Mr. Richie Boucher:

I thank the Chairman. We have provided a presentation for the committee. I hope all members have received it as I would like to spend a couple of minutes going through it. I pick up on the request of the Chairman to try to drill down to numbers. Therefore, at certain stages I will obviously slow down and talk about them in more detail.

The purpose of our presentation is in compliance with the committee's invitation which from a Bank of Ireland perspective is to highlight the progress the bank has made in the past four years, particularly since the last meeting we had with the committee in November 2012; to highlight the work we are doing to support our Irish and SME customers; to highlight how we are working with existing and new customers in Ireland to grow our business; and to provide an overview of the strong progress the bank is making towards sustainable profitability within a robust balance sheet. It is also obviously important from our perspective to review the taxpayers' investment in Bank of Ireland, the cash returns the taxpayer has received from the bank and the fact that the taxpayer is in profit in its investment in the bank. Bank of Ireland's overall objective is to have a strong sustainable bank supporting its customers, growing its core franchises and contributing to and benefiting from economic recovery.

In terms of the presentation, I think it would be appropriate to spend some time setting out our strategic objectives. Despite the domestic and international challenges of the past four years, Bank of Ireland has had a clear focus on the future, in particular protecting and maintaining our core franchises, of which the most important strategically is our Irish business. For more than three years we have had in place an Irish Government-sponsored EU restructuring viability plan. This plan required us to set out the reasons the group required restructuring and State aid, and our plans to complete that restructuring and ensure we did not require State aid in the future. The plan is monitored by an independent trustee on behalf of the Commission.

Since we last met the committee, there have been some amendments to the plan which allow us retain our New Ireland business and which require us to further divest certain of our businesses in Great Britain. In Ireland, we are number one or two in all of our businesses. In the UK, we are the chosen financial services partner for the UK Post Office, with contracts extending beyond 2023. We also have a highly profitable acquisition finance business in the United States, continental Europe and Great Britain. We have made significant progress in deleveraging our international businesses, such that total customer loans have reduced from €145 billion to approximately €90 billion, while protecting our capital. At the same time, we have been investing heavily in our businesses, particularly in Ireland, and have reduced our costs by 23%. Our capital position is robust. During the past four years, we have generated equity capital of approximately €9.7 billion, of which approximately 85% has come from the private sector. Taxpayers have invested €4.8 billion in Bank of Ireland. The bank has reimbursed cash of €3.9 billion to the taxpayer. Taxpayers currently hold €1.8 billion in preference shares in the Bank of Ireland and a 15% equity shareholding in the bank. Bank of Ireland currently has an equity market capitalisation of €6.7 billion, excluding the preference shares. Our capital ratios are robust and, at the end of June, our most recent reporting period, stood at 14.2%, which is significantly above the regulatory requirement of 10.5%.

Since we last met the committee we have continued to access the capital and subordinated debt markets through the issuance of €250 million of tier two capital in November 2012 and facilitating the State in the re-financing of the contingent capital instrument of €1 billion, with a profit to the State. The State has invested €1.8 billion in preference shares in the Bank of Ireland. We are in discussions with the State and a range of other parties in relation to the options regarding these preference shares. We have transformed our funding and have achieved the PCAR required loan-to-deposit ratio of 120%, and customer deposits and wholesale funding greater than one year equate to our customer loans. We have led the way in accessing senior debt and bond markets, with a range of issues over the past seven months. The quantum of deposits and other liabilities covered by the exceptional Irish Government guarantees has reduced from €136 billion at the end of September 2008 to approximately €8 billion at the end of June. There will be further reductions in those liabilities as we go forward.

Our monetary authority financing, including and excluding NAMA bonds, which are €4 billion, is approximately €5 billion, which means it is approaching normal levels. We have made strong progress in moving towards profit on a sustainable basis while remaining focused on the protection and strengthening of our businesses. Costs are down 23%. Direct staff costs were down 10% in the first half of 2013 as compared with the first half of 2012 and 8% since the second half of 2012. We have a significant deficit in our pension schemes and are currently in discussions with staff representatives under the auspices of the Labour Relations Commission on this issue. Our impairment charges are elevated but are reducing. We expect them to reduce further. On our medium-term financial targets, which were set at the time of the bank's recapitalisation in 2011, I can confirm that we are on track to achieve all of these financial targets.

Slide 5 illustrates the transformation in respect of funding, in particular since Ireland entered the troika support programme in December 2010. Slide 6 provides further detail on our capital, which is obviously important from our perspective and for the taxpayers' investment. It shows our capital on a Basel II basis and Basel III transitional basis and if Basel III were to happen as of end June. This demonstrates that we have robust capital ratios on a Basel II and Basel III basis. Slide 7 also sets out the capital and funding transactions completed by the bank since it last met the committee and, again, shows that right across the capital structures and debt market structures we are accessing those markets with good demand for Bank of Ireland debt.

Slide 8 illustrates the position in respect of each of our principal trading divisions, including retail Ireland, our corporate and treasury business, which also has significant businesses in Ireland, retail UK division, which is the post office and, as required by the Bank of England, our Northern Ireland businesses and of our Bank of Ireland life business, which is primarily the New Ireland business which we were allowed to retain following amendment to our EU restructuring and viability programme. What is demonstrated in this slide is what each of the divisions is moving towards in operating profit and is making strong progress in that regard, contributing to the group's overall performance.

Slide 9 shows that our impairment charges continue to reduce. This reflects the diversification of our portfolios, the gradual, slow improvement in economic conditions in the main markets in which we operate, a number of steps taken by the bank, and in particular the gradual reduction and relatively swift reduction since 2012 in the number of customers moving into default categories and the stabilisation of collateral values which underpin our loans.

Slide 10 provides further detail on individual portfolios, with particular relevance to Irish retail mortgages, Irish SME advances, defaulted loans, the percentage defaulted loans as a proportion of advances, our impairment provisions and the coverage of our provisions against defaulted loans. Members will note that notwithstanding the gradual improvement in economic conditions, we have kept our provision coverage levels at a relatively high level.

Slide 11 sets out the change in our defaulted volumes in owner-occupier mortgages. Owner-occupier mortgages in our Republic of Ireland businesses stand at €20.6 billion, 93% of which are on a capital and interest repayment basis through amortisation. Some 55% of our owner-occupier mortgages are ECB tracker. From our perception of the market environment, housing prices have continued to stabilise and employment levels have increased modestly in recent quarters. Our provisioning assumptions, which were noted on the previous slide, are based on the assumption that peak to trough fall in house prices in Ireland is 55% plus other charges of approximately 10% for sale discounts, etc. In terms of our overall portfolio, nine out of ten of our accounts are fully performing. Bank of Ireland arrears levels, based on the latest Central Bank of Ireland statistics as of end June 2013, are 53% of the remainder of the industry. Our arrears reflect economic and affordability issues. We continue to monitor our portfolios and do not believe that negative equity is a driver of default. It is primarily a case of customer income issues. Growth in defaulted loans continues to reduce. I am happy to advise the committee that as of end June, early arrears, namely, customers who have fallen into early arrears of fewer than 90 days in the months of June, July and August, have continued to reduce. Further detail is provided on the slide, which I will not spend too much time on now. However, I am happy to elaborate further later with the support of my colleagues.

We have tried to assist the committee by giving a pictorial illustration of what our book looks like by the numbers. As I mentioned, 89% of customers, or 143,000 accounts, are fully performing, and these customers are meeting all their repayments in accordance with their contractual arrangements or where we have granted a forbearance to the customers. Some 2% of customers are in early arrears, and as I mentioned earlier to the committee, the net early arrears figure in June, July and August for owner-occupiers in Bank of Ireland has fallen. Late arrears, which we define as customers who are more than 90 days in arrears, stand at 3%. Of our book, 4% is in a forbearance or overpayment arrangement.

I will display a slide on our forbearance arrangement in a moment but I will first explain our definition of an overpayment. That is where the customer has agreed with us an informal arrangement. The customer would not have completed a standard financial statement, SFS, but has indicated that he or she is €700 or €800 in arrears and because the person is getting overtime, for example, there is a wish to make an overpayment of €200 per month, for instance, on top of existing arrangements for a period to catch up. We are comfortable doing that and as such that is our definition of overpayment. The customer would be meeting the full contractual repayments and catching up outside a formal forbearance structure.

There is 2% of the owner-occupier book in what we call a resolution, which is either a legal process or consensual arrangement with the customer involving disposal of the property. The legal process from our perspective or what we define as a legal process is not a case of us having written to the customer threatening action but where at least a solicitor's letter has issued to the customer. We do not anticipate that all customers in a process where legal matters have commenced will end up in a repossession scenario. We have found that when the first solicitor's letter arrives, engagement begins with customers.

With regard to the buy-to-let book, 57% is on a capital and interest payment basis. The figure was 52% at the end of December, and given the nature of the products we provided, particularly four to five years ago, such as five years of interest-only payments, we anticipate that the contractual arrangements for customers to move to full amortisation of loans will be done within the next 18 months. There has been a reduction in the total portfolio through customer repayments and 81%, or €5.3 billion, of the buy-to-let portfolio is on ECB tracker mortgages. The environment and provisioning assumptions are the same as for the owner-occupier businesses.

I have mentioned in the past to the market that of the portfolio, approximately €2.5 billion or €2.6 billion is made up of cases where a single customer might have multiple properties. The arrears performance of that portfolio is significantly worse than the overall portfolio. We find that where a customer has one buy-to-let property, the arrears performance is not exactly the same but is broadly similar to the arrears performance that we see in the owner-occupier book. It is not a direct correlation but I hope it gives further colour to the discussion. Approximately €2.6 billion of the book is made up of single customers with multiple properties and the default and arrears experience for those is materially worse than the rest of the portfolio. As I mentioned, the average figure is €5.6 billion.

Notwithstanding what I have just said, our arrears levels are 72% against the rest of the industry. I drew the committee's attention to the fact that 57% of customers are in amortisation or moving towards amortisation, and part of that increase in arrears comes from a position where customers were not meeting contracted amortisation. We have sought engagement with those customers to move them towards amortisation where possible.

We have tried to assist the committee by giving a pictorial representation of our performing book and the arrears book. Early arrears in the buy-to-let sector, notwithstanding the fact that customers are moving towards amortisation, have stabilised in the past three months.