The post-stress test banking system Jonathan McMahon, Director of Credit Institutions, Central Bank of Ireland 15 April 2011

The PCAR

2

Total capital requirements: €24bn across 4 banks €5.3BN of additional capital as conservatism buffers • €2.3BN of cash capital • €3.0BN of contingent capital

€ Billions

30 3.9 20

9.9 27.7

3.0 2.3

10 13.3

Capital short-fall € 24BN

8.4

0 10.3

13.2

-10

3.5

-20 CT1 capital 2010

Stock 3yr 3yr stress Loss on Completed provisions operating loss deleveraging capital 2010 profit before projections non core increases provisions & based on loans since end deleverage BRS 2010 costs

Stress 2013 Capital CT1 2013 requirements pre capital @ stress CT1 injection 6%

Capital buffers

3

Sovereign bond spreads 2010

Spread between the 10yr German and 10yr Irish sovereign bonds

Spread between the 10yr Euro Swap and 10yr Irish sovereign bond 4

Ireland 5yr CDS, 10 year spread over Germany, AIB & BOI 5yr CDS

5

Irish property prices (residential and commercial) 1997 – present

6

Historic interest rates – commercial loans and residential mortgages, 1975 – present 25.00

20.00

15.00

Residential Mortgages Commercial loans

10.00

5.00

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

0.00

7

Personal Sector Credit as a % of Disposable Income per cent

Credit card

200 180 160 140 120 100 80 60 40 20 0

Other Finance for investment Housing credit

1992 94

96

Private sector credit as a % GDP and GNP

98

00

02

04

06

08 10 F

140

120

GDP GNP

100

80

60

40

20

0 1992

94

96

98

00

02

04

06

08

10(f)

8

Forward yield curve

Euribor Curve

2.2 2 1.8 Percent

1.6 1.4 1.2 1 0.8 0.6

Source: Bloomberg

02-Mar-11

04-Mar-11

01-Apr-11

9

% haircuts: NAMA tranches 1&2 vs. subsequent NAMA tranches 70

60

50

40 NAMA Tranches 1&2 Subsequent NAMA tranches

30

20

10

0 BOI

AIB

ANGLO

INBS

EBS

10

Anglo: stock of provisions 2007 – 2010 16,000

14,000

12,000

Millions 10,000 €'s 8,000

6,000

4,000

2,000

0 2007

2008

2009

2010

11

Impairment increases for BoSI, Ulster Bank, ACC and KBC 2010 60%

50%

40%

30%

% Impaired Provision Coverage

20%

10%

0% Dec-09

Jun-10

Dec-10

12

Jan-09 Feb-09 Feb-09 Mar-09 Mar-09 Apr-09 May-09 May-09 Jun-09 Jul-09 Jul-09 Aug-09 Aug-09 Sep-09 Oct-09 Oct-09 Nov-09 Nov-09 Dec-09 Jan-10 Jan-10 Feb-10 Feb-10 Mar-10 Apr-10 Apr-10 May-10 May-10 Jun-10 Jul-10 Jul-10 Aug-10 Aug-10 Sep-10 Oct-10 Oct-10 Nov-10 Nov-10 Dec-10 Jan-11 Jan-11 Feb-11 Feb-11 Mar-11

Evolution of system wide ECB funding ECB Borrowings

€mn

100,000

90,000

80,000

70,000

60,000

50,000

40,000

30,000

20,000

10,000

0

Note: System in this instance refers to the six covered banks: AIB, BOI, EBS, ILP, Anglo and INBS

Source: Central Bank of Ireland

13

2011-2013 stress projected losses circa 70% of lifetime stress losses € bn 50,000

55%

76%

59%

76%

76%

69%

40,119

40,000

30,000

27,722

20,000

17,170 11,761

10,000

9,491

8,934

7,672 4,511 2,151

3,058

2,635

3,449

0

Resi

CRE

2011-2013 stress projected losses

SME

Corporate

Lifetime stress losses

Non-mortgage consumer/Other

Total

2011-2013 losses

Source: PCAR 2011

14

The PLAR

15

Credit allocation became skewed towards real estate lending

16

Wholesale funding (Corporate Deposits+NBFI+Interbank+CP) – 6 Irish banks 120,000 TOTAL 100,000

Millions €'s

80,000

60,000

40,000

20,000

1st Jan

Quarter 1

Quarter 2 2010

Quarter 3

Quarter 4

17

System-wide balance sheet (€bn) - 31 December 2010 500

480

480

19

Assets

450 156

400

Other Cash

350 300

280

150

Loans to banks Loans to customers2

Wholesale1 Derivatives

Customer accounts

Liabilities and Equity

2

76

250 200

Assets held to NAMA3 Financial assets and derivatives

12

Other Equity

4 97

221

100 50

73

0

6

16

Assets

Liabilities & Equity

Notes: 1: Wholesale includes debt securities and subordinated debt, 2: Net loans to customers, 3: Includes assets held to NAMA 2, 4: AIB excludes Polish operations HFS at year end Source: Latest available Group financial statements (incl. Insurance operations), Central Bank of Ireland

18

PLAR quantitative liquidity metrics

19

Banking sector reorganisation

20

Total assets by bank, 2007 €bn 180 160 140 120 100 80 60 40 20 0 AIB

BOI

EBS

ILP

Anglo

INBS

Ulster

KBC

21

Significant deleveraging has already been achieved Total System Assets: 2008 - 2010 €bn

Total System net Loans: 2008 - 2010 €bn

€131 bn

600

600

500

500

400

400

300

588

300

556 457

200

€121 bn

200

403 311

282

2009

2010

100

100

0

0 2008

2009

2010

2008



A significant amount of deleveraging has been achieved through transfer of loans to NAMA (€71bn transferred through to December 2010)



Beyond NAMA, Banks have also taken additional actions: 

AIB – Sale of Polish operations and stake in M&T (US retail Bank)



BOI – Sale of Bank of Ireland Asset Management in October 2010. Active deleveraging of international corporate businesses



IL&P - Deleveraged through net amortisation across loan books



EBS - Discontinued business lines as part of deleveraging. Ceased commercial lending in April 2008



Anglo / INBS – Merged entities are being wound down over an orderly period of time

Note: “System” in this instance refers to the 6 covered Banks: AIB, BOI, EBS, ILP, Anglo and INBS Source: Financial statements and deleveraging plans

22

2010 Irish banking assets, by type €bn

120 100 80 60 40 20 0 AIB

BOI

EBS

ILP

Anglo

INBS

Ulster

KBC

Available-for-sale financial assets

Cash & cash balances w ith central banks: Assets

Financial assets held for trading

Loans and receivables (including finance leases)

Other

PCAR covered banks

23

The necessity for viable business models

24

Bank by bank profits end 2007 2,500

2,000

1,500

1,000

500

0 2007

INBS

AIB

BOI

EBS

Anglo

ILP

25

Profit/losses of Irish banks

10

5

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

-5

2000

0

-10

-15

-20

-25

-30

-35 Banks' profit/losses €bn

26

SME and mortgage credit of c.€11-16.5bn is likely to be needed in the next 3 years

27

Banks have identified over €77bn of non-core loans, the majority of which are located outside of the Republic of Ireland 2010 System1 loans to customers

Noncore 30% €76.9 bn

System: €255.6 bn 2010 LDR 179.8%

Core 70% €178.7 bn

 A significant proportion of the Non-core loans are based in the UK and ROW  Non-Irish assets are likely to prove more liquid from a disposal perspective and are likely to be saleable at lower discounts

than Irish assets Source: Central Bank of Ireland Note: 1. Includes growth in core operations, not all non-core portfolios are disposed or run-off by 2013 2. “System” in this instance refers to loans to customers of AIB, BOI, EBS and ILP only

28

Significant proportion of the loan book of the Irish Banks are based in the UK: 

A significant proportion of Irish Banks’ loans have been originated and lent to UK customers. The principal sub-sectors of lending are Mortgages, SME / Corporate and Property related loans.

Total loans (Irish and non-Irish) of Irish Banks

Product

AIB

BOI

ILP

EBS

Total

Residential mortgages

31,014

59,941

33,872

15,891

140,718

Ireland

27,535

27,948

26,329

15,891

97,704

UK

3,479

31,992

7,543

0

43,014

Corporate

20,723

22,815

0

0

43,538

SME

19,229

17,305

0

0

36,534

CRE

17,124

20,414

2,049

841

40,428

Non-mortgage Consumer and Other

5,621

5,444

1,655

0

12,721

Total

93,712

125,919

37,576

16,732

273,938

Significant UK exposure (c. €30bn)

Note: Volumes quoted are based on BlackRock derived opening Exposure at Default volumes at 31 Dec 2010 for the purposes of the BlackRock loan loss assessment work. They will therefore not agree to the net loans presented by the Banks, and in turn the Central Bank, in relation to their 31 December 2010 closing loans Source: Central Bank of Ireland

29

Management of non-core assets

30

Banks have a three year timeframe to achieve deleveraging plans, which is likely to allow sufficient time for the orderly disposals and run-off of portfolios AIB

EBS

BOI

Non-core 29%

Non-core 34%

Non-Core €25.1 bn

Non-core 28%

Core 66%

Core 71%

Core €61.8 bn

IL&P

Noncore 14%

Core 72%

Core 86%

Core €76.2 bn

Non-Core €39.1 bn

Core €14.1 bn

Non-Core €2.3 bn

Core €26.6 bn

Non-Core €10.4 bn

Deleveraging: 2010 - 2013 €bn

AIB

EBS

IL&P

Total

2010 Net loans to customers

86.9

115.3

16.4

37.0

255.6

2013 Net loans to customers

67.5

82.7

11.5

21.3

183.0

Total (change in loans 2010 - 13) 2013 LDR% 

BOI

19.4 122.5%

32.6 119.2%

4.9 121.8%

15.7 121.7%

72.6 122.3%

The LDR target is based on flat deposit growth assumptions. Any growth in deposits over the 3 year period will reduce the quantum of deleveraging required and will have a corresponding benefit of capital from reduced assets disposals

Source: Central Bank of Ireland

Note: Balances as at 31 December 2010

31

Basel III

32

EMEA Bank Capital issuance: 2007 to date €bn

70

110

61

100 Total value of issuance during the period

90 80 70 60

59

50

45

40 30 20

9

10 0 

2007 Significant issues in each year:

2007 (€bn) Fortis SA/NV Sberbank VTB Group Credit Agricole Piraeus Bank SA

13.1 6.0 5.5 3.5 1.2

2008 (€bn) Royal Bank of Scotland UBS AG Credit Agricole Santander Barclays plc

2008

2009

2010

#

32.5 10.5 6.4 6.3 6.3

2009 (€bn) Lloyds TSB Group HSBC Holdings plc HBOS plc Royal Bank of Scotland Societe Generale

25.9 14.1 9.2 5.7 5.2

2011YTD

number of issuances during the period 2010 (€bn) Deutsche Bank BBVA Standard Chartered plc UniCredito Italiano Bank of Ireland

10.5 5.1 4.5 4.2 2.1

2011 YTD (€bn) Banco Popolare Scarl Piraeus Bank SA Commerzbank Marfin Popular Bank Banco de Sabadell SA

2.0 0.8 0.6 0.5 0.4

33

Cost of share acquisition

€10.1bn +

Cost of preference

Value of pro notes

Capital provided to 31st March 2011

€5.3bn +

€30.8bn =

€46.3bn +

Capital shortfall PCAR 2011 €24bn =

Total capital €71.7bn

34

Irish Banks will be extremely well capitalised following the PCAR injections: 



The Central Bank is establishing a capital base for our banks that will be one of the most stringent internationally 

3 year rather than two year outlook



Capital requirement set at 6% rather than 5% CT1 after stress losses



Further buffer of €5.3bn has been included in the capital requirements

Once the banks have been capitalised to these levels their pro forma capital levels will be:

Pro forma Core Tier 1 ratio (assuming immediate capital injection) 1 €'billions Core Tier 1 ratio (Dec 2010) Pro-forma Core Tier 1 ratio (assuming immediate capital injection)

AIB

BOI

EBS

ILP

3.7% 9.0% 8.0% 10.6% 21.9% 16.1% 22.6% 32.4%

Note: 1) Capital injection includes equity buffer but does not include contingency capital buffer. Source: Central Bank of Ireland

35

European Core Tier 1 ratios as at December 2010 30%

20%

20.4%

18.4%

18.4%

17.7%

16.9%

16.1%

15.3%

15.2%

15.2%

C HSB

BO I (post )

s Barc lay

13.2%

ke

Swed

13.2%

Dans

UBS

13.4%

Sta n chart

SHB

AIB ( p ost)

post ) EB S (

ILP ( po st)

0%

14.7%

14.1%

DB

20.9%

BNP P

21.9%

LBG

22.6%

10%

ING

32.4%

30% 20% 10% 13.8%

13.7%

12.8%

12.4%

12.1%

10.6%

10.3%

9.8%

9.0%

8.0%

pre) EB S (

BO I (pre)

op Ban c oP

BCP

ILP ( pre)

SG

DnB

c asa

ISP

SA N

Nord ea

BB V A

SE B

RBS

0%

3.7%

AIB ( p re)

14.0%

Assuming full PCAR capital injections, the Irish Banks would be well capitalised in comparison to their European peers as at 31 December 2010 Irish Banks CT1 ratios assuming full PCAR capital injections Source: Company reports, Barclays estimates Note: 1) In this instance, Core Tier 1 ratio is ascertained under Basel II parameters Note: 2) Includes equity buffer but does not include contingency capital buffer

2

Irish Banks CT1 ratios prior to PCAR capital injections

36

27 1%

Irish 2013 Target LDR of 122.5%

Irish 2010 Average of 180%

24 8%

300%

27 7%

European LDRs benchmarking as at December 2010

21 5%

250%

77 %

76 %

ri cole

HSB

78 %

100%

84 %

99 %

10 5%

11 8% BNP

NBG

11 9% Soc . G en.

10 9%

12 1% Pop u lar

RBS

12 2% 2013

11 7%

12 3% BB VA

12 6% Ban e sto

12 5%

12 7% s

13 4%

150%

14 1%

15 1%

15 7%

16 2% Mille nn.

15 8%

16 5% Es pir ito

17 4% EB S

16 6%

17 6% BO I

AIB

17 8% Nord ea

200%

Non-Irish 2010 Average of 139%

50%

C. Ag

C

htr. Std . C

che

KB C

Deuts

San ta nder

Sy ste m

Com me rz .

Barc lay

Sab a dell

UniC redit

SE B

Ban c a MP S

Lloyd s

ke Dans

ILP

Hand els.

Dex ia

0%

In comparison to their European peers, Irish banks currently have significantly higher loan to deposit ratios Source: SNL Financial (most recent data available presented in chart) & CBI Note: Irish average relates to AIB, BOI, EBS and ILP

37

Based on 2009 and 2010 third party investor appetite, future redemptions appear challenging 

The total refinancing requirement for European banks between 2011 and 2013 is in excess of €2.5trn



When this requirement is compared to the €622bn of funding placed in 2009 without the use of Government guarantees or via central banks, the future redemptions appear challenging



However, FY 2010 issuance was €782bn, including €59bn of Government guaranteed funding, and if this improvement can be sustained over the next three years then future redemptions can possibly be met

European Bank issuance and redemption profile EUR bn eqv

Senior

Subordinated

Public Jumbo Covered Bonds

Public ABS

GGB

Central Bank Funding

1,400

Pre-crisis Peak market volume 1,200 1,000 800 600 400 200 0 2006 issuance

2009 issuance

2010 issuance

2010

2011

2012

2013

2014

2015

Forecast Redemptions

Source: Dealogic and Barclays Capital, Central Bank Funding Includes SLS

38

Credit Unions

39

Credit unions

Source: Grant Thornton

40

Credit unions: facts and figures

41

Credit Union mergers achieved

• 7 Transfers of Engagements since January 2010 • 5 Community based transferors continue to operate as branch offices of the transferee credit union. • 2 Industrial transferors operated from parent company premises which closed on completion of transfer.

42