AIB Group (Euronext:A5G) Q3 2026 Earnings Call

0:00 Good day and thank you for standing by. Welcome to the AIB Group plc third quarter 2026 trading update conference call. At this time all participants are in listen only mode. After the speaker's presentation there will be the question and answer session. To ask a question during the session please press star 1 1 on your telephone keypad. You will hear an automatic message advising your hand is raised. To withdraw a question please press star 1 and 1 again. Please be advised that this conference is being recorded. I would now like to hand the conference over to our first speaker today, Colin Hunt, CEO. Please go ahead.

0:33 Thank you, Nadia. Good morning, everyone. And I'm joined today by Kevin Gann, our Group Financial Controller. We'll be taking questions later. I am very pleased that we're announcing another strong performance by AIB and we're now comfortable in raising our guidance for full year 2026. We now expect the NII to be greater than €3.85 billion. Our customer loan book to grow by between 5% and 6% and our customer deposits to grow by between 3% and 4%. New lending growth of 17% was underpinned by good performances right the way across the franchise with strong out turns from corporate and real estate lending, while climate and infrastructure capital had a superb performance, very much delivering on our long standing ambitions in that space.

1:26 Our costs are ahead by 3%, while we're continuing to guide to a circa 2% outturn for the full year, aided by an ongoing rolling reduction of 3% in our total headcount. Our capital remains strong with our CET1 of 15.7%, not including the 260 basis points of organic capital which the business generated to the end of the third quarter. So overall we are pleased with how the year is unfolding and we are well set for a strong finish to 2026 and to this strategic cycle. We're very much looking forward to announcing our full year results and unveiling our strategy to 2030 in March of next year and with that I will turn the floor over to you for your questions.

2:19 Thank you so much. Dear participants, just a quick reminder, if you wish to ask a question, please press star, one, one. And now we're going to take our first question. And it comes from the line of Dennis McGoldrick from GoodBody. Your line is open, please ask a question.

2:37 Good morning, Colin, and thank you for taking my questions. Just two, please, if I may. So firstly, the Q3 exit NIM of 279 basis points was a fairly significant step up from the 271 exit NIM in Q2. Can you help us unpack what drove that improvement and I guess how sustainable that might be as we move into next year? And then secondly, you've upgraded loan growth to between 5% to 6% this year, which is obviously positive. How should we think again about that mix of loan growth moving into 2027 also? Thanks.

3:09 You are most welcome. Look, the NII guidance is obviously underpinned by a strong performance in NIMH but also most materially by a very strong performance on the volume side and certainly what we're you know we've obviously now returned three quarters of a very good performance in terms of loan growth from what we see on the pipeline we're very very happy to be raising our guidance for the full year and I see nothing at this juncture that would suggest that we're going to be entering Thank you very much for joining us. As we now get closer to the end of the year we've raised our forecast for modified domestic demand to 3.8% and that buoyant domestic backdrop is very much a feature in terms of the overall loan growth.

4:23 I would expect that we'll continue to see solid performance from retail and very strong performances on the corporate real estate finance and indeed climate and infrastructure capital businesses given the length of visibility that we have on pipelines right the way across those businesses. I'll turn over to Kevin for some commentary on the NIMH.

4:45 Yeah, and I suppose before we get to the NIMH, just on that loan growth, we're really happy with that momentum. You know, that year to date it's 5.6% up to 76.3% for the year. And that's as a result of the new lending of $12.3 billion for the year, up 17%. And just to break down some of that for you, the Climate and Infrastructure Capital had a really strong year as Colin referenced. New lending of $2 billion, an increase of $0.9 billion on the prior year following lower activity last year. And as Colin also referenced, the capital markets business, really strong performance, an increase of 16% in new lending across a range of sectors and the pipeline remains strong.

5:30 That enables us to update our full year guidance to the 5% to 6%. We do expect that the underlying momentum to be offset by the seasonal redemptions in Q4, which typically tend to be a little bit lumpy, as well as the potential for an unwind of some of the FX benefit that I referred to. Then in terms of the NIM, again, we've been really happy with how that has held up, supported by volume growth and the Structural Hedge Program and an active balance sheet management The year-to-date NIMH is 2.72%, and that was 2.79% in Q3, with that quarterly improvement supported predominantly by higher average lending volumes.

6:19 And based on the expected volume in Q4, we expect that to remain resilient into the year end. Thank you. Now we're going to take our next question. And it comes to the line of Shil Sha from JP Morgan. Your line is open, please ask a question.

6:38 Great, thanks for taking the questions. Two, please. If I could ask on the run rate for 2027 NII, diving a little bit deeper, I know you spoke about loan growth, but some of the other moving parts we should be thinking about as well. You know, when I look at fourth quarter NII, when you're annualizing that, you add on a rate hike or so from the ECB possibly more it looks like there's a fairly good level of NII progression coming through for 27 so just to get some more color on the moving parts there and then secondly on the fees can I ask what your thoughts are around the fees outlook for 2027 slightly weaker this year given the repricing actions taken and where do you think sort of a consensus is Other income number is sort of landing.

7:29 Are you happy with that number for consensus 27? Thanks.

7:35 So I'll kick off with the NII question. And if I divide that into two parts, one, just the 2026 and then move into 2027. So in terms of 2026, in the first instance, we're happy with the NII performance year to date. That has continued to perform strongly with $2.87 billion delivered. and as you referenced 1 billion in quarter 3 and that strong performance underpins the upgrade that we talked about or that Colin referenced earlier of greater than 3.85 billion for the full year. So we see quarter 3 is broadly representative of the quarter 4 run rate recognising that there's always moving parts around lending and redemptions and balance sheet dynamics that I referred to earlier. The updated guidance of greater than 3.85 billion provides a floor on our outlook for the year.

8:24 In terms of potential headwinds, we're not expecting anything material. In Q4, that would change our view. And then in terms of rates for 2026, we have seen the rate curves move higher more recently, but given the timing of those expectations of the next rate change, it won't have much of an impact on 2026 with any benefit more relevant to 2027 and beyond. If I then move to your question around 2027 and the outlook on that, the rate outlook remains volatile. Our current assumption in our internal planning is that the ECB deposit rate was to be at 2.5% at year end, although we recognize the market has and is currently pricing in a somewhat higher rate.

9:12 From an NII perspective, we're positively geared to higher rates. Our sensitivities that we published in June indicated that 100 basis points increase in rates would benefit NII by circa $260 million. And the September sensitivity is brought similar to that June. So therefore, depending on your own market outlook, you can use that in your models to work through to 2027. Since half year, the consensus has moved somewhat higher for 2027 and 2028. and we remain broadly comfortable with that consensus for both years. I suppose that's as far as I would go at this point on those.

10:02 In relation to the fee question, the total fees up 7% year-on-year, so a really good performance there. That's made up of two constituent parts. If I talk about net fee and commission income first, that was 5% lower, the number of moving parts behind that. The prior year benefited from one-off visa rebate, which we've referenced before. And then during this year, we had a transition to a more simplified flat fee structure. in July, and as disclosed in our half-year financial report, we gave a one-month free banking to our customers to transition across to that new fee structure.

10:53 And then that is somewhat offset by our good momentum in wealth, albeit from a relatively smaller base. The second component of the other income is the other items growth, and that includes some non-recurring lumpier items, which we recognize in the first half, but notwithstanding you know all of that you know and the fact that those other items can be lumpy we remain comfortable with the full year guidance of circa 800 that we've previously referenced thank you the next question comes from Fatima Ghaznavi from KBW line is open please ask your question

11:41 Hi guys, thanks a lot for taking my question. So firstly on deposits and deposit competitions, we've seen some pricing action recently in the deposit market and it looks like from your update that your deposit beta is unchanged and also volumes are tracking quite well here. So I guess, are there any parts of the deposit book where you're sort of seeing any pressures yet or has that not really been impacting you? And then secondly, I know you've seen a reduction in your Pillar 2 guidance So how are you thinking about capital going into your strategy day? Is there any scope to go lower in your capital target?

12:20 First of all, on deposits, you can see the deposit beta. We're guiding 20% for the full year. And we haven't seen any significant change in terms of customer behavior, be it in corporate, be it in commercial, or indeed be it in the retail space. So the deposit franchise remains really, really strong and we're very, very comfortable now with raising our guidance to a growth rate there for customer deposits of between 3% and 4%. So no discernible change as of yet and certainly as of this point in relation to customer behaviour on the deposit side. On the P2R, look, we're very, very happy to see the ECB reducing our P2R by a further 20 basis points down to 220 basis points. If you go back eight years, that number was standing at 315 basis points. And I think the scale of the reduction is a very welcome and niche reflection of the quality of risk management right the way across the business. It would be absolutely premature for me at this stage to start speculating on the implications for our medium term targets which have not yet been set for the next strategic cycle.

13:45 Just to give you a bit of colour on that, the executive team are putting the finishing touches to our strategy or recommendations to board at this very moment and we'll be having a discussion with board about the strategy, the strategic direction of the group for the next four years. We'll be doing that over the course of the next number of weeks As we move in to get closer and closer to results announcement in March, we'll be making decisions about what are the appropriate set of targets for our business as we guide the market towards 2030 and as we direct the business towards 2030. But as I said, it will be premature of me at this stage to speculate on where those numbers will lie because these are debates that are yet to happen. but what I can say is that we have acted with ambition and determination in driving this organization and that they are features which will continue to characterize how we approach this business, how we approach guiding the business and how we approach delivering for all our stakeholders over the next strategic cycle.

15:04 Thank you. Now we're going to take our next question. And the question comes from Mike Everson from Bernstein Autonomous. Your line is open. Please ask your question.

15:17 Thanks for taking the questions. Just two from me, please. So I just want to go back to the NII guidance. Obviously, looking at the 3Q performance, if we run rate that forward to 4Q and we think about where the exit NIM and rates are coming out of 3Q plus where the volumes are, Niamh O'Shea

16:05 Well, just taking note of your second part of your question first, we've consistently said over many, many years that we do not explicitly target a mortgage market share. We're very much focused on writing good business at the right price with all our customers. And the rate adjustment that we made last month was very targeted, very focused, and it related to a subset of one rate in one of our three brands. Now our strategy, our strategic approach to the mortgage market is completely unchanged and we will continue to offer an attractive range of products across our three brands with a clear preference for the direct to customer channel where our market share is very strong at 45%.

16:58 Yep, so I'll take the first question if I can. So I've given you guidance in relation to Q4 versus Q3 and I've also called out the floor that we've set in terms of our NII guidance for the year. Just picking up on your SRT question, so we did complete a third SRT in October 26 on a portfolio of project finance assets totaling 2.5 billion The completion of that SRT delivered a positive CET1 impact of 30 basis points driven by a reduction in RWA's of 1.2 billion, and that would be included in our full year 2026 CET1 number. But again, the NII is as I referenced in the last question.

17:49 Yeah, so and you know, you should read greater than has given us a floor. So we're saying 3.85 billion is a floor for the full year. Thank you. Now we're going to take our next question. And the question comes from Benjamin Toms from RBC. Your line is open. Please ask a question.

18:14 Thank you for taking my question. The first one's on cost. I think cost growth is tracking slightly ahead of time.

18:19 Sorry, Benjamin. You're coming across very, very low volume. Could you speak up?

18:26 Hi, both. Sorry about that. Morning, Ben Toms from RBC. Thanks for taking my questions. The first one's on costs. Cost growth is tracking slightly ahead of guidance. Is the expectation that there's some cost saves that come through in Q4? And should we think about the back-end dated cost saves in 2026 as a good start point in terms of how we think about costs going into 2027 so you have good momentum going into next year? And then secondly, on distributions, you speak of the optionality regarding share buybacks and specials in the release. Is the key factor in that decision where your shares are trading and are we anywhere close to a share price where specials could be more appealing? Thank you.

19:07 Just in relation to distributions, Kevin will take the first part of your question. But in relation to distributions, what I would say is that obviously the business is very strongly capital generative, 260 basis points of capital generated organically in the first nine months of the year. and we're expecting a very strong finish to the year. What we've done is not to include that number in terms of our CET1 outturn, which is at 15.7%. Again, it would be in the same way that it's premature to speculate on the outcome of discussions we've yet to have with the board in relation to the strategy. That too applies to distributions. We'll be having those discussions with the board and indeed with the regulator over the course of the next number of weeks and months and we'll make all the necessary disclosures when we get to the presentation of the full year results in March of next year but if I was to say one additional thing it would be that in my view the past is a useful guide.

20:15 And just picking up then on your cost question, costs are up 3% with a cost income ratio of 44%. If I talk through the components of that, staff costs up 4%, primarily salary, inflation, and other employee benefits, partially offset by the lower staff numbers. We continue to see that FTE headcount drifting downwards organically with a 3% reduction year on year. If I talk about G&A, Up 1% year-on-year, there's one or two one-off items in there. And then finally, depreciation of 4%, again, with a one-off impairment charge in there. So we're comfortable with the circa 2% guidance for 2026, a number of key drivers for lower Q4, including continued cost discipline within the business.

21:06 yeah and then I think beyond 2026 you know we see simplification automation AI is important levers to create capacity improve productivity and moderate the underlying rate of cost growth but all targets including costs will be refreshed and provided with our strategy 2030 update which Colin referenced we will update on in March 2027 and if you

21:35 Look back on the last strategic cycle, we set out three priorities. One was putting our customers first. Two, greening our business. And thirdly, driving ever greater operational efficiency and resilience through the organization. Those priorities have delivered very, very strongly. And I see, I believe that we will be very committed to driving ever greater operational efficiency and resilience through the organization, taking advantage of taking advantage of the opportunities presented not only by AI but also by enhanced productivity across the group. Thank you. And now we're going to take our next question. And the question comes from Borja Ramirez from CTO LAN.

22:21 Is open please ask your question.

22:24 Hello, good morning. Thank you very much for taking my questions. I have two questions, please. Firstly, on the deposits, I can see that actually the system deposit growth for September should actually better growth year-over-year compared to August. and I see that this is very strong also in the current accounts and I think here you have a higher weight of market share in current accounts and payroll accounts so maybe if you could provide a bit more color on these trends and maybe if you could have a bit of indications on expectations for next year that would be very useful and then Mexican yes go on yeah sorry and very briefly as well if you could kindly update on the on the structural hedge because given the stronger deposit growth maybe that could be also an opportunity to to to increase the the structural hedge and uh and also you could remind me then the yields of the of the maturities of the of the hedges um for for this year uh please thank you okay thanks thanks bork i'll take the deposit question like the um

23:41 We've had a number of updates to the macro expectations for Ireland this year and indeed for the macro performance of Ireland this year. One of those updates, one of those upgrades came in relation to the savings ratio. I think the last time we were speaking back in July, the savings ratio was estimated to be running at about 40%. It's now estimated to be running at about 18% and given the fact that We bank 40% of this country's retail customers and a higher percentage of the country's corporate and commercial customers. You are going to see that buoyancy in terms of savings ratios being reflected in terms of the deposit base. And as we look into 2027, there's one unusual feature of the Irish economy which I think that people lose sight of occasionally. and that is in relation to the impact of budgetary policy or the impact of fiscal policy on household finances.

24:44 In marked contrast to what we're seeing in many other countries, fiscal policy is supportive of household incomes and the measures that were announced in the budget in October are going to be supportive of household incomes right the way across the income distribution with gains of up to €1,600 per household expected in 2027 and that will be a key underpinning we believe for the trajectory for deposits as we move into 2027.

25:15 So if I pick up your question on the structural hedge, so no new news from the first half, The quantum remains unchanged since June, 65 billion in total, that's made up of 59.4 billion in Euro and 4.6 billion in Sterling. Six billion of that reinvest this year and we expect the exit's fixed yield for N26 to be 2.3% with a weighted average life of five years. In terms of the maturity profile looking ahead, circa 5.6 billion of the Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1 1. And the next question comes from Jordan Bartlam from Mediobank.

26:22 Your line is open. Please ask your question. Good morning, and thank you for the questions. So one on NI and one on other income, please. So on the NI point, you said that you're happy with consensus in 2027. You spoke a little bit in terms of the 4Q projections. but even if you send a little bit of growth into 4Q you're already annualizing pretty much the consensus at 4.07 billion next year so it really doesn't seem like there is any benefit in there from the rollover of the hedge or further balance sheet growth into next year leaving aside any rate assumptions I just just want to know what the key headwinds or offsets to that are maybe even a bit of color and where you're seeing deposit pricing that would be really really helpful and then on the other income side So fees, as you've said, are tracking slightly weaker this year.

27:17 Part of that was due to the current account pricing structure. Just want to understand if there is any risk of having to make further changes to that pricing structure, just as you look to compete with the lower cost fintech players, particularly maybe for the younger cohorts. So those would be my two questions.

27:38 thanks Jordan I'll take the question in relation to the changes we made to the subscription model this is something we've been considered doing for quite some time and we have by introducing this model significantly simplified our fees and commissions arrangement with our customers we gave us a huge amount of thought over an extended period of time and myself and my colleagues are very content with where we've landed, we're very content with how it is being responded to by our customers and certainly there are no plans for us to have any further adjustments. The plans that we'll be announcing in 2027 will be focused on continuing to deliver a very high quality of service to our customers but there's absolutely no intention of us having a material change to the subscription model that we already introduced earlier this year which of course then had that impact in the summer in the month of June from having the one month of free fees as we transitioned to a new service model.

28:52 If I pick up your question on the hedge as I referenced earlier 5.6 billion of that matures over the course of 2027 and that will refix during 2027 as it matures and we will keep that under review as to whether we roll back or not. We have good momentum as I referenced earlier. We are happy with consensus and any further guidance I will leave till March in terms of a more granular guidance and outlook for 2027. Thank you. Now we're going to take our next question and the question comes from the line of Thomas Ryan from Davie. Your line is open, please ask your question.

29:43 Good morning Colin and Kevin. Thank you for taking my questions, just to hear if I can. Firstly on costs, so I need to provide some colour maybe into the future and what level of operating leverage is in the business and for the ability to grow the business without seeing costs grow to the same extent. and then secondly just back on the structural hedge I was wondering if you could provide some color on the earnings progression of the structural hedge in the coming years in 27 and 28 relative to the current earnings progression in 2026. Thank you.

30:18 Thanks so much indeed Thomas. I'm going to resist the urge to give a Preview of where our plans are going to rest for the business over the course of the next number of years. But I would reference the track record of delivery in terms of cost management in the past number of years. I've made it clear on a number of occasions that we will continue to manage headcount gently lower in the organization We've been driven very much by natural attrition and retirements in the normal course and that's obviously going to be a key driver of cost momentum as we move towards 2030 but I've said on a number of occasions that our ambition is to Thank you very much.

31:49 I won't have to wait a few minutes.

31:51 And in relation to your structural hedge question, I've given you the end-of-year average rate, or the end-of-year closeout fixed rate of 2.3%, the average weighted life of five years, 5.6 billion of that, as I referenced, will be roving during in 2027. That will refix at Thank you. Dear speakers, we will now proceed with our final question for today. The question comes from the line of Seamus Murphy from Carrick Hill. Your line is open, please ask your question.

32:34 Hi, two quick questions please. So the market broadly expects 50 to 75 basis points rise in the ECB rate over the next 12 months and I think you've got 2.5% in your numbers. Can you just provide us basically, I know you've provided sensitivity to the movement for 100 basis points, but can you just let us know what the deposit beta is that underpins that assumption of the 100 basis points moving to 268? And secondly, just another question on the structural hedge. I know you've been maturing yield, I think, or say you say you've 6 billion maturing in 27. Can you just let us know what the maturing yield is on that six billion, please?

33:11 Thank you.

33:43 Excuse me, dear speakers.

33:47 Hello. Hello. That's a good conference for today. Thank you for participating. We're now all disconnected. Have a nice day.