Ms Francesca McDonagh:

I thank the Chair and members of the committee for the invitation to attend today. Joining me is Mr. Gavin Kelly, CEO of our retail Ireland division, and Mr. John O'Beirne, head of products. In my opening remarks, I will focus on three key areas; the external environment in which we operate, the transformation under way within Bank of Ireland and how we are responding to a number of key issues facing our sector and our customers.

First, I will outline the external environment in which we operate. As members know, the Irish economy is expanding. Gross domestic product, GDP, growth has been well above the euro area average since 2011. This strong performance is translating into job gains with falling unemployment. More than 2 million people are now at work in Ireland, with figures out this week putting unemployment at just over 5%. This is down from a peak of almost 16% just a few years ago. Looking ahead, Ireland is going to see significant change.

The national development plan, Project Ireland 2040, sees a population growing by more than 1 million people, up 50% in cities beyond Dublin, with a one third increase in job creation and a need for half a million new homes. Bank of Ireland is strongly supporting this growth. We are the largest lender to the Irish economy, a position held for each of the past four years. In 2017 we provided €7.1 billion in lending to personal, business and corporate customers across Ireland. This includes providing more than 50% of all new lending to Irish businesses, including the agricultural sector, and supporting two out of every three companies engaged in Foreign Direct Investment, FDI, in Ireland.

Banks ultimately exist to support their customers. Therefore, wherever possible, we work to enable our customers to overcome the challenges they face. In Ireland today, one of the most pressing of these challenges is access to housing. We are currently funding the construction of almost 3,000 residential units and 1,700 student accommodation beds in Ireland, and are supporting development on 160 sites across the country. Last year, we enabled approximately 8,000 people to buy a home in Ireland.

In the years ahead, we want to do more to support house building and home buying and business and corporate lending. We recently announced our new strategy. This reflects both the expanding Irish economy today, and the considerable demographic changes forecast over the coming years. This strategy will see us playing an even more active role in Ireland’s economic development – growing our loan book by about 20% over the coming four years, with approximately €9 billion lending growth focused primarily on mortgages, business lending and support for construction and development in Ireland. To help us do this, we have started a significant transformation programme within the Bank. There are three parts in this programme; culture, technology and our business model.

I will first address culture. A healthy internal culture in any organisation is vital. However, it is the external proof of this culture that gets the most attention. Put simply, a good culture creates great customer outcomes. As part of our culture review work over the last six months we have launched a new purpose statement and set of behavioural values. Bank of Ireland’s purpose is to enable our customers, colleagues and communities to thrive. Our values are to be customer focused, accountable and agile, and to work as one team. To embed our purpose and values within the company, we recently held 50 events for 6,000 colleagues across the Bank in Ireland and in the UK. We are also reducing the number of layers between head office and our front line. This will ensure our senior managers are closer to our customers. That will be positive in a number of ways. A simpler organisation will empower our people, speed up decision making, and make the bank more responsive to customer needs.

Our technology is the second part in our transformation programme. Bank of Ireland’s systems must be modernised. This is why we are undertaking a once-in-a-generation investment in our technology. We are replacing myriad legacy systems with simpler, state-of-the-art technology designed for how customers bank today and into the future. While core technology is a big part of this, we are also making improvements in our digital channels, services and security.

The third part of our transformation programme is our business model, that is, how we are structured and how we serve our customers. I want to ensure that digital service is combined with a physical presence and personal touch. This is particularly true for Bank of Ireland. We are committed to maintaining our extensive branch network, which currently operates in 265 locations in communities across Ireland, the largest reach of any bank.

I have listened carefully to feedback from our customers since taking up my role as CEO. It is clear that we need to improve the service we provide. Among a number of initiatives, we are now increasing our full-service branches by more than 160%, from 61 to 164. These branches will have a counter service during the full day, not just morning hours. We are increasing the number of employees in our branches and contact centres – again, this is in response to customer feedback on the need for more accessible support for day-to-day banking. We are also going to continue to use our branch network to support small businesses across Ireland. Some of our branches in Dublin, Cork, Limerick and Galway offer spaces where startups can work for free. What we call our Startlabs and FDI hubs, in Dublin, Galway and now New York help companies at the next stage of their development – growing and expanding into new markets. We are proud that our branch network is connecting, supporting and enabling the communities we work and live in to thrive.

There are a number of issues facing our sector and our customers which we are also addressing, including Brexit, regulatory capital requirements and the tracker mortgage examination.

On Brexit, having worked in nine countries in different parts of the world, I understand the value of being outward looking. It is something that has served Ireland very welll from an economic, social and cultural perspective. Nonetheless, Brexit is a reality for which we must prepare. We have been working with our customers to provide as much support as possible as they plan for the United Kingdom to leave the European Union. We have held 26 "prepare for Brexit" events across Ireland. They are aimed at the small and medium enterprise, SME, community, with partners that include Bord Bia, Enterprise Ireland, the Irish Business Employers Confederation, IBEC, and the British-Irish Chamber of Commerce. Additionally, the bank is a strong supporter of and participant in the Strategic Banking Corporation of Ireland, SBCI, Brexit loan scheme. We have held a number of events to inform SMEs of the scheme, its features and how to apply.

With regard to the regulatory capital requirements, banks in Ireland continue to be impacted on by the financial crisis. We see this in both non-performing exposures, NPEs, and the regulatory capital requirements banks must observe. At Bank of Ireland, we remain highly focused on reducing our NPEs. We have made significant progress in that regard, reducing our stock of impaired loans by almost 75% in the past few years. We have the lowest level of NPEs as a percentage of customer loans of any bank in Ireland. According to Central Bank statistics, Bank of Ireland is three to four times better in terms of Irish mortgages than the industry average. Our approach is to work with our customers to put in place sustainable solutions. We make every effort to support those who want to pay their mortgage and legal action is an absolute last resort.

There is a clear requirement from the regulatory authorities for all European banks to reduce NPEs further and to do so more quickly. The strategy we presented recently to the market does not assume any change in our proven approach to reducing NPEs. Given evolving regulatory requirements, especially as they relate to NPEs, we keep our approach to the resolution of non-performing loans under review. This is to ensure it remains appropriate in order that we can continue to make real progress in reducing our NPEs, while ensuring we retain the capital needed to deliver our strategy. That strategy is to support loan growth in Ireland, invest in the transformation of our business and deliver returns to our shareholders.

I would like to give an update on the Central Bank of Ireland tracker mortgage examination. The tracker mortgage issue became a key focus of mine shortly after I took up my position as CEO last October. I unreservedly apologised to all impacted on customers for the financial loss and anxiety this issue caused them and their families and do so again today. I set out to make sure we would deal with customers fairly and as quickly as possible. In recent months we have placed a major focus on our redress and compensation process. Today, approximately 99% of all affected customers have received an offer of redress and compensation. Affected customers have been offered redress and compensation of over €137 million, of which approximately 90% or more than €123 million has been paid so far. For the remaining offers, as soon as offer forms are returned to us, payment will be made swiftly. Approximately 1% of customers impacted on have yet to be offered redress and compensation. This equals about 80 accounts, with a redress and compensation amount of €1.1 million, or an average of around €14,000 per account. They are mostly cases in which a customer’s address has changed, including when a customer has moved abroad. There are also some cases in which the customer is deceased, with no contact information on record for their representative or solicitor. The bank is actively attempting to trace all customers or their estates in order that we can makes offers in each outstanding case.

I have provided some context regarding the economy and the economic, demographic and housing demand we will see in Ireland in the coming period. I have highlighted some of the issues our sector and customers face and how we are responding to them. I have outlined the transformation under way at Bank of Ireland, including in our culture, technology and business model. I thank the committee for giving us its time and look forward to our discussion.