increase of € 2.2 billion versus last year (2021: € 10.4 billion). The increase in new lending was primarily driven by mortgage lending in Retail Banking and real estate finance in Capital Markets. •The credit quality composition of the portfolio has remained relatively stable during the year. Non-Performing loans at € 2.2 billion, have decreased by € 0.9 billion or 31% in the year and now represent 3.5% of total gross loans (2021: 5.4%).

Maximum exposure to credit risk*

Maximum exposure to credit risk from on-balance sheet and off-balance sheet financial instruments is presented before taking account

of any collateral held or other credit enhancements (unless such enhancements meet accounting offsetting requirements). For financial

assets recognised on the statement of financial position, the maximum exposure to credit risk is their carrying amount, and for financial

guarantees and similar contracts granted, it is the maximum amount the Group would have to pay if the guarantees were called upon.

For loan commitments and other credit related commitments that are irrevocable over the life of the respective facilities, it is generally

the full amount of the committed facilities.

The following table sets out the maximum exposure to credit risk that arises within the Group and distinguishes between those assets

that are carried in the statement of financial position at amortised cost and those carried at fair value at 31 December 2022 and 2021


				2022				2021
	Amortised cost(1)		Fair value(2)	Total	Amortised cost(1)		Fair value(2)	Total
Maximum exposure to credit risk		€ m	€ m	€ m		€ m	€ m	€ m
Balances at central banks(3)		37,565	—	37,565		42,109	—	42,109
Derivative financial instruments		—	2,511	2,511		—	882	882
Loans and advances to banks		1,502	—	1,502		1,323	—	1,323
Loans and advances to customers		59,364	249	59,613		56,265	243	56,508
Securities financing		6,282	—	6,282		3,890	—	3,890
Investment securities(4)		4,131	11,837	15,968		4,071	12,589	16,660
Included elsewhere:
Trade receivables		99	—	99		372	—	372
Items in course of collection		51	—	51		44	—	44
Accrued interest		281	—	281		307	—	307
		109,275	14,597	123,872		108,381	13,714	122,095
Loan commitments and other credit related commitments		15,060	—	15,060		13,727	—	13,727
Financial guarantees		802	—	802		819	—	819
		15,862	—	15,862		14,546	—	14,546
Total		125,137	14,597	139,734		122,927	13,714	136,641

(1) All amortised cost items are loans and advances and investment securities which are in a ‘held-to-collect’ business model.

(2) All items measured at fair value are classified as ‘fair value through profit or loss’ except investment securities at FVOCI, net investment hedge derivatives and

cash flow hedging derivatives.

(3) Included within cash and balances at central banks of € 38,138 million (2021: €42,654 million).

(4) Excluding equity shares of € 302 million (2021: € 274 million).

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk - Credit exposure overview

Credit risk exposure derives from standard on-balance sheet products such as mortgages, loans, overdrafts and credit cards.

In addition, credit risk arises from other products and activities including, but not limited to: “off-balance sheet” guarantees and

commitments; securities financing; investment securities; asset backed securities; and the failure/partial failure of a trade in a settlement

or payments system.

The following table summarises financial instruments in the statement of financial position at 31 December 2022 and 2021:


							2022*			2021*
				Statement of financial position		Income statement					Statement of financial position		Income statement
	Exposure	ECL allowance			Carrying amount	Net credit impairment writeback/ (charge)		Exposure	ECL allowance			Carrying amount	Net credit impairment (charge)/ writeback
	€ m		€ m		€ m	€ m		€ m		€ m		€ m		€ m
Cash and balances at central banks	38,138		—		38,138		—	42,654		—		42,654		—
Loans and advances to banks	1,502		—		1,502		—	1,323		—		1,323		—
Loans and advances to customers:
at amortised cost	60,982		(1,618)		59,364		(5)	58,150		(1,885)		56,265		233
at FVTPL	249		—		249		—	243		—		243		—
	61,231		(1,618)		59,613		(5)	58,393		(1,885)		56,508		233
Securities financing	6,283		(1)		6,282		—	3,891		(1)		3,890		(1)
Investment debt securities(1)	15,971		(3)		15,968		(2)	16,661		(1)		16,660		—
Other – Stockbroking client debtors	36		(1)		35		—	36		(1)		35		—
– Items in course of collection	51		—		51		—	44		—		44		—
Loan commitments	15,060		(59)		(59)		(7)	13,727		(53)		(53)		2
Financial guarantee contracts	802		(19)		(19)		7	819		(26)		(26)		4
Total(2)							(7)							238

(1) ECL allowance amounting to € 3 million (2021: € 3 million) included in carrying amount of investment securities at FVOCI.

(2) The total net credit impairment charge of € 7 million includes the impact of the Ulster Bank portfolio acquired during the year which resulted in a net charge of €

45 million, of which € 39 million related to loans and advances to customers at amortised cost and € 6 million relating to loan commitments.

There was a € 7 million net credit impairment charge in the year (2021: € 238 million writeback). This comprised of a € 5 million charge

on loans and advances to customers (net remeasurement of ECL allowance charge of € 50 million and recoveries of amounts

previously written-off of € 45 million) and a € 2 million charge on investment debt securities. A € 7 million charge on loan commitments

was offset by a € 7 million writeback on financial guarantees (2021: € 233 million writeback (net remeasurement writeback of € 158

million and recoveries of € 75 million) and a € 6 million writeback for off-balance sheet exposures. There was also a € 1 million charge

on securities financing measured at amortised cost).

Further details on the net credit impairment charge in the year to 31 December 2022 are set out on pages 97 and 206.

*Forms an integral part of the audited financial statements

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2.1 Credit risk – Credit profile of the loan portfolio

The Group’s customer loan portfolio comprises loans (including overdrafts), instalment credit and finance lease receivables. An

overdraft provides a demand credit facility combined with a current account. Borrowings occur when the customer’s drawings take the

current account into debit. The balance may, therefore, fluctuate with the requirements of the customer. Although overdrafts are

contractually repayable on demand (unless a fixed term has been agreed), provided the account is deemed to be satisfactory, full

repayment is not generally demanded without notice.

The following table analyses loans and advances to customers at amortised cost by segment, internal credit ratings and ECL staging at

31 December 2022 and 2021:

Amortised cost


				2022					2021
	Retail Banking	Capital Markets		AIB UK	Group	Total	Retail Banking	Capital Markets	AIB UK	Group	Total
Gross carrying amount	€ m		€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Residential mortgages	28,764		528	987	—	30,279	27,744	548	1,115	—	29,407
Other personal	2,600		49	74	—	2,723	2,550	63	91	—	2,704
Property and construction	452		6,166	1,999	—	8,617	636	4,800	1,924	—	7,360
Non-property business	3,026		12,177	4,145	15	19,363	3,225	10,351	5,090	13	18,679
Total	34,842		18,920	7,205	15	60,982	34,155	15,762	8,220	13	58,150

Analysed by internal credit ratings(1)

Strong	24,294		12,813	4,763	—	41,870	23,406	9,578	4,436	—	37,420
Satisfactory	7,654		4,023	1,448	15	13,140	6,888	4,010	2,335	13	13,246
Total strong/satisfactory	31,948		16,836	6,211	15	55,010	30,294	13,588	6,771	13	50,666
Criticised watch	1,241		496	203	—	1,940	1,389	449	296	—	2,134
Criticised recovery	431		1,178	405	—	2,014	567	1,309	518	—	2,394
Total criticised	1,672		1,674	608	—	3,954	1,956	1,758	814	—	4,528
Non-performing	1,222		410	386	—	2,018	1,905	416	635	—	2,956
Gross carrying amount	34,842		18,920	7,205	15	60,982	34,155	15,762	8,220	13	58,150

Analysed by ECL staging
Stage 1	31,805		15,317	5,725	15	52,862	30,135	11,985	6,261	13	48,394
Stage 2	1,749		3,193	1,094	—	6,036	2,083	3,361	1,324	—	6,768
Stage 3	1,201		410	386	—	1,997	1,834	416	635	—	2,885
POCI	87		—	—	—	87	103	—	—	—	103
Total	34,842		18,920	7,205	15	60,982	34,155	15,762	8,220	13	58,150

ECL allowance – statement of financial position
Stage 1	88		132	43	—	263	120	79	37	—	236
Stage 2	112		440	94	—	646	138	465	97	—	700
Stage 3	468		133	99	—	700	722	75	121	—	918
POCI	9		—	—	—	9	31	—	—	—	31
Total	677		705	236	—	1,618	1,011	619	255	—	1,885

ECL allowance cover percentage	%		%	%	%	%	%	%	%	%	%
Stage 1	0.3		0.9	0.8	—	0.5	0.4	0.7	0.6	—	0.5
Stage 2	6.4		13.8	8.6	—	10.7	6.6	13.8	7.4	—	10.3
Stage 3	39.0		32.4	25.6	—	35.1	39.4	18.2	19.0	—	31.8
POCI	10.7		—	—	—	10.7	29.9	—	—	—	29.9

Income statement	€ m		€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Net remeasurement of ECL allowance	(101)		96	55	—	50	(15)	(131)	(12)	—	(158)
Recoveries of amounts previously written-off	(38)		(3)	(4)	—	(45)	(69)	(2)	(4)	—	(75)
Net credit impairment (writeback)/charge	(139)		93	51	—	5	(84)	(133)	(16)	—	(233)

	%		%	%	%	%	%	%	%	%	%
Net credit impairment (writeback)/charge on average loans	(0.41)		0.54	0.67	—	0.01	(0.24)	(0.87)	(0.19)	—	(0.40)

(1) Further analysis of internal credit grade profile by ECL staging is set out on pages 98 and 99.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk – Credit profile of the loan portfolio

The following table analyses loans and advances to customers at FVTPL by segment and internal credit ratings at 31 December 2022 and

2021:

FVTPL


				2022					2021
	Retail Banking	Capital Markets	AIB UK	Group	Total	Retail Banking	Capital Markets	AIB UK	Group	Total
Carrying amount	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Property and construction	—	226	—	—	226	—	243	—	—	243
Non-property business	—	23	—	—	23	—	—	—	—	—
Total	—	249	—	—	249	—	243	—	—	243

Analysed by internal credit ratings
					—
Strong	—	96	—	—	96	—	—	—	—	—
Satisfactory	—	—	—	—	—	—	74	—	—	74
Total strong/satisfactory	—	96	—	—	96	—	74	—	—	74
Total criticised	—	—	—	—	—	—	—	—	—	—
Non-performing	—	153	—	—	153	—	169	—	—	169
Total	—	249	—	—	249	—	243	—	—	243

Gross loans and advances to customers

Total gross loans and advances to customers increased by

€ 2.8 billion in the year to 31 December 2022. Of the total portfolio

of € 61.2 billion, € 61.0 billion is measured at amortised cost with

the remaining € 0.2 billion being measured at fair value through

profit or loss. The increase in the year was influenced by the

acquisition of the Ulster Bank corporate and commercial loan

portfolio, of which € 2.1 billion has been acquired at 31 December

2022. New lending activity also compares favourably to last year

increasing by € 2.2 billion or 22% to € 12.6 billion (2021: € 10.4

billion). New lending in Retail Banking accounted for € 6.5 billion

and largely related to new mortgage lending (€ 4.5 billion) while

Capital Markets accounted for € 4.7 billion which predominately

related to real estate finance and corporate lending. Overall, from

a segment perspective, Capital Markets increased by € 3.2 billion,

predominately in the non-property business and property and

construction asset classes due to the Ulster Bank portfolio

acquisition. Retail Banking increased by € 0.6 billion due to strong

mortgage lending, however these increases in Retail Banking and

Capital Markets were offset by a € 1.0 billion reduction in AIB UK

due to deleveraging activity following the Group’s decision to exit

the SME market in Great Britain.

Of the total loans to customers of € 61.2 billion, € 55.1 billion or

90% are rated as either ‘strong’ or ‘satisfactory’ which is an

increase of € 4.3 billion (2021: € 50.8 billion or 87%). This

increase was evident across all asset classes as a result of new

lending but was also influenced by the Ulster Bank portfolio

acquisition. The ‘criticised’ classification includes ‘criticised watch’

of € 1.9 billion and ‘criticised recovery’ of € 2.0 billion, the total of

which has decreased by € 0.6 billion in the year. The ‘criticised

recovery’ portfolio decreased by € 0.4 billion and the ‘criticised

watch’ portfolio decreased by € 0.2 billion. The total performing

book has increased by € 3.8 billion to € 59.1 billion or 96% of

gross loans and advances to customers (2021: € 55.3 billion or

95%).

The credit quality of the portfolio has remained stable during the

year.

Stage 2 loans have decreased by € 0.8 billion to € 6.0 billion as

Stage 1 loans increased by € 4.5 billion to € 52.9 billion. The

reduction in Stage 2 loans was driven by redemptions/repayments

as the non-property portfolio and the mortgage portfolio, both

decreased by € 0.5 billion and € 0.3 billion respectively.

Stage 3 loans have decreased by € 0.9 billion to € 2.0 billion. The

decrease was primarily due to the sales of non-performing loan

portfolios completed during the year which accounted for

€ 0.5 billion. Net transfers to Stage 3 accounted for € 0.4 billion

and were offset by redemptions/repayments net of interest

credited of € 0.6 billion. Transfers to Stage 3 in the year

predominately related to cases in the non-property portfolio

(€ 0.3 billion).

The characteristics of each stage including the Group’s approach

to identifying significant increase in credit risk are outlined on

pages 80 and 81. This incorporates additional forward looking

information including the Group’s macroeconomic forecasts in

addition to the quantitative and qualitative information utilised in

determining the internal credit ratings.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk – Credit profile of the loan portfolio

Non-performing loans

The table below sets out the Group’s non-performing loans and advances to customers by asset class and by time in default at

31 December 2022 and 2021:


					2022
	Residential mortgages	Other personal	Property and construction	Non-property business	Total
Non-performing loans	€ m	€ m	€ m	€ m	€ m
At amortised cost	657	180	406	775	2,018
At FVTPL	—	—	153	—	153
Total non-performing loans and advances to customers	657	180	559	775	2,171
Non-performing loans as a % of total loans and advances to customers	2.2%	6.6%	6.3%	4.0%	3.5%

ECL allowance as a % of non-performing loans and advances to customers at amortised cost	31%	64%	29%	35%	35%

Split of non-performing loans and advances by time in default
Legacy/Pre 31 December 2018	155	11	38	36	240
Non Legacy/Post 31 December 2018	502	169	521	739	1,931
	657	180	559	775	2,171


					2021
	Residential mortgages	Other personal	Property and construction	Non-property business	Total
Non-performing loans	€ m	€ m	€ m	€ m	€ m
At amortised cost	991	247	628	1,090	2,956
At FVTPL	—	—	169	—	169
Total non-performing loans and advances to customers	991	247	797	1,090	3,125
Non-performing loans as a % of total loans and advances to customers	3.4%	9.1%	10.5%	5.8%	5.4%

ECL allowance as a % of non-performing loans and advances to customers at amortised cost	30%	64%	28%	29%	32%

Split of non-performing loans and advances by time in default
Legacy/Pre 31 December 2018	499	71	161	151	882
Non Legacy/Post 31 December 2018	492	176	636	939	2,243
	991	247	797	1,090	3,125

Total Group non-performing loans have decreased by € 0.9 billion

or 31% to € 2.2 billion in the year (2021: € 3.1 billion). The

decrease reflects the € 0.5 billion sale of non-performing loan

portfolios completed during the year and other net underlying

decreases of € 0.4 billion to non-performing loans. The total

Group non-performing loans portfolio consists of € 2.0 billion in

loans and advances to customers measured at amortised cost

together with € 0.2 billion of loans measured at FVTPL. The ECL

allowance cover rate on non-performing loans (at amortised cost)

has increased to 35% in the year (2021: 32%). The increase

predominately relates to the non-legacy property and non-property

business exposures reflecting the uncertain economic backdrop.

Non-performing loans as a percentage of total loans and

advances to customers is 3.5% compared to 5.4% at 31

December 2021.

Exposures that entered into default prior to 31 December 2018

amount to € 0.2 billion or 0.4% of total loans and advances to

customers (2021: € 0.9 billion or 1.5%) and are classified as

legacy. The reduction in the year is due to the non-performing

loan portfolio sales and cures. The remaining balances relate to

exposures which may form part of alternative recovery strategies.

Exposures that have defaulted after 31 December 2018 amount to

€ 1.9 billion or 3.1% of total loans and advances to customers

(2021: € 2.2 billion or 3.8%) and are classified as non-legacy.

These exposures were largely impacted by COVID-19 and spread

across all asset classes, however as economic conditions

improved, this has led to a € 0.3 billion reduction in the year. The

non-property business portfolio (€ 0.7 billion) continues to be the

largest impacted sector within this cohort.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk – Credit profile of the loan portfolio

ECL allowance

The ECL allowance on loans and advances to customers has decreased by € 0.3 billion to € 1.6 billion in the year. The decrease was

predominately in Stage 3 which reduced by € 0.2 billion due to the sales of non-performing loan portfolios completed throughout the

year. The total ECL cover rate has decreased from 3.2% at 31 December 2021 to 2.7% at 31 December 2022.

Income statement

The table below analyses the key components of the income statement for loans and advances to customers at 31 December 2022 and

2021:


Amortised cost					2022					2021
	Residential mortgages	Other personal	Property and construction	Non- property business	Total	Residential mortgages	Other personal	Property and construction	Non- property business	Total
Income Statement	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Net stage transfers	(14)	40	24	(13)	37	10	23	2	44	79
Net remeasurement	10	—	(25)	9	(6)	(48)	(18)	(45)	(123)	(234)
New loans originated/ topups	3	11	23	29	66	3	12	29	18	62
Redemptions/repayments	(4)	(3)	(22)	(64)	(93)	(5)	(4)	(24)	(35)	(68)
Impact of credit or economic risk parameters	5	(8)	(28)	—	(31)	(59)	(7)	(35)	(31)	(132)
Impact of model and overlay changes	(5)	(18)	78	22	77	44	4	20	67	135
Total net remeasurement of ECL allowance(1)	(5)	22	50	(17)	50	(55)	10	(53)	(60)	(158)
Recoveries of amounts previously written-off	(15)	(5)	(12)	(13)	(45)	(25)	(15)	(19)	(16)	(75)
Net Credit impairment charge / (writeback)	(20)	17	38	(30)	5	(80)	(5)	(72)	(76)	(233)

(1) The total net remeasurement of ECL allowance charge of € 50 million includes the impact of the Ulster Bank portfolio acquired during the year which resulted in a

net charge of € 39 million.

There was a € 5 million net credit impairment charge in the year to

31 December 2022 which comprised a net remeasurement of ECL

allowance charge of € 50 million and recoveries of amounts

previously written-off of € 45 million (2021: € 233 million writeback

comprising a net remeasurement writeback of € 158 million and

€ 75 million of recoveries).

The key drivers of the net remeasurement of ECL allowance

charge of € 50 million consist of the following components and

activity:

•Credit quality remained relatively stable during the year with a €

37 million charge due to net stage movements predominantly

within the other personal and property and construction sectors.

Redemption and repayment activity continues to occur across

all stages but predominantly within Stage 2 with a € 93 million

writeback driven by loans that fully repaid. New loans originated

have resulted in a € 66 million charge. Further details on the

ECL allowance movements are outlined on pages 118 to 124.

•Within the IFRS 9 models, € 31 million ECL writeback has been

observed due to macroeconomic factors. This is predominantly

due to improvements in the ROI unemployment rate (versus

previously forecasted). Further details on the macroeconomic

scenarios and weightings are outlined on page 84 to 88.

•However, to reflect the current uncertain economic environment

and insensitivity within the IFRS 9 models to certain

macroeconomic scenarios such as inflation and interest rate

changes, additional ECLs have been taken to address these

increased risks through the use of post model adjustments

resulting in a net charge of € 77 million during the year. Further

details on post model adjustments are outlined on pages 90 and

91.

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Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk – Credit profile of the loan portfolio

Internal credit grade profile by ECL staging

The table below analyses the internal credit grading profile by ECL staging for loans and advances to customers at 31 December 2022

and 2021:

Amortised cost


			2022*					2021*
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Total
Strong	40,708	1,159	—	3	41,870	36,521	895	—	4	37,420
Satisfactory	11,365	1,772	—	3	13,140	11,023	2,220	—	3	13,246
Total strong/satisfactory	52,073	2,931	—	6	55,010	47,544	3,115	—	7	50,666

Criticised watch	668	1,271	—	1	1,940	755	1,377	—	2	2,134
Criticised recovery	119	1,834	—	61	2,014	93	2,276	—	25	2,394
Total criticised	787	3,105	—	62	3,954	848	3,653	—	27	4,528
Non-performing	2	—	1,997	19	2,018	2	—	2,885	69	2,956
Gross carrying amount	52,862	6,036	1,997	87	60,982	48,394	6,768	2,885	103	58,150
ECL allowance	(263)	(646)	(700)	(9)	(1,618)	(236)	(700)	(918)	(31)	(1,885)
Carrying amount	52,599	5,390	1,297	78	59,364	48,158	6,068	1,967	72	56,265

Analysis by asset class
Residential mortgages
Strong	23,104	206	—	3	23,313	22,071	306	—	4	22,381
Satisfactory	4,950	136	—	3	5,089	4,464	192	—	3	4,659
Total strong/satisfactory	28,054	342	—	6	28,402	26,535	498	—	7	27,040

Criticised watch	340	570	—	1	911	395	549	—	2	946
Criticised recovery	2	246	—	61	309	6	399	—	25	430
Total criticised	342	816	—	62	1,220	401	948	—	27	1,376
Non-performing	—	—	638	19	657	1	—	921	69	991
Gross carrying amount	28,396	1,158	638	87	30,279	26,937	1,446	921	103	29,407
ECL allowance	(40)	(38)	(196)	(9)	(283)	(34)	(41)	(276)	(31)	(382)
Carrying amount	28,356	1,120	442	78	29,996	26,903	1,405	645	72	29,025

Other personal
Strong	1,245	66	—	—	1,311	1,259	34	—	—	1,293
Satisfactory	941	110	—	—	1,051	913	89	—	—	1,002
Total strong/satisfactory	2,186	176	—	—	2,362	2,172	123	—	—	2,295

Criticised watch	87	79	—	—	166	65	74	—	—	139
Criticised recovery	—	15	—	—	15	1	22	—	—	23
Total criticised	87	94	—	—	181	66	96	—	—	162
Non-performing	1	—	179	—	180	—	—	247	—	247
Gross carrying amount	2,274	270	179	—	2,723	2,238	219	247	—	2,704
ECL allowance	(24)	(37)	(116)	—	(177)	(30)	(33)	(159)	—	(222)
Carrying amount	2,250	233	63	—	2,546	2,208	186	88	—	2,482

Property and construction
Strong	5,404	721	—	—	6,125	3,948	413	—	—	4,361
Satisfactory	1,341	374	—	—	1,715	1,261	613	—	—	1,874
Total strong/satisfactory	6,745	1,095	—	—	7,840	5,209	1,026	—	—	6,235

Criticised watch	56	56	—	—	112	58	143	—	—	201
Criticised recovery	19	240	—	—	259	79	217	—	—	296
Total criticised	75	296	—	—	371	137	360	—	—	497
Non-performing	—	—	406	—	406	—	—	628	—	628
Gross carrying amount	6,820	1,391	406	—	8,617	5,346	1,386	628	—	7,360
ECL allowance	(84)	(117)	(119)	—	(320)	(50)	(91)	(172)	—	(313)
Carrying amount	6,736	1,274	287	—	8,297	5,296	1,295	456	—	7,047

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk – Credit profile of the loan portfolio

Internal credit grade profile by ECL staging continued


			2022*					2021*
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Non-property business
Strong	10,955	166	—	—	11,121	9,243	142	—	—	9,385
Satisfactory	4,133	1,152	—	—	5,285	4,385	1,326	—	—	5,711
Total strong/satisfactory	15,088	1,318	—	—	16,406	13,628	1,468	—	—	15,096

Criticised watch	185	566	—	—	751	237	611	—	—	848
Criticised recovery	98	1,333	—	—	1,431	7	1,638	—	—	1,645
Total criticised	283	1,899	—	—	2,182	244	2,249	—	—	2,493
Non-performing	1	—	774	—	775	1	—	1,089	—	1,090
Gross carrying amount	15,372	3,217	774	—	19,363	13,873	3,717	1,089	—	18,679
ECL allowance	(115)	(454)	(269)	—	(838)	(122)	(535)	(311)	—	(968)
Carrying amount	15,257	2,763	505	—	18,525	13,751	3,182	778	—	17,711

Credit exposure by midpoint PD grade

The below table represents the credit risk profile for loans and advances to customers at amortised cost via the mapping of credit risk

management midpoint PD grades at 31 December 2022 and 2021. The ‘internal credit grading profile by ECL staging’ table above

includes qualitative factors such as financial distress and arrears (in addition to PD to prioritise credit risk management activity) which

the midpoint PD table below does not reflect.


					2022					2021
Quality Code	Lower Bound PD	Upper Bound PD	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m
1 - 3	0.00%	1.23%	44,907	1,623	—	39	46,569	40,838	1,340	—	18	42,196
4 - 7	1.23%	6.94%	7,375	1,424	—	7	8,806	6,951	1,929	—	5	8,885
8 - 10	6.94%	99.99%	578	2,989	—	22	3,589	603	3,499	—	11	4,113
11	100.00%	100.00%	2	—	1,997	19	2,018	2	—	2,885	69	2,956
Gross carrying amount			52,862	6,036	1,997	87	60,982	48,394	6,768	2,885	103	58,150

At 31 December 2022, 91% of the portfolio is in quality codes 1 to 7 which are typically strong/satisfactory (2021: 88%), 6% of the

portfolio is in quality codes 8 to 10 which are typically criticised (2021: 7%) and the final 3% in quality code 11 is in default (2021: 5%).

IFRS 9 Stage 1 and Stage 2 classification is not dependent solely on the absolute probability of default but includes perceived

significant increase in credit risk (SICR), including relative movement in IFRS 9 probability of default since initial recognition. There is

therefore no direct relationship between internal PD grades and IFRS 9 stage classification.

*Forms an integral part of the audited financial statements

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General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Asset class summary – key points:

•The residential mortgage portfolio has increased by € 0.9 billion in the year to € 30.3 billion driven by strong new lending. The

staging composition has improved in the year as ECL stock reduced from € 0.4 billion to € 0.3 billion resulting in ECL cover of 0.9%

(2021: 1.3%). There was a € 20 million net credit impairment writeback in the year (2021: € 80 million writeback).

•The other personal portfolio has remained unchanged in the year at € 2.7 billion. New lending activity throughout the year was

offset against repayments. Stage composition has improved slightly in the year and total ECL cover reduced to 6.5% (2021: 8.2%).

There was a net credit impairment charge of € 17 million for the year (2021: € 5 million writeback).

•The property and construction portfolio has increased by € 1.2 billion in the year to € 8.8 billion, due to new lending and the Ulster

Bank portfolio acquisition. The staging composition of the portfolio has improved in the year with the increase in Stage 1 also due

to the Ulster Bank portfolio acquisition. Total ECL cover has reduced by 0.6% to 3.7% (2021: 4.3%). There was a € 38 million net

credit impairment charge in the year (2021: € 72 million writeback).

•The non-property portfolio has increased by € 0.7 billion in the year to € 19.4 billion, due to new lending and the Ulster Bank

portfolio acquisition, however this was slightly offset by deleveraging activity following the Group’s decision to exit the SME market

in Great Britain. The staging composition of the portfolio has improved in the year as Stage 2 and Stage 3 loans have reduced by €

0.5 and € 0.3 billion respectively. Total ECL cover has reduced by 0.9% to 4.3% (2021: 5.2%). There was a € 30 million net credit

impairment writeback in the year (2021: € 76 million writeback).

Loans and advances to customers – Residential mortgages

Residential mortgages amounted to € 30.3 billion at 31 December

2022, with the majority (97%) relating to residential mortgages in

the Republic of Ireland and the remainder relating to the United

Kingdom. This compares to € 29.4 billion at 31 December 2021, of

which 96% related to residential mortgages in the Republic of

Ireland. The split of the residential mortgage portfolio was owner-

occupier € 28.9 billion and buy-to-let € 1.4 billion ( 2021: owner-

occupier € 27.6 billion and buy-to-let € 1.8 billion).

Income statement

There was a € 20 million net credit impairment writeback in the

year to 31 December 2022 compared to a € 80 million writeback

in 2021. This comprises a net remeasurement of ECL allowance

writeback of € 5 million and recoveries of previously written-off

loans of € 15 million.

The key drivers of the net remeasurement of ECL allowance

writeback of € 5 million consist of the following components and

activity:

•€ 5 million writeback driven by net migration from Stage 2 to

Stage 1 reflecting the underlying improved credit quality.

•€ 5 million charge as a result of the updated macroeconomic

scenarios and weightings reflecting the higher downside risk.

•Post model adjustments resulted in a € 5 million writeback. In

order to reflect the current uncertain economic environment,

additional ECLs have been taken to address these increased

risks through the use of post model adjustments which resulted

in a € 43 million charge during the year. However, this charge

was offset by a € 22 million writeback relating to the NPE

resolution post model adjustment following the portfolio sale

which occurred during year and a further € 18 million writeback

was due to COVID-19 post model adjustment releases. Further

details on post model adjustments are outlined on pages 90 and

91.

At 31 December 2022, the ECL allowance for the Group’s

residential mortgage portfolio is 0.9% (2021: 1.3%). For the Stage

3 element of the Group’s residential mortgage portfolio, € 0.2

billion of ECLs are held providing cover of 31% (2021: € 0.3 billion

and 30% respectively).

Residential mortgages – page 101

•Residential mortgage portfolio at amortised cost by segment,

internal credit ratings and ECL staging

Republic of Ireland residential mortgages – pages 102 to 104

•By ECL staging

•An age profile of the Republic of Ireland residential mortgage

portfolio by ECL staging.

Residual debt, which is now unsecured following the disposal of

property on which the residential mortgage was secured, is

included in the residential mortgage portfolio and as such, is

included in the tables within this section.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

100

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Residential mortgages continued

The following table analyses the residential mortgage portfolio at amortised cost by segment, internal credit ratings and ECL staging at

31 December 2022 and 2021:


					2022*						2021*
	Retail Banking	Capital Markets		AIB UK	Group	Total	Retail Banking	Capital Markets		AIB UK		Group	Total
Gross carrying amount	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m		€ m	€ m
Owner occupier	27,526		429	928	—	28,883	26,181		429	1,038		—	27,648
Buy-to-let	1,238		99	59	—	1,396	1,563		119	77		—	1,759
Total	28,764		528	987	—	30,279	27,744		548	1,115		—	29,407

Analysed by internal credit ratings

Strong	22,151		343	819	—	23,313	21,337		352	692		—	22,381
Satisfactory	4,832		168	89	—	5,089	4,165		175	319		—	4,659
Total strong/satisfactory	26,983		511	908	—	28,402	25,502		527	1,011		—	27,040
Criticised watch	865		9	37	—	911	889		12	45		—	946
Criticised recovery	303		2	4	—	309	415		5	10		—	430
Total criticised	1,168		11	41	—	1,220	1,304		17	55		—	1,376
Non-performing	613		6	38	—	657	938		4	49		—	991
Gross carrying amount	28,764		528	987	—	30,279	27,744		548	1,115		—	29,407

Analysed by ECL staging
Stage 1	26,976		496	924	—	28,396	25,393		511	1,033		—	26,937
Stage 2	1,107		26	25	—	1,158	1,380		33	33		—	1,446
Stage 3	594		6	38	—	638	868		4	49		—	921
POCI	87		—	—	—	87	103		—	—		—	103
Total	28,764		528	987	—	30,279	27,744		548	1,115		—	29,407

ECL allowance – statement of financial position
Stage 1	40		—	—	—	40	34		—	—		—	34
Stage 2	37		—	1	—	38	40		1	—		—	41
Stage 3	191		1	4	—	196	270		—	6		—	276
POCI	9		—	—	—	9	31		—	—		—	31
Total	277		1	5	—	283	375		1	6		—	382

ECL allowance cover percentage	%		%	%	%	%	%		%	%		%	%
Stage 1	0.1		—	—	—	0.1	0.1		—	—		—	0.1
Stage 2	3.3		—	0.9	—	3.2	2.9		1.8	—		—	2.8
Stage 3	32.3		12.8	10.1	—	30.8	31.1		—	10.9		—	29.9
POCI	10.6		—	—	—	10.6	29.9		—	—		—	29.9

Income statement	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m		€ m	€ m
Net remeasurement of ECL allowance	(4)		—	(1)	—	(5)	(42)		(5)	(8)		—	(55)
Recoveries of amounts previously written-off	(14)		—	(1)	—	(15)	(24)		—	(1)		—	(25)
Net credit impairment (writeback)/charge	(18)		—	(2)	—	(20)	(66)		(5)	(9)		—	(80)

	%		%	%	%	%	%		%	%		%	%
Net credit impairment (writeback)/charge on average loans	(0.07)		0.07	(0.18)	—	(0.07)	(0.24)		(0.96)	(0.76)		—	(0.27)

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

101

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Republic of Ireland residential mortgages

The following table analyses the Republic of Ireland residential mortgage portfolio at amortised cost by ECL staging at 31 December

2022 and 2021:


		2022*			2021*
	Owner- occupier	Buy-to-let	Total	Owner- occupier	Buy-to-let	Total
	€ m	€ m	€ m	€ m	€ m	€ m
Gross carrying amount	27,955	1,337	29,292	26,610	1,682	28,292

Analysed as to ECL staging
Stage 1	26,321	1,151	27,472	24,572	1,332	25,904
Stage 2	1,024	109	1,133	1,226	187	1,413
Stage 3	526	74	600	714	158	872
POCI	84	3	87	98	5	103
Total	27,955	1,337	29,292	26,610	1,682	28,292

ECL allowance – statement of financial position
Stage 1	39	1	40	32	2	34
Stage 2	35	2	37	35	6	41
Stage 3	172	20	192	203	67	270
POCI	8	1	9	28	3	31
Total	254	24	278	298	78	376
Republic of Ireland residential mortgages at amortised cost	27,701	1,313	29,014	26,312	1,604	27,916

ECL allowance cover percentage	%	%	%	%	%	%
Stage 1	0.1	0.1	0.1	0.1	0.1	0.1
Stage 2	3.5	1.7	3.3	2.8	3.2	2.9
Stage 3	32.7	27.9	32.1	28.4	42.6	30.9
POCI	9.9	38.4	10.6	28.8	51.7	29.9

Income statement	€ m	€ m	€ m	€ m	€ m	€ m
Net remeasurement of ECL allowance	26	(30)	(4)	(37)	(10)	(47)
Recoveries of amounts previously written-off	(10)	(4)	(14)	(16)	(8)	(24)
Net credit impairment (writeback)/charge	16	(34)	(18)	(53)	(18)	(71)

	%	%	%	%	%	%
Net credit impairment (writeback)/charge on average loans	0.06	(2.25)	(0.06)	—	(0.01)	—

Residential mortgages in Ireland amounted to € 29.3 billion at

31 December 2022 compared to € 28.3 billion at 31 December

2021. The portfolio has increased by € 1.0 billion in the year. Total

drawdowns during the year were € 4.5 billion (2021: € 3.0 billion),

of which 99% were to owner-occupiers. The weighted average

indexed loan-to-value of the stock of residential mortgages at

31 December 2022 was 48% (2021: 50%) and Stage 3 residential

mortgages was 46% (2021: 54%).

The split of the Irish residential mortgage portfolio is 95% owner-

occupier and 5% buy-to-let and comprises € 17.6 billion (60%) on

fixed rate, € 6.8 billion (23%) on variable rate and € 4.9 billion

(17%) on tracker rate mortgages. (2021: € 11.3 billion (40%) on

fixed rate, € 10.9 billion (38%) on variable rate and € 6.1 billion

(22%) tracker rate mortgages).

Non-performing loans decreased from € 0.9 billion at

31 December 2021 to € 0.6 billion at 31 December 2022, primarily

due to the sale of a non-performing loan portfolio in long term

default which was completed during the year.

Forms an integral part of the audited financial statements

Residential mortgage arrears

Total loans in arrears (including non-performing loans) by value

decreased by 24% during the year, a decrease of 16% in the

owner-occupier portfolio and a decrease of 58% in the buy-to-let

portfolio. This was primarily due to the sale of a non-performing

loan portfolio. The number of loans in arrears (based on number

of accounts) greater than 90 days were 1.2% at 31 December

2022 and remains below the industry average of 5.0%(1). For the

owner-occupier portfolio, the number of loans in arrears greater

than 90 days at 1.1% were below the industry average of 4.3%(1).

For the buy-to-let portfolio, loans in arrears greater than 90 days

at 2.2% were below the industry average of 11.4%(1).

(1) Source: Central Bank of Ireland (“CBI”) Residential Mortgage Arrears and

Repossessions Statistics published 16 December 2022 based on number of

accounts as at 30 September 2022.

Forbearance

Irish residential mortgages subject to forbearance measures

decreased by € 0.5 billion from € 1.2 billion at 31 December 2021

to € 0.7 billion at 31 December 2022. The decrease in the

forbearance portfolio was also partially due to the sale of a non-

performing loan portfolio. Details of forbearance measures are set

out on pages 126 to 128.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

102

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Republic of Ireland residential mortgages continued

Indexed loan-to-value ratios of Republic of Ireland residential mortgages

The following table profiles the Republic of Ireland residential mortgage portfolio by the indexed loan-to-value ratios at 31 December

2022 and 2021:


					2022*					2021*
	At amortised cost					At amortised cost
	Stage 1	Stage 2	Stage 3	POCI	Overall total	Stage 1	Stage 2	Stage 3	POCI	Overall total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Less than 80%	25,889	1,100	565	81	27,635	24,771	1,322	739	86	26,918
81-100%	1,527	20	21	1	1,569	1,058	68	97	10	1,233
100-120%	22	6	6	—	34	28	9	19	—	56
Greater than 120%	31	6	4	—	41	42	13	12	—	67
Total with LTVs	27,469	1,132	596	82	29,279	25,899	1,412	867	96	28,274
Unsecured	3	1	4	5	13	5	1	5	7	18
Total	27,472	1,133	600	87	29,292	25,904	1,413	872	103	28,292

Of which:
Owner occupier

Less than 80%	24,760	995	504	80	26,339	23,460	1,158	632	85	25,335
81-100%	1,514	18	13	1	1,546	1,052	56	60	10	1,178
100-120%	20	5	6	—	31	24	4	14	—	42
Greater than 120%	25	5	2	—	32	35	8	6	—	49
Total with LTVs	26,319	1,023	525	81	27,948	24,571	1,226	712	95	26,604
Unsecured	2	1	1	3	7	1	—	2	3	6
Total	26,321	1,024	526	84	27,955	24,572	1,226	714	98	26,610

The weighted average indexed loan-to-value of the stock of residential mortgages at 31 December 2022 was 48% (2021: 50%), new

residential mortgages issued during the year was 64% (2021: 67%) and Stage 3 residential mortgages was 46% (2021: 54%).

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

103

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Republic of Ireland residential mortgages – aged analysis

The following table provides an age profile of the Republic of Ireland residential mortgage portfolio by ECL staging at 31 December

2022 and 2021:


					2022					2021
	At amortised cost					At amortised cost
	Stage 1	Stage 2	Stage 3	POCI	Total	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Not past due	27,464	1,075	292	79	28,910	25,897	1,363	440	92	27,792
1 - 30 days	8	37	14	1	60	7	27	10	—	44
31 - 60 days	—	12	6	—	18	—	18	13	1	32
61 - 90 days	—	9	9	—	18	—	5	7	1	13
91 - 180 days	—	—	30	1	31	—	—	36	2	38
181 - 365 days	—	—	56	2	58	—	—	65	2	67
Over 365 days	—	—	193	4	197	—	—	301	5	306
Total gross carrying amount of residential mortgages	27,472	1,133	600	87	29,292	25,904	1,413	872	103	28,292
ECL allowance	(40)	(37)	(192)	(9)	(278)	(34)	(41)	(270)	(31)	(376)
Carrying value	27,432	1,096	408	78	29,014	25,870	1,372	602	72	27,916

Of which:
Owner-occupier
Not past due	26,315	974	248	77	27,614	24,568	1,182	365	89	26,204
1 - 30 days	6	32	12	1	51	4	22	9	—	35
31 - 60 days	—	10	6	—	16	—	17	12	1	30
61 - 90 days	—	8	8	—	16	—	5	7	1	13
91 - 180 days	—	—	29	1	30	—	—	34	2	36
181 - 365 days	—	—	53	1	54	—	—	56	1	57
Over 365 days	—	—	170	4	174	—	—	231	4	235
Total	26,321	1,024	526	84	27,955	24,572	1,226	714	98	26,610

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

104

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Other personal

The following table analyses other personal lending at amortised cost by segment, internal credit ratings and ECL staging at

31 December 2022 and 2021:


					2022*						2021*
	Retail Banking	Capital Markets		AIB UK	Group	Total	Retail Banking	Capital Markets		AIB UK	Group	Total
Gross carrying amount	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m	€ m	€ m
Credit cards	644		8	23	—	675	590		6	24	0	620
Loans/overdrafts	1,956		41	51	—	2,048	1,960		57	67	0	2,084
Total	2,600		49	74	—	2,723	2,550		63	91	0	2,704

Analysed by internal credit ratings

Strong	1,232		17	62	—	1,311	1,208		16	69	—	1,293
Satisfactory	1,015		29	7	—	1,051	944		42	16	—	1,002
Total strong/satisfactory	2,247		46	69	—	2,362	2,152		58	85	—	2,295
Criticised watch	163		1	2	—	166	135		2	2	—	139
Criticised recovery	14		—	1	—	15	23		—	—	—	23
Total criticised	177		1	3	—	181	158		2	2	—	162
Non-performing	176		2	2	—	180	240		3	4	—	247
Gross carrying amount	2,600		49	74	—	2,723	2,550		63	91	—	2,704

Analysed by ECL staging
Stage 1	2,171		42	61	—	2,274	2,102		54	82	0	2,238
Stage 2	254		5	11	—	270	208		6	5	0	219
Stage 3	175		2	2	—	179	240		3	4	0	247
POCI	—		—	—	—	—	0		0	0	0	0
Total	2,600		49	74	—	2,723	2,550		63	91	0	2,704

ECL allowance – statement of financial position
Stage 1	24		—	—	—	24	30		—	—	—	30
Stage 2	37		—	—	—	37	33		—	—	—	33
Stage 3	114		1	1	—	116	156		1	2	—	159
POCI	—		—	—	—	—	—		—	—	—	—
Total	175		1	1	—	177	219		1	2	—	222

ECL allowance cover percentage	%		%	%	%	%	%		%	%	%	%
Stage 1	1.1		—	—	—	1.1	1.4		—	—	—	1.3
Stage 2	14.4		—	—	—	13.6	16.0		—	—	—	15.4
Stage 3	65.2		24.9	52.5	—	64.6	65.1		21.7	42.1	—	64.2
POCI	—		—	—	—	—	—		—	—	—	—

Income statement	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m	€ m	€ m
Net remeasurement of ECL allowance	22		—	—	—	22	12		(2)	—	—	10
Recoveries of amounts previously written-off	(5)		—	—	—	(5)	(15)		—	—	—	(15)
Net credit impairment (writeback)/charge	17		—	—	—	17	(3)		(2)	—	—	(5)

	%		%	%	%	%	%		%	%	%	%
Net credit impairment (writeback)/charge on average loans	0.68		(1.16)	0.60	—	0.65	(0.10)		(3.13)	(0.16)	—	(0.16)

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

105

2.1 Credit risk – Credit profile of the loan portfolio –

Asset class analysis

Loans and advances to customers – Other personal

continued

At 31 December 2022, the other personal lending portfolio of € 2.7

billion comprises € 2.0 billion in loans and overdrafts and € 0.7

billion in credit card facilities (2021: € 2.7 billion, € 2.1 billion and

€ 0.6 billion respectively). Credit quality of the portfolio improved

slightly throughout the year, with 13% categorised as less than

satisfactory, of which defaulted loans amounted to € 0.2 billion

(2021: 15% and € 0.2 billion).

New lending totalled € 1.0 billion for the year to 31 December

2022 (2021: € 0.9 billion), however this was largely offset by

redemptions/repayments.

Stage 3 loans, predominately in Retail Banking decreased by € 68

million in the year. At 31 December 2022, the ECL allowance

cover was 7% with Stage 3 cover at 65% (2021: 8% and 64%

respectively).

Income statement

There was a net credit impairment charge of € 17 million to the

income statement for the year to 31 December 2022 compared to

a € 5 million net credit impairment writeback in 2021. This

comprises a net remeasurement of ECL allowance charge of € 22

million and recoveries of previously written-off loans of € 5 million.

The key drivers of the net remeasurement of ECL allowance

charge of € 22 million consist of the following components and

activity:

•There was a € 48 million charge driven predominately by

€ 40 million downward net stage migration.

•The impact of the updated macroeconomic scenarios and

weightings resulted in a € 8 million writeback.

•Post model adjustments resulted in a € 18 million writeback. In

order to reflect the current uncertain economic environment,

additional ECLs have been taken to address these increased

risks through the use of post model adjustments which resulted

in a € 11 million charge during the year. However, this charge

was offset by a € 21 million writeback relating to the NPE

resolution post model adjustment following the portfolio sale

which occurred during year and a further € 9 million writeback

was due to COVID-19 post model adjustment releases. Further

details on post model adjustments are outlined on pages 90 to

91.

The ECL allowance for the portfolio totalled € 0.2 billion providing

ECL allowance cover of 7%. For the Stage 3 portfolio, the ECL

allowance cover is 65%. (2021: € 0.2 billion, 8% and 64%

respectively).

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

106

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Property and construction

The following table analyses property and construction lending at amortised cost by segment, internal credit ratings and ECL staging at

31 December 2022 and 2021:


					2022*						2021*
	Retail Banking	Capital Markets		AIB UK	Group	Total	Retail Banking	Capital Markets		AIB UK		Group	Total
Gross carrying amount	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m		€ m	€ m
Investment:
Commercial investment	184		3,375	653	—	4,212	281		2,907	614		—	3,802
Residential investment	46		1,775	679	—	2,500	89		724	676		—	1,489
Total investment	230		5,150	1,332	—	6,712	370		3,631	1,290		—	5,291
Land and development:
Commercial development	56		209	53	—	318	106		377	34		—	517
Residential development	26		586	147	—	759	50		606	124		—	780
Total land and development	82		795	200	—	1,077	156		983	158		—	1,297
Contractors	140		88	51	—	279	110		78	115		—	303
Housing associations	—		133	416	—	549	—		108	361		—	469
Total	452		6,166	1,999	—	8,617	636		4,800	1,924		—	7,360

Analysed by internal credit ratings

Strong	117		4,866	1,142	—	6,125	113		3,187	1,061		—	4,361
Satisfactory	180		816	719	—	1,715	213		994	667		—	1,874
Total strong/satisfactory	297		5,682	1,861	—	7,840	326		4,181	1,728		—	6,235
Criticised watch	33		57	22	—	112	58		98	45		—	201
Criticised recovery	30		196	33	—	259	25		246	25		—	296
Total criticised	63		253	55	—	371	83		344	70		—	497
Non-performing	92		231	83	—	406	227		275	126		—	628
Gross carrying amount	452		6,166	1,999	—	8,617	636		4,800	1,924		—	7,360

Analysed by ECL staging
Stage 1	284		4,828	1,708	—	6,820	312		3,358	1,676		—	5,346
Stage 2	76		1,107	208	—	1,391	97		1,167	122		—	1,386
Stage 3	92		231	83	—	406	227		275	126		—	628
POCI	—		—	—	—	—	—		—	—		—	—
Total	452		6,166	1,999	—	8,617	636		4,800	1,924		—	7,360

ECL allowance – statement of financial position
Stage 1	1		65	18	—	84	5		33	12		—	50
Stage 2	6		103	8	—	117	10		77	4		—	91
Stage 3	30		60	29	—	119	107		39	26		—	172
POCI	—		—	—	—	—	—		—	—		—	—
Total	37		228	55	—	320	122		149	42		—	313

ECL allowance cover percentage	%		%	%	%	%	%		%	%		%	%
Stage 1	0.4		1.3	1.0	—	1.2	1.8		1.0	0.7		—	0.9
Stage 2	7.5		9.3	4.1	—	8.5	10.0		6.6	3.8		—	6.6
Stage 3	32.7		26.1	35.2	—	29.4	47.3		14.4	20.7		—	27.5
POCI	—		—	—	—	—	—		—	—		—	—

Income statement	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m		€ m	€ m
Net remeasurement of ECL allowance	(53)		77	26	—	50	3		(52)	(4)		0	(53)
Recoveries of amounts previously written-off	(10)		(2)	—	—	(12)	(18)		0	(1)		0	(19)
Net credit impairment (writeback)/charge	(63)		75	26	—	38	(15)		(52)	(5)		0	(72)

	%		%	%	%	%	%		%	%		%	%
Net credit impairment (writeback)/charge on average loans	(11.42)		1.37	1.31	—	0.48	(2.31)		(1.14)	(0.27)		—	(1.00)

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

107

2.1 Credit risk – Credit profile of the loan portfolio –

Asset class analysis

Loans and advances to customers – Property and

construction continued

The property and construction portfolio consists of € 8.6 billion in

loans and advances to customers measured at amortised cost

together with € 0.2 billion of loans measured at FVTPL (total €

8.8 billion).

The portfolio measured at amortised cost amounted to 14% of

loans and advances to customers and comprised of 78%

investment loans (€ 6.7 billion), 12% land and development loans

(€ 1.1 billion) and 10% other property and construction loans

(€ 0.8 billion). The Capital Markets and AIB UK segments continue

to account for the majority of this portfolio at 72% and 23%

respectively.

The portfolio measured at amortised cost increased by

€ 1.2 billion in the year as new lending of € 2.7 billion (2021:

€ 1.8 billion) was partially offset by redemptions/repayments net of

interest credited of € 1.9 billion and disposals of € 0.2 billion.

Increase in new lending was predominately in the Capital Markets

segment which increased by € 0.7 billion in the year. A further

€ 0.9 billion increase was due to the Ulster Bank portfolio

acquisition. At 31 December 2022, € 7.8 billion of the portfolio was

in a strong/satisfactory grade, which is an increase of € 1.6 billion

in the year. The level of non-performing loans have reduced by

€ 0.2 billion in the year to € 0.4 billion.

Property and construction loans measured at FVTPL remained

stable at € 226 million (2021: € 243 million).

Income statement

There was a net credit impairment charge of € 38 million to the

income statement in the year to 31 December 2022 compared to

a € 72 million writeback in 2021. This comprises a net

remeasurement of ECL allowance charge of € 50 million and

recoveries of previously written-off loans of € 12 million.

The key drivers of the net remeasurement of ECL allowance

charge of € 50 million consist of the following components and

activity:

•Credit quality remained relatively stable during the year as a

€ 24 million charge due to net stage movements was offset by a

€ 25 million writeback due to net remeasurements within stage.

New loans originating resulted in a € 23 million charge, however

this was also offset by a € 22 million writeback on loans fully

repaid.

•Post model adjustments resulted in a € 78 million charge. In

order to reflect the current uncertain economic environment,

additional ECLs have been taken to address these increased

risks through the use of post model adjustments which resulted

in a € 64 million charge during the year. In AIB UK, there was

also an additional € 20 million charge through the use of post

model adjustments driven by the macro economic adjustment to

reflect a greater impact within the downside scenarios than that

currently observed and to align the ECL outcome to alternative

NPE resolution strategies. Further details on post model

adjustments are outlined on pages 90 and 91.

•The impact of the updated macroeconomic scenarios and

weightings resulted in a € 28 million writeback.

The ECL allowance for the portfolio totalled € 0.3 billion providing

ECL allowance cover of 4%. For the Stage 3 portfolio, the ECL

allowance cover is 29% (2021: € 0.3 billion, 4% and 28%

respectively).

Investment

Investment property loans amounted to € 6.7 billion at 31

December 2022 (2021: € 5.3 billion) of which € 4.2 billion related

to commercial investment. The geographic profile of the

investment property portfolio is predominately in the Republic of

Ireland (€ 4.8 billion) and the United Kingdom (€ 1.4 billion).

Commercial Investment in the retail sector, including shopping

centres, were adversely impacted by COVID-19 and recovery has

been slow due to inflationary pressures on costs, with 44% of the

Group’s € 1.0 billion exposure to this sector now designated Stage

1. Other commercial investment loans have a stronger asset

quality profile with 77% of the Group’s € 3.2 billion exposure in

Stage 1.

At 31 December 2022, there was a net credit impairment charge

of € 57 million to the income statement on the investment property

element of the property and construction portfolio (2021: € 78

million writeback).

Land and development

Land and development loans amounted to € 1.1 billion at 31

December 2022 (2021: € 1.3 billion) of which € 0.8 billion related

to loans in the Capital Markets segment, € 0.1 billion in the Retail

Banking segment and € 0.2 billion in the AIB UK segment.

Lending activity in 2022 was aligned to market trends with private

rented sector, office and social housing sub sectors accounting for

the majority of new lending. Property development exposures

remained focused on the residential sector where the imbalance

between supply and demand persists. The outlook for the property

and construction portfolio is challenging with inflationary

pressures, interest rate movements and geopolitical events

impacting on market activity and confirming the need for additional

vigilance in monitoring at both a portfolio and individual

transaction level.

The income statement net credit impairment writeback for the year

was € 18 million (2021: € 5 million charge).

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

108

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Non-property business

The following table analyses non-property business lending at amortised cost by segment, internal credit ratings and ECL staging at

31 December 2022 and 2021:


					2022*						2021*
	Retail Banking	Capital Markets		AIB UK	Group	Total	Retail Banking	Capital Markets		AIB UK		Group	Total
Gross carrying amount	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m		€ m	€ m
Agriculture	1,191		398	67	—	1,656	1,232		351	94		—	1,677
Energy	21		1,395	1,398	—	2,814	21		996	1,197		—	2,214
Manufacturing	166		2,509	189	—	2,864	185		2,109	248		—	2,542
Distribution:
Hotels	109		1,164	431	—	1,704	146		1,136	806		—	2,088
Licensed premises	134		116	43	—	293	179		135	108		—	422
Retail/wholesale	431		1,185	160	—	1,776	474		1,040	233		—	1,747
Other distribution	89		190	86	—	365	93		195	140		—	428
	763		2,655	720	—	4,138	892		2,506	1,287		—	4,685
Transport	197		1,885	550	—	2,632	212		1,494	503		—	2,209
Financial	10		356	96	15	477	14		359	135		13	521
Other services	678		2,979	1,125	—	4,782	669		2,536	1,626		—	4,831
Total	3,026		12,177	4,145	15	19,363	3,225		10,351	5,090		13	18,679

Analysed by internal credit ratings

Strong	794		7,587	2,740	—	11,121	748		6,023	2,614		—	9,385
Satisfactory	1,627		3,010	633	15	5,285	1,566		2,799	1,333		13	5,711
Total strong/satisfactory	2,421		10,597	3,373	15	16,406	2,314		8,822	3,947		13	15,096
Criticised watch	180		429	142	—	751	307		337	204		—	848
Criticised recovery	84		980	367	—	1,431	104		1,058	483		—	1,645
Total criticised	264		1,409	509	—	2,182	411		1,395	687		—	2,493
Non-performing	341		171	263	—	775	500		134	456		—	1,090
Gross carrying amount	3,026		12,177	4,145	15	19,363	3,225		10,351	5,090		13	18,679

Analysed by ECL staging
Stage 1	2,374		9,951	3,032	15	15,372	2,328		8,062	3,470		13	13,873
Stage 2	312		2,055	850	—	3,217	398		2,155	1,164		—	3,717
Stage 3	340		171	263	—	774	499		134	456		—	1,089
POCI	—		—	—	—	—	—		—	—		—	—
Total	3,026		12,177	4,145	15	19,363	3,225		10,351	5,090		13	18,679

ECL allowance – statement of financial position
Stage 1	23		67	25	—	115	51		46	25		—	122
Stage 2	32		337	85	—	454	55		387	93		—	535
Stage 3	133		71	65	—	269	189		35	87		—	311
POCI	—		—	—	—	—	—		—	—		—	—
Total	188		475	175	—	838	295		468	205		—	968

ECL allowance cover percentage	%		%	%	%	%	%		%	%		%	%
Stage 1	1.0		0.7	0.8	—	0.7	2.2		0.6	0.7		—	0.9
Stage 2	10.3		16.4	10.0	—	14.1	13.9		18.0	7.9		—	14.4
Stage 3	39.1		41.5	24.7	—	34.8	37.9		26.2	19.2		—	28.6
POCI	—		—	—	—	—	—		—	—		—	—

Income statement	€ m		€ m	€ m	€ m	€ m	€ m		€ m	€ m		€ m	€ m
Net remeasurement of ECL allowance	(66)		19	30	—	(17)	12		(72)	—		—	(60)
Recoveries of amounts previously written-off	(9)		(1)	(3)	—	(13)	(12)		(2)	(2)		—	(16)
Net credit impairment (writeback)/charge	(75)		18	27	—	(30)	—		(74)	(2)		—	(76)

	%		%	%	%	%	%		%	%		%	%
Net credit impairment (writeback)/ charge on average loans	(2.42)		0.16	0.58	—	(0.16)	—		(0.72)	(0.04)		—	(0.40)

*Forms an integral part of the audited financial statements

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

109

2.1 Credit risk – Credit profile of the loan portfolio –

Asset class analysis

Loans and advances to customers – Non-property business

continued

The non-property business portfolio includes small and medium

enterprises (“SMEs”) which are reliant on the domestic economies

in which they operate. In addition to SMEs, the portfolio also

includes exposures to larger corporate and institutional borrowers

which are impacted by global economic conditions. The largest

geographic concentration of the portfolio exposure is to Irish

borrowers (52%) with the UK (26%) and USA (11%) being the

other main geographic concentrations.

The portfolio increased by € 0.7 billion to € 19.4 billion in the year

to 31 December 2022 (2021: € 18.7 billion). New lending

accounted for € 4.3 billion (2021: € 4.5 billion) with a further

€ 1.2 billion increase due to the Ulster Bank portfolio acquisition

which is spread across the majority of sub-sectors. Redemptions/

repayments net of interest credited accounted for € 4.3 billion and

portfolio disposals resulted in a further reduction of € 0.4 billion.

The non-property business portfolio amounted to 32% of total

Group loans and advances to customers in the year (2021: 32%).

The impact of COVID-19 on the asset quality of the portfolio has

eased with the timing of recovery dependent on sector specific

dynamics focused around inflationary pressure on costs. Loans

graded as strong/satisfactory improved in the year to 31

December 2022 at 85% (2021: 81%). The value of loans graded

less than satisfactory (including defaulted loans) decreased from

€ 3.6 billion at 31 December 2021 to € 3.0 billion at 31 December

2022. The performing forborne portfolio, seen in the criticised

recovery category, decreased by € 0.2 billion to € 1.4 billion in the

year (2021: € 1.6 billion).

Additional disclosures on the non-property business portfolio are

outlined on page 112.

The following are the key themes within the main sub-sectors of

the non-property business portfolio:

•The agriculture sub-sector represents 9% of the portfolio at

€ 1.7 billion. Overall, the sector has benefited from rising

commodity prices. Strong output prices have offset rising feed/

fertiliser/fuel costs in most sub-sectors and farm input costs are

expected to remain elevated in 2023. This, together with

sustainability and associated emissions reduction targets will be

key challenges facing the sector in 2023;

•The energy sub-sector comprises 14% of the portfolio at

€ 2.8 billion. This sub-sector continues to be a strong focus of

growth for the Group which reflects the increase of € 0.6 billion

in the year. This was driven by new lending to renewable energy

initiatives (wind and solar). The sector has proven resilient,

benefiting from higher prices and inflation adjustment

mechanisms;

•The manufacturing sub-sector comprises 15% of the portfolio at

€ 2.9 billion. Performance was stable as many operators

successfully passed through cost increases or mitigated

inflationary pressures through operational efficiencies. However

business conditions have weakened in the sector as growth and

new business have slowed down in the last quarter of 2022;

•The hotels sub-sector comprises 9% of the portfolio at

€ 1.7 billion. The sector performed strongly on a ‘Revenue per

Available Room’ basis owing to the release of pent-up demand,

a strong events calendar, pass-through of rising costs and

reduced supply as rooms are utilised for emergency refugee

accommodation. The outlook is however challenging owing to

ongoing operational cost inflation (energy, staffing, food and

beverage), potential recessionary impact on disposable income

and staff availability. Long-term industry dynamics, including

return of corporate travel, are uncertain;

•The licensed premises sub-sector comprises 1% of the portfolio

at € 0.3 billion. Already in decline, this sector was severely

negatively impacted by Government measures to contain

COVID-19. Trade has recovered albeit not to the same extent

as accommodation and regional differences are evident (e.g.

urban versus rural) while facing similar challenges in the hotels

sub-sector (inflation, staffing, consumer sentiment);

•The retail/wholesale sub-sector comprises 9% of the portfolio at

€ 1.8 billion. Grocery retail/wholesalers continue to trade well

with many businesses experiencing increases in profitability

despite increased costs which are being passed through.

Outlook is more challenging for cyclical high discretionary retail

which faces challenges including inflation and associated

interest rate increases/impact on disposable incomes and

continued shift in industry dynamics including the transition of

‘bricks and mortar’ to online;

•The transport sub-sector comprises 14% of the portfolio at

€ 2.6 billion and consists primarily of logistic, storage and travel

businesses. Cost challenges remain due to border/custom

delays, fuel costs, labour (cost and availability) and upgrading to

greener fleets. Larger haulage operators benefit from fuel

surcharge agreements allowing the efficient pass through of

price increases. Demand for logistics and warehousing remains

strong following increased online retail purchasing during

COVID-19 albeit light and heat cost is a key consideration. The

travel sector has rebounded but challenges remain due to

inflation and potential recessionary impacts on disposable

income;

•The financial sub-sector comprises 2% of the portfolio at

€ 0.5 billion. This sub-sector is proving resilient; and

•The other services sub-sector comprises 25% of the portfolio

a € 4.8 billion, which includes businesses such as solicitors,

accounting, audit, tax, computer services, research and

development, consultancy, hospitals and nursing homes.

Overall, performance within this sub-sector will have been more

adversely affected by inflationary pressures.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

110

2.1 Credit risk – Credit profile of the loan portfolio –

Asset class analysis

Loans and advances to customers – Non-property business

continued

Income statement

There was a net credit impairment writeback of € 30 million to the

income statement in the year to 31 December 2022 compared to

a € 76 million writeback in 2021. This comprises a net

remeasurement of ECL allowance writeback of € 17 million and

recoveries of previously written-off loans of € 13 million.

The key drivers of the net remeasurement of ECL allowance

writeback of € 17 million consist of the following components and

activity:

•Credit quality remained stable as a € 39 million writeback was

largely due to full repayments of € 64 million which was partially

offset by an ECL charge of € 29 million on new loans.

•Post model adjustments resulted in a € 22 million charge. In

order to reflect the current uncertain economic environment,

additional ECLs have been taken to address these increased

risks through the use of post model adjustments which resulted

in a € 42 million charge during the year. This was offset by an

€ 82 million writeback due to the release of COVID-19 post

model adjustments. There was also a € 13 million charge

relating to the NPE resolution post model adjustment. In AIB UK,

there was a further € 56 million charge relating to post model

adjustments driven by the macro economic adjustment to reflect

a greater impact within the downside scenarios than that

currently observed and to align the ECL outcome to alternative

NPE resolution strategies. Further details on post model

adjustments are outlined on pages 90 and 91.

The ECL allowance for the portfolio totalled € 0.8 billion providing

ECL allowance cover of 4%. For the Stage 3 portfolio, the ECL

allowance cover is 35% (2021: € 1.0 billion, 5% and 29%

respectively).

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

111

2.1 Credit risk – Credit profile of the loan portfolio – Asset class analysis

Loans and advances to customers – Non-property business continued

Additional disclosures

The following table provides further analyses by industry sector of the non-property business portfolio, by gross carrying amount and

ECL allowance at 31 December 2022 and 2021. Given the international profile of the Syndicated & International Finance ("SIF")

business, all exposures within this business unit are reported separately.


										2022
	Analysed by ECL stage profile				Gross carrying amount		Analysed by ECL stage profile				ECL allowance
		Stage 1	Stage 2	Stage 3	Gross carrying amount			Stage 1	Stage 2	Stage 3	ECL allowance
		€ m	€ m	€ m		€ m		€ m	€ m	€ m		€ m
Agriculture		1,355	228	67		1,650		10	18	24		52
Energy		2,626	144	29		2,799		14	19	23		56
Manufacturing		1,839	134	67		2,040		12	16	24		52
Distribution:
Hotels		263	1,137	221		1,621		14	158	40		212
Licensed premises		86	114	93		293		1	22	31		54
Retail/Wholesale		1,284	213	77		1,574		10	24	33		67
Other distribution		188	23	15		226		1	3	7		11
		1,821	1,487	406		3,714		26	207	111		344
Transport		1,814	235	28		2,077		8	22	19		49
Financial		220	3	1		224		2	—	—		2
Other services		3,279	437	140		3,856		24	45	55		124
Total		12,954	2,668	738		16,360		96	327	256		679
SIF		2,418	549	36		3,003		19	127	13		159
Total		15,372	3,217	774		19,363		115	454	269		838


										2021
	Analysed by ECL stage profile				Gross carrying amount		Analysed by ECL stage profile				ECL allowance
		Stage 1	Stage 2	Stage 3	Gross carrying amount			Stage 1	Stage 2	Stage 3	ECL allowance
		€ m	€ m	€ m		€ m		€ m	€ m	€ m		€ m
Agriculture		1,397	188	87		1,672		9	13	36		58
Energy		2,054	139	2		2,195		11	19	2		32
Manufacturing		1,322	264	56		1,642		8	15	15		38
Distribution:
Hotels		119	1,524	362		2,005		9	255	44		308
Licensed premises		83	199	140		422		4	34	36		74
Retail/Wholesale		1,171	184	146		1,501		17	26	53		96
Other distribution		222	40	25		287		5	6	12		23
		1,595	1,947	673		4,215		35	321	145		501
Transport		1,306	271	43		1,620		7	26	25		58
Financial		264	14	4		282		2	1	2		5
Other services		3,031	497	210		3,738		26	42	84		152
Total		10,969	3,320	1,075		15,364		98	437	309		844
SIF		2,904	397	14		3,315		24	98	2		124
Total		13,873	3,717	1,089		18,679		122	535	311		968

The Syndicated & International Finance (“SIF”) business unit,

which is a specialised lending unit within Capital Markets, is

involved in participating in the provision of finance to US and

European corporations for mergers, acquisitions, buy-outs and

general corporate purposes. The SIF non-property portfolio has

reduced by € 0.3 billion to € 3.0 billion at 31 December 2022

(2021: € 3.3 billion).

At 31 December 2022, 94% of the SIF lending portfolio is in a

strong/satisfactory grade (2021: 94%). 86% of the SIF portfolio is

rated by S&P, with 66% rated B+ or above, 16% rated B and 4%

rated B- or below. The majority of the loans (74%) are to large

borrowers with EBITDA > € 250 million. Exposures are well

diversified by name and sector with the top 20 borrowers

accounting for 28% of total exposure. 62% of the borrowers in this

portfolio are domiciled in the USA, 4% in the UK, and 34% in the

Rest of the World (primarily Europe) (2021: 63% in the USA, 3%

in the UK and 34% in the Rest of the World (primarily Europe)

respectively).

The SIF portfolio had a net credit impairment charge to the

income statement in 2022 of € 32 million (2021: € 12 million

writeback).

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

112

2.1 Credit risk – Credit profile of the loan portfolio

The following tables set out the concentration of credit by industry sector and geography for loans and advances to customers and loan

commitments and financial guarantee contracts issued together with the related ECL allowance analysed by the ECL stage profile at 31

December 2022 and 2021:

Gross exposures to customers


												2022
	At amortised cost												At FVTPL
	Gross carrying amount						Analysed by stage profile
	Loans and advances to customers		Loan commitments and financial guarantees issued		Total			Stage 1	Stage 2	Stage 3	POCI	Total		Total
Concentration by industry sector		€ m		€ m		€ m		€ m	€ m	€ m	€ m	€ m		€ m
Non-property business:
Agriculture		1,656		668		2,324		1,975	270	79	—	2,324		—
Energy		2,814		1,668		4,482		4,240	213	29	—	4,482		9
Manufacturing		2,864		1,939		4,803		4,318	397	88	—	4,803		—
Distribution		4,138		1,580		5,718		3,378	1,908	432	—	5,718		14
Transport		2,632		914		3,546		3,196	310	40	—	3,546		—
Financial		477		572		1,049		972	76	1	—	1,049		—
Other services		4,782		2,103		6,885		6,049	679	157	—	6,885		—
Property and construction		8,617		2,384		11,001		9,056	1,509	436	—	11,001		226
Residential mortgages		30,279		1,168		31,447		29,553	1,161	646	87	31,447		—
Other personal		2,723		2,866		5,589		4,810	591	188	—	5,589		—
Total		60,982		15,862		76,844		67,547	7,114	2,096	87	76,844		249
Concentration by location(1)
Republic of Ireland		48,061		11,971		60,032		53,343	5,125	1,477	87	60,032		249
United Kingdom		8,087		2,976		11,063		9,322	1,339	402	—	11,063		—
North America		2,116		375		2,491		2,158	312	21	—	2,491		—
Rest of the World		2,718		540		3,258		2,724	338	196	—	3,258		—
		60,982		15,862		76,844		67,547	7,114	2,096	87	76,844		249

ECL allowance


												2022
	At amortised cost
	Gross carrying amount						Analysed by stage profile
	Loans and advances to customers		Loan commitments and financial guarantees issued		Total			Stage 1	Stage 2	Stage 3	POCI	Total
Concentration by industry sector		€ m		€ m		€ m		€ m	€ m	€ m	€ m	€ m
Non-property business:
Agriculture		54		3		57		11	20	26	—	57
Energy		56		8		64		16	25	23	—	64
Manufacturing		89		11		100		23	49	28	—	100
Distribution		398		14		412		30	269	113	—	412
Transport		65		1		66		12	30	24	—	66
Financial		31		—		31		3	28	—	—	31
Other services		145		10		155		33	63	59	—	155
Property and construction		320		23		343		90	121	132	—	343
Residential mortgages		283		—		283		40	37	197	9	283
Other personal		177		8		185		26	43	116	—	185
Total		1,618		78		1,696		284	685	718	9	1,696
Concentration by location(1)
Republic of Ireland		1,159		64		1,223		204	442	568	9	1,223
United Kingdom		250		11		261		51	111	99	—	261
North America		64		3		67		13	47	7	—	67
Rest of the World		145		—		145		16	85	44	—	145
		1,618		78		1,696		284	685	718	9	1,696

(1) Based on country of risk.

Annual Review

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Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

113

2.1 Credit risk – Credit profile of the loan portfolio

Gross exposures to customers


												2021
	At amortised cost												At FVTPL
	Gross carrying amount						Analysed by stage profile
	Loans and advances to customers		Loan commitments and financial guarantees issued		Total			Stage 1	Stage 2	Stage 3	POCI	Total		Total
Concentration by industry sector		€ m		€ m		€ m		€ m	€ m	€ m	€ m	€ m		€ m
Non-property business:
Agriculture		1,677		614		2,291		1,970	223	98	—	2,291		—
Energy		2,214		1,100		3,314		3,130	146	38	—	3,314		—
Manufacturing		2,542		1,733		4,275		3,821	387	67	—	4,275		—
Distribution		4,685		1,308		5,993		2,880	2,404	709	—	5,993		—
Transport		2,209		632		2,841		2,448	347	46	—	2,841		—
Financial		521		504		1,025		957	65	3	—	1,025		—
Other services		4,831		2,189		7,020		6,108	686	226	—	7,020		—
Property and construction		7,360		2,365		9,725		7,571	1,483	671	—	9,725		243
Residential mortgages		29,407		1,245		30,652		28,167	1,452	930	103	30,652		—
Other personal		2,704		2,856		5,560		4,909	393	258	—	5,560		—
Total		58,150		14,546		72,696		61,961	7,586	3,046	103	72,696		243
Concentration by location(1)
Republic of Ireland		44,583		11,306		55,889		48,089	5,556	2,141	103	55,889		243
United Kingdom		8,605		2,572		11,177		8,993	1,486	698	—	11,177		—
North America		2,232		182		2,414		2,196	206	12	—	2,414		—
Rest of the World		2,730		486		3,216		2,683	338	195	—	3,216		—
		58,150		14,546		72,696		61,961	7,586	3,046	103	72,696		243

ECL allowance


												2021
	At amortised cost
	Gross carrying amount						Analysed by stage profile
	Loans and advances to customers		Loan commitments and financial guarantees issued		Total			Stage 1	Stage 2	Stage 3	POCI	Total
Concentration by industry sector		€ m		€ m		€ m		€ m	€ m	€ m	€ m	€ m
Non-property business:
Agriculture		59		4		63		10	15	38	—	63
Energy		32		1		33		13	18	2	—	33
Manufacturing		53		9		62		17	27	18	—	62
Distribution		557		20		577		40	388	149	—	577
Transport		67		3		70		11	34	25	—	70
Financial		25		2		27		5	20	2	—	27
Other services		175		13		188		41	62	85	—	188
Property and construction		313		20		333		53	93	187	—	333
Residential mortgages		382		—		382		35	41	275	31	382
Other personal		222		7		229		32	38	159	—	229
Total		1,885		79		1,964		257	736	940	31	1,964
Concentration by location(1)
Republic of Ireland		1,471		62		1,533		182	516	804	31	1,533
United Kingdom		266		13		279		44	109	126	—	279
North America		50		3		53		19	32	2	—	53
Rest of the World		98		1		99		12	79	8	—	99
		1,885		79		1,964		257	736	940	31	1,964

(1) Based on country of risk.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

114

2.1 Credit risk – Credit profile of the loan portfolio

Aged analysis of contractually past due loans and advances to customers

The following table shows aged analysis of contractually past due loans and advances to customers by industry sector analysed by

ECL staging and segment at 31 December 2022 and 2021.

At amortised cost


												2022
	1-30 days		31-60 days		61-90 days		91-180 days		181-365 days		> 365 days		Total
Industry sector		€ m		€ m		€ m		€ m		€ m		€ m	€ m
Non-property business:
Agriculture		9		3		1		2		4		15	34
Energy		18		—		—		—		1		—	19
Manufacturing		8		2		1		1		3		6	21
Distribution		61		6		2		13		40		60	182
Transport		1		—		—		—		3		6	10
Financial		—		—		—		—		—		1	1
Other services		14		4		3		7		12		28	68
Property and construction		64		14		18		19		45		53	213
Residential mortgages		67		19		20		33		60		209	408
Other personal		39		12		7		21		30		88	197
Total gross carrying amount		281		60		52		96		198		466	1,15 3

ECL staging
Stage 1		85		—		—		—		—		—	85
Stage 2		128		39		19		—		—		—	186
Stage 3		67		21		33		96		197		461	875
POCI		1		—		—		—		1		5	7
		281		60		52		96		198		466	1,15 3

Segment
Retail Banking		129		39		35		72		144		408	827
Capital Markets		13		2		—		18		9		21	63
AIB UK		139		19		17		6		45		37	263
Group		—		—		—		—		—		—	—
		281		60		52		96		198		466	1,15 3

As a percentage of total gross loans at amortised cost		%		%		%		%		%		%	%
		0.46		0.10		0.09		0.16		0.32		0.76	1.89

The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits.

There were no contractually past due loans measured at FVTPL at 31 December 2022 and 2021.

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115

2.1 Credit risk – Credit profile of the loan portfolio

Aged analysis of contractually past due loans and advances to customers continued

At amortised cost


												2021
	1-30 days		31-60 days		61-90 days		91-180 days		181-365 days		> 365 days		Total
Industry sector		€ m		€ m		€ m		€ m		€ m		€ m	€ m
Non-property business:
Agriculture		14		5		1		5		4		21	50
Energy		—		—		—		—		—		2	2
Manufacturing		4		2		—		2		3		8	19
Distribution		34		8		13		47		64		85	251
Transport		6		2		1		13		1		8	31
Financial		—		—		—		—		1		2	3
Other services		25		17		1		12		9		42	106
Property and construction		30		10		4		14		50		163	271
Residential mortgages		50		34		14		42		68		322	530
Other personal		40		10		9		21		29		139	248
Total gross carrying amount		203		88		43		156		229		792	1,511

ECL staging
Stage 1		65		—		—		—		—		—	65
Stage 2		86		43		15		—		—		—	144
Stage 3		52		43		27		155		228		786	1,291
POCI		—		2		1		1		1		6	11
		203		88		43		156		229		792	1,511

Segment
Retail Banking		119		58		35		104		144		688	1,148
AIB Capital Markets		17		14		—		19		52		47	149
AIB UK		67		16		8		33		33		57	214
Group		—		—		—		—		—		—	—
		203		88		43		156		229		792	1,511

As a percentage of total gross loans at amortised cost		%		%		%		%		%		%	%
		0.35		0.15		0.07		0.27		0.39		1.36	2.60

At 31 December 2022, total loans past due reduced by € 0.3

billion to € 1.2 billion or 1.9% of total loans and advances to

customers (2021: € 1.5 billion or 2.6%).

The reduction in the total loans past due portfolio was in the >365

days category and predominately in the non-property business

and residential mortgage portfolios as both reduced by € 0.1

billion as a result of non-performing portfolio sales completed

during the year.

Residential Mortgage loans past due at 31 December 2022

represent the largest concentration amounting to € 0.4 billion or

35% of total loans past due (2021: € 0.5 billion or 35%).

Non-property business loans which were past due represent 29%

or € 0.4 billion (2021: 31% or € 0.5 billion), with property and

construction at 19% or € 0.2 billion (2021: 18% or € 0.3 billion),

and other personal at 17% or € 0.2 billion (2021: 16% or € 0.2

billion).

All loans past due by 90 days or more on any material obligation

are considered non-performing/defaulted.

RISK MANAGEMENT CONTINUED

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116

2.1 Credit risk – Credit profile of the loan portfolio

Loans written-off and recoveries of previously written-off loans

The following table analyses loans written-off and recoveries of previously written-off loans by geography and industry sector for the

years ended 31 December 2022 and 2021:


		2022				2021
	Loans written-off		Recoveries of amounts previously written-off		Loans written-off		Recoveries of amounts previously written-off
Concentration by industry sector		€ m		€ m		€ m		€ m
Non-property business:
Agriculture		—		1.5		0.9		3.9
Energy		—		—		—		0.3
Manufacturing		0.1		1.1		1.8		0.8
Distribution		3.6		6.0		6.8		5.6
Transport		3.0		0.4		0.1		0.4
Financial		0.1		0.1		0.1		—
Other services		16.1		3.9		5.2		5.4
Property and construction		19.2		12.2		24.6		19.4
Residential mortgages		19.7		14.6		44.4		24.8
Other personal		32.1		5.0		21.4		14.8
Total		93.9		44.8		105.3		75.4
Concentration by location(1)
Republic of Ireland		73.5		39.7		88.6		70.5
United Kingdom		20.4		4.1		15.2		4.6
Rest of the World		—		1.0		1.5		0.3
		93.9		44.8		105.3		75.4

(1) By country of risk

The contractual amount outstanding of loans written-off during the year that are subject to enforcement activity amounted to € 8 million

(2021: € 5 million) which includes both full and partial write-offs. Total cumulative non-contracted loans written-off at 31 December 2022

has reduced to € 261 million following the non-performing loan portfolio sales completed during the year (2021: € 1,082 million).*

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

117

2.1 Credit risk – Credit profile of the loan portfolio

Gross loans(1) and ECL movements

The following tables set out the movements in the gross carrying amount and ECL allowance for loans and advances to customers by

ECL staging between 1 January 2022 and 31 December 2022 and the corresponding movements between 1 January 2021 and 31

December 2021.

Accounts that triggered movements between Stage 1 and Stage 2 as a result of failing/curing a quantitative measure only (as disclosed

on pages 80 and 81) and that subsequently reverted within the year to their original stage, are excluded from ‘Transferred from Stage 1

to Stage 2’ and ‘Transferred from Stage 2 to Stage 1’. The Group believes this presentation aids the understanding of the underlying

credit migration.

Gross carrying amount movements – total


					2022*
	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m
At 1 January	48,394	6,768	2,885	103	58,150
Transferred from Stage 1 to Stage 2	(3,599)	3,599	—	—	—
Transferred from Stage 2 to Stage 1	2,317	(2,317)	—	—	—
Transferred to Stage 3	(91)	(623)	714	—	—
Transferred from Stage 3	39	301	(340)	—	—
New loans originated/top-ups (2)	14,594	—	—	—	14,594
Redemptions/repayments	(10,071)	(1,768)	(657)	(12)	(12,508)
Interest credited	1,566	202	71	2	1,841
Write-offs	—	—	(94)	—	(94)
Derecognised due to disposals	(151)	(109)	(541)	(6)	(807)
Exchange translation adjustments	(212)	(69)	(25)	—	(306)
Impact of model, parameter and overlay changes	—	—	—	—	—
Other movements	76	52	(16)	—	112
At 31 December	52,862	6,036	1,997	87	60,982


					2021*
	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m
At 1 January	45,609	9,408	4,075	184	59,276
Transferred from Stage 1 to Stage 2	(3,817)	3,817	—	—	—
Transferred from Stage 2 to Stage 1	4,012	(4,012)	—	—	—
Transferred to Stage 3	(116)	(912)	1,028	—	—
Transferred from Stage 3	55	335	(390)	—	—
New loans originated/top-ups	10,460	—	—	—	10,460
Redemptions/repayments	(9,324)	(2,390)	(751)	(16)	(12,481)
Interest credited	1,363	240	69	4	1,676
Write-offs	—	—	(104)	(1)	(105)
Derecognised due to disposals	(295)	(138)	(988)	(72)	(1,493)
Exchange translation adjustments	641	170	45	—	856
Impact of model, parameter and overlay changes	(209)	209	—	—	—
Other movements	15	41	(99)	4	(39)
At 31 December	48,394	6,768	2,885	103	58,150

(1) Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.

(2) Includes € 2.1 billion of loans acquired from Ulster Bank.

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

118

2.1 Credit risk – Credit profile of the loan portfolio

Gross loans and ECL movements continued

ECL allowance movements – total


					2022*
	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m
At 1 January	236	700	918	31	1,885
Transferred from Stage 1 to Stage 2	(40)	146	—	—	106
Transferred from Stage 2 to Stage 1	30	(102)	—	—	(72)
Transferred to Stage 3	(3)	(71)	126	—	52
Transferred from Stage 3	3	39	(91)	—	(49)
Net remeasurement	31	(16)	(16)	(5)	(6)
New loans originated/top-ups	66	—	—	—	66
Redemptions/repayments	(26)	(67)	—	—	(93)
Impact of model and overlay changes	21	20	48	(12)	77
Impact of credit or economic risk parameters	(59)	22	6	—	(31)

Income statement net credit impairment (writeback)/charge(1)	23	(29)	73	(17)	50
Write-offs	—	—	(94)	—	(94)
Derecognised due to disposals	(1)	(7)	(202)	—	(210)
Exchange translation adjustments	(1)	(5)	(7)	—	(13)
Other movements	6	(13)	12	(5)	—
At 31 December	263	646	700	9	1,618

(1) Net credit impairment charge of € 50 million includes the impact of the Ulster Bank portfolio acquired during the year which resulted in a net charge of € 39

million.


					2021*
	Stage 1	Stage 2	Stage 3	POCI	Total
	€ m	€ m	€ m	€ m	€ m
At 1 January	281	845	1,315	69	2,510
Transferred from Stage 1 to Stage 2	(61)	204	—	—	143
Transferred from Stage 2 to Stage 1	87	(194)	—	—	(107)
Transferred to Stage 3	(7)	(125)	213	—	81
Transferred from Stage 3	3	32	(73)	—	(38)
Net remeasurement	(43)	(38)	(153)	—	(234)
New loans originated/top-ups	62	—	—	—	62
Redemptions/repayments	(25)	(43)	—	—	(68)
Impact of model and overlay changes	(4)	53	99	(13)	135
Impact of credit or economic risk parameters	(58)	(41)	(33)	—	(132)

Income statement net credit impairment (writeback)/charge	(46)	(152)	53	(13)	(158)
Write-offs	—	—	(104)	(1)	(105)
Derecognised due to disposals	(4)	(8)	(357)	(24)	(393)
Exchange translation adjustments	5	15	11	—	31
Other movements	—	—	—	—	—
At 31 December	236	700	918	31	1,885

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

119

2.1 Credit risk – Credit profile of the loan portfolio

Gross loans and ECL movements continued

Total exposures to which an ECL applies increased during the

year by € 2.8 billion from € 58.2 billion at 1 January 2022 to € 61.0

billion at 31 December 2022.

Model and overlay changes resulted in an ECL charge of € 77

million and further detail on the changes is outlined within the

management judgements section on pages 90 and 91. These

ensure exposures subject to risk, which are not adequately

reflected in the modelled outcomes retain an appropriate ECL.

The updated macroeconomic scenarios and weightings resulted in

a release of € 31 million. This ECL movement is presented

separately within ‘Impact of credit or economic risk parameters’.

This release was most significant within the property and

construction portfolio accounting for a release of € 28 million

within the portfolio. This was driven by an improvement in

macroeconomic forecasts in particular lower forecast

unemployment and is offset by an ECL charge resulting from

overlay changes.

Stage transfers are a key component of ECL allowance

movements (i.e. Stage 1 to Stage 2 to Stage 3 and vice versa) in

addition to the net remeasurement of ECL due to change in risk

parameters within a stage. An ECL charge of € 4 million due to

stage transfers and net remeasurement within stage occurred due

to underlying credit management activity and improvement in

credit parameters which inform the modelled outcomes.

The gross loan transfers from Stage 1 to Stage 2 of € 3.6 billion

are due to underlying credit management activity where a

significant increase in credit risk occurred at some point during the

year through either the quantitative or qualitative criteria for stage

movement. 47% of the movements relied on a qualitative or

backstop indicator of significant increase in credit risk (e.g.

forbearance or movement to a watch grade) with 4% caused

solely by the backstop of 30 days past due. Of the € 3.6 billion

which transferred from Stage 1 to Stage 2 in the year

approximately € 2.3 billion is reported as Stage 2 at 31 December

2022.

Where a movement to Stage 2 is triggered by multiple drivers

simultaneously these are reported in the following order:

quantitative; qualitative; backstop.

Similarly, transfers from Stage 2 to Stage 1 of € 2.3 billion

represent those loans where the triggers for significant increase in

credit risk no longer apply or loans that have fulfilled a probation

period. These transfers include loans which have been upgraded

through normal credit management process and incorporates

loans which transferred due to the impact of the updated

macroeconomic scenarios and weightings.

Transfers from Stage 2 to Stage 3 of € 0.6 billion represent those

loans that defaulted during the year. These arose in cases where

it was determined that the customers were unlikely to pay their

loans in full without the realisation of collateral regardless of the

existence of any past due amount or the number of days past

due. In addition, transfers also include all borrowers that are 90

days or more past due on a material obligation. Of the transfers

from Stage 2 to Stage 3 € 0.2 billion had transferred from Stage 1

to Stage 2 earlier in the year.

Transfers from Stage 3 to Stage 2 of € 0.3 billion were mainly

driven by resolution activity with the customer, through either

restructuring or forbearance previously granted and which

subsequently adhered to default probation requirements. As part

of the credit management practices, active monitoring of loans

and their adherence to default probation requirements is in place.

In summary, the staging movements of the overall portfolio were

as follows:

Stage 1 loans increased by € 4.5 billion in the year to € 52.9 billion

with an ECL of € 0.3 billion and resulting cover of 0.5% (2021:

0.5%).

Stage 2 loans decreased by € 0.8 billion in the year to € 6.0 billion

with an ECL of € 0.6 billion and resulting cover of 10.7% (2021:

10.3%). This was primarily driven by repayments of loans during

the year.

Stage 3 exposures decreased by € 0.9 billion in the year to € 2.0

billion with the ECL cover increasing from 31.8% to 35.1%. The

decrease was primarily due to the sales of non-performing loan

portfolios completed during the year.

Further details on stage movements by asset class are set out in

the following tables:

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

120

2.1 Credit risk – Credit profile of the loan portfolio

Gross loans(1) and ECL movements continued

The following tables set out the movements in the gross carrying amount and ECL allowance for loans and advances to customers by asset class and ECL staging for the year to

31 December 2022 and 2021:

Gross carrying amount movements – Asset class


																		2022
			Residential mortgages				Other personal			Property and construction						Non-property business
	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	Total € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	Total € m
At 1 January	26,937	1,446	921	103	29,407	2,238	219	247	2,704	5,346	1,386	628	—	7,360	13,873	3,717	1,089	18,679
Transferred from Stage 1 to Stage 2	(1,120)	1,120	—	—	—	(377)	377	—	—	(680)	680	—	—	—	(1,422)	1,422	—	—
Transferred from Stage 2 to Stage 1	1,195	(1,195)	—	—	—	173	(173)	—	—	311	(311)	—	—	—	638	(638)	—	—
Transferred to Stage 3	(33)	(197)	230	—	—	(12)	(87)	99	—	(7)	(76)	83	—	—	(39)	(263)	302	—
Transferred from Stage 3	12	181	(193)	—	—	1	17	(18)	—	10	30	(40)	—	—	16	73	(89)	—
New loans originated/top-ups	4,660	—	—	—	4,660	974	—	—	974	3,409	—	—	—	3,409	5,551	—	—	5,551
Redemptions/repayments	(3,917)	(225)	(133)	(12)	(4,287)	(915)	(98)	(55)	(1,068)	(1,653)	(376)	(164)	—	(2,193)	(3,586)	(1,069)	(305)	(4,960)
Interest credited	674	27	18	2	721	152	23	8	183	211	38	16	—	265	529	114	29	672
Write-offs	—	—	(20)	—	(20)	—	—	(32)	(32)	—	—	(19)	—	(19)	—	—	(23)	(23)
Derecognised due to disposals	(1)	(8)	(179)	(6)	(194)	(2)	—	(73)	(75)	(37)	(10)	(96)	—	(143)	(111)	(91)	(193)	(395)
Exchange translation adjustments	(52)	(2)	(2)	—	(56)	(4)	(1)	—	(5)	(91)	(10)	(5)	—	(106)	(65)	(56)	(18)	(139)
Impact of model, parameter and overlay changes	—	—	—	—	—	—	—	—	—	—	—	—	—	—	—	—	—	—
Other movements	41	11	(4)	—	48	46	(7)	3	42	1	40	3	—	44	(12)	8	(18)	(22)
At 31 December	28,396	1,158	638	87	30,279	2,274	270	179	2,723	6,820	1,391	406	—	8,617	15,372	3,217	774	19,363


																		2021
			Residential mortgages				Other personal			Property and construction						Non-property business
	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	Total € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	POCI € m	Total € m	Stage 1 € m	Stage 2 € m	Stage 3 € m	Total € m
At 1 January	26,535	1,950	1,980	184	30,649	2,201	332	233	2,766	4,319	2,076	865	—	7,260	12,554	5,050	997	18,601
Transferred from Stage 1 to Stage 2	(1,173)	1,173	—	—	—	(252)	252	—	—	(677)	677	—	—	—	(1,715)	1,715	—	—
Transferred from Stage 2 to Stage 1	1,493	(1,493)	—	—	—	211	(211)	—	—	581	(581)	—	—	—	1,727	(1,727)	—	—
Transferred to Stage 3	(34)	(191)	225	—	—	(13)	(80)	93	—	(25)	(106)	131	—	—	(44)	(535)	579	—
Transferred from Stage 3	11	170	(181)	—	—	3	18	(21)	—	15	29	(44)	—	—	26	118	(144)	—
New loans originated/top-ups	3,136	—	—	—	3,136	859	—	—	859	1,842	—	—	—	1,842	4,623	—	—	4,623
Redemptions/repayments	(3,749)	(233)	(169)	(16)	(4,167)	(961)	(111)	(56)	(1,128)	(902)	(783)	(158)	—	(1,843)	(3,712)	(1,263)	(368)	(5,343)
Interest credited	655	32	19	4	710	193	25	5	223	145	47	15	—	207	370	136	30	536
Write-offs	—	—	(43)	(1)	(44)	—	—	(21)	(21)	—	—	(25)	—	(25)	—	—	(15)	(15)
Derecognised due to disposals	—	(3)	(925)	(72)	(1,000)	(19)	(1)	(3)	(23)	(116)	(20)	(13)	—	(149)	(160)	(114)	(47)	(321)
Exchange translation adjustments	67	3	6	—	76	6	1	—	7	110	18	12	—	140	458	148	27	633
Impact of model, parameter and overlay changes	(1)	1	—	—	—	(1)	1	—	—	(19)	19	—	—	—	(188)	188	—	—
Other movements	(3)	37	9	4	47	11	(7)	17	21	73	10	(155)	—	(72)	(66)	1	30	(35)
At 31 December	26,937	1,446	921	103	29,407	2,238	219	247	2,704	5,346	1,386	628	—	7,360	13,873	3,717	1,089	18,679

(1) Movements on the gross loans table have been prepared on a ‘sum of the months’ basis.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

121

2.1 Credit risk – Credit profile of the loan portfolio

Gross loans and ECL movements continued

ECL allowance movements – Asset class


																																				2022
						Residential mortgages								Other personal						Property and construction												Non-property business
	Stage 1 € m		Stage 2 € m		Stage 3 € m		POCI € m		Total € m		Stage 1 € m		Stage 2 € m		Stage 3 € m		Total € m		Stage 1 € m		Stage 2 € m		Stage 3 € m		POCI € m		Total € m		Stage 1 € m		Stage 2 € m		Stage 3 € m		Total € m
At 1 January		34		41		276		31		382		30		33		159		222		50		91		172		—		313		122		535		311		968
Transferred from Stage 1 to Stage 2		(2)		20						18		(8)		58				50		(14)		41						27		(16)		27				11
Transferred from Stage 2 to Stage 1		9		(22)						(13)		4		(25)				(21)		3		(8)						(5)		14		(47)				(33)
Transferred to Stage 3		—		(7)		14				7		—		(30)		47		17		—		(9)		19				10		(3)		(25)		46		18
Transferred from Stage 3		1		24		(51)				(26)		—		4		(10)		(6)		—		4		(12)				(8)		2		7		(18)		(9)
Net re-measurement		4		8		3		(5)		10		(8)		(2)		10		—		2		(19)		(8)		—		(25)		33		(3)		(21)		9
New loans originated/top-ups		3		—		—		—		3		11		—		—		11		23		—		—		—		23		29		—		—		29
Redemptions/repayments		(1)		(3)		—		—		(4)		(2)		(1)		—		(3)		(14)		(8)		—		—		(22)		(9)		(55)		—		(64)
Impact of model and overlay changes		(3)		(21)		31		(12)		(5)		1		(2)		(17)		(18)		40		33		5		—		78		(17)		10		29		22
Impact of credit or economic risk parameters		—		1		4		—		5		(8)		1		(1)		(8)		(17)		(14)		3		—		(28)		(34)		34		—		—

Net credit impairment (writeback)/charge		11		—		1		(17)		(5)		(10)		3		29		22		23		20		7		—		50		(1)		(52)		36		(17)
Write-offs		—		—		(20)		—		(20)		—		—		(32)		(32)		—		—		(19)		—		(19)		—		—		(23)		(23)
Derecognised due to disposals		—		(3)		(68)		—		(71)		—		—		(35)		(35)		—		—		(34)		—		(34)		(1)		(4)		(65)		(70)
Exchange translation adjustments		—		—		—		—		—		—		—		—		—		(1)		—		(2)		—		(3)		—		(5)		(5)		(10)
Other movements		(5)		—		7		(5)		(3)		4		1		(5)		—		12		6		(5)		—		13		(5)		(20)		15		(10)
At 31 December		40		38		196		9		283		24		37		116		177		84		117		119		—		320		115		454		269		838


																																				2021
						Residential mortgages								Other personal						Property and construction												Non-property business
	Stage 1 € m		Stage 2 € m		Stage 3 € m		POCI € m		Total € m		Stage 1 € m		Stage 2 € m		Stage 3 € m		Total € m		Stage 1 € m		Stage 2 € m		Stage 3 € m		POCI € m		Total € m		Stage 1 € m		Stage 2 € m		Stage 3 € m		Total € m
At 1 January		39		73		662		69		843		41		51		142		234		75		133		188		—		396		126		588		323		1,037
Transferred from Stage 1 to Stage 2		(5)		27		—		—		22		(10)		49		—		39		(10)		18		—		—		8		(36)		110		—		74
Transferred from Stage 2 to Stage 1		12		(28)		—		—		(16)		8		(30)		—		(22)		11		(19)		—		—		(8)		56		(117)		—		(61)
Transferred to Stage 3		—		(14)		30		—		16		(1)		(31)		46		14		(2)		(9)		16		—		5		(4)		(71)		121		46
Transferred from Stage 3		1		12		(25)		—		(12)		—		4		(12)		(8)		—		2		(5)		—		(3)		2		14		(31)		(15)
Net re-measurement		(7)		(3)		(38)		—		(48)		(17)		(4)		3		(18)		(23)		(7)		(15)		—		(45)		4		(24)		(103)		(123)
New loans originated/top-ups		3		—		—		—		3		12		—		—		12		29		—		—		—		29		18		—		—		18
Redemptions/repayments		(2)		(3)		—		—		(5)		(3)		(1)		—		(4)		(8)		(16)		—		—		(24)		(12)		(23)		—		(35)
Impact of model and overlay changes		11		(7)		53		(13)		44		6		(3)		1		4		(3)		(2)		25		—		20		(18)		65		20		67
Impact of credit or economic risk parameters		(18)		(15)		(26)		—		(59)		(5)		(2)		—		(7)		(22)		(9)		(4)		—		(35)		(13)		(15)		(3)		(31)

Net credit impairment (writeback)/charge		(5)		(31)		(6)		(13)		(55)		(10)		(18)		38		10		(28)		(42)		17		—		(53)		(3)		(61)		4		(60)
Write-offs		—		—		(43)		(1)		(44)		—		—		(21)		(21)		—		—		(25)		—		(25)		—		—		(15)		(15)
Derecognised due to disposals		—		—		(339)		(24)		(363)		—		—		(1)		(1)		(1)		—		(6)		—		(7)		(3)		(8)		(11)		(22)
Exchange translation adjustments		—		—		2		—		2		—		—		—		—		1		1		3		—		5		4		14		6		24
Other movements		—		(1)		—		—		(1)		(1)		—		1		—		3		(1)		(5)		—		(3)		(2)		2		4		4
At 31 December		34		41		276		31		382		30		33		159		222		50		91		172		—		313		122		535		311		968

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

122

2.1 Credit risk – Credit profile of the loan portfolio

Movements in off-balance sheet exposures

The following tables set out the movements in the nominal amount and ECL allowance for loan commitments and financial guarantees

by ECL staging for the year to 31 December 2022 and 2021:

Nominal amount movements


								2022*
	Loan commitments				Financial guarantee contracts
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
At 1 January	12,824	768	135	13,727	743	50	26	819
Transferred from Stage 1 to Stage 2	(470)	470	—	—	(35)	35	—	—
Transferred from Stage 2 to Stage 1	297	(297)	—	—	31	(31)	—	—
Transferred to Stage 3	(10)	(10)	20	—	—	(1)	1	—
Transferred from Stage 3	14	4	(18)	—	1	—	(1)	—
Net movement	1,292	98	(57)	1,333	(2)	(8)	(7)	(17)
At 31 December	13,947	1,033	80	15,060	738	45	19	802


								2021*
	Loan commitments				Financial guarantee contracts
	Stage 1	Stage 2	Stage 3	Total	Stage 1	Stage 2	Stage 3	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
At 1 January	11,259	1,113	132	12,504	544	147	31	722
Transferred from Stage 1 to Stage 2	(266)	266	—	—	(17)	17	—	—
Transferred from Stage 2 to Stage 1	814	(814)	—	—	101	(101)	—	—
Transferred to Stage 3	(17)	(7)	24	—	(1)	(1)	2	—
Transferred from Stage 3	11	5	(16)	—	1	1	(2)	—
Net movement	1,023	205	(5)	1,223	115	(13)	(5)	97
At 31 December	12,824	768	135	13,727	743	50	26	819

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

123

2.1 Credit risk – Credit profile of the loan portfolio

Movements in off-balance sheet exposures continued

ECL allowance movements


														2022*
			Loan commitments							contracts
	Stage 1		Stage 2		Stage 3		Total	Stage 1		Stage 2		Stage 3		Total
		€ m		€ m		€ m	€ m		€ m		€ m		€ m	€ m
At 1 January		16		29		8	53		5		7		14	26
Transferred from Stage 1 to Stage 2		(2)		16		—	14		(4)		3		—	(1)
Transferred from Stage 2 to Stage 1		6		(15)		—	(9)		1		(3)		—	(2)
Transferred to Stage 3		—		(1)		2	1		(1)		—		1	—
Transferred from Stage 3		—		—		(1)	(1)		1		—		(1)	—
Net re-measurement		(1)		6		(3)	2		—		(3)		(1)	(4)

Net income statement (credit)/charge(1)		3		6		(2)	7		(3)		(3)		(1)	(7)
Other movements		—		—		(1)	(1)		—		—		—	—
At 31 December		19		35		5	59		2		4		13	19

(1) Net income statement charge of € 7 million for loan commitments includes € 6 million of loan commitments acquired as part of the Ulster Bank portfolio

acquisition.


														2021*
			Loan commitments							Financial guarantee contracts
	Stage 1		Stage 2		Stage 3		Total	Stage 1		Stage 2		Stage 3		Total
		€ m		€ m		€ m	€ m		€ m		€ m		€ m	€ m
At 1 January		20		30		4	54		3		8		18	29
Transferred from Stage 1 to Stage 2		(4)		15		—	11		(1)		4		—	3
Transferred from Stage 2 to Stage 1		7		(18)		—	(11)		3		(9)		—	(6)
Transferred to Stage 3		—		(1)		2	1		—		—		—	—
Transferred from Stage 3		—		—		—	—		1		—		(1)	—
Net re-measurement		(7)		3		1	(3)		(2)		3		(2)	(1)

Net income statement (credit)/charge		(4)		(1)		3	(2)		1		(2)		(3)	(4)
Other movements		—		—		1	1		1		1		(1)	1
At 31 December		16		29		8	53		5		7		14	26

The internal credit grade profile of loan commitments and financial guarantees is set out in the following table:


	2022*	2021*
	€ m	€ m
Strong	10,844	9,564
Satisfactory	4,528	4,399
Criticised watch	257	327
Criticised recovery	134	95
Default	99	161
Total	15,862	14,546

Non-performing off-balance sheet commitments

Total non-performing off-balance sheet commitments amounted to € 99 million (2021: € 161 million).

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

124

2.1 Credit risk

Credit ratings

External credit ratings of financial assets*

The following table sets out the credit quality of financial assets based on external credit ratings at 31 December 2022 and 2021.

These include loans and advances to banks of € 1,502 million (2021: € 1,323 million), securities financing of € 6,282 million

(2021: € 3,890 million), and investment debt securities at amortised cost of € 4,131 million (2021: € 4,071 million) and at FVOCI of

€ 11,837 million (2021: € 12,589 million). Information on the credit ratings for loans and advances to customers where an external credit

rating is available is disclosed on page 112.


											2022
	At amortised cost						At FVOCI						Total
	Bank	Corporate	Sovereign	Other		Total	Bank	Corporate	Sovereign		Other	Total
	€ m	€ m	€ m	€ m		€ m	€ m	€ m	€ m		€ m	€ m	€ m
AAA/AA	440	—	2,171	1,405		4,016	4,008	110	4,048		453	8,619	12,635
A/A-	6,442	962	15	195		7,614	1,408	216	213		—	1,837	9,451
BBB+/BBB/BBB-	10	9	32	5		56	347	173	861		—	1,381	1,437
Sub investment	—	92	—	—		92	—	—	—		—	—	92
Unrated	2	112	—	23		137	—	—	—		—	—	137
Total	6,894	1,175	2,218	1,628	(1)	11,915	5,763	499	5,122	(2)	453	11,837	23,752
Of which:
Stage 1	6,894	1,167	2,218	1,628		11,907	5,763	499	5,122		453	11,837	23,744
Stage 2	—	8	—	—		8	—	—	—		—	—	8
Stage 3	—	—	—	—		—	—	—	—		—	—	—


											2021
	At amortised cost						At FVOCI						Total
	Bank	Corporate	Sovereign	Other		Total	Bank	Corporate	Sovereign		Other	Total
	€ m	€ m	€ m	€ m		€ m	€ m	€ m	€ m		€ m	€ m	€ m
AAA/AA	595	—	289	896		1,780	3,883	72	1,182		495	5,632	7,412
A/A-	3,756	919	2,391	201		7,267	1,283	248	3,721		—	5,252	12,519
BBB+/BBB/BBB-	25	2	37	5		69	399	197	1,109		—	1,705	1,774
Sub investment	1	105	—	—		106	—	—	—		—	—	106
Unrated	—	62	—	—		62	—	—	—		—	—	62
Total	4,377	1,088	2,717	1,102	(1)	9,284	5,565	517	6,012	(2)	495	12,589	21,873
Of which:
Stage 1	4,377	1,088	2,717	1,102		9,284	5,565	486	6,012		495	12,558	21,842
Stage 2	—	—	—	—		—	—	31	—		—	31	31
Stage 3	—	—	—	—		—	—	—	—		—	—	—

(1) Relates to asset backed securities.

(2) Includes supranational banks and government agencies.

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

125

2.1 Credit risk

Additional credit quality and forbearance disclosures on

loans and advances to customers

Forbearance

Overview

Forbearance occurs when a customer is granted a temporary or

permanent concession or an agreed change to the existing

contracted terms of a facility (‘forbearance measure’), for reasons

relating to the actual or apparent financial stress or distress of that

customer. This also includes a total or partial refinancing of

existing debt due to a customer availing of an embedded

forbearance clause(s) in their contract. A forbearance agreement

is entered into where the customer is in financial difficulty to the

extent that they are unable to meet their loans to the Group in

compliance with the existing agreed contracted terms and

conditions. A concession or an agreed change to the contracted

terms can be of a temporary (e.g. interest only) or permanent (e.g.

term extension) nature.

The Group uses a range of initiatives to support its customers.

The Group considers requests from customers who are

experiencing cash flow difficulties on a case by case basis in line

with the Group’s Forbearance Policy and relevant procedures,

and completes an affordability/repayment capacity assessment

taking account of factors such as current and likely future financial

circumstances, the customer’s willingness to resolve such

difficulties, and all relevant legal and regulatory obligations to

ensure appropriate and sustainable measures are put in place.

Group credit policies, supported by relevant processes and

procedures, are in place which set out the policy rules and

principles underpinning the Group’s approach to forbearance,

ensuring the forbearance measure(s) provided to customers are

affordable and sustainable, and in line with relevant regulatory

requirements. Key principles include supporting viable Small and

Medium Enterprises (“SMEs”), and providing support to enable

customers to remain in their family home, whenever possible. The

Group has implemented the standards for the Codes of Conduct

in relation to customers in actual or apparent financial stress or

distress, as set out by the Central Bank of Ireland (“the Central

Bank”), ensuring these customers are dealt with in a professional

and timely manner.

A request for forbearance is a trigger event for the Group to

undertake an assessment of the customer’s financial

circumstances prior to any decision to grant a forbearance

measure. This may result in the downgrading of the credit grade

assigned and an increase in the expected credit loss. Facilities to

which forbearance has been applied continue to be classified as

forborne until an appropriate probation period has passed

(minimum 24 months).

The effectiveness of forbearance measures over the lifetime of the

arrangements are subject to ongoing management review and

monitoring of forbearance. A forbearance measure is deemed to

be effective if the customer meets the revised or original terms of

the contract over a sustained period of time resulting in an

improved outcome for the Group and the customer.

Mortgage portfolio

Under the mandate of the Central Bank’s Code of Conduct on

Mortgage Arrears (“CCMA”), the Group introduced a four-step

process called the Mortgage Arrears Resolution Process, or

MARP. This process aims to engage with, support and find

resolution for mortgage customers (for their primary residence

only) who are in arrears, or are at risk of going into arrears.

The four step process is summarised as follows:

•Communications – We are here to listen, support and provide

advice;

•Financial information – To allow us to understand the customer’s

finances;

•Assessment – Using the financial information to assess the

customer’s situation; and

•Resolution – We work with the customer to find an appropriate

resolution.

The core objective of the process is to determine appropriate and

sustainable solutions that, where possible, help to keep customers

in their family home. In addition to relevant temporary forbearance

measures (such as interest only and capital and interest

moratorium), this includes permanent forbearance measures

which have been devised to assist existing Republic of Ireland

primary residential mortgage customers in financial difficulty. This

process may result in debt write-off, where appropriate. The types

of permanent forbearance solutions currently include; arrears

capitalisation, term extension, split mortgages, negative equity

trade down, mortgage to rent and voluntary sale for loss.

Non-mortgage portfolio

The Group also has in place forbearance measures for customers

in the non-mortgage portfolio and Buy-To-Let mortgages (BTLs)

who are in financial difficulty.

This approach is based on customer affordability and

sustainability by applying the following core principles:

•Customers must be treated objectively and consistently;

•Customer circumstances and debt obligations must be viewed

holistically; and

•Solutions will be appropriately provided where customers are

co-operative, and are willing but unable to pay.

The forbearance process is one of structured engagement to

assess the long term levels of sustainable and unsustainable

debt. The commercial aspects of this process require that

customer affordability is viewed comprehensively, to include all

available sources of finance for debt repayment, including

unencumbered assets.

Types of non-mortgage forbearance include temporary measures

(such as interest only and capital and interest moratorium) and

permanent measures (such as term extension and arrears

capitalisation). This process may result in debt write-off, where

appropriate.

See accounting policy (s) ‘Impairment of financial assets’ in note 1

to the consolidated financial statements.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

126

2.1 Credit risk

Additional credit quality and forbearance disclosures on loans and advances to customers

Forbearance

The following tables set out the internal credit ratings and ECL staging of forborne loans and advances to customers at 31 December

2022 and 2021:


									2022
	At amortised cost
	Residential mortgages		Other personal		Property and constructio n		Non- property business		Total
Analysed by forbearance type		€ m		€ m		€ m		€ m	€ m
Temporary forbearance		374		19		74		842	1,309	(1)
Permanent forbearance		378		47		479		1,044	1,948	(2)
		752		66		553		1,886	3,257

Analysed by internal credit ratings
Strong		—		—		—		—	—
Satisfactory		—		—		—		—	—
Total strong/satisfactory		—		—		—		—	—
Criticised watch		—		—		—		—	—
Criticised recovery		309		15		259		1,431	2,014
Total criticised		309		15		259		1,431	2,014
Non-performing		443		51		294		455	1,243
Gross carrying amount		752		66		553		1,886	3,257

Analysed by ECL staging
Stage 1		2		—		19		98	119
Stage 2		246		15		240		1,333	1,834
Stage 3		424		51		294		455	1,224
POCI		80		—		—		—	80
Total		752		66		553		1,886	3,257

ECL allowance		151		32		146		424	753

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127

2.1 Credit risk

Additional credit quality and forbearance disclosures on loans and advances to customers

Forbearance


									2021
	At amortised cost
	Residential mortgages		Other personal		Property and construction		Non- property business		Total
Analysed by forbearance type		€ m		€ m		€ m		€ m	€ m
Temporary forbearance		629		37		169		1,039	1,874	(1)
Permanent forbearance		564		77		348		1,293	2,282	(2)
		1,193		114		517		2,332	4,156

Analysed by internal credit ratings
Strong		—		—		—		—	—
Satisfactory		—		—		—		—	—
Total strong/satisfactory		—		—		—		—	—
Criticised watch		—		—		—		—	—
Criticised recovery		430		23		296		1,645	2,394
Total criticised		430		23		296		1,645	2,394
Non-performing		763		91		221		687	1,762
Gross carrying amount		1,193		114		517		2,332	4,156

Analysed by ECL staging
Stage 1		6		1		79		7	93
Stage 2		399		22		217		1,638	2,276
Stage 3		694		91		221		687	1,693
POCI		94		—		—		—	94
Total		1,193		114		517		2,332	4,156

ECL allowance		272		61		139		537	1,009

(1) Of which: interest only € 715 million, payment moratorium € 401 million, reduced payment € 107 million (2021: of which: interest only € 1,161 million, payment

moratorium € 521 million, reduced payment € 164 million).

(2) Of which: arrears capitalisation and term extension € 728 million, amendment to or non-enforcement of financial covenant € 596 million, restructure € 409 million

(2021: of which: arrears capitalisation and term extension € 864 million, amendment to or non-enforcement of financial covenant € 416 million, restructure € 255

million).

The Group continues to support its existing customers ensuring they are provided with the appropriate forbearance measures,

particularly in the current environment by providing support to customers previously impacted by COVID-19 and may require

forbearance measures following the withdrawal of Government supports. This has been a key area of focus for management

particularly given the potential for further forbearance requests following the increasing rate of inflation and subsequent affordability

issues as the costs of household goods and services rise, including mortgage repayments as a result of rising interest rates.

The total forbearance portfolio has decreased by € 0.9 billion to € 3.3 billion in the year (2021: € 4.2 billion).The decrease was partially

due to the sale of a non-performing loan portfolio in long term default which resulted in non-performing loans in forbearance decreasing

by € 0.5 billion in the year. The performing forborne element of the portfolio in criticised recovery also decreased by € 0.4 billion, due to

lower inflows and customers exiting forbearance due to repayments or completion of probation criteria.

The overall reduction in the year was in the residential mortgages and non-property business portfolios as both decreased by € 0.4

billion.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

128

2.2 Liquidity and funding risk

Liquidity risk is the risk that the Group will not be able to fund its

assets and meet its payment obligations as they fall due, without

incurring unacceptable costs or losses. Funding is the means by

which liquidity is generated, e.g. secured or unsecured, corporate

or retail. In this respect, funding risk is the risk that a specific form

of liquidity cannot be obtained at an acceptable cost.

Identification and assessment

Liquidity and funding risk is identified and assessed by the

Group's Material Risk Assessment (“MRA”) process in support of

the Internal Liquidity Adequacy Assessment Process ("ILAAP").

The MRA process is a ‘top-down’ assessment performed on at

least an annual basis and identifies the key material risks to the

Group, taking into account its strategic objectives, in addition to

internal and external risk information.

The ILAAP is fully integrated and embedded in the strategic,

financial and risk management processes of the Group.

Embedding of the ILAAP is facilitated through the setting of risk

appetite and ensuring that liquidity considerations are factored

into all key strategic decisions.

The Group has a comprehensive ILAAP Framework for managing

the Group’s liquidity risk and complying with the Board’s risk

appetite as well as evolving regulatory standards. This is delivered

through a combination of policy formation, governance, analysis,

stress testing and limit setting and monitoring, and is part of the

wider Risk Management Framework.

Management and measurement*

The objective of liquidity management is to ensure that, at all

times, the Group holds sufficient funds to meet its contracted and

contingent commitments to customers and counterparties at an

economic price. The ILAAP framework and supporting Funding

and Liquidity risk policy set out the key requirements for managing

the risk. These include:

•Adherence to both internal limits and regulatory defined liquidity

ratios including the Liquidity Coverage Ratio (“LCR”) and the

Net Stable Funding Ratio (“NSFR”). The LCR is designed to

promote short term resilience of the Group’s liquidity risk profile

by ensuring that it has sufficient high quality liquid resources to

survive an acute stress scenario lasting for 30 days. The NSFR

has a time horizon of one year and has been developed to

promote a sustainable maturity structure of assets and liabilities;

*Forms an integral part of the audited financial statements

•Performing a multiyear projection of the Group’s funding

sources taking into account its baseline scenario, strategy and

operational plans as outlined in the Group’s Funding and

Liquidity Plan. The purpose of this Plan is to set out a

comprehensive, forward looking liquidity and funding strategy for

the Group including subsidiary companies;

•Assessing the Funding and Liquidity plan under a range of

adverse scenarios, the outcomes of which should ensure

sufficient liquidity to implement a sustainable strategy even in a

stressed environment;

•Maintaining a Contingency Funding Plan that identifies and

quantifies actions that are available to the Group in deteriorating

liquidity conditions and emerge from a temporary liquidity crisis

as a credit worthy institution;

•Monitoring a further set of triggers and liquidity options outlined

in the Group’s Recovery Plan, which presents the actions

available to the Group to restore viability in the event of extreme

stress; and

•Having an approved liquidity cost-benefit allocation mechanism

in place to attribute funding costs, benefits and risks to the

Group’s business lines.

Monitoring, escalating and reporting

The Group liquidity and funding position is reported regularly to

the Finance and Risk functions, Group Asset and Liability

Committee ("ALCo"), Group Risk Committee (“GRC”) and Board

Risk Committee ("BRC"). In addition, the Executive Committee

("ExCo") and the Board are briefed on liquidity and funding on an

ongoing basis.

On an annual basis, the Board attests to the Group’s liquidity

adequacy via the liquidity adequacy statement as part of ILAAP.

The Group’s ILAAP encompasses all aspects of liquidity and

funding management, including planning, analysis, stress testing,

control, governance, policy and contingency planning. This

document is submitted to the Joint Supervisory Team and forms

the basis of their supervisory review and evaluation process.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

129

2.2 Liquidity and funding risk

Management of the Group liquidity pool

The Group manages the liquidity pool on a centralised basis and

is primarily comprised of government guaranteed bonds, balances

with central banks and internal and external covered bonds. The

composition of the liquidity pool is subject to limits recommended

by the Risk function and approved by the Board

At 31 December 2022, the Group held € 61,077 million

(2021: € 67,240 million) in qualifying liquid assets “QLA”(1) of which

€ 7,845 million (2021: € 17,366 million) was not available due to

repurchase, secured loans and other restrictions. The available

Group liquidity pool is held to cover contractual and stress

outflows. At 31 December 2022, the Group liquidity pool was

€ 53,232 million (2021: € 49,874 million). During 2022, the liquidity

pool ranged from € 48,105 million to € 54,295 million

(2021: € 43,602 million to € 50,932 million) and the average

balance was € 50,242 million (2021: € 47,196 million).

(1) QLA are assets that can be readily converted into cash, either with the

market or with the monetary authorities, and where there is no legal, operational

or prudential impediments to their use as liquid assets.

The Group’s liquidity pool increased in 2022 by € 3,358 million

which was predominantly due to an increase in customer deposits

in Ireland, senior debt issuance, offset by an increase in customer

loans, covered bond maturities and securities financing activities

where cash was exchanged for non-QLA eligible collateral.

Other contingent liquidity

The Group has access to other unencumbered assets providing a

source of contingent liquidity which are not in the Group’s liquidity

pool. However, these assets may be monetised in a stress

scenario to generate liquidity through use as collateral for secured

funding or outright sale.

Liquidity stress testing

Liquidity stress testing is a key component of the ILAAP

framework. The purpose of these tests is to ensure the continued

stability of the Group’s liquidity position within the Group’s pre-

defined liquidity risk tolerance levels. The Group undertakes

liquidity stress testing that includes both firm specific and systemic

risk events and a combination of both as a key liquidity control.

Stressed assumptions are applied to the Group’s liquidity buffer

and liquidity risk drivers. This estimates the potential impact of a

range of stress scenarios on the Group’s liquidity position. Actions

and strategies available to mitigate the impacts of the stress

scenarios are evaluated as to their appropriateness. Liquidity

stress test results are reported to the ALCo, ExCo and Board.

Liquidity regulation

The Group is required to comply with the liquidity requirements of

the Single Supervisory Mechanism/Central Bank of Ireland and

also with the requirements of local regulators in jurisdictions in

which it operates. The Group adheres to these requirements.


	2022	2021
Liquidity metrics	%	%
Liquidity Coverage Ratio	192	203
Net Stable Funding Ratio	164	160

The Group monitors and reports its liquidity positions against

Capital Requirements Regulation (CRR2) and other related

liquidity regulations (LCR Delegated Act). It has fully complied with

the minimum LCR and NSFR requirements of 100% during 2022

with ratios well in excess of this level.

Funding structure*

The Group’s funding strategy is to deliver a sustainable,

diversified and robust customer deposit base at economic pricing

and to further enhance and strengthen the wholesale funding

franchise with appropriate access to term markets to support core

lending activities. The strategy aims to deliver a solid funding

structure that complies with internal and regulatory policy

requirements and reduces the probability of a liquidity stress, i.e.

an inability to meet funding obligations as they fall due.

Customer deposits represent the largest source of funding for the

Group with the core retail franchises and accompanying deposit

base in both Ireland and the UK providing a stable and reasonably

predictable source of funds.


	2022	2021
Customer accounts	€ m	€ m
Total	102,362	92,870
Of which:
Euro	89,820	77,133
Sterling	10,478	13,200
US dollar	1,924	2,347
Other currencies	140	190

Customer accounts increased by € 9,492 million in 2022 driven by

higher personal balances and inflows from banks exiting the Irish

market. This was reflected in Euro current and demand deposit

accounts offset by a reduction across all other Group significant

currencies (GBP and USD). The decrease in GBP deposits was

primarily due to the exit from the SME market in the UK. There

was an underlying decrease in GBP and USD deposits of € 2,675

million on a constant currency basis coupled with a € 582 million

decrease in the value of GBP offset by a € 112 million increase in

the value of USD deposits due to currency movements.

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

130

2.2 Liquidity and funding risk

Composition of wholesale funding(1)

The Group maintains access to a variety of sources of wholesale funding including bank deposits, securities financing, debt securities

and subordinated debt. At 31 December 2022, total wholesale funding outstanding was € 10,021 million (2021: € 17,839 million) of

which € 2,507 million is due to mature in less than one year (2021: € 879 million).


								2022
	< 1 month € m	1–3 months € m	3–6 months € m	6–12 months € m	Total < 1 year € m	1–3 years € m	3–5 years € m	> 5 years € m	Total € m
Deposits by central banks and banks	22	210	—	—	232	96	186	—	514
Securities financing	798	100	—	—	898	—	—	—	898
ACS	—	999	—	—	999	—	—	25	1,024
Subordinated liabilities and other capital instruments	—	—	—	—	—	—	—	57	57
Subordinated loans - AIB Group plc	—	252	—	126	378	2,085	2,073	2,992	7,528
Total 31 December	820	1,561	—	126	2,507	2,181	2,259	3,074	10,021
Of which:
Secured	798	1,099	—	—	1,897	96	186	25	2,204
Unsecured	22	462	—	126	610	2,085	2,073	3,049	7,817
	820	1,561	—	126	2,507	2,181	2,259	3,074	10,021


								2021
	< 1 month € m	1–3 months € m	3–6 months € m	6–12 months € m	Total < 1 year € m	1–3 years € m	3–5 years € m	> 5 years € m	Total € m
Deposits by central banks and banks	33	51	—	—	84	10,000	298	—	10,382
Securities financing	28	17	—	—	45	—	—	—	45
ACS	—	750	—	—	750	1,014	—	25	1,789
Subordinated liabilities and other capital instruments	—	—	—	—	—	—	—	56	56
Subordinated loans- AIB Group PLC	—	—	—	—	—	1,939	1,416	2,212	5,567
Total 31 December	61	818	—	—	879	12,953	1,714	2,293	17,839
Of which:
Secured	28	767	—	—	795	11,014	298	25	12,132
Unsecured	33	51	—	—	84	1,939	1,416	2,268	5,707
	61	818	—	—	879	12,953	1,714	2,293	17,839

(1) The maturity analysis has been prepared using the residual contractual maturity of the liabilities.

Deposits by central banks and banks decreased by € 9,868 million

to € 514 million as a result of the € 10 billion repayment of TLTRO

III borrowings in December 2022. For further details, see note 28

'Deposits by central banks and banks' to the consolidated financial

statements. Securities Financing increased € 853 million to € 898

million reflective of an increase in USD Collateralised Mortgage

Obligations "CMO's" and standard bilateral bank repo activity -

see currency split in 'Currency composition of wholesale funding'

table overleaf.

During 2022, subordinated liabilities (via AIB Group plc) increased

€ 1,961 million primarily reflecting € 3,231 million in new loan

agreements with AIB Group plc offset by € 847 million in loan

redemptions and the remainder in fair value hedge and USD

foreign currency translation adjustments. Over the twelve months

to 31 December 2022, outstanding asset covered securities

("ACS") decreased € 765 million to € 1,024 million due to a

contractual maturity. For further details, see note 30 'Debt

securities in issue' to the consolidated financial statements.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

131

2.2 Liquidity and funding risk

Currency composition of wholesale funding

At 31 December 2022, 75% (2021: 89%) of wholesale funding was in Euro with the remainder held in GBP and USD. The Group manages

cross-currency refinancing risk against foreign exchange cash flow limits.


					2022					2021
	EUR	GBP	USD	Other	Total	EUR	GBP	USD	Other	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Deposits by central banks and banks	220	290	4	—	514	10,083	298	—	1	10,382
Securities financing	401	—	497	—	898	15	—	30	—	45
Senior debt	—	—	—	—	—	—	—	—	—	—
ACS	1,024	—	—	—	1,024	1,789	—	—	—	1,789
Subordinated liabilities and other capital instruments	12	45	—	—	57	12	44	—	—	56
Subordinated liabilities and other capital instruments - AIB Group PLC	5,798	—	1,730	—	7,528	4,022	—	1,545	—	5,567
Total wholesale funding	7,455	335	2,231	—	10,021	15,921	342	1,575	1	17,839
% of wholesale funding	%	%	%	%	%	%	%	%	%	%
	75	3	22	—	100	89	2	9	0	100

Encumbrance

An asset is defined as encumbered if it has been pledged as

collateral, and as a result is no longer available to the Group to

secure funding, satisfy collateral needs or to be sold. As part of

managing its funding requirements, the Group encumbers assets

as collateral to support wholesale funding initiatives. This would

include covered bonds, securities repurchase agreements and

other structures that are secured over customer loans. The Group

manages encumbrance levels to ensure that the Group has

sufficient contingent collateral to maximise balance sheet

flexibility.

The Group's encumbrance ratio has decreased to 7% at

31 December 2022 (2021: 15%) with € 8,811 million of the

Group’s assets encumbered (2021: € 19,841 million). The

decrease in encumbered assets was mainly due to the € 10 billion

TLTRO III early repayment in December 2022. The encumbrance

level is based on the amount of assets that are required in order

to meet regulatory and contractual commitments.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

132

2.2 Liquidity and funding risk

Financial assets and financial liabilities by contractual residual maturity*

The following table analyses financial assets and financial liabilities by contractual residual maturity at 31 December 2022 and 2021(1):


						2022
	On demand	<3 months but not on demand	3 months to 1 year	1–5 years	Over 5 years	Total
	€ m	€ m	€ m	€ m	€ m	€ m
Financial assets(2)
Cash and balances at central banks	38,138	—	—	—	—	38,138
Derivative financial instruments(3)	—	114	93	624	1,680	2,511
Loans and advances to banks(4)	470	1,032	—	—	—	1,502
Loans and advances to customers(4)	1,954	1,297	2,568	18,262	37,150	61,231
Loans and advances -AIB Group plc	—	—	—	—	—	—
Securities financing	—	849	1,943	3,490	—	6,282
Investment securities(5)	—	1,461	576	5,781	8,150	15,968
Other financial assets	—	592	—	—	—	592
	40,562	5,345	5,180	28,157	46,980	126,224
Financial liabilities(6)(7)
Deposits by central banks and banks	22	210	—	282	—	514
Customer accounts	96,897	4,294	988	151	29	102,359
Customer accounts - AIB Group plc	3	—	—	—	—	3
Securities financing	—	898	—	—	—	898
Derivative financial instruments(3)	—	72	150	923	1,837	2,982
Debt securities in issue	—	999	—	—	25	1,024
Subordinated liabilities and other capital instruments
- Externally issued	—	—	—	—	57	57
Subordinated liabilities and other capital instruments
- AIB Group plc	—	252	126	4,158	2,992	7,528
Other financial liabilities	1,383	—	—	—	—	1,383
	98,305	6,725	1,264	5,514	4,940	116,748


						2021
	On demand	<3 months but not on demand	3 months to 1 year	1–5 years	Over 5 years	Total
	€ m	€ m	€ m	€ m	€ m	€ m
Financial assets(2)
Cash and balances at central banks	42,654	—	—	—	—	42,654
Derivative financial instruments(3)	—	58	28	211	585	882
Loans and advances to banks(4)	619	703	1	—	—	1,323
Loans and advances to customers(4)	2,213	1,501	1,993	16,776	35,910	58,393
Loans and advances -AIB Group plc	15	—	—	—	—	15
Securities financing	—	853	1,324	1,713	—	3,890
Investment securities(5)	—	522	1,111	6,286	8,741	16,660
Other financial assets	—	886	—	—	—	886
	45,501	4,523	4,457	24,986	45,236	124,703
Financial liabilities(6)(7)
Deposits by central banks and banks	27	57	—	10,298	—	10,382
Customer accounts	87,575	4,220	851	192	28	92,866
Customer accounts - AIB Group plc	4	—	—	—	—	4
Securities financing	—	45	—	—	—	45
Derivative financial instruments(3)	—	116	104	170	672	1,062
Debt securities in issue	—	750	—	1,014	25	1,789
Subordinated liabilities and other capital instruments
- Externally issued	—	—	—	—	56	56
Subordinated liabilities and other capital instruments
- AIB Group plc	—	—	—	3,355	2,212	5,567
Other financial liabilities	1,375	—	—	—	—	1,375
	88,981	5,188	955	15,029	2,993	113,146

(1) The Group has changed its classification of cash collateral placed with/received from derivative counterparties. This has resulted in the 2021 comparative period

being restated with € 602 million in financial assets and € 110 million in financial liabilities moving from on demand to the 0-3 month maturity time-bucket.

(2) Excludes trading portfolio financial assets € 8 million (2021: € 8 million).

(3) Shown by maturity date of contract.

(4) Shown gross of expected credit losses.

(5) Excluding equity shares.

(6) A maturity of lease liabilities is disclosed in note 31.

(7) Excludes trading portfolio financial liabilities € 4 million (2021: € 2 million).

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

133

2.2 Liquidity and funding risk

Financial liabilities by undiscounted contractual maturity*

The balances in the table below include the undiscounted cash

flows relating to principal and interest on financial liabilities and as

such will not agree directly with the balances on the consolidated

statement of financial position. All derivative financial instruments

have been analysed based on their contractual maturity

undiscounted cash flows.

In the daily management of liquidity risk, the Group adjusts the

contractual outflows on customer deposits to reflect the inherent

stability of these deposits. Offsetting the liability outflows are cash

inflows from the assets on the statement of financial position.

Additionally, the Group holds a stock of high quality liquid assets,

which are held for the purpose of covering unexpected cash

outflows.

The following table analyses, on an undiscounted basis, financial

liabilities by remaining contractual maturity at 31 December 2022

and 2021(1):


						2022
	On demand	<3 months but not on demand	3 months to 1 year	1–5 years	Over 5 years	Total
	€ m	€ m	€ m	€ m	€ m	€ m
Financial liabilities(2)(3)
Deposits by central banks and banks	22	210	—	320	—	552
Customer accounts	96,897	4,296	999	158	49	102,399
Customer accounts - AIB Group plc	3	—	—	—	—	3
Securities financing	—	903	—	—	—	903
Derivative financial instruments	—	245	703	1,652	688	3,288
Debt securities in issue	—	1,009	—	5	28	1,042
Subordinated liabilities and other capital instruments
–Externally issued	—	—	—	—	123	123
Subordinated liabilities and other capital instruments
–AIB Group plc	—	262	342	4,861	3,650	9,115
Other financial liabilities	1,375	—	—	—	—	1,375
	98,297	6,925	2,044	6,996	4,538	118,800


						2021
	On demand	<3 months but not on demand	3 months to 1 year	1–5 years	Over 5 years	Total
	€ m	€ m	€ m	€ m	€ m	€ m
Financial liabilities(2)(3)
Deposits by central banks and banks	27	57	—	10,124	—	10,208
Customer accounts	87,575	4,219	853	194	32	92,873
Customer accounts - AIB Group	4	—	—	—	—	4
Securities financing	—	45	—	—	—	45
Derivative financial instruments	—	140	152	391	355	1,038
Debt securities in issue	—	783	5	1,065	32	1,885
Subordinated liabilities and other capital instruments
–Externally issued	—	—	62	13	127	202
Subordinated liabilities and other capital instruments
–AIB Group plc	—	31	87	3,757	2,224	6,099
Other financial liabilities	1,375	—	—	—	—	1,375
	88,981	5,275	1,159	15,544	2,770	113,729

(1) The Group has changed its classification of cash collateral placed with/received from derivative counterparties. This has resulted in the 2021 comparative period

being restated with € 110 million in financial liabilities moving from on demand to the 0-3 month maturity time-bucket.

(2) Excludes trading portfolio financial liabilities € 4 million (2021: € 2 million).

(3) A maturity of lease liabilities is disclosed in note 31.

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

134

2.2 Liquidity and funding risk

Financial liabilities by undiscounted contractual maturity*

(continued)

The undiscounted cash flows potentially payable under

guarantees and similar contracts

The undiscounted cash flows potentially payable under

guarantees and similar contracts, included below within contingent

liabilities, are classified on the basis of the earliest date the

facilities can be called. The Group is only called upon to satisfy a

guarantee when the guaranteed party fails to meet their

obligations. The Group expects that most guarantees it provides

will expire unused.

The Group has given commitments to provide funds to customers

under undrawn facilities. The undiscounted cash flows have been

classified on the basis of the earliest date that the facility can be

drawn. The Group does not expect all facilities to be drawn, and

some may lapse before drawdown. For further details see note 39

'Contingent liabilities and commitments' to the consolidated

financial statements.

The following table analyses undiscounted cash flows potentially

payable under guarantees and similar contracts at 31 December

2022 and 2021:


						2022
	On demand	<3 months but not on demand	3 months to 1 year	1–5 years	Over 5 years	Total
	€ m	€ m	€ m	€ m	€ m	€ m
Contingent liabilities	802	—	—	—	—	802
Commitments	15,060	—	—	—	—	15,060
	15,862	—	—	—	—	15,862


						2021
	On demand	<3 months but not on demand	3 months to 1 year	1–5 years	Over 5 years	Total
	€ m	€ m	€ m	€ m	€ m	€ m
Contingent liabilities	819	—	—	—	—	819
Commitments	13,727	—	—	—	—	13,727
	14,546	—	—	—	—	14,546

*Forms an integral part of the audited financial statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

135

2.3 Financial risks

(a) Market risk

Market risk is the uncertainty of returns attributable to fluctuations

in market factors. Where the uncertainty is expressed as a

potential loss in earnings or value, it represents a risk to the

income and capital position of the Group.

Changes in customer behaviours and the relationship between

wholesale and retail rates give rise to changes in the Group’s

exposure to market risk factors and are also an important

component of market risk.

Identification and assessment

The key risks that the Group assumes in market risk as a result of

its banking and trading book activities that have been identified as

part of the MRA are:

•Credit spread risk is the exposure of the Group’s financial

position to adverse movements in the credit spreads of bonds

held in the hold-to-collect-and-sell (“HTCS”) securities portfolio.

Credit spreads are defined as the difference between bond

yields and interest rate swap rates of equivalent maturity. The

HTCS bond portfolio is the principal source of credit spread risk.

•Interest rate risk in the banking book (“IRRBB”) is the current or

prospective risk to both the earnings and capital of the Group as

a result of adverse movements in interest rates. Changes in

interest rates impact the underlying value of the Group’s assets,

liabilities and off-balance sheet instruments and, hence, its

economic value (or capital position). Similarly, interest rate

changes will impact the Group’s net interest income (“NII”)

through interest-sensitive income and expense effects; and

•The Group also assumes market risk through its trading book

activities which relate to all positions in financial instruments

(principally derivatives) that are held with trading intent or in

order to hedge positions held with trading intent. Risks

associated with valuation adjustments such as credit value

adjustment (“CVA”) and funding value adjustment (“FVA”) are

managed by the Group’s Treasury function.

Market risk scenarios are developed to test the capital

requirements for this risk in the quarterly stress testing process

and the annual ICAAP.

Management and measurement*

The Market Risk Management framework and policies set out the

key requirements for managing market risk. The key aspects of

this are:

•The Group’s Treasury function is responsible for managing

market risk that has been transferred to it by the customer

facing businesses and the Group’s Asset and Liability

Management (“ALM”) function which exists within Finance.

Treasury also has a mandate to trade on its own account in

selected wholesale markets with risk tolerances approved on an

annual basis through the Group’s Risk Appetite process;

•The Group documents its annual Market Risk Strategy and

Appetite statement as part of the annual financial planning cycle

which ensures market risk aligns with the Group’s strategic

business plan; and

•Market risk is managed against a range of Board approved VaR

limits which cover market risk in the trading book, interest rate

risk and credit spread risk in the banking book. The Board

approved limits are supplemented by a range of ALCo approved

limits which include nominal, sensitivity limits and ‘stop loss’

limits.

Market risk is managed and measured using portfolio sensitivities,

Value at Risk (“VaR”) and stress testing. Interest rate gaps and

sensitivities to various risk factors are measured and reported on

a daily basis. In terms of the VaR metric, the Group calculates a

daily historical simulation VaR to a 95% confidence level, using a

one day holding period and based on one year of historic data. In

addition to VaR, Capital at Risk (“CaR”) is also measured to a one

year(1) time horizon, a 99% confidence level and a longer set of

data.

Credit risk issues inherent in the market risk portfolios are also

subject to the credit risk framework that is described in Section

2.1.

(1)The Capital at Risk on core trading book positions is assessed using a ten

day horizon, with the exception of FX which is assessed using a one year

horizon.

Monitoring, escalating and reporting*

On a daily basis front office and risk functions receive a range of

valuation, sensitivity and market risk measurement reports, while

ALCo receives a monthly market risk commentary and summary

risk profile. Market risk exposures are reported to the Group Risk

Committee (“GRC”) and Board Risk Committee (“BRC”) on a

monthly basis through the CRO Report.

*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

136

2.3 Financial risks

(a) Market risk continued

The following table sets out financial assets and financial liabilities at 31 December 2022 and 2021 subject to market risk analysed

between trading and non-trading portfolios, showing the principal market risks to which the assets and liabilities are exposed:


				2022
		Market risk measures
	Carrying amount	Trading portfolios	Non-trading portfolios
	€ m	€ m	€ m	Risk factors
Assets subject to market risk
Cash and balances at central banks	38,138	—	38,138	Interest rate, foreign exchange
Trading portfolio financial assets	8	8	—	Interest rate, foreign exchange, equity
Derivative financial instruments	2,511	646	1,865	Interest rate, foreign exchange, credit spreads, equity, inflation swap rates
Loans and advances to banks	1,502	—	1,502	Interest rate, foreign exchange
Loans and advances to customers	59,613	—	59,613	Interest rate, foreign exchange
Securities financing	6,282	—	6,282	Interest rate, credit spreads, foreign exchange
Investment securities	16,270	—	16,270	Interest rate, foreign exchange, credit spreads, equity
Liabilities subject to market risk
Deposits by central banks and banks	514	—	514	Interest rate, foreign exchange
Customer accounts	102,359	—	102,359	Interest rate, foreign exchange
Securities financing	898	—	898	Interest rate, credit spreads, foreign exchange
Trading portfolio financial liabilities	4	4	—	Interest rate, foreign exchange, equity
Derivative financial instruments	2,982	599	2,383	Interest rate, foreign exchange, credit spreads, equity, inflation swap rates
Debt securities in issue	1,024	—	1,024	Interest rate, credit spreads, foreign exchange
Subordinated liabilities and other capital instruments - Externally issued	57	—	57	Interest rate, credit spreads
Subordinated liabilities and other capital instruments - AIB Group plc	7,528	—	7,528	Interest rate, credit spreads


				2021
		Market risk measures
	Carrying amount	Trading portfolios	Non-trading portfolios
	€ m	€ m	€ m	Risk factors
Assets subject to market risk
Cash and balances at central banks	42,654	—	42,654	Interest rate, foreign exchange
Trading portfolio financial assets	8	8	—	Interest rate, foreign exchange, equity
Derivative financial instruments	882	458	424	Interest rate, foreign exchange, credit spreads, equity, inflation swap rates
Loans and advances to banks	1,323	—	1,323	Interest rate, foreign exchange
Loans and advances to customers	56,508	—	56,508	Interest rate, foreign exchange
Securities financing	3,890	—	3,890	Interest rate, credit spreads, foreign exchange
Investment securities	16,934	—	16,934	Interest rate, foreign exchange, credit spreads, equity
Liabilities subject to market risk
Deposits by central banks and banks	10,382	—	10,382	Interest rate, foreign exchange
Customer accounts	92,866	—	92,866	Interest rate, foreign exchange
Securities financing	45	—	45	Interest rate, credit spreads, foreign exchange
Trading portfolio financial liabilities	2	2	—	Interest rate, foreign exchange, equity
Derivative financial instruments	1,062	565	497	Interest rate, foreign exchange, credit spreads, equity, inflation swap rates
Debt securities in issue	1,789	—	1,789	Interest rate, credit spreads
Subordinated liabilities and other capital instruments - Externally issued	56	—	56	interest rate, credit spreads, foreign exchange
Subordinated liabilities and other capital instruments - AIB Group plc	5,567	—	5,567	Interest rate, credit spreads, foreign exchange

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

137

2.3 Financial risks

(a) Market risk continued

Market risk profile

The table below shows the sensitivity of the Group’s banking book to an immediate and sustained +/- 100 basis point, +25 basis point

and +50 basis point movement in interest rates, in terms of the impact on net interest income on a forward looking basis over a twelve

month period, assuming no change in the balance sheet.


	€ m	€ m	€ m	€ m		€ m	€ m	€ m	€ m
December 2022	- 100bps	+25bps	+50bps	+ 100bps	December 2021	- 100 bps	+25bps	+50bps	+ 100bps
Euro	(324)	72	146	288	Euro	(193)	13	33	195
Sterling	(45)	11	22	45	Sterling	(59)	14	29	57
Other (mainly US $)	(18)	5	9	18	Other (mainly US $)	(20)	5	10	20
Total	(387)	88	177	351	Total	(272)	32	72	272

The above sensitivity table is computed under the assumption of

an unchanged balance sheet and that all market rates (Risk Free

Rates/Euribors/Swaps) move upwards or downwards in parallel.

Interest rate sensitivity increased during the year due to a

significant increase in market interest rates and also to an

increase in net floating assets on the balance sheet. These factors

outweighed the increased use of interest rate derivatives for

hedging purposes. Regarding the static balance sheet

assumption, it is acknowledged that in a higher rate environment it

may be more likely that balances would migrate from interest free

current accounts to rate paying deposit accounts which would

have the impact of reducing NII sensitivity.

Group interest rate and foreign exchange rate VaR are calculated

to a 95% confidence level with a one day holding period, and

equity VaR is calculated to a 99% confidence level with a one day

holding period. All VaR measures remained within limits

throughout 2022 and at 31 December 2022, interest rate VaR

stood at € 13.87 million, foreign exchange rate VaR at € 0.14

million and equity VaR at € 0.12 million. The Group recognises the

limitations of VaR models, and supplements its VaR measures

with stress tests which draw from a longer set of historical data

and also with sensitivity measures.

*Forms an integral part of the audited financial statements

Interest rate sensitivity*

The net interest rate sensitivity of the Group at 31 December 2022

and 2021 is illustrated in the following table. The table sets out

details of those assets and liabilities whose values are subject to

change as interest rates change within each contractual repricing

time period. Details regarding assets and liabilities which are not

sensitive to interest rate movements are included within non-

interest bearing or trading captions. The table shows the

sensitivity of the statement of financial position at one point in time

and is not necessarily indicative of positions at other dates. In

developing the classifications used in the table, it has been

necessary to make certain assumptions and approximations in

assigning assets and liabilities to different repricing categories.

The fair value of derivative financial instruments is included within

other assets and other liabilities as interest rate insensitive.

However, some derivative instruments are derived from interest

rate sensitive financial instruments, and are shown separately

below.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

138

2.3 Financial risks (a) Market risk – Interest rate sensitivity* continued


											2022*
	0<1 Month	1<3 Months	3<12 Months	1<2 Years	2<3 Years	3<4 Years	4<5 Years	5 years +	Non-interest bearing	Trading	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Assets
Trading portfolio financial assets	—	—	—	—	—	—	—	—	—	8	8
Loans and advances to banks	1,355	—	—	—	—	—	—	—	147	—	1,502
Loans and advances to customers	31,041	7,337	3,435	3,778	4,449	5,137	4,949	1,105	(1,618)	—	59,613
Securities financing	6,282	—	—	—	—	—	—	—	—	—	6,282
Investment securities	2,078	1,783	842	1,202	999	1,671	2,117	6,736	(1,158)	—	16,270
Other assets	37,564	—	—	—	—	—	—	—	7,867	646	46,077
Total assets	78,320	9,120	4,277	4,980	5,448	6,808	7,066	7,841	5,238	654	129,752
Liabilities
Deposits by central banks and banks	514	—	—	—	—	—	—	—	—	—	514
Customer accounts	41,619	384	919	143	2	—	—	26	59,266	—	102,359
Securities financing	798	100	—	—	—	—	—	—	—	—	898
Trading portfolio financial liabilities	—	—	—	—	—	—	—	—	—	4	4
Debt securities in issue	—	1,000	—	—	—	—	—	25	(1)	—	1,024
Subordinated liabilities and other capital instruments(1)	—	253	128	2,188	1,953	1,750	1,000	865	(552)	—	7,585
Other liabilities	—	—	—	—	—	—	—	—	4,531	590	5,121
Equity	—	—	—	—	—	—	—	—	12,247	—	12,247
Total liabilities and equity	42,931	1,737	1,047	2,331	1,955	1,750	1,000	916	75,491	594	129,752
Derivatives affecting interest rate sensitivity	19,910	1,295	(7,057)	(8,521)	(2,600)	(718)	678	(2,987)	—	—
Interest sensitivity gap	15,479	6,088	10,287	11,170	6,093	5,776	5,388	9,912	(70,253)	60
Cumulative interest sensitivity gap	15,479	21,567	31,854	43,024	49,117	54,893	60,281	70,193	(60)	—

(Euro currency amounts)
Interest sensitivity gap	13,432	5,902	7,475	10,322	5,596	4,906	5,036	8,206	(62,510)	461
Cumulative interest sensitivity gap	13,432	19,334	26,809	37,131	42,727	47,633	52,669	60,875	(1,635)	(1,174)
($ in euro equivalents)
Interest sensitivity gap	1,688	140	477	61	1	103	2	25	(1,115)	(424)
Cumulative interest sensitivity gap	1,688	1,828	2,305	2,366	2,367	2,470	2,472	2,497	1,382	958
(£ in euro equivalents)
Interest sensitivity gap	411	(38)	2,335	787	496	767	350	1,681	(6,541)	23
Cumulative interest sensitivity gap	411	373	2,708	3,495	3,991	4,758	5,108	6,789	248	271
(Other currencies in euro equivalents)
Interest sensitivity gap	(52)	84	—	—	—	—	—	—	(87)	—
Cumulative interest sensitivity gap	(52)	32	32	32	32	32	32	32	(55)	(55)

(1) Includes subordinated loans - AIB Group plc (€ 7,528 million). *Forms an integral part of the audited financial statements

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

139

2.3 Financial risks (a) Market risk – Interest rate sensitivity* continued


											2021*
	0<1 Month	1<3 Months	3<12 Months	1<2 Years	2<3 Years	3<4 Years	4<5 Years	5 years +	Non-interest bearing	Trading	Total
	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
Assets
Trading portfolio financial assets	—	—	—	—	—	—	—	—	—	8	8
Loans and advances to banks	1,047	—	1	—	—	—	—	—	275	—	1,323
Loans and advances to customers	35,168	7,191	3,498	2,996	3,454	2,757	2,759	682	(1,997)	—	56,508
Securities financing	3,890	—	—	—	—	—	—	—	—	—	3,890
Investment securities	1,929	783	1,071	1,989	1,222	918	1,459	6,716	847	—	16,934
Other assets	42,109	—	—	—	—	—	—	—	6,660	458	49,227
Total assets	84,143	7,974	4,570	4,985	4,676	3,675	4,218	7,398	5,785	466	127,890
Liabilities
Deposits by central banks and banks	10,382	—	—	—	—	—	—	—	—	—	10,382
Customer accounts	50,274	385	850	162	—	—	—	26	41,169	—	92,866
Securities financing	28	17	—	—	—	—	—	—	—	—	45
Trading portfolio financial liabilities	—	—	—	—	—	—	—	—	—	2	2
Debt securities in issue	—	750	—	1,000	—	—	—	25	14	—	1,789
Subordinated liabilities and other capital instruments(1)	—	—	—	1,162	2,133	500	1,750	121	(43)	—	5,623
Other liabilities	—	—	—	—	—	—	—	—	2,951	565	3,516
Equity	—	—	—	—	—	—	—	—	13,667	—	13,667
Total liabilities and equity	60,684	1,152	850	2,324	2,133	500	1,750	172	57,758	567	127,890
Derivatives affecting interest rate sensitivity	10,359	(2,319)	(1,803)	(2,199)	(1,966)	(228)	(1,434)	(410)	—	—
Interest sensitivity gap	13,100	9,141	5,523	4,860	4,509	3,403	3,902	7,636	(51,973)	(101)
Cumulative interest sensitivity gap	13,100	22,241	27,764	32,624	37,133	40,536	44,438	52,074	101	—

(Euro currency amounts)
Interest sensitivity gap	13,834	4,863	3,100	4,104	4,151	3,003	2,972	5,870	(43,232)	(103)
Cumulative interest sensitivity gap	13,834	18,697	21,797	25,901	30,052	33,055	36,027	41,897	(1,335)	(1,438)
($ in euro equivalents)
Interest sensitivity gap	1,596	586	56	(20)	(32)	30	150	59	(1,316)	(18)
Cumulative interest sensitivity gap	1,596	2,182	2,238	2,218	2,186	2,216	2,366	2,425	1,109	1,091
(£ in euro equivalents)
Interest sensitivity gap	(2,210)	3,633	2,367	776	390	370	770	1,707	(7,362)	19
Cumulative interest sensitivity gap	(2,210)	1,423	3,790	4,566	4,956	5,326	6,096	7,803	441	460
(Other currencies in euro equivalents)
Interest sensitivity gap	(120)	59	—	—	—	—	10	—	(63)	1
Cumulative interest sensitivity gap	(120)	(61)	(61)	(61)	(61)	(61)	(51)	(51)	(114)	(113)

(1) Includes subordinated loans - AIB Group plc (€ 5,567 million).*Forms an integral part of the audited financial statements

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

140

2.3 Financial risks

(a) Market risk continued

Interest rate benchmark reform

Authorities and regulators have substantively facilitated the

market’s transition from interbank offered rates, referred to as

“IBOR” benchmark rates (e.g. LIBOR), to alternative Risk Free

Rates (“RFRs”). In line with regulatory guidance and transformed

market practice, SONIA (Sterling Overnight Index Average) has

effectively replaced GBP LIBOR and SOFR (Secured Overnight

Financing Rate) has been adopted to replace USD LIBOR in

pricing new loans.

The Group established a bank-wide Interest Rate Benchmark

Reform Transition Programme with sponsorship from the Chief

Financial Officer to manage the effort. The Programme was

substantively completed by early 2022, having overseen the

successful execution of related business readiness, technology

enhancements, contract re-papering, customer communication

and conduct activities.

Residual IBOR transition activities are now being undertaken by

the relevant business and support functions under established

procedures. The 2022 agenda has been focussed on completing

the transition of residual Treasury GBP and USD LIBOR

transactions (c. € 700 million across derivative and funding

activities, including the reduction of outstanding GBP synthetic

LIBOR derivatives c. £ 360 million), and managing the transition of

$ 2.3 billion USD LIBOR facilities associated with our Corporate

Banking business as at 31 December 2022.

Structural foreign exchange risk

Structural foreign exchange risk is the exposure of the Group’s

capital ratios to changes in exchange rates and results from net

investment in subsidiaries, associates and branches, the

functional currencies being currencies other than Euro. The Group

is exposed to foreign exchange risk as it translates foreign

currencies into Euro at each reporting period and the currency

profile of the Group’s capital may not necessarily match that of its

assets and risk-weighted assets.

Exchange differences on structural exposures are recognised in

‘other comprehensive income’ in the financial statements. The

Group ALCo monitors structural foreign exchange risk and the

foreign exchange sensitivity of consolidated capital ratios. This

impact is measured in terms of basis point sensitivities using

scenario analysis.

The table below shows the sensitivity of the Group’s fully loaded

CET1 ratio to a hypothetical and sustained movement in GBP/

EUR and USD/EUR foreign exchange rates.


	31 December
Sensitivity of CET 1 fully loaded capital to foreign exchange movements (unaudited)	2022	2021
+ 10% move in GBP and USD FX rates	(0.18)%	(0.18)%
– 10% move in GBP and USD FX rates	0.18%	0.20%

The above analysis is subject to certain simplifying assumptions

such as GBP/EUR and USD/EUR foreign exchange rates moving

in the same direction and at the same time.

(b) Pension risk

Pension risk is the risk that:

•The funding position of the Group’s defined benefit schemes

would deteriorate to such an extent that additional contributions

would be required to cover its funding obligations towards

current and former employees;

•The capital position of the Group is negatively affected as

funding deficits will be fully deductible from regulatory capital;

and

•There could be a negative impact on industrial relations if the

funding level of the scheme was to deteriorate significantly.

Risk identification and assessment

The Group maintains a number of defined benefit pension

schemes for current and former employees. All defined benefit

schemes operated by the Group closed to future accrual no later

than the 31 December 2013 and staff transferred to defined

contribution schemes for future pension benefits.

Each scheme has a separate trustee board and the Group has

agreed funding plans to deal with deficits where they exist. As part

of any funding agreement, the Group engages with each trustee

regarding an appropriate investment strategy to reduce the risk in

that scheme.

Irish schemes that are deemed to have a deficit under the

Minimum Funding Standard must prepare funding plans to

address this situation in a timely manner and submit them to the

Pensions Authority for approval.

The IAS 19 valuation of the pension scheme assets and liabilities

may vary which could impact on the Group’s capital. The Group

works with the Trustees of each scheme to monitor the

performance of investments and estimates of future liability to

identify deficits.

Given that variability in the value of the pension scheme assets

and liabilities can impact on the Group’s capital, the key

processes through which pension risk is evaluated are the Internal

Capital Adequacy Assessment Process (“ICAAP”) as well as

quarterly internal stress tests and monthly reporting of pension

risk against risk appetite.

Management and measurement*

The pension risk framework and policies set out the key risk

management rules in place for this risk. The ability of the pension

schemes to meet the projected pension payments is managed by

the Trustees through the active management of the investment

portfolios. Although the Group has interaction with the trustees, it

cannot direct the investment strategy of the schemes.

The Group has developed a strategy for each of its defined

benefit schemes which include the following steps:

1.All defined benefit schemes are closed to future accrual.

2.They have funding plans (or are funded as required for the US

schemes) and each defined benefit scheme has an investment

strategy in place.

3.All schemes have a strategy of de-risking in line with their

regulatory requirements, funding positions and funding plans,

taking into account the nature of their liabilities.

*Forms an integral part of the audited financial statements

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

141

2.3 Financial risks

(b) Pension risk continued

As part of a strategy to increase the holding in inflation linked

assets, an allocation to a Liability Driven Investment (“LDI”)

portfolio is used. The LDI fund is comprised of a mixture of

nominal bonds, inflation linked bonds and inflation derivatives.

Inflation linked bond holdings are relatively stable, accounting for

30% of assets (31% at 31st December 2021). The scheme

maintained a similar weighting in equities in 2022 and has

removed the equity protection strategy that previously was

in place.

Independent actuarial valuations for the AIB Group Irish Pension

Scheme and the AIB Group UK Pension Scheme are carried out

on a triennial basis by the Schemes’ actuary, Mercer. The most

recent valuation of the Irish scheme was carried out at 30 June

2021 and reported the scheme to be in surplus. The next actuarial

valuation of the Irish scheme will be 30 June 2024. This actuarial

valuation report is provided at least every 3 years to the trustees

in order to set out the Target Funding level of the scheme along

with a contribution recommendation if one is required. No deficit

funding is anticipated at this time as the Irish scheme continues to

meet the minimum funding standard.

The most recent valuation of the UK scheme was carried out at

31 December 2020. The next actuarial valuation of the UK

scheme will be 31 December 2023. The Group and the Trustee of

the UK scheme agreed funding payments under an arrangement

agreed in December 2019 which is described below.

As part of the investment strategy in the UK scheme, it was

significantly de-risked in December 2019. The Group agreed a

revised funding arrangement for the UK scheme with the Scheme

Trustee to support the purchase of the pensioner buy-in policy in

respect of the pensioner members and an assured payment policy

(“APP”) in respect of the deferred members. A contribution of £

18.5 million was made in 2022. Under this funding arrangement,

the Group also expects to make payments of £ 18.5 million in

2023, with a final balancing payment, based on latest estimates of

c. £27 million. This is subject to change prior to finalisation.

Monitoring, escalating and reporting*

Pension risk is monitored and controlled in line with the

requirements of the Group’s pension risk framework and policy.

The surplus or deficit is monitored on a monthly basis by the

Group’s risk team and is currently reported monthly in both the

financial risk report to the Group Assets & Liabilities Committee

and the Group Chief Risk Officer (“CRO”) report to Group Risk

Committee and Board Risk Committee.

Pension risk is also included in the quarterly internal stress test.

The output of quarterly stress tests is reviewed by ALCo and on

an annual basis an ICAAP Report is produced which is a

comprehensive analysis of the Group’s capital position in base

and stress scenarios over a three year horizon. This document is

reviewed and approved by the Board and is submitted to the Joint

Supervisory Team.

The pension capital at risk exposure is measured and reported

monthly in the CRO report against a Group Risk Appetite

Statement watch trigger. While the Group has taken certain risk

mitigating actions, a level of volatility associated with pension

funding remains due to potential financial market fluctuations and

possible changes to pension and accounting regulations.

*Forms an integral part of the audited financial statements

Banking book equity investment risk refers to the possibility of

losses arising in the equity investment portfolio of the Group due

to changes in the economic value of the investments. Where the

uncertainty is expressed as a potential loss in value, it represents

a risk to the income and capital position of the Group.

Identification and assessment

All equity proposals are considered to ensure all aspects of the

proposal are fully and consistently addressed. Where a proposal

for a new equity investment or divestment opportunity arises, the

business sponsor must engage with the Equity Capital team when

developing the proposal, and liaise with Finance to assess the

accounting and regulatory implications. The business reviews and

comments on all proposals and recommends proposals for

approval through the appropriate governance process. All new

investments need to adhere to relevant regulatory and

accounting requirements.

Management and measurement

Exposures are reported on in line with Risk appetite requirements.

Risk measurement is also captured through stress testing. A

forward looking stress test must be produced on a quarterly basis.

The stress test is used to assess the impact of severe but

plausible shocks to underlying risk factors on the capital

requirements for the business. Management projections of the

future business mix must be factored into the analysis and be

consistent with projections included in business area plans for

equity risk.

Monitoring, escalating and reporting

The Equity Capital team reviews risk exposure levels on an on-

going basis, ensures there is no undue risk concentration and

considers whether the level of risk exposures remains

appropriate. Exposures are currently reported monthly to Risk and

the Group Assets & Liabilities Committee (“ALCo”) and any limit/

policy breaches or exceptions are recorded that arose during

the period.

Risk provide management with an independent perspective on the

risk-taking activities within the equity investment portfolio monthly

via the Financial Risk ALCo report, RAS limit report and the CRO

report. Additionally, there is a quarterly valuation review process in

place and Board and segment limits are applied and reported on

and an escalation process is set out in the Equity Policy.

RISK MANAGEMENT CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

142

2.4 Business model risk

Business model risk is the risk of not achieving the agreed

Strategy or approved business plan either as a result of an

inadequate implementation plan, or failure to execute the

implementation plan as a result of inability to secure the required

investment. This also includes the risk of implementing an

unsuitable Strategy, or maintaining an obsolete business model, in

light of known internal and external factors.

Identification and assessment

The Group’s material risk assessment process identifies the key

elements of business model risk. The process includes identifying

the associated sub-risks such as strategic planning risk, strategic

execution risk and governance risk and the emerging risk drivers

including inflationary pressures, macroeconomic uncertainty and

market volatility.

The Group also identifies and assesses the risk as part of its

integrated planning process, which encapsulates strategic,

business and financial planning. This process drives delivery of

strategic objectives aligned to the Group’s risk appetite and

enables measurable business objectives to be set for

management aligned to the short, medium and long term strategy

of the Group. The outcomes of these processes form the basis of

the Group’s ICAAP and ILAAP processes.

Every year, the Group prepares three-year business plans at a

Group level based on macroeconomic and market forecasts

across a range of scenarios (including a range of “downside”

scenarios). The plan includes an evaluation of planned

performance against a suite of key metrics, supported by detailed

analysis and commentary on underlying trends and drivers,

across income statement, balance sheet and business targets.

This assessment includes discussions on new lending volumes

and pricing, deposits volumes and pricing, other income, cost

management initiatives and credit performance. The plan is

subject to robust review and challenge through the governance

process including an independent second line of defence review

and challenge by the Risk function prior to approval by the Board.

The impact of inorganic initiatives such as the acquisitions of

Goodbody and the Ulster Bank commercial loan book, the

acquisition of the Ulster Bank performing tracker mortgage

portfolio and the Great West Life Co. joint venture on the Group’s

financial outcomes and on the business model risk profile is

assessed as part of the approval process and through the

financial planning process.

The Group plan is supported by detailed business unit plans.

Each business unit plan is aligned to the Group strategy and risk

appetite. The business plan typically describes the market in

which the business operates, market and competitor dynamics,

business strategy, financial assumptions underpinning the

strategy, actions/investment required to achieve financial

outcomes and any risks/opportunities to the strategy.

The Group reviews underlying assumptions on its external

operating environment to identify potential risks and, by extension,

its strategic objectives on a periodic basis, the frequency of which

is determined by a number of factors including the speed of

change of the economic environment, changes in the financial

services industry and the competitive landscape, regulatory

change and deviations in actual business outturn from strategic

targets.

Management and measurement

At a strategic level, the Group manages business model risk

within its risk appetite framework, by setting limits in respect of

measures such as financial performance, portfolio concentration

and risk-adjusted return. At a more operational level, the risk is

mitigated through periodic monitoring of variances to plan. Where

performance against plan is outside agreed tolerances or risk

appetite metrics, proposed mitigating actions are presented and

evaluated, and tracked thereafter. During the year, periodic

forecast updates for the full year financial outcome may also be

produced. The frequency of forecast updates during each year will

be determined based on prevailing business conditions.

At an individual level, planning targets translate into accountable

objectives to enable performance tracking across the Group and

to facilitate formulation and review of Executive Committee

performance scorecards.

Monitoring, escalating and reporting

Performance against plan is monitored at business level on a

monthly basis and reported to senior management teams within

the business. At an overall Group level, performance against plan

is monitored as part of the monthly CFO report which is discussed

at Executive Committee and Board. Monitoring of the risk profile

via the CRO report, including performance against risk appetite is

presented to the Board Risk Committee. The escalation process,

as stipulated under the RAS policy, is commenced in the event of

a breach of either the RAS watch trigger or limit for any of the

metrics. This ensures Board and Regulator notification within

approved timeframe, when appropriate.

2.5 Operational risk

Operational risk is the risk arising from inadequate or failed

internal processes, people and systems, or from external events.

This includes legal risk but excludes strategic and reputational

risk.

Identification and assessment

Operational risk is identified and assessed by the Group’s material

risk assessment which is a top-down process and it also identifies

the following nine material operational sub risks: cyber risk

(information security), change risk, physical safety and property

risk, continuity and resilience risk, product and proposition risk,

third party risk, IT risk, data risk (including data quality risk) and

legal risk (the potential for loss arising from the uncertainty of legal

proceedings and potential legal proceedings). The risk and control

assessment is the Group’s core bottom-up process for the

identification and assessment of operational risk across the

Group.

The risk and control assessment process serves to ensure that

key operational risks are proactively identified, evaluated,

monitored and reported, and that appropriate action is taken. Self-

assessment of risks is completed at business unit level and is

recorded on SHIELD which is the Group’s governance, risk and

compliance system. Service assessments and risk assessments

are performed on all critical or important outsourcing

arrangements and are recorded on SHIELD.

SHIELD provides all areas with one consistent view of the

operational risks, controls, actions and events across the Group.

Risk and control assessments are regularly reviewed and updated

by business unit management.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

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2.5 Operational risk continued

The potential impact of the identified risks are then assessed

through the ICAAP and stress testing processes where scenarios

relating to operational risk such as internal/external fraud, systems

failure, property damage, third party technical issues and

disruptive weather conditions, are developed and incorporated

into the overall outcomes.

Management and measurement

The Operational Risk Framework sets out the principles,

supporting policies, roles and responsibilities, governance

arrangements and processes for operational risk management

across the Group. Each sub risk has a supporting policy in place

to outline the minimum control standards and core policy rules

that must be adhered to. The nine material operational sub risks

are owned and actively monitored under the Operational Risk

Framework and underlying Policies to ensure material operational

risks are managed effectively within the Group RAS limits. The

Operational Risk Framework and policies set out the process for

risk and control assessments, identification of the key non-

financial risks arising from key business processes and activities.

It also includes the process for the escalation of the relevant RAS

metric limit and watch-trigger breaches.

In addition, operational risk is partially hedged through an

insurance programme in place, including a self-insured retention,

to cover a number of risk events which would fall under the

operational risk umbrella. These include financial lines policies

such as:

•comprehensive crime/computer-crime/cyber/professional

indemnity/civil liability;

•employment practices liability; and

•directors’ and officers’ liability and a suite of general insurance

policies to cover such things as property and business

interruption, terrorism, employers and public liability and

personal accident.

Operational risk is measured through a series of risk appetite

metrics and key risk indicators, these include metrics on

operational risk losses and events; cyber security, change

initiatives, quality and accessibility of priority data, service

availability and third party risks.

Monitoring, escalating and reporting

In addition to risk appetite measures and limits, operational risk is

monitored on a regular basis via the Group’s risk governance

committees. This provides senior management, through the

Operational Risk Committee and Group Risk Committee and the

Board through Board Risk Committee with timely updates on the

Group’s operational risk profile. The profile update details the

current status of the Group’s key operational risks and includes an

overview of current trends. It also includes an update on recent

major risk events and any remediation actions/lessons identified

following events.

Operational risk events are identified and captured in the

SHIELD system. These are escalated through a defined process

depending on impact and severity. Root causes of events are

determined, and action plans are implemented to ensure there

are enhanced controls in place to keep customers and the

business safe.

2.6 Conduct risk

Conduct risk is defined as the risk that inappropriate actions or

inactions by the Group cause poor or unfair customer outcomes

or negatively impact on market integrity.

The effective management of conduct risk requires embedding of

a strong conduct culture with a customer centric approach to

conduct risk management as articulated in the Group’s values,

behaviours and code of conduct.

The conduct risk priorities for the Group include:

•A Customer First culture, as articulated by the Brand Values,

Behaviours and Code of Conduct, is embedded and

demonstrated throughout the organisation;

•A mature Group Conduct Risk Framework aligned with the

Group Strategy, is embedded in the organisation that provides

oversight of conduct risks at Executive Committee and Board

level; and

•Customers, existing and new, are treated in a fair and

transparent way.

Identification and assessment

The Group’s material risk assessment and risk and control

assessment forms the basis for identifying the key elements of

conduct risk.

The Group has identified a number of risk drivers pertaining to

conduct risk and these are reviewed on an annual basis as part of

the material risk assessment process. These include, inter alia:

•Monitoring trends of customer complaints on a regular basis;

•The pace and complexity of changing industry best practice and

clarifications received in relation to regulatory expectations can

drive an accelerated process for changing products, practices,

services and cultures;

•Potential of unintended consequences arising from the scale

and pace of inorganic and strategic change;

•Understanding the implications of the evolving global, European

and Irish economic landscape on short to medium term interest

rate environment;

•Increased competition in terms of resources, skills, industry

participants remuneration practices and customer bases;

•Negative macroeconomic environment can result in unexpected

bank and/or employee behaviour and potential increased

market instability could result in market conduct risk; and

•Environmental, Social and Governance risks (''ESG'') may result

in poor customer outcomes such as incorrect risk preferences or

failing to identify climate impacts on product offerings

Conduct risks are identified during the risk and control

assessment process which provides documentary evidence of risk

assessments. It determines the risk profile of the business, drives

risk management and actions plans including key risk indicator

development and reporting. A risk register of the Group’s material

risks is also maintained. The risk and control assessment has

identified a number of key conduct risks relating to customer

satisfaction, employee behaviour and clients, business and

product practice.

Group Conduct completes horizon scanning and benchmarking

to identify future conduct risk considerations within business and

regulatory environments. In addition, Risk, through the

Compliance and Group Risk Assurance function, identifies

upstream conduct risk and communicate to the relevant

business areas.

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2.6 Conduct risk continued

Management and measurement

The Group has a Conduct Risk Framework and Conduct Risk

Policy which applies to the Group including all subsidiaries. This

Framework and Policy, as well as other supporting policies, are in

place to drive the consistent management of this risk

This Policy includes the approach to vulnerable customers, which

is defined as recognising in customers when they are in need of

additional care, support or protection. The Vulnerable Customer

team are in place to ensure governance structures are in place for

the oversight of the Vulnerable Customer Programme, developing

and ensuring execution of the Group Vulnerable Customer Action

Plan Developing and delivering group level training for staff on

Customer Vulnerability issues.

Conduct risk measurement should be considered qualitatively

under normal and stressed conditions. Any new material business

development or change in strategy would also warrant an

independent assessment of conduct risks and potential impact

on reputation.

The Group Head of Conduct and team provides independent

oversight and governance of conduct risk across the Group (and

is a mandatory approver of product / propositions proposals),

including training and awareness building.

An approved Group Conduct Strategy, aligned with the Group’s

Purpose, Strategy and Values, is supported by annual Business

Conduct Action plans, delivering against key strategic objectives,

ensuring continued progress on embedding conduct and meeting

evolving regulatory expectations.

The Conduct Risk RAS is recommended by the Compliance

Function and consists of qualitative statements and key risk

indicator (''KRI'') metrics. The KRIs establish specific limits,

ceilings and floors that relate to the qualitative RAS. Risk, through

the Compliance & Group Risk Assurance function, provide

independent challenge of potential and identified conduct risks

and provide advice to business segments on conduct risk issues.

Business conduct dashboards measure key management

information trends under the five key conduct risk areas, as

reflected in the Group’s conduct strategy.

The Group Head of Conduct in the first line of defence is a

member of a number of key working groups and fora regarding

the management and measurement of conduct risk, and provides

challenge on RAS metrics which are monitored monthly, customer

solutions and the resolution of materialised conduct risks.

Monitoring, escalating and reporting

The Group Conduct Committee together with Business Conduct

Committees operating to standard terms of reference actively

drive the conduct agendas and manage conduct risk within their

businesses. Conduct risks are assessed and monitored across

the Group in line with risk management procedures. Significant

conduct events are assessed and remedial actions implemented

where necessary. These are escalated based on a materiality

assessment, in line with the Conduct Risk Framework.

Conduct risks and controls are monitored on a monthly basis via

the Group’s risk governance committees. This provides the Group

Risk Committee and the Board Risk Committee with relevant

updates on the conduct risk profile. The profile update details the

current status of the Group’s key conduct risks, includes an

overview of current trends, an update on recent significant events

and any remediation actions or lessons identified following events.

From a Prudential perspective the Group reports the financial

impact of conduct risk events through the annual operational risk

ICAAP, quarterly COREP submissions and the biennial EBA

Stress Testing exercise.

The Regulatory and Conduct Risk Committee (“RCR”) is the

forum that provides risk oversight of regulatory and conduct risks

of the Group including oversight of its subsidiaries. The RCR was

established by, and is accountable to, the Group Risk Committee

to oversee regulatory and conduct risks across the Group. This

includes monitoring and reviewing the Group’s regulatory and

conduct risk profile, compliance with risk appetite and other

approved policy limits, reviewing risk policies and recommending

these for approval to the Group Risk Committee.

2.7 Regulatory compliance risk

Regulatory compliance risk is defined in the Regulatory Risk

Management Framework as the risk of legal or regulatory

sanctions, material financial loss, or loss to reputation which the

Group may suffer as a result of its failure to comply with principal

laws, regulations, rules, related self-regulatory codes and related

supervisory expectations which relate to the Group’s regulated

banking and financial service activities i.e., those activities which

the Group is licenced to conduct business.

Identification and assessment

The Group’s material risk assessment and risk and control

assessment forms the basis for identifying the key drivers of

regulatory compliance risk. The associated sub-risks include

prudential regulation, conduct of business regulation, financial

crime and data protection. The material risk assessment has

identified other key risks in this regard as:

•The complexity and volume of regulatory change and the rapidly

evolving international sanctions environment, raises the risk of

regulatory compliance failure and/or regulatory sanction.

The key areas of focus of both the Central Bank of Ireland (“CBI”)

and the Joint Supervisory Teams (“JST”) includes:

•Regulated firms that are subject to the regulation from the CBI

and JST are fully compliant with their obligations and are

treating their customers, existing and new, in a fair and

transparent way, including the embedding of directives and

regulations;

•Continued focus on the full implementation of the suite of

prudential requirements including Capital Requirements

Directive (“CRD”) and Capital Requirements Regulation

(“CRR”), and the binding technical standards and guidelines;

•CBI Consumer Protection Outlook report and Dear CEO letters;

and

•Climate and ESG issues where the CBI has noted its

expectations for firms to follow including the requirements

relating to governance, risk management frameworks, scenario

analysis, disclosures and strategy, and business model risks.

Management and measurement

The Regulatory Compliance Risk Management Framework sets

out the principles, roles and responsibilities, and governance

arrangements and is supported by a number of key policies.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

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2.7 Regulatory compliance risk continued

The Group Regulatory Compliance Risk Management Framework

and the regulatory compliance risk management lifecycle

commences with upstream regulation risk management. The

Regulatory Change Team (''RCT'') reside within the Regulatory

Compliance Team, Compliance & Assurance and provide

oversight and support in respect of regulatory change risk

management. The approach to regulatory change has been

designed to ensure regulatory requirements are clearly

understood from the outset with end-to-end traceability monitored

by the Regulatory Forum as part of Group Programme Board

('‘GPB'’). It involves an up-front partnership between the

Regulatory Change Team and Change Operations to ensure

business stakeholders are identified with roles and

accountabilities assigned. The process provides a platform for

clear monitoring, communication, effective oversight, robust

challenge and the pursuit of regulatory compliance in a

collaborative manner across both first and second line of defence.

The regulatory compliance risk management lifecycle is reviewed

on an annual basis by the various teams within Compliance. In

order to produce a comprehensive holistic view of regulatory

compliance risks across the Group, detailed risk assessments are

completed based on the premise of identifying the regulatory

compliance risks which pose the most significant threat to the

Group. Risk identification and assessment is carried out through a

combined top-down and bottom-up approach. The output of this

risk assessment process is to produce the Compliance & Risk

Assurance Plan.

Monitoring, escalating and reporting

Regulatory compliance risks are monitored on a monthly basis via

the Group’s risk governance committees. This occurs initially at

the Regulatory and Conduct Risk Committee (“RCR”) and key

items are brought through to Group Risk Committee and Board

Risk Committee for discussion and escalation where appropriate.

This includes an update on recent significant events and any

remediation actions or lessons identified following events.

The RCR is the forum that provides risk oversight of regulatory

and conduct risks of the Group including oversight of its

subsidiaries. The RCR was established by, and is accountable to,

the Group Risk Committee, to oversee regulatory and conduct

risks across the Group, including monitoring, reviewing the

regulatory and conduct risk profile, compliance with risk appetite

and other approved policy limits. It is also responsible for

reviewing risk policies and recommending these for approval to

the Group Risk Committee.

Regulatory Compliance establish written guidance to staff on the

appropriate implementation of relevant laws, rules and standards

through relevant regulatory compliance policies and support the

first line business units in understanding and implementing their

regulatory compliance obligations and management of the

associated regulatory compliance risks in line with the Regulatory

Compliance and Conduct Risk Appetite Statements. As part of

their role engaging with the first line, Regulatory Compliance

assist the business in maintaining a positive and transparent

relationship with the Regulators in respect of regulatory

compliance and conduct matters.

Group Risk Assurance (“GRA”) provides independent review and

objective assurance on the quality and effectiveness of the

Group’s internal control system, including the Risk Governance

Policies and Frameworks in accordance with a Board approved

risk-based assurance plan.

2.8 People and culture risk

People and culture risk is the risk to achieving the Group’s

strategic objectives as a result of an inability to recruit, retain or

develop resources, or the inability to evolve the culture aligned to

the Group’s values and behaviours.

Identification and assessment

The material risk assessment identifies the Group’s key material

risks including people and culture risk and its sub-risks including

resource capacity, wellbeing and engagement risk, retention risk,

talent sourcing and culture risk and the emerging risk drivers

including changing workforce demographics, remote/hybrid

working for longer term, changing market perceptions as employer

of choice, changing business model, ineffective leadership and

negative media coverage through the completion of a top-down

review.

Bottom-up risk assessments are then captured through the risk

and control assessment process in each business area across the

Group. The risk and control assessment in 2022 has identified the

key people and culture risks to be capacity, resourcing,

recruitment and retention.

The risk and control assessment is the Group’s core bottom-up

process which serves to ensure that key risks are proactively

identified, evaluated, monitored and reported, and that appropriate

action is taken. The risk and control assessment includes a

requirement to perform a self-assessment of the risks at each

business unit level. The potential impact of these risks are then

assessed through the ICAAP and stress testing processes where

scenarios relating to this risk such as employment practices and

workplace safety are developed and incorporated into the overall

outcomes.

Management and measurement

The People and Culture Framework sets out the principles,

supporting policies, roles and responsibilities, governance

arrangements and processes for people risk management across

the Group. The Framework is supported by various HR policies to

drive the consistent management of this risk. Key management

actions include:

•Significant enhancement of the Group’s wellbeing, engagement,

inclusion and diversity strategies;

•2022 has seen an acceleration in the competition for talent in a

buoyant labour market. The Group has responded with a very

strong focus on senior talent identification and has in particular

generated increased internal talent mobility. There has also

been significant investment in terms of developing staff

capabilities across the Group through learning and development

plans;

•Continuing the Group’s Culture development journey with

progress being made throughout the year. The Group continues

to be an active member of the Irish Banking Culture Board;

•The introduction of several progressive family leave policies in

2022 such as surrogacy, fertility treatment and pregnancy loss.

•Continued embedding of the Group’s code of conduct;

incorporating the risk culture principles, places great emphasis

on the integrity of employees and accountability for both actions

taken and inaction. The code sets out how employees are

expected to behave in terms of the business, customer and

employee. The code is supported by a range of employee

policies, including ‘Conflicts of Interest’ and ‘Speak up’. The

Group has a disciplinary policy which clearly lays out the

consequences of inappropriate behaviours;

RISK MANAGEMENT CONTINUED

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2.8 People and culture risk continued

•Further re-iteration of the Group’s ‘Speak up’ policy through the

“Speak Your Mind” week held in 2022 that encouraged

employees to speak their mind, and in particular the importance

of reporting wrongdoing. This process also provides those

working for the Group with a protected channel for raising

concerns, which is at the heart of fostering an open and

transparent working culture;

• A number of positive ExCo initiatives are underway to address

the ongoing quantum and pace of the transformation and

change agenda across the Group, impacting on resource

retention and capacity, together with the accelerated pace of

recruitment across the external market in certain highly skilled

and specialised areas;

•Ongoing use of the Aspire Performance Management

Programme (“Aspire”), which facilitates quality performance

discussions with staff that contributes to delivering the Group’s

strategic ambitions. Aspire is designed to allow employees

identify “What” personal and business objectives are to be

achieved and “How” they will behave in the delivery of those

objectives. The Board assesses the Aspire outputs on

completion. Aspire allows the Group embrace the right

behaviours and outcomes with equal weighting, to achieve the

Group’s strategic ambition;

•There has been significant investment in terms of developing

capabilities across the bank including running a number of

Leadership Development and Talent Management programs

during the year; and

•People and culture risk is measured through a series of RAS

metrics such as taking accountability using the ‘How’

performance management metric, top performers attrition rates,

senior attrition rates and mandatory training completion rates.

Monitoring, escalating and reporting

In addition to risk appetite measures and limits, people and culture

risks are monitored on a monthly basis via the Group’s risk

governance committees. This provides senior management,

through the Operational Risk Committee, Group Risk Committee

and the Board with timely updates on the Group’s operational risk

profile. The profile update details the current status of the Group’s

key people and culture risks. It also includes an overview of

current trends, an update on recent significant events and any

remediation actions or lessons identified following events. This

allows the Group Risk Committee and Board Risk Committee to

understand and discuss key people and culture risk metrics, with

escalation to the Board where appropriate.

The Group, through the Board Audit Committee, reports and

monitors issues raised through a number of channels including

conflicts of interest, disciplinary policy and speak up policy. The

Board monitors, reviews progress and oversight of senior

management in relation to the Group’s people and culture

ambitions through a number of datasets including iConnect, the

balanced scorecard and culture dashboard.

2.9 Capital adequacy risk*

Capital adequacy risk is the risk that the Group breaches or may

breach regulatory capital ratios and internal targets, measured on

a forward looking basis across a range of scenarios, including

a severe but plausible stress.

Identification and assessment

Capital adequacy risk is primarily evaluated through the annual

financial planning and the Group’s ICAAP processes where the

level of capital required to support growth plans and meet

regulatory requirements is assessed over the three year planning

horizon.

*Forms an integral part of the audited financial statements

Plans are assessed across a range of scenarios ranging from

base case and moderate downside scenarios to a severe but

plausible stress using the Group’s stress testing methodologies.

An annual material risk assessment is conducted to identify all

relevant (current and anticipated) material risks which are then

assessed from a capital perspective.

Management and measurement

The ICAAP is fully integrated and embedded in the strategic,

financial and risk management processes of the Group. The

Business Model and Capital Adequacy Framework sets out the

key processes, governance arrangements and roles and

responsibilities which support the ICAAP. Embedding of the

ICAAP is facilitated through capital planning, the setting of risk

appetite and risk adjusted performance monitoring. In addition to

the capital plan, a capital contingency plan is in place which

identifies and quantifies actions which are available to the Group

in order to mitigate against the impact of a stress event. Trigger

points at which these actions will be considered are also

identified. The impact of changing regulatory requirements,

changes in the risk profile of the Group’s balance sheet and other

internal factors, and changing external risks are regularly

assessed by first line of defence and second line of defence

teams via regular monitoring of performance against the agreed

financial plan, monthly capital updates to ALCo and Group Risk

Committees and are also assessed via quarterly internal stress

testing. A further set of triggers and capital options are set out in

the Group’s recovery plan, which presents the actions available

to the Group to restore viability in the event of extreme stress.

The Group uses risk adjusted return on capital for capital

allocation purposes and as a behavioural driver of sound risk

management. The use of risk adjusted return on capital for

portfolio management and in new lending decisions continues

to be an area of focus and a key consideration for pricing of

lending products, both at portfolio level and individually for

large transactions.

The Board reviews and approves the ICAAP on an annual basis

and is also responsible for approving a capital adequacy

statement attesting that the Board has reviewed and is satisfied

with the capital adequacy of the Group.

Monitoring, escalating and reporting

The Group monitors its capital adequacy on a monthly basis when

a capital reporting pack is presented to senior executives and

Board setting out the evolution of the Group’s capital position. The

risk profile including performance against risk appetite is

presented to the Board Risk Committee via the CRO report

produced independently by the second line of defence. The

escalation process as stipulated under the RAS policy is

commenced in the event of a breach of either the RAS watch

trigger or limit for any of the metrics. This ensures Board and

Regulator notification, where appropriate, within approved

timeframes. The output of quarterly stress tests is reviewed by

ALCo and on an annual basis an ICAAP report is produced which

is a comprehensive analysis of the Group’s capital position in

base and stress scenarios over a three year horizon. The ICAAP

document is reviewed and approved by the Board and is

submitted to the Joint Supervisory Team, where it forms the basis

of their supervisory review and evaluation process.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

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147

2.10 Model risk

Model risk is the potential loss an institution may incur, as a

consequence of decisions that could be principally based on the

output of models, due to errors in the development,

implementation or use of such models.

Identification and assessment

The Group’s material risk assessment and the risk and control

assessment forms the basis for identifying the key elements of the

risk. The material risk assessment identifies the key sub-risks

including oversight, data, development, implementation and use

and the emerging risk drivers such as climate risk through a top-

down review. The risk and control assessment is the Group’s core

bottom-up process in the identification and assessment of model

risk across the Group.

The RCA includes a requirement to perform a self-assessment of

the risks at each business unit level. The potential impact of

model risk is assessed through the ICAAP. Model risk is generally

mitigated through specific model adjustments. There is no explicit

capital requirement generated from this risk, it is indirectly

assessed through the other risks.

Management and measurement

There is a Model Risk Framework and supporting policies in place

to drive the consistent management of this risk. This sets out the

key controls required to mitigate model risk across the model

lifecycle, from initiation of a model build through to

implementation, use and ongoing monitoring. The key controls

include:

•A complete inventory of all models in the Group, with a clear

tiering of models to ensure key controls such as model

validation and monitoring are being applied on a risk-based

approach;

•Requirement for clear hand-offs between each stage in the

lifecycle to mitigate the risk of issues propagating through the

lifecycle of the model;

•Models are built, validated and monitored by suitably qualified

analytical personnel, supported by relevant business, risk and

finance functions;

•The best available data, both internal and external, must be

used, and any data weaknesses are appropriately mitigated

through the model build;

•The use of industry standard techniques are applied for stages

in the model lifecycle where appropriate; and

•All material models are validated by an appropriately qualified

team which is independent of the model build process. Where

issues are identified, appropriate mitigants are applied. This can

include temporary post model adjustments which are put in

place until a model is re-developed.

Model risk is measured using a composite assessment of model

outcomes across the lifecycle for all models in the inventory.

Monitoring, escalating and reporting

The Risk Measurement Committee and its sub-committee, the

Model Risk Committee, are the primary committees for overseeing

model risk in the Group. Model materiality is defined in the Group

Model Risk Management Policy. The outcomes of validation and

other reviews are brought to the appropriate committee(s) for

oversight to ensure all models remain fit for their intended use and

that any issues are appropriately escalated.

Model monitoring on material models is reported to committee(s)

quarterly to ensure the models are performing as expected, with

appropriate actions raised when models fall below the required

performance levels.

An overall assessment of model risk is performed on a quarterly

basis and is reported to the Group Risk Committee and Board

Risk Committee. The status of model risk is reported on a monthly

basis in the CRO report, which includes an update on recent

significant events and any remediation actions that are underway.

RISK MANAGEMENT CONTINUED

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FINANCIAL STATEMENTS



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1.	Statement of Directors’ Responsibilities	150
2.	Independent Auditor’s Report	151
3.	Consolidated financial statements	163
4.	Notes to the consolidated financial statements	169
5.	Allied Irish Banks, p.l.c. company financial statements	282
6.	Notes to Allied Irish Banks, company financial statements	286

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General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

149

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The following statement which should be read in conjunction with the statement of Auditor’s responsibilities set out with their Audit

Report, is made with a view to distinguishing for shareholders the respective responsibilities of the Directors and of the Auditors in

relation to the financial statements.

The Directors are responsible for preparing the Annual Financial Report and the Group and Company financial statements, in

accordance with applicable law and regulations.

Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law, the

Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards

(“IFRSs”) as adopted by the EU and Article 4 of the IAS Regulation and have elected to prepare the Company financial statements in

accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2014.

In preparing both the Group and Company financial statements, the Directors are required to:

•select suitable accounting policies and then apply them consistently;

•make judgements and estimates that are reasonable and prudent;

•state that the financial statements comply with IFRSs as adopted by the EU; and

•prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will

continue in business.

The Directors are responsible for keeping adequate accounting records that disclose with reasonable accuracy at any time the financial

position of the Company and enable them to ensure that its financial statements comply with the Companies Act 2014. They are also

responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and Company and to prevent

and detect fraud and other irregularities. Under applicable law and corporate governance requirements, the Directors are also

responsible for preparing the Directors’ Report and the reports relating to the Directors’ remuneration and corporate governance that

comply with that law and the relevant listing rules of Euronext Dublin (the Irish Stock Exchange) and the UK Listing Authority.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s

website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other

jurisdictions.

Each of the Directors whose names and functions are listed on pages 39 to 42 confirm, to the best of their knowledge and belief, that:

•they have complied with the above requirements in preparing the financial statements;

•the Group financial statements, prepared in accordance with IFRSs as adopted by the EU and Article 4 of the IAS Regulation, give a

true and fair view of the state of the Group’s affairs as at 31 December 2022 and of its profit for the year then ended;

•the Company financial statements prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the state of

the Company’s affairs as at 31 December 2022;

•the Directors’ report, Business review and Risk management sections, contained in the Annual Financial Report provide a fair review

of the development and performance of the business and the financial position of the Group, together with a description of the

principal risks and uncertainties faced by the Group; and

•the Annual Financial Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for

shareholders to assess the Group’s and the Company’s position and performance, business model and strategy.

For and on behalf of the Board



Jim Pettigrew	Colin Hunt	Donal Galvin
Chair	Chief Executive Officer	Chief Financial Officer

7 March 2023

Allied Irish Banks, p.l.c. Annual Financial Report 2022

150

INDEPENDENT AUDITOR’S REPORT

Independent auditor’s report to the members of Allied Irish Banks, p.l.c.

Report on the audit of the European Single Electronic Format financial statements (the “financial statements”)

Opinion on the financial statements of Allied Irish Banks, p.l.c. (the ‘Company’)

In our opinion the Group and Company financial statements:

•give a true and fair view of the assets, liabilities and financial position of the Group and Company as at 31 December 2022 and of the

profit of the Group for the financial year then ended; and

•have been properly prepared in accordance with the relevant financial reporting framework and, in particular, with the requirements of

the Companies Act 2014 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The financial statements we have audited comprise:

The Group financial statements:

•the Consolidated Income Statement;

•the Consolidated Statement of Comprehensive Income;

•the Consolidated Statement of Financial Position;

•the Consolidated Statement of Changes in Equity;

•the Consolidated Statement of Cash Flows; and

•the related notes 1 to 52, including a summary of significant accounting policies as set out in note 1.

The Company financial statements:

•the Statement of Financial Position;

•the Statement of Changes in Equity;

•the Statement of Cash Flows; and

•the related notes a to ai, including a summary of significant accounting policies as set out in note a.

The relevant financial reporting framework that has been applied in their preparation is the Companies Act 2014 and International

Financial Reporting Standards (IFRS) as adopted by the European Union (“the relevant financial reporting framework”).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (Ireland) (ISAs (Ireland)) and applicable law. Our

responsibilities under those standards are described below in the “Auditor's responsibilities for the audit of the financial statements”

section of our report.

We are independent of the Group and Company in accordance with the ethical requirements that are relevant to our audit of the financial

statements in Ireland, including the Ethical Standard issued by the Irish Auditing and Accounting Supervisory Authority (IAASA), as

applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.


	Summary of our audit approach

	Key audit matters		The key audit matters that we identified in the current year were: •Expected credit losses on loans and advances to customers; •Recognition of deferred tax assets; •Defined benefit obligations; •Provisions for liabilities and commitments; and •IT systems and controls. Within this report, any new key audit matters are identified with and any key audit matters which are the same as the prior year identified with .

	Materiality		We determined materiality for: –the Group to be € 54 million which is 0.4% of Total Equity of the Group; and –the Company to be € 54 million which is 0.5% of Total Equity of the Company.

	Scoping		We focused the scope of our Group audit primarily on the audit work in Allied Irish Banks, p.l.c. and three legal entities, all of which were subject to individual statutory audit work, whilst the other legal entities were subject to specified audit procedures, where the extent of our testing was based on our assessment of the risks of material misstatement and of the materiality of the Group’s operations in those entities. These audits and specified audit procedures covered over 94% of the Group’s total assets and 91% of the Group’s total operating income.

	Significant changes in our approach		There were no significant changes in our approach which we feel require disclosure.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

151

INDEPENDENT AUDITOR’S REPORT CONTINUED

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the

preparation of the financial statements is appropriate.

Our evaluation of the directors’ assessment of the Group and Company’s ability to continue to adopt the going concern basis of

accounting included consideration of the inherent risks to the Group’s and Company’s business models. We analysed how those risks

might affect the Group’s and Company’s financial resources or ability to continue operations twelve months from the date of approval of

these annual financial statements. The risks that we considered most likely to adversely affect the Group’s and Company’s available

financial resources over this period were:

•availability of funding and liquidity in the event of a market wide stress scenario, including the potential prolonged impacts of

inflationary pressures and geopolitical uncertainty on the economy; and

•impact on regulatory capital requirements in the event of an economic slowdown or recession.

As these were risks that could potentially cast significant doubt on the Group’s and the Company’s ability to continue as a going

concern, our evaluation of the directors’ assessment included:

•understanding the Group and Company’s Capital and Liquidity process, including under stressed scenarios;

•evaluating the design and determining the implementation of key controls over the preparation of financial plans and budgets;

•obtaining the updated financial planning exercise covering the period 2023 to 2025 undertaken by the Group in the second half of

2022;

•assessing whether the level of forecasted profits in the updated financial plan were appropriate by challenging the growth, profitability

and economic assumptions within;

•evaluating the accuracy of Management’s forecasting process by reviewing previous forecasts and comparing to actual results;

•challenging the key assumptions used in the directors’ assessment of the Group and the Company’s ability to continue as a going

concern; and

•evaluating the adequacy of the relevant disclosures made in the financial statements.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that,

individually or collectively, may cast significant doubt on the Group and Company's ability to continue as a going concern for a period of

at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of

this report.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial

statements of the current financial year and include the most significant assessed risks of material misstatement (whether or not due to

fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit;

and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements

as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

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	Expected credit losses on loans and advances to customers

	Key audit matter description		In line with IFRS 9, losses on financial assets which are classified at amortised cost, are recognised on an Expected Credit Loss (“ECL”) basis. ECLs are required to incorporate forward looking information, reflecting Management’s view of potential future economic environments. The complexity involved in the calculations require Management to develop methodologies involving the use of significant judgements. Expected credit loss allowances on loans and advances to customers was € 1,618 million at 31 December 2022 (2021: € 1,885 million). Measurement of the ECL allowance on loans and advances to customers is a key audit matter as the determination of assumptions for ECLs is highly subjective due to the level of judgement applied by Management. The most significant judgements include: •Determining the criteria for a significant increase in credit risk (“SICR”), and for being classified as credit impaired; •The definition of default; •Accounting interpretations and assumptions used to build the models that calculate the ECL; •The determination of key assumptions, including collateral valuation and cashflow timings, used in discounted cash flows (“DCFs”) of individually assessed loans; •The completeness and accuracy of data used to calculate the ECL; •The completeness and valuation of post-model adjustments determined by Management for certain higher risk portfolios and to address known model limitations; and •Establishing the number and relative weightings for forward looking macroeconomic scenarios applied in measuring the ECL. This is highly subjective given that such assumptions are subject to significant uncertainty related to future economic outcomes, including the potential prolonged impacts of inflationary pressures and geopolitical uncertainty. This results in a wide range of possible outcomes. Please also refer to page 45 (Report of the Board Audit Committee), page 187 (Accounting Policy (s) – Impairment of financial assets), Note 2 – Critical accounting judgements and estimates, Note 12 – Net credit impairment (charge)/writeback and Note 20 – ECL allowance on financial assets.


	How the scope of our audit responded to the key audit matter		We tested the operating effectiveness of key controls supporting the calculation of ECLs on loan and advances to customers focusing on: •model development, validation and approval to ensure compliance with IFRS 9 requirements; •review and approval of key assumptions, judgements and macroeconomic forward looking information used in the models; •the integrity of data used as input to the models including the transfer of data between source systems and the ECL models; •the application of SICR criteria and the definition of default used to determine stage outcomes; •governance and approval of post-model adjustments recorded by Management; •governance and approval of the output of IFRS 9 models; and •front line credit monitoring and assessment controls including annual case file reviews. Our testing included an evaluation of the design and implementation of these key controls. Where control deficiencies were identified, we tested compensating controls implemented to produce the ECLs and financial statement disclosures. We also assessed Management review controls and governance controls including attendance at, and observation of, Board Risk Committee and Group Credit Committee meetings. We evaluated IT system controls including assessing data inputs and general IT controls. We tested the completeness and accuracy of key data inputs and reconciled to source systems, where appropriate. We critically assessed the ECL models developed by the Group. In conjunction with Deloitte credit modelling specialists, we challenged judgements and assumptions supporting the ECL requirements of IFRS 9. These included assumptions used in the ECL models applied in stage allocation, calculation of lifetime probability of default and methods applied to derive loss given default rates. We evaluated the methodology and performed code reviews for a sample of models. We assessed the reasonableness of forward-looking information incorporated into the impairment calculations. We challenged the macroeconomic scenarios chosen and changes to the weightings applied. This included benchmarking the economic data used to recognised external data sources. We also considered the impact of key uncertainties, including the potential prolonged impacts of inflationary pressures and geopolitical uncertainty on the economy. We considered material post-model adjustments applied by Management to address model and data limitations. We challenged the rationale for these adjustments and performed testing on their calculation and application.

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INDEPENDENT AUDITOR’S REPORT CONTINUED


	Expected credit losses on loans and advances to customers continued

	How the scope of our audit responded to the key audit matter		In examining a risk-based sample of DCF individually assessed loan cases, we challenged Management on the judgements made regarding the application of the default policy, status of loan restructures, collateral valuation and realisation time frames and examined the credit risk functions analysis of data at a portfolio level. Where appropriate, this work involved assessing third party valuations of collateral, internal valuation guidelines derived from benchmark data, external expert reports on borrowers’ business plans and enterprise valuations. This allowed us to determine whether appropriate valuation methodologies were used and to assess the objectivity of the external experts used. We considered significant items impacting the ECL allowance balance. This included portfolio sales and non- contracted write-offs, as well as recoveries on amounts previously written-off. We evaluated the adequacy of disclosures made in the financial statements. In particular, we focused on challenging Management that the disclosures were sufficiently clear in highlighting the significant uncertainties that exist in respect of the ECL allowance and the sensitivity of the allowance to changes in the underlying assumptions. Based on the evidence obtained, we found that the ECLs on loans and advances to customers are within a range we consider to be reasonable.

	Recognition of deferred tax assets

	Key audit matter description		Deferred tax assets of € 2,742 million (2021: € 2,840 million) are recognised for unutilised tax losses to the extent that it is probable that there will be sufficient future taxable profits against which the losses can be used. The assessment of the conditions for the recognition of a deferred tax asset is a critical Management judgement, given the inherent uncertainties associated with projecting profitability over a long time period. This is highly subjective given the significant uncertainty related to future economic outcomes, including the potential longer term impacts of inflationary pressures and geopolitical uncertainty on the economy. The Group has reassessed profitability and growth forecasts for the period 2023 to 2025. Growth assumptions and profitability levels underpinning the plan have been revised upwards compared to previous years and results in a decrease in the expected deferred tax utilisation period. The key audit matter relates to the Management judgement involved in recognition and measurement of the deferred tax asset. Please refer to page 45 (Report of the Board Audit Committee), page 179 (Accounting Policy (k) – Income tax, including deferred income tax), Note 2 – Critical accounting judgements and estimates and Note 26 – Deferred taxation.


	How the scope of our audit responded to the key audit matter		We have evaluated the design and determined the implementation of key controls over the preparation of financial plans and budgets. We assessed whether the level of forecasted profits were appropriate by challenging the growth, profitability and economic assumptions. We evaluated the accuracy of Management’s forecasting process by reviewing previous forecasts and comparing to actual results. We reviewed the model used by Management to assess the likelihood of future profitability and challenged Management’s assessment of a range of positive and negative evidence for the projection of long-term future profitability. We compared Management’s assumptions to industry norms and other economic metrics where possible. We reviewed Management’s analysis of the “more likely than not” test and assessed the adequacy of the financial statement disclosures. Based on the evidence obtained, we found that the assumptions used by Management in the recognition of the deferred tax asset are within a range we consider to be reasonable.

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	Defined benefit obligations

	Key audit matter description		The key audit matter is that the recognition and measurement of defined benefit obligations of € 4,850 million (2021: € 6,241 million) is inappropriate. There is a high degree of estimation and judgement in the calculation of defined benefit obligations. A material change in the liability can result from small movements in the underlying actuarial assumptions, specifically the discount rates, pension in payment increases and inflation rates. Please refer to page 45 (Report of the Board Audit Committee), page 178 (Accounting Policy (j) – Employee benefits), and Note 2 – Critical accounting judgements and estimates and Note 27 – Retirement benefits.


	How the scope of our audit responded to the key audit matter		We have evaluated the design and determined the implementation of key controls over the completeness and accuracy of data extracted and supplied to the Group’s actuary, which is used in the valuation of the Group’s defined benefit obligations. We also evaluated the design and determined the implementation of the relevant controls for determining the actuarial assumptions and the approval of those assumptions by Management. We utilised Deloitte actuarial specialists as part of our team to assist us in challenging the appropriateness of actuarial assumptions with particular focus on discount rates, pension in payment increases and inflation rates. Our work included inquiries with Management and their actuaries to understand the processes and assumptions used in calculating the defined benefit obligations. We benchmarked economic and demographic assumptions against market data and assessed Management adjustments to market rates for Company and scheme specific information. For scheme specific assumptions, we considered the scheme rules, historic practice and other information relevant to the selection of the assumption. We evaluated and assessed the adequacy of disclosures made in the financial statements, including disclosures of the assumptions and sensitivity of the defined benefit obligation to changes in the underlying assumptions. Based on the evidence obtained, we concluded that assumptions used by Management in the actuarial valuations for defined benefit obligations are within a range we consider to be reasonable.

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INDEPENDENT AUDITOR’S REPORT CONTINUED


	Provisions for liabilities and commitments

	Key audit matter description		The calculation of provisions for liabilities and commitments, including the Financial Services and Pensions Ombudsman (“FSPO”) decision and the sale of a series of property investment funds, known as Belfry, is highly judgemental and involves the use of several Management assumptions including the identification of relevant impacted customers and related redress costs. There is also a risk that known and emerging issues may not be appropriately disclosed in the financial statements. As a result, we consider this a key audit matter. Included in Note 33 - Provisions for liabilities and commitments, the Group has recorded a provision of € 60 million (2021: € 79 million) in regard to the FSPO Decision. The Group has recorded a provision of € 79 million (2021: € 75 million) for the anticipated cost of redress and other related costs that may be payable under the Belfry programme. Please refer to page 45 (Report of the Board Audit Committee), page 191 (Accounting Policy (z) – Non-credit risk provisions), Note 2 – Critical accounting judgements and estimates, Note 33 - Provisions for liabilities and commitments, and Note 39 – Contingent liabilities and commitments.


	How the scope of our audit responded to the key audit matter		We have evaluated the design and determined the implementation of the Group’s relevant controls over the identification, measurement and the disclosure of provisions for customer redress and related matters. We also assessed Management review and governance controls. We reviewed the relevant regulatory and legal correspondence. We challenged the reasonableness of assumptions used by Management and tested the underlying data and assumptions used in the determination of the provisions recorded. We reviewed the basis for recording and retaining a provision taking into consideration the information available and the requirements of IAS 37. Given the inherent uncertainty in the calculation of the provisions and their judgemental nature, we evaluated the adequacy of disclosures made in the financial statements. We challenged Management on the disclosures, in particular whether they are sufficiently clear in highlighting the exposures that remain and the significant uncertainties that exist in respect of the provisions. Based on the evidence obtained, we found that the assumptions used by Management in measurement of the provisions for customer redress and related matters are within a range we consider to be reasonable.

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	IT systems and controls

	Key audit matter description		The Group’s financial reporting processes are reliant on processes, controls and data managed by IT systems. The IT environment is complex and pervasive to the operations of the Group due to the large volume of transactions processed daily and the reliance on automated and IT dependent manual controls. This risk is also impacted by dependency on third parties and outsourced arrangements. Our planned audit approach relies extensively on IT applications and the operating effectiveness of the control environment. As part of our assessment of the IT environment, we considered privileged user access management controls to be critical in ensuring that only appropriately authorised changes are made to relevant IT systems. Moreover, appropriate access controls contribute to mitigating the risk of potential fraud or error as a result of changes to applications or processing unauthorised transactions. We regard this area as a key audit matter owing to the high level of IT dependency within the Group, as well as the associated complexity and the risk that automated controls are not designed and operating effectively.


	How the scope of our audit responded to the key audit matter		We examined the design of the governance framework associated with the Group’s IT architecture. We gained an understanding of and tested relevant General IT Controls for systems we considered relevant to the financial reporting process, including access management, programme development and change management. We gained an understanding of relevant IT controls over applications, operating systems and databases that are relevant for the financial reporting process and tested their operating effectiveness. We assessed the relevant automated controls within business processes and the reliability of relevant reports used as part of manual controls. This included assessing the integrity of system interfaces, the completeness and accuracy of data feeds and automated calculations. We tested user access by assessing the controls in place for in-scope applications and verifying the addition and removal of users. While we identified certain design and operating effectiveness deficiencies in relation to user access controls, we tested validation activities performed by Management and compensating controls to mitigate the risk of fraud or error as a result of unauthorised transactions. Based on this testing we were able to place reliance on IT controls for the purpose of our audit.

Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not

to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any

of the risks described above, and we do not express an opinion on these individual matters.

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Financial Statements

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INDEPENDENT AUDITOR’S REPORT CONTINUED

Our application of materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions

of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work

and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:


	Group financial statements	Company financial statements

Materiality	€54 million (2021: €54 million)	€54 million (2021: €54 million)
Basis for determining materiality	0.4% of Total Equity.	0.5% of Total Equity.
Rationale for the benchmark applied	We have considered Total Equity to be a critical component for determining materiality as it is one of the principal measures for users of the financial statements in assessing the Group’s financial position. We have considered quantitative and qualitative factors such as understanding the entity and its environment, history of misstatements, complexity of the Group and the reliability of the control environment.	We have selected Total Equity as an appropriate benchmark for Company materiality as the Company’s primary purpose is to act as a holding Company with investments in the Group’s primary subsidiary and therefore a profit based measure is not relevant. However, given the size of the entity's statement of financial position, we have capped materiality at the Group's materiality.

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected

misstatements exceed the materiality for the financial statements as a whole.


	Group financial statements	Company financial statements

Performance materiality	70% of Group materiality	70% of Company materiality
Basis and rationale for determining performance materiality	In determining performance materiality, we considered the following factors: a.The quality of the control environment and our ability to rely on controls; b.Degree of centralisation and commonality of controls and processes; c.The uncertain economic environment arising from inflationary pressures and geopolitical uncertainty; d.The nature, volume and size of uncorrected misstatements arising in the previous audit; and e.The nature, volume and size of uncorrected misstatements that remain uncorrected in the current year.

We agreed with the Board Audit Committee that we would report to the Committee all audit differences in excess of €2.75 million (2021:

€2.75 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to

the Board Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

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An overview of the scope of our audit

Identification and scoping of components

We determined the scope of our Group audit by obtaining an understanding of the Group and its environment, including Group-wide

controls, and assessing the risks of material misstatement at the Group level.

In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed by us, as the

Group engagement team, and by auditors within Deloitte network firms operating under our instruction (“component auditors”). Where

the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those

components to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the

consolidated financial statements as a whole.

Based on that assessment, we focused our Group audit work in Allied Irish Banks, p.l.c. and the three legal entities as disclosed in Note

40 to the consolidated financial statements, all of which were subject to individual statutory audits, whilst the other legal entities were

subject to specified audit procedures, where the extent of our testing was based on our assessment of the risks of material

misstatement and of the materiality of the Group’s operations in those entities. These audits and specified audit procedures covered

over 94% of the Group’s total assets and 91% of the Group’s total operating income. In addition, audits will be performed for statutory

purposes for all legal entities.

We also tested the consolidation process and carried out analytical procedures to assess whether there were any additional significant

risks of material misstatement arising from the aggregated financial information of the remaining entities not subject to audit or specified

audit procedures.

Working with other auditors

The Group audit team sent component auditors detailed instructions on audit procedures to be undertaken and the information to be

reported back to the Group audit team. Regular contact was maintained throughout the course of the audit with component auditors

which included holding virtual Group planning meetings, maintaining communications on the status of the audits and continuing with a

programme of virtual meetings and workshops designed so that the Group audit team engaged with each significant component audit

team during the year. At these meetings, the findings reported to the Group team were discussed in more detail, and any further work

required by the Group team was then performed by the component auditor.

Other information

The other information comprises the information included in the Annual Financial Report, other than the financial statements and our

auditor’s report thereon. The directors are responsible for the other information contained within the Annual Financial Report.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our

report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with

the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such

material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in

the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that

there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

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Governance Report

Risk Management

Financial Statements

General Information

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INDEPENDENT AUDITOR’S REPORT CONTINUED

Responsibilities of directors

As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial

statements and for being satisfied that they give a true and fair view and otherwise comply with the Companies Act 2014, and for such

internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material

misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group and Company’s ability to continue as a

going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the

directors either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material

misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high

level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (Ireland) will always detect a material

misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,

they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on IAASA’s website at: https://iaasa.ie/publications/

description-of-the-auditors-responsibilities-for-the-audit-of-the-financial-statements/. This description forms part of our auditor’s report.

Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our

procedures are capable of detecting irregularities, including fraud is detailed below.

Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and

regulations, we considered the following:

•the nature of the industry and sector, control environment and business performance including the impact of the Group’s remuneration

policies;

•results of our enquiries of management, in-house legal counsel, internal audit and the Board Audit Committee about their own

identification and assessment of the risks of irregularities;

•any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:

–identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-

compliance;

–detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;

–the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;

–the matters discussed among the audit engagement team including significant component audit teams and relevant internal

specialists, including tax, valuations, pensions and IT regarding how and where fraud might occur in the financial statements and

any potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and

identified the greatest potential for fraud in the following areas: 'Expected credit losses on loans and advances to customers',

'Recognition of deferred tax assets', 'Defined benefit obligations', 'Provisions for liabilities and commitments' and 'Revenue recognition'.

In common with all audits under ISAs (Ireland), we are also required to perform specific procedures to respond to the risk of

management override.

We also obtained an understanding of the legal and regulatory frameworks that the Group and Company operate in, focusing on

provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the

financial statements. The key laws and regulations we considered in this context included the Irish Companies Act, pensions legislation

and tax legislation.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but

compliance with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the

regulation and supervisory requirements of the European Central Bank and the Central Bank of Ireland.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

160

Audit response to risks identified

As a result of performing the above, we identified 'Expected credit losses on loans and advances to customers', 'Recognition of

deferred tax assets', 'Defined benefit obligations' and 'Provisions for liabilities and commitments' as key audit matters related to the

potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific

procedures we performed in response to those key audit matters.

In addition to the above, our procedures to respond to risks identified included the following:

•reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of

relevant laws and regulations described as having a direct effect on the financial statements;

•enquiring of management, the Board Audit Committee and in-house legal counsel concerning actual and potential litigation and

claims;

•performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement

due to fraud;

•reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with

regulators;

•in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other

adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and

evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business; and

•in addressing the risk of fraud in Revenue Recognition, assessing the design and determined the implementation of the key controls

over the recognition of non-standard revenue items and manual adjustments; and selected a sample of these items recorded within

revenue during the financial year for substantive procedures.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including

internal specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws

and regulations throughout the audit.

Report on other legal and regulatory requirements

Opinion on other matters prescribed by the Companies Act 2014

Based solely on the work undertaken in the course of the audit, we report that:

•We have obtained all the information and explanations which we consider necessary for the purposes of our audit.

•In our opinion the accounting records of the Company were sufficient to permit the financial statements to be readily and properly

audited.

•The Company Statement of Financial Position is in agreement with the accounting records.

•In our opinion the information given in those parts of the directors’ report as specified for our review is consistent with the financial

statements and the directors’ report has been prepared in accordance with the Companies Act 2014.

Corporate Governance Statement required by the Companies Act 2014

We report, in relation to information given in the Corporate Governance Statement on pages 31 to 68 that:

•In our opinion, based on the work undertaken during the course of the audit, the information given in the Corporate Governance

Statement pursuant to subsections 2(c) and (d) of section 1373 of the Companies Act 2014 is consistent with the Company’s statutory

financial statements in respect of the financial year concerned and such information has been prepared in accordance with the

Companies Act 2014.

Based on our knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not

identified any material misstatements in this information.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

161

INDEPENDENT AUDITOR’S REPORT CONTINUED

Matters on which we are required to report by exception

Based on the knowledge and understanding of the Group and the Company and its environment obtained in the course of the audit, we

have not identified material misstatements in those parts of the directors’ report as specified for our review.

The Companies Act 2014 requires us to report to you if, in our opinion, the Company has not provided the information required by

Regulation 5(2) to 5(7) of the European Union (Disclosure of Non-Financial and Diversity Information by certain large undertakings and

groups) Regulations 2017 (as amended) for the financial year ended 31 December 2022. We have nothing to report in this regard.

We have nothing to report in respect of the provisions in the Companies Act 2014 which require us to report to you if, in our opinion, the

disclosures of directors’ remuneration and transactions specified by law are not made.

Other matters which we are required to address

Following the recommendation of the Board Audit Committee of Allied Irish Banks, p.l.c., we were appointed at the Annual General

Meeting on 20 June 2013 to audit the financial statements for the financial year ended 31 December 2013. The period of total

uninterrupted engagement including previous renewals and reappointments of the firm is 10 years, covering the years ending 2013 to

2022.

The non-audit services prohibited by IAASA’s Ethical Standard were not provided and we remained independent of the Company in

conducting the audit.

Our audit opinion is consistent with the additional report to the Board Audit Committee we are required to provide in accordance with

ISA (Ireland) 260.

Use of our report

This report is made solely to the Company’s members, as a body, in accordance with Section 391 of the Companies Act 2014. Our

audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an

auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone

other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

John McCarroll

For and on behalf of Deloitte Ireland LLP

Chartered Accountants and Statutory Audit Firm

Deloitte & Touche House, Earlsfort Terrace, Dublin 2.

15 March 2023

Notes: An audit does not provide assurance on the maintenance and integrity of the website, including controls used to achieve this,

and in particular on whether any changes may have occurred to the financial statements since first published. These matters are the

responsibility of the directors but no control procedures can provide absolute assurance in this area.

Legislation in Ireland governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.

Allied Irish Banks, p.l.c. Annual Financial Report 2022

162

CONSOLIDATED INCOME STATEMENT

for the financial year ended 31 December 2022


		2022	2021
	Notes	€ m	€ m
Interest income calculated using the effective interest rate method	4	2,432	2,003
Other interest income and similar income	4	80	81
Interest and similar income	4	2,512	2,084
Interest and similar expense	5	(360)	(293)
Net interest income		2,152	1,791
Dividend income		2	3
Fee and commission income	6	773	648
Fee and commission expense	6	(177)	(160)
Net trading income	7	36	15
Net gain on other financial assets measured at FVTPL	8	102	78
Net gain on derecognition of financial assets measured at amortised cost	9	18	1
Other operating income	10	8	5
Other income		762	590
Total operating income		2,914	2,381
Operating expenses	11	(1,722)	(1,679)
Impairment and amortisation of intangible assets	23	(228)	(198)
Impairment and depreciation of property, plant and equipment	24	(113)	(129)
Total operating expenses		(2,063)	(2,006)
Operating profit before impairment losses		851	375
Net credit impairment (charge)/writeback	12	(7)	238
Operating profit		844	613
Income from equity accounted investments	22	37	21
Profit before taxation		881	634
Income tax (charge)/credit	14	(115)	16
Profit for the year		766	650
Attributable to:
– Equity holders of the parent		768	652
– Non-controlling interests	40	(2)	(2)
Profit for the year		766	650

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

163

CONSOLIDATED STATEMENT

OF COMPREHENSIVE INCOME

for the financial year ended 31 December 2022


		2022	2021
	Notes	€ m	€ m
Profit for the year		766	650

Other comprehensive income
Items that will not be reclassified subsequently to profit or loss
Remeasurement of defined benefit asset/(liability), net of tax	14	(8)	17
Total items that will not be reclassified subsequently to profit or loss		(8)	17
Items that will be reclassified subsequently to profit or loss when specific conditions are met
Net change in foreign currency translation reserves, net of tax	14	(71)	87
Net change in cash flow hedges, net of tax	14	(1,619)	(391)
Net change in fair value of investment debt securities at FVOCI, net of tax	14	(188)	(54)
Total items that will be reclassified subsequently to profit or loss when specific conditions are met		(1,878)	(358)
Other comprehensive income for the year, net of tax		(1,886)	(341)
Total comprehensive income for the year attributable to owners of the parent		(1,120)	309
Attributable to:
– Equity holders of the parent		(1,118)	311
– Non-controlling interests		(2)	(2)
Total comprehensive income for the year		(1,120)	309

Allied Irish Banks, p.l.c. Annual Financial Report 2022

164

CONSOLIDATED STATEMENT

OF FINANCIAL POSITION

as at 31 December 2022


		2022	2021
	Notes	€ m	€ m
Assets
Cash and balances at central banks	44	38,138	42,654
Trading portfolio financial assets	15	8	8
Derivative financial instruments	16	2,511	882
Loans and advances to banks	17	1,502	1,323
Loans and advances to customers	18	59,613	56,508
Loans and advances - AIB Group plc		—	15
Securities financing	19	6,282	3,890
Investment securities	21	16,270	16,934
Investments accounted for using the equity method	22	173	127
Intangible assets and goodwill	23	940	996
Property, plant and equipment	24	536	631
Other assets	25	296	573
Current taxation		15	37
Deferred tax assets	26	3,032	2,834
Prepayments and accrued income		423	424
Retirement benefit assets	27	13	54
Total assets		129,752	127,890

Liabilities
Deposits by central banks and banks	28	514	10,382
Customer accounts	29	102,359	92,866
Customer accounts - AIB Group plc		3	4
Securities financing	19	898	45
Trading portfolio financial liabilities	15	4	2
Derivative financial instruments	16	2,982	1,062
Debt securities in issue	30	1,024	1,789
Lease liabilities	31	257	346
Current taxation		1	10
Deferred tax liabilities	26	30	53
Retirement benefit liabilities	27	16	54
Other liabilities	32	1,106	1,199
Accruals and deferred income		386	287
Provisions for liabilities and commitments	33	340	501
Subordinated liabilities and other capital instruments - Externally issued	34	57	56
Subordinated liabilities and other capital instruments - AIB Group plc	34	7,528	5,567
Total liabilities		117,505	114,223

Equity
Share capital	35	1,671	1,696
Share premium	35	1,386	1,386
Reserves		8,078	9,471
Total shareholders' equity		11,135	12,553
Other equity interests - AIB Group plc	36	1,115	1,115
Non-controlling interests		(3)	(1)
Total equity		12,247	13,667
Total liabilities and equity		129,752	127,890



Jim Pettigrew Chair	Colin Hunt Chief Executive Officer	Donal Galvin Chief Financial Officer	Conor Gouldson Group Company Secretary

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

165

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the financial year ended 31 December 2022


	Attributable to equity holders of parent
	Share capital		Share premium	Other equity interests	Capital reserves	Capital redemp- tion reserves	Reval- uation reserves	Investment securities reserves	Cash flow hedging reserves	Revenue reserves	Foreign currency translation reserves	Total	Non- controlling interests	Total equity
		€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
At 1 January 2022		1,696	1,386	1,115	1,133	14	13	152	149	8,522	(512)	13,668	(1)	13,667
Total comprehensive income for the year
Profit for the year		—	—	—	—	—	—	—	—	768	—	768	(2)	766
Other comprehensive income (note 14)		—	—	—	—	—	—	(188)	(1,619)	(8)	(71)	(1,886)	—	(1,886)
Total comprehensive income for the year		—	—	—	—	—	—	(188)	(1,619)	760	(71)	(1,118)	(2)	(1,120)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners of the Group
Dividends paid on ordinary shares (note 50)		—	—	—	—	—	—	—	—	(142)	—	(142)	—	(142)
Distributions paid to other equity interests (note 36)		—	—	—	—	—	—	—	—	(67)	—	(67)	—	(67)
Buyback on ordinary shares		(25)	—	—	—	25	—	—	—	(91)	—	(91)	—	(91)
Total contributions by and distributions to owners of the Group		(25)	—	—	—	25	—	—	—	(300)	—	(300)	—	(300)
At 31 December 2022		1,671	1,386	1,115	1,133	39	13	(36)	(1,470)	8,982	(583)	12,250	(3)	12,247

Allied Irish Banks, p.l.c. Annual Financial Report 2022

166

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the financial year ended 31 December 2021


	Attributable to equity holders of parent
		Share capital	Share premium	Other equity interests	Capital reserves	Capital redemp- tion reserves	Reval- uation reserves	Investment securities reserves	Cash flow hedging reserves	Revenue reserves	Foreign currency translation reserves	Total	Non- controlling interests	Total equity
		€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m	€ m
At 1 January 2021		1,696	1,386	1115	1,133	14	14	206	540	7,919	(599)	13,424	1	13,425
Total comprehensive income for the year
Profit for the year		—	—	—	—	—	—	—	—	652	—	652	(2)	650
Other comprehensive income (note 14)		—	—	—	—	—	—	(54)	(391)	17	87	(341)	—	(341)
Total comprehensive income for the year		—	—	—	—	—	—	(54)	(391)	669	87	311	(2)	309
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners of the Group:
Distributions paid to other equity interests (note 36)		—	—	—	—	—	—	—	—	(67)	—	(67)	—	(67)
Other movements		—	—	—	—	—	(1)	—	—	1	—	—	—	—
Total contributions by and distributions to owners of the Group		—	—	—	—	—	(1)	—	—	(66)	—	(67)	—	(67)
At 31 December 2021		1,696	1,386	1,115	1,133	14	13	152	149	8,522	(512)	13,668	(1)	13,667

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

167

CONSOLIDATED STATEMENT OF CASH FLOWS

for the financial year ended 31 December 2022


		2022	2021
	Notes	€ m	€ m
Cash flows from operating activities
Profit before taxation for the year		881	634
Adjustments for:
– Non-cash and other items	45	341	272
– Change in operating assets	45	(5,623)	(2,312)
– Change in operating liabilities	45	3	15,344
– Taxation refund		(19)	13
Net cash (outflow)/inflow from operating activities		(4,417)	13,951
Cash flows from investing activities
Purchase of investment securities	21	(3,823)	(2,517)
Proceeds from sales, redemptions and maturity of investment securities	21	2,696	4,928
Additions to property, plant and equipment	24	(32)	(31)
Disposal of property, plant and equipment		10	10
Additions to intangible assets	23	(174)	(204)
Acquisition cost of subsidiary		—	(60)
Investments accounted for using the equity method	22	(45)	(8)
Disposal of associated undertakings		36	—
Net cash (outflow)/inflow from investing activities		(1,332)	2,118
Cash flows from financing activities
Net proceeds on issue of subordinated liabilities and other capital instruments - AIB Group plc	37	3,231	750
Redemption of subordinated loans - AIB Group plc		(844)	—
Dividends paid on ordinary shares		(142)	—
Buyback of ordinary shares		(91)	—
Distributions paid to other equity interests	36	(67)	(67)
Repayment of lease liabilities	24	(89)	(43)
Interest paid on subordinated liabilities and other capital instruments		(154)	(130)
Net cash inflow from financing activities		1,844	510
Change in cash and cash equivalents		(3,905)	16,579
Opening cash and cash equivalents		43,557	26,559
Effect of exchange translation adjustments		(336)	419
Closing cash and cash equivalents	44	39,316	43,557

Allied Irish Banks, p.l.c. Annual Financial Report 2022

168

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS



	Note	Page
1	Accounting policies	170
2	Critical accounting judgements and estimates	195
3	Segmental information	199
4	Interest and similar income	203
5	Interest and similar expense	204
6	Net fee and commission income	204
7	Net trading income	205
8	Net gain on other financial assets measured at FVTPL	205
9	Net gain on derecognition of financial assets measured at amortised cost	205
10	Other operating income	205
11	Operating expenses	206
12	Net credit impairment (charge)/writeback	206
13	Auditor's remuneration	207
14	Taxation	208
15	Trading portfolio	209
16	Derivative financial instruments	210
17	Loans and advances to banks	222
18	Loans and advances to customers	223
19	Securities financing	224
20	ECL allowance on financial assets	224
21	Investment securities	225
22	Investments accounted for using the equity method	226
23	Intangible assets and goodwill	227
24	Property, plant and equipment	228
25	Other assets	230
26	Deferred taxation	231
27	Retirement benefits	234



	Note	Page
28	Deposits by central banks and banks	240
29	Customer accounts	240
30	Debt securities in issue	241
31	Lease liabilities	241
32	Other liabilities	241
33	Provisions for liabilities and commitments	242
34	Subordinated liabilities and other capital instruments	244
35	Share capital	246
36	Other equity interests	247
37	Capital reserves and capital redemption reserves	248
38	Offsetting financial assets and financial liabilities	248
39	Contingent liabilities and commitments	252
40	Subsidiaries and consolidated structured entities	254
41	Off-balance sheet arrangements and transferred financial assets	255
42	Classification and measurement of financial assets and financial liabilities	258
43	Fair value of financial instruments	260
44	Cash and cash equivalents	270
45	Statement of cash flows	271
46	Related party transactions	272
47	Employees	279
48	Regulatory compliance	279
49	Financial and other information	279
50	Dividends	280
51	Non-adjusting events after the reporting period	280
52	Approval of financial statements	280

Allied Irish Banks, p.l.c. Annual Financial Report 2022

169

1 Accounting policies

Index

(a)Reporting entity

(b)Statement of compliance

(c)Basis of preparation

(d)Basis of consolidation

(e)Foreign currency translation

(f)Interest income and expense recognition

(g)Dividend income

(h)Fee and commission income

(i)Net trading income

(j)Employee benefits

(k)Income tax, including deferred income tax

(l)Financial assets

(m)Financial liabilities and equity

(n)Leases

(o)Determination of fair value of financial instruments

(p)Sale and repurchase agreements (including securities borrowing and lending)

(q)Derivatives and hedge accounting

(r)Derecognition

(s)Impairment of financial assets

(t)Collateral and netting

(u)Financial guarantees and loan commitment contracts

(v)Property, plant and equipment

(w)Intangible assets

(x)Impairment of property, plant and equipment, goodwill and intangible assets

(y)Disposal groups and non-current assets held for sale

(z)Non-credit risk provisions

(aa)Equity

(ab)Cash and cash equivalents

(ac)Segment reporting

(ad)Prospective accounting changes

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

170

1 Accounting policies

The significant accounting policies that the Group applied in the preparation of the financial statements are set out in this section.

(a)Reporting entity

Allied Irish Banks, p.l.c. (‘the parent company’ or ‘the Company’) is a company domiciled in Ireland and registered under the Company’s

Act 2014 as a public limited company under company number 24173. The address of the Company’s registered office is 10 Molesworth

Street, Dublin 2, Ireland.

The consolidated financial statements include the financial statements of Allied Irish Banks, p.l.c. and its subsidiary undertakings,

collectively referred to as the ‘Group’, where appropriate, including certain special purpose entities and the Group's interest in

associates/joint ventures using the equity method of accounting and are prepared to the end of the financial period. The Group is and

has been primarily involved in retail and corporate banking.

The Company is a wholly owned subsidiary of AIB Group plc, being the ultimate parent of AIB Group.

(b)Statement of compliance

The consolidated financial statements have been prepared in accordance with International Accounting Standards and International

Financial Reporting Standards (collectively “IFRSs”) as adopted by the European Union (“EU”) and applicable for the financial year

ended 31 December 2022. The consolidated financial statements also comply with those parts of the Companies Act 2014 and the

European Union (Credit Institutions: Financial Statements) Regulations 2015 applicable to companies reporting under IFRS, and the

Asset Covered Securities Acts 2001 and 2007 and Article 4 of the IAS Regulation. The accounting policies have been consistently

applied by Group entities and are consistent with the previous year, unless otherwise described.

(c)Basis of preparation

Functional and presentation currency

The financial statements are presented in euro, which is the functional currency of the parent company and a significant number of its

subsidiaries, rounded to the nearest million.

Basis of measurement

The financial statements have been prepared under the historical cost basis, with the exception of the following assets and liabilities

which are stated at their fair value: derivative financial instruments, financial instruments at fair value through profit or loss, certain

hedged financial assets and financial liabilities and investment securities at fair value through other comprehensive income (“FVOCI”).

The carrying values of recognised assets and liabilities that are hedged items in fair value hedges, and otherwise carried at amortised

cost, are adjusted to record changes in fair value attributable to the risks that are being hedged.

The financial statements comprise the consolidated income statement, the consolidated statement of comprehensive income, the

consolidated and the holding company’s separate statements of financial position, the consolidated and the holding company’s

separate statements of cash flows, and the consolidated and the holding company’s separate statements of changes in equity together

with the related notes. These notes also include financial instrument related disclosures which are required by IFRS 7 Financial

Instruments: Disclosures and IAS 1, Presentation of Financials Statements, contained in the ‘Business review’ and the ‘Risk

management’ sections of this Annual Financial Report. The relevant information on those pages is identified as forming an integral part

of the audited financial statements.

Change in presentation of certain items in the primary statements

The Group has changed the presentation of certain line items in the consolidated statement of financial position and the consolidated

income statement to a more appropriate presentation as those line items are no longer material. ‘Items in course of collection’ and

‘disposal groups and non-current assets held for sale’ are reported within ‘other assets’ in 2022. The comparatives for 2021 of € 44

million and € 8 million respectively have been restated accordingly. In the consolidated income statement ‘loss on disposal of property’,

previously presented outside of operating profit, is now reported within ‘other operating income’ in 2022. The comparative for 2021 of

a loss of € 3 million has been restated accordingly.

For fair value hedges where the hedged financial assets and liabilities are measured at amortised cost, the Group has changed the

presentation of the fair value adjustments that is attributable to the hedged risk. The Group has adjusted the carrying amount of

impacted financial assets and liabilities presented within ‘investment securities’, ‘debt securities in issue’ and ‘subordinated liabilities

and other capital instruments’ for the gain or loss that is attributable to the hedged risk in 2022 and the related comparatives for 2021

have been restated by (€ 38 million), € 62 million and (€ 26 million) respectively. The Group historically presented those amounts in

a single separate line item within other assets and other liabilities as those amounts were not material.

Annual Review

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Risk Management

Financial Statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

171

1 Accounting policies continued

(c)Basis of preparation continued

Use of judgements and estimates

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the

application of policies and reported amounts of certain assets, liabilities, revenues and expenses, and disclosures of contingent assets

and liabilities. The estimates and assumptions are based on historical experience and various other factors that are believed to be

reasonable under the circumstances. Since management’s judgement may involve making estimates concerning the likelihood of future

events, the actual results could differ from those estimates. The estimates and underlying assumptions are reviewed on an ongoing

basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future period affected.

The judgements that have a significant effect on the consolidated financial statements and estimates with a significant risk of material

adjustment in the next year are in the areas of expected credit losses on financial instruments; the recoverability of deferred tax;

retirement benefit obligations; and provisions for liabilities and commitments. A description of these judgements and estimates is set out

in note 2.

Consideration of climate change

In preparing the financial statements, the Directors have considered the impact of climate change. There has been no material impact

identified on the financial reporting judgements and estimates of the Group. In particular, the Directors considered the impact of climate

change in respect of the following areas:

•Credit risk: The impact of climate risk on the management, escalating and reporting of credit risk was considered by the Group.

It was deemed that insufficient evidence of the likely loss impacts from climate events is available to adjust expected credit losses

(“ECL”) materially but that the Group’s approach to individual counterparty risk assessment adequately captures climate risk where

appropriate. This is set out in further detail on page 91.

•Going concern and viability: The assessment of the group’s going concern and viability over the next three years did not identify

material climate-related risks, both in terms of commitment to being Net Zero on its own operations on Scope 1 and Scope 2

emissions by 2030 and the physical risks from climate change.

•Provisions and contingent liabilities: The Group’s publicly announced commitment to being Net Zero on its own operations on

Scope 1 and Scope 2 emissions by 2030 is not considered a constructive obligation or a contingent liability. The timeframe to 2030

allows opportunities for the Group to evolve its plans for how the Net Zero commitment will be met and therefore it would not be

appropriate for the Group to recognise a provision or a contingent liability in relation to its net zero commitment (i.e. as the Group

does not have an obligation as a result of a past event). IAS 37 Provisions, Contingent Liabilities and Contingent Assets sets out that

it is only those obligations arising from past events existing independently of an entity's future actions that are recognised as

provisions or disclosed as contingent liabilities.

•Impairment of non-financial assets: The Group applies the requirements of IAS 36 Impairment of Assets in assessing whether

impacted assets are impaired at a reporting date. The Group has a robust process to identify assets which may be impaired which

requires the identification of all material potential impairment triggers including identification of climate related impairment triggers.

In addition, the Group’s published commitment to be net zero in its own operations does not impact the useful lives of the Group’s

impacted assets as the Group proposes to replace impacted assets as their useful lives expire.

Whilst there is currently no short or medium-term impact expected from climate change, the Directors are aware of the ever-changing

risks attached to climate change and will assess these risks against judgements and estimates made in preparation of the Group’s

financial statements.

Going concern

The financial statements for the year ended 31 December 2022 have been prepared on a going concern basis as the Directors are

satisfied, having considered the risks and uncertainties impacting the Group, that it has the ability to continue in business for the period

of assessment. In making this assessment, the Directors have considered a wide range of information relating to present and future

conditions. This includes capital forecasts and internally generated stress scenarios with additional scenarios to take account of the

inorganic initiatives that the Group has committed to. The scenarios include the impacts of persistent inflation, disruptions to energy

supplies, increased interest rates and significant impacts on unemployment and property prices. The period of assessment used by the

Directors is at least 12 months from the date of approval of these annual financial statements.

Adoption of new accounting standards/amendments to standards

The were no new accounting standards/amendments to standards effective for annual periods beginning 1 January 2022 apart from

minor amendments to IFRSs through both standalone amendments and through the Annual Improvements to IFRS Standards 2018 –

2020 cycle. None of these had a significant impact on reported results or disclosures.

The Group has not early adopted any other standard or amendment that has been issued but is not yet effective.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(d) Basis of consolidation

Subsidiary undertakings

A subsidiary undertaking is an investee controlled by the Group. The Group controls an investee when it has power over the investee,

is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its

power over the investee. Subsidiaries are consolidated in the Group’s financial statements from the date on which control commences

until the date that control ceases.

The Group reassesses whether it controls a subsidiary when facts and circumstances indicate that there are changes to one or more

elements of control.

Loss of control

If the Group loses control of a subsidiary, the Group:

(i)Derecognises the assets (including any goodwill) and liabilities of the former subsidiary at their carrying amounts at the date control

is lost;

(ii)Derecognises the carrying amount of any non-controlling interests in the former subsidiary at the date control is lost (including any

attributable amounts in other comprehensive income);

(iii)Derecognises the fair value of any consideration received and any distribution of shares of the subsidiary;

(iv)Derecognises any investment retained in the former subsidiary at its fair value at the date when control is lost;

(v) Reclassifies to profit or loss, or transfers directly to retained earnings if required by IFRS, the amounts recognised in other

comprehensive income in relation to the subsidiary; and

(vi)Recognises any resulting difference of the above items as a gain or loss in the income statement.

The Group subsequently accounts for any investment retained in the former subsidiary in accordance with IFRS 9 Financial

Instruments, or when appropriate, IAS 28 Investments in Associates and Joint Ventures.

Structured entities

A structured entity is an entity designed so that its activities are not governed by way of voting rights. The Group assesses whether it

has control over such an entity by considering factors such as the purpose and design of the entity; the nature of its relationship with the

entity; and the size of its exposure to the variability of returns of the entity.

Business combinations

The Group accounts for the acquisition of a business using the acquisition method except for a business under common control. Under

the acquisition method, the consideration transferred in a business combination is measured at fair value, which is calculated as the

sum of:

•The acquisition date fair value of assets transferred by the Group;

•Liabilities incurred by the Group to the former owners of the acquiree; and

•The equity interests issued by the Group in exchange for control of the acquiree.

Acquisition related costs are recognised in the income statement as incurred.

Goodwill is measured as the excess of the sum of:

•The fair value of the consideration transferred;

•The amount of any non-controlling interests in the acquiree; and

•The fair value of the acquirer’s previously held equity interest in the acquiree, if any; less

•The net of the acquisition date fair value of the identifiable assets acquired and liabilities assumed.

The Group in its capacity as a trustee

The Group commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of

individuals, trusts, retirement benefit plans and other institutions. These assets, and income arising thereon, are excluded from the

financial statements, as they are not assets of the Group.

Non-controlling interests

For each business combination, the Group recognises any non-controlling interest in the acquiree either:

•At fair value; or

•At their proportionate share of the acquiree’s identifiable net assets.

For changes in the Group’s interest in a subsidiary that do not result in a loss of control, the Group adjusts the carrying amounts of the

controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The difference between the

change in value of the non-controlling interest and the fair value of the consideration paid or received is recognised directly in equity

and attributed to the equity holders of the parent.

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1 Accounting policies continued

(d) Basis of consolidation continued

Common control transactions

The Group accounts for the acquisition of businesses and investments in subsidiary undertakings between members of the Group at

carrying value at the date of the transaction unless prohibited by company law or IFRS. This policy also applies to the acquisition of

businesses by the Group of other entities under the common control of the Irish Government. Where the carrying value of the acquired

net assets exceeds the fair value of the consideration paid, the excess is accounted for as a capital contribution (accounting policy

(aa)). On impairment of the subsidiary, in the parent company’s separate financial statements, an amount equal to the impairment

charge net of tax in the income statement is transferred from capital contribution reserves to revenue reserves.

The entire capital contribution is transferred to revenue reserves on final sale of the subsidiary.

For acquisitions under common control, comparative data is not restated. The consolidation of the acquired entity is effective from the

acquisition date with intercompany balances eliminated at a Group level on this date.

Investments accounted for using the equity method

The Group’s investments accounted for using the equity method comprise its investments in associates and joint ventures.

An associated undertaking is an entity over which the Group has significant influence, but not control, over the entity’s operating and

financial policy decisions. If the Group holds 20% or more of the voting power of an entity, it is presumed that the Group has significant

influence, unless it can be clearly demonstrated that this is not the case.

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the

arrangement.

Investments in associated undertakings and joint ventures are initially recorded at cost and increased (or decreased) each year by the

Group’s share of the post acquisition net income (or loss), and other movements reflected directly in other comprehensive income of the

associated undertaking or joint venture.

Goodwill arising on the acquisition of an associated undertaking is included in the carrying amount of the investment. When the Group’s

share of losses in an associate has reduced the carrying amount to zero, including any other unsecured receivables, the Group does

not recognise further losses, unless it has incurred obligations to make payments on behalf of the associate.

Where the Group continues to hold more than 20% of the voting power in an investment but ceases to have significant influence, the

investment is no longer accounted for as an associate. On the loss of significant influence, the Group measures the investment at fair

value and recognises any difference between the carrying value and fair value in profit or loss and accounts for the investment in

accordance with IFRS 9 Financial Instruments.

The Group’s share of the results of associated undertakings or joint venture after tax reflects the Group’s proportionate interest and is

based on financial statements made up to a date not earlier than three months before the period end reporting date, adjusted to

conform with the accounting policies of the Group.

Since goodwill that forms part of the carrying amount of the investment in an associate is not recognised separately, it is, therefore, not

tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset

when there is objective evidence that the investment in an associate may be impaired.

Transactions eliminated on consolidation

Intra-group balances and any unrealised income and expenses arising from intra-group transactions are eliminated on consolidation.

Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Unrealised gains and losses on transactions with associated undertakings are eliminated to the extent of the Group’s interest in the

investees.

Consistent accounting policies are applied throughout the Group for the purposes of consolidation.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(d) Basis of consolidation continued

Parent Company financial statements: Investment in subsidiary and associated undertakings

The Company accounts for investments in subsidiary and associated undertakings, that are not classified as held for sale at cost less

provisions for impairment. If the investment is classified as held for sale, the Company accounts for it at the lower of its carrying value

and fair value less costs to sell.

The Company reviews its equity investment for impairment at the end of each reporting period if there are indications that impairment

may have occurred.

The testing for possible impairment involves comparing the estimated recoverable amount of an investment with its carrying amount.

Where the recoverable amount is less than the carrying amount, the difference is recognised as an impairment provision in the

Company’s financial statements. The recoverable amount is the higher of fair value less costs to sell and value-in-use (“VIU”).

Dividends from a subsidiary or an associated undertaking are recognised in the income statement when the Company’s right to receive

the dividend is established.

(e) Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using their functional currency, being the

currency of the primary economic environment in which the entity operates.

Transactions and balances

Foreign currency transactions are translated into the respective entity’s functional currency using the exchange rates prevailing at the

dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate prevailing at the

period end. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-translation at period

end exchange rates of the amortised cost of monetary assets and liabilities denominated in foreign currencies are recognised in the

income statement. Exchange differences on equities and similar non-monetary items held at fair value through profit or loss are

reported as part of the fair value gain or loss. Exchange differences on a financial instruments designated as a hedge of the net

investment in a foreign operation are reported in other comprehensive income.

Foreign operations

The results and financial position of all Group entities that have a functional currency different from the euro are translated into euro as

follows:

•Assets and liabilities including goodwill and fair value adjustments arising on consolidation of foreign operations are translated at the

closing rate;

•Income and expenses are translated into euro at the average rates of exchange during the period where these rates approximate to

the foreign exchange rates ruling at the dates of the transactions;

•Foreign currency translation differences are recognised in other comprehensive income; and

•Since 1 January 2004, the Group’s date of transition to IFRS, all such exchange differences are included in the foreign currency

cumulative translation reserve within shareholders’ equity. When a foreign operation is disposed of in full, the relevant amount of this

reserve is transferred to the income statement. When a subsidiary is partly disposed of, the relevant proportion of foreign currency

translation reserve is re-attributed to the non-controlling interest. In the case of a partial disposal, a pro-rata amount of the foreign

currency cumulative translation reserve is transferred to the income statement. This also applies in the case where there has not been

a reduction in the overall percentage holding, i.e. repayment of capital.

(f) Interest income and expense recognition

Interest income and expense is recognised in the income statement using the effective interest rate method.

Effective interest rate

The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of

the financial instrument to:

•The gross carrying amount of the financial asset; or

•The amortised cost of the financial liability.

The application of the method has the effect of recognising income receivable and expense payable on the instrument evenly in

proportion to the amount outstanding over the period to maturity or repayment. In calculating the effective interest rate for financial

instruments, other than credit impaired assets, the Group estimates cash flows (using projections based on its experience of customers’

behaviour) considering all contractual terms of the financial instrument but excluding expected credit losses. The calculation takes into

account all fees, including those for any expected early redemption, and points paid or received between parties to the contract that are

an integral part of the effective interest rate, transaction costs and all other premiums and discounts.

All costs associated with mortgage incentive schemes are included in the effective interest rate calculation. Fees and commissions

payable to third parties in connection with lending arrangements, where these are direct and incremental costs related to the issue of a

financial instrument, are included in interest income as part of the effective interest rate.

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1 Accounting policies continued

(f) Interest income and expense recognition continued

Amortised cost and gross carrying amount

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at

initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest rate method of

any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.

The gross carrying amount of a financial asset is the amortised cost before adjusting for any loss allowance.

Calculation of interest income and interest expense

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset (when the

asset is not credit impaired) or to the amortised cost of the liability.

For financial assets that have become credit impaired subsequent to initial recognition, interest income is calculated by applying the

effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit impaired, the calculation of interest

income reverts to the gross basis.

However, for financial assets that were credit impaired on initial recognition, interest income is calculated by applying the credit adjusted

effective interest rate to the amortised cost of the financial asset. The calculation of interest income does not revert to a gross basis,

even if the credit risk of the asset improves.

When a financial asset is no longer credit impaired or has been repaid in full (i.e. cured without financial loss), the Group presents

previously unrecognised interest income as a reversal of credit impairment/recovery of amounts previously written-off.

Interest income and expense on financial assets and liabilities classified as held for trading or at FVTPL is recognised in ‘other interest

income and similar income’ or ‘interest expense’ in the income statement, as applicable.

Presentation

Interest income and expense presented in the consolidated income statement include:

•Interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest rate basis;

•Interest on investment debt securities measured at FVOCI calculated on an effective interest rate basis;

•Interest on financial assets measured at FVTPL;

•Net interest income and expense on qualifying hedge derivatives designated as cash flow hedges or fair value hedges which are

recognised in interest income or interest expense; and

•Interest income and funding costs of trading portfolio financial assets.

The Group policy for the recognition of leasing income is set out in Accounting policy (n).

Targeted Long Term Refinancing Operation III (“TLTRO III”)

Eurosystem refinancing operations are credit facilities from the Eurosystem secured by a fixed charge over securities and relates to

Targeted Long Term Refinancing Operation III (“TLTRO III”).

TLTRO III has specific terms attached to it which are different from other sources of funding available to banks including other sources

of funds provided by the European Central Bank (“ECB”). The financial conditions incorporated into TLTRO III reflect ECB monetary

policy initiatives to prospectively reduce the cost of funding for banking institutions. Accordingly, the Group has concluded that the ECB

has established a separate market for TLTRO programmes and TLTRO III transactions are at market rates and the requirements of IAS

20 Accounting for Government Grants do not apply.

The borrowing rate applicable to the TLTRO III loans is linked to the lending patterns of the Group and are subject to the achievement

of predefined lending performance thresholds based on the eligible net lending of the Group in certain specified periods.

The amount of interest income recognised during the period on TLTRO III depends on whether the Group had a reasonable expectation

of meeting the relevant lending performance thresholds. The Group interprets reasonable expectations as highly probable (i.e. the

probability of meeting the lending targets is substantially greater than the probability that it will not). As a result, if interest income is

recognised during the period based on the expectation of meeting the targets, there should be only a limited possibility that the interest

may need to be reversed in future periods.

If the Group does not have a reasonable expectation that the lending targets will be met but subsequently determines it will meet the

relevant lending performance thresholds, it revises its estimates of receipts and recalculates the present value of the estimated future

contractual cash flows that are discounted at the original effective interest rate and recognises the adjustment in the Group’s

consolidated income statement as negative interest on financial liabilities at amortised cost.

(g) Dividend income

Dividends on equity investments measured at FVTPL / FVOCI are recognised in the income statement when the entity’s right to receive

payment is established and provided that they represent a return on capital.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(h) Fee and commission income

The measurement and timing of recognition of fee and commission income is based on the core principles of IFRS 15 Revenue from

Contracts with Customers.

The principles in IFRS 15 are applied using the following 5 step model:

•Identify the contract(s) with a customer;

•Identify the performance obligations in the contract;

•Determine the transaction price;

•Allocate the transaction price to the performance obligations in the contract; and

•Recognise revenue when or as the Group satisfies its performance obligations.

Fee and commission income is recognised when the performance obligation in the contract has been performed, either at a ‘point in

time’ or ‘over time’ if the performance obligation is performed over a period of time unless the income has been included in the effective

interest rate calculation.

The Group includes in the transaction price, some or all of an amount of variable consideration estimated only to the extent that it is

highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty

associated with the variable consideration is subsequently resolved.

The majority of the Group’s fee and commission income arises from retail banking activities. Loan syndication fees are recognised as

revenue when the syndication has been completed and the Group has retained no part of the loan package for itself or retained a part

at the same effective interest rate as applicable to the other participants.

Foreign exchange income is fee income that is derived from arranging foreign exchange transactions on behalf of customers.

Such income is recognised when the individual performance obligation has been fulfilled.

Portfolio and other management advisory and service fees are recognised based on the applicable service contracts. Asset

management fees relating to investment funds are recognised over time in line with the performance obligation. The same principle is

applied to the recognition of income from wealth management, financial planning and custody services that are continuously provided

over an extended period of time.

Commitment fees together with related direct costs, for loan facilities where drawdown is probable, are deferred and recognised as an

adjustment to the effective interest rate on the loan once drawn. Commitment fees in relation to facilities where drawdown is not

probable are recognised over the term of the commitment on a straight line basis. Other credit related fees are recognised over time in

line with the performance obligation except arrangement fees where it is likely that the facility will be drawn down, and which are

included in the effective interest rate calculation.

Fee income and fee expenses in respect of services and prepaid credits for cellular phone and utilities sold to third parties are classified

as specialised payment services and are recognised when the performance obligation is satisfied.

(i) Net trading income

Net trading income comprises gains less losses relating to trading assets and trading liabilities and includes all realised and unrealised

fair value changes. Interest and dividend income on trading assets are shown in ‘interest income’ and ‘dividend income’ respectively.

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1 Accounting policies continued

(j) Employee benefits

Retirement benefit obligations

The Group provides employees with post-retirement benefits mainly in the form of pensions.

The Group provides a number of retirement benefit schemes including defined benefit and defined contribution as well as a hybrid

scheme that has both defined benefit and defined contribution elements. In addition, the Group contributes, according to local law in the

various countries in which it operates, to governmental and other schemes which have the characteristics of defined contribution

schemes. The majority of the defined benefit schemes are funded.

Full actuarial valuations of defined benefit schemes are undertaken every three years and are updated to reflect current conditions at

each year end reporting date.

Scheme assets are measured at fair value determined by using current bid prices, except for insurance policies acquired as part of a

buy in. If the policies are qualifying policies under IAS 19 Employee Benefits and if the timing and amount of payments under the

policies exactly match some or all of the benefits payable under the scheme, then the present value of the related obligation is

determined and is deemed to be the fair value of the insurance policies to be included in plan assets.

Scheme liabilities are measured on an actuarial basis by estimating the amount of future benefit that employees have earned for their

service in current and prior periods and discounting that benefit at the market yield on a high quality corporate bond of equivalent term

and currency to the liability. The calculation is performed by a qualified actuary using the projected unit credit method. The difference

between the fair value of the scheme assets and the present value of the defined benefit obligation at the year end reporting date is

recognised in the statement of financial position. Schemes in surplus are shown as assets and schemes in deficit, together with

unfunded schemes, are shown as liabilities. A surplus is only recognised as an asset to the extent that it is recoverable through a refund

from the scheme or through reduced contributions in the future. Actuarial gains and losses are recognised immediately in other

comprehensive income.

The cost of providing defined benefit pension schemes to employees, comprising the net interest on the net defined benefit liability/

(asset), calculated by applying the discount rate to the net defined benefit liability/(asset) at the start of the annual reporting period,

taking into account contributions and benefit payments during the period, is charged to the income statement within personnel

expenses.

Remeasurements of the net defined benefit liability/(asset), comprising actuarial gains and losses and the return on scheme assets

(excluding amounts included in net interest on the net defined benefit liability/(asset)) are recognised in other comprehensive income.

Amounts recognised in other comprehensive income in relation to remeasurements of the net defined benefit liability/(asset) will not be

reclassified to profit or loss in a subsequent period.

In early 2017, the Board reassessed its obligation to fund increases in pensions in payment. The Board confirmed that funding of

increases in pensions in payment is a decision to be made by the Board each year where increases are discretionary. This was based

on actuarial and external legal advice obtained. Accordingly, a decision by the Board to fund a pension increase does not constitute a

constructive obligation to fund future pension in payment increases.

The Group recognises the effect of an amendment to a defined benefit scheme when the plan amendment occurs, which is when the

Group introduces or withdraws a defined benefit scheme, or changes the benefits payable under existing defined benefit schemes.

A curtailment is recognised when a significant reduction in the number of employees covered by a defined benefit scheme occurs. A

settlement is a transaction that eliminates all further legal or constructive obligations for part or all of the benefits provided under a

defined benefit scheme. Gains or losses on plan amendments, curtailments and settlements are recognised in the income statement.

Changes with regard to benefits payable to retirees which represent a constructive obligation under IAS 37 Provisions, Contingent

Liabilities and Contingent Assets are accounted for as a past service cost. These are recognised in the income statement.

The costs of managing the defined benefit scheme assets are deducted from the return on scheme assets. All costs of running the

defined benefit schemes are recognised in the income statement when they are incurred.

The cost of the Group’s defined contribution schemes is charged to the income statement in the accounting period in which it is

incurred. Any contributions unpaid at the year end reporting date are included as a liability. The Group has no further obligation under

these schemes once these contributions have been paid.

Short term employee benefits

Short term employee benefits, such as salaries and other benefits, are accounted for on an accruals basis over the period during which

employees have provided services. Bonuses are recognised to the extent that the Group has a legal or constructive obligation to its

employees that can be measured reliably. The cost of providing subsidised staff loans is charged within personnel expenses.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(j) Employee benefits continued

Termination benefits

Termination benefits are recognised as an expense at the earlier of when the Group can no longer withdraw the offer of those benefits

and when the Group recognises costs for a restructuring under IAS 37 Provisions, Contingent Liabilities and Contingent Assets, which

includes the payment of termination benefits.

For termination benefits payable as a result of an employee’s decision to accept an offer of voluntary redundancy, which is not within

the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, the Group recognises the expense at the earlier of when

the employee accepts the offer and when a restriction on the Group’s ability to withdraw the offer takes effect.

(k) Income tax, including deferred income tax

Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to

items recognised in other comprehensive income, in which case it is recognised in other comprehensive income. Income tax relating to

items in equity is recognised directly in equity. However, the income tax consequences of payments on financial instruments that are

classified as equity but treated as liabilities for tax purposes are recognised in profit or loss if those payments are distributions of profits

previously recognised in profit or loss.

Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the

reporting date and any adjustment to tax payable in respect of previous years.

Deferred income tax is provided, using the balance sheet liability method, on temporary differences between the tax bases of assets

and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax is determined using tax rates based on

legislation enacted or substantively enacted at the reporting date and expected to apply when the deferred tax asset is realised or the

deferred tax liability is settled. Deferred income tax assets are recognised when it is probable that future taxable profits will be available

against which the temporary differences will be utilised. The deferred tax asset is reviewed at the end of each reporting period and the

carrying amount will reflect the extent that it is probable that sufficient taxable profits will be available to allow all of the asset to be

recovered.

The tax effects of income tax losses available for carry forward are recognised as an asset to the extent that it is probable that future

taxable profits will be available against which these losses can be utilised.

Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there is both

the legal right and the intention to settle the current tax assets and liabilities on a net basis or to realise the asset and settle the liability

simultaneously.

The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial assets and

financial liabilities including derivative contracts, provisions for pensions and other post-retirement benefits, and in relation to

acquisitions, on the difference between the fair values of the net assets acquired and their tax base.

Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the

timing of the reversal of the temporary difference is controlled by the Group and it is probable that the difference will not reverse in the

foreseeable future. In addition, temporary differences are not provided for assets and liabilities the initial recognition of which, in a

transaction that is not a business combination, affects neither accounting nor taxable profit. Income tax payable on profits, based on the

applicable tax law in each jurisdiction, is recognised as an expense in the period in which the profits arise.

(l) Financial assets

Recognition and initial measurement

The Group initially recognises financial assets on the trade date, being the date on which the Group commits to purchase the assets.

Loan assets are recognised when cash is advanced to borrowers. In a situation where the Group commits to purchase financial assets

under a contract which is not considered a regular-way transaction, the assets to be acquired are not recognised until the acquisition

contract is settled. In this case, the contract to acquire the financial asset is a derivative that is measured at FVTPL in the period

between the trade date and the settlement date.

Financial assets measured at amortised cost or at fair value through other comprehensive income (“FVOCI”) are recognised initially at

fair value adjusted for direct and incremental transaction costs. Financial assets measured at fair value through profit or loss (“FVTPL”)

are recognised initially at fair value and transaction costs are taken directly to the income statement.

Derivatives are measured initially at fair value on the date on which the derivative contract is entered into. The best evidence of the fair

value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration given or received) unless the fair

value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e.

without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

Profits or losses are only recognised on initial recognition of derivatives when there are observable current market transactions or

valuation techniques that are based on observable market inputs.

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1 Accounting policies continued

(l) Financial assets continued

Classification and subsequent measurement

On initial recognition, a financial asset is classified and subsequently measured at amortised cost, FVOCI or FVTPL.

The classification and subsequent measurement of financial assets depend on:

•The Group's business model for managing the asset; and

•The cash flow characteristics of the asset (for assets in a ‘hold-to-collect’ or ‘hold-to-collect-and-sell’ business model).

Based on these factors, the Group classifies its financial assets into one of the following categories:

– Amortised cost

Assets that have not been designated as at FVTPL, and are held within a ‘hold-to-collect’ business model whose objective is to hold

assets to collect contractual cash flows; and whose contractual terms give rise on specified dates to cash flows that are solely

payments of principal and interest. The carrying amount of these assets is calculated using the effective interest rate method and is

adjusted on each measurement date by the expected credit loss allowance for each asset, with movements recognised in profit or loss.

– Fair value through other comprehensive income (“FVOCI”)

Assets that have not been designated as at FVTPL, and are held within a ‘hold-to-collect-and-sell’ business model whose objective is

achieved by both collecting contractual cash flows and selling financial assets; and whose contractual terms give rise on specified dates

to cash flows that are solely payments of principal and interest (“SPPI”). Movements in the carrying amount of these assets are taken

through other comprehensive income (“OCI”), except for the recognition of credit impairment gains or losses, interest revenue or foreign

exchange gains and losses, which are recognised in profit or loss. When a financial asset is derecognised, the cumulative gain or loss

previously recognised in OCI is reclassified from equity to profit or loss other than in the case of equity instruments designated

at FVOCI.

– Fair value through profit or loss (“FVTPL”)

Financial assets that do not meet the criteria for amortised cost or FVOCI are measured at FVTPL. Gains or losses (excluding interest

income or expense) on such assets are recognised in profit or loss on an ongoing basis.

In addition, the Group may irrevocably designate a financial asset as at FVTPL that otherwise meets the requirements to be measured

at amortised cost or at FVOCI if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

– Embedded derivatives

Certain hybrid contracts may contain both a non-derivative host and an ‘embedded derivative’. Under IFRS 9 Financial Instruments,

there is no bifurcation of embedded derivatives from the host financial asset. As a result, such financial assets will generally fail the

SPPI test unless the embedded derivative does not substantially modify the cash flows that would otherwise be required by the

contract. Those failing the SPPI test will be classified and measured at FVTPL.

Business model assessment

The Group makes an assessment of the objective of the business model at a portfolio level, as this reflects how portfolios of assets are

managed to achieve a particular objective, rather than management’s intentions for individual assets.

The assessment considers the following:

•The strategy for the portfolio as communicated by management;

•How the performance of the portfolio is evaluated and reported to senior management;

•The risks that impact the performance of the business model, and how those risks are managed;

•How managers of the business are compensated (i.e. based on fair value of assets managed or on the contractual cash flows

collected); and

•The frequency, value and timing of sales in prior periods, reasons for those sales, and expectations of future sales activity.

Financial assets that are held for trading or managed within a business model that is evaluated on a fair value basis are measured at

FVTPL because the business objective is neither hold-to-collect contractual cash flows nor hold-to-collect-and-sell contractual cash

flows.

Characteristics of the contractual cash flows

An assessment (‘SPPI test’) is performed on all financial assets at origination that are held within a ‘hold-to-collect’ or ‘hold-to-collect-

and-sell’ business model to determine whether the contractual terms of the financial assets give rise on specified dates to cash flows

that are solely payments of principal and interest on the principal outstanding. For the purposes of this assessment, ‘principal’ is defined

as the fair value of the financial asset at initial recognition. ‘Interest’ is defined as consideration for the time value of money, for the

credit risk associated with the principal amount outstanding, for other basic lending risks and costs (i.e. liquidity, administrative costs)

and profit margin.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(l) Financial assets continued

The SPPI test requires an assessment of the contractual terms and conditions to determine whether a financial asset contains any

terms that could modify the timing or amount of contractual cash flows of the asset, to the extent that they could not be described as

solely payments of principal and interest. In making this assessment, the Group considers:

•Features that modify the time value of money element of interest (e.g. tenor of the interest rate does not correspond with the

frequency within which it resets);

•Terms providing for prepayment and extension;

•Leverage features;

•Contingent events that could change the amount and timing of cash flows;

•Terms that limit the Group’s claim to cash flows from specified assets; and

•Contractually linked instruments.

Contractual terms that introduce exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending

arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the principal amount

outstanding.

Reclassifications

Reclassifications of financial assets to alternative asset categories, (e.g. from amortised cost to FVOCI), should be very infrequent, and

will only occur when, and only when, the Group changes its business model for managing a specific portfolio of financial assets.

Investments in equity instruments

Equity instruments are classified and measured at FVTPL with gains and losses reflected in profit or loss.

On initial recognition, the Group may elect to irrevocably designate at FVOCI, an equity instrument that is not held for trading. This

election is made on an instrument-by-instrument basis. When this election is used, fair value gains and losses are recognised in OCI

and are not subsequently reclassified to profit or loss on derecognition of the equity instrument.

(m) Financial liabilities and equity

The Group categorises financial liabilities as at amortised cost or as at fair value through profit or loss.

The Group recognises a financial liability when it becomes party to the contractual provisions of the contract.

Issued financial instruments or their components are classified as liabilities where the substance of the contractual arrangement results

in the Group having a present obligation to either deliver cash or another financial asset to the holder, to exchange financial instruments

on terms that are potentially unfavourable or to satisfy the obligation otherwise than by the exchange of a fixed amount of cash or

another financial asset for a fixed number of equity shares.

Financial liabilities are initially recognised at fair value, being their issue proceeds (fair value of consideration received), net of

transaction costs incurred. Financial liabilities are subsequently measured at amortised cost, with any difference between the proceeds

net of transaction costs and the redemption value recognised in the income statement using the effective interest rate method.

Where financial liabilities are classified as trading they are also initially recognised at fair value with the related transaction costs taken

directly to the income statement. Gains and losses arising from subsequent changes in fair value are recognised directly in the income

statement within net trading income.

Preference shares which carry a mandatory coupon are classified as financial liabilities. The dividends on these preference shares are

recognised in the income statement as interest expense using the effective interest rate method.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Any gain or loss on

the extinguishment or remeasurement of a financial liability is recognised in profit or loss.

Issued financial instruments are classified as equity when the Group has no contractual obligation to transfer cash, or other financial

assets or to issue a variable number of its own equity instruments. Incremental costs directly attributable to the issue of equity

instruments are shown as a deduction from the proceeds of issue, net of tax.

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1 Accounting policies continued

(n) Leases

Lessor

Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all the risks and rewards of

ownership, with or without ultimate legal title. When assets are held subject to a finance lease, the present value of the lease payments,

discounted at the rate of interest implicit in the lease, is recognised as a receivable. The difference between the total payments

receivable under the lease and the present value of the receivable is recognised as unearned finance income, which is allocated to

accounting periods under the pre-tax net investment method to reflect a constant periodic rate of return.

Assets leased to customers are classified as operating leases if the lease agreements do not transfer substantially all the risks and

rewards of ownership. The leased assets are included within property, plant and equipment on the statement of financial position and

depreciation is provided on the depreciable amount of these assets on a systematic basis over their estimated useful lives. Lease

income is recognised on a straight line basis over the period of the lease unless another systematic basis is more appropriate.

Lessee

Lease rentals payables are recognised, measured and presented in line with IFRS 16 Leases.

Identifying a lease

The Group assesses whether a contract is, or contains, a lease at inception of the contract. A contract is, or contains, a lease if the

contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This assessment

involves the exercise of judgement about whether it depends on a specified asset, whether the Group obtains substantially all the

economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset.

Lease term

The lease term comprises the non-cancellable period of the lease contract for which the Group has the right to use an underlying asset

together with:

•Periods covered by an option to extend the lease if the Group is reasonably certain to exercise that option; and

•Periods covered by an option to terminate the lease if the Group is reasonably certain not to exercise that option.

Recognition

The Group recognises a right-of-use asset and a lease liability at the commencement date of the contract for all leases except for short

term leases of 12 months or less or leases where the underlying asset is of low value i.e. the value of the underlying asset, when new,

is less than € 5,000/£ 5,000. The commencement date is the date on which a lessor makes an underlying asset available for use by the

Group.

Initial measurement of right-of-use asset

The right-of-use asset is initially measured at cost, which comprises the amount of the initial measurement of the lease liability, any

lease payments made at or before the commencement date, less any lease incentives, any initial direct costs incurred by the Group and

an estimate of costs to be incurred by the Group in dismantling and removing the underlying asset or restoring the site on which the

asset is located.

The Group provides for dilapidations/restoration costs where it has been identified or planned that it intends on exiting the premises,

and/or where it has completed extensive modifications. The Group recognises asset restoration obligations mainly in relation to leased

head office locations and branches and any other space which would need to be restored to their previous condition when the lease

ends.

Subsequent measurement of right-of-use asset

After the commencement date, a right-of-use asset is measured at cost less any accumulated depreciation and any accumulated

impairment losses and adjusted for any remeasurement of the lease liability. The Group applies IAS 36 Impairment of Assets as set out

in the Group’s accounting policy (x) to determine whether the right-of-use asset is impaired and to account for any impairment loss

identified.

The Group depreciates the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use

asset and the end of the lease term on a straight-line basis.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(n) Leases continued

Initial measurement of lease liability

The lease liability is initially measured at the present value of the lease payments that are payable over the lease term, discounted

using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. The

Group uses its incremental borrowing rate as the discount rate.

The lease payments include fixed payments (including in-substance fixed payments), variable lease payments that depend on an index

or a rate and amounts expected to be payable by the Group under a residual value guarantee. The lease payments also include the

exercise price of a purchase option if the Group is reasonably certain to exercise, lease payments in an optional renewal period if the

Group is reasonably certain to exercise an extension option and payments of penalties for terminating the lease, if the lease term

reflects the Group exercising an option to terminate the lease.

Lease payments exclude variable elements which are dependent on external factors, e.g. payments that are based on transaction

volume/usage. Variable lease payments that are not included in the initial measurement of the lease liability are recognised directly in

the income statement in the period in which the event or condition that triggers these payments occurs.

Subsequent measurement of lease liability

After the commencement date, the Group measures the lease liability by increasing the carrying amount to reflect interest on the lease

liability, reducing the carrying amount to reflect lease payments made and remeasuring the carrying amount to reflect any reassessment

or lease modifications.

The lease liability is measured at amortised cost using the effective interest rate method. It is remeasured when there is a change in

future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to

be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension

or termination option.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset,

or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to Nil.

Lease modifications

Lease modifications arise from changes to the underlying contract between the Group and the lessor. The accounting for the

modification is dependent on whether the modification is considered a separate lease or not.

A lease modification is accounted for as a separate lease if both the modification increases the scope of the lease by adding the right to

use one or more underlying assets and the consideration for the lease increases by an amount commensurate with the standalone

price for the increase in scope. If both criteria are met, the Group adopts the accounting policy on the initial recognition and

measurement of lease liabilities and right-of-use assets.

If a lease modification fails the test above or the modification is of any other type (e.g. a decrease in scope from the original contract),

the Group must allocate the consideration in the modified contract to the lease components, determine the lease term of the modified

lease and remeasure the lease liability by discounting the revised lease payments using a revised discount rate.

Sublease accounting

Where the Group sub-leases an asset (intermediate lessor) which it has leased from another lessor (the ‘head lessor’ who ultimately

owns the asset from a legal perspective), the Group assesses whether the sub-lease is a finance or operating lease by reference to the

right-of-use asset being leased, not the actual underlying asset.

(o) Determination of fair value of financial instruments

The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date in the principal, or in its absence, the most advantageous market to

which the Group has access at that date. The Group considers the impact of non-performance risk when valuing its financial liabilities.

Financial instruments are initially recognised at fair value and, with the exception of financial assets at fair value through profit or loss,

the initial carrying amount is adjusted for direct and incremental transaction costs. In the normal course of business, the fair value on

initial recognition is the transaction price (fair value of consideration given or received). If the Group determines that the fair value at

initial recognition differs from the transaction price and the fair value is determined by a quoted price in an active market for the same

financial instrument, or by a valuation technique which uses only observable market inputs, the difference between the fair value at

initial recognition and the transaction price is recognised as a gain or loss. If the fair value is calculated by a valuation technique that

features significant market inputs that are not observable, the difference between the fair value at initial recognition and the transaction

price is deferred. Subsequently, the difference is recognised in the income statement on an appropriate basis over the life of the

financial instrument, but no later than when the valuation is supported by wholly observable inputs; the transaction matures; or is

closed out.

Subsequent to initial recognition, the methods used to determine the fair value of financial instruments include quoted prices in active

markets where those prices are considered to represent actual and regularly occurring market transactions. Where quoted prices are

not available or are unreliable because of market inactivity, fair values are determined using valuation techniques.

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1 Accounting policies continued

(o) Determination of fair value of financial instruments continued

Quoted prices in active markets

Quoted market prices are used where those prices are considered to represent actual and regularly occurring market transactions for

financial instruments in active markets.

Valuations for negotiable instruments such as debt and equity securities are determined using bid prices for asset positions and ask

prices for liability positions.

Where securities are traded on an exchange, the fair value is based on prices from the exchange. The market for debt securities largely

operates on an ‘over-the-counter’ basis which means that there is not an official clearing or exchange price for these security

instruments. Therefore, market makers and/or investment banks (‘contributors’) publish bid and ask levels which reflect an indicative

price that they are prepared to buy and sell a particular security. The Group’s valuation policy requires that the prices used in

determining the fair value of securities quoted in active markets must be sourced from established market makers and/or investment

banks.

Valuation techniques

In the absence of quoted market prices, and in the case of over-the-counter derivatives, fair value is calculated using valuation

techniques. These valuation techniques maximise the use of relevant observable inputs and minimise the use of unobservable inputs.

The valuation techniques used incorporate the factors that market participants would take into account in pricing a transaction.

Valuation techniques include the use of recent orderly transactions between market participants, reference to other similar instruments,

option pricing models, discounted cash flow analysis and other valuation techniques commonly used by market participants.

Fair value may be estimated using quoted market prices for similar instruments, adjusted for differences between the quoted instrument

and the instrument being valued. Where the fair value is calculated using discounted cash flow analysis, the methodology is to use, to

the extent possible, market data that is either directly observable or is implied from instrument prices, such as interest rate yield curves,

equities and commodities prices, credit spreads, option volatilities and currency rates. In addition, the Group considers the impact of

own credit risk and counterparty risk when valuing its derivative liabilities.

The valuation methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these

values back to a present value. The assumptions involved in these valuation techniques include:

•The likelihood and expected timing of future cash flows of the instrument. These cash flows are generally governed by the terms of

the instrument, although management judgement may be required when the ability of the counterparty to service the instrument in

accordance with the contractual terms is in doubt. In addition, future cash flows may also be sensitive to the occurrence of future

events, including changes in market rates; and

•Selecting an appropriate discount rate for the instrument, based on the interest rate yield curves including the determination of an

appropriate spread for the instrument over the risk-free rate. The spread is adjusted to take into account the specific credit risk profile

of the exposure.

All adjustments in the calculation of the present value of future cash flows are based on factors market participants would take into

account in pricing the financial instrument.

Certain financial instruments (both assets and liabilities) may be valued on the basis of valuation techniques that feature one or more

significant market inputs that are not observable. When applying a valuation technique with unobservable data, estimates are made to

reflect uncertainties in fair values resulting from a lack of market data, for example, as a result of illiquidity in the market. For these

instruments, the fair value measurement is less reliable. Inputs into valuations based on non-observable data are inherently uncertain

because there is little or no current market data available from which to determine the price at which an orderly transaction between

market participants would occur under current market conditions. However, in most cases there is some market data available on which

to base a determination of fair value, for example historical data, and the fair values of most financial instruments will be based on some

market observable inputs even where the non-observable inputs are significant. All unobservable inputs used in valuation techniques

reflect the assumptions market participants would use when fair valuing the financial instrument.

The Group tests the outputs of the valuation model to ensure that it reflects current market conditions. The calculation of fair value for

any financial instrument may require adjustment of the quoted price or the valuation technique output to reflect the cost of credit risk

and the liquidity of the market, if market participants would include one, where these are not embedded in underlying valuation

techniques or prices used.

The choice of contributors, the quality of market data used for pricing and the valuation techniques used are all subject to internal

review and approval procedures.

Transfers between levels of the fair value hierarchy

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change

occurred.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(p) Sale and repurchase agreements (including securities borrowing and lending)

Financial assets may be lent or sold subject to a commitment to repurchase them (‘repos’). Such securities are retained on the

statement of financial position when substantially all the risks and rewards of ownership remain with the Group. The liability to the

counterparty is included separately on the statement of financial position. Similarly, when securities are purchased subject to a

commitment to resell (‘reverse repos’), or where the Group borrows securities, but does not acquire the risks and rewards of ownership,

the transactions are treated as collateralised loans, and the securities are not usually included in the statement of financial position. The

difference between the sale and repurchase price is accrued over the life of the agreements using the effective interest rate method.

Securities lent to counterparties are also retained in the financial statements. The exception to this is where these are sold to third

parties, at which point the obligation to repurchase the securities is recorded as a trading liability at fair value and any subsequent gain

or loss included in trading income.

(q) Derivatives and hedge accounting

Derivatives, such as interest rate swaps, options and forward rate agreements, futures, currency swaps and options, and equity index

options are used for trading purposes whereas interest rate swaps, currency swaps, cross currency interest rate swaps and credit

derivatives are used for hedging purposes.

The Group maintains trading positions in a variety of financial instruments including derivatives. Trading transactions arise both as a

result of activity generated by customers and from proprietary trading with a view to generating incremental income.

Non-trading derivative transactions comprise transactions held for hedging purposes as part of the Group’s risk management strategy

against assets, liabilities, positions and cash flows.

Derivatives

Derivatives are measured initially at fair value on the date on which the derivative contract is entered into and subsequently remeasured

at fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and from

valuation techniques using discounted cash flow models and option pricing models as appropriate. Derivatives are included in assets

when their fair value is positive, and in liabilities when their fair value is negative, unless there is the legal ability and intention to settle

an asset and liability on a net basis.

The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the consideration

given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions

in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data

from observable markets.

Profits or losses are only recognised on initial recognition of derivatives when there are observable current market transactions or

valuation techniques that are based on observable market inputs.

Hedging

The Group has opted to remain with the IAS 39 Financial Instruments: Recognition and Measurement hedge accounting requirements

until macro hedge accounting is addressed by the IASB as part of a separate project. This is an accounting policy choice allowed by

IFRS 9 Financial Instruments.

All derivatives are carried at fair value and the accounting treatment of the resulting fair value gain or loss depends on whether the

derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. Where derivatives are held for risk

management purposes, and where transactions meet the criteria specified in IAS 39 Financial Instruments: Recognition and

Measurement, the Group designates certain derivatives as either:

•Hedges of the fair value of recognised assets or liabilities or firm commitments (‘fair value hedge’); or

•Hedges of the exposure to variability of cash flows attributable to a recognised asset or liability, or a highly probable forecasted

Transaction (‘cash flow hedge’); or

•Hedges of a net investment in a foreign operation.

When a financial instrument is designated as a hedge, the Group formally documents the relationship between the hedging instrument

and hedged item as well as its risk management objectives and its strategy for undertaking the various hedging transactions. The

Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in

hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items.

The Group discontinues hedge accounting when:

a) it is determined that a derivative is not, or has ceased to be, highly effective as a hedge;

b) the derivative expires, or is sold, terminated, or exercised;

c) the hedged item matures or is sold or repaid; or

d) a forecast transaction is no longer deemed highly probable.

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1 Accounting policies continued

(q) Derivatives and hedge accounting continued

Hedging continued

To the extent that the changes in the fair value of the hedging derivative differ from changes in the fair value of the hedged risk in the

hedged item, or the cumulative change in the fair value of the hedging derivative differs from the cumulative change in the fair value of

expected future cash flows of the hedged item, ineffectiveness arises. The amount of ineffectiveness, (taking into account the timing of

the expected cash flows, where relevant) provided it is not so great as to disqualify the entire hedge for hedge accounting, is recorded

in the income statement.

In certain circumstances, the Group may decide to cease hedge accounting even though the hedge relationship continues to be highly

effective by no longer designating the financial instrument as a hedge.

Some of the Group cash flow and fair value hedge relationships were affected by the interest rate benchmark reform. All the affected

hedged items and hedging instruments were either transitioned to risk free rates or will be in line with regulatory deadlines which will

change the basis for determining the interest cash flows from the relevant term rate to the relevant risk free rate at an agreed point in

time. The hedge documentation has been amended accordingly.

Fair value hedge accounting

Changes in fair value of derivatives that qualify and are designated as fair value hedges are recorded in the income statement, together

with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the

criteria for hedge accounting, the fair value hedging adjustment cumulatively made to the carrying value of the hedged item is, for items

carried at amortised cost, amortised over the period to maturity of the previously designated hedge relationship using the effective

interest rate method. For debt securities measured at FVOCI, the fair value adjustment for hedged items is recognised in the income

statement using the effective interest rate method. If the hedged item is sold or repaid, the unamortised fair value adjustment is

recognised immediately in the income statement.

Cash flow hedge accounting

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is initially

recognised directly in other comprehensive income and included in the cash flow hedging reserve in the statement of changes in equity.

The amount recognised in other comprehensive income is reclassed to profit or loss as a reclassification adjustment in the same period

as the hedged cash flows affect profit or loss, and in the same line item in the statement of comprehensive income. Any ineffective

portion of the gain or loss on the hedging instrument is recognised in the income statement immediately.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain

or loss recognised in other comprehensive income from the time when the hedge was effective remains in equity and is reclassified to

the income statement as a reclassification adjustment as the forecast transaction affects profit or loss. When a forecast transaction is

no longer expected to occur, the cumulative gain or loss that was recognised in other comprehensive income from the period when the

hedge was effective is reclassified to the income statement.

Net investment hedge

Hedges of net investments in foreign operations, including monetary items that are accounted for as part of the net investment, are

accounted for similarly to cash flow hedges. The effective portion of the gain or loss on the hedging instrument is recognised in other

comprehensive income and the ineffective portion is recognised immediately in the income statement. The cumulative gain or loss

previously recognised in other comprehensive income is recognised in the income statement on the disposal or partial disposal of the

foreign operation. Hedges of net investments may include non-derivative liabilities as well as derivative financial instruments.

Derivatives that do not qualify for hedge accounting

Certain derivative contracts entered into as economic hedges do not qualify for hedge accounting. Changes in the fair value of these

derivative instruments are recognised immediately in the income statement.

(r) Derecognition

Financial assets

The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the

rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the

financial asset are transferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership

and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset and the sum of (i) the consideration

received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been

recognised in OCI is recognised in profit or loss. Relevant costs incurred with the disposal of a financial asset are deducted in

computing the gain or loss on disposal.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(r) Derecognition continued

Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in profit

or loss on derecognition of such securities. However, the amount held in investment securities reserves is transferred to revenue

reserves on derecognition. Any interest in transferred financial assets that qualify for derecognition, that is created or retained by the

Group, is recognised as a separate asset or liability.

The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or

substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not

derecognised. Examples of such transactions are securities lending and sale-and-repurchase transactions.

In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial

asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement,

determined by the extent to which it is exposed to changes in the value of the transferred asset.

In certain transactions, the Group retains the obligation to service the transferred financial asset for a fee. The transferred asset is

derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract if the servicing fee is more

than adequate or is less than adequate for performing the servicing.

The write-off of a financial asset constitutes a derecognition event. Where a financial asset is partially written-off, and the portion

written-off comprises specifically identified cash flows, this will constitute a derecognition event for that part written-off.

(s) Impairment of financial assets

The Group recognises loss allowances for expected credit losses at each balance sheet date for the following financial instruments that

are not measured at FVTPL:

•Financial assets at amortised cost;

•Financial assets at FVOCI (except for equity instruments);

•Lease receivables;

•Financial guarantee contracts issued; and

•Loan commitments issued.

Investments in equity instruments are recognised at fair value and accordingly, expected credit losses (“ECLs”) are not recognised

separately for equity instruments.

ECLs are the weighted average of credit losses. When measuring ECLs, the Group takes into account:

•Probability-weighted outcomes;

•The time value of money so that ECLs are discounted to the reporting date; and

•Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current

conditions and forecasts of future economic conditions.

The amount of ECLs recognised as a loss allowance depends on the extent of credit deterioration since initial recognition. There are

two measurement bases:

•12-month ECLs (Stage 1), which applies to all items as long as there is no significant deterioration in credit quality since initial

recognition; and

•Lifetime ECLs (Stages 2 and 3), which applies when a significant increase in credit risk has occurred on an individual or collective

basis.

The 12 month ECL is the portion of lifetime expected credit losses that represent the expected credit losses that result from default

events on a financial instrument that are possible within the 12 months after the reporting date. Lifetime ECL is the expected credit

losses that result from all possible default events over the expected life of a financial instrument.

In the case of Stage 2, credit risk on the financial instrument has increased significantly since initial recognition but the instrument is not

considered credit impaired. For a financial instrument in Stage 3, credit risk has increased significantly since initial recognition and the

instrument is considered credit impaired.

Financial assets are allocated to stages dependent on credit quality relative to when the asset was originated.

A financial asset can only originate in either Stage 1 or as purchased or originated credit impaired (“POCI”). The ECL held against an

asset depends on a number of factors, one of which is its stage allocation. Assets allocated to Stage 2 and Stage 3 have lifetime ECLs.

Collateral and other credit enhancements are not considered as part of stage allocation. Collateral is reflected in the Group’s loss given

default models (“LGD”).

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1 Accounting policies continued

(s) Impairment of financial assets continued

Purchased or originated credit impaired

POCI financial assets are those that are credit-impaired on initial recognition. The Group may originate a credit-impaired financial asset

following a substantial modification of a distressed financial asset that resulted in derecognition of the original financial asset.

POCIs are financial assets originated credit impaired that have a discount to the contractual value when measured at fair value. The

Group uses an appropriate discount rate for measuring ECL in the case of POCIs which is the credit-adjusted EIR. This rate is used to

discount the expected cash flows of such assets to fair value on initial recognition.

POCIs remain outside of the normal stage allocation process for the lifetime of the obligation. The ECL for POCIs is always measured

at an amount equal to lifetime expected credit losses. The amount recognised as a loss allowance for these assets is the cumulative

changes in lifetime expected credit losses since the initial recognition of the assets rather than the total amount of lifetime expected

credit losses.

At each reporting date, the Group recognises the amount of the change in lifetime expected credit losses as a credit impairment gain or

loss in the income statement. Favourable changes in lifetime expected credit losses are recognised as a credit impairment gain, even if

the favourable changes exceed the amount previously recognised in profit or loss as a credit impairment loss.

Modification

From time to time, the Group will modify the original terms of a customer’s loan either as part of the ongoing relationship or arising from

changes in the customer’s circumstances such as when that customer is unable to make the agreed original contractual repayments.

A modification refers to either:

•A change to the previous terms and conditions of a debt contract; or

•A total or partial refinancing of a debt contract.

Modifications may occur for both customers in distress and for those not in distress. Any financial asset that undergoes a change or

renegotiation of cash flows and is not derecognised is a modified financial asset.

When modification does not result in derecognition, the modified assets are treated as the same continuous lending agreement and a

modification gain or loss is taken to profit or loss immediately. The gross carrying amount of the financial asset is recalculated as the

present value of the renegotiated or modified contractual cash flows discounted at the financial asset’s original effective interest rate.

Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortised over the remaining term of the

modified financial asset.

The stage allocation for modified assets which are not derecognised is by reference to the credit risk at initial recognition of the original,

unmodified contractual terms i.e. the date of initial recognition is not reset.

Where renegotiation of the terms of a financial asset leads to a customer granting equity to the Group in exchange for any loan balance

outstanding, the new instrument is recognised at fair value with any difference to the loan carrying amount recognised in the income

statement.

Derecognition occurs if a modification or restructure is substantial on a qualitative or quantitative basis. Accordingly, certain forborne

assets are derecognised. The modified/restructured asset (derecognised forborne asset (‘DFA’)) is considered a ‘new financial

instrument’ and the date that the new asset is recognised is the date of initial recognition from this point forward. DFAs are allocated to

Stage 1 on origination and follow the normal staging process thereafter.

If there is evidence of credit impairment at the time of initial recognition of a DFA, and the fair value at recognition is at a discount to the

contractual amount of the obligation, the asset is deemed to be a POCI. POCIs are not allocated to stages but are assigned a lifetime

PD and ECL for the duration of the obligation’s life. Where the modification/restructure of a non-forborne credit obligation results in

derecognition, the new loan is originated in Stage 1 and follows the normal staging process thereafter.

Collateralised financial assets – Repossessions

The ECL calculation for a collateralised financial asset reflects the cash flows that may result from foreclosure, costs for obtaining and

settling the collateral, and whether or not foreclosure is probable.

For loans that are credit impaired, the Group may repossess collateral previously pledged as security in order to achieve an orderly

realisation of the loan. The Group will then offer this repossessed collateral for sale. However, if the Group believes the proceeds of the

sale will comprise only part of the recoverable amount of the loan with the customer remaining liable for any outstanding balance, the

loan continues to be recognised and the repossessed asset is not recognised. However, if the Group believes that the sale proceeds of

the asset will comprise all or substantially all of the recoverable amount of the loan, the loan is derecognised and the acquired asset is

accounted for in accordance with the applicable accounting standard. Any further impairment of the repossessed asset is treated as an

impairment of that asset and not as a credit impairment of the original loan.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(s) Impairment of financial assets continued

Financial assets at FVOCI

The ECL allowance for financial assets measured at FVOCI does not reduce the carrying amount in the statement of financial position

because the carrying amount of these assets is fair value. However, an amount equal to the ECL allowance that would arise if the

assets were measured at amortised cost is recognised in other comprehensive income (‘OCI’) as an accumulated credit impairment

amount, with a corresponding charge to profit or loss. The accumulated loss recognised in OCI is recycled to the profit or loss upon

derecognition of the assets (together with other accumulated gains and losses in OCI).

Write-offs and debt forgiveness

The Group reduces the gross carrying amount of a financial asset either partially or fully when there is no reasonable expectation of

recovery.

Where there is no formal debt forgiveness agreed with the customer, the Group may write off a loan either partially or fully when there is

no reasonable expectation of recovery. This is considered a non-contracted write-off. In this case, the borrower remains fully liable for

the credit obligation and is not advised of the write-off.

Once a financial asset is written-off either partially or fully, the amount written-off cannot subsequently be recognised on the balance

sheet. It is only when cash is received in relation to the amount written-off that income is recognised in the income statement as a

‘recovery of bad debt previously written-off.

Debt forgiveness arises where there is a formal contract agreed with the customer for the write-off of a loan.

(t) Collateral and netting

The Group enters into master netting agreements with counterparties, to ensure that if an event of default occurs, all amounts

outstanding with those counterparties will be settled on a net basis.

Collateral

The Group obtains collateral in respect of customer advances where this is considered appropriate. The collateral normally takes the

form of a lien over the customer’s assets and gives the Group a claim on these assets for both existing and future customer liabilities.

The collateral is, in general, not recorded on the statement of financial position.

The Group also receives collateral in the form of cash or securities in respect of other credit instruments, such as securities borrowing

contracts and derivative contracts in order to reduce credit risk. Collateral received in the form of securities is not recorded on the

statement of financial position. Collateral received in the form of cash is recorded on the statement of financial position with a

corresponding liability. Therefore, in the case of cash collateral, these amounts are assigned to deposits received from banks or other

counterparties. Any interest payable or receivable arising is recorded as interest expense or interest income respectively.

In certain circumstances, the Group will pledge collateral in respect of its own liabilities or borrowings. Collateral pledged in the form of

securities or loans and advances continues to be recorded on the statement of financial position. Collateral paid away in the form of

cash is recorded in loans and advances to banks or customers. Any interest payable or receivable arising is recorded as interest

expense or interest income respectively.

Netting

Financial assets and financial liabilities are offset and the net amount reported on the statement of financial position if, and only if, there

is a currently enforceable legal right to set off the recognised amounts and there is an intention to settle on a net basis, or to realise the

asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets

and liabilities are presented gross on the statement of financial position.

(u) Financial guarantees and loan commitment contracts

Financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and

other banking facilities (‘facility guarantees’) and to other parties in connection with the performance of customers under obligations

relating to contracts, advance payments made by other parties, tenders, retentions and the payment of import duties. In its normal

course of business, Allied Irish Banks, p.l.c. (the principal operating company) issues financial guarantees to other Group entities.

A loan commitment is a contract with a borrower to provide a loan or credit on specified terms at a future date. The contract may or may

not be cancelled unconditionally at any time without notice depending on the terms of the contract.

The origination date for financial guarantees and loan commitment contracts is the date when the contracts become irrevocable. The

credit risk at this date is used to determine if a significant increase in credit risk has subsequently occurred.

Financial guarantees and loan commitments are initially recognised in the financial statements at fair value on the date that the

guarantee is given. Subsequent to initial recognition, the Group applies the impairment provisions of IFRS 9 Financial Instruments and

calculates an ECL allowance for financial guarantees and loan commitment contracts (i.e. those that are not measured at FVTPL).

The ECL allowance calculated on financial guarantees and loan commitment contracts is reported within Provisions for liabilities and

commitments.

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Financial Statements

General Information

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1 Accounting policies continued

(v) Property, plant and equipment

Property, plant and equipment are stated at cost, or deemed cost, less accumulated depreciation and provisions for impairment, if any.

Additions and subsequent expenditures are capitalised only to the extent that they enhance the future economic benefits expected to be

derived from the asset. No depreciation is provided on freehold land. Property, plant and equipment are depreciated on a straight line

basis over their estimated useful economic lives. Depreciation is calculated based on the gross carrying amount, less the estimated

residual value at the end of the assets’ economic lives.

The Group uses the following useful lives when calculating depreciation:

Freehold buildings and long-leasehold property50 years

Short leasehold propertylife of lease, up to 50 years

Costs of adaptation of freehold and leasehold property

Branch propertiesup to 10 years(1)

Office propertiesup to 15 years(1)

Computers and similar equipment 3 – 7 years

Fixtures and fittings and other equipment 5 – 10 years

The Group depreciates right-of-use assets arising under lease obligations from the commencement date of a lease to the earlier of the

end of the useful life of the right-of-use asset and the end of the lease term on a straight line basis.

The Group reviews its depreciation rates regularly, at least annually, to take account of any change in circumstances. When deciding on

useful lives and methods, the principal factors that the Group takes into account are the expected rate of technological developments

and expected market requirements for, and the expected pattern of usage of, the assets. When reviewing residual values, the Group

estimates the amount that it would currently obtain for the disposal of the asset, after deducting the estimated cost of disposal if the

asset was already of the age and condition expected at the end of its useful life.

Gains and losses on disposal of property, plant and equipment are included in the income statement. It is Group policy not to revalue its

property, plant and equipment.

(1)Subject to the maximum remaining life of the lease.

(w) Intangible assets

Computer software and other intangible assets

Computer software and other intangible assets are stated at cost, less amortisation on a straight line basis and provisions for

impairment, if any. The identifiable and directly associated external and internal costs of acquiring and developing software are

capitalised where the software is controlled by the Group, and where it is probable that future economic benefits that exceed its cost will

flow from its use over more than one year. Costs associated with maintaining software are recognised as an expense when incurred.

Capitalised computer software is amortised over 3 to 9 years. Other intangible assets are amortised over the life of the asset. Computer

software and other intangible assets are reviewed for impairment when there is an indication that the asset may be impaired. Intangible

assets not yet available for use are reviewed for impairment on an annual basis.

Acquired intangible assets

Customer related intangible assets and brands acquired in a business combination are recognised at fair value at acquisition date.

Customer related intangible assets and brands have a finite useful life and are carried at cost less accumulated amortisation and

provision for impairment, if any. Amortisation is calculated using the straight line basis to allocate the cost over their estimated useful life

(6 years).

(x) Impairment of property, plant and equipment, goodwill and intangible assets

Annually, or more frequently where events or changes in circumstances dictate, property, plant and equipment, goodwill and intangible

assets are assessed for indications of impairment. If indications are present, these assets are subject to an impairment review. Goodwill

and intangible assets not yet available for use are subject to an annual impairment review.

The impairment review comprises a comparison of the carrying amount of the asset or cash generating unit with its recoverable

amount. Cash-generating units are the lowest level at which management monitors the return on investment in assets. The recoverable

amount is determined as the higher of fair value less costs to sell the asset or cash generating unit and its value in use. Value in use is

calculated by discounting the expected future cash flows obtainable as a result of the asset’s continued use, including those resulting

from its ultimate disposal, at a market-based discount rate on a pre-tax basis. For intangible assets not yet available for use, the

impairment review takes into account the cash flows required to bring the asset into use.

The carrying values of property, plant and equipment, goodwill and intangible assets are written down by the amount of any impairment

and this loss is recognised in the income statement in the period in which it occurs. A previously recognised impairment loss may be

reversed in part or in full when there is an indication that the impairment loss may no longer exist and there has been a change in the

estimates used to determine the asset’s recoverable amount. The carrying amount of the asset will only be increased up to the amount

that it would have been had the original impairment not been recognised. Impairment losses on goodwill are not reversed.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(y) Disposal groups and non-current assets held for sale

A non-current asset or a disposal group comprising assets and liabilities is classified as held for sale if it is expected that its carrying

amount will be recovered principally through sale rather than through continuing use, it is available for immediate sale and sale is highly

probable within one year. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell

the asset or disposal group.

On initial classification as held for sale, generally, non-current assets and disposal groups are measured at the lower of previous

carrying amount and fair value less costs to sell with any adjustments taken to the income statement. The same applies to gains and

losses on subsequent remeasurement. However, financial assets within the scope of IFRS 9 Financial Instruments continue to be

measured in accordance with that standard.

Impairment losses subsequent to classification of assets as held for sale are recognised in the income statement. Subsequent

increases in fair value, less costs to sell of the assets that have been classified as held for sale are recognised in the income statement

to the extent that the increase is not in excess of any cumulative impairment loss previously recognised in respect of the asset. Assets

classified as held for sale are not depreciated.

Gains and losses on remeasurement and impairment losses subsequent to classification as disposal groups and non-current assets

held for sale are shown within continuing operations in the income statement, unless they qualify as discontinued operations.

Disposal groups and non-current assets held for sale which are not classified as discontinued operations are presented within other

assets and other liabilities on the statement of financial position.

(z) Non-credit risk provisions

Provisions are recognised for present legal or constructive obligations arising as consequences of past events where it is probable that

a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated.

When the effect is material, provisions are determined by discounting expected future cash flows at a pre-tax rate that reflects current

market assessments of the time value of money and, where appropriate, the risks specific to the liability. Payments are deducted from

the present value of the provision, and interest at the relevant discount rate is charged annually to interest expense using the effective

interest rate method. Changes in the present value of the liability as a result of movements in interest rates are included in other

income. These are reported within Provisions for liabilities and commitments in the statement of financial position.

Restructuring costs

Where the Group has a formal plan for restructuring a business and has raised valid expectations in the areas affected by the

restructuring by starting to implement the plan or announcing its main features, provision is made for the anticipated cost of

restructuring, including retirement benefits and redundancy costs, when an obligation exists. The provision raised is normally utilised

within twelve months. Future operating costs are not provided for.

Legal claims and other contingencies

Provisions are made for legal claims where the Group has present legal or constructive obligations as a result of past events and it is

more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.

Contingent liabilities are possible obligations whose existence will be confirmed only by the occurrence of uncertain future events or

present obligations where the transfer of economic benefit is uncertain or cannot be reliably estimated. Contingent liabilities are not

recognised but are disclosed in the notes to the financial statements unless the possibility of the transfer of economic benefit is remote.

A provision is recognised for a constructive obligation where a past event has led to an obligating event. This obligating event has left

the Group with little realistic alternative but to settle the obligation and the Group has created a valid expectation in other parties that it

will discharge the obligation.

(aa) Equity

Issued financial instruments, or their components, are classified as equity where they meet the definition of equity and confer on the

holder a residual interest in the assets of the Group.

On extinguishment of equity instruments, gains or losses arising are recognised net of tax directly in the statement of changes in equity.

Share capital

Share capital represents funds raised by issuing shares in return for cash or other consideration. Share capital comprises ordinary

shares of the entity.

Share premium

When shares are issued at a premium, whether for cash or otherwise, the excess of the amount received over the par value of the

shares is transferred to share premium.

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Financial Statements

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

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1 Accounting policies continued

(aa) Equity continued

Share issue costs

Incremental costs directly attributable to the issue of new shares or options are charged, net of tax, to equity.

Dividends and distributions

Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Company’s shareholders, or in

the case of the interim dividend when they become irrevocable having already been approved for payment by the Board of Directors.

The interim dividend may be cancelled at any time prior to the actual payment.

Dividends declared after the end of the reporting date are disclosed in note 50.

Other equity interests

Other equity interests include:

•Additional Tier 1 Perpetual Contingent Temporary Write-down Securities (AT1s) (note 36); and

•Warrants to acquire a fixed number of the company shares for a fixed amount of currency are classified as equity instruments and are

recognised on initial recognition at the fair value of consideration received.

Distributions on the AT1s are recognised in equity when approved for payment by the Board of Directors.

Other capital reserves

Other capital reserves represent transfers from retained earnings in accordance with relevant legislation.

Capital contributions

Capital contributions represent the receipt of non-refundable considerations arising from transactions with the Irish Government

(note 46). These contributions comprise both financial and non-financial net assets. The contributions are classified as equity and may

be either distributable or non-distributable. Capital contributions are distributable if the assets received are in the form of cash or

another asset that is readily convertible to cash, otherwise, they are treated as non-distributable. Capital contributions in the statement

of financial position arose during 2011 from (a) EBS transaction and (b) non-refundable receipts from the Irish Government and the

NPRFC.

The capital contribution from the EBS transaction is treated as non-distributable as the related net assets received were largely non-

cash in nature.

Non-refundable receipts of € 6,054 million from the Irish Government and the NPRFC are distributable. These are included in revenue

reserves.

Capital redemption reserves

Capital redemption reserves initially arose in 2015 from the redemption of 2,140 million 2009 Preference Shares whereby on

redemption, the nominal value of shares redeemed was transferred from the share capital account to the capital redemption reserve

account. In addition, the nominal value of cancelled ordinary shares is also transferred from the share capital to the capital redemption

reserve account.

Revaluation reserves

Revaluation reserves represent the unrealised surplus, net of tax, which arose on revaluation of properties prior to the implementation

of IFRS at 1 January 2004.

Investment securities reserves

Investment securities reserves represent the net unrealised gain or loss, net of tax, arising from the recognition in the statement of

financial position of investment securities at FVOCI.

On disposal of equity securities which had been designated at FVOCI on initial recognition, any amounts held in the investment

securities reserves account is transferred directly to revenue reserves without recycling through profit or loss.

Cash flow hedging reserves

Cash flow hedging reserves represent the net gains or losses, net of tax, on effective cash flow hedging instruments that will be

reclassified to the income statement when the hedged transaction affects profit or loss.

Revenue reserves

Revenue reserves include the following:

•Retained earnings of the parent company, subsidiaries and associated undertakings;

•Amounts transferred from issued share capital, share premium and capital redemption reserves following Irish High Court approval;

•Remeasurements of defined benefit pension schemes; and

•Transactions with owners including distributions and buybacks.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

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1 Accounting policies continued

(aa) Equity continued

Foreign currency cumulative translation reserves

The foreign currency cumulative translation reserves represent the cumulative gains and losses on the retranslation of the Group’s net

investment in foreign operations, at the rate of exchange at the year end reporting date net of the cumulative gain or loss on

instruments designated as net investment hedges.

Non-controlling interests

Non-controlling interests comprise equity interests which relate to the interests of outside shareholders in consolidated subsidiaries.

(ab) Cash and cash equivalents

For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits, and cash equivalents comprise

highly liquid investments that are convertible into cash with an insignificant risk of changes in value and with a maturity of less than

three months from the date of acquisition.

(ac) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it earns revenues and incurs

expenses. The Group has identified reportable segments on the basis of internal reports about components of the Group that are

regularly reviewed by the Chief Operating Decision Maker (“CODM”) in order to allocate resources to the segment and assess its

performance. Based on this identification, the reportable segments are the operating segments within the Group, the head of each

being a member of the Executive Committee. The Executive Committee is the CODM and it relies primarily on the management

accounts to assess performance of the reportable segments and when making resource allocation decisions.

Transactions between operating segments are on normal commercial terms and conditions, with internal charges and transfer pricing

adjustments reflected in the performance of each operating segment. Revenue sharing agreements are used to allocate external

customer revenues to an operating segment on a reasonable basis.

Geographical segments provide products and services within a particular economic environment that is subject to risks and rewards

that are different to those components operating in other economic environments. The geographical distribution of revenue is based

primarily on the location of the office recording the transaction. The geographic distribution of loans and related impairment is based on

the country of risk.

(ad) Prospective accounting changes

The following amendments to existing standards which have been approved by the IASB, but not early adopted by the Group, will

impact the Group’s financial reporting in future periods. The Group will consider the impact of these amendments as the situation

requires. The amendments which are most relevant to the Group are detailed below.

IFRS 17 Insurance Contracts

In May 2017, the IASB issued IFRS 17 Insurance Contracts, a comprehensive new accounting standard for insurance contracts

covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts

as issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless

of the type of entities that issues them, as well as certain guarantees and financial instruments with discretionary participation features.

A few scope exceptions will apply.

IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, with comparative figures required. The Group has

completed an initial assessment of the impacts of adopting IFRS 17 and it has concluded that it does not expect any material impact on

its financial statements from the adoption of the new standard in 2023.

Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting Policies

The amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 regarding disclosure of accounting

policies which were issued in February 2021, amends IAS 1 in the following way:

•Disclosure of material accounting policy information is now required instead of significant accounting policies.

•Amendments have been included to clarify that accounting policy information may be material because of its nature, even if the

related amounts are immaterial and if users of an entity’s financial statements would need it to understand other material information

in the financial statements.

Effective date: Annual reporting periods beginning on or after 1 January 2023. These amendments will not have a material impact on

the Group.

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Governance Report

Risk Management

Financial Statements

General Information

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1 Accounting policies continued

(ad) Prospective accounting changes continued

Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates

The amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors were issued in February 2021 to help

entities to distinguish between accounting policies and accounting estimates. The changes relate entirely to accounting estimates and

clarify the following:

•The definition of a change in accounting estimates is replaced with a definition of accounting estimates.

•Entities develop accounting estimates if accounting policies require items in financial statements to be measured in a way that

involves measurement uncertainty.

•A change in accounting estimate that results from new information or new developments is not the correction of an error.

•A change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period

and future periods.

Effective date: Annual reporting periods beginning on or after 1 January 2023. These amendments will not have a material impact on

the Group.

Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

The amendments to IAS 12 Income Taxes regarding deferred taxes related to assets and liabilities arising from a single transaction

which were issued in May 2021, require the following change:

•An exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24.

Accordingly, the initial recognition exemption does not apply to transactions in which equal amounts of deductible and taxable

temporary differences arise on initial recognition.

Effective date: Annual reporting periods beginning on or after 1 January 2023. These amendments will not have a material impact on

the Group.

Amendments to IFRS 16 Leases: Lease Liability in a Sale and Leaseback

In September 2022, the IASB issued amendments to IFRS 16 Leases that require a seller-lessee to subsequently measure lease

liabilities arising from a leaseback in a way that it does not recognise any amount of the gain or loss that relates to the right of use it

retains.

The new requirements do not prevent a seller-lessee from recognising in profit or loss any gain or loss relating to the partial or full

termination of a lease.

Effective date: Annual reporting periods beginning on or after 1 January 2024.

Amendments to IAS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current

In January 2020, July 2020 and October 2022, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial

Statements to specify the requirements for classifying liabilities as current or non-current. The amendments clarify:

•What is meant by a right to defer settlement;

•That a right to defer must exist at the end of the reporting period;

•That classification is unaffected by the likelihood that an entity will exercise its deferral right;

•That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its

classification; and

•That covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the

reporting date. Instead, information about these covenants should be disclosed in the notes to the financial statements.

Effective date: Annual reporting periods beginning on or after 1 January 2024.

Other

The IASB has published a number of minor amendments to IFRSs through standalone amendments. None of the other amendments

are expected to have a significant impact on reported results or disclosures.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

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2 Critical accounting judgements and estimates

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the

application of policies and reported amounts of certain assets, liabilities, revenues and expenses, and disclosures of contingent assets

and liabilities. The estimates and assumptions are based on historical experience and various other factors that are believed to be

reasonable under the circumstances. Since management judgement involves making estimates concerning the likelihood of future

events, the actual results could differ from those estimates.

The accounting judgements that are deemed critical to the Group’s results and financial position, in terms of the materiality of the items

to which the judgements are applied, and the estimates that have a significant risk of material adjustment in the next year are set out

below.

Significant judgements

The significant judgements made by the Group in applying its accounting policies are as follows:

•Deferred taxation;

•Impairment of financial assets; and

•Provisions for liabilities and commitments.

The application of certain of these judgements also necessarily involves estimations which are discussed separately.

Deferred taxation

The Group’s accounting policy for deferred tax is set out in accounting policy (k) in note 1. Details of the Group’s deferred tax assets

and liabilities are set out in note 26.

A key judgement in relation to the recoverability of deferred tax assets is that it is probable that there will be sufficient future taxable

profits against which the losses can be used:

•The estimated utilisation period for such losses in Ireland is within the timeframe that taxable profits are considered more likely than

not; and

•15 years is the period that taxable profits are considered more likely than not in the UK.

Deferred tax assets are recognised for unused tax losses to the extent that it is probable (defined for this purpose as more likely than

not) that there will be sufficient future taxable profits against which the losses can be used. For a company with a history of recent

losses, there must be convincing other evidence to underpin this assessment.

The recognition of these deferred tax assets relies on the assessment of future profitability and the sufficiency of those profits to absorb

losses carried forward. It requires significant judgements to be made about the projection of long term future profitability because of the

period over which recovery extends.

In assessing the future profitability of the Group, the Board has considered a range of positive and negative evidence for this purpose.

Among this evidence, the principal positive factors include:

•AIB as a pillar bank with a strong Irish franchise;

•The absence of any expiry dates for Irish and UK tax losses;

•The changing banking landscape in Ireland as KBC and Ulster Bank exit the Irish market as evidenced by the acquisition of certain

Ulster Bank loans by the Group;

•The strong performance of the Irish economy in 2022 with growth forecasts being revised higher during the year;

•A positive interest rate environment with Central Banks increasing Euro, Sterling and Dollar interest rates during 2022;

•The recent inorganic activity of the Group including the completed acquisition of Goodbody in 2021 and the Group’s investment in AIB

JV Holdings Limited being the Group’s joint venture with Great-West Lifeco Inc.;

•The turnaround evident in the financial performance over the years 2021-2022;

•External economic forecasts for Ireland in the medium term, with forecasted growth in 2023 of 4%, outperforming the global economy;

•The introduction of the bank resolution framework under the BRRD and the establishment in 2017 of AIB Group plc as the new

holding company of the Group provides greater confidence in relation to the future viability of Allied Irish Banks, p.l.c. (as the principal

operating bank subsidiary) as there are now effective tools in place that should facilitate its recapitalisation in a future crisis; and

•The non-enduring nature of the loan impairments at levels which resulted in the losses in the 2009 to 2013 prior years.

The Board considered negative evidence and the inherent uncertainties in any long term financial assumptions and projections,

including:

•The absolute level of deferred tax assets compared to the Group’s equity;

•The quantum of profits required to be earned and the extended period over which it is projected that the tax losses will be utilised;

•The challenge of forecasting over a long period, taking account of the level of competition, market dynamics (including the interest

rate environment) and resultant margin and funding pressures;

•Any potential longer term residual impacts of COVID-19 and post-Brexit EU/UK trade deal on the Irish economy;

•Potential instability arising from macroeconomic headwinds and geopolitical issues over an extended period; and

•Taxation changes (including Organisation for Economic Co-operation and Development (“OECD”) tax reform) and the likelihood of

future developments and their impact on profitability and utilisation.

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Allied Irish Banks, p.l.c. Annual Financial Report 2022

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2 Critical accounting judgements and estimates continued

Deferred taxation continued

Profitability and growth were reassessed in the annual planning exercise covering the period 2023 to 2025 undertaken by the Group in

the second half of 2022. Profitability levels underpinning the plan have been revised upwards compared to last year given the changing

banking landscape and evolving operating environment.

Taking account of all relevant factors, and in the absence of any expiry date for tax losses in Ireland, the Group further believes that it is

more likely than not that there will be future profits in the medium term, and beyond, in the relevant Irish Group companies against

which to use the tax losses. In this regard, the Group has carried out an exercise to determine the likely number of years required to

utilise the deferred tax asset under the following scenario. Using the Group’s financial plan 2023 to 2025 as a base and a profit growth

rate of 2% from 2026, it was assessed that it will take less than 15 years for the Irish deferred tax asset (€ 2.5 billion) to be utilised.

Furthermore, under this scenario, it is expected that c. 65% will be utilised within 10 years. If the growth rate assumption was decreased

by 1%, then the utilisation period increases by a further c.1 year. The Group’s analysis of this and other scenarios examined would not

alter the basis of recognition or the current carrying value. In 2021, the Group reported that it expected that it would take in excess of 20

years for the deferred tax asset to be utilised with 92% being utilised within 20 years and 64% within 15 years.

Given the relative size of the Group’s operations in the UK compared to the role that the Irish operations play in supporting a functioning

banking environment, a different judgement has been applied to the period that taxable profits are considered more likely than not in the

UK. Despite the absence of any expiry date for tax losses in the UK, the Group has concluded that the recognition of deferred tax

assets in its UK subsidiary be limited to the amount projected to be realised within a time period of 15 years. This is the timescale within

which the Group believes that it can assess the likelihood of its UK profits arising as being more likely than not.

However, for certain other subsidiaries and branches, the Group has also concluded that it is more likely than not that there will be

insufficient profits to support the recognition of deferred tax assets.

The amount of recognised deferred tax assets arising from unused tax losses amounts to € 2,741 million (2021: € 2,840 million) of

which € 2,546 million (2021: € 2,645 million) relates to Irish tax losses and € 196 million (2021: € 195 million) relates to UK tax losses.

IAS 12 Income Tax does not permit a company to apply present value discounting to its deferred tax assets or liabilities, regardless of

the estimated timescales over which those assets or liabilities are projected to be realised. The Group’s deferred tax assets are

projected to be realised over a long timescale, benefiting from the absence of any expiry date for Irish or UK tax losses. As a result, the

carrying value of the deferred tax assets on the statement of financial position does not reflect the economic value of those assets.

Impairment of financial assets

The Group’s accounting policy for impairment of financial assets is set out in accounting policy (s) in note 1. Details of the Group’s ECL

allowance are set out in note 20.

The calculation of the ECL allowance is complex and requires the use of a number of accounting judgements.

The most significant judgements applied by the Group in determining the ECL allowance are as follows:

•Determining the criteria for a significant increase in credit risk and for being classified as credit impaired;

•Applying the definition of default policy for classifying financial assets as credit impaired; and

•Determining the need for and an appropriate methodology for post-model adjustments.

The significant management judgements and the governance process, relating to ECL, are set out on page 90 and 91 in the Risk

Management section.

Provisions for liabilities and commitments

The Group’s accounting policy for provisions for liabilities and commitments is set out in accounting policy (z) in note 1. Details of the

Group’s provision for liabilities and commitments are shown in note 33.

Significant management judgement is required to determine whether the Group has a present obligation as a result of a past event

and whether it is probable an outflow of resources will be required to settle the obligation.

The Group recognises liabilities where it has present legal or constructive obligations as a result of past events and it is more likely than

not that these obligations will result in an outflow of resources to settle the obligations and the amount can be reliably estimated.

Judgement is required in determining whether the Group has a present obligation and whether it is probable that an outflow of

economic benefits will be required to settle this obligation. This judgement is applied to information available at the time of determining

the provision including, but not limited to, judgements around interpretations of legislation, regulations and case law depending on the

nature of the provision.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

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2 Critical accounting judgements and estimates continued

Critical accounting estimates

The accounting estimates with a significant risk of material adjustment to the carrying amounts of assets and liabilities within the next

financial year were in relation to:

•Deferred taxation;

•Impairment of financial assets;

•Retirement benefit obligations; and

•Provisions for liabilities and commitments.

Deferred taxation

The Group’s accounting policy for deferred tax is set out in accounting policy (k) in note 1. Details of the Group’s deferred tax assets

and liabilities are set out in note 26.

The most significant source of estimation uncertainty in relation to deferred tax is the forecast profit over the 15 year period that is

used to determine the deferred tax asset for unutilised losses in the Group's principal UK subsidiary, which is based on the Group’s

annual plan.

The deferred tax asset for unutilised tax losses in the Group’s principal UK subsidiary amounts to £ 165 million at 31 December 2022

(31 December 2021: £ 164 million).

On an annual basis profitability and growth are reassessed in the annual planning exercise undertaken by the Group. Growth

assumptions and profitability levels underpinning the plan are reassessed and reflect the revised macroeconomic outlook and the

current market as well as revised business strategies.

Forecast profits for the 15 year period are subject to uncertainty with a range of possibilities. Subsequent forecasts of profits in future

years may be higher or lower which could result in a significant risk of adjustment to the carrying amounts of deferred tax assets, within

the next financial year.

Impairment of financial assets

The Group’s accounting policy for impairment of financial assets is set out in accounting policy (s) in note 1. Details of the Group’s

expected credit loss (“ECL”) allowance are set out in note 20.

The calculation of the ECL allowance is complex and therefore an entity must consider large amounts of information in their

determination. This process requires significant use of estimates and assumptions, some of which by their nature, are highly subjective

and very sensitive to risk factors such as changes to economic conditions. Changes in the ECL allowance can materially affect net

income.

ECL allowance for Loans and advances to customers at 31 December 2022 amounted to € 1,618 million (2021: € 1,885 million). The

ECL for financial assets represents management’s best estimate of the expected credit losses on the various portfolios at the respective

reporting dates.

The key estimates and assumptions that the Directors have used in determining the ECL allowance are as follows:

•Inputs into discounted cash-flows (‘DCFs’) for certain Stage 3 credit impaired obligors;

•Establishing the number and relative weightings for forward looking scenarios;

•The assumptions for measuring ECL (e.g. PD, LGD and EAD and the parameters to be included within the models for modelled

ECL); and

•The estimation of post model adjustments where required.

Discounted cash flows ("DCFs") are the most significant input to the ECL calculation for Stage 3 credit impaired borrowers where the

gross credit exposure is ≥ € 1 million for Ireland or ≥ £ 500,000 for the UK. Collateral valuations and the estimated time to realisation of

collateral is a key component of the DCF model. The DCF assessment produces a base case ECL which is then adjusted to incorporate

the impact of multiple scenarios on the base ECL. The size of the adjustment must consider all relevant and supportable information,

including but not limited to, historical data analysis, predictive modelling and management judgement.

The macroeconomic variables used in models to calculate ECL allowance are based on assumptions, forecasts and estimates against

a backdrop of the residual impact of the COVID-19 pandemic and the economic landscape which are continuously evolving.

Accordingly, developments with regard to the pandemic and changes in local and international factors could have a material bearing on

the ECL allowance within the next financial year. The Group’s sensitivity to a range of macroeconomic factors under (i) base forecast;

(ii) upside; and (iii) downside scenarios is set out on pages 84 to 89 of the Risk Management section of this report.

Certain of these estimates may have a significant risk of material adjustment to carrying amounts of assets within the next financial

year.

Annual Review

Business Review

Governance Report

Risk Management

Financial Statements

General Information

Allied Irish Banks, p.l.c. Annual Financial Report 2022

197

2 Critical accounting judgements and estimates continued

Impairment of financial assets continued

The Group has developed a standard approach for the measurement of ECL for the majority of the Group’s exposures where each ECL

input parameter (e.g. PD, LGD and EAD) is developed in line with standard modelling methodology. In addition, where the estimate of

ECL does not adequately capture all available forward looking information about the range of possible outcomes, or where there is a

significant degree of uncertainty, management may consider it appropriate for an adjustment to ECL. These are referred to as post

model adjustments and are set out in detail on page 90 and 91.

On an ongoing basis, the various estimates and assumptions are reviewed in light of differences between actual and previously

calculated expected losses. These are then recalibrated and refined to reflect current and evolving economic conditions. The

management process for the calculation of ECL allowance is underpinned by second-line levels of review. The ECL allowance is, in

turn, reviewed and approved by the Group Credit Committee on a quarterly basis with final Group levels being approved by the Board

Audit Committee. Further detail on the ECL governance process is set out on page 91.

Retirement benefit obligations

The Group’s accounting policy for retirement benefit obligations is set out in accounting policy (j) in note 1. Details of the Group’s

retirement benefit obligations are set out in note 27

The key estimates and assumptions that the Directors have used in determining the retirement benefit obligation are as follows:

•In a situation where the Group believes the Trustee has the ability to grant discretionary increases without any funding being

provided by the Group, the Group has assumed that the Trustee will grant increases and as a result the scheme’s liabilities include

an estimate for this matter; and

•The significant actuarial assumptions used to determine the present value of the retirement benefit obligation.

The Trustee of the Irish Scheme has awarded an increase, in certain years, in respect of pensions eligible for discretionary pension in

payment increases notwithstanding a decision by the Group not to fund such increases. This reflected the ability of the Trustee to grant

an increase when the financial position of the scheme would enable such an increase at that point in time.

Taking these decisions by the Trustee into consideration, the long term assumption for future increases in pension in payment reflects

an assessment of the Trustee’s ability to grant further increases without any funding from the Group, capped at a long-term inflation

assumption.

Having taken actuarial advice the Group has adopted a rate of 2.6%, being a long term inflation assumption, and which has increased

the scheme liabilities by € 886 million at 31 December 2022 (31 December 2021: 0.65%, € 350 million respectively).

The actuarial valuation of the schemes’ liabilities is dependent upon a number of financial and demographic assumptions which are

inherently uncertain. Changes to those assumptions could materially impact the reported amount for schemes’ liabilities and the

actuarial gains/losses reported in equity. Details of the assumptions adopted by the Group in calculating the schemes’ liabilities are set

out in note 27 to the financial statements. A sensitivity analysis for the principal assumptions used to measure the schemes’ liabilities is

set out in note 27 to the financial statements.

Provisions for liabilities and commitments

The Group’s accounting policy for provisions for liabilities and commitments is set out in accounting policy (z) in note 1. Details of the

Group’s provision for liabilities and commitments are shown in note 33.

The most significant source of estimation uncertainty, in relation to provisions, is the assumptions that the Group makes about future

events affecting different classes of provisions including the future outcome of litigation as well as the outcome of restitution activities.

The recognition and measurement of liabilities, in certain instances, may involve a high degree of uncertainty, and thereby, considerable

time is expended on research in establishing the facts, scenario testing, assessing the probability of the outflow of resources and

estimating the amount of any loss. However, at the earlier stages of provisioning, the amount provided for can be very sensitive to the

assumptions used and there may be a wide range of possible outcomes in particular cases. Accordingly, in such cases, it is often not

practicable to quantify a range of possible outcomes. In addition, it is also not practicable to measure ranges of outcomes in aggregate

in a meaningful way because of the diverse nature of these provisions and the differing fact patterns. The estimated potential losses will

change over time and the actual losses may vary significantly.

The overall provision amounting to € 262 million includes € 60 million in respect of the FSPO decision relating to tracker mortgage

customers and a number of separate provisions, the majority of which are not individually significant and which do not have a significant

risk of a material adjustment in the next financial year. The Group has not disclosed a range of outcomes for such provisions given their

diverse nature and the number of provisions involved.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED

Allied Irish Banks, p.l.c. Annual Financial Report 2022

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2 Critical accounting judgements and estimates continued

Provisions for liabilities and commitments continued

Note 33 sets out the background and the current position as regards the FSPO decision regarding a tracker complaint and the level of

provisions that were set aside. Notwithstanding the payments to customers have effectively concluded the level of provision required for

other costs, including tax liabilities arising that the Group will be required to discharge on behalf of impacted customers, has been

reassessed at € 60 million. These issues are subject to uncertainty with a range of outcomes possible with the final outcome being

higher or lower depending on finalisation of such issues.

3 Segmental information

Segment overview

The Group’s performance is managed and reported across the Retail Banking, AIB Capital Markets (“Capital Markets”), AIB UK and

Group segments. Segment performance excludes exceptional items.

Retail Banking

Our leading Irish retail franchise provides a comprehensive range of products and services to over 2.9m customers delivered through

our branch, digital and phone banking channels; with an expanded reach into the retail customer base via EBS, Haven, AIB Merchant

Services, Payzone, Nifti and AIB Life.

•Homes & Consumer are responsible for meeting the homes and everyday banking needs of customers in Ireland by delivering

innovative products, propositions and services and for growing our market leading positions. Our aim is to achieve a

seamless and transparent customer experience across all our products and services including mortgages, current accounts, personal

lending, payments and credit cards, deposits, insurance and wealth.