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Bank of Ireland Group plcAnnual Report

2019

HoldCo Annual Report 2019 - Front.qxp_Layout 1 21/02/2020 22:24 Page i

HoldCo Annual Report 2019 - Front.qxp_Layout 1 21/02/2020 22:24 Page ii

Annual Report

2019

HoldCo Annual Report 2019 - Front.qxp_Layout 1 21/02/2020 21:53 Page 1

Inside this report

Strategic Report 3

2019 key performance highlights 3

Chairman’s review 4

Chief Executive’s review 6

Our purpose and values 10

Our strategy 11

Divisional review 18

Responsible and sustainable business 24

Our governance structure 35

Risk review 38

Financial Review 41

Governance 58

Risk Management Report 110

Financial Statements 161

Other Information 303

Our Ambition is to be the National Champion Bank in Ireland, with UK and selectiveinternational diversification.

Our Purpose is to enable our customers, colleagues andcommunities to thrive.

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View this report onlineThis Annual Report and other information relating to Bank of Ireland is available at:

www.bankofireland.com

Bank of Ireland Annual Report 2019

The Group’s forward looking statementcan be found on page 330.


Financial Performance• Stable net interest

income; net interest margin of 2.14% (2018: 2.20%)

• Costs reduced by €67m (4%)• NPE ratio reduced by 190bps to 4.4% (2018: 6.3%)

Underlying1 profitbefore tax

€758m(2018: €935m)

Profit before tax

€645m(2018: €835m)

Growth• New lending up 3% to

€16.5bn (2018: €15.9bn)• Irish mortgage market share

of 24%; increased SME market share

• 11% income growth in Wealth and Insurance

Net new lending growth

€2.0bn(2018: €1.3bn)

Transformation• Cost reduction delivered

in each of the last four reporting periods

• UK strategy making progress on ‘invest in, improve and reposition’ strategy

• New digital platforms launched

Reduction inunderlying

operating expenses2(before levies & regulatory charges)

4%/€67m(2018: 100kchildren participated in Financial Wellbeingprogramme

€1bnSustainable Finance Fund launched

2019 key performance highlights

Strategic Report

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Strategic Report Risk Management Report Financial Statements Other InformationFinancial Review Governance

CET1 ratio

13.8%(2018: 13.4%)

Further information on measures referred toin our 2019 key performance highlights isfound in Alternative performance measureson page 331.

1 The Group’s financial results are presented on an underlying basis. Underlying excludes non-core items which are those items that the Group believes obscure the underlyingperformance trends in the business.

2 Underlying operating expenses exclude levies and regulatory charges and non-core items. Including these items total costs were €13 million or 1% higher than 2018.


Chairman’s review

The Group has continued to deliver on its growth and efficiencystrategy. With attractive market positions and the ongoingcommitment of colleagues across the Group, the Board is confidentthat Bank of Ireland remains well placed to address ongoingchallenges and deliver value for our shareholders.

I am pleased to report that over the pastyear the Group has continued to deliver onthe growth and efficiency strategy laid outat our Investor Day in 2018. Our loanbooks and Wealth and Insurance businesshave grown, our cost1 base has reduced,and our transformation programme hasmade further progress. However, we alsoface headwinds in our primary markets,most notably a lower-for-longer interestrate environment. In addition, heightenedcompetition in the United Kingdom (UK)mortgage market, increases in regulatorycapital requirements, and political change,including the ongoing uncertainties relatedto the UK’s decision to leave the EuropeanUnion (EU), all present businesschallenges. These headwinds areimpacting the timeframe for delivery ofsome of our Investor Day targets; however,I remain confident we have the rightstrategy to deliver sustainable value for ourshareholders.

Strategy

Our ambition is to be the NationalChampion Bank in Ireland, with UK andselective international diversification. Todeliver on this ambition, we have outlined aclear strategy to transform the Bank, servecustomers brilliantly and grow sustainableprofits.

Last year, I wrote of the imperative for thefinancial services sector to adapt anddevelop to meet rapidly changingcustomer expectations. This remains ascritical now as it was then. To this end, wehave continued to make significantinvestments to transform Bank of Ireland,including our culture, our systems and ourbusiness model, and to enhance servicesto our customers.

The Group’s culture continues tostrengthen, with colleague engagementimproving again during 2019. We have

made progress in modernising oursystems, putting strong foundations inplace across all our technology layers whileimproving efficiency and customerexperience. We have also continued totransform the business model to create aleaner, simplified and more agileorganisation. These investments andenhancements leverage our strongcustomer relationships to offer the rightproducts and services at the right time.The rollout of the Group’s new Mobile Appand Wealth and Insurance digital platformsare important milestones.

We are also investing in our UK andinternational businesses. In the UK, weextended our long-term financial servicespartnership with the Post Office and exitedcredit cards, unprofitable Automated TellerMachines (ATMs) and current accounts.These actions are consistent with theimperative to improve returns in our UKbusiness.

The Group’s operating and financialperformance, combined with continuedorganic capital generation, has contributedto a robust capital position in 2019. I ampleased to announce a proposed dividendto shareholders in respect of 2019 of 17.5cent per share, an increase of 9% on lastyear’s level. This demonstrates continuedprogress in line with our policy to increasedividends on a prudent and progressivebasis, and over time, build towards apayout ratio of around 50% of sustainableearnings.

Purpose

Our purpose is to enable our customers,colleagues and communities to thrive. Toachieve this purpose, we must ensure that

4


Patrick Kennedy Chairman



an appropriate corporate culture isembedded across the organisation, andthat we conduct our business responsiblyand ethically at all times.

We are demonstrating our commitmentand heightened focus on all aspects of theResponsible and Sustainable Business(RSB) agenda. In 2019 the Group becamea signatory to the United Nations (UN)Principles for Responsible Banking, whichis aligned with the Paris ClimateAgreement 2015. We are also a supporterof the Task Force on Climate-relatedFinancial Disclosure (TCFD).

We launched Ireland’s first FinancialWellbeing Programme, which underscoresour commitment to do more to support thehouseholds and businesses that bank withus. The Group also advanced a number ofgreen initiatives including our €1 billionSustainable Finance Fund and continuedprogress on our Low Carbon Pledge.

We have realigned our governancestructure to ensure that RSB is a key focusacross all activities within the Group. Therole of the Group Nomination andGovernance Committee (GN&GC) hasbeen expanded to oversee our RSBstrategy.

Board

We are committed to ensuring that wehave the right balance of skills andexperience within the Board, includingdiversity across all its dimensions.

During 2019 Andrew Keating steppeddown as Group Chief Financial Officer(CFO) and Executive Director of the Groupafter seven years during which hedemonstrated a successful track record offinancial leadership. He established a

strong finance function and was a keymember of the Board and Group Executiveteam that saw Bank of Ireland repay fullyall State aid, return the Group tosustainable profitability and resumedividend payments to our shareholders.We wish him well.

Myles O’Grady was announced asincoming Group CFO and ExecutiveDirector in October. Myles joined the Groupearlier in the year as Director ofCommercial Partnering and is a leadingfinance professional with 30 years’experience. He previously held senior rolesacross retail, business and investmentbanking, both in Ireland and internationally.

Eileen Fitzpatrick joined the Board in May.She brings extensive capital markets andpublic sector experience to the Group,having held a number of senior roles inboth the asset management andstockbroking industries, and more recentlywas Head of New ERA at the NationalTreasury Management Agency (NTMA).

In December, Michele Greene wasappointed to the Board, having beennominated by the Minister for Finance. Herexperience as managing director of DigitalBanking and director of StrategicDevelopment at Virgin Money will furtherenhance the Board’s experience in theareas of change and digital and technologyinnovation.

Remuneration

Staff turnover across the Group remains atreasonable levels. However, competitionfor talent in key prudential areas, such asrisk, finance and compliance, hasintensified as a consequence of thesubstantial increase in the presence ofinternational financial services

organisations in Ireland. This challenge isaccentuated by the impact of theremuneration restrictions under which theGroup and some of its competitorsoperate. We are concerned about potentialrisks that could open up in the Irishbanking sector as a result. Thisdisadvantage is most keenly felt byinvestors in Bank of Ireland, as the onlyinstitution to have repaid fully theinvestment of the Irish taxpayer at the timeof the financial crisis.

The Group’s goal is to operate aremuneration policy, including variableremuneration, consistent with EuropeanBanking Authority (EBA) guidelines. Theseguidelines have been significantlyextended to be much stricter than whatoperated in the past and enable muchbetter alignment of the interests of allstakeholders (including in the delivery ofregulatory and customer serviceobjectives), with a much clearer emphasison risk management and long-termsustainability.

Outlook

While the operating backdrop remainssubject to political and economicdevelopments, the progress delivered in2019 in terms of lending, business incomeand efficiency is a testament to ourstrategic plan. The actions we are taking inresponse to this macro-financial backdropdemonstrate the flexible and responsiveleadership by Francesca and her Executiveteam. With attractive market positions andthe ongoing commitment of colleaguesacross the Group, the Board is confidentthat Bank of Ireland remains well placed toaddress ongoing challenges and delivervalue for our shareholders.

Patrick KennedyChairman

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Chief Executive’s review

We continued to deliver on our strategicpriorities throughout 2019.

I am pleased to report that we have madegood progress in delivering on ourstrategic priorities. For the secondsuccessive year, we have grown our loanbook, expanded our Wealth and Insurancebusiness, reduced our cost1 base andlowered our non-performing exposures(NPEs). We grew our capital base during2019 and are reporting an underlying profitbefore tax of €758 million for the period.

While Brexit related uncertainties persistedthroughout 2019, the Irish economy hascontinued to expand. The economicfundamentals in our core home marketremain supportive. Irish Gross DomesticProduct (GDP) growth is expected to be5.8% in 2019 while unemployment is at alow level. The UK economy remainedresilient with moderate GDP growth andunemployment at a multi-decade low.

Strategic ambition

Our ambition is to be the NationalChampion bank in Ireland, with UK andselective international diversification. Ourstrategic priorities are to transform theBank, serve customers brilliantly and growsustainable profits.

18 months on from our Investor Day inJune 2018, we have continued to makegood progress in delivering on ourstrategy. In particular we are:• supporting home building and home

buying in Ireland;• growing our loan book while

maintaining commercial discipline onrisk and pricing;

• growing our Wealth and Insurancebusiness;

• improving efficiency and reducing ourcosts;

• benefitting from the investment intransformation of our culture, systemsand business model;

• making demonstrable progress on theexecution of our strategy in the UK toincrease returns; and

• strongly generating organic capital withan increasing dividend.

How changing environment impacts our targets

Since Investor Day, the environment inwhich we operate has changed materiallyand is more challenging. Most notably froma financial returns perspective, there hasbeen a change in interest rate expectationswith interest rates now expected to remainat the current historically low levels for anumber of years. Other factors include theprolonged period of uncertainty withrespect to Brexit, which continues toinfluence the pace of credit formation inIreland in both the mortgage and Small andMedium Enterprise (SME) markets, theheightened competitive environment in theUK mortgage market, and increasedregulatory capital requirements. Theseexternal headwinds are impacting thetimeframe for delivery of some of ourInvestor Day targets.

While we are implementing actions whichwill partly mitigate these challenges, werecognise that returns are also influencedby market conditions. We are thereforerevising our targeted return on tangibleequity (RoTE) for 2021 to c.8% (from inexcess of 10%). We continue to target areturn on tangible equity of in excess of10% over the longer term.

We are creating a leaner, simplified andmore agile organisation. The Group’srelentless focus on cost management hasseen costs reduce during each of the pastfour reporting periods. Reflecting thisstrong momentum we are lowering ourcost target by €50 million to €1.65 billion in

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Francesca McDonagh Group Chief Executive



2021. We will do this while continuing toinvest in our people and infrastructure.

Systems transformation

Our systems transformation is supportinggrowth, improving customer experienceand driving efficiencies. We are alreadyseeing the benefits of these investments. In2019, we migrated debit cards to a new,more resilient platform, and we havemodernised our payments infrastructure.We have also launched new Wealth andInsurance digital platforms, and the rolloutto customers of our new Mobile Appcommences in Q1 2020.

Systems transformation, which requires theintegration of our core systems withpayments infrastructure and real-timedigital customer interactions, is a complexprocess and must be managed carefully.The external landscape is evolving withtechnologies such as cloud andApplication Programming Interfaces (APIs)positively impacting the way retail banksmanage IT change. The business andregulatory landscapes have also evolvedsignificantly while the pace of customerdigital adoption and changing expectationshas accelerated.

Our programme has respondedappropriately and dynamically to thesedevelopments. We have invested inupgrading our legacy technology to meetnew regulations. To support the rapidacceleration in digital transactions by ourcustomers, we have invested in ourpayments infrastructure and cardtechnology, and the resilience and securityof our technology estate. We have alsoadopted a more modular approach forspecific solutions, taking advantage oflatest technologies to increase the pace ofdeployment for new digital services to ourcustomers.

While the transformation of our systemswill continue beyond 2021, we arecommitted to remaining within the guidedtransformation investment spend of €1.4billion equating to an average of 50 to 60basis points of Common equity tier 1(CET1) capital annually until 2021. Weexpect that investment in transformationbeyond 2021 will be at a lower level.

UK strategy

While it remains a challenging market, weremain committed to the UK and continueto make progress on our strategy toincrease returns by investing in, improvingand repositioning all parts of our portfolios.

We have increased our market share andgrown lending in our consumer andNorthridge businesses and launched ournew ‘Bespoke’ mortgage proposition whilemaintaining commercial discipline on riskand pricing. We are reducing our UK costbase by simplifying our business model,including the sale of our UK credit cardportfolio and exit from current accountsand unprofitable ATMs. We have alsoextended the Group’s partnership with thePost Office, further enhancing thealignment of both parties to drive benefits.

As we expect the competitive marketbackdrop to persist, the achievement ofour target returns of high single digits willnow be beyond 2021. It is a strategicimperative to improve returns in our UKbusiness.

Capital

Our capital position remains robust withstrong organic generation of capital. Theregulatory capital framework continues toevolve. In December 2019 the Bank ofEngland (BoE) announced an increase inthe UK countercyclical capital buffer(CCyB) resulting in a 30 basis pointsincrease in the Group’s regulatoryrequirements from December 2020.Reflecting this change we are increasingthe Group’s target CET1 ratio to in excessof 13.5% (from in excess of 13.0%) on aregulatory basis and on a fully loaded basisat the end of the Other SystematicallyImportant Institutions (O-SII) phase-inperiod in 2021.

Our dividend policy remains unchanged; toincrease on a prudent and progressivebasis and, over time, build towards apayout ratio of around 50% of sustainableearnings.

Financial performance

The Group generated an underlying profitbefore tax of €758 million in 2019.Underlying operating profit before netimpairment losses increased by 10%.

The Group’s loan book increased by €2.5billion during 2019 (€0.8 billion on aconstant currency basis). Net lendinggrowth of €2.0 billion and the acquisition ofa portfolio of loans, was partially offset byNPE securitisation and sale transactionsand the disposal of the Group’s UK creditcard portfolio. Total new lending volumesin 2019 were €16.5 billion, 3% higher than2018 on a constant currency basis.

Our market share in new mortgage lendingin Ireland was 24% in 2019. Strongpositive momentum in market share ofmortgage applications during the secondhalf of 2019 provides a good pipeline fornew mortgage lending in 2020. We remainthe leading corporate and business bank inIreland, with growing SME market share.We have €1 billion of facilities approved tosupport the delivery of c.9,000 new homesand 2,000 student accommodation unitsacross Ireland.

Net interest income (NII) of €2.15 billionwas in line with 2018. Net interest margin(NIM) was 2.14%, in line with ourexpectations. The Group’s NIM reflects thepositive impact from new lending marginsand our strong commercial pricingdiscipline, offset by the sale of our UKcredit card portfolio, competitive pressurein the UK mortgage market and growth inliquid assets. We expect full year 2020 NIMto be c.2.05%, primarily driven by theimpact of the low rate environment on ourstructural hedge portfolio and furthergrowth in liquid assets. 2020 NII isexpected to be broadly in line with 2019.

Fees and other income arise fromdiversified business activities includingwealth, bancassurance, foreign exchange(FX) and transactional banking fees. Thisincludes business income of €666 millionwhich, after excluding the impact of non-core income relating to UK credit cardsand ATMs, is 6% higher than for the sameperiod in 2018. Our Wealth and Insurancebusiness was a key driver of this growthwhere operating income increased by11%, annual premium equivalent (APE)new business sales were up 11%, Lifemarket share grew 2% to 22%, andpenetration of the bank customer baseincreased from 26% in 2018 to 32% in2019.

We are transforming our culture, systemsand business model, delivering efficienciesacross the Group. Operating expenses(excluding levies and regulatory charges)reduced to €1,785 million in 2019, adecrease of 4% compared to 2018. A 6%gross reduction in costs, driven bysimplifying our organisation, sourcingstrategically and improved ways ofworking, created capacity to absorb higherdepreciation and targeted investment inour people and infrastructure. Non-corecharges of €113 million include amountsrelating to our customer redressprogramme (the Tracker MortgageExamination) together with restructuringcharges related to our cost reductionprogrammes.

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Asset quality has remained strong in 2019with improvements in particular acrossloan portfolios with elevated levels ofNPEs. Our NPEs reduced by €1.5 billion to€3.5 billion, equating to an NPE ratio of4.4% of gross customer loans. Thisreduction reflects working closely withcustomers to agree sustainable solutions(€0.9 billion), and NPE securitisation andsale transactions (€0.6 billion).

A net impairment charge of €215 million in2019 compared to a net impairment gain of€42 million in 2018. This primarily reflects amore normalised level of impairments andalso losses on a small number of largeexposures during 2019. Absent adeterioration in the economic environmentor outlook, we expect the impairmentcharge to be at the upper end of a range of20 to 30 basis points per annum during2020 to 2021.

Our fully loaded CET1 capital ratio atDecember 2019 was 13.8%. The Groupgenerated 170 basis points of organiccapital in 2019. In addition, the Groupunlocked 40 basis points of capital fromthe securitisation of non-performing Irishmortgages and the sale of the UK creditcard portfolio. We continue to strategicallyoptimise, invest and allocate capital tosupport investments in loan book growth,transformation, regulatory capital demandsand distributions to our shareholders.

Our dividend policy remains unchanged. Adividend of 17.5 cent per share or €189million, a 9% increase on 2018, isproposed in respect of full year 2019.

Customers, Colleagues andCommunities

Our customers are at the heart ofeverything we do. We have been listeningand responding to their preferences bymeeting their financial requirementsthrough easy, simple and accessibleprocesses aligned to their digitalexpectations. We continued to invest in ourdigital channels, branch network andcontact centres in 2019. We launched our

new brand strategy and supported andpartnered with our customers inpreparation for Brexit with the launch of a€2 billion Brexit fund and dedicated FXfacilities.

During 2019, we introduced Ireland’s firstFinancial Wellbeing programme, designedto help customers to better understand,plan and improve their finances and inspirefinancial wellbeing in Ireland. Theprogramme includes an online FinancialWellbeing Centre, a Financial WellbeingLab, and Financial Health Checks forPersonal and Business customers. OtherFinancial Wellbeing initiatives include: • a Youth programme focused on the

delivery of financial literacy to schools,as well as third level campusesnationwide;

• a Seniors programme, with a series ofseminars and supports delivered bythe newly appointed FinancialWellbeing Coaches;

• roll out of a LifeGoals advisory serviceand a new Digital Investment self-service tool; and

• launch of a Vulnerable Customer Unit(VCU) to provide banking support tocustomers facing challengingcircumstances.

We launched our new People Strategywhich is aligned to our purpose, valuesand strategic priorities. A positive shift inculture is evident across the organisation,and engagement by colleagues hasincreased by 10% to 60% in the past twoyears. We are focused on attracting andretaining talent, ensuring the Group retainsa bench strength of skills and expertise,enabling senior management development.A key inclusion and diversity target is toachieve a 50:50 gender balance formanagement and leadership appointmentsby end 2021. For 2019, femalesrepresented 44% of all seniorappointments.

Conducting our business in a responsibleand sustainable way is fundamental toachieving our purpose of enabling ourcustomers, colleagues and communities to

thrive. In October 2019, on behalf of theGroup, I signed the UN Principles forResponsible Banking. While we recognisethere is more to do in the banking sector,these pledges are key steps in our RSBagenda and signify our commitment asIreland’s leading bank, to support theglobal drive to address climate risks andbe a responsible business partner for ourcustomers, communities and colleagues.We have also enhanced our governancestructure to provide more Board and seniormanagement ownership and oversight forour RSB agenda. During 2019 we launchedour €1 billion Sustainable Finance Fundand in doing so became the first bank inIreland to offer a ‘Green’ mortgage. Theaim of our Sustainable Finance Fund is tosupport homeowners and businessesacross Ireland on their low carbon journeythrough encouraging and rewardingenergy-efficient homes, retrofitting of olderproperties, and SME and agricultureinvestment in energy efficiency.

Sustainable returns

2019 has been a year of further growth inlending, increased business income andimproved efficiency. We have made goodprogress in the transformation of ourculture, systems and business model andin delivering on our UK strategy. We havestrongly generated organic capital andimproved the asset quality of our loanportfolios.

We are mindful of the risks, challenges anduncertainties relating to the globaleconomy, interest rates and Brexit. We aretargeting growing RoTE from 6.8% in 2019to c.8% by 2021, driven by businessgrowth and further cost reductions partiallyoffset by the impact of the lower interestrate environment. Longer term we willcontinue to target a RoTE of in excess of10%. We will continue to responsiblydevelop our profitable, long termfranchises and to serve our customersbrilliantly in a way that delivers attractive,sustainable returns to our shareholders.

8


Francesca McDonaghGroup Chief Executive


Kai Restaurant owner David Murphywith Bank of Ireland Eyre Square

business advisor Angela Maguire.


Our purpose and valuesBank of Ireland has a clearly articulatedpurpose underpinned by four key values,supporting our ambition to be the NationalChampion Bank in Ireland.

Enabling our customers,colleagues and communitiesto thrive

Bank of Ireland’s purpose is to enableour customers, colleagues andcommunities to thrive.

Customers are at the heart of ourbusiness and always come first.

Colleagues keep our organisationworking, by innovating and adaptingto meet our customers’ needs.

Communities are where we live andwork - and include groups such asour shareholders, regulators,governments and partners - at both alocal and a global level.

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Our purpose is supported by four keyvalues which guide us in everything wesay and do.

Customer focusedWe understand our customers well. Welisten to them to ensure they feel valued,and use our insights to consider howbest to serve their needs. We takeappropriate actions to deliver solutionsto meet customers' changingrequirements.

One Group, One TeamWe know we work smarter when wecome together behind our commonpurpose. We learn from each other andshare ideas to expand our thinking. Webuild an open, trusting and supportiveenvironment, and foster diversity ofthought, ideas and experiences to sparkcreativity and innovation.

AgileWe embrace change with an open mindand a can-do attitude. We respondquickly and proactively seek differentperspectives. We challenge ourselves tolook for new and simplified ways toefficiently deliver the best solutions forour customers.

AccountableWe are empowered to take ownershipand trusted to do the right thing tosupport our customers, colleagues andcommunities. We lead by example andchallenge ourselves and each other todo our best work at all times. We learnfrom our mistakes and celebrate oursuccesses together.

Our purpose Our values

To be the National Champion Bank in Ireland withUK and selective international diversification

National Champions are recognised as consumer champions, driversof economic growth with strong market shares, employers of choice,and have strong brand positions. As we work to deliver this ambition,we continue to transform the Bank of Ireland experience for ourcustomers, colleagues and communities.

Throughout 2019, we have introduced a range of measures designedto make it easier for our customers to bank with us. We have investedin our colleagues. And we have started to transform our brand,unveiling significant initiatives that - in line with our purpose - willenable our customers, colleagues and communities to thrive.

To achieve our ambition we have set three strategic priorities - totransform the bank, serve customers brilliantly, and grow sustainableprofits. Our strategy to 2021 is anchored in these goals and isunderpinned by clear financial targets.

Our ambition

Attributes of a NationalChampion Bank

Aspirationalbrand

Customer champion

Strong marketshare

Generatecapital & positivepotential returns

Focused andtransparent

business

Driver ofeconomic

growth

Employerof choice



At our Investor Day in June2018, we set out our strategicplan to 2021. Our three strategicpriorities are transforming theBank, serving customersbrilliantly and growingsustainable profits.

We are now midway through delivery of ourstrategy and over the past 18 months, we havemade good progress. The key highlights for 2019are set out on the following pages.

However, we recognise that our operatingenvironment has changed since we set out ourstrategic plan. We are experiencing increasingchallenges from external factors includinglower for longer interest rates, ongoing Brexituncertainty, intense competition and theevolving regulatory and politicalenvironment.

Notwithstanding these headwinds, theeconomic fundamentals underpinningour strategic plan remain supportiveand we have clear plans in place todeliver further progress againsteach of our three strategicpriorities.

Our strategyTo transform the Bank, to servecustomers brilliantly and to growsustainable profits.

Our ambition

Our purpose

Our values

StrategicprioritiesTransform

the BankServe customers

brilliantlyGrow sustainable

profits

Customerfocused

OneGroup,

One TeamAgile Accountable

Enabling our customers,colleagues and

communities to thrive

National Champion

Bank in Ireland; UK &

selective international

diversification

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Our strategyTransform the Bank

We are transforming our culture, systems andbusiness model to enable our customers,colleagues and communities to thrive.

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Culture

We are on a multi-yearculture transformationjourney. Strengthening ourculture will contribute topositive customer outcomes,long-term customerrelationships, growth insustainable revenue andimproved staff engagementand talent acquisition.

Target outcomes• Improved customer centricity.• Best-in-class employee engagement.• All management and leadership appointments to represent a 50:50 gender ratio

by end 2021.

2019 highlights• We continued to embed a customer focused culture throughout the Group with

the establishment of an executive Culture Steering Committee and ongoingparticipation in the Irish Banking Culture Board.

• Our colleague engagement score at 60% continues to improve, up 10% since westarted measuring two years ago.

• The Group’s Culture Embedding Index, which measures the awareness,understanding, belief and demonstration of our purpose and values was 66% inOctober 2019, up 11% from the previous survey in 2018.

• In 2019, the Group’s gender ratio of management and leadership appointmentswas 56:44 male / female. We are further investing in dedicated programmes tobuild gender balanced talent and accelerate future female leaders.

• We held our inaugural Group Recognition Awards in March 2019 acknowledgingexemplary colleague behaviour aligned to our purpose and values.

• The Group won the inaugural Diversity and Inclusion Award at the 2019 Business& Finance Awards.


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Systems

We are making a significantinvestment to transform ourtechnology. This investment iscritical to support ourbusiness growth, as well asimproving efficiency andenhancing service to ourcustomers.

Target outcomes• Improved customer experience.• Simplification of products and processes.• Excellence in digitisation and robotics.• Transforming our technology.

2019 highlights• Our new Mobile App went live with a colleague pilot underway.• Completed the largest customer migration in the Group’s history with over two

million customers transferred to a new more resilient IT platform for debit cardand ATM transactions.

• We launched our Digital Investment Platform and Insurance Wallet.• Harnessing robotics, we increased the degree of automation of over 100

business processes, improving customer experience and reducing operationalrisk and costs.

• Continued investment in the development of key customer data and securityplatforms, enhancing data management, meeting regulatory requirements andreducing operational risk.

Business model

We are committed tooptimising our business modeland ensuring our organisationis efficient and effective. Weare simplifying our structures,making our teams moreeffective and improving ourmanagement of third-partyproviders. This will help us tobecome leaner, more agileand ever closer to ourcustomers.

Target outcomes• A more simplified and customer centric organisation.• Effective and sustainable sourcing arrangements.

2019 highlights• Significant progress made in simplifying our organisational structure to create a

leaner more agile business that is closer to our customers, with our end statestructure now 97% complete.

• We achieved a €11 million1 or 2% reduction in staff costs from 2018, whilecontinuing to invest in our customer facing businesses and building internalcapability in key areas such as IT change delivery and analytics.

• We have successfully rolled out flexible ways of working across the Group, with3,500 colleagues now working in agile workspaces, facilitating a 27% reductionin the office space occupied over the last two years, including the exit of twoDublin city centre properties in 2019.

• We have simplified the process for first time buyer mortgages improvingcustomer experience by accepting over 70% of documents in digital form (upfrom 40% previously).



Our strategyServe customers brilliantly

We are committed to building a customer focused organisation thatinvests in improving service and digital capabilities, while also gettingthe basics right. We listen to customers and respond to their feedback.We are investing in our brand to help our customers know what westand for and how we bring value into their lives.

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Embedding voice of customer in our businesses

Customers are the heart of ourbusiness. The way customersbank and the products andservices which they expect arechanging and evolving fasterthan ever. We are committed tosupporting our customers’needs and financial wellbeingby offering customer centricpropositions and services toenable our customers to thrive.

Target outcomes• Significant improvement in customer satisfaction and advocacy.• Serving customers during their key life moments.• Customer centricity at the heart of our culture.

2019 highlights• Our customer effort score, which measures ease of service experience, continues

to improve at +49, up from +36 at the start of 2019.• We introduced Ireland’s first Financial Wellbeing programme to help customers

improve their financial literacy, capability and confidence, offering youth, seniors,vulnerable customers and business customers financial wellbeing supports.

• We are supporting and partnering with customers in preparation for Brexit whichincludes a €2 billion Brexit fund, enhanced FX facilities and hosting Brexit briefingsacross Ireland with c.1,400 customers attending.

• We launched a Treasury Academy in partnership with Trinity Business Schoolwhich was attended by more than 120 businesses in 2019.

• Our Brilliant Basics initiative is putting customers’ needs at the heart of planningand decision making, with over 5,000 suggestions received since its launch in2018 and c.50% which have the broadest customer impact actioned to date.

• In the Republic of Ireland (RoI) customer complaints fell by 29% from 2018,reflecting ongoing investment in improved customer service.

John Finn and Bank of IrelandOranmore branch manager

Helen Keane at John’s dairyfarm in Oranmore, Co Galway.


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Investing in digital and physical channels

We are investing in allchannels to improve customerexperience and service. Weare re-designing and digitisinghigh-priority journeys,upgrading service in ourbranches and contact centres,reallocating colleagues tocustomer facing roles andupgrading advisory servicethrough colleague training anddevelopment.

Target outcomes• Great customer experience and increased digitally enabled customer journeys.• Build the API foundation for Open Banking.

2019 highlights• Our transactional customer experience score combined across all channels has

increased by 40% in 2019.• We continued to improve our customer experience with an investment of €20

million in our branch network in 2019, optimised resourcing in our contact centresand enabled customer improvements in our digital channels with over six milliondigital form users, up 40% from 2018.

• Over 60% of personal loan applications are now made via mobile phone.• Over one million customer logins have been recorded to our new digital

application tracker which facilitates real-time order tracking, initially for personalloans customers.

• Our new digital personal current account page speed is now three times faster formobile users.

• We launched our new Life Advice digital investment tool enabling customers toimprove their Financial Wellbeing and plan for the future with 900 customersregistered since its launch in December 2019.

• We have expanded our Open Banking APIs enabling us to innovate and serve ourcustomers in new ways.

New brand strategy

We have identified our brandpurpose and drivers, puttingthe customer at the heart ofeverything we do. We arerepositioning our brand to bringour purpose to life in a way thatdifferentiates us and offers realvalue to our customers,colleagues and communities.This new positioning will bringall constituent parts of thebusiness together and will bereflected in new advertising andsponsorship assets. Ourcreative brand position willsustain us over the next threeto five years.

Target outcomes• Number one Bank brand in Ireland.

2019 highlights• We launched our new brand strategy ‘Begin’ in early 2019 and awareness of

Bank of Ireland communications grew significantly over the year.• In November 2019, we re-certified to the Business Working Responsibly Mark; an

independently audited standard for sustainability in Ireland.• We launched a Sustainable Finance Fund, which offers €1 billion in Green Loans

at reduced rates for energy-efficient properties.• The Group signed the UN Principles for Responsible Banking in October 2019.• We continued to support all of our communities, through sponsoring all four

provincial rugby teams and the Emerald Warriors, Ireland’s leading LGBT+ rugbyclub.

• During Bank of Ireland’s 2019 National Enterprise Week, the Group hosted anational programme of 26 events attended by over 1,600 small business andagriculture customers.

• Bank of Ireland sponsored the National Enterprise Town Awards (NETA) for thefourth year running, with 117 entries and 80 towns competing.


Our strategyGrow sustainable profits

We are focused on delivering sustainable returns for our shareholders. This isbased on business growth in our key markets to expand lending, grow feeincome and increase revenue sustainability. At the same time, we are reducingour costs each year as we drive efficiency and streamline our business. OurUK business is being reshaped to increase returns and reduce costs.

16


Business growth

Creating growth in our Irishbusiness will increase lendingvolumes, interest income andfee income. We are allocatingcapital and resources tobecome the leading supporterof home building and homebuying in Ireland, and to growour wealth management andinsurance business. As Ireland’sleading retail and commercialbank and the only bancassurerin the market, we are buildingon our strengths, supported bystrong fundamentals - inparticular the demand forhousing and supportivedemographic changes as calledout in Ireland 2040, the NationalPlanning Framework.

Target outcomes• To become the National Champion Bank in Ireland with UK and selective

international diversification.• To be the leading supporter of home building and home buying in Ireland.• Building our Wealth and Insurance business.• Measured and commercially disciplined loan book growth.

2019 highlights• Underlying1 profit before tax of €758 million.• Net lending growth of €2 billion with gross new lending volumes of €16.5 billion, 3%

higher than 2018.• Market share in new mortgage lending in Ireland of 24%.• We have €1 billion of facilities approved to support the delivery of c.9,000 new

homes and 2,000 student accomodation units across Ireland.• We grew our market share of lending to SMEs with strong performances in

Manufacturing, Agriculture, Retail Convenience and Healthcare.• Ireland’s number one Corporate Bank with net lending growth of €1 billion.• We have leveraged our position as Ireland’s only bancassurer increasing the

penetration of Wealth and Insurance products to our banking customer base to 32%and growth in operating income of 11% in 2019.

• Organic capital generation of 170 basis points, enabling investment in loan bookgrowth, transformation and dividends.

• Continued reduction in NPEs to 4.4% of gross loans - the first Irish bank to getbelow 5%.



17



Continued cost reduction

We expect our costs toreduce every year betweennow and 2021, delivering atotal cost base of €1.65billion.

Target outcomes• Reduction of costs from €1.9 billion in 2017 to €1.65 billion in 2021.• Reduction in costs every year to 2021.• Underlying cost income ratio of c.50% over longer timeframe.

2019 highlights• Sustained momentum on journey to become a more efficient organisation, with year

on year cost reduction of 4% or €67 million (before levies and regulatory charges).• Total costs of €1,785 million in 2019, down from €1,900 million in 2017. Gross cost

savings of c.€215 million achieved by simplifying the organisation, strategicsourcing and improved ways of working have created capacity for c.€100 million toabsorb higher depreciation and targeted investment, over the same period, intransformation and our people.

• Underlying cost income ratio reduced by 2% versus prior year.• Announced a more ambitious cost target for 2021 cost base of €1.65 billion, down

from prior target of c.€1.7 billion.

Reshaping the UK business

We are committed to the UKmarket where our focus is onincreasing returns. We areinvesting in businesses thatare generating profitablereturns, improving returns inbusinesses with potential andrepositioning other businessesincluding exit from the creditcard business and wind downof legacy branch assets.

Target outcomes• Improving returns.• Lower cost of funding, acquisition and servicing.• New propositions targeting under-served customer segments.• Reviewing those portfolios and products where returns are below expectations.

2019 highlights• We extended our longer-term financial services partnership with the UK Post

Office.• Reduced UK costs by £64 million from 2018, improving UK cost income ratio from

65% to 60%.• Disposed of UK credit card portfolio in July 2019 and optimised the ATM estate.• Launched new higher margin bespoke mortgage products, with drawdowns of

£225 million during the year.• Northridge new business lending exceeded £1.3 billion (+26% on 2018), primarily

reflecting increased sales across its established intermediary distributioncombined with new relationships during the year.

• The Group’s inaugural UK wholesale funding transaction raised £350 million inlong-term secured term funding.


Bank of Ireland Group is one of the largest financial services groups in Ireland, withtotal assets of €132 billion at 31 December 2019. We provide a broad range ofbanking and other financial services. We are organised into four trading segmentsand one support division to effectively serve our customers.

18


Retail IrelandServing consumer and SME customers across abroad range of segments and sectors. Deliveringfinancial products, services and propositionstailored to meet their needs through branch, phoneand digital banking channels. Operating as one ofIreland’s largest lenders with €5.8 billion lent to theIrish economy in 2019.

Wealth and InsuranceA leading provider of life, pensions, generalinsurance, investment and savings products in theIrish market. The Group is the only bancassurer inIreland operating through New Ireland with itshistory of over 100 years and encompasses PrivateBanking and Bank of Ireland Insurance Services.

Retail UKDistributes consumer products via own brand andpartnerships with trusted brands (Post Office andthe Automobile Association (AA)) and operates auniversal bank in Northern Ireland (NI) as well asstrong niche businesses in attractive segments,which include asset finance under the NorthridgeFinance and Marshall Leasing Limited (MLL) brandsand FX via First Rate Exchange Services Limited(FRES).

Corporate & TreasuryIreland’s number one Corporate Bank1 and leadingtreasury service provider incorporates the Group’scorporate banking, wholesale financial markets,specialised acquisition finance and large-transaction property lending business across theRoI, UK and internationally with offices in the UnitedStates (US), Germany, France and Spain. Holdsmarket leading positions in chosen sectors,including corporate banking, commercial realestate, foreign direct investment and treasury.

Group CentreGroup Centre comprises the Group’s central controlfunctions, which establish governance and overseepolicies, and provide and manage processes anddelivery platforms for the trading divisions.

Divisional reviewOur business model

Further information in relation to our divisionalresults which are prepared on an underlying basisis found in the Financial Review on pages 41 to 57.

1 Based on corporate lending information sourced from publicly available annual reports for 2018 for all Irish banks, Bank of Ireland analysis of its banking relationships with companiesfrom the 2019 Irish Times Top 500 companies list and Bank of Ireland analysis of its banking relationships with companies on the published listing of international companies settingup operations in RoI 2019.


19



Transform the Bank

• Digital personal current accountapplication via mobile launched.Average time to submit is six minuteswith account details received same day.

• Launch of digital car loan applicationsintegrated within car sales websites.

• Digital applications for loans and creditcards grew by 20% in 2019. Customerscan digitally track the progress of theirapplication in real time.

• Improved customer experience,reduced risk and increased efficiencythrough robotics automation ofapproximately eight million commoncustomer tasks - (up 40% on 2018).

• Mobile devices continue to be thedigital channel of preference, with>75% of all visits now happening thisway.

• A further 58 branches refurbished aspart of our Branch Investmentprogramme in 2019.

• On-boarding of mortgage brokersaccelerated during 2019. Furtherexpansion of the channel is planned for2020.

Serve customers brilliantly

• Improved customer service experience,through our Brilliant Basicsprogramme, where frontline colleaguesidentify continuous improvementinitiatives.

• As a result, our Customer Effort Score(measuring service experience acrosschannels) is up from +36 to +49 andwe have seen a 29% decrease incomplaints in 2019.

• Launched Ireland’s first FinancialWellbeing programme. Over 100,000visits to the online Financial WellbeingCentre to date.

• Expanded our Youth Financial LiteracyProgramme, making it available to over500 secondary and 3,000 primaryschools.

• Market leading, customer-centric LifeGoals financial planning tool launched.

• Established a Vulnerable Customer Unit,supporting advocacy groups andfrontline colleagues to meet the needsof vulnerable customers.

• Enhanced Bereavement Supportjourney, with a ‘tell us once’ approachand online access to advice, forms anda document upload facility.

Grow sustainable profits

• Underlying profit before tax of €468million in 2019 is 28% lower than 2018,primarily due to a higher impairmentcharge in 2019.

• Both net interest income of €990million and net other income of €268million are broadly in line with 2018.

• Operating expenses of €745 million are4% lower than 2018 due to continuedemphasis on cost reductions.

• Net impairment losses of €50 millionare €207 million higher than 2018which reflects the combination ofupdated impairment model parameters(including updated forward lookinginformation and refreshed cure rates)and the impact of the disposal /securitisation of non-performingportfolios in the year.

• Loans and advances to customers(after impairment loss allowances) at31 December 2019 of €33.8 billionwere €0.9 billion lower than 2018. Thisdecrease includes the derecognition of€0.6 billion following the securitisationand sale of a portfolio of non-performing Irish mortgages, offset byan acquisition of a €0.2 billion portfolioof commercial loans in 2019. The paceof redemptions exceeded that oflending growth in 2019 resulting in anet lending decrease of €0.3 billion.

• Customer deposits of €51.9 billion at 31December 2019 were €4.2 billion higherthan 2018 primarily due to increases incurrent account credit balances on theback of a strong economy.

Divisional reviewRetail Ireland

Retail Ireland serves consumer and businesscustomers across a broad range of segmentsand sectors with financial products, servicesand propositions tailored to meet their needs.

€468mUnderlying profit before tax

€5.8bnGross new lending

€31mReduction in operating costs Mary Carrick at Mary’s Fish

Shop in Ballybrit, Co Galway.

Further information in relation to our divisionalresults which are prepared on an underlyingbasis is found in the Financial Review onpage 52.

Further information on measures referred to inour business segments is found in Alternativeperformance measures on page 331.

(€263m)Net new lending


Transform the Bank

• Ongoing investment to digitise Wealthand Insurance platforms, delivering amodern and successful business whichis accessible through multiple media.

• Continued roll out of Ireland’s first lifeassurance digital advice platform.

• Development of the digital insurancewallet allowing customers to managetheir general insurance needs in oneplace.

• First phase of broker onlineconnectivity rolled out enabling digitalconnection with brokers for keyproducts.


• Improved customer offerings across arange of products including criticalillness and savings options.

• Enhanced customer journeys with thedigital advice platform allowingcustomers to receive regulatedfinancial advice and providingcustomer self-service capabilities.

• The online broker connectivity solutionallows brokers to pre-populate NewIreland online application forms for newand existing business using thebrokers own client data.


• Underlying profit before tax was €169million in 2019 (2018: €67 million). Theincrease year on year reflects strongoverall business performance alliedwith the positive performance ofinvestment markets in 2019.

• APE new business sales in the Lifebusiness was €345 million in 2019, anincrease of €44 million, 14% up on2018. All sales channels recorded yearon year sales growth with bankchannel sales 29% higher than 2018driven by strong life investment salesand an increased customer penetrationrate of 32%.

• APE new business sales consisted of€158 million of new single premiumbusiness and €187 million of newregular premium business with stronggrowth in particular across pensionbusiness.

• Operating profit of €134 million for theyear-ended 31 December 2019 was€20 million or 18% higher than 2018.

• Operating income of €269 million in2019 was €28 million higher than 2018mainly reflecting strong overallbusiness performance and the benefitof assumption changes.

• Operating expenses of €135 million in2019 were €8 million higher than 2018.

• Unit-linked fund prices increased by12.6% in aggregate during 2019,heavily driven by growth in globalequity markets. The positive variancerelative to assumed growth led to apositive investment return of €30million (2018: adverse investmentvariance of €27 million).

• Interest rates at 31 December 2019were lower than those at the end of2018 while the spread on corporatebonds also narrowed. The overallimpact of the change in yields resultedin a €5 million gain in 2019 (2018: €20million loss).

Wealth and Insurance is a long established,market leading, life and pension and generalinsurance provider in Ireland. The Group is theonly bancassurer in the Irish market.

Divisional reviewWealth and Insurance


22%Market share

20




€345m / +14%Life & pensions new business APE


21



Divisional reviewRetail UK

Transform the Bank

In transforming the Bank, Retail UK isfocused on increasing returns by investing,improving and repositioning its efforts.

Investing in:• Enhanced digital offering across

product lines including improvedpayment functionality.

• Strategic IT capability to deliverenhanced customer propositions suchas online mortgage product switching.

• Enhanced distribution of personallending in NI.

Improving:• The Post Office partnership contract

has now been extended. • Cost of funds effectively managed by

optimising funding mix andmanagement of deposit pricing.

• Focus on cost reduction, whilstinvesting in strategic initiatives,technology and regulatory compliance.

Repositioning:• Sale of UK credit card portfolio

completed and migration is underway.• Optimising the ATM estate. • Continued deleverage of legacy

portfolios.


• Progressing enhanced mortgagestrategy and new bespoke productsdeveloped for the professionalsegment.

• Increased NI branch staff and openinghours to meet customer demand.

• Increased focus on complaintmanagement and resolution withcomplaints per 1,000 reducing from1.73 to 1.10 over the course of 2019.

• Also established a dedicatedbereavement team.


• Underlying profit before tax of £152million in 2019 (2018: £161 million)which excludes the performance of theconsumer credit card and ATMportfolios which are treated as non-core activities in 2019.

• Net interest income of £494 million hasdecreased by £33 million. Excludingthe impact of credit cards in 2018 (£25million), which is classified as non-corein 2019, net interest income decreasedby £8 million. This was primarily due tocompetitive pressures in the mortgagemarket, partially offset by growth in theasset finance and personal lendingvolumes.

• Operating expenses of £288 million are£64 million lower, primarily as a resultof repositioning the credit card and

ATM portfolios as non-core in 2019and the remainder is due to continuedfocus on cost management.

• Impairment losses of £71 million haveincreased by £5 million compared to2018, primarily due to new lendinggrowth in consumer lending.

• Loans and advances to customers(after impairment loss allowances) of£24.8 billion were £0.4 billion higherthan 31 December 2018. This reflectsan overall increase in net consumerlending of £1.3 billion, which includesNorthridge, personal lending andmortgages offset by the disposal of thecredit card portfolio (£0.6 billion) andnet repayments in commercial lending(£0.3 billion).

• Customer deposits of £19.1 billion at31 December 2019 were £0.7 billionlower than 31 December 2018.

• In June 2019, £350 million of termfunding was raised through asuccessful securitisation of prime UKresidential mortgage loans.

Retail UK provides consumer banking in Great Britain (GB) anduniversal banking in Northern Ireland. Retail UK incorporatesNorthridge Finance, the financial services partnerships with theUK Post Office, the AA and our FX joint venture (FRES).

£152mUnderlying profit before tax

£64mReduction in operating costs

£5.9bnGross new lending



£442mNet new lending


22


Divisional reviewCorporate and Treasury

Corporate and Treasury is Ireland’snumber one Corporate Bank andleading treasury service provider.

Transform the Bank

• Increased adoption of dedicated FXdigital platform with number ofcustomers using FXPay up 32% andnumber of transactions up 33% acrossall customer segments in 2019.

• Successfully concluded two CreditRisk Transfer (CRT) transactionsreducing credit risk exposure through arisk sharing structure whereby theinvestors assume the credit risk forpotential credit losses on certain loans.

• Supported the Group in reducing itsNPE ratio below 5%, by concludingtwo transactions involving loanspredominantly secured on buy to let(BTL) investment properties.


• Retained its position as Ireland’s #1Corporate Bank.

• Maintained its position as a leadingdomestic lender to Irish real estatemarket and is supporting the Group’sposition as a National Champion inhouse building.

• Allocated €1.5 billion for developmentlending - commercial and residential.This includes €800 million that willdeliver 7,100 new homes and 2,000student accommodation units in RoI.

• Completed the first Irish Public PrivatePartnership for Social Housing whichfacilitated the building of 534 housingunits in the Greater Dublin region.

• Continued to selectively expand ourcustomer offering e.g. subscriptionfinance in the UK, selective re-entryinto the US property market and a newmezzanine finance offering.

• Acquisition Finance opened an office inMadrid to support its private equityrelationships who transact in theSpanish market.

• Continued to support customersagainst the backdrop of uncertainmarket conditions which includedextensive Brexit communications.

• Unsecured FX facility for customersimpacted by Brexit and to supportbusinesses trading internationallyincreased to €50 million (2018: €20million).

• Continued investment in customerproposition and experienceimprovements, including simplifyingaccount opening and documentation,as well as enhancing the ability forcustomers to ‘self-serve’.

• Launch of Bank of Ireland’s FinancialWellbeing programme for businesseswith initiatives such as the Bank ofIreland Treasury Academy inpartnership with Trinity BusinessSchool.


• Underlying profit before tax of €455million in 2019, a decrease of €31million compared to 2018.

• Business net interest and other incomeof €758 million is €52 million higherthan 2018, predominantly driven byincreased lending activity.

• Financial instruments valuationadjustments are a charge of €27 millionin 2019, a decrease of €34 million. The2019 result is due to less favourablemarket moves on derivative valuationswhen compared to 2018.

• Net impairment losses on financialinstruments of €82 million is €41 millionhigher than 2018 and reflects losses ona small number of large exposures.

• Loans and advances to customers at31 December 2019 of €16.4 billion are€1.4 billion higher than 31 December2018, of which net lending was €1billion, with €0.2 billion of acquisitionsand intra group transfers and €0.2billion FX related.

• The euro liquid asset bond portfolio of€14 billion at 31 December 2019 hasdecreased by €0.6 billion compared to31 December 2018.


€4.0bnGross new lending

€16.4bnLoans & advances to customers



€1.0bnNet new lending


23



Divisional reviewGroup Centre


• Group Centre’s income and costscomprise income from capital andother management activities,unallocated Group support costs andthe costs associated with the IrishBank Levy along with contributions tothe Single Resolution Fund (SRF) andthe Deposit Guarantee Scheme (DGS)and other industry levies.

• Negative operating income of €5million in 2019, represents a decreaseof €29 million from 2018. This variancewas primarily due to a gain on disposalof National Asset Management Agency(NAMA) subordinated debt in 2018,which did not reoccur in 2019 andinterest expense on leases arising fromthe adoption of International FinancialReporting Standards (IFRS) 16 in2019.

• Operating expenses (beforeTransformation Investment and leviesand regulatory charges) of €281 millionin 2019 were €27 million higher than2018. The increase is reflective ofincreased investment costs in strategicinitiatives, including higheramortisation charges arising fromtechnology and infrastructure,restructuring and further consolidationof business activities, along with costsassociated with compliance andmeeting regulatory expectations.

• Our transformation programmecontinues to make good progress anda further €263 million was invested inthis programme during 2019, of which€100 million is capitalised on thebalance sheet (31 December 2018:€100 million), with an incomestatement charge of €108 million

(2018: €113 million) and €55 millionrecognised through non-core items(2018: €93 million).

• Total Transformation Investment costsrecognised through non-core itemswere €55 million for the Group, ofwhich €54 million was recognisedthrough Group Centre. €30 millionreflects a reduction in employeenumbers, €21 million relates toprogramme management costs andother costs were €3 million.

• Group Centre levies and regulatorycharges were €111 million in 2019, €14 million higher than 2018.

Group Centre comprises Group Technology and Customer Solutions,Group Finance, Group Risk, Group Marketing, People Services andGroup Internal Audit (GIA). These central functions establishgovernance and oversee policies, and provide and manage processesand delivery platforms for the trading divisions.



Responsible and sustainable business

At Bank of Ireland, behaving in a responsible and sustainable way isfundamental to achieving our purpose of enabling our customers,colleagues and communities to thrive. We are committed to addressing thekey challenges facing society today and became a signatory to the UNPrinciples for Responsible Banking in 2019. These principles help align thebanking sector with the objectives of the UN Sustainable DevelopmentGoals and the 2015 Paris Climate Agreement.

Board with oversight for the Group’sCorporate Responsibility Programme aswell as nomination and corporategovernance matters, now oversees theGroup’s RSB framework and strategy onbehalf of the Board. The Committee, whichhas been renamed the Group Nomination,Governance and Responsible BusinessCommittee (NGRB) to reflect its enhancedrole, is chaired by our Chairman PatrickKennedy. At Senior Executive level, theGroup Executive Committee (GEC) hasoverarching responsibility for the Group’sRSB strategy. Specific RSB responsibilityhas been delegated to the Chief StrategyOfficer and our approach to RSB will befully integrated into our overall strategy.

In support of this, we have created aResponsible and Sustainable BusinessForum (RSBF), chaired by the ChiefStrategy Officer. The RSBF, which consistsof senior business and functionalExecutives from across the Group, enablesus to have a coordinated approach tooversight, delivery and reporting of theGroup’s RSB strategy to GEC. The RSBFis supported by the Group’s dedicatedRSB team.

During 2020, we will focus on integratingRSB throughout the Group in a way thatsupports our customers’ low carbonjourneys, builds our resilience as a pillarbank and contributes to the overallsustainability of the financial servicessector and the markets in which weoperate. We will proactively engage withour stakeholders, through our materialityand impact assessments, to understandtheir perspectives and our impacts (bothpositive and negative) on society, theenvironment and the economy. We will usethis insight to further develop our approachin this area, including setting goals andtargets.

Governance We have enhanced our governancestructure to provide more Board focusedoversight and responsibility for our RSBagenda. The GN&GC, a committee of the

Signing the UN Principles for ResponsibleBanking is a key step in our Responsibleand Sustainable Business (RSB) journey.This, along with becoming a supporter ofthe TCFD signifies our commitment to bepart of the global drive to address climaterisks and be a responsible businesspartner for our customers, communitiesand colleagues. Over the course of 2019,we have made considerable progressagainst our RSB agenda includinglaunching our new customer strategy toenhance the Financial Wellbeing of peoplein Ireland, launching our new PeopleStrategy for our colleagues, and refocusingour community activities into the newlylaunched Bank of Ireland Begin Togetherprogramme. We also became the first bankin Ireland to introduce a Green Mortgagethrough our €1 billion Sustainable FinanceFund and from 1 January 2020, 100% ofour Irish electricity is now supplied fromrenewable sources.

Business WorkingResponsibly MarkBank of Ireland was re-certified to theBusiness Working Responsibly Mark inNovember 2019. The Bank was firstcertified to the Mark, an independentlyaudited standard for corporate socialresponsibility and sustainability, in 2016 forits RoI operations. The scope of theaccreditation was extended across allGroup operations in 2019.


24

Francesca McDonagh, Group Chief Executive with Geraldine Byrne Nason, Ireland’s Ambassador to the United Nations


25



Responsible and sustainable businessBusiness ethics

Living our values enables us to provide the bestpossible service and holds us accountable, whiledelivering new solutions to benefit our customers,colleagues and communities. We are committedto conducting ourselves to the highest standards,managing our risks appropriately and sourcing ina responsible way.

How we conduct ourselves Our Code of Conduct (the ‘Code’) outlinesthe high standards we set ourselves forwhat we say and do in our relationshipswith customers, colleagues and thecommunities in which we do business. Allcolleagues must adhere to the Code whendealing with others and in personalfinancial dealings.

The Code also includes details of whataction colleagues can take if they haveconcerns about behaviours and practicesthat are in conflict with our culture andvalues. The Group is focused on ensuringan environment exists, which embracesconstructive challenge and wherecolleagues are empowered to speak upwithout fear of any adverse impact. TheGroup Speak-Up policy sets out thestandards and obligations in support ofcolleagues who are highlighting concernsof potential wrongdoing. All colleagues

complete annual mandatory training onboth the Code and Speak Up policy.

Financial crime compliance Protecting the financial system fromfinancial crime risks including moneylaundering, terrorist financing, and briberyand corruption is of intrinsic importance tothe Group. Colleagues complete annualmandatory training and assessment inrelation to key areas.

Anti-Bribery and Corruption The Group’s Anti-Bribery and Corruptionpolicy sets out the minimum standardsregarding actions to be taken to identifyand manage bribery and corruption risks,and roles and responsibilities arestructured under a three lines of defencemodel.

Anti-Money Laundering,Countering the Financing ofTerrorism, and FinancialSanctions Our policies in these areas set out thestandards needed to ensure the Groupmeets its legislative and regulatoryrequirements relating to these key risks.

Human trafficking The monitoring and investigations teamwithin our Financial Crime Compliance(FCC) unit have developed a suite oftypologies aimed at identifying possibleactivity linked to human trafficking. FCCalso provided enhanced training to ourAnti-Money Laundering (AML) investigatorson this subject, as well as to frontlineteams.

FCC has also engaged with the anti-human trafficking non-governmentalorganisation (NGO) ‘Stop the Traffik’ toprovide Board and senior managementtraining on the scale and proximity of theissue.

In accordance with relevant UK legislation,we published our statement on ModernSlavery and Human Trafficking for 2018and will publish our 2019 statement in duecourse. This applies to the Group and setsout the steps and measures we have takento seek to ensure that modern slavery andhuman trafficking does not occur withinour supply chain or in our businessoperations.

Sourcing responsibly We recognise the opportunity to influencethe integration of responsible business intoour supply chain. In 2019, we published aCode of Supplier Responsibility that setsout what we expect from our suppliers.It sets out the key social, ethical andenvironmental standards that we want oursuppliers to achieve and is supported byour procurement processes and ongoingdue diligence. These assess supplierbehaviours and capabilities across a rangeof sustainable business measures. Oursourcing processes prioritise minimisingthe lifecycle cost for the majority ofpurchases.


Responsible and sustainable businessSupporting the low-carbon economy

We are committed to supporting a successfultransition to a low carbon, climate resilient economy.We will do this by enabling customers to take action,managing climate-related risks and reducing theGroup’s own environmental footprint.

Sustainable Finance Fund To support our customers’ transition to thelow-carbon economy, we launched theSustainable Finance Fund (the ‘Fund’) inJuly 2019 and in doing so became the firstbank in Ireland to introduce a greenmortgage interest rate. The €1 billion Fundsupports our customers on their lowcarbon journey by encouraging andrewarding investment in energy-efficienthomes, older properties, and SME and agriinvestment in energy efficiency.

Initiatives associated with the Fund includea green interest rate discount for borrowersbuying or building energy efficient homes,and a green home improvement loan forenergy-efficiency retrofits for olderproperties. We have also introduced

reduced interest rates for investment inenergy-saving improvements forbusinesses.

This Fund supports the Government’sClimate Action Plan and Ireland’scommitment to the UN SustainableDevelopment Goals. To date there hasbeen strong customer demand for ourSustainable Finance Fund products andpropositions.

Funding Renewable Energy

The Group continues to be a leadingfinancier of the renewable energy sector. Todate we have provided finance forc.720MW of on-shore Irish wind farmsproviding the equivalent of 468,000 homes

with renewable generated electricity.We are also monitoring other forms ofrenewable technology, e.g. solar and off-shore wind, and await the introduction of anew government support scheme toenable lending into these sub sectors.

Climate Risk

We recognise that climate change presentsboth risks and opportunities to ourbusiness model and strategy. We see theseemerging through two key channels:physical (e.g. increased severity /frequency of extreme weather events), andtransitional (e.g. changes in how cars arepowered and the retrofitting requirementfor housing stock). We are integratingclimate risk into our risk frameworks and

26


€1bnSustainable finance fund

40%Reduction in carbon emissions intensity

468kHomes (equivalent of renewable electricity funded)


policies, not as a separate risk category,but as a transverse risk that impactsthrough existing risk channels such ascredit and operational risk. As such it isbeing integrated to leverage existing riskmanagement governance frameworks,policies and processes.

In line with the recommendations of theTCFD, during 2020 the Group will identifyactivities and assets exposed to climate-related risks and measure possiblefinancial risk impacts. As part of a UNsponsored initiative, we are alsocontributing to the development of amethodology, which will enable financialinstitutions to better understand theclimate change risks of their activities. Thisimpact assessment and associatedmateriality exercise together with forward-looking scenario analysis will inform ourbusiness planning and associated riskmanagement strategies. The Group alsoplans to:• assess its exposure to carbon-

intensive assets or assets susceptibleto physical risks;

• continue to strengthen its operationalresilience and that of materialsuppliers, and reduce its own climatechange impacts; and

• update our risk managementframeworks and policies to incorporateprocesses for the identification,assessment and mitigation of climaterisks.

An initial set of metrics for climate-relatedrisks are in development to support thesetting of relevant targets and limits totrack progress against our strategy and toallow for related disclosure.

Our own environmental impact

In May 2018, we signed up to the LowCarbon Pledge to reduce our carbonemissions intensity (scope 1 and 2) by50% by 2030. This pledge is part of TheLeaders’ Group on Sustainability, abusiness coalition, convened by Businessin the Community Ireland (BITCI).

To date we have achieved a 40% reductionin carbon emissions intensity (on a 2011baseline), using m2 as intensity metric (inabsolute terms we have achieved a 50%carbon emissions reduction).

In support of our commitment to reducecarbon emissions and the impact that wehave on the environment, we havecontinued to implement energy efficientand other environmental initiativesthroughout 2019, which include:

• re-certification and transition to theISO 14001 and ISO 50001 2018standard;

• installation of a highly-efficient airconditioning system in a number of ourlarge administration buildings;

• power down of redundant ITequipment in our data centres;

• upgrade of traditional lighting with LEDlighting across a number of retail andadministration sites;

• installation of 16 electric vehiclecharging points at six of ouradministration sites; and

• introduction of Keep Cups towards theend of 2018, which has resulted in a59% reduction in disposable cups.

To further support the transition to a low-carbon economy, 100% of our RoI and NIelectricity is supplied from renewablesources as of 1 January 2020.

Reducing travel and enabling colleague wellbeing

Heather Kane is the Divisional Optimisation Lead for Retail UK. Based primarily in Belfast, her rolerequires regular interaction with colleagues in London, Bristol and Dublin. Traditionally this involvedfrequent travel, including visits to the London office. The roll-out of Agile Ways of Working (AWOW) alongwith a strong focus on reducing costs associated with travel has transformed the way Heather works.

‘The enhancement of video conferencing technology in Belfast has facilitated much greater flexibility’ saysHeather. ‘There has also been a change in mindset and culture. People now challenge both themselvesand others about whether their travel is necessary. There is greater accountability on cost and a focus oncolleague wellbeing.’

Heather now works one to two days at home in County Armagh and travels to the London officeapproximately once a month. ‘You have to be much more organised’ Heather explains. ‘I make sure tooptimise office time and schedule as many meetings as possible that are better face-to-face’. This hasresulted in a 20-25% reduction in business travel as well as a 20-30% reduction in personal commutingwhich obviously brings about environmental benefits.

On a personal level Heather is now able to make a commitment to helping out fortnightly with a localcommunity group for young people and has more opportunities to support her mother, recently diagnosedwith dementia, to be as independent as possible at home.

27



2011 2012 2013 2014 2015 2016 2017 2018 2019

TCO2/M2 Reduction 40%Bank of Ireland 2011 - 2019

0.12890.1349

0.1280

0.10260.1086

0.09230.0876

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Financial Wellbeing

A key part of the Group’s long-termambition is to improve the FinancialWellbeing of consumers in Ireland. InMarch 2019, we launched a FinancialWellbeing strategy with an initial €5 millioninvestment, to help consumers improvetheir financial literacy, capability andconfidence. The approach is grounded innationally representative research whichsheds light on consumer levels of FinancialWellbeing and shows that one-third ofpeople in Ireland are worried aboutpersonal finances, more than half have nopension, and one quarter would need toborrow in less than a month if they losttheir main source of income. To supportthis, a Financial Wellbeing Team wasestablished including Financial Wellbeingcoaches.

National Financial Wellbeing Index

We have developed a Financial WellbeingIndex which indicates that Ireland has anational average Financial Wellbeing score

of 61, which as a nation places us in the‘Managing’ category. It also showed that40% of those surveyed were in the‘Struggling’ or ‘Stretched’ categories. Wewill conduct this research on an ongoingbasis to track the Financial Wellbeing ofthe nation.

Online Financial Wellbeing Centre

The Online Financial Wellbeing Centreprovides access to a range of tools,information and support to helpconsumers begin their Financial Wellbeingjourney. These include a FinancialWellbeing Healthcheck for consumers andbusinesses to assess their own financialwellbeing. By the end of 2019, over 50,000healthchecks had been completed.

Financial Wellbeing Lab

In April 2019, the Financial Wellbeing Labwas opened in Bank of Ireland premis

holdco annual report 2019 - front.qxp layout 1 21/02/2020 ... · bank of ireland group plc annual...

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