AIB is continuing its focus of returning to sustainable profitability during 2014 and in ensuring it meaningfully contributes to the recovery of the Irish economy. As part of these goals, AIB made significant progress in 2012 in setting out a revised strategy aimed at materially reducing operating costs while enhancing income generation aligned to prudent and risk adjusted lending practices. The overall Group strategy is comprised of the following key elements:
AIB began to organise its internal structure in the latter half of 2012 to a more customer centric model. AIB will operate in 2013 around three key segments – the Domestic Core Bank, AIB UK comprising the businesses in Great Britain (“ AIB GB”) and Northern Ireland (“FTB”), and the newly created Financial Solutions Group.
The Domestic Core Bank is organised around Personal, Business and Corporate Banking and an integrated Products area. Key areas of focus for the Domestic Core Bank include mortgage, SME, Personal and Corporate lending, appropriately aligned to the Group’s deposit platform. EBS will continue to operate as a separate brand within the Domestic Core Bank and will maintain its own distribution network focused most particularly on deposit products and mortgage lending. The process of streamlining EBS operations to remove duplication with AIB’s systems is ongoing with progress to date. The customer proposition at First Trust Bank is being aligned with the approach in the Core Domestic Bank. AIB GB continues to focus on SMEs, owner managed businesses, and professional firms with a significant emphasis on facilitating trade in both directions between Ireland and Britain. Each of the segments is underpinned by an integrated set of support and control functions to drive efficiencies across the organisation.
AIB’s distribution capability is being enhanced to ensure the Group is meeting the requirements of customers across the full spectrum of its business. In addition to the increase of services available through AIB’s online and mobile platform, the Group has introduced mobile community banks, a number of self service banking lobbies and is continuing to increase the number of Intelligent Deposit Devices in branches which are designed to reduce waiting times for everyday banking transactions. In locations in the Republic of Ireland, where AIB has recently closed branches, an enhanced agreement with An Post (the Irish postal service) is providing additional banking services for affected customers. AIB will continue to adjust the size and scope of its physical distribution network as appropriate.
AIB is fully committed to supporting customers in financial difficulty and fully recognises the critical imperative to deliver timely solutions for customers. The creation of the Financial Solutions Group means that the Group has a unit dedicated to the overall management of this critical area. The Group continues to stress the need for early, open engagement from customers as it is mutually beneficial for both the Group and customers to manage these issues in a constructive way. For SME customers in financial difficulty, the approach is to restore immediate customer stability, restructure loans where required and establish a path back to viability. For mortgage customers in financial difficulty, the strategy is to work to ensure that homeowners who are co-operating with the bank and prioritising mortgage repayments can remain in their homes, where possible. As part of the Group’s Mortgage Arrears Resolution Strategy (“MARS”), AIB is providing both short term and long term solutions for customers.
A return to sustainable profitability during 2014:
A renewed focus on income growth coupled with cost management measures will help AIB to achieve the goal of a return to sustainable profitability during 2014. As part of an overall cost reduction agenda, AIB is well advanced in the implementation of a Voluntary Severance Programme which will reduce the number of staff at AIB by at least 2,500 by 2014. Among other measures, the bank has also made changes to staff pay and benefits including pay cuts at senior levels and it is proposed that all employees who are members of a defined benefit pension scheme will be transferred to a defined contribution pension model. Changes to the Group’s operating cost base are ongoing, the positive effects of which will be more evident in the Group’s 2013 and 2014 financial statements.
In addition to cost reductions, the Group is taking necessary decisions to drive income growth including focus on funding costs and adjusting the pricing and number of lending products to be more in line with cost of funding. The Group is focused on ensuring it plays a critical role in Ireland’s economic recovery and in maintaining market share in key target markets namely, mortgages, SME and corporates and will focus more closely on balance sheet management and capital allocation. AIB is also fully prepared for the removal of ELG which will have a positive impact on operating performance over time.
Emphasising technology and innovation:
AIB is using technology to better meet the evolving needs of customers. Through the development of an integrated online, phone and physical branch distribution network, AIB’s systems will deliver high quality services to customers. AIB has made significant progress in the implementation of these processes already and customers will continue to see greater flexibility in the future in the range of products available to them online, over the phone and in their local branch.
Focus on leadership, governance and risk control environment:
AIB has implemented changes to its overall governance and risk control environment across both the main business and support functions. As part of this AIB has recruited several new members to its Leadership team, comprising individuals who bring experience and external knowledge to the Group. This team is supported by a Leadership Council comprised of senior management individuals from all areas of the Group.
Maintaining strong relationships with key stakeholders:
AIB is a functioning bank today because of the support provided by the State and by extension the Irish taxpayer. AIB fully recognises the critical role the Group has in contributing to economic recovery and as such AIB is in constant dialogue with the Department of Finance, the Central Bank of Ireland and the EU/IMF/ECB (“Troika”) as it seeks to rebuild the reputation of the Group and return to sustainable profitability. The Minister for Finance specified a Relationship Framework Document in March 2012 which ensures the Board and Leadership Team are in a position to manage the Group on a commercial basis. Additionally, AIB is committed to engaging with debt and equity investors in a transparent, measured and balanced manner over time as the Group emerges from its financial difficulties.
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