Dr. Colin Hunt:

I thank the Chairman. It is my pleasure to meet the members today for the first time as CEO of AIB. The relationship between AIB and the State at every level is a matter of enormous importance to the bank and me. I look forward to open, positive and productive engagement with the committee. Alongside me are the members of my executive team: Ms Helen Dooley, Mr. Tom Kinsella and Mr. Jim O'Keeffe.

It was a privilege for me to be appointed to the helm of AIB. I am keenly aware that the bank is not just a financial institution that accepts deposits from the public and channels money into lending activities, critical as these functions are. The bank plays a vital role in the Irish economy and operates under very strict social licence, reaching into every community across the country.

AIB and the State are inextricably linked. With 2.2 million customers and a staff of almost 10,000, the bank has a uniquely close relationship with the country. As a bank, we put the rights and interests of our customers first. We must establish trustworthy financial products, support Ireland's positive economic development and ethically conduct our operations in compliance with regulatory requirements, stakeholder expectations and our customers' needs.

The financial services sector has experienced the implementation of far-reaching regulatory and supervisory reform. Members are aware that we work in a radically transformed regulatory environment where the European Central Bank and Central Bank of Ireland concentrate on all aspects of our business, from customer conduct, prudential and policy perspectives. Now, leadership, accountability and culture have come under particular scrutiny. I support that level of surveillance. I do not regard it as an imposition and I assure members we will continue to implement the standards and behaviours expected by our regulators, shareholders and customers. I will continue to drive the kind of organisational culture that, over time, persuades the public we have successfully made the transition to a more customer-focused ethos. Good culture is not built on slogans, however. Good culture is built on unified and highly developed awareness of proper governance and an appreciation of the imperative to deliver fair outcomes for all our customers. Enhancing accountability at every level across AIB is one of the cornerstones of my ambitions for the bank.

In addition to reinforcing a consumer-focused culture, another central priority of mine, as CEO, is to see the return to the State of the recapitalisation moneys provided by taxpayers following the financial crash. At this point, AIB has returned €10.8 billion in capital dividends, fees, coupons and levies. The State's remaining shareholding, of 71%, currently has an estimated market value of some €8 billion. My team and I will spare no energy in ensuring AIB remains positioned to allow the Government to recoup its investment at a time of its choosing.

In order to achieve this, it is essential for the growing economy that AIB continue to be a well capitalised, sustainably profitable and stable institution that is sufficiently robust to deal with increased risks and uncertainty, including Brexit. Without that basic profitability and stability, other bank functions and obligations cannot be fulfilled, most importantly, for our customers.

Members will be aware following the publication last month of AIB's 2018 annual report that the company delivered a strong operational performance. Its full year profit before tax was €1.25 billion, allowing the payment to our shareholders, including the State, of an increased dividend of €461 million, bringing the total dividend paid by AIB to the State in the past three years to €810 million. New lending exceeded €12 billion, up 15% on the figure for the previous year. In spite of significant supply constraints in the housing market, mortgage lending rose by 16% to €2.8 billion in 2018.

As a market leading bank, it is essential that we remain technically advanced. The unrelenting customer shift to digital banking is increasing at a rate of 10% year on year. Of our 1.8 million daily customer transactions, 1.4 million are now conducted via digital channels. AIB has more than 1.38 million active digital customers, a growth curve that demands significant investment if it is to be the kind of digital retail bank that can compete in a rapidly changing and technologly driven world. However, in addition to developing offerings such as our new digital business banking platform and dedicated apps, we must also focus investment on ongoing system resilience improvements. The threat of cyber crime remains high in modern day banking and continuous risk management involves the purchase of costly tools and services. New regulatory requirements for GDPR readiness also require a significant spend, as does the ongoing need for enhanced data and analytical capabilities.

When I joined AIB in August 2016, I was struck by a number of elements. One was the tangible progress the bank had made in recovery and restructuring, while another was the level of resources still required to resolve enduring legacy issues, principally rooted in the financial crisis. The committee is well versed in the facts surrounding the tracker mortgage examination which is now coming to a conclusion for AIB. We are, of course, co-operating fully with the Central Bank of Ireland in its enforcement process. The examination programme is materially complete, with final technical activities under way during 2019. This does not in any way obviate the fact that we will continue to deal on an individual basis with impacted on accounts that require further attention through the appeals and complaints processes. I am very aware of the financial losses and human distress caused by the tracker mortgage issue and can assure members that this chapter in the bank's history will not be finally closed until all adversely affected customers are properly compensated with fair settlements.

There is another legacy issue that does not just critically impact on the bank's viability and future, it also potentially impinges on the resilience of the economy. It is the question of how we deal with non-performing loans, NPLs. I emphasise the progress that has been made so far. Exposure has fallen, from €31 billion in 2013 to €6.1 billion at the end of last year. In personal customer terms, this means that there have been almost 100,000 solutions which include 43,000 primary dwelling houses, PDHs. We are now ten years past the financial crisis. In that time, AIB has devoted significant resources, including approximately 1,500 people, with the key objective of enabling our customers to stay in the family home, keeping viable businesses operating and supporting jobs. We developed the largest range of solutions for customers in the Irish marketplace and continue to initiate new solutions such as the development of mortgage-to-rent with iCare. We also engaged with a number of external agencies, including the Irish Mortgage Holders Organisation, StepChange and the IFA, in our overall approach to address customers' difficulties.

Our clear preference is to restructure on a case by case basis with customers who engage and provide sustainable solutions that sometimes include writing off debt. We do this as retention of our customers in good and bad times is key to our sustainability as a bank. As noted, 93% of our mortgage customers continue to meet the terms of their restructures. Addressing NPLs in a sustainable way is essential to the resilience of the banking system and borrowers since elevated levels of NPLs will severely compromise the capacity of lenders and borrowers to weather future downturns. The Central Bank, as part of the Single Supervisory Mechanism, SSM, continues to require banks to reduce NPLs to European averages by the end of 2019. However, up to now, the NPL resolution process has been gradual and frequently lengthy. The pace of reduction has begun to moderate as we deal with the more intractable cases. Meanwhile, we cannot ignore the pressure the ECB is exerting on Irish banks to reduce within a relatively short timeframe their non-performing exposure, NPE, ratios. At the end of 2018 AIB's NPE level was 9.6% of gross loans, or €6.1 billion. Last week we announced a portfolio sale of €1 billion where 95% of the arrears were non-performing for over two years and 80% of connections were non-performing for over five years. This sale further reduced our NPE ratio to market estimates of some 8%. The European average is approximately 3.5% and our aim is to reach circa 5% by year end. However, this should be seen as a milestone, not a destination.

AIB is still carrying a large chunk of deep long-term arrears that simply must be reduced. It is imperative that we bring clarity to the debate and confront the reality of the impact of NPLs on individuals, the economy and banks' viability. NPLs inhibit banks' primary function of lending to the economy and, ultimately, increase bank costs, resulting in higher rates for businesses and home buyers. It is also true to say the individual customers who do meet their loan repayments are, in effect, negatively impacted on by those who do not repay. Overall, Irish banks must hold more capital than other European banks because of our credit default history. This requirement to hold large and expensive provisions or buffers against the possibility that customer debts will go into default means additional costs for customers. For example, Irish banks must hold approximately €50 of capital for every €1,000 of lending compared to €16 per €1,000 in the case of other European banks. The deeper the arrears, the greater the buffers, all of which impacts on banks' ability to function normally. AIB has to ensure it is not left vulnerable to future economic downturns by existing NPLs and potentially new defaults. While the bank is very well capitalised, as CEO, I would find it unconscionable to allow it to confront future shocks while still fettered by legacy issues we can actually deal with now. To best equip the bank to deal with future economic challenges and continue to support the economy and our customers, we must work to put our balance sheet in the strongest possible position.

I appreciate that some members of the committee are strongly opposed to the sale of NPL portfolios, but let me be clear. AIB is not in the business of allowing its customers to be cast aside as an inconvenience. The Oireachtas has ensured the protections of the Central Bank of Ireland's codes of conduct are transferred with the loans to the new owners, something we fully support. Our strong preference is to retain these customer relationships where they are in our mutual interest and the customers engage with us.

Meeting the demand for housing is obviously a continuing struggle for the market, in spite of a 25% increase in the number of new dwellings completed last year. AIB is actively engaged in residential development as an area of strategic importance for the economy and the bank. In 2018 the bank was the primary funder for live developments comprising 4,600 units - up by 53% on the figure for 2017 - as well as funding €175 million of mortgages for self-builds. We are in our third year of funding a development in Poppintree in Dublin for the not-for-profit developer Ó Cualann Cohousing Alliance. It has proved to be a strikingly impressive model for affordable housing, allowing local purchasers with a maximum income of €79,000 to buy their own home.

Brexit is, of course, just one of the exposures Ireland faces as a small highly globalised economy. We are also conscious of cyclical risks associated with changes to international trade patterns and taxation regimes. I mentioned the symmetries between AIB and Ireland. We must all work to ensure resilience in the economy and the financial system in the face of these risks. We may not be able to control the external environment, but we must be alive to actions we can take domestically to minimise future adversity and downturns. As of now, Ireland's economic outlook remains positive. I am very glad to become CEO of a bank that can help to fuel the economy and play a strategic role in ensuring the future of the company and that the country will remain optimistic. We very much appreciate the opportunity to meet the committee and look forward to taking members' questions.