Mr. David Duffy:

I thank the Vice Chairman and members of the joint committee for again giving AIB the time to provide the Oireachtas and the Irish public with a comprehensive update on the bank’s transition from recovery in previous years to growth, as well as an overview of our strategic priorities. I will try to be brisk in my summary to allow as much time as possible for the questions.

As members are aware, AIB is a listed company on the Irish Stock Exchange and consequently, the comments we make today regarding the possible performance of the bank in particular should not be considered as forward guidance and nor should they be considered a solicitation to buy shares in the bank. As the Vice Chairman noted, we have submitted responses to the questions sent to the bank by the Oireachtas and have endeavoured to answer the questions as fully as possible within the confines of the disclosure requirements imposed by our listing rules. We also have submitted a short presentation, which summarises the recent financial performance of the bank.

Next month, it will have been three years since I joined the bank as chief executive and this is the fourth occasion since I took up the role that we have had the opportunity to meet the Joint Committee on Finance, Public Expenditure and Reform. We find it to be a most valuable forum in which to explain our performance and, on this occasion, my team and I are presenting a picture that is in sharp and positive contrast to our first meeting with the joint committee back in October 2012. At that meeting, we outlined a three-year strategic plan to restore our stability, achieve sustainable growth and return to profitability. This involved fundamental and major organisational change, restructuring, deleveraging and the introduction of a much-reduced cost base. We were obliged to restructure the balance sheet, overhaul our funding and lending profiles, rebuild credibility with the funding markets, meet restructuring targets and position the bank for prudent loan growth. In 2012, we focused on restructuring the business across all elements of the bank, from the balance sheet size and structure to cost-reduction programmes. In 2013, we focused the energy and direction of the bank on rebuilding our relationships with all our customers and on the external commercial agenda, while seeing improvements in the operating performance of the bank. This year, in 2014, we have been in a position to focus on prudent lending growth and profitability while at the same time accelerating our progress on dealing with customers in arrears.

We are happy to be here today to demonstrate the degree of the bank’s recovery and the benefit this will bring to our customers and to the wider Irish economy. In summary, AIB is now a profitable business that is generating capital, has received European Union approval for our restructuring plan, has passed the European Central Bank, ECB, stress tests without the requirement for additional capital from the State, sees reducing arrears levels and overall levels of impaired loans and is well-positioned from a funding, capital and liquidity perspective to grow prudently the bank’s loan book over time and support economic recovery. To be more specific, this year we returned to profit before tax with €437 million generated in the first half of 2014, which is a €1.3 billion improvement in performance over the first half of 2013. To the end of September, total impaired loans reduced by circa €4.6 billion, which is a 16% drop since December 2013, with the total number of accounts in arrears in the Irish residential mortgage portfolio declining by 11% and arrears for owner-occupier mortgages down by 15%.

Members will be aware that at the end of last month, AIB passed the European-wide stress testing exercise conducted by the European Banking Authority and the European Central Bank in conjunction with the Central Bank of Ireland. Under the comprehensive assessment, AIB’s capital buffers were comfortably above minimum requirements under all stress test assessment scenarios. Passing the stress tests was an important event for AIB and the Irish economy. It was not just confirmation of the bank’s current capital position but was an important external validation that the bank is equipped and capitalised to deal with future shocks should they arise. On Monday last, 10 November, AIB’s interim management statement covering the quarter to 30 September 2014 showed a continuation of the company’s half-year results. The statement indicated that the overall operating performance of AIB was ahead of expectations in the year to date. The bank’s profitable trend was maintained, generating additional capital in the third quarter of the year. A copy of this information has been sent to the joint committee.

Lending to customers is of course the true test of our financial health and is critical to our future growth and Ireland’s economic recovery. While there is much conjecture as to the appetite for banks to lend in the economy, I want to be clear that AIB is seeking to increase its lending and has the ability to do so.

Bearing in mind the lessons from the recent past, this does not mean that we will approve all applications but it does mean that we have the appetite to support viable lending opportunities at competitive lending rates which reflect the cost of operating our business, the risk associated with lending in a recovering economy and the need to generate a commercial return for shareholders.

AIB approved lending of approximately €9 billion in the first nine months of 2014 and this is a 39% increase on the same period in the previous year. As such, AIB is on track to exceed its €7 billion to 10 billion lending approvals target for 2014. AIB has leading market shares in Ireland across our personal, small and medium-sized enterprise, SME, and corporate businesses. AIB is the No. 1 bank in Ireland for start-ups, it is the largest lender to the agri-sector and it has numerous active funds to support lending and economic recovery as part of our dedicated sector specialist approach to our customers.

New lending drawdowns of approximately €4 billion in the first nine months of the year represented a 40% increase on the same period in 2013. These figures are reflective not only of the improving economic backdrop in our main markets of Ireland and the UK but also speak to the underlying ability of the bank to lend prudently to our customers. As AIB continues to return to more normalised operations, the leadership team and I are strongly of the view that this should benefit customers whilst striking a balance with ensuring the bank is operating commercially and generating a return for shareholders who are, ultimately, taxpayers. To this end, and as a result of the bank's underlying positive performance and funding cost reductions, AIB, EBS and Haven recently announced a number of reductions to variable and fixed interest rates for owner-occupier mortgages. The move benefits approximately 146,000 existing mortgage account holders. For example, customers with a €200,000 mortgage will save up to €334 per annum, based on a 25-year term.

We remain very conscious of the need to bring debt resolution and certainty to our SME customers in difficulty. We are accelerating activity in this area and are meeting targets for restructuring. Facilitating SME customers to return to more manageable debt levels and moving onto a growth curve requires intensive one-to-one engagement but we are seeing tangible results and this is reflected in our financial results and in the reduction in the level of impaired loans on the bank's balance sheet. Likewise with mortgages in arrears, increased customer engagement is evident and the overall economic upturn means we are now seeing a reduction in mortgage arrears and in the overall levels of impaired loans.

We have engaged in a project with the Irish Mortgage Holders Organisation, IMHO, that offers customers in difficulty an alternative avenue of dealing with the bank. The scheme, announced a year ago, allows customers in difficulty with their mortgage repayments to avail of the independent third party services of the IMHO to advise clients and engage with the bank on their behalf. The initiative is available free of charge to AIB Group customers, including those with EBS and Haven, who are experiencing residential mortgage difficulties. Solutions offered and concluded with our customers, whether through the IMHO or directly through our own arrears management unit, are fundamentally based on the principle of maximum affordability for the customer. Whether regarding SMEs or mortgages, the solutions we are agreeing with our customers in difficulty are based on a principle of maximum affordability and are being concluded on commercial terms.

While the bank has made progress in recent years, we recognise that a number of challenges lie ahead and that overall personal and business debt levels and the number of impaired loans in the economy are still elevated. We will continue to focus on rebuilding the trust and confidence of our customers and improving our customer service levels. Additionally, as a commercial organisation we are focused on generating competitive returns for shareholders over time. It is a core principle of the bank to treat all of our customers, including those in arrears, on an equitable and fair basis, regardless of their circumstances and their position in society. This principle is vital to the long term sustainability of AIB.

In summary, on behalf of the bank, I want to again express thanks to the Chairman and committee members for inviting us here today. We have implemented changes to our approach based on previous Oireachtas sessions and I genuinely view this as an invaluable element of shaping the bank's thinking and strategy. Members will appreciate that, as a public company with a commercial mandate, we have to balance the requirement of generating value for our shareholders, principally Irish taxpayers, with the requirements of our customers who also support the bank. Meanwhile, I reiterate that everyone in the bank, including the board, the leadership team, our workforce and myself, will continue to seek to prudently grow the business commercially for the benefit of our customers, our shareholders and the wider economy.