bank of ireland (uk) plc annual report 2017 · we closed six of our branches in 2017, reflecting...

Bank of Ireland(UK) plc Annual Report2017

Annual Report UK 2017.qxp_Layout 1 14/03/2018 11:38 Page i

Bank of Ireland (UK) plcAnnual Report

for the year ended 31 December 2017

Company Number: 07022885

Annual Report UK 2017.qxp_Layout 1 14/03/2018 11:38 Page iii

THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK

Annual Report UK 2017.qxp_Layout 1 14/03/2018 11:38 Page iv

Bank of Ireland (UK) plc (the ‘Bank'), together with itssubsidiary undertakings (which together comprisethe ‘Group') is the principal United Kingdom retailand commercial banking business of the Governorand Company of the Bank of Ireland (the ‘Parent').

Percentages throughout the document arecalculated on the absolute underlying figures and somay differ from the percentages calculated on therounded numbers presented, where the percentagesare not measured this is indicated by n/m.

Business Review 2

Key highlights 2

Chairman’s statement 3

Strategic report 5

Risk Management 30

Risk management framework 31

Management of key risks 36

Capital management 64

Governance 66

Directors and other information 66

Report of the Directors 70

Financial Statements 71

Statement of Directors’ Responsibilities 71

Independent Auditors’ report 72

Consolidated financial statements 79

Bank financial statements 132

Other Information 160

Principal business units and addresses 160

Pillar 3 disclosures 160

Abbreviations 161

Contents

1Annual Report - year ended 31 December 2017

Annual Report UK 2017.qxp_Layout 1 14/03/2018 11:38 Page 1

2 Annual Report - year ended 31 December 2017

Business Review

Key highlights

During 2017, the Group continued to invest in new products and to extend its distribution reach, with the priority of putting ourcustomers and colleagues at the centre of everything we do. This resulted in a 12% increase in new customer lending at £4.5 billionand an underlying profit before taxation of £151 million.

Profits were lower than the prior year reflecting the increased investment made in the business, changes in the mix and behaviours ofour product portfolio, and as a result of the ongoing competition in the UK consumer lending market. We further grew our personal loanand new mortgage business during 2018, significantly reduced our funding costs, acquired a strategically important andcomplementary car leasing and fleet management business (Marshall Leasing Limited) and continued to win many industry awards.

The UK market offers many opportunities for Bank of Ireland (UK) plc, but inevitably also various challenges. These include continuedpolitical and economic uncertainty associated with the outcome of Brexit negotiations, the risk of weakening consumer and businessconfidence and a highly competitive retail consumer financial services market.

Given this backdrop, we continue to bring the unique Partnership Bank Strategy and its values to life for our customers, colleagues andpartners, and strengthening this culture will enable us to deliver our strategic plans for the future.

Looking forward to 2018 I am therefore confident that given the momentum in the business, combined with a strong risk and costculture and our clear focus on profitable customer and partner offerings, that we will build on our trading performance and deliversustainable returns for all our stakeholders.

Des Crowley, Bank of Ireland (UK) plc Chief Executive Officer

Customers • Continuing to focus on our

customers needs andaspirations across all ourbrands and partners.

• Winning more awards in theyear across mortgages,personal lending and foreignexchange products.

• Transforming the customerexperience through technicalinnovation, digitisation andproduct development.

Profitability • Profit before tax of £151

million (2016 : £193 million).

• Net interest margin 2.02% (2016 : 2.07%).

• Total operating expenses andchange spend of £328 million (2016 : £313 million).

• Impairment charges of £26million (2016 : £23 million).

• £160 million dividend paid tothe Parent (2016 : £220million).

Capital • CET1 ratio 14.7%.

• Total capital ratio 20.5%.

• Over £4.5 billion of newcustomer lending.

• Optimised capital restructurewith a net £45 millionreduction of Tier 2.

• IFRS 9 transition impact of c.30 bps.

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Chairman’s statement

2017 has been a year of consolidationwith significant investments made toensure sustained profitability for theGroup. We continue to operate in a highlycompetitive retail consumer financialservices market with various uncertaintiesregarding the possibility of higher interestrates, changes in customer behaviours,and the potential headwinds associatedwith the UK’s decision to leave theEuropean Union.

Against this context I am pleased to reportthat the Group has built on its significantstrengths, including its unique partnershipapproach to retail banking, introducingnew customer propositions andbenefitting from a strong capital andfunding base. We have invested in ourpeople, systems and customer serviceand remain focused on deliveringcompelling and value for money productsfor the customers we serve. Our strategicpriorities are concentrated on:• Transforming our culture, our

technology and our business models;• Serving our customers brilliantly; and• Growing sustainable profitability and

returns for our shareholders.

2017 financial performanceOur reported underlying profit before taxof £151 million was £42 million lowercompared to our 2016 reported profit of£193 million. This year on yearperformance, reflects a 5% decrease innet interest income (as a result of changesin the mix and behaviours of our productportfolio and the ongoing competition inthe UK consumer lending market), offsetby improvements in the cost of funding.

In addition we continued to invest for thefuture, including significant investments inour partnerships, people and propositions,with operating expenses increasing by 5%during 2017.

We grew our new lending during 2017 by12% to £4.5 billion, maintainingcommercial and risk managementdiscipline, while we improved our assetquality and have a fully loaded CET1 ratioof 14.7%. Our net interest margin remainsstrong at 2.02%, despite the backdrop oflow interest rates and during 2017 we paida further dividend to the Group of £160million.

Our strategic partnershipsOur purpose is to be the leadingpartnership bank and to enable ourpartners, customers, colleagues andcommunities to thrive. Partnership

remains a distinctive and importantcharacteristic of our business strategy. Wehave grown and strengthened ourrelationships with our external partners,our internal partners, and customers. Wework closely with all our partners indeveloping customer propositions, alwaysseeking to secure improving benefits forall.

Our longstanding relationship with thePost Office remains a significant andimportant part of the Group’s strategy withshared plans for a sustainable businessthat creates long term value. Through thePost Office Money brand, the Groupprovides easy access to a full range ofretail financial products including savings,mortgages, loans, credit cards and ATMfacilities for Post Office customers.

Our foreign exchange joint venture withthe Post Office, First Rate ExchangeServices Limited, is the largest provider ofconsumer foreign exchange in the UK. Ithas reported a further solid year of tradingin an increasingly competitive market,which has been directly impacted byeconomic and geopolitical uncertainty.Through its digital applications First RateExchange Services Limited, providesongoing innovation in the products andservices supplied to our customers.

Our partnership with the AA in the UK hasmaintained its forward momentum. Bothparties have worked together tosuccessfully develop AA financial servicespropositions for AA members and thewider public through a new and enhancedrange of retail banking products. Aftertwo years of trading the partnership hason-boarded over 150,000 new customerrelationships and at year end hadachieved a lending book of c.£350 millionin assets, with strong and controlledgrowth in our personal loan offering.

Growing our mortgage businessThe Group has a wide network of strategicdistribution partnerships in the mortgageintermediary market, offering our productsunder both the Post Office and Bank ofIreland brands. Overall new mortgageorigination across all channels increasedc.15% to c.£3.2 billion, with a number ofnew and distinctive products launchedduring the year. As a business, we arefocused on the needs of our customersand are maintaining our investments ininnovative products, thereby addressingour customers ever changing needs andaspirations.

We have enhanced our operationalcapability through improvements in ourprocessing technology and haveintroduced a new online mortgage servicein November 2017 which allows mortgageoffers to be available for brokers to viewand download via the Group's awardwinning mortgage application system“Rome”. For the second year running theMortgage business was awarded five starsat the FT Advisor Online Innovation andServices awards.

Similar to many other players in themortgage market, the Group found thatmanaging redemptions during 2017 waschallenging. The final redemption figurefor the mortgage business was broadly inline with budget reflecting the Group’sstrategy and focus on retention andbuilding mature customer relationships.

Building successful, sustainablebusinesses in Northern IrelandDespite challenging market conditionswith strong competition from establishedplayers and challenger banks, ourNorthern Ireland franchise increased itsprofit before tax by 6% to £53 million. Thisreflects strong margin performance, strictcost control and ongoing management ofimpairment charges on its commercialloan portfolio.

We closed six of our branches in 2017,reflecting the increasing move incustomers’ expectations for the delivery offinancial services away from requiringbranch premises and towards digitalservices, not just in banking but across allindustries. This will contribute to ensuringthe long term sustainability of thisbusiness, while ensuring we continue tomeet our customer needs in a multi-channel and increasingly digitalmarketplace.

Northridge Finance & Marshall LeasingNorthridge Finance, our car and assetfinance business, based in NorthernIreland but which delivers products andservices to the whole of the UK marketunder the Northridge brand, had anotherexcellent year. In what is a highlycompetitive sector, total business lendingincreased by 7% over 2016 levels to £1.5billion. As part of the Group’s growthstrategy, in November 2017 NorthridgeFinance acquired a strategically importantand complementary car and commercialvehicle leasing and fleet managementcompany, Marshall Leasing Limited. I amdelighted to welcome the Marshall teaminto the BOIUK family.

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Chairman’s statement

Great Britain Business BankingThe business banking operation in GreatBritain, which is a historical business lineand is being wound down, maintained itsdeleverage programme ahead of targetwith lending volumes now at £0.3 billion.The management of this businesstransferred in 2017 to our team inNorthern Ireland.

Balance sheet and fundingDuring 2017 in line with its plans, theGroup optimised its balance sheetposition by growing its net lending by over£150 million and rebalanced its fundingposition accordingly. The Group is stronglycapitalised, which will support its ambitionfor growth in the future.The Group while still primarily retaildeposit funded drew down from the Bankof England Term Funding Scheme andIndexed Long-Term Repo scheme during2017.

Our partners, customers, colleaguesand communitiesThe success of the Group would not bepossible without our partners, the supportof our customers and the commitment ofour colleagues. Our purpose of being theleading UK partnership bank is centred onimproving the behavioural values that wehave prioritised including, do the rightthing, strive for results, succeed togetherand relate to our customers.

I would like to thank our partners and our2.9 million customers for their trust, loyaltyand their business. They are thefoundations of our success, and bycontinuing to support our customers andcommunities with easy, simple andaccessible products we will endeavour toexceed their expectations and to deliver abrilliant experience to all.

During the year we sought and obtainedfeedback from our colleagues through anemployee engagement survey to getinsights on what matters to them. I wouldpersonally like to thank all my colleaguesfor this important feedback and also ontheir professionalism, determination, andcommitment to the Group, its businessesand customers. During 2017 we havemaintained our investment in, and supportof our staff through skills training,supporting professional qualifications andcareer management. We are committedto a culture which respects and valuesdiversity of qualities.

We continue to provide support forcharitable organisations through “GiveTogether” and our other initiatives.

Board membershipThere have been a number of changes inour Board membership over the last yearand I would like to thank all my colleaguesfor their valued contributions during 2017.

The executive team was strengthened inthe year with the appointment in March2017 of Thomas McAreavey to the Boardas Finance Director.

Amongst non-executive Directors, PeterShaw, David Weymouth, Pat Butler andLewis Love retired from the Board. I wouldlike to thank Peter, David, Pat and Lewisfor their diligence, support and counsel asBoard members during the period.Furthermore in November 2017 wewelcomed Mimi Kung to the Board andRisk Committee membership.

In October 2017, Ms FrancescaMcDonagh commenced her position asBank of Ireland Group CEO, while MrRichie Boucher stepped down. I would

like to thank Richie for all his commitmentto the Bank of Ireland Group and UKbusiness and look forward to workingclosely with Francesca in the comingyears in strengthening the UK business.

For my part, I have very much enjoyedworking with the Board during my first fullyear. I look forward to another year ofprogress in 2018.

OutlookIn 2018 and beyond we are determined tobuild on the momentum made in recentyears, making appropriate investments inour business and customer propositionswhile making further progress inembedding a strong risk managementframework and improvements in our riskculture.

We will increase our focus on costmanagement, recognising the need forcontinual improvements in efficiencies inan increasingly competitive and dynamicmarket, where customer preferences andtheir interaction with us is changing.

We need to improve our agility to meet ourcustomers changing needs and strive tomaintain margins while offering value incustomer products. All of this will enableus to continue to deliver sustainablereturns to our shareholders.

Lastly, I would like to add my sincerethanks to the Executive team for theircontribution, dedication and determinationin delivering against the Group’sobjectives in 2017 and for the banksongoing success. We are all committed tobe the leading partnership bank which willenable our partners, customers,colleagues and communities to thrive.

Robert SharpeChairman6 March 2018

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


Strategic report

Index Page

1.1 Purpose of the strategic report 6

1.2 Group key performance summary 6

1.3 Group structure 8

1.4 UK economic and market environment 8

1.5 Our business strategy and goals 10

1.6 Corporate social responsibility 13

1.7 Financial review 15

1.8 Principal risks and uncertainties 24


Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



1.1 Purpose of the strategic report

The strategic report is a statutoryrequirement under the Companies Act2006 (Strategic Report and Directors’Report) Regulations 2013, and is intendedto be fair and balanced, and to provide

information that enables the Directors tobe satisfied that they have complied withSection 172 of the Companies Act 2006(which sets out the Directors’ duty topromote the success of the Company).

The strategic report has been presentedon a consolidated basis for the yearsended 31 December 2017 and 31December 2016.

Strategic report

1.2 Group key performance summary

2017 2016 £m £m Operating profit before impairment charges on financial assets 143 181Impairment charges on financial assets (26) (23)Share of profit after tax of joint venture 34 35Profit before taxation 151 193

Performance measures Net interest margin (%) 2.02% 2.07%Average interest earning assets 23,386 24,053Cost income ratio (%) 70% 63%

Segmental operating profit / (loss) before taxation1

Great Britain Consumer Banking 134 165Northern Ireland 53 50Great Britain Business Banking 12 15Group Centre (48) (37)Profit before taxation 151 193

Impairment charges on loans and advances to customersConsumer (15) (4)Residential mortgages (2) (2)Non-property SME and corporate (1) -Commercial property and construction (8) (17)Total impairment charges on financial assets (26) (23)

1 Operating segments are defined on page 100.

2017 2016Consolidated balance sheet and key metrics £m £m Shareholders’ equity 1,999 2,050Total assets 26,235 25,960Loans and advances to customers (after impairment provisions) 19,997 19,821Customer accounts 18,961 19,475Return on assets (%) 0.50% 0.63%

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Definition of key performancemeasures

Net interest margin – is defined as netinterest income for the year divided byaverage interest earning assets, net ofspecific provisions.

Average interest earning assets – isdefined as the twelve month average oftotal loans and advances to customers,cash placements, securities balances andnet balances owed by the Parent (theGovernor and Company of the Bank ofIreland).

Cost income ratio – is defined asoperating expenses expressed as apercentage of total operating income.

Return on assets – is calculated as profitafter tax for the year divided by totalassets, in line with the requirement in theEuropean Union (Capital Requirements)Regulations (CRR) 2014.


Capital ratios – capital ratios express theGroup’s capital as a percentage of its riskweighted assets and are calculated on aCRD IV fully loaded basis.

Leverage ratio – is calculated as the tier 1capital divided by total balance sheetassets and off balance sheet exposures.

Risk weighted assets (RWAs) – on andoff balance sheet assets are risk weightedbased on the amount of capital required tosupport the assets. The Group adopts astandardised approach for calculatingRWAs.

Liquidity coverage ratio (LCR)1 – iscalculated as the high quality liquidassets, divided by net cash outflows overthe next 30 days, expressed as apercentage.

Net stable funding ratio (NSFR) – isdefined as the total amount of availablestable funding divided by the total amountof required stable funding, expressed as apercentage.

Loan to deposit ratio – is defined asloans and advances to customersexpressed as a percentage of customerdeposits.

In addition to the key performancemeasures set out in this section, other keyperformance measures are discussed insection 1.7.


Strategic report

1.2 Group key performance summary (continued)

2017 2016Capital % % Common equity tier 1 capital ratio 14.7% 15.5%Tier 1 capital ratio 17.7% 18.4%Total capital ratio 20.5% 21.8%Leverage ratio 6.6% 6.9%Risk weighted assets (£m) 10,231 10,034

2017 2016Liquidity % % Liquidity coverage ratio1 127% 115%Net stable funding ratio 130% 130%Loan to deposit ratio 105% 102%

1 The Group's Liquidity coverage ratio is calculated based on the Commission Delegated Regulation (EU) 2015/61 which came into force on 1 October 2015.

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Strategic report

1.3 Group structure

UK economic and market environmentThe performance of the UK economy in2017 was broadly in line with marketexpectations with GDP growth estimatedto be c.1.8%, a slightly more subduedoutcome compared to recent years inwhat is now a mature recovery. Politicaldevelopments again cast a shadowfollowing the outcome of a snap generalelection, the beginning of EU withdrawalnegotiations and heightened uncertaintiesover the likely shape of the post-Brexit UKeconomic landscape.

Despite these developments, the labourmarket continued to demonstrateresilience with unemployment falling to a42 year low of 4.3% and the employmentrate rising to a new recorded peak above

the 75% level during the year. Wagegrowth however remained relatively mutedat around 2% on average, as the generalrecovery in productivity performanceacross the economy continued todisappoint.

A key development during 2017 was therevival in retail inflation with the target CPImeasure reaching a six year high of 3.1%in November, largely reflecting rising costsfrom the impact of the significantdepreciation in the sterling exchange rateafter the 2016 EU referendum.

2017 also saw the first increase in theBank rate in a decade, with the MonetaryPolicy Committee effectively reversing the25bps cut that was judged appropriate in

the aftermath of the EU referendum in2016. However, the immediate impact onthe market was limited reflecting thechanging pattern of borrowing andstronger preference for fixed rate productsin recent years.

Growth in our key markets Housing market developments continuedto mirror those of the wider UK economyin 2017, slightly subdued and with someparts doing better than others. Overall,average house prices ended the year justover 2.5% higher on some indices1,representing a modest deceleration in thepace of growth compared to recent years.Total residential transactions wereestimated at c. 1.2 million, slightly below2016 levels with arrears and possessions

1.4 UK economic and market environment

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

At 31 December 2017, the Groupconsisted of Bank of Ireland (UK) plc (the‘Bank’) and its share in the entities asshown above. A summary of eachshareholding is as follows:• 100% of NIIB Group Limited (NIIB) –

an asset finance and consumerlending group trading as NorthridgeFinance.

• On 24 November 2017, NIIB GroupLimited acquired 100% of the ordinaryshare capital of Marshall LeasingLimited (MLL) from the entity’s parentcompany, Marshall Motor Holdings plc(Refer to note 20). MLL is a car andcommercial vehicle leasing and fleetmanagement company based inCambridge in the United Kingdom.MLL owns 100% of the ordinary sharecapital of Gates Contract Hire Limitedwhich is a dormant company.

• On 15 September 2017, NorthridgeFinance Limited, a dormant subsidiaryof NIIB entered member’s voluntaryliquidation.

• 50% of First Rate Exchange ServicesHoldings Limited (FRESH), a jointventure, which, via its wholly ownedsubsidiary, First Rate ExchangeServices Limited (FRES), is awholesale and retail provider of foreignexchange with retail distributionprimarily via the Post Office.

• 100% of Bank of Ireland TrusteeCompany Limited – this companyceased trading in February 2014.

• 100% of Midasgrange Limited – thiscompany traded as Post OfficeFinancial Services until 3 September2012 when the trade, assets andliabilities transferred to the Bank.

• Bowbell No. 1 plc (Bowbell) - an entity

which acquires mortgage loans andissues mortgage backed securities.The Bank does not own more than halfof the voting power in the companybut it is deemed a subsidiary inaccordance with IFRS 10 (Refer tonote 38).

The Bank is a public limited companyincorporated in England and Wales anddomiciled in the UK.

The Group is regulated by the PrudentialRegulation Authority (PRA) and theFinancial Conduct Authority (FCA).

The Group’s immediate parent is theGovernor and Company of the Bank ofIreland (the ‘Parent’).

1 Nationwide, Halifax House Price Indices (January 2018)

NIIB Group Limited(plus subsidiaries)

100%

Gates ContractHire Limited

100%

Bank of Ireland TrusteeCompany Limited

100%

First Rate ExchangeServices Holding

Limited 50%

Midasgrange Limited100%

Bowbell No. 1 plc

First Rate ExchangeServices Limited

100%

Bank of Ireland (UK) plc

MarshallLeasingLimited100%

Bank ofIreland

PersonalFinanceLimited100%



Strategic report

across the market remaining low butmarginally up on the previous year. Grossmortgage lending was estimated by UKFinance to have reached £248 billion, thehighest since 2008.

Price competition remained intense in themortgage market, supporting a shift in themix of borrowers towards both first-timebuyers and, as the year progressed,stronger refinancing activity. Governmentschemes such as the Help to Buy equityloan helped boost the numbers of thoseseeking a foot on the ladder while recordlow interest rates and the prospects ofpolicy change encouraged a rise in thenumber of loans for remortgage. Thehome-mover segment continued to beless vibrant, limiting the supply ofproperties coming on the market. Regionalvariations in performance were againevident with the London and South-Eastmarket experiencing a more mutedperformance relative to other parts of theUK where affordability seemed lessstretched.

Regulatory and fiscal changes, includingthe first stage of a four year transition ontax relief and the change in stamp duty foradditional homes continued to reduceconfidence and dampen activity in thebuy-to-let market, continuing a trend thatcommenced in 2016. The significance tothe market of the change to stamp dutyfor first time buyers announced in theNovember budget remains to be seen.

Consumer credit growth continued tosignificantly outpace the wider economyduring 2017 although there was someevidence that the strength of demand mayhave eased slightly in the second half ofthe year, consistent with more cautioustrends in household spending and as themarket responded to pronouncements onrisk from the Regulator. The growth inpersonal deposits also slowed to c. 2%year on year, with some signals thatconsumers were partly sustainingspending by utilising savings.

After a five year period of consistentlystrong year on year growth, a combinationof cyclical and structural factors impacteddemand for new cars in 2017, resulting inthe weakest year for new registrationssince 2011. By December 2017, Society ofMotor Manufacturers and Traders (SMMT)reported new registrations were down

5.7% year on year. In contrast, the marketfor used cars and associated demand forfinance proved more resilient with abroadly steady performance reported in2017.

Despite a political impasse, the absenceof devolved government and particularBrexit-related uncertainties, the regionaleconomy in Northern Ireland had a steadyyear with growth rates slightly below withthe UK overall. While rising inflationpresented a more difficult climate forhouseholds, SME activity levels remainedpositive with the lower exchange rateboosting cross-border retail flows, strongtourism numbers and manufacturingexports. The region continued to attractForeign Direct Investment (FDI) while bothresidential and commercial propertysectors enjoyed a steady year, helpingsustain demand for both mortgage andbusiness finance.

Outlook for 2018 2017 ended on a positive note with the EUagreement that “sufficient progress” hadbeen made to allow negotiations to moveon to a possible transition agreement andlonger-term trade deal. This would appearto have reduced the risks of a disorderlyexit from the EU although significantuncertainty remains and in doing so mayunderpin economic confidence in the yearahead. While the possible long-termimpacts on the UK economy remaindifficult to predict, as a primarily retailfunded and UK domestic focussed bank,the Group will continue to evaluate andrespond to the emerging risks andopportunities from a changing externalenvironment.

While all forecasts carry even moreuncertainty than usual in the currentenvironment, the consensus expectationis that UK GDP growth will continue in alower gear in 2018, unemployment willremain low but will rise modestly andconsumer inflation pressures will easegently back towards the 2.0% target.While there are some tentative signs ofupward pressure on wages, overall thesqueeze on real earnings is expected tocontinue for much of the year representinga continued headwind to growth inhousehold discretionary spending.

Levels of business investment are likely toremain sensitive to fluctuating Brexit-

related sentiment but the prospects formanufacturing exports seem brighter,aided by a more optimistic outlook forgrowth in key global markets and thecompetitive exchange rate.

Residential and Commercial propertyprices and activity levels are expected tobe broadly stable in the year aheadalthough with significant regionalvariations. The affordability stretch andsupply constraints are more prominent insome areas than others. The market waitsto see what impact, if any, the reform tostamp duty and measures to boost supply(as announced in the November Budget)will have on the market. First Time Buyersare again likely to outnumber home-movers while buy-to-let activity mayremain subdued in the near term. TheGroup will continue to support thesecustomers who want to own their ownhome and is continually innovating todevelop products to meet customersneeds.

Another modest tightening of monetarypolicy is expected during 2018 with theMonetary Policy Committee seeking tobring inflation back towards the 2% target.The magnitude and timing of any interestrate increases are likely to be influencedby the pace of wage growth.

If the economy evolves in line with theconsensus view, the Group would expectgrowth across our markets to be broadlystable in aggregate although the pace ofgrowth in consumer credit may continueto decelerate from the double-digitpercentage rates of recent years. This is asegment of market where the Regulatorhas highlighted “pockets of risk”.

As reflected in the latest Office for BudgetResponsibility outlook whichaccompanied the Budget, the mediumterm prospects for the UK economy, fiscaltargets and average living standards arelikely to remain quite challenging in theabsence of a more vigorous recovery inproductivity.

In uncertain times the Group will continueto monitor the resilience of the economyand changing behaviours but the priorityremains to provide high quality productsand services to our customers through ourrespective partnerships and franchisebusiness in Northern Ireland.

1.4 UK economic and market environment (continued)

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Strategic report

Strategic vision Strategic priorities delivered through Key performance measures Addressing principal risks1

Growth in NorthernIreland andsustainedprofitability

Building a sustainable consumer bankingfranchise by further growing thecomplementary Post Office and AA financialservices relationships and other strategicpartnerships. Optimisation of the Group’sconsumer lending strategy.

Income, net interest margin and profitbefore taxation (including segmentalperformance) - applies to all aspects ofthe Group’s strategic plan with actualperformance compared against plans andprior periods.

• Credit risk• Liquidity & funding risk• Market risk• Regulatory risk • Operational risk (including

legal risk and outsourcing) • Business / Strategic risk• Reputation risk• Capital adequacy risk• Conduct risk

Growth in GreatBritain ConsumerBanking throughpartnerships withPost Office and AA

Improving the operating profitability and newbusiness levels of the business, bysupporting our customers and the NorthernIreland economy.

Effective management of fundingrequirements through a mix of customerdeposits and wholesale funding tosupport the growth in lending volumes,with continued discipline on pricing.

• Credit risk• Regulatory risk • Operational risk (including

legal risk and outsourcing)• Business / Strategic risk• Reputation risk• Conduct risk

Product & ServiceDevelopment:serving customersbrilliantly

Transforming the customer journey andexperience through technical innovation,digitisation and product development;ensuring that we are fair, compliant andaccessible, as set out in the Group’sCustomer Charter.

Conduct Compliance Key RiskIndicators.

• Capital adequacy risk• Credit risk• Liquidity & funding risk• Market risk• Regulatory risk • Business / Strategic risk• Conduct risk

SustainableReturns withinRisk Appetite

Generating sustainable returns from existingand new business, that are aligned with theGroup’s risk appetite and that achieve therequired return on capital for the shareholder,with increased focus on cost efficiency.

• Profitability, capital, liquidity andfunding ratios

• Cost income ratio• Conduct Compliance Key Risk

Indictors

1 Principal risks and uncertainties are detailed further in section 1.8.

Working in partnership with our customersand stakeholders is core to all that we do.

The Group’s core values form part of ourculture and include:• Doing the right thing - strive to do

what is best in the long term for eachother, our partners, customers andcommunities;

• Relating to our customers - by

transforming the customer journeyand experience through creativity,innovation and putting customers atthe heart of our decision-making;

• Succeeding together - by activelysharing and collaborating internallyand with our stakeholders to achieveour mutual objectives; and

• Striving for results - beingcommitted, focused and empowered

to deliver quality, sustainable resultsfor ourselves and our stakeholders.

We deliver simple, flexible and accessiblefinancial services products throughpartnerships with some of the mostrespected and trusted brands in the UKand directly through our full servicebanking operation in Northern Ireland. Ourcar and asset finance business,

1.5 Our business strategy and goals

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Whilst the Group’s strategy remainsunchanged, it is acknowledged that anincreasingly competitive, fast moving anduncertain environment will necessitate flexibilityto achieve planned financial outcomes. Inconjunction with its Parent, the Group has anextensive IT plan and a multi-year investmentprogramme which will support IT and paymentapplication upgrades.

The Bank of Ireland Group is focused ondelivering three key strategic priorities:• transforming the Group’s culture systems

and business model;• serving customers brilliantly; and• growing sustainable profits and returns

for shareholders.

These priorities are incorporated within thestrategic vision of the Group as set out below.

• The Group's vision is to be the leading partnership bank providing simple,flexible, accessible financial services and products to UK customers, bothdirectly and through partnerships with trusted, respected UK brands andintermediaries, thereby providing attractive, sustainable returns to ourshareholder.

• The Group is organised into operating business units to service its customersbrilliantly: Great Britain Consumer Banking, Northern Ireland, Great BritainBusiness Banking and Group Centre.

• The Group’s central functions establish and oversee policies and processes,while the Group also leverages the overall scale and capability of its Parent insupport of its strategies. Certain functions including but not restricted toproduct manufacture, customer service and IT are provided by the Parent undera Master Services Agreement.



Strategic report

1.5 Our business strategy and goals (continued)

Northridge Finance, has also developed strong partnerships with market leadingdealers and franchises and has enhancedits product offerings this year with theacquisition of MLL. The mortgagebusiness offers a wide product range viaan extensive number of strategicmortgage intermediary partnerships.

Great Britain Consumer BankingGreat Britain Consumer Banking offersdeposits, mortgages, credit cards, loans(including car and asset finance) andpersonal current accounts under Bank ofIreland UK, the Northridge and Marshall(MLL) brands and through partnershipswith the Post Office, AA andintermediaries.

The strategic priorities for Great BritainConsumer Banking are:• to put the customer at the centre of

everything we do;• to build a strong consumer banking

franchise through strategicpartnerships and distributionchannels;

• to establish a profitable back bookthrough retention of mortgages anddeposits; and

• to develop enhanced IT capability andcustomer value propositions acrossthe business, growing income returns.

Post Office partnershipThe Group has an exclusive financialservices partnership with the Post Officeunder a contract that currently covers theperiod until 2023. The Group partners withthe Post Office to offer products onlineand through a distribution network of overc.11,500 Post Office branches in the UKserving c.2.4 million customers, offering arange of products including mortgages,savings, credit cards, personal loans andcurrent accounts.

The Post Office is primarily responsible forsales performance and marketing, whilethe Group is responsible for productdevelopment, pricing and service delivery. Post Office personal loans had asuccessful year, welcoming over 10,000new customers, equating to over £100million in written lending at the end of2017. As part of the Group’s goal to servecustomers brilliantly, investments in thepersonal loan propositions during 2017delivered many improvements for ourcustomers, including faster fundsissuance and easier and improvedinteraction.

Through the Post Office network there arec.2,400 free to use ATMs which completedc.230 million transactions and dispensedc.£10 billion of cash during 2017. Thisnetwork represents c.3.5% of Link ATMsand covers c.6% of all transactions in theUK Link network. FRESH, the Group’s foreign exchangejoint venture with the Post Office has,through its wholly owned subsidiary FRES,maintained its position as the number oneprovider of retail travel money in the UKproviding retail and wholesale foreignexchange services, with c.24% UK marketshare and over one million travel moneyprepaid cards sold and 500,000 mobileapps downloaded, where customers canupload funds and check balances via theirmobile devices. The Post Office launched the 'new' TravelMoney Card on 7 March 2017. This cardis contactless, has the ability to load 13different currencies and it can also belinked to the current mobile app. Thisproduct gives the Post Office a marketleading prepaid Travel Card.

The same day Click and Collect currencyservice which was launched in 2015 hascontinued to be successful as an easy andconvenient way to purchase travel money.It has now been extended to 3,700 PostOffice branches.

During 2017, various Post Office productscontinued to win awards for theirmotivation, simplicity and competitiveposition.

This included the award for “Best OverallPersonal Finance Provider” at theprestigious Personal Finance awards, andrecognition as the “Best Foreign ExchangeProvider” at the British Travel Awards,building on the silver award in the previousyear. AA partnershipIn July 2015 the Group announced itspartnership with the AA for a minimumperiod of ten years. The AA is regarded asone of the best known and trusted brandsin the UK and the largest provider ofroadside assistance services, representing40% of the UK breakdown market withover three million members. Thispartnership aims to provide an enhancedrange of products to AA members and thewider public, combining the Group’sproven product development capabilitieswith the strength of the AA brand and

broader business assets.

Under the AA brand, credit cards, savings,personal loans and mortgage products areoffered to customers.

After two years of trading the AApartnership has on-boarded over 150,000customers and has achieved a lendingasset book of c.£350 million at December2017 which is primarily funded by AAoriginated customer deposits.

In September 2017, a “Which?” surveyrecommended AA in joint second place forBest Financial Services Brand based onhighly competitive deals in multiplecategories and a customer score of 70%in relation to customer service,transparency and dealing with complaints.

MortgagesThe Group offers residential and buy to letmortgages directly through the PostOffice, the Bank of Ireland NI branchnetwork, and also through partnershipswith numerous leading mortgageintermediaries under both Post Office, theAA, and Bank of Ireland UK brands.

The Group has an established history inthe UK mortgage industry and since 2014has successfully secured strategicpartnerships with a number of leadingmortgage intermediaries as it looks toprovide more choice and expertise tocustomers.

Over recent years substantial investmenthas been made in developing technologyand recruiting new teams with significantintermediary mortgage experience as theGroup strives to continually improve thecustomer experience. In 2017 various newmortgage propositions were developedand launched. Mortgage redemptionswere actively managed and in line withplan, with low levels of loan lossesrecorded.

New product propositions included a 95%loan to value mortgage range (with the aimof providing support to those who can nolonger benefit from the Government's Helpto Buy scheme), and other propositionsfor first time buyers. The Group alsoprovides competitively priced fixed rateproducts across a range of loan to valuebands. In November 2017, to enhance customerfunctionality a new online service waslaunched which allows mortgage offers to

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Strategic report


be available for brokers to view anddownload via the Group's multi awardwinning mortgage application system(“Rome”). For the second year running the UKMortgage business was also awarded fivestars at the FT Advisor Online Innovationand Services awards. Other awards formortgages in 2017 included the “BestFixed Rate Mortgage Lender” at the WhatMortgages Awards as well as beingshortlisted for the following MoneyAgeawards:• Innovation in Consumer Finance

Award;• Mortgage Provider of the year; and• Bank / Building Society of the year.

In addition to the Post Office Mortgagebusiness rolling out its new model forselling mortgages through 120 Post Officebranches in 2016, earlier in 2017, theBank joined the Personal Touch Mortgage(PTM) panel. PTM is a highly respectednetwork of intermediaries which now hasmore than 300 members and 580 advisersacross the UK. The full range of theGroup’s mortgage products will beavailable via this network, backed by“Rome”.

Northridge FinanceThe Group, through its Northridge Financebrand provides personal and commercialfinance serving the Motor, Agricultural andInsurance Premium Finance markets withtotal lending at December 2017 of £1.5billion.

Northridge Finance is one of the UK’smost dynamic and partner driven financehouses offering a comprehensive range oflending products and services for thedealer and intermediary market which canbe used to best meet individual customerrequirements. The Group’s strategy is togrow its market share within the motordealer and asset finance intermediarymarkets and in the direct business tobusiness market, while maintainingexcellent asset quality.

As part of the Group’s growth strategy, on24th November 2017, NIIB Group Limitedacquired 100% of the ordinary sharecapital of Marshall Leasing Limited (MLL)from the entity’s parent company, MarshallMotor Holdings Plc. MLL is a car andcommercial vehicle leasing and fleetmanagement company.

MLL’s business model involves the

outright purchase of vehicles which aresubsequently rented out on a contract hirearrangement, currently to SME customers.

The purchase of MLL opens up a strategicopportunity to leverage the systems andexperience within MLL to deliver personalcontract hire to customers through theGroup’s Partnership Bank distributionchannels.

Northridge Finance has won threeprestigious industry awards over the pastthree years, most recently being voted the“Best Independent Bank Owned Lender”at the Car Finance Awards in June 2017.MLL won the “Leasing Company of theYear” at the Association of Car fleetOperators annual awards in November2017.

Northern IrelandThe strategic priorities for the NorthernIreland business are:• to become the leading bank in

Northern Ireland for customer service;• to deliver sustainable growth through

the Northern Ireland Branch andBusiness Centre Network; and

• to increase market share of NorthernIreland business lending.

The Northern Ireland business offers acomprehensive range of banking productsfor retail and SME businesses servingnearly half a million customers, through adistribution network of 28 branches(including six business centres), centralsupport teams, ATMs and direct channels(telephone, mobile and on-line). The Bankis also one of four banks authorised toissue bank notes in Northern Ireland.

2017 saw the further implementation ofthe Northern Ireland strategic review withthe closure of six branches. The strategicimperative is to continue to invest in digitalinfrastructure to allow the development ofcompetitive digital propositions andintegrating all distribution channels is seenas key to future growth.

The Northern Ireland business corecapability and strength lies in the quality ofits people and their customer relationshipmanagement capability.

The Northern Ireland business continuesto be profitable and this primarily reflectsimproved funding costs, efficient costcontrol and ongoing management ofimpairment charges on its commercialloan portfolio. Investments have also beenmade to upgrade and modernise the

branch network, including self-servicepropositions.

The Group continued its highly successfulEnterprise Programme, which is now in itssixth year, to help support SMEs in theirown communities, including the EnterpriseWeeks held in May and November 2017.

In October 2017 the Group launched theInnovation Matters programme aimed atsupporting communities through a focuson teachers and students to enchanceskills needed for technological revolution.The programme includes giving schoolsfree access to the MakeMatic bite sizedprofessional learning videos, the BoI JunkKouture Fashion and Arts competition, theYoung Enterprise Tech programme, wherestudents have the chance to set up andrun their own tech company andGeneration Innovation which increasesyoung people’s awareness of futurecareers as innovators.

The Bank was awarded 5 star ratings forthree business current accounts inNorthern Ireland by Moneyfacts a providerof personal financial information.

Great Britain Business BankingUnder the amended EU Restructuring Planannounced on 9 July 2013, the Parentcommitted to exit its Great BritainBusiness Banking and corporate bankingbusinesses. In 2017, the management ofall remaining Great Britain BusinessBanking lending was centralised inNorthern Ireland, with the mandate tocontinue to manage these reducingportfolios over the coming years.

This strategy for Great Britain BusinessBanking does not impact on the Group’sConsumer Banking businesses includingits partnerships with the Post Office andthe AA, nor its activities in NorthernIreland.

The reduction of the Great Britainbusiness banking business continues torelease capital and funding, which will beused to fund growth primarily in theconsumer business.

CapitalThe Group’s strategy is to optimise itscapital position and capital returns andseek new lending and other businessopportunities, in both commercial andconsumer business, which are alignedwith its risk appetite.

During 2016, the first equity dividend of

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Strategic report


£220 million was paid to the Parent. In2017 a further dividend of £160 millionwas paid.

On 19 December 2017 a capitalrestructure took place to repurchase £135million of Tier 2 subordinated debt,financed by the Group’s Own Funds.Subsequently, £90 million of newsubordinated Tier 2 debt was issued.After the transaction the capital ratios ofthe Group exceeded the minimum capitalrequirements outlined in the CRD IV/ CRR.

LiquidityThe Group is authorised by the PRA and issubject to the regulatory liquidity regime ofthe PRA. At 31 December 2017 the Group

continues to maintain a sufficient liquidityand funding position and is fully compliantwith all liquidity and funding obligationswith an efficient funding profile maintainedduring the year. At 31 December 2017 theGroup has a loan to deposit ratio of 105%and an LCR of 127%.

CRD IV rules in relation to other regulatoryliquidity requirements including NSFR andAdditional Monetary Metrics are yet to befinalised by the regulator. Preparations areunderway to ensure the Group is in aposition to meet the finalisedrequirements.

The Group actively monitors its liquidityposition using various measures includingLCR and NSFR and takes these into

account in the creation, execution andreview of its funding plans.In August 2016 the Bank of Englandlaunched the Term Funding Scheme (TFS)as part of a UK monetary stimulusprogramme in the wake of the result of theUK referendum on membership of the EU.TFS provides banks with a cost effectivesource of funding in the form of centralbank reserves to support additionallending to the real economy, in exchangefor eligible collateral.

The Group has availed of this funding aspart of its effective balance sheetmanagement and to improve the overallfunding mix. As at 31 December 2017 theGroup had drawn £1.2 billion from TFS,which will be repaid by 2021.

1.6 Corporate social responsibility - customers, colleagues and communites

Aligned to our Parent’s core purpose, theGroup’s corporate social responsibilityactivities are evidenced through ongoingdevelopments which enable our 1. Customers, 2. Colleagues and 3. Communities to thrive. Specificinitiatives under these three headings aredescribed below. Our Parent’s annualResponsible Business Report can beviewed at www.bankofireland.com.

1. CustomersWithin the Partnership strategy, a corevalue for the Group is ‘Relate toCustomers’. This helps colleagues toput the customer first, aim to getthings right for the customer first time,focus on customer relationships, makethe best customer decisions,understand what our customers needand continuously seek to improve theoverall customer experience.

The Group has responded to thechallenge laid down by the FCA to theindustry by undertaking a wideranging review of how it manages andmitigates the risks to customers thatarise in its activities, and particularly inthe following two areas:

• VulnerabilityVulnerability is about makingreasonable adjustments andappropriate provisions forcustomers or their representativeswith particular needs. The Groupcontinues to run a dedicatedConsumer VulnerabilityProgramme, and has delivered anumber of initiatives, including the

appointment of VulnerableCustomer Champions from acrossthe Group, specialist training forChampions and key customer-facing staff, the introduction of amandatory online trainingprogramme, the development ofnew identifying and signpostingguidance for external supportproviders, and the launch of asuite of new online customerassistance tools across the Groupand its partners’ websites.

• Customer UnderstandingThe Parliamentary Commission onBanking Standards ChangingBanking for Good Report hashighlighted and placed the needfor more emphasis on thetreatment of customers, inparticular, how banks assess thatcustomers fully understand thatthey have bought the rightproducts.

The Group has responded bycommencing periodic research totest customers’ overallunderstanding to ensure they havetaken out the right product fortheir needs.

This approach is also underpinnedby the Group’s Customer Charterwhich covers key commitmentsand promises to our customersand partners.

The objectives of the Customer Charter are:

• To identify customers’ needs andprovide clear and affordable valuefor money products to meetcustomer expectations;

• To provide friendly, efficient andrelevant services;

• To be committed to establishingand maintaining long termcustomer relationships; and

• To provide quality of service withclear and consistentcommunication to customers.

In accordance with relevant UKlegislation, the Group has publishedits statement on Modern Slavery andHuman Trafficking for 2017. TheStatement sets out the steps andmeasures the Group has taken to seekto ensure that modern slavery andhuman trafficking does not occurwithin its supply chain or in itsbusiness operations. A copy of thestatement is published on the Parentwebsite and can be viewed ordownloaded atwww.bankofireland.com.

In 2017 the Group has continued tosee a low level of referrals to theombudsman by customers dissatisfiedwith the outcome of any complaint.The Group is building on this positionto ensure that when issues arise theyare dealt with quickly and effectivelyto ensure a positive and fair outcomefor customers at all times. We havealso sought the opinion of customersvia surveys, taking output andlearnings to make continuousimprovements across our business.

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Strategic report

1.6 Corporate social responsibility (continued)

2. ColleaguesThe current and future success of theGroup in achieving its strategicpriorities depends on having acontinuous focus on:• talent and capability development;• engaging our workforce;• managing business change;• supporting the regulatory agenda;

and• articulating our culture

This will enable the Group to succeedtogether as the Partnership Bank. TheGroup is committed to investing in itspeople to ensure they can effectivelysupport customers, deliver theGroup’s strategic priorities anddevelop their individual careers. In2017, over 25,977 training hours werecompleted by UK employees.

Be At Your Best, the Group’s personaldevelopment and wellbeingprogramme, which focuses on career,mind and body, saw over 2,000employees participate in a range ofinitiatives, including HeadShed, Couchto 5k and Career Fairs.

The Group has continued to bring itsunique Partnership Bank Strategy andValues to life for colleagues who workin and support the business.Following a series of events held atthe end of 2016 and early 2017, whenmore than 2,000 colleagues attendedone of 14 ‘Partnership Bank Live’events held in five different UKlocations and in Dublin, the Group hascontinued to engage and embed itsstrategy, purpose and values via itsemployee brand, Living Partnership.This has been achieved through arange of activities including employeeevents, employee recognition awards,workshops, focus groups and surveys,and ongoing engagement with morethan 300 ‘Shapers’, colleagues whoare actively supporting our partnershipjourney. The Group’s officeenvironments in London, Bristol andBelfast have been updated to reflectand advocate the partnership ethosand encourage creativity andengagement.

The Group seeks to operate at thehighest ethical standards byencouraging an environment wheredoing the right thing is embedded inthe core of the organisation. TheGroup has clear expectations forbehaviour and conduct with an annualmandatory training programme for allemployees.

The Group Code of Conduct sets thestandards of ethical behaviour tocreate the right culture and thefollowing standards and behavioursare expected from all employees:• to act with integrity and honesty;• to report wrongdoing;• to avoid disclosing confidential information;• to avoid conflicts of interest; and• to comply with legislation and regulations.

The Group believes that by applyingthese standards, all colleagues canmake sound decisions and, whenfaced with complex dilemmas achievegood outcomes for all ourstakeholders.

To help ensure that the Code ofConduct is embedded in every aspectof the business, the Groupencourages and supports employeesto speak out if they witness wrongdoing, such as a breach, orsuspected breach, of the Code ofConduct standards, or any concernthey might have in respect of potentialimproprieties.

Employees not only need to performtheir duties with honesty and integrity,they also have to be seen to do so. Tohelp them avoid compromising theirability to perform their everyday dutieswith honesty and integrity, the Grouphas developed arrangements to helpmanage potential or actual conflicts ofinterest.

The Group has defined andimplemented policies, standards, andprocedures to ensure that it operatesto the highest of standards, both fromthe perspective of the Group’s legal,regulatory and compliancerequirements, and also in an ethical,fair and consistent manner. TheGroup’s policies and standards set outclearly the Group’s objectives andprovide direction to its staff,management, and Board in carryingout their various day-to-day activities.

As well as supporting customers toavoid attempts by fraudsters to stealtheir account details, the Group is alsoaware of the importance of keepingthe customer information we hold assafe and secure as possible, whilecomplying with relevant dataprotection legislation. Employees,across all jurisdictions, are required tocomplete training on informationsecurity each year to ensure that they

are aware of how to keep customerinformation private and secure and toavoid breaches of data protection.

3. CommunitiesThe Group strives to make a positivecontribution in the communities whereit operates. Employees are activelyinvolved in fundraising andvolunteering in charitable eventsacross the UK. In 2017, the Group,with employee endorsement, choseAlzheimer’s Society UK as its flagshipcharity for 2017-18. During 2017 theGroup raised £146,000 for theAlzheimer’s Society’s Side by Sideprogramme, which offers free, one-to-one support for people with dementia,helping them to continue to do thethings they love.

In addition, colleagues have continuedto raise funds for charities close totheir heart through our Give Togetherprogramme. Give Together is theGroup’s charity and communityinitiative, through which staff lend theirsupport to their nominated charities byfundraising, volunteering and makingdonations. The initiative provides paidleave for volunteering and matchesfundraising awards.

The Group is proud to support a widerange of Northern Ireland basedcommunity, business and sportingactivities through sponsorship eachyear. Open Farm Weekend is one suchevent which the Group has sponsoredsince 2012. The annual event aims toraise awareness of food productionand the local supply chain in NorthernIreland.

The Group has also launchedInnovation Matters, a new programmethat will provide a wide range of freeinitiatives and resources to schoolsacross Northern Ireland to helpprepare students for life in atechnology transformed world.

Our Parent continues to provide theGroup with products and services toensure the environment across thebusiness is managed responsibly.Environmental initiatives which havebeen delivered this year includecertification to ISO50001 energymanagement standards, theinstallation of smart meters andcompliance with energy regulations.

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


Net interest income for the year ended 31December 2017 was £471 millioncompared to £497 million for the yearended 31 December 2016.

The reduction in net interest income of£26 million was impacted by:

• changes in fair value unwindassumptions on the acquiredmortgage portfolio, which haveresulted in a £17 million reduction inincome year on year; and

• a £12 million effective interest rateadjustment on the core mortgageportfolio, where the estimatedstandard variable rate reversionary

period reduced by two months.

Gross interest income was £651 million(2016: £762 million) and consistedprincipally of interest earned on customerlending and on amounts placed with theParent.

Gross interest expense was £180 million(2016: £265 million) and primarilyrepresented interest paid or payable oncustomer deposits and on amountsborrowed from the Parent.

The Group’s net interest margin hasremained consistently above 2% despitechallenging market conditions and the lowinterest rate environment.

The net interest margin in 2017 reducedby 5 basis points to 2.02% mainly due to:• reduced income on the acquired

mortgage portfolio. This reduction wasdue to the average life of certain loansbeing longer than initially anticipatedwhich impacts on the timing of interestincome recognised over the life of thatloan (Refer to critical accountingestimates and judgements on page98);

• changes in effective interest rate (EIR)assumptions on the mortgage andcredit cards portfolios;

• ongoing repayments on higher marginvariable mortgages;

• the continued proactive deleverage ofthe GB commercial book;

• offset somewhat by reduced PostOffice deposit and other fundingcosts;

• the growth in income from thepersonal lending portfolio; and

• increased income from NorthernIreland products.


Strategic report

1.7 Financial review

1.7.1 Summary Group consolidated income statement

2017 2016 £m £m Net interest income 471 497Net other income - (3)Total operating income 471 494 Operating expenses (328) (313) Operating profit before impairment charges on financial assets 143 181

Impairment charges on financial assets (26) (23)Share of profit after tax of joint venture 34 35Profit before taxation 151 193

Taxation charge (21) (29)Profit for the year 130 164

2017 2016Net interest income / Net interest margin £m £m Net interest income 471 497Average interest earning assets 23,386 24,053Net interest margin (%) 2.02% 2.07%

1.7.2 Net interest income

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Strategic report

The majority of the Group’s cost baserelates to outsourced services, being thecosts of distribution, product manufactureand support provided by the Parent undervarious contractual arrangements. Theyear on year increase in staff costs of £15million reflects the reallocation ofmortgage business staff costs underoutsourcing arrangements to the Parentand which were previously disclosedunder other costs.

Overall operating expenses increased by£15 million in 2017, largely reflectingincreased new business volumes inpersonal loans and mortgages while theGroup also continues its commitment toinvest in its people, technology, regulatorycompliance and business growth. Theincrease in expenditure was somewhatoffset by cost efficiencies across thebusiness.

The aforementioned investments enabledenhanced product offerings for partnersand customers during 2017 and the Groupexpects to leverage this investment during2018 with futher product launches andvolume growth.

2017 2016Operating expenses £m £m Staff costs 54 39Other costs 274 274Operating expenses 328 313

1.7.3 Operating expenses

The impairment charge for the year ended31 December 2017 on loans andadvances to customers was £26 million,compared to £23 million for the yearended 31 December 2016.

Year on year movements by lendingportfolio are detailed below:• The £11 million increase in impairment

charges on the consumer portfoliolargely reflects the planned growthand maturity profile in personal loanswhich were relaunched in Post Officeand AA during 2016.

• Impairment charges on the residentialmortgage portfolio remain flat year onyear.

• Commercial property and constructionimpairment charges reduced by £9million as a result of continuedimprovement in the commercial andresidential property sectors andsuccessful recovery activities and thebenefit of an Incurred But NotReported (IBNR) provision release.

• Non-property SME and corporateimpairment charges increased by £1million year on year.

All loan portfolios remain sensitive toeconomic changes and the uncertainty asthe UK plans to leave the EU. However,the low interest rate environment hassomewhat increased customerconfidence.

Refer to sections 2.1.6 and 2.1.7 of theRisk Management report for further creditrisk details in relation to loans andadvances to customers.

The estimated quantitative impact oninitial adoption of IFRS 9 is a reduction inshareholders’ equity of c.£40 million aftertax, substantially all of which relates to anincrease in impairment loss allowance onloans and advances to our customers.

Further information on IFRS 9implementation is included in the RiskManagement section on pages 53 to 55.

Impairment charges on loans 2017 2016and advances to customers £m £m Consumer 15 4Residential mortgages 2 2Commercial property and construction 8 17Non-property SME and corporate 1 -Total impairment charges on loans and advances to customers 26 23

1.7.4 Impairment charges on loans and advances to customers

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Strategic report

The taxation charge for the Group was£21 million for the year ended 31December 2017 compared to a taxationcharge of £29 million for the year ended31 December 2016.

Excluding the £34 million (year ended 31December 2016: £35 million) income fromthe Group’s joint venture, FRES, theeffective tax rate for the year ended 31December 2017 was 18% (year ended 31

December 2016: 18%).The effective tax rate is influenced by anumber of factors, including: • the fair value unwind on acquired

mortgages, as discussed in the GroupAccounting Policies on page 98,which is non-taxable in the Group; and

• the 8% corporation tax surcharge forbanks which came into effect from 1January 2016.

Refer to note 11 and note 23 respectivelyfor further information on the taxationcharge and deferred tax asset at 31December 2017.

The Group has disclosed its UK tax policyin line with Schedule 19 of the UK FinanceAct 2016, on its websitewww.bankofirelanduk.com.

1.7.5 Taxation charge

2017 2016 £m £m Cash and balances with central banks 1,836 1,172Loans and advances to banks1 2,764 3,369Loans and advances to customers 19,997 19,821Available for sale financial assets 1,008 1,140Total other assets 630 458Total assets 26,235 25,960

Deposits from banks2 3,561 2,691Customer accounts 18,961 19,475Subordinated liabilities 290 335Total other liabilities 1,424 1,409Total liabilities 24,236 23,910 Total equity 1,999 2,050Total equity and liabilities 26,235 25,960 Loan to deposit ratio 105% 102%

1.7.6 Summary consolidated balance sheet

1 Included in loans and advances to banks is a balance due from the Parent of £1.4 billion (31 December 2016: £2.0 billion) and £1.4 billion (31 December 2016: £1.3 billion) duefrom external bank counterparties. Refer to note 14.

2 Included in deposits from banks is a balance due to the Parent of £2.0 billion (31 December 2016: £1.9 billion) and £1.6 billion (31 December 2016: £0.8 billion) due to externalbank counterparties. Refer to note 24.

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Since 2013 the Group has adopted aderivative hedging approach to manageinterest rate risk with c.£1.3 billion (2016 :£2.0 billion) of legacy gross flow cashhedges (originated prior to 2013)remaining on the balance sheet atDecember 2017 and included under loans

and advances to banks and deposits frombanks.

Over time, the remaining gross flow cashhedging deals with the Parent willcontinue to be replaced by derivativecontracts with the Parent.

Deposit from banks increased in the year,primarily reflecting the net impact ofincreased drawings from TFS / ILTR offsetby the aforementioned reduction in legacygross flow cash hedging deals of £0.7billion.

1.7.7 Loans and advances to banks and deposits from banks



Strategic report

2017 2016

% of % ofComposition by portfolio - loans and advances to customers £m book £m book Residential mortgages 16,043 80% 15,964 79%Non-property SME and corporate 1,371 7% 1,453 7%Commercial property and construction 652 3% 961 5%Consumer 2,086 10% 1,709 9%Loans and advances to customers (before impairment provisions) 20,152 100% 20,087 100%Impairment provisions (155) (266)Loans and advances to customers (after impairment provisions) 19,997 19,821

1.7.8 Loans and advances to customers

Gross loans and advances to customersof £20.2 billion increased by £0.1 billion inthe year. The key drivers of the movementare primarily as follows:• residential mortgage lending increased

by a net £0.1 billion, with £3.2 billion of new loans originated,offset by repayments on the existingmortgage portfolio of £3.1 billion.

• in the consumer lending portfolio,personal lending increased by £0.2billion year on year. There was also anincrease in Northridge lending of £0.1billion, and Post Office and AAlending of £0.1 billion; offset by

• a net reduction in the commerciallending portfolio of £0.3 billion. Of thisreduction £0.2 billion related to GreatBritain Business Banking, which hasresidual volumes of £0.3 billion at

December 2017. Net commerciallending in Northern Ireland decreased,with £0.2 billion of new business in2017, offset by repayments andredemptions on the existing book of£0.3 billion.

The composition of the Group’s loans andadvances to customers by portfolio at 31December 2017 is now 90% residentialmortgages and consumer lending based,compared to 88% in 2016.

The growth in the retail lending portfolioreflects the Group’s commitment to thatmarket through direct channels,intermediary partners and technologicaldevelopments.

Specific provisions decreased by 49% to

£108 million at 31 December 2017, from£211 million at 31 December 2016primarily due to the net impact of £137million of provisions utilised across theportfolios arising from debt managementstrategies and an impairment charge of£26 million for the year.

Incurred but not reported (IBNR)provisions decreased by 15% to £47million at 31 December 2017, from £55million at 31 December 2016, mainly dueto improvements in the performance of thecommercial loans portfolio.

Further analysis and commentary onchanges in the loan portfolios, assetquality and impairment is set out in theRisk Management report, see pages 36 to55.

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Strategic report

The liquid assets portfolio comprises Bankof England deposits, available for salefinancial assets and bank placements.Available for sale assets can be used toraise liquidity, either by sale, or throughsecured funding transactions. This portfolioof £3.0 billion increased by £0.5 billion

during 2017 reflecting planned balancesheet management activity includingparticipation in the Bank of England TermFunding Scheme (TFS).

At 31 December 2017, the liquid assetportfolio primarily comprised £1.8 billion of

Bank of England deposits, £0.4 billion ofMultilateral Development Bank bonds, £0.4billion of UK Government treasury bills,£0.2 billion of covered bonds and £0.2billion placed with the Parent.

The Group remained in full compliance withthe regulatory liquidity regime in the UKthroughout 2017 and as at 31 December2017 maintained a buffer in excess ofregulatory liquidity requirements. The liquidassets presented above do not includecash or general bank accounts that areutilised in the day to day operations of theGroup, which are disclosed under loans tobanks (Refer to note 14).

2017 2016Liquid assets £m £m Balances with central banks 1,806 1,141Available for sale financial assets 1,008 1,140Interbank placements 220 210Total 3,034 2,491

1.7.9 Liquid assets

The Group has a mix of retail and non-retail deposits and current accounts,under Bank of Ireland UK, Post Office andAA brands. The key focus for the Groupwith respect to its deposit managementstrategy is to:• maintain and grow its stable retail

customer deposit base;• prudently manage deposit pricing and

margins;• optimise stable funding levels in line

with CRD IV specifications; and• continue to favourably transform the

deposits customer journey.

As at 31 December 2017, the constituentcomponents of customer accounts wereretail deposits and current accounts of£15.2 billion, compared to £16.6 billion at31 December 2016, and non-retailbalances of £3.8 billion compared to £2.9billion at 31 December 2016.

Bank of Ireland UK branded depositsdecreased by £0.2 billion in the year andcurrent account balances increased by£0.3 billion, while retail deposit balancesoriginated under the Post Officedecreased by £0.6 billion to c.£13.9billion. Retail deposits originated throughthe AA partnership increased by £85million in the year.

The overall reduction in customer accountbalances of £0.5 billion during 2017reflects the Group’s goal of optimising itsoverall funding cost (including depositsfrom banks) and effectively managing itslending growth and overall liquidityposition.

2017 2016Customer accounts £m £m Bank of Ireland UK branded deposits 1,940 2,183Bank of Ireland UK branded current accounts 2,800 2,513Post Office branded deposits 13,924 14,567AA branded deposits 297 212Total 18,961 19,475

1.7.10 Customer accounts

The Group’s funding position remainsstrong at 31 December 2017, with a loanto deposit ratio of 105% (31 December2016: 102%). The increase in the loan todeposit ratio reflects the net effect ofplanned increases in consumer lendingvolumes, primarily in the personal lendingportfolio, together with planned decreasesin retail deposits due to the efficientmanagement of excess liquidity anddrawdowns from the Bank of EnglandTFS.

During 2017 the Group utilised wholesalefunding from the Bank of England TFS andIndexed Long - Term Repo (ILTR) scheme,further diversifying the funding base; theTFS provides long term stable funding atrates close to the Bank Base Rate. TheGroup continues to maintain theoperational flexibility to borrow from themarket and from other banks including,but not limited to, the Parent.

At present the Group calculates a LCRand a NSFR (which is based on thecurrent draft European Banking Authority(EBA) guidelines) and continues toanticipate buffers above the requiredlevels of 100%.

The Group has a strong funding andliquidity position with a strategy tomaintain liquidity risk within risk appetite,at an acceptable cost.

1.7.11 Funding

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Strategic report

Regulatory capital and key capital andleverage ratios

The Group is strongly capitalised with atotal capital ratio on a fully loaded basis of20.5% at 31 December 2017 (31 December 2016: 21.8%). Total capital resources decreased by £89million during 2017 to £2.1 billion due to: • a dividend payment of £160 million

paid to the Parent;• additional tier 1 coupons of £24 million

paid to the Parent less a tax credit of£6 million;

• the net repatriation of £45 million ofdated loan capital to the Parent (referto note 29); and

• a decrease in other reserves of £3million.

offset by:• profit after tax for 2017 of £129 million;

and • a reduction in regulatory adjustments

of £8 million.

RWAs increased from £10.0 billion to£10.2 billion reflecting growth in theconsumer portfolios, offset by the impactof the continued deleverage of the GreatBritain and Northern Ireland BusinessBanking portfolio.

IFRS 9 capital impactThe Group has estimated that thequantitative impact from initial adoption ofIFRS 9 on 1 January 2018 will reduce theGroup’s fully loaded CET 1 ratio by c.30basis points.

The Group has elected to apply thetransitional arrangement which, on aregulatory CET 1 basis, will result inminimal impact on initial adoption andwhich will partially mitigate future impactsin the period to 2022. This will involve acapital addback of a portion of theincrease in impairment loss allowance ontransition to IFRS 9 and also anysubsequent increase in the stage 1 and 2loss allowances at future reporting dates.

The transition period is for five years, witha 95% addback allowed in 2018,decreasing to 85%, 70%, 50% and 25%in subsequent years.

LeverageThe Group’s leverage ratio on a fullyloaded basis has decreased by 0.3% to6.6% at 31 December 2017 which is inexcess of the Basel Committee minimumleverage ratio of 3% and the FPCminimum requirement of 3.25%.The European Commission has proposedthe introduction of a binding leveragerequirement of 3% as part of the CRD Vpackage proposals. It is anticipated thatthe binding leverage requirement will beapplicable from 2019 at the earliestpending the final agreement of theproposals at EU level.

The following tables provide year on yearanalysis of the movements in the leverageexposure, tier 1 capital and the leverageratio.

2017 2016Fully loaded CRD IV1 £m £m Ordinary share capital 851 851Capital contributions 566 566Retained earnings and other reserves 215 267Total equity 1,632 1,684 Regulatory adjustments (124) (132)Deferred tax assets relying on future profitability (73) (74)- Intangible assets (20) (25)- Cashflow hedge reserve (23) (32)- Retirement benefit asset (7) -- Prudent valuation adjustment (1) (1)Common equity tier 1 capital 1,508 1,552 Additional tier 1 Subordinated perpetual contingent conversion

additional tier 1 securities 300 300Total tier 1 capital 1,808 1,852 Tier 2 Dated loan capital 290 335Total tier 2 capital 290 335

Total capital 2,098 2,187

Total risk weighted assets 10,231 10,034 Capital ratios2 Common equity tier 1 capital ratio 14.7% 15.5%Tier 1 capital ratio 17.7% 18.4%Total capital ratio 20.5% 21.8%Leverage ratio 6.6% 6.9%

1.7.12 Regulatory capital

1 Capital figures disclosed reflect the consolidated UK regulatory position for the BoI UK regulatory group which consists of the Bank and NIIB Group Limited only.2 Capital ratios have been presented including the benefit of the retained profit in the period in accordance with Article 26 (2) of the Capital Requirements Regulation (CRR).

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Strategic report

2017 2016Fully loaded CRD IV £m £m Total assets 26,235 25,960Removal of accounting value of derivatives

and securities financing transactions (SFTs) (27) (55)Removal of accounting value of the assets of

unregulated entities (78) (68)On balance sheet items (excluding derivatives and SFTs) 26,130 25,837Exposure value for derivatives and SFTs 177 97Off balance sheet items post application of credit

conversion factors 605 502Other adjustments 348 549Total leverage ratio exposures 27,260 26,985Tier 1 capital 1,808 1,852

Leverage ratio1 6.6% 6.9%

1.7.12 Regulatory capital (continued)

1 Capital required is 8% of the RWAs.2 The net value of exposures includes gross balance sheet amounts and off balance sheet commitments net of provisions.

2017 2016

Capital Net value of Capital required1 RWA Exposure2 required2 RWA ExposurePillar 1 capital requirements £m £m £m £m £m £m Central governments or central banks 1 13 3,636 1 19 2,975 Public sector entities - - 15 - - 16Multinational development banks - - 394 - - 356 Institutions 3 44 2,058 6 69 2,965 Corporates 107 1,334 1,992 117 1,461 2,153 Retail 149 1,861 5,342 114 1,424 4,555 Secured by mortgages on residential property 442 5,525 16,528 449 5,623 16,257 Exposures in default 31 382 345 33 410 371 Covered bonds 3 35 175 3 37 187Equity 4 44 44 - 2 2 Other items 18 237 421 17 210 345 Credit and counterparty risk 758 9,475 30,950 740 9,255 30,182Operational risk 60 756 - 62 779 -Total 818 10,231 30,950 802 10,034 30,182

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Strategic report

2017 2016Movement in regulatory capital - Fully loaded - CRD IV £m £m Opening common equity tier 1 capital 1,552 1,612Contribution to common equity tier 1 capital from profit 129 163Dividends and coupons paid to the Parent, net of tax (178) (239)Net actuarial gain / (loss) on defined benefit schemes 6 (3)Other reserves (10) 24 1,499 1,557

Regulatory adjustments 9 (5)- Deferred tax relying on future profitability 1 10- Intangible assets 5 5- Cashflow hedge reserve 9 (21)- Retirement benefit asset (7) 2- Prudent valuation adjustment 1 (1)- Qualifying holdings outside of the financial sector - -Closing common equity tier 1 capital 1,508 1,552 Opening additional tier 1 capital 300 300Closing additional tier 1 capital 300 300 Total tier 1 capital 1,808 1,852 Opening tier 2 capital 335 335Dated loan capital repurchased (135) - Dated loan capital issued 90 -Closing tier 2 capital 290 335 Closing total regulatory capital 2,098 2,187

1.7.12 Regulatory capital (continued)

Regulatory capital to statutory total equity 2017 2016reconciliation - Fully loaded CRD IV £m £m Regulatory total tier 1 capital 1,808 1,852Consolidation of jointly controlled entity (note 18) 61 61Consolidation of subsidiary undertakings 6 5 Reverse regulatory adjustments to capital: Deferred tax assets relying on future profitability 73 74Intangible assets 20 25Cashflow hedge reserve 23 32Retirement benefit asset 7 -Prudent valuation adjustment 1 1Statutory total equity 1,999 2,050

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


2017 has been a year of solidperformance against the backdrop ofwider economic and political uncertaintiesand ongoing competitive marketconditions.

The Group has continued to invest in newproduct propositions in order to position itfavourably for future growth.

The results of the Group can besummarised by segment as follows:

Great Britain Consumer BankingGreat Britain Consumer Banking profitsdecreased by £31 million to £134 million in2017, primarily due to:• lower income recognised on its

acquired mortgage portfolio givenstronger loan retention on certainproducts than initally expected;

• increasing competitive margin and mixpressures in the mortgage and cardsbusiness; offset by;

• significant year on year reductions inretail funding costs; and

• strong performance on personal loanvolumes.

Consumer new business lending volumesincreased to £4.4 billion, an increase of£0.5 billion on 2016.

Great Britain Consumer Bankingimpairment charges increased modestlyby £10 million given the planned growthin the consumer lending portfolios.

Great Britain Consumer Banking grosslending volumes increased to £18.1 billion.

Northern Ireland The Northern Ireland results include theBank of Ireland branch network andbusiness centres, personal lending, Bankof Ireland credit cards and mortgages, andthe banknote issue business. Profits inNorthern Ireland have increased by £3

million reflecting a strong net marginperformance and ongoing costmanagement.

The commercial lending portfolio inNorthern Ireland decreased by £0.1 billionto £1.3 billion at 31 December 2017 due toprovision utilisation and repayments inexcess of new lending.

Great Britain Business Banking This business primarily includes thecommercial lending portfolio which isundergoing a continued process ofmanaged deleveraging and decreased by£0.2 billion during the year to £0.3 billionat 31 December 2017. Profits havedecreased by £3 million, mainly due toreduced lending income and movementsin impairment charges.

Group Centre The Group’s funding, liquidity and capitalposition are managed centrally, and therelated costs are reported under thissegment, along with staff and operatingcosts of the central risk and controlfunctions and regulatory related costs.

The loss in this segment has increased by£11 million, due to increased operatingexpenses which largely relate to continuedinvestment in products, regulatorychange, staffing and IT systems.


Strategic report

Consolidated income statement 2017 2016- profit / (loss) before taxation £m £m Great Britain Consumer Banking 134 165Northern Ireland 53 50Great Britain Business Banking 12 15Group Centre (48) (37)Profit before taxation 151 193

1.7.13 Segmental performance

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



1.8 Principal risks and uncertainties

Credit riskThe risk of loss resultingfrom a counterpartybeing unable to meet itscontractual obligationsto the Group in respectof loans or other financialtransactions. Credit riskincludes default risk,recovery risk,counterparty risk,country risk, creditconcentration risk andsettlement risk.

StableCredit conditions areexpected to remainstable. However,macroeconomicuncertaintycontinues as a resultof the outcome ofthe UK referendumon EU membershipthat has thepotential to impactcredit risk.

Should commercial orconsumer customers beunable to meet theirobligations in relation toborrowings from theGroup, the Group maysuffer increased lossesand this would have anadverse impact on theGroup’s financialposition.

• A Risk Appetite Framework is in place and aligned with theGroup’s overall strategy;

• Leveraging of detailed macro-economic data, providinggranular insight on geographic exposures and housingmarket movements on a quarterly basis to CRPC;

• External Mortgage Indemnity Guarantee for loans >90% LTV,providing protection against future loss occurrence;

• Underlying lending policies are aligned to risk appetite;• Exposure to excessive credit losses is minimised through the

operation of responsible lending practices and activeportfolio management within clearly defined Board approvedrisk appetite limits;

• The Group undertakes active credit management tomaximise recoveries from impaired assets seeking the bestoutcome in accordance with the Group’s Customer Charter;

• Active management of credit risk concentrations is anintegral part of the Group’s approach with the risk appetitestatement specifying a range of exposure limits for creditrisk concentration over the planning period;

• Regular monitoring of lending portfolios by seniormanagement and the Credit Risk Portfolio Committee(CRPC). For selected portfolios, this also includes the reviewof stress scenarios at the Executive Risk Committee (ERC),Board Risk Committee (BRC) and the Board; and

• At least annual reviews of all commercial portfolio cases tomonitor case specific risk.

Principal risks Outlook Potential risk impact Key controls and mitigating factors

Liquidity and fundingriskLiquidity risk is the riskthat the Group willexperience difficulty infinancing its assets and /or meeting its contractualpayment obligations asthey fall due, or will onlybe able to do so at substantially abovethe prevailing market cost of funds.

Funding risk is the risk thatthe Group does not havesufficiently stable anddiverse sources of fundingor has an inefficient funding structure.

StableThe Groupmaintains a portfolioof unencumberedliquid resources inexcess of regulatoryand internalrequirements.

The Groupsuccessfullygathered depositsduring the yearthrough the PostOffice, the AA andthe NI business.

The Group alsosuccessfullyborrowed fundsfrom the Bank ofEngland and theParent during theyear.

The Group is primarilyfunded by way of retaildeposits, therefore a lossof confidence in theGroup’s businessspecifically, or as a resultof a systemic shock,could result inunexpectedly high levelsof customer depositwithdrawals. This in turnwould have a materiallyadverse effect on theGroup’s results, financialcondition and liquidityposition.

A loss of confidence inthe economy generally,the financial servicesindustry, the Post Officebrand, the AA brand orthe Group or the Parentspecifically, could lead toa reduction in theGroup’s ability to accesscustomer depositfunding on appropriateterms.

• A liquidity and funding Risk Management Framework (RMF)which is reviewed annually, is in place and is aligned withthe Group’s overall strategy to be a self-funded businesswith no material funding dependency on the Parent or thewholesale funding market. The Liquidity and Funding Riskpolicy which governs management and monitoring, sitswithin this framework;

• Daily monitoring and management of the liquidity positionincluding, but not limited to, regulatory and internal liquiditystress testing, early warning signals, metrics and a definedescalation process;

• Regular reporting to the Asset and Liability Committee(ALCo), the ERC, the BRC and the Board;

• Maintenance of unencumbered liquidity resources in excessof 100% of stress outflows from both internal stressscenarios and the regulatory requirements held in eithercash or highly marketable liquid assets and contingentliquidity collateral;

• Significant contingent liquidity collateral which is capable ofbeing pledged against borrowings from central banks orother external market participants;

• Active management of the funding position to determine theamount of ongoing new retail deposit acquisition andretention required to fund the Group’s asset base;

• Comprehensive Internal Liquidity Adequacy AssessmentProcess (ILAAP) undertaken annually which sets out how theGroup assesses, quantifies and manages key liquidity andfunding risks; and

• Recovery Plan in place, which specifies a range ofprocesses and potential actions that can be put in placeenacted, in the event of any unexpected shortfall in liquidityand / or funding.

Strategic report

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



1.8 Principal risks and uncertainties (continued)

Market riskThe risk of loss arisingfrom movements ininterest rates, FX rates orother market prices.Market risk arises fromthe structure of thebalance sheet, theGroup’s business mixand discretionary risktaking.

Market risk can alsoarise where variable rateassets and liabilitiesreprice at differentfrequencies, or wherelending reprices withchanges in central bankrates but is funded atshort dated market rates.

Stable The Groupcontinues tomanage interest rateand foreignexchange exposureto acceptable levelsby seeking naturalhedge solutionswithin the balancesheet and byhedging residualexposures with theParent as the hedgecounterparty.

The effectivemanagement of marketrisk is essential to themaintenance of stableearnings, thepreservation of capitalresources and theachievement of theGroup’s strategicobjectives.

Changes in the basisbetween differentreference rates (such asassets repricing at baserate and liabilities repricing at LondonInterbank Offered Rate(LIBOR)) may have anadverse impact on theGroup’s net interestmargin and profitability.

• A market risk management framework which is reviewedannually, is in place and aligned with the Group’s overallstrategy to have no risk appetite for discretionary market riskand minimise its exposure to market risks in relation toInterest Rate Risk in the Banking Book (IRRBB) and FX. Themarket risk policy, which governs market risk managementand monitoring, sits within this framework.

• The Group’s market risk is mitigated through hedging withthe Parent, using derivatives or cash hedging deals;

• A product approval process incorporates review of productterms and conditions from a market risk perspective, toensure compliance with existing risk appetite, policy, andprocess.

• Regular reporting to the ALCo, the ERC, the BRC and theBoard; and

• Daily market risk stress tests across all aspects of marketrisk (yield curve and repricing risk, basis risk, prepaymentrisk, pipeline risk etc.) are produced and monitored againstred, amber and green (RAG) limits set by Board andoperational thresholds set by the ALCo.


Regulatory riskThe risk of failure to meetnew or existingregulatory and / orlegislative requirementsand deadlines or toembed requirements intoprocesses.

Risk IncreasingFurther details ofevolving regulatoryand legislativerequirements are setout in section 1.9.

The increasing regulatoryagenda necessitates anincrease in resourcesand amendments tocurrent processes whichmay impact the Group'scost base.

Failure to comply with allaspects of the relevantregulatory regimes couldresult in the Group beingsubject to fines,customer compensationand / or the requirementto pay regulatorysanctions and harm itsreputation.

• The Group has no appetite for failure to comply with itsregulatory or legislative obligations;

• Regular and open communication with the FCA, PRA andSingle Supervisory Mechanism (SSM) on all aspects of theGroup’s activities;

• Regular reporting to senior management, the Regulatory andOperational Risk Committee (R&ORC), the ERC, theExecutive Complaints Oversight Forum (ECOF), the BRC andthe Board;

• Regular monitoring, assessment and reporting of regulatorychange (current and proposed) to ensure timely andappropriate response to regulatory change requirements atboth a UK and EU level;

• Risk-based regulatory and compliance monitoring performedby independent compliance monitoring functions; and

• Embedding of risk culture through the Risk ManagementFramework (RMF).

Strategic report Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation




Operational risk andFinancial crimeOperational risk is therisk of loss resulting frominadequate or failedinternal processes,people and systems, orfrom external events.

Principal operationalrisks include InformationTechnology and Security(including Cyber risks),Business Disruption,Financial Crime(incorporating the risk offacilitating moneylaundering, terroristfinancing, sanctionsviolation, and fraud),Sourcing, Legal, Modeland People Risk, butexclude Strategic andReputational risk.

Risk increasingAlong with otherfinancial serviceproviders, the Groupis reliant on ITsystems to deliverproducts andservices.

Increasing risk offailure of IT systemsand external threatssuch as cybercrimeor material fraudevents, could lead todisruption ofservices forcustomers, financialloss and / orreputational damage.

Increasing legislativeand regulatoryrequirements inrelation to moneylaundering, terroristfinancing andsanctions violationare ongoing areas offocus for the Group.

A significant numberof Group servicesand processes areprovided by theParent and thirdparties and failure ofa materialoutsourced serviceprovider remains akey operational risk.

The Group is exposed to abroad range of operationalrisks as a consequence ofconducting its day-to-daybusiness activities.

Such risks include theavailability, resilience,stability and security of coreIT systems (including thoseprotecting the Group fromcybercrime); the continuityof the Group’s operationsand services; the risk of theGroup’s products andservices being used tocommit financial crime; risksarising from Sourcingarrangements and Legaland People Risk.

Cybercrime remains anevolving threat to the Groupand its strategic objectives.Increased digitalinterconnectivity across theGroup, its customers andsuppliers has the potentialto heighten vulnerability tocyber-attacks, which coulddisrupt service forcustomers, and causefinancial loss andreputational damage.

The regulatory changelandscape continues toabsorb resource.

Non-compliance withlegislative and regulatoryobligations may result infinancial penalties,regulatory reprimand andreputational risk to theGroup.

Litigation proceedings withadverse judgments couldresult in restrictions orlimitations on the Group’soperations or result in amaterially adverse impacton the Group’s reputation orfinancial condition.

Management stretch givesrise to the potential risk ofloss of key staff.

• The Group’s operational risk management framework (ORMF)defines the Group’s approach to identifying, assessing,managing, monitoring and reporting on the operational risksthat may impact the achievement of the Group’s objectives.The ORMF consists of processes and standards aimed atembedding adequate and effective risk managementpractices within business units throughout the Group;

• The Group Risk Appetite incorporates Operational riskappetite statements and limits as approved by the Board;

• The Group utilises a number of available strategies incontrolling its exposure to operational risk, with the primarystrategy being the maintenance of an effective controlenvironment, coupled with appropriate management actions;

• Specific policies and risk mitigation measures for materialoperational risks are in place;

• The Group continues to enhance and invest in its riskmanagement processes including the identification of andcontrols for potentially elevated / emerging risks such as,Information Technology, Information Security and Cybercrime,Business Disruption, Financial Crime and Fraud. Thisenhancement and investment is intended to, over time,improve the Group’s risk profile;

• Security programmes are in place to protect the integrity andavailability of the Group’s systems and mitigate the frequencyand impacts of cyber-attacks;

• A staff education programme has been implemented oninformation protection and cyber security;

• A Group wide programme is underway to enhance thematurity levels of the anti-money laundering (AML) riskmanagement framework, including automation;

• Arrangements entered into with the Parent and third partyoutsourced providers are governed through service levelagreements, service descriptions and KPIs which are formallymonitored. This has been and continues to be furtherenhanced;

• The Group has processes in place to ensure its compliancewith its legal obligations, together with clear controls inrespect of the management and mitigation of such disputes,proceedings and investigations as may be instigated againstthe Group from time to time;

• The Group has a Board approved people strategy to enablethe Group to retain appropriate numbers and / or calibre ofstaff having regard to remuneration restrictions imposed bygovernment, tax or regulatory authorities. These includeTalent Board Reviews including succession planning, aPerformance Management Framework, and a Career andReward Framework; and

• Regular reporting to the R&ORC, the ERC, the BRC and theBoard.


Strategic report

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




Business / StrategicriskThe risk of volatility tothe Group’s projectedoutcomes, including theIncome Statement andBalance Sheet impact and / or damage to itsfranchise including thatof the Group’s jointventures. It includesvolatilities caused bychanges in thecompetitive environment,new market entrants, new products or failureto develop and execute astrategy, or anticipate ormitigate a related risk.

This includes pricing,partner appetite,customer confidence and credit demand,collateral values andcustomers’ ability tomeet their financialobligations andconsequently adverselyimpact the Group’sfinancial performance,balance sheet andcapital. Other effectsmay include furtherchanges in interest rates,which can impact theGroup’s revenues.

Brexit: Uncertainty following theUK vote to exit the EU -particularly relating to thenature and impact ofwithdrawal - could affect the environment inwhich the Group operates.

Stable yetuncertainThe competitiveenvironment in which the Groupoperates remainschallenging andmacroeconomicuncertaintycontinues as a resultof the ongoingnegotiationsregarding the UK’swithdrawal from theEU.

Adverse change in theGroup's revenues and /or costs resulting inreduced profitability.

• A clearly defined strategic plan is developed within theboundaries of the Board approved risk appetite and riskidentity, ensuring balanced growth in consumer lending anddeposits with a stable funding profile that is appropriate forthe asset mix;

• The Group’s Annual Strategy & Planning Process includes areview and assessment of the Group’s Business Model;

• The Group monitors the impact, risks and opportunities ofchanging current and forecast macroeconomic conditions onthe likely achievement of its strategy and objectives. This issupported by the Group’s Economist and supplemented withexternal research as required;

• Macroeconomic tools allied to the Group's credit risk appetitemitigate the impacts associated with a severe house pricecorrection;

• Competitive environment reviewed and monitored on anongoing basis to identify market developments;

• Expert independent validation of key strategic items and / ordevelopments;

• Specific business focus on new lending origination, depositsales and active customer retention to ensure a balancedportfolio and appropriate funding base;

• Clearly defined and regularly monitored KPIs at bothExecutive and Board committee level;

• Active engagement and management of the Post Office, theAA and other relationships;

• In the context of its Board approved strategy, the Groupassesses and develops its complementary technologystrategy which is reviewed and monitored on an ongoingbasis;

• The Group is strongly capitalised and self-fundedpredominantly through retail deposits with no sustainedfunding dependency on the parent or material dependency onthe wholesale funding market. The Group also has significantliquidity collateral which is capable of being pledged againstborrowings from central banks or other external marketparticipants;

• The Group conducts business in the UK through keypartnerships which reduces the Group’s investment ininfrastructure and other items of a fixed cost nature;

• The Group market risk exposure is managed tightly and issubstantially eliminated through hedging with the Parent. TheGroup has no appetite for market risk; and

• Regular reporting to the ERC, the BRC and the Board.



eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation




Reputation riskThe risk to earnings orfranchise value arisingfrom adverse perceptionof the Group’s image onthe part of customers,suppliers, counterparties,shareholders, staff,partners, legislators orregulators. This risktypically manifeststhrough a loss ofbusiness in the areasaffected.

StableExpectation of acontinued focus onthe financialservices industry.

Adverse public orindustry opinion,resulting from the actualor perceived manner inwhich the Groupconducts its businessactivities or from actualor perceived practices inthe banking industry(such as mis-sellingfinancial products ormoney laundering), mayadversely impact theGroup’s ability to have apositive relationship withkey stakeholders and / orstrategic partners and /or keep and attractcustomers.

Ultimately this may resultin an adverse impact onthe Group’s business,financial condition andprospects.

• The embedding and management of a positive customerconduct culture to ensure the interests of consumers remainat the heart of the Group’s operation. Management decisionmaking aims to deliver an accurate, open and positiveexternal view of the Group to customers, regulators and thewider public and community;

• Active management of all internal and externalcommunications including social media;

• Maintenance of a suite of early warning indicators, which, ifbreached, will trigger escalation and, where required,management action;

• Regular reporting to the ERC, the BRC and the Board; and• Regular and open dialogue with key stakeholders, partners,

regulators and industry bodies.


Capital adequacy riskThe risk that the Groupholds insufficient capitalto absorb extreme andunexpected losses,which could eventuallyresult in insolvency.

Stable The Groupcontinues togenerate capital andmaintains a strongcapital positionagainst regulatoryand internalrequirements.

The Group’s capitalratios would deterioraterelative to regulatoryrequirements as a resultof materially worse thanexpected financialperformance orunexpected increase inrisk weighted assets.

• A capital management framework which is reviewedannually, is in place for the effective management of capitaladequacy risk and its capital position. The capitalmanagement policy, which governs capital management andmonitoring, sits within this framework.

• Comprehensive Internal Capital Adequacy AssessmentProcess (ICAAP) undertaken annually, assessing the Group’scapital adequacy and capital quality under plausible stressscenarios;

• Capital adequacy risk appetite is central to the strategicplanning process. The Group’s appetite is to hold sufficientcapital to achieve its strategic objectives, as well as toabsorb extreme losses in a stress scenario;

• Regular reporting to the ALCo, the ERC, the BRC and theBoard;

• Detailed capital plan continuously monitored and reviewedon a monthly basis, which informs the capital position forthe Group; and

• Recovery plan in place which specifies a range of processesand potential actions that can be enacted in the event of anyunexpected shortfall in capital resources.

Strategic report

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




Conduct Risk Conduct risk is the riskof failure to deliver aproduct or service in amanner promised orreasonably expected bycustomers.

Stable Scoping andprovisioning inrespect of the PlevinPPI ruling has beencompleted, withcustomermanagement andresolution in placefor 2018. No otherimmediate threats toa stableenvironment basedon known external,economic orregulatory focus areanticipated.

Conduct risk and / orpoor outcomes forcustomers could lead to customer remediation,loss of business,adverse media coverage,financial penalties and /or regulatory sanction.

• The Group has no appetite for customer detriment andseeks to be fair, accessible and transparent in the provisionof products and services to its customers;

• The Group has developed an internal Customer Charterwhich provides a clear articulation of its customer andpartner commitments and is designed to place customers atthe heart of its business. It is central to the Group’s ConductRisk Culture which continues to be embedded across thebusiness and provides a common and consistent frameworkfor business decision making and product design across theGroup;

• The Product & Services Approvals & Governance Committee(PSAGC) reviews, assesses and approves material newproducts and services prior to introduction or withdrawal ormaterial change to an existing product or service. It alsoreviews the performance of existing products and servicesto ensure these remain appropriate;

• Conduct measures throughout the Group include enhancedproduct review process, Complaint Root Cause Analysis andConduct Risk MI; and

• Regular reporting to the R&ORC, the ERC, the BRC and theBoard.



eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Impact of Accounting StandardsIFRS 9 is an accounting standard which became effective on 1 January 2018. Its forward-looking ‘expected credit loss’ (ECL) approachresulted in higher impairment provisions on transition to IFRS 9 and may lead to more volatile impairment charges with a consequentimpact on capital ratios.

Key mitigating considerations:• The estimated initial impact of IFRS 9 on capital has been incorporated into the Group’s capital planning and the Group retains

sufficient buffers in excess of regulatory requirements on a fully loaded basis. The Group is availing of the transition arrangementsfor mitigating the impact of IFRS 9 on regulatory capital. These arrangements include relief for a proportion of any increase in stage1 and 2 loss allowances between transition and the relevant reporting date.

• Further detail in relation to IFRS 9 is set out in the credit risk section of the Risk Management Report on pages 53 to 55.

The Strategic report on pages 5 to 29 is approved by the Board of Directors and signed on its behalf by:

Thomas McAreaveyDirector6 March 2018Company number: 07022885


Risk Management

Index Page

1 Risk management framework 31

1.1 Risk governance framework 32

1.1.1 Roles and responsibilities – BoI UK Board and Executive Governance 32

1.1.2 Roles and responsibilities – Three Lines of Defence 33

1.2 Risk culture, strategy and principles 34

1.3 Risk identity and risk appetite 35

1.4 Risk identification, measurement and reporting 35

2 Management of key risks 36

2.1 Credit risk 37

2.2 Liquidity and funding risk 55

2.3 Market risk 59

2.4 Regulatory risk 60

2.5 Operational risk 61

2.6 Business and strategic risk 62

2.7 Reputation risk 63

2.8 Conduct risk 63

3 Capital management 64


The information below in sections or paragraphsdenoted as audited in sections 2 and 3 and all thetables (except those denoted unaudited) in the RiskManagement Report form an integral part of theaudited financial statements as described in theBasis of Preparation on page 85.

All other information in the Risk Management Reportis additional disclosure and does not form part of theaudited financial statements.

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Risk Management

1 Risk management framework

The Group follows an integrated approachto risk management to ensure that allmaterial classes of risk are taken intoconsideration and that the Group’s overallbusiness strategy and remunerationpractices are aligned with its risk strategyand capital plan.

The Group’s RMF articulates thisintegrated approach and is approved bythe Board of Directors (the Board) on therecommendation of the BRC on a periodicbasis. It describes the Group’s riskcategories, risk governance structure and

process, framework for setting riskappetite and its approach to riskidentification, measurement, managementand reporting.

The RMF is underpinned by anappropriate risk culture and is enabled bypeople, processes and technology. In theRMF the Group categorises and definesthe risks faced by the business. Thiscategorisation supports the Group’s riskmanagement activities at all levels andenables risks to be clearly andconsistently identified, assessed,

managed and reported to keystakeholders. These categories aresubject to ongoing review andmaintenance to ensure they remainappropriate in the context of a changingstrategic and business environment.

The Group’s principal risks anduncertainties are set out in section 1.8 ofthe Strategic report. The componentelements of the RMF are outlined in thechart below.

Where services are provided by the Parent under outsourcing arrangements, the above approach to risk management is embedded inthe Master Services Agreement between the Group and the Parent and managed through a series of key service schedules.

RiskStrategy

Recovery &ResolutionPlanning

Risk Management

Process

RiskIdentity &Appetite

Risk GovernanceFramework

RiskFramework

Risk Identification

Figure 1 - Bank of Ireland UK Risk Management Framework components

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



1.1 Risk governance framework

1.1.1 Roles and responsibilities – Bank of Ireland UK Board and Executive Governance

Credit Risk PortfolioCommittee

(CRPC)

Assets & Liabilities Committee

(ALCo)

Regulatory &Operational

Risk Committee(R&ORC)

Executive Complaints Oversight Forum

(ECOF)

Retail UK & Group Manufacturing Forum

(R UK&GMF)

Board of Directors

Board Risk Committee

(BRC)

AuditCommittee

NominationCommittee

RemunerationCommittee

Executive Risk Committee

(ERC)

Figure 2 – Risk Committee Governance Structure

Products & Services Approvals &

Governance Committee (PSAGC)

The Group’s organisational structure isdesigned to facilitate the reporting of riskpositions and escalation of risk concernsfrom business units, functions and GroupInternal Audit (GIA) to the ERC, the BRCand the Board, and to cascade approvedrisk management policies to the businessunits.

The Board is responsible for ensuring thatan appropriate risk strategy and system ofinternal control is maintained and forreviewing its effectiveness. To assist theBoard in discharging its duties, it hasappointed four Board sub-committees.

Below this Board level governance, theGroup also has in place a suite ofexecutive level committees (as shown infigure 2 below).

Each of the risk committees detailed infigure 2 has detailed terms of reference,approved by its parent committee or theBoard, setting out its objectives andresponsibilities. In summary, the followingare the key responsibilities of the Group’sBoard and its sub-committees:

Board of Directors The Board is responsible for approvingpolicy and strategic direction in relation tothe nature and scale of risk that the Groupis prepared to assume, to achieve itsstrategic objectives. The Board ensuresthat an appropriate system of internalcontrol is maintained and reviews itsongoing effectiveness. The Boardapproves the Group’s risk appetite.

The Board meets at least six times a year.It comprises three executive Directors,four independent non-executive Directorsand two non-executive Directors from theParent. A number of Board functions are

delegated to key Board Committees,including the BRC, the Audit Committee,the Remuneration Committee and theNomination Committee.

Board Risk CommitteeThe BRC is responsible for monitoring riskgovernance, and assists the Board indischarging its responsibilities in ensuringthat risks are properly identified, reported,and assessed; that risks are properlycontrolled; and that strategy is cognisantof the Group’s risk appetite within theoverall risk appetite of its Parent.

The BRC meets at least four times a yearand more frequently if required, and itsmembership is made up of at least threeindependent non-executive Directors.

Audit Committee The Audit Committee is responsible forthe appropriateness and completeness ofthe Group’s system of internal control and

ensuring this is adequately resourced;advising the Board (in close liaison withthe BRC) in relation to the setting ofstandards for the Group’s risk controlframework; reviewing the manner andframework in which management ensures/ monitors the adequacy of the nature,extent and effectiveness of internal controlsystems (including accounting controlsystems); monitoring the integrity of thefinancial statements and financialreporting process; overseeing all mattersrelating to the relationship between theGroup and its External Auditors; andmonitoring the effectiveness of its Parent’sInternal Audit’s functions and operationsas they relate to the Group.

The Audit Committee meets at least fourtimes a year and more frequently ifrequired, and its membership is made upof at least two independent non-executiveDirectors.

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



1.1.1 Roles and responsibilities – Bank of Ireland UK Board and Executive Governance (continued)

Nomination CommitteeThe Nomination Committee is responsiblefor leading the process for appointmentsand renewals for the Board and the BoardCommittees as appropriate, and makingrecommendations in this regard to theBoard for its approval, reviewingsuccession plans for and approval of thesenior management team and regulatorySenior Management Functionappointments.

The Nomination Committee meets at leasttwice a year and more frequently ifrequired, and its membership is made upof three non-executive Directors.

Remuneration CommitteeThe Remuneration Committee isresponsible for considering theremuneration policy for Directors, seniormanagement and top earners in theGroup. It is responsible for ensuring thatthe Group operates remuneration policiesand practices which are in line with theprinciples of the EU Capital RequirementsDirective and any associated guidancefrom the EBA, the FCA and the PRA, as toits application.

The Remuneration Committee meets atleast twice a year and more frequently ifrequired, and its membership is made upof three non-executive Directors.

Executive Risk Committee The ERC is the most senior executive riskcommittee and reports directly to theBRC. Membership comprises the ChiefExecutive Officer (CEO), Chief FinancialOfficer (CFO), Chief Risk Officer (CRO),Chief Operating Officer (COO), Director ofHuman Resources (HR), Heads ofBusiness and Senior Risk Managers. It isresponsible for the end to endmanagement of risk across the Groupincluding monitoring and reviewing theGroup’s risk profile and compliance withrisk appetite. It approves risk policies inaccordance with the mandate delegatedby the BRC. The ERC Terms of Referenceare approved by the BRC.

The ERC in turn delegates specificoversight of the major classes of risk tospecific committees that are accountableto it. These committees are:• Asset & Liability Committee -

responsible for ongoing review andmonitoring of balance sheet, liquidity,funding, market risk and capitalpositions in order to ensurecompliance with relevant Group RASlimits, regulatory requirements andindustry best practice.

• Credit Risk Portfolio Committee -responsible for overseeing the Group’sdevelopment, deployment andmanagement of the Credit Risk

framework and corresponding riskappetite across all asset classes.

• Regulatory & Operational RiskCommittee - responsible for the end-to-end management and oversight ofRegulatory, Operational, FinancialCrime and Conduct Risks within theGroup.

• Products & Services Approvals &Governance Committee - reviews,assesses and approves material newproducts and services across the UKprior to introduction or prior towithdrawal or material changes to anexisting product / service. It alsoconsiders the performance of existingproducts and services to ensure theyremain fit for purpose.

• Executive Complaints OversightForum - responsible for the end-to-end oversight of complaints andassociated activity. It oversees theapproach to management ofcomplaints and drives improvementsto this approach through challengeand a focus on continuousimprovement.

The ERC approves the terms of referenceand the membership of its appointedcommittees annually, reviews theirdecisions and minutes and reviews thefindings of the annual effectivenessreviews of the committees.

1.1.2 Roles and responsibilities – Three Lines of Defence

The Group has adopted the ‘three lines of defence’ model as the basis for its RMF, as indicated below:

Figure 3 – Three Lines of Defence model

Independent risk assurance

THIRD LINE OF DEFENCE

Risk oversight and risk governance

SECOND LINE OF DEFENCE

Day-to-day risk management

FIRST LINE OF DEFENCE

Risk Management Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



First line of defence – Primaryresponsibility and accountability for riskmanagement lies with line managementacross the business and front-linefunctions. They are responsible for theidentification and management of riskagainst risk appetite at a business unitlevel including the implementation ofappropriate controls and the reporting ofall major risk events. Business units areaccountable for the risks arising in theirbusinesses / functions, and are the firstline of defence for the Group in managingthese. This applies irrespective of whetheror not activities are outsourced to theParent or to external third parties includingstrategic partners such as the Post Officeand the AA.

In addition, the Group’s treasury functionis responsible for liquidity planning andmanagement, transfer pricing, balancesheet management, cash and market risk

management and as part of the Group’sRecovery Plan, contingent capital andfunding management actions. The UKTreasurer reports directly to the CFO.

Second line of defence – The SecondLine Risk Function is responsible formaintaining independent risk oversightand ensuring that a risk control frameworkis in place.

In order for the BRC, the ERC, and otherrisk committees to fulfil their delegatedresponsibilities in respect of riskgovernance, they are supported by theRisk Function which is responsible forestablishing the RMF and designing riskpolicies and communicating these to allbusiness units. The Risk Function alsoprovides independent oversight,monitoring, analysis and reporting of keyrisks. This includes the monitoring andcredit underwriting of individually

significant credit exposures in thecommercial loan book.

Third line of defence – The Internal Auditfunction provides independent andreasonable assurance to key stakeholderson the effectiveness of the Group’s riskmanagement and internal controlframework. GIA carries out risk basedassignments covering Group businessesand functions (including outsourcingproviders), with ratings assigned asappropriate. Findings are communicatedto senior management and other keystakeholders, with remediation plansmonitored for progress against agreedcompletion dates. The Group CreditReview (GCR) function, an independentfunction within Internal Audit, isresponsible for reviewing the quality andmanagement of credit risk assets acrossthe Group.

1.1.2 Roles and responsibilities – Three Lines of Defence (continued)

Risk cultureA strong risk culture is fundamental to theGroup’s management, with the Group’sRisk Culture Statement being approved bythe Board. The Group promotes a riskculture that is open and risk aware.Considerations about risk inform theBoard, day-to-day management decision-making and product development. Clearlydefined roles and responsibilities ensurerisk is owned and controlled effectivelyacross the organisation. A Speak Uppolicy protects employees who wish tospeak out.

Risk strategyThe Group’s Risk Strategy is to protect itsbalance sheet, customers and reputationas well as those of its strategic partners,and help the business to build profitability.The Group seeks to accomplish this by: • establishing Risk Appetite as the

boundary condition for the Group’sStrategic Plan and Annual OperatingPlan / Budget;

• defining and implementing a RiskManagement Framework to managerisk in an integrated approach;

• defining Risk Principles upon whichrisks may be accepted;

• allocating clear roles andresponsibilities / accountability for thecontrol of risk within the Group; and

• engendering a prudent riskmanagement culture.

Risk principlesRisk Owners seeking to accept a risk attransaction, portfolio and Group level mustoperate in accordance with riskframeworks and policies includingbringing this to the attention of the ERCwhere required.

In general, risks may be accepted if:• they are aligned with the Risk Identity

and within Risk Appetite• the risks represent an attractive

investment from a risk-returnperspective. It is imperative thatinvestment decisions achieve a returnon capital which are in excess of thepre-defined hurdle rates and alsomanaged within formally approvedmandates. There are a number ofreturn on capital metrics currently in

use by the Group at a product level,namely the BoI Group Risk AdjustedReturn on Capital (RAROC), Return onEquity (ROE) and Return onRegulatory Capital (R&ORC). At anentity level, the Group also use a ROEmeasure which is based on the firm’sstatutory balance sheet.

• the Group has the resources and skillsto analyse and manage the risks;

• stress and scenario tests around therisks exist, where appropriate, andresults are satisfactory;

• appropriate risk assessment,governance and procedures havebeen observed as described in theappropriate documentation (e.g.frameworks, policies, processes,controls) pertaining to individual riskcategories or at an aggregate Group-level; and

• acceptance of the risk does not causeundue risk concentration in order toremain within the approved RiskAppetite portfolio limits and notdeviate from the Risk Identity.

1.2 Risk culture, strategy and principles

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Risk identityThe Group’s purpose is to be the leadingpartnership bank, providing simple,flexible, relevant, accessible financialservices and products to UK customersboth directly and through partnershipswith trusted, respected UK brands andintermediaries, thereby providing attractivesustainable returns to our shareholder.

To achieve its Risk Strategy, the Groupoperates a strong risk managementframework and risk culture whilst pursuingan appropriate return to the risk taken.

Risk appetiteRisk appetite defines the amount andnature of risk that the Group is prepared toaccept in pursuit of its strategicobjectives. It is central to the strategicplanning process, forms a boundarycondition to strategy and guides theGroup in its risk-taking and related

business activities. The Risk AppetiteStatement (RAS) is defined in accordancewith the Group's RMF and is reviewed atleast annually by the Risk Office andapproved by the Board on therecommendation of the BRC.

Risk appetite is defined in qualitative andquantitative terms within a framework thatfacilitates discussion and monitoring bothat the Board and management levels. Atthe highest level, risk appetite is based onthe Group’s risk identity, whichqualitatively defines the relativepositioning of the Group's activities withina spectrum of business models andmarket opportunities. Quantitative riskappetite measures, which are consistentwith the Group’s risk identity, are thenused to inform the boundaries of theGroup’s strategy. These measures alsoinform individual risk limits and targets atmanagement and business unit level.

The Group tracks actual and forecastresults against these risk limits which aremonitored and reported regularly to seniormanagement as well as the ERC sub-committees; the ERC; the BRC and theBoard.

The Group strives to ensure it operateswithin its risk appetite and therefore itsrisk appetite and risk profile must bealigned. Where the Group has a risk profilethat is in excess of its risk appetite, it willtake action to realign the risk profilethrough increased risk mitigation activitiesand risk reduction. The key risk mitigatingactivities are set out on pages 24 to 29within the Strategic report.

Where risk appetite is breached or anunanticipated risk arises, a root causeanalysis will be undertaken by thedesignated risk owner.

1.3 Risk identity and risk appetite

Risk identificationRisks facing the Group are identified andassessed through the Group’s riskidentification process. Risks that areconsidered material are included in theGroup’s RMF, owners are identified,appropriate policies are put in place, and aformalised measurement andmanagement process is defined andimplemented. The Group periodicallyreviews the RMF and risk managementpolicies and systems to reflect changes inmarkets, products and best marketpractice. The Group has identified risktypes that it believes could have a materialimpact on earnings, capital adequacy,liquidity and on its ability to trade in thefuture and these are covered in theprincipal risks and uncertainties that areset out on pages 24 to 29 of the Strategicreport.

Risk measurementRisk management systems are in place tofacilitate measurement, monitoring andanalysis of risk and ensure compliancewith regulatory requirements. In additionto the assessment of individual risks on acase-by-case basis, the Group alsomeasures its exposure to risk at anaggregate level using, among othertechniques, risk-adjusted return estimatesand stress testing.

The Group conducts stress tests in orderto assess the impacts of adversescenarios on the Group’s impairmentcharges on financial assets, earnings,

capital adequacy, liquidity and financialprospects.

The results of stress tests are used toassess the Group’s resilience to adversescenarios and to aid the identification ofpotential areas of vulnerability. The testsare applied to the existing risk exposure ofthe Group and also consider changingbusiness volumes, as envisaged in theGroup’s business plans and strategies.Macroeconomic scenarios of differentlevels of severity are combined withassumptions on volume changes andmargin development.

Stress test results are presented to theBRC and the Board as an integral part ofthe ICAAP and the ILAAP, which assessthe risks and capital and liquidityrequirements of the Group.

The Group also performs reverse stresstesting, primarily a qualitative process toderive severe stress scenarios whichwould breach the Group’s ability to surviveunassisted, thus helping to define risktolerance boundaries for the business aswell as appropriate controls and mitigants.

Risk reportingRisks are measured, reported andmonitored by the Group on a daily, weekly,monthly and / or quarterly basisdepending on the materiality of the risk.The CEO and CRO reports submitted toeach Board meeting provide an update onkey risk issues as well as an update on

performance against core risk appetitemetrics. Additionally, material risksidentified under the Group’s RMF areassessed and their status is reported inthe Monthly Risk Report (MRR) in the firstinstance. This report is submitted to boththe ERC and the BRC.

The format of this report is approved bythe BRC. The content of the MRR includesanalysis of, and commentary on, allmaterial risk types. It also addressesgovernance and control issues and theGroup’s capital position. In addition to theMRR, the BRC and the Board considermore frequent formal updates on otherkey risk areas.

Data on the external economicenvironment and management’s view ofthe implications of this environment on theGroup’s risk profile is also reviewedregularly at management and Board level.The BRC also receives risk informationthrough the review of minutes from theERC.

Risk Improvement Roadmap (RIR)Under the management of the CEO andthe CRO, a RIR was designed to continueto build on work undertaken to embed astrong risk management framework andrisk culture in 2017. Followingimplementation, the RIR transitioned tobusiness as usual, under the RiskManagement Framework, at year end.

1.4 Risk identification, measurement and reporting


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


2 Management of key risks

Index Page

2.1 Credit risk 37

2.1.1 Definition of credit risk 38

2.1.2 Credit risk management 39

2.1.3 Credit risk mitigation 39

2.1.4 Credit risk reporting and monitoring 39

2.1.5 Management of challenged assets 40

2.1.6 Book profile - loans and advances to customers 41

2.1.7 Asset quality - loans and advances to customers 42

2.1.8 Asset quality - other financial instruments 49

2.1.9 Credit risk methodologies (audited) 51


Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Risk Management

Key points:

• Gross loans and advances to customers increased by £0.1 billion to £20.2 billion at 31 December 2017 (31 December 2016:£20.1 billion).

• The commercial property sector continues to improve, but in some segments, such as Northern Ireland’s land anddevelopment sector, it continues to be characterised by low levels of activity and relatively illiquid markets.

• Total impairment charges have increased from £23 million for 2016 to £26 million for 2017, driven by maturity in assetsoriginated in the Personal Loan book since 2015.

• The residential mortgage portfolio has continued to perform well. Arrears and default rate performance continues to be aheadof expectations.

• All lending portfolios have performed ahead of impairment expectations.

Definition (audited)Credit risk is the risk of loss resulting froma counterparty being unable to meet itscontractual obligations to the Group inrespect of loans or other financialtransactions. This risk comprises countryrisk, default risk, recovery risk, exposurerisk, the credit risk in securitisation, crossborder (or transfer) risk, concentration riskand settlement risk. At portfolio level,credit risk is assessed in relation to thedegree of name, sector and geographicconcentration to inform the setting ofappropriate risk mitigation and transfermechanisms and to assess risk capitalrequirements. The manner in which theGroup’s exposure to credit risk arises, itspolicies and processes for managing it,and the methods used to measure andmonitor it, are set out below.

How credit risk arisesCredit risk arises from loans and advancesto customers. It also arises from thefinancial transactions the Group entersinto with financial institutions, sovereignsand state institutions. It comprises bothdrawn exposures and exposures theGroup has committed to extend. While theGroup could potentially suffer loss to anamount equivalent to its undrawncommitments, the Group does not expectto incur losses to that extent as mostconsumer related commitments can becancelled by the Group and non-consumer related commitments areentered into subject to the customercontinuing to achieve specific creditstandards. The Group is also exposed to

credit risk from its derivatives, available forsale financial assets and other financialassets.

Credit concentration riskCredit concentration risk is the risk of lossdue to exposure to a single entity, orgroup of entities, engaged in similaractivities and having similar economiccharacteristics that would cause theirability to meet contractual obligations tobe similarly affected by changes ineconomic or other conditions. Undueconcentrations could lead to increased orunexpected volatility in the Group’searnings. Management of riskconcentrations is an integral part of theGroup’s approach to risk management.

The Group imposes risk control limits andguide points to mitigate significantconcentration risk. These limits are formedby the Group’s risk appetite, and that ofthe Parent, and are set in the context ofthe Group’s risk strategy. Monetary limitsare set by the CRPC and, wherenecessary, approved by the BRC or theBoard. Single name concentrations arealso subject to limits.

The Group’s primary market is the UK andloans originated and managed in the UKrepresent a material concentration ofcredit risk.

Large exposuresThe Group’s risk appetite statement, creditpolicy and regulatory guidelines set outthe maximum exposure limits to a

customer, or a group of connectedcustomers. The policy and regulatoryguidelines cover both exposures to theParent and other counterparties.Regulatory guidelines limit riskconcentration in individual exposures. Nosingle exposure exceeded regulatoryguidelines during the year, including netexposures to the Parent.

Loans and advances to banks at 31December 2017 of £2.8 billion include£1.4 billion due from the Parent, whiledeposits from banks at 31 December 2017of £3.6 billion include £2.0 billion due tothe Parent. At 31 December 2017, theGroup therefore has a net exposure due tothe Parent of £595 million (31 December2016: £126 million net exposure due fromthe Parent).

At 31 December 2017, derivative assetsand derivative liabilities include £20 millionand £63 million respectively with theParent and therefore a net exposure dueto the Parent of £43 million (31 December2016: £39 million net exposure due to theParent).

Credit related commitments (audited)The Group classifies and manages creditrelated commitments that are not reflectedas loans and advances on the balancesheet, as follows:

2.1 Credit risk

2.1.1 Definition of credit risk

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Guarantees and irrevocable standbyletters of credit: irrevocable commitmentsby the Group to make payments at afuture date, in specified circumstances, onbehalf of a customer. These instrumentsare assessed on the same basis as loansfor credit approval and management.

Commitments: unused elements ofauthorised credit in the form of loans,guarantees or letters of credit, where the

Group is potentially exposed to loss in anamount equal to the total unusedcommitments. The likely amount of loss isless than the total unused commitments,as most commitments are contingentupon customers maintaining specificcredit and performance standards. Theseinstruments are assessed on the samebasis as loans for credit approval andmanagement.

Letters of offer: where the Group hasmade an irrevocable offer to extend creditto a customer and the customer may, ormay not, have confirmed acceptance ofthe offer on the terms outlined and in thespecified timeframe. The exposure isassessed on the same basis as loans forcredit approval and management. Theultimate exposure to credit risk isconsiderably less than the face value ofoffer letters, as not all offers are accepted.

2.1.1 Definition of credit risk (continued)

Credit risk management – retail andcommercial lending (audited)The management of credit risk is focusedon a detailed analysis at origination,followed by early intervention and activemanagement of accounts wherecreditworthiness has deteriorated. TheChief Credit Officer (CCO) hasresponsibility for credit management ofthe retail lending book, business bankingbook and the Northridge book. Supportedby Directors / Heads of Retail Credit andCommercial Credit and the broader riskfunction, the CCO is responsible foroverall credit risk reporting to the ERC, theBRC and the Board. The CCO reports tothe CRO, who reports directly to the CEO.The broader risk function, under themanagement of the CRO, providesindependent oversight and managementof the Group’s credit risk strategy andcredit risk management information, aswell as the Group’s suite of credit riskpolicies.

Credit policyThe core values and principles governingthe provision of credit are contained in theCredit Policy and Credit Framework,which are approved by the BRC. Individualsector / portfolio-level credit policiesdefine in greater detail the credit approachappropriate to those sectors or portfolios.These policies take account of the Group’sRisk Appetite Statement, applicablesectoral credit limits, the markets in whichthe Group operates and the productsprovided. Each staff member involved indeveloping customer relationships and / orassessing or managing credit, has aresponsibility to ensure compliance withthese policies. Procedures for theapproval and monitoring of exceptions topolicy are included in the policydocuments.

Lending authorisation (audited)The Group’s credit risk management

systems operate through a hierarchy oflending authorities, which are related tointernal customer loan ratings and limits.In some consumer lending this includesthe use of credit decisioning models,which are subject to strict governanceprocesses. All exposures which exceedprescribed levels require approval orratification by the BRC.

Other exposures are approved bypersonnel according to a system of tieredindividual authorities, which reflect creditcompetence, proven judgement andexperience. Material lending proposals arereferred to credit underwriting units forindependent assessment and approval, orformulation of a recommendation andsubsequent adjudication by theappropriate approval authority. All credit transactions are assessed atorigination for credit quality and theborrower is assigned a credit grade basedon a predefined credit rating scale. Therisk, and consequently the credit grade, isreassessed periodically. The use ofinternal credit rating models and scoringtools, which measure the relative degreeof risk inherent in lending to specificcounterparties, is central to the credit riskassessment and ongoing managementprocesses in the Group. Details of theseinternal credit rating models are outlined inthe section on Credit risk methodologieson pages 51 to 55.

Counterparty credit riskThe continued weak international financialenvironment means that the Groupcontinues to be exposed to increasedcounterparty risk. The Group has anumber of measures in place to mitigatethis increased risk. These include:• reduced individual Group exposures

across a wider spread of bankinginstitutions;

• strict credit risk managementprocedures; and

• application of tight credit policycriteria, where required.

The Group’s net exposure to the Parent(disclosed gross within loans andadvances to banks, deposits from banks,derivative assets and derivative liabilities)is managed through a contractual masternetting agreement with the Parentwhereby, in the event of a default by eitherparty, all amounts due or payable will besettled immediately on a net basis. Inaddition, derivatives executed with theParent are subject to International Swapsand Derivatives Association (ISDA) andCredit Support Annex (CSA) standarddocumentation and therefore collateralrequirements are calculated daily andposted as required. The net exposure tothe Parent is measured and monitored ona daily basis and is maintained within theGroup’s large exposure limits.

The BRC is responsible for establishing anappropriate policy framework for theprudential management of treasury creditrisk, including net exposure to the Parent.Credit counterparties are subject toongoing credit review and exposures arereported and monitored on a daily basis.

Loan loss provisioningThrough its ongoing credit reviewprocesses, the Group seeks earlyidentification of deteriorating loans, with aview to taking corrective action to preventthe loan becoming impaired. Typically,loans that are at risk of impairment aremanaged by dedicated specialist units /debt collection teams focused on workingout loans.

The identification of loans for assessmentas impaired is driven by the Group’s creditrisk rating systems and by trigger eventsidentified in the Group’s credit andimpairment policies. It is the Group’spolicy to provide for impairment promptly

2.1.2 Credit risk management

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



and consistently across the loan book. Forthose loans that become impaired, thefocus is on implementing appropriatework-out strategies, includingconsideration of vulnerable customers(see Section 2.8 on page 63), whichminimise the loss that the Group will incurfrom such impairment. This may involveentering into restructuring arrangementswith borrowers, or taking action to enforcesecurity.

Other factors taken into consideration in

estimating provisions include theeconomic climate, changes in portfoliorisk profile and the effect of any externalfactors, such as legal or regulatoryrequirements.

Under delegated authority from the Board,the Group’s impairment policy is approvedannually by the BRC. Subsidiaryimpairment policies for individual businessunits are approved by the CRPC.

The Group’s provisioning methodology is

reviewed by the CRPC on a half yearlybasis, details of which are set out in theCredit risk methodologies section onpages 51 to 55. The quantum of theGroup’s impairment charge, impaired loanbalances, and provisions are alsoreviewed by the BRC on a half-yearlybasis, in advance of providing arecommendation to the Audit Committee.

An analysis of the Group’s impairmentprovisions at 31 December 2017 is set outon pages 41 to 44 and note 17.

2.1.2 Credit risk management (continued)

An assessment of the borrower’s ability toservice and repay the proposed level ofdebt is undertaken for credit requests andis the primary component of the Group’sapproach to mitigating risk.

In addition, the Group mitigates credit riskthrough both the adoption of preventativemeasures (e.g. controls and limits) and thedevelopment and implementation ofstrategies to assess and reduce theimpact of particular risks, should thesematerialise. In the commercial portfolio,regular risk reassessments are conductedon larger cases in line with policy.

CollateralCredit risk mitigation includes therequirement to obtain collateral,depending on the nature of the product

and local market practice, as set out in theGroup’s policies and procedures. Thenature and level of collateral requireddepends on a number of factors,including, but not limited to:• the amount of the exposure; • the type of facility provided;• the term of the facility; • the amount of the borrower’s own

cash input; and• an evaluation of the level of risk or

probability of default (PD).

The Group takes collateral as a secondarysource of repayment which can be calledupon if the borrower is unable or unwillingto service and repay debt as originallyassessed.

A variety of types of collateral are

accepted, as follows:• residential and commercial real estate;• physical assets (motor vehicles, plant

and machinery, stock etc.);• financial assets (lien over deposits,

shares etc.); and• other assets (debentures, debtors,

guarantees, insurance etc.).

The Group’s requirements aroundcompletion, valuation and management ofcollateral are set out in appropriate Groupor business unit policies and procedures.The extent to which collateral mitigatescredit risk in respect of the Group’smortgage portfolio is set out on page 45.Details of the valuation methodologies areset out in the Credit provisioningmethodologies section on page 52.

2.1.3 Credit risk mitigation

It is Group policy to ensure that adequateup-to-date credit management informationis available to support the creditmanagement of individual accountrelationships and the overall loan portfolio.Information is produced on a timely basisand at a frequency interval that reflects thepurpose of the report. Credit riskinformation at a product / sector level isreported on a monthly basis to seniormanagement. This monthly reportingincludes detailed information on loan bookvolume, the quality of the loan book,concentrations and loan impairmentprovisions, including details of any largeindividual impaired exposures.

Performance against specified credit risk

limits, as detailed in the risk appetitestatement, is monitored and reported tosenior management and to the BRC. Theformat of reports and commentaries areconsistent across the Group to enable anassessment of trends in the loan book.Along with the regular suite of monthlyand quarterly reporting, ad hoc reports aresubmitted to senior management and theBRC as required. GCR, an independentfunction within GIA, reviews the qualityand management of credit risk assetsacross the Group and reports to the CRPCon a half yearly basis.

Regular portfolio review meetings coveringthe NI and GB commercial challengedportfolios are also conducted.

Group risk personnel as well as businessand finance senior management reviewand confirm the appropriateness ofimpairment provisioning methodologiesand the adequacy of impairmentprovisions on a half yearly basis. Theirconclusions are reviewed by the BRC, theParent’s Credit Risk function and theParent’s Group Risk Policy Committee(GRPC). Impairment provisioningmethodologies are approved on a halfyearly basis by the GRPC. As part of thereview process, consideration is given asto whether there is a need to apply anadditional management overlay to takeaccount of portfolio effects, for examplesignificant deterioration in the economy ornegative market price movements.

2.1.4 Credit risk reporting and monitoring (audited)


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



A range of initiatives, dependent on thenature of the risk, are in place to deal withthe effects of the deterioration in the creditenvironment and decline in asset qualityincluding:• collections and recoveries processes;• utilisation of specialist work-out teams

to ensure early intervention invulnerable cases;

• intensive review cycles for ‘at risk’exposures and the management ofexcess positions;

• support from central teams inmanaging ‘at risk’ portfolios at abusiness unit level;

• modified and tighter lending criteriafor specific sectors;

• a reduction in certain individual bankexposures; and

• revised Risk Appetite Framework andStatement.

The segregation of certain challengedportfolios and the realignment ofresources to manage these assets allowsthe remaining portfolio managers to focuson the loan book classified as ‘acceptablequality’ or better and to work closely withthose customers.

Forbearance strategiesForbearance occurs when a borrower isgranted a temporary or permanentconcession or agreed change to a loan(‘forbearance measure’) for reasonsrelating to the actual or apparent financialstress or distress of that borrower. If theconcession or agreed change to a loangranted to a borrower is not related to theactual or apparent financial stress ordistress of that borrower, forbearance hasnot occurred. An exposure continues to beclassified as forborne until such time as itsatisfies conditions to exit forbearance inline with EBA guidance.

A range of forbearance strategies are usedby the Group for customers in arrears orfacing potential arrears on contracted loanrepayments, in order to arrange, whereviable, sustainable short term or longerterm repayment solutions as appropriate.

A forbearance strategy may include, but isnot necessarily limited to, one or more ofthe following measures:• term extension: an arrangement where

the original term of the loan isextended;

• adjustment to or non-enforcement ofcovenants: an arrangement wherebythe Group agrees to either waive anactual or expected covenant breachfor an agreed period, or adjust thecovenant(s) to reflect the changedcircumstances of the borrower;

• reduced payments (interest only): anarrangement where the borrower paysinterest only on the principal balance,on a temporary or longer term basis,with the principal balance unchanged,rather than repaying some of theprincipal as required under the originalfacility agreement;

• facilities in breach of terms beingplaced on demand: an arrangementwhereby the Group places a facility inbreach of its contractual terms on ademand basis as permitted under thefacility agreement rather thanenforcing, and pending a more longterm resolution;

• reduced payment (greater thaninterest only) incorporating someprincipal repayments: a temporary ormedium term arrangement where theborrower pays the full interest dueplus an element of principal due onthe basis that principal payments willincrease in the future; and

• capitalisation of arrears: anarrangement whereby arrears areadded to the loan principal balance,effectively clearing the arrears, witheither the repayments or the originalterm of the loan adjusted accordinglyto accommodate the increasedprincipal balance.

Impaired loans that have receivedforbearance are recorded and reported inthe ‘impaired’ category. Any other loanthat has received forbearance is recordedand reported in the appropriate ‘past duebut not impaired’ or ‘neither past due norimpaired’ rating category as described onpage 42.

For business banking the monitoring offorbearance measures follows the normalreview cycle for individual customerexposures based on amount and creditgrade, as set out in the credit policy.

Mortgage accounts that are subject toforbearance are monitored and reviewedby way of monthly managementinformation reporting. This includestracking the aggregate level of defaultarrears that emerge on the forborneelements of the loan book. Theimpairment provisioning approach andmethodologies are set out in each of theportfolio-level impairment policies. An‘incurred loss’ model is followed for allexposures, whether or not forbearancehas been granted.

The forbearance strategies adopted by theGroup seek to maximise recoveries andminimise losses arising from nonrepayment of debt, while providingsuitable and sustainable restructureoptions that are supportive of customersin challenged circumstances. The Grouphas an operating infrastructure in place toassess and, where appropriate, implementsuch options on a case-by-case basis.Group credit policy outlines the coreprinciples and parameters underpinningthe Group’s approach to forbearance withindividual business unit policies defining ingreater detail the forbearance strategiesappropriate to each unit.

Forbearance requests are assessed on acase-by-case basis taking dueconsideration of the individualcircumstances and risk profile of thecustomer to ensure, where possible, themost suitable and sustainable repaymentarrangement is put in place (see alsosection 2.8 on page 63 which furthercomments on vulnerable customers).Forbearance will always be a trigger eventfor the Group to undertake an assessmentof the customer’s financial circumstancesand ability to repay prior to any decision togrant a forbearance treatment. Thisassessment may result in adisimprovement in the credit gradeassigned to the loan, potentially impactinghow frequently the loan must be formally

2.1.5 Management of challenged assets

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



reviewed; and, where impairment isdeemed to have occurred, will result in aspecific provision. Where appropriate, andin accordance with the Group’s credit riskmanagement structure, forbearancerequests are referred to credit units forindependent assessment prior to approvalby the relevant approval authority.

Forborne loans are reviewed in line withthe Group’s credit managementprocesses, which include monitoringborrower compliance with the revised

terms and conditions of the forbearancearrangement. Loans to which forbearancehas been applied continue to be classifiedas forborne until it meets the relevant exitcriteria in line with EBA guidance.

Borrower compliance with revised termsand conditions may not be achieved in allcases. Non-compliance could for examplearise because the individualcircumstances and risk profile of theborrower continue to deteriorate, or fail toshow an expected improvement, to the

extent that an agreed reduced level ofrepayment can no longer be met. In theevent of non-compliance, a request forfurther forbearance may be considered. Itis possible that the Group, by virtue ofhaving granted forbearance to a borrower,could suffer a loss that might otherwisehave been avoided had enforcementaction instead been taken. This could forexample arise where the value of securityheld in respect of a loan diminishes overthe period of a forbearance arrangementwhich ultimately proves unsustainable.

2.1.5 Management of challenged assets (continued)

The Group’s residential mortgage portfolioamounted to 80% of total loans at 31December 2017 (31 December 2016:79%). By product type, the residentialmortgage portfolio is made up of standardowner occupier (61%), self-certified owneroccupier (5%) and Buy to Let (BTL) (34%)(31 December 2016: 61%, 6%, and 33%respectively). In terms of geographical

concentrations, the largest concentrationis the London and South East area at 44%(31 December 2016: 47%) with theremainder as follows: South West 9%;North West 9%; East Midlands 6%; WestMidlands 6%; Scotland 5%; Yorkshire &Humberside 6%; Northern Ireland 5%;East Anglia 4%; North 3%; and Wales 3%.Product type and geographic

concentrations are monitored andreported in accordance with the monetarylimits set by the BRC.

The property and construction sector,which includes investment property andlandbank, accounted for 3%, or £0.7billion of total loans at 31 December 2017(31 December 2016: 5% or £1 billion).

2.1.6 Book profile - loans and advances to customers

2017 2016Total loans - by industry analysis (audited) £m £m Residential mortgages 16,043 15,964Finance leases and hire purchase 1,411 1,227Credit cards 625 663Personal loans 327 87Commercial property and construction 652 961Business and other services 731 865Manufacturing and distribution 356 292Other 7 28Total 20,152 20,087

Impairment provision by nature of 2017 2016impairment provision (audited) £m £m Specific provisions 108 211Incurred but not reported (IBNR) 47 55Total impairment provision 155 266


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

The following table provides a spilt of theGroup’s impairment provision at 31December 2017 and 31 December 2016between specific and incurred but notreported (IBNR).

Specific provisions decreased by 49% to£108 million at 31 December 2017, (31December 2016: £211 million) mainly as aresult of provision utilisation in thecommercial portfolio. IBNR provisionsdecreased from £55 million at 31

December 2016 to £47 million at 31December 2017. This year on yeardecrease of 15% primarily relates todeleveraging in the commercial bankingportfolio.



In the following table the impairmentcharges for the years to 31 December2017 and 31 December 2016 are analysedby asset classification.

During 2017, actual loan losses continuedto fall and conditions improved in someproperty sectors / regions.

Impairment charges on loans andadvances to customers increased by £3million from £23 million for the year ended31 December 2016 to £26 million for theyear ended 31 December 2017.

The impairment charge on residentialmortgages of £2 million remained flat yearon year.

The impairment charge on the non-property SME and corporate loan portfoliowas c.£1 million for the year ended 31December 2017 (31 December 2016: £nil).

The impairment charge of £8 million on thecommercial property and constructionportfolio, for the year ended 31 December2017, has decreased from £17 million forthe year ended 31 December 2016 as a

result of a continued improvement in thecommercial and residential propertysectors and successful recovery activitiesas well as the benefit of IBNR release.

The impairment charge of £15 million onconsumer loans for the year ended 31December 2017 has increased in line withforecasted growth and maturity of theportfolio by £11 million from £4 million forthe year ended 31 December 2016.

2.1.6 Book profile - loans and advances to customers (continued)

Asset quality - loans and advances tocustomersThe Group has revised its asset qualityreporting methodology to align with EBAguidance on non-performing and forborneclassifications1.

Previously the Group did not apply a settime period after which the forborneclassification on a performing loan wasdiscontinued. Exit criteria are now appliedIn line with EBA guidance.

All exposures that are subject toforbearance and have a specific provisionare reported as both forborne andimpaired whereas previously in the non-mortgage portfolios where an exposurecarried a specific provision it was reportedas ‘impaired’ and not reported as‘forborne’.

The Group’s definition of impaired loanshas been modified to remove non-mortgage loans that are greater than 90days in arrears but where a specificprovision is not required, instead theseloans are now classified as ‘greater than90 days in arrears and not impaired’

Asset quality - financial assetsIn line with the requirements of IFRS 7 theGroup classifies financial assets as:• neither past due nor impaired;• past due but not impaired; and• impaired.

The Group uses internal ratings, based onan assessment of the credit quality of thecustomer, as part of its credit riskmanagement system. A thirteen pointcredit grade rating scale is used for morecomplex, individually managed exposures,including commercial and businesslending. A thirteen point credit rating scalebased on PD is used for residentialmortgages. A seven-point credit graderating scale is used for standard products(including personal and small businessloans). Both credit scales have a definedrelationship with the Group’s PD scale.

Other financial assets are assigned aninternal rating, supported by externalratings of the major rating agencies.

‘Neither past due nor impaired’ ratings areapplied as follows:• high quality ratings apply to highly

rated financial obligors, strong

corporate and business counterpartiesand consumer banking borrowers(including residential mortgages), withwhom the Group has an excellentrepayment experience. High qualityratings are derived from grades 1 to 4on the thirteen-point grade scale,grades 1 and 2 on the seven-pointgrade scale, and ratings equivalent toAAA, AA+, AA, AA-, A+, A, A-, BBB+and BBB for the external major ratingagencies;

• satisfactory quality ratings apply togood quality financial assets that areperforming as expected, includingloans and advances to SMEs,leveraged entities and more recentlyestablished businesses. Satisfactoryquality ratings also include someelement of the Group’s retailportfolios. Satisfactory quality ratingsare derived from grades 5 to 7 on thethirteen point grade scale, grade 3 onthe seven-point grade scale, andexternal ratings equivalent to BBB-,BB+, BB and BB-;

• acceptable quality ratings apply tocustomers with increased risk profiles,that are subject to closer monitoringand scrutiny by lenders, with the

2.1.7 Asset quality - loans and advances to customers

1 In particular the EBA’s ‘Implementing Technical Standards on supervisory reporting on forbearance and non-performing exposures.

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

2017 2016

Specific IBNR Total Specific IBNR TotalImpairment charge (audited) £m £m £m £m £m £m Residential mortgages 1 1 2 3 (1) 2Non-property SME and corporate 4 (3) 1 7 (7) -Commercial property and construction 15 (7) 8 20 (3) 17Consumer (excluding mortgages) 12 3 15 5 (1) 4Total loan impairment charge / (release) 32 (6) 26 35 (12) 23



objective of managing risk and movingaccounts to an improved ratingcategory. Acceptable quality ratingsare derived from grades 8 and 9 onthe thirteen-point grade scale, grade 4on the seven-point scale and externalratings equivalent to B+; and

• the lower quality but not ‘past due butnot impaired’ rating applies to thosefinancial assets that are neither inarrears nor impaired, but where theGroup requires a work down or workout of the relationship, unless an earlyreduction in risk is achievable. Lowerquality ratings are derived from

outstanding balances in rating grades10 and 11 on the thirteen-point gradescale, grade 5 on the seven pointgrade scale, and external ratingsequivalent to B or below.

‘Impaired’ loans are defined as exposureswhich carry a specific provision whetherforborne or not. Specific provisions are asa result of either individual or collectiveassessment for impairment.

Past due but not impaired:Past due but not impaired loans, whetherforborne or not, are defined as follows:

• Loans where repayment of interestand / or principal are overdue by atleast one day but which are notimpaired.

Refer to page 51 for details on the loanloss provisioning methodology.

The following tables provide an assetquality analysis of loans and advances tocustomers before impairment provisionsby asset classification as at 31 December2017 and 31 December 2016.

2.1.7 Asset quality - loans and advances to customers (continued)

2017 Total Total Non-property Commercial loans and loans andRisk profile of loans and Residential SME and property and advances advancesadvances to customers mortgages corporate construction Consumer customers customers(before impairment provisions) (audited) £m £m £m £m £m % High quality 15,583 478 116 2,039 18,216 90%Satisfactory quality 23 588 180 - 791 4%Acceptable quality 38 169 95 - 302 2%Lower quality but not past due nor impaired - 48 88 - 136 1%Neither past due nor impaired 15,644 1,283 479 2,039 19,445 97%Past due but not impaired 332 38 39 23 432 2%Impaired 67 50 134 24 275 1%Total 16,043 1,371 652 2,086 20,152 100%

2016 Total Total Non-property Commercial loans and loans and

Risk profile of loans and Residential SME and property and advances advancesadvances to customers mortgages1 corporate construction Consumer customers customers(before impairment provisions) (audited) £m £m £m £m £m % High quality 15,483 572 110 1,671 17,836 89%Satisfactory quality 20 583 221 - 824 4%Acceptable quality 42 99 137 - 278 2%Lower quality but not past due nor impaired - 84 175 - 259 1%Neither past due nor impaired 15,545 1,338 643 1,671 19,197 96%Past due but not impaired2 352 35 51 19 457 2%Impaired2 67 80 267 19 433 2%Total 15,964 1,453 961 1,709 20,087 100%

1 As described on pages 42 and 43, the Group has revised its asset quality reporting methodology to align with EBA guidance on non-performing and forborne classifications. As aresult, the Group has amended the risk profile of Residential mortgages which are neither ‘past due nor impaired’ to reflect this change in classification and comparative figureshave been restated resulting in an increase in the ‘high quality’ by £48 million from £15,435 million with offsetting decreases in ‘satisfactory quality’ by £5 million from £25 million,‘acceptable quality’ by £31 million from £73 million and ‘lower quality’ by £12 million from £12 million, with no change to the overall total of ‘neither past due nor impaired’ loans.

2 As described on pages 42 and 43, the Group has modified its definition of impaired loans with a corresponding impact on amounts classified as ‘past due greater than 90 daysbut not impaired’. As a result comparative figures have been restated as follows; impaired ‘Non-property SME and corporate’ have reduced by £20 million (from £100 million to£80 million) with a corresponding increase in amounts classified as ‘past due but not impaired’ (from £15 million to £35 million) and impaired ‘Commercial property andconstruction’ loans have reduced by £22 million (from £289 million to £267 million) with a corresponding increase in amounts classified as ‘past due but not impaired’ (from £29million to £51 million)


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation




Financial assets - ‘past due but not impaired’: loans and advances to customers The tables below provide an aged analysis of financial assets ‘past due but not impaired’, by asset classification as at 31 December2017 and 31 December 2016. Amounts arising from operational / timing issues, that are outside the control of customers, are generallyexcluded.

2017 Non-property Commercial Financial assets - ‘past due but not impaired’: Residential SME and property and loans and advances to customers mortgages corporate construction Consumer Total(audited) £m £m £m £m £m Past due up to 30 days 107 6 1 13 127Past due 31-60 days 145 7 21 8 181Past due 61-90 days 29 2 2 2 35Past due more than 90 days but not impaired 51 23 15 - 89Total 332 38 39 23 432

2016 Non-property Commercial

Financial assets - ‘past due but not impaired’: Residential SME and property and loans and advances to customers mortgages corporate construction Consumer Total(audited) £m £m £m £m £m Past due up to 30 days 97 5 3 10 115Past due 31-60 days 159 5 17 7 188Past due 61-90 days 37 5 9 2 53Past due more than 90 days but not impaired1 59 20 22 - 101Total 352 35 51 19 457

There was a decrease in the total ‘past due, but not impaired’ balances from £457 million to £432 million primarily due to improvedpositions in the commercial property and construction and residential mortgages portfolios. Arrears on residential mortgagesdecreased by £20 million, predominantly in the self-certified segment.

2017 Specific provisions Impaired as % ofFinancial assets - ‘impaired’: Impaired loans as a % Specific impairedloans and advances to customers Advances loans of advances provisions loans(audited) £m £m % £m % Residential mortgages 16,043 67 - 7 10%Non-property SME and corporate 1,371 50 4% 26 52%Commercial property and construction 652 134 21% 59 44%Consumer (excluding mortgages) 2,086 24 1% 16 67%Total 20,152 275 1% 108 39%

2016 Specific provisions Impaired as % ofFinancial assets - ‘impaired’: Impaired loans as a % Specific impairedloans and advances to customers Advances loans1 of advances provisions loans(audited) £m £m % £m % Residential mortgages 15,964 67 - 8 12%Non-property SME and corporate 1,453 80 6% 49 61%Commercial property and construction 961 267 28% 140 52%Consumer (excluding mortgages) 1,709 19 1% 14 74%Total 20,087 433 2% 211 49%

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

1 Comparative figures have been restated as set out on pages 42 and 43.




Loans and advances to customersclassified as ‘impaired’ amounted to £275million, representing 1% of the Group’stotal loan book at 31 December 2017 (31December 2016: £433 million and 2%).

Commercial property and constructionloans classified as ‘impaired’ reduced by£133 million during the year, primarily as aresult of the impacts of provisionutilisation through completion of work-outstrategies. However, impaired loans in thecommercial property and constructionportfolio remain elevated at £134 million at31 December 2017 (31 December 2016:£267 million), reflecting continued weak

conditions in some segments of theinvestment property loan portfolio as wellas the difficulties facing the residentialland sector, particularly in NorthernIreland.

The volume of non-property SME andcorporate loans that are classified as‘impaired’ reduced, from £80 million at 31December 2016, to £50 million at 31December 2017. This decrease reflectscases closed out through conclusion ofwork-out strategies resulting in eithersuccessful recovery, refinance, orprovision utilisation following realisation ofunderlying security.

Consumer loans classified as ‘impaired’have increased from £19 million to £24million at 31 December 2017. This reflectsthe forecasted growth and maturity of thepersonal loan portfolio since inception in2015.

The following tables set out an analysis ofthe LTV profile of the Group's residentialmortgage portfolio as at 31 December2017 and 31 December 2016.

2017 Total mortgageLoan to value (LTV) ratio Standard Buy to let Self certified portfolioof total mortgages (audited) % of book % of book % of book % of book Less than 50% 23% 33% 38% 27%51% to 70% 35% 48% 38% 40%71% to 80% 18% 14% 13% 17%81% to 90% 19% 4% 7% 13%91% to 100% 5% 1% 4% 3%Subtotal 100% 100% 100% 100%101% to 120% - - - -Greater than 120% - - - -Total 100% 100% 100% 100%

Weighted average LTV1:Stock of mortgages at year end 64% 56% 56% 61%New mortgages during year 74% 60% - 72%

2016 Total mortgageLoan to value (LTV) ratio Standard Buy to let Self certified portfolioof total mortgages (audited) % of book % of book % of book % of book Less than 50% 23% 33% 35% 27%51% to 70% 37% 44% 37% 40%71% to 80% 21% 15% 13% 18%81% to 90% 14% 5% 9% 11%91% to 100% 4% 2% 5% 3%Subtotal 99% 99% 99% 99%101% to 120% - - - -Greater than 120% 1% 1% 1% 1%Total 100% 100% 100% 100%

Weighted average LTV1:Stock of mortgages at year end 63% 57% 58% 61%New mortgages during year 73% 62% - 71%


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

1 Weighted Average LTVs are calculated at a property level and reflect the average of property values in proportion to the outstanding mortgage.




Non-performing2017 Performing1 exposures All loans Forbearance arrangements - residential mortgages Balance Number of Balance Number of Balance Number of(before impairment provisions) (audited) £m accounts3 £m accounts3 £m accounts3

Term extension 16 158 2 24 18 182Interest only 7 48 41 358 48 406Capitalisation of arrears 9 54 2 11 11 65Other 6 49 8 68 14 117Total 38 309 53 461 91 770

Non-performing2016 Performing1 exposures All loans Forbearance arrangements - residential mortgages Balance Number of Balance Number of Balance Number of(before impairment provisions)2 (audited) £m accounts3 £m accounts3 £m accounts3

Term extension 12 126 2 35 14 161Interest only 8 71 44 388 52 459Capitalisation of arrears 9 55 2 13 11 68Other 6 57 10 75 16 132Total 35 309 58 511 93 820

Forbearance arrangements for residential mortgages (audited)The tables below illustrate residential mortgages that have been subject to restructuring arrangements during 2017 and 2016.

The Group has an operating infrastructure in place to assess and to implement restructure arrangements for customers on a case-bycase basis. Arrears are not generally capitalised at the point of restructure and remain in the applicable past due category. Details ofthe Group's forbearance strategies are set out on pages 40 to 41.

1 Loans neither > 90 days past due nor impaired2 In line with the revised asset reporting methodology as set out on pages 42 and 43, the comparative figures for forborne residential mortgages have been restated, resulting in an

increase in total forborne residential mortgages from £727 million to £820 million3 The number of accounts does not equate to either the number of customers or the number of properties.

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



1 In line with the revised asset reporting methodology as set out on pages 42 and 43, the comparative figures for forborne commercial loans have been restated, resulting in anincrease in total forborne commercial loans from £471 million to £646 million.


Forbearance arrangements for commercial loans (audited)The following tables illustrate commercial loans that have been subject to restructuring arrangements during 2017 and 2016. Thesearrangements may be temporary or permanent and are subject to individual case assessment, taking into account the circumstancesand risk profile of the customer.

2017 Commercial Total property and construction forborne Non-property loans and Land and SME and advancesForbearance arrangements development Investment Total corporate customers(before impairment provisions) (audited) £m £m £m £m £m Term extension 31 163 194 76 270Adjustment or non-enforcement of covenants - - - 3 3Interest only 1 8 9 4 13Facilities in breach of terms placed on demand - 3 3 - 3Reduced payment (greater than interest only) - 1 1 - 1Other 8 13 21 18 39Total forborne loans and advances to customers 40 188 228 101 329

2016 Commercial Total property and construction forborne Non-property loans and Land and SME and advancesForbearance arrangements development Investment Total corporate customers(before impairment provisions)1 (audited) £m £m £m £m £m Term extension 24 211 235 75 310Adjustment or non-enforcement of covenants - 1 1 7 8Interest only 3 21 24 5 29Facilities in breach of terms placed on demand 2 69 71 17 88Reduced payment (greater than interest only) - 26 26 4 30Other 69 65 134 47 181Total forborne loans and advances to customers 98 393 491 155 646


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Commercial property and construction(a) Investment

This category represents 57% of thetotal forborne commercial loans at 31December 2017, which reflects theimpact of the sizeable downwardadjustment in property prices sincethe loans were approved and drawn.The need for forbearance wasprincipally caused by a fall in propertyvalues rather than reduced rentalincome. ‘Term extensions’ account for87% of all forbearance measuresgranted in this category, which reflectsour experience that grantingcustomers additional time is often themost likely means by which repaymentmay be achieved, either throughongoing receipt of rents or viaeventual property disposal. Propertyloan repayments are not normally

reduced unless the rental incomegenerated by the property decreases;consequently, ‘reduced payments’(including interest-only arrangements)only account for 5% of forbearancemeasures in this category.

(b) Land & Development (L&D)The L&D book has significantlyreduced during the year and nowaccounts for only 12% of totalforborne loans. ‘Term extension’ wasthe most common type of forbearancegranted (78% of the total).

Non-property, SME and Corporate This category accounts for 31% of totalforborne loans. Forbearance measureshave been granted to 11% of SME andcorporate exposures, compared to 32%for investment property and 57% for L&D.

This is consistent with the generallystronger credit quality of SME andcorporate sector exposures compared tothose in the commercial property andconstruction sector. It also partly reflectsthe greater number of options typicallyavailable to the SME and corporate sectorto deal with adverse trading conditions –for example by reducing overheads,finding new markets, renegotiating termswith suppliers, etc.; before the ability tocontinue meeting debt servicingcommitments is jeopardised. Theforegoing is reflected in the type offorbearance measures provided to SME /corporate borrowers, with ‘termextensions’ (75%) and ‘other’ measures(18%); such as weakening of the securitystructure.




Repossessed collateral on residential mortgagesAt 31 December 2017 and 31 December 2016 the Group held collateral as security on residential mortgages as detailed in the tablebelow.

Repossessed properties are sold as soon as practicable, with the proceeds applied against outstanding indebtedness.

During the year ended 31 December 2017 the Group disposed of 57 repossessed properties. The total contracted disposal proceedswere adequate to cover the balance outstanding after provisions.

2017 2016

Number of Number of repossessions Balance repossessions BalanceRepossessed collateral as at balance outstanding as at balance outstanding- residential mortgages (audited) sheet date £m sheet date £m Residential repossessions Owner occupier 13 2 17 2Buy to let 17 2 11 1Self certified 6 2 4 1Total 36 6 32 4

Number of Balance Net sales disposals outstanding at proceeds2017 Repossessed collateral during repossession received- residential mortgages (unaudited) the year £m £m Residential repossessions Owner occupier 28 2 3Buy to let 25 2 3Self certified 4 1 1Total 57 5 7

Repossessed collateral on property and construction loans

Repossessed properties are sold as soon as practicable, with the proceeds applied against outstanding indebtedness.During the year ended 31 December 2017 the Group disposed of one repossessed property2. The total contracted disposal proceedswere adequate to cover the balance outstanding after provisions.

2017 2016

Number of Number ofRepossessed collateral repossessions Balance repossessions Balance- property and as at balance outstanding as at balance outstandingconstruction (audited) sheet data £m sheet data £m Property and construction 2 -1 3 1Total 2 - 3 1

2017 Number of Balance Net sales disposals outstanding at proceedsRepossessed collateral during repossession received- property and construction (unaudited) the year £m £m Property and construction 1 1 1Total repossessions 1 1 1

1 The balance outstanding on repossessed collatered is c.£120k2 The number of properties disposed of during the year ended 31 December 2017 includes those which were subject to an unconditional contract for sale at year end date.

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

2.1.8 Asset quality - other financial instruments

Other financial instruments include available for sale financial assets, derivative financial instruments and loans and advances tobanks. Other financial instruments are rated, using external ratings attributed by external agencies, or are assigned an internal ratingbased on the Parent’s internal models, or a combination of both. Mappings to Moody’s external ratings in the table below, are thereforeindicative only.

Exposures by countryThe following tables provide an analysis of the Group’s exposure to sovereign debt and other country exposures (primarily financialinstitution exposure), by selected balance sheet line item, as at 31 December 2017 and 31 December 2016. In addition, for these lineitems, further information is included on the Group’s exposures to selected countries and their associated credit ratings from Moody’s.

Asset quality: Other financial instruments 2017 2016with ratings equivalent to (audited) £m £m Aaa to Aa3 2,358 2,328A1 to A3 23 149Baa1 to Baa3 1,418 2,087Total 3,799 4,564

Available Loans and for sale Derivative Cash and advances financial financialAsset quality: exposures by country Credit balances2 to banks3 assets4 instruments Total2017 (audited) rating1 £m £m £m £m £m Ireland A2 - 1,394 - 20 1,414United Kingdom Aa2 1,836 1,237 602 7 3,682Other - 133 406 - 539Total 1,836 2,764 1,008 27 5,635

Available Loans and for sale Derivative Cash and advances financial financialAsset quality: exposures by country Credit balances2 to banks3 assets4 instruments Total2016 (audited) rating1 £m £m £m £m £m Ireland A3 - 2,038 - 50 2,088United Kingdom Aa1 1,172 1,191 726 5 3,094Finland Aa1 - - 45 - 45Other - 140 369 - 509Total 1,172 3,369 1,140 55 5,736

1 Based on credit ratings from Moody’s.2 Cash and balances in the United Kingdom primarily consist of amounts placed with the Bank of England.3 Loans and advances to banks in Ireland consist primarily of balances with the Parent and balances in the United Kingdom consist primarily of the Bank of England required

collateral for notes in circulation. Loans and advances to banks in Ireland reduced by 32% during the year from £2 billion at 31 December 2016 to £1.4 billion at 31 December2017. This was as a result of the Group’s change in market risk hedging approach from gross flow cash hedging to derivative hedging. Refer to note 13.

4 Available for sale financial assets consist of UK Government gilts, Finnish government paper, Supranational bonds and UK covered bonds.



2.1.8 Asset quality - other financial instruments (continued)

The following tables provide a maturity analysis of the Group’s exposures to Ireland and the United Kingdom at 31 December 2017and 31 December 2016.

2017 0-3 3-12 1-2 2-5 5-10 Over 10Other financial instruments months months years years years years TotalIreland (unaudited) £m £m £m £m £m £m £m Loans and advances to banks 434 275 389 279 17 - 1,394Total 434 275 389 279 17 - 1,394

2016 0-3 3-12 1-2 2-5 5-10 Over 10Other financial instruments months months years years years years TotalIreland £m £m £m £m £m £m £m Loans and advances to banks 495 448 410 668 17 - 2,038Total 495 448 410 668 17 - 2,038

2017 0-3 3-12 1-2 2-5 5-10 Over 10Other financial instruments months months years years years years TotalUnited Kingdom (unaudited) £m £m £m £m £m £m £m Cash and balances with central banks 1,836 - - - - - 1,836Loans and advances to banks 1,237 - - - - - 1,237Available for sale financial assets 20 51 229 302 - - 602Total 3,093 51 229 302 - - 3,675

2016 0-3 3-12 1-2 2-5 5-10 Over 10Other financial instruments months months years years years years TotalUnited Kingdom £m £m £m £m £m £m £m Cash and balances with central banks 1,172 - - - - - 1,172Loans and advances to banks 1,191 - - - - - 1,191Available for sale financial assets - 123 72 478 53 - 726Total 2,363 123 72 478 53 - 3,089

As set out in the Group’s accounting policies on pages 84 to 98, the Group accounts for each of these assets as follows:• available for sale financial assets are carried in the balance sheet at their fair value. Other than in respect of impairment, any

change in fair value is treated as a movement in the available for sale reserve in stockholder’s equity; and• loans and advances to banks and cash and balances with central banks are held at amortised cost.

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

2.1.9 Credit risk methodologies (audited)

Loan loss provisioning methodologyThrough its ongoing credit reviewprocesses, the Group seeks to identifydeteriorating loans early, with a view totaking corrective action to prevent the loanbecoming impaired. Loans that are at riskof impairment are managed by dedicatedspecialist units / debt collection teams,focused on ‘workout’ strategies.

The identification of loans for impairmentassessment as impaired is driven by theGroup’s credit risk rating systems. Forthose loans that become impaired, thefocus is to minimise the loss that theGroup will incur from the impairment. Thismay involve entering into restructuringarrangements, or action to enforcesecurity, or legal pursuit of individuals whoare personally liable for the loan.

All credit exposures, either individually orcollectively, are regularly reviewed forobjective evidence of impairment. Wheresuch evidence of impairment exists, theexposure is measured for an impairmentprovision. The criteria used to determine ifthere is objective evidence of impairmentinclude:• delinquency in contractual payments

of principal or interest; • cash flow difficulties; • breach of loan covenants or

conditions; • deterioration of the borrower’s

competitive position; • deterioration in the value of collateral; • external rating downgrade below an

acceptable level; • initiation of bankruptcy proceedings;

and • a request from a borrower for

forbearance for reasons of financialstress or distress.

The following factors are also taken intoconsideration when assessing whether aloss event has occurred at the balancesheet date that may lead to recognition ofimpairment losses:

Residential mortgages and consumerlending• debt service capacity; and • repayment arrears.

Non-property SME and corporate• debt service capacity; • financial performance; • adverse movements in net worth; and • future prospects.

Commercial property and construction• debt service capacity and the nature

and degree of protection provided bycash flows; and

• the value of any underlying collateral.

Loans with a specific impairment provisionattaching to them, together with loans(excluding residential mortgages) whichare more than 90 days in arrears in theBank and 60 days in arrears in Northridgeor which meet the other EBA guidelines onnon-performing and forborne classificationare included in non-performing exposures.

Where objective evidence of impairmentexists, as a result of one or more pastevents, the Group is required to estimatethe recoverable amount of theexposure(s).

For financial reporting purposes, loans onthe balance sheet, that become impaired,are written down to their estimatedrecoverable amount. The amount of thiswrite down is taken as an impairmentcharge to the income statement.

International Accounting Standards (IAS)39, Financial Instruments: Recognition andMeasurement, requires that there isobjective evidence of impairment, and thatthe loss has been incurred. IAS 39 doesnot permit the recognition of expectedlosses, no matter how likely theseexpected losses may appear. Allexposures are assessed for impairment,either individually or collectively.

Methodology for individually assessingimpairmentAn individual impairment assessment isperformed, for any exposure for whichthere is objective evidence of impairment,and where the exposure is above anagreed minimum threshold. The carryingamount of the exposure, net of theestimated recoverable amount (and thusthe specific provision required), iscalculated using a Discounted Cash Flow(DCF) analysis. This calculates theestimated recoverable amount as thepresent value of the estimated future cashflows, discounted at the exposure’soriginal effective interest rate (or thecurrent effective interest rate for variablerate exposures). The estimated future cashflows include forecast principal andinterest payments (not necessarilycontractual amounts due), including cashflows, if any, from the realisation ofcollateral / security held, less realisationcosts.

Methodology for collectively assessingimpairmentWhere exposures fall below the thresholdfor individual assessment of impairment,such exposures, with similar credit riskcharacteristics (e.g. the Group’s creditcard lending portfolio), are pooled and arecollectively assessed for impairment. Aprovision is then calculated by estimatingthe future cash flows of the exposures thatare collectively evaluated for impairment.This estimation considers the expectedcontractual cash flows of the exposures ina portfolio, and the historical lossexperience for exposures with credit riskcharacteristics similar to those in theportfolio being assessed. Assumptionsand parameters used to create theportfolio provision, which are based onhistorical experience (i.e. amount andtiming of cash flows / loss given default),are regularly compared against currentexperience in the loan book and currentmarket conditions.

Where there is objective evidence ofimpairment on a collective basis, this isreported as a specific provision, in linewith individually assessed loans.

Methodology for establishing IBNRprovisionsImpairment provisions are also recognisedfor losses not specifically identified, butwhich, experience and observable dataindicate, are present in the portfolio at thedate of assessment. These are describedas IBNR provisions. Statistical models areused to determine the appropriate level ofIBNR provisions. These models estimatelatent losses, taking into account threeobserved and / or estimated factors:• loss emergence rates (based on

historic grade migration experience orPD);

• the emergence period (historicexperience adjusted to reflect thecurrent conditions and the creditmanagement model); and

• Loss Given Default (LGD) rates (lossand recovery rates using historicalloan loss experience, adjusted whereappropriate to reflect currentobservable data).

Methodology for loan loss provisioningand forbearanceForbearance will always be a trigger eventfor the Group to undertake an assessmentof the customer’s financial circumstancesand ability to repay. This assessment todetermine if impairment has occurred, andif a specific provision is required, will



2.1.9 Credit risk methodologies (audited) (continued)

always take place prior to any decision togrant a concession to the customer.

Individually assessing impairment andforbearanceThe methodology for individuallyassessing impairment, whether anexposure is forborne or not, is as outlinedabove (i.e. on an individual case-by-casebasis). The underlying credit risk rating ofthe exposure, and ultimately the individualimpairment assessment, takes intoaccount the specific credit riskcharacteristics of the exposure.

Collectively assessing impairment andforbearanceForborne exposures are pooled togetherfor collective impairment provisioning,including IBNR provision calculations, asdetailed above. Assumptions andparameters used to create the portfolioprovision(s) take into consideration thehistorical experience on assets subject toforbearance (e.g. amount and timing ofcash flows, cure experience, emergenceperiod etc.), adjusted where appropriate toreflect current conditions, and require thesatisfactory completion of a twelve monthprobation period, while being less than 30days past due, to be eligible to cure from‘probationary’ status. Managementadjustments are also applied, asappropriate, where historical observabledata on forborne assets may be limited.Impairment provisioning methodologiesand provisioning model factors applied toforborne loan pools are reviewed regularly,and revised if necessary, to ensure thatthey remain reasonable and appropriateand reflective of the credit characteristicsof the portfolio being assessed andcurrent conditions. This includes acomparison of actual experience toexpected outcome.

Provisioning and forbearanceFor residential mortgages, exposureswhich are subject to forbearance and havea specific provision are reported as both‘forborne’ and ‘impaired’. The totalprovision cover on residential mortgagesthat are subject to forbearance is higherthan that of the similar residentialmortgage portfolio of exposures which arenot subject to forbearance.

Further detail on forbearance strategiesand the loans and advances that aresubject to forbearance measures at 31December 2017 is set out on pages 40 to41 and pages 46 to 47. Forbearancerelated disclosures are subject to evolving

industry practice and regulatory guidance.

Impaired loans reviewIrrespective of the valuation methodologyapplied, it is Group policy to reviewimpaired loans above agreed thresholdson a six monthly basis, with the reviewincluding a reassessment of the recoverystrategy, the continued appropriateness ofthe valuation methodology and theadequacy of the impairment provision.

Where information is obtained betweenreviews that impact expected cash flows(e.g. evidence of comparable transactionsemerging, changes in local marketconditions, etc.), an immediate review andassessment of the required impairmentprovision is undertaken.

An impaired loan is restored to unimpairedstatus when the contractual amount ofprincipal and interest is deemed to be fullycollectible. Typically, a loan is deemed tobe fully collectible based on an updatedassessment by the Group of theborrower’s financial circumstances. Theassessment includes a demonstration ofthe customer’s ability to make paymentson the original or revised terms andconditions as may be agreed with theGroup as part of a sustainableforbearance arrangement.

An analysis of the Group’s impairmentprovisions at 31 December 2017 is set outon pages 41 to 44 and note 17.

Credit management processFor consumer and lower value commercialexposures, the review is largely based onaccount behaviour and is highlyautomated. Where there are loan arrears,excesses, dormancy etc., the account isdowngraded to reflect the higherunderlying risk.

For larger commercial loans, therelationship manager reassesses the riskat least annually (more frequently ifcircumstances or grade require) andreaffirms or amends the grade (credit andPD grade) in light of new information orchanges (e.g. up to date financialinformation, or changed market outlook).Grade migration and adjusted PD gradesare analysed for inclusion in the lossmodel.

The emergence period used in the IBNRcalculation is calculated using historicalloan loss experience. The range ofemergence periods is typically three to

twelve months (consumer lendingproducts twelve months; commercialproperty and commercial / SME lendingthree to four months).

The LGD used in the IBNR calculation iscalculated using historical loan lossexperience and is adjusted, whereappropriate, to apply management’s creditexpertise to reflect current observabledata.

Other factors taken into consideration inestimating provisions include domesticand international economic climates,changes in portfolio risk profile and theeffect of any external factors, such aslegal or competition requirements. Whilstprovisioning is an ongoing process, allbusiness units formally review and confirmthe appropriateness of their provisioningmethodologies and the adequacy of theirimpairment provisions on a half-yearlybasis. Their conclusions are reviewed bythe risk function and the BRC.

The Group’s provisioning methodology isreviewed by the CRPC on a half yearlybasis. The quantum of the Group’simpairment charge, impaired loanbalances, and provisions are alsoreviewed by the BRC on a half-yearlybasis, in advance of providing arecommendation to the Audit Committee.

Methodologies for valuation ofcollateralThe Group uses a number of valuationapproaches, depending on use ofcollateral and data availability. The Grouphas in place a formal valuation policy.Approaches include:

(1) Indexation and use of automatedvaluations - residential mortgagesMortgage loan book property valuesare determined by reference to theoriginal or latest property valuationsheld indexed to the Nationwide UKhouse price index. The weightedaverage indexed LTV for the totalresidential mortgage loan book is 61%at 31 December 2017 (31 December2016: 61%). Where cash flows arisingfrom the realisation of collateral heldare included in impairmentassessments, management typicallyrely on valuations or businessappraisals from independent externalprofessionals. In line with others in theindustry, the Group uses automatedhouse price valuations to assesscollateral positions in monitoring

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


certain cohorts of the book.

(2) Formal written valuations fromindependent external professionalsExternal valuations are sought incircumstances where there continuesto be sufficient transactional evidenceand market liquidity to support anexpert objective view. Externalqualified firms, with appropriateknowledge of the particular market,are commissioned to provide formalwritten valuations, including anassessment of the timeline fordisposal, in respect of the property.

(3) Assessed valuations, informed byconsultations with external valuersValuation policy permits the use ofinternally assessed valuations whereappropriate. Verbal consultations withexternal valuers, familiar with localmarket conditions, provide generalinformation on market developments,trends and outlook. Theseconsultations are used to benchmarkasset values, and the potentialtimeline for realisation, and form anelement of the estimation of therecoverable amount to be used forimpairment provisioning.

In some land and development cases,estimated valuations of undevelopedsites may be expressed on a ‘per plot’or ‘per acre’ basis if there is suitablezoning / planning in place, whereasun-zoned rural land may be assumedto have only agricultural value.Assessed values are subject tooversight by the independent creditunit.

(4) Residual value methodologiesResidual value methodologies areused to estimate the current value of asite or part completed development,based on a detailed appraisal thatassesses the costs (building, fundingand other costs) and receipts (forecastsales and / or lettings) associated withbringing a development to completion.The type, size and location of theproperty asset, and its developmentpotential and marketability, are keyfactors in this assessment process.The Group may look to some of theother valuation methodologiesoutlined earlier, e.g. residual valuemethodologies may look to formalprofessional valuations, verbalconsultations with externalprofessionals, or local market

knowledge made available by relevantGroup management, in determiningthe appropriate inputs to this analysis.

The appropriate methodology applieddepends, in part, on the optionsavailable to management to maximiserecovery, which are driven by theparticular circumstances of the loanand underlying collateral, e.g. thedegree of liquidity and recenttransactional evidence in the relevantmarket segment; the type, size andlocation of the property asset; and itsdevelopment potential andmarketability.

IFRS 9 ‘Financial Instruments’(unaudited)IFRS 9: ‘Financial instruments’ is effectivefor annual periods commencing on or after1 January 2018. The Bank of IrelandGroup’s IFRS 9 Programme has been inexistence since 2015 and extensiveinformation on the progress of IFRS 9implementation has been given in theGroup’s Annual Report and the Parent’sAnnual and Interim Reports since then.

Overall implementationDevelopment work on the IFRS 9technology infrastructure, operating modeland governance, and the expected creditlosses (ECL) or impairment model suite islargely completed. Successful completionof system integration testing and useracceptance testing of each component ofthe end-to-end technical solution in thelast quarter of 2017 supported the Group’sreadiness for compliance with IFRS 9 from1 January 2018. Further refinement of thetechnology infrastructure will continueduring 2018.

Classification and measurementThe Group has completed its assessmentof business models and the contractualcash flow characteristics of financialassets. There was no change inmeasurement basis for the majority of theGroup’s financial assets. However, theliquid asset bonds currently classified asavailable for sale financial assets will bereclassified to amortised cost under IFRS9 as they are part of a hold to collectbusiness model.

IFRS 9 business models have beendefined based on:• how groups of financial assets are

managed together;• how their performance is evaluated

and reported to key management

personnel; • how risks are managed; and • intentions about future sales.

Sales of financial assets close to maturityor due to an increase in credit risk, orinfrequent sales of significant volumes offinancial assets, are consistent with ahold-to collect business model. Based onrecent experience, the volume of sales offinancial assets from the Group’s hold-to-collect business models has beeninsignificant.

Under IFRS 9, the changes in the fairvalue of liabilities designated at fair valuethrough profit or loss arising from changesin own credit spread are no longerrecognised in the income statement butare instead recognised in othercomprehensive income, unless this wouldcreate or enlarge an accounting mismatchin profit or loss.

Hedge accountingThe Group has made the accountingpolicy choice allowed under IFRS 9 tocontinue to apply the hedge accountingrequirements of IAS 39 until the amendedstandard resulting from an IASB project onmacro hedge accounting becomeseffective. However, new hedge accountingdisclosures will still be required by relatedamendments to IFRS 7 ‘FinancialInstruments: Disclosure’.

ImpairmentThe Impairment Policy applicable underIFRS 9 was approved by the Board RiskCommittee in November 2017 to supportbusiness readiness by its effective date of1 January 2018. It outlines the Group’sover-arching policies in respect of theimpairment of financial instruments underIFRS 9 and is applicable to all businessunits within the Group.

Impairment models and forward lookinginformationDevelopment of the Group’s suite of IFRS9 impairment models has concluded, andindependent validation and testing is alsocomplete. In the second half of 2017, theimpairment models were approved for useby the IFRS 9 Programme Governance,enabling the impairment models to beused in the measurement of the initialIFRS 9 impairment loss allowance andstage allocation at 1 January 2018.

Forward looking information (FLI) refers toprobability-weighted futuremacroeconomic scenarios used in the




assessment of significant increase incredit risk and in the measurement ofimpairment loss allowances under IFRS 9.Three FLI scenarios (a central, an upsideand a downside scenario) and associatedprobability weightings have beenapproved by the Executive RiskCommittee (ERC). These scenarios havebeen incorporated into the impairmentmodels to calculate the initial IFRS 9impairment loss allowance and stageallocation at 1 January 2018. Thescenarios include forecasts of variablessuch as GDP, unemployment and propertyprices.

FLI scenarios and associated probabilityweightings will be updated and approvedsemi-annually by the ERC. On an annualbasis the Board will review and approvethe central FLI scenario as part of itsstrategic planning.

StagingThe Group’s standard staging criteriaunder IFRS 9 apply to the vast bulk ofloans and advances to customers. Afinancial asset which is not credit-impairedand has not experienced a significantincrease in credit risk since initialrecognition is allocated to stage 1 and issubject to an impairment loss allowanceequal to 12-months ECL. The Group’sstandard criteria to determine if there hasbeen a significant increase in credit risksince initial recognition, leading to stage 2(unless credit-impaired which is stage 3)and an impairment loss allowance equal tolifetime ECL, incorporate quantitative andqualitative factors. These factors include:• more than a doubling of remaining life

time PD (subject to an absoluteminimum movement);

• whether a financial instrument isforborne or is a non-performingexposure; and

• whether a financial instrument isgreater than 30 days past due.

The standard staging criteria areautomatically applied as part of themonthly execution of the Group’simpairment models, with each financialinstrument allocated to a stage. TheGroup intends to assess the effectivenessof its staging criteria semi-annually and torevise the criteria if appropriate.

The Group applies the low credit riskexpedient to most debt securities in scopefor the impairment requirements of IFRS 9and similarly to loans and advances tobanks, central banks and investmentfirms. ‘Low credit risk’ encompasses PD

grades 1 to 5 on the Group’s internal PDrating system, which broadly aligns withratings of AAA to BBB- for the externalmajor rating agencies. Such financialinstruments are allocated to stage 1.

From 1 January 2018, the manner in whichthe Group identifies financial assets ascredit-impaired (stage 3, with animpairment loss allowance equal tolifetime ECL) under IFRS 9 results in theGroup’s population of credit-impairedfinancial assets being consistent with itspopulation of financial assets in regulatorydefault. Therefore all financial assets inregulatory default within the scope of theimpairment requirements of IFRS 9 areclassified as credit-impaired.

In summary, an exposure is considered tobe in default if: (a) the borrower isconsidered unlikely to pay in full withoutrecourse by the Group to actions such asrealising security (including ‘forbornecollateral realisation’ loans and loanswhich would have been consideredimpaired under IAS 39); and / or (b) theborrower is greater than 90 days past dueand the arrears amount is material.

The population of credit-impaired financialassets that will be reported under IFRS 9will be broader than the population ofimpaired loans reported under thedefinition used by the Group under IAS 39,which equates to loans with a specificprovision. The population of non-performing exposures will be broader thanthe population of credit-impaired financialassets reported under IFRS 9, as it willinclude other loans meeting non-performing exposure criteria, in line withEBA guidance, such as probationary loansthat have yet to satisfy exit criteria toreturn to a performing classification. Thequantum of non-performing exposures isunchanged on transition to IFRS 9.

Operating model and governanceWork has concluded on the IFRS 9operating model and governanceframework, leveraging existingarrangements where appropriate andensuring consistency with the Group’sthree lines of defence approach to riskmanagement. The impairment operatingmodel is more centralised, and whereappropriate aligned with the Group’sParent. This is driven, in part, by some ofthe key requirements of IFRS 9 such asgenerating FLI and stage allocation. Allgovernance committees’ roles andresponsibilities have been reviewed andupdated in respect of impairment

oversight. New and revised impairmentbusiness processes, including processcontrols, have been designed and put intooperation.

Training and education briefings havebeen delivered to relevant internalstakeholders, ensuring business readinessfor IFRS 9. This included the roll-out ofweb-based training for the ImpairmentPolicy applicable under IFRS 9.

Practical expedients and policy choicesThe Group has applied certain ‘practicalexpedients’ as allowed under IFRS 9including: • use of the low credit risk practical

expedient (as outlined above); • approximation of the ‘credit risk at

initial recognition’ for in-scopefinancial instruments originated priorto certain dates in 2017;

• limiting certain information sets on thebasis of undue cost or effort; and

• use of loss rates for certain smallerand / or lower risk portfolios.

In determining the appropriateness ofpractical expedients, the Group has beenmindful of the requirement that ECL underIFRS 9 should reflect an unbiased amountand make use of reasonable andsupportable information available withoutundue cost or effort.

The Group has decided not to make theaccounting policy choice allowed underIFRS 9 to always measure the impairmentloss allowance on lease receivables at anamount equal to lifetime ECL.

Quantitative impact and regulatorytreatment

Quantitative impactThe estimated quantitative impact oninitial adoption of IFRS 9 is a reduction instockholders’ equity of approximatelyc.£40 million after tax, whichpredominantly relates to an increase inimpairment loss allowance on loans andadvances to customers.

The key drivers of the change inimpairment loss allowance include but arenot limited to:• the concept of ‘stage 2’ under IFRS 9

whereby loans which haveexperienced a significant increase incredit risk since initial recognition aresubject to an impairment lossallowance equal to lifetime ECL, whichgenerally exceeds incurred but notreported (IBNR) provisions recognised

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


under IAS 39;• the incorporation of FLI in impairment

calculations at 1 January 2018; and • the requirement to recognise

impairment on loan commitments from1 January 2018.

The most adversely impacted portfoliosare the Non-property SME and Corporateand Consumer portfolios reflectingimpairment loss allowances equal tolifetime ECL on stage 2 assets (whichgenerally exceed IBNR provisionsrecognised under IAS 39) and relativelylarge undrawn commitments within theseportfolios.

The Group intends to provide the requireddetailed disclosures on the actual

quantitative impact on the initial adoptionof IFRS 9 (which may include refinementto the above estimate) by measurementcategory and financial asset class in theAnnual Report for the year ended 31December 2018. In accordance with theaccounting policy choice allowed underIFRS 7 as amended by IFRS 9,comparative figures will not be restated.

Regulatory treatmentThe Group has chosen to avail of thetransitional arrangements for mitigatingthe impact of IFRS 9 on regulatory capitalas outlined in the amended CapitalRequirements Regulation. This allows theGroup to add back to its regulatoryCommon Equity Tier 1 capital a proportionof the increase in impairment loss

allowance on transition to IFRS 9 and alsoa proportion of any increase in stage 1and 2 impairment loss allowance betweentransition and the relevant reporting date,subject to certain adjustments. Theproportion to be added back is 95% in2018 and 85%, 70%, 50% and 25%respectively in the subsequent 4 yearswith the relief ending on 31 December2022. The Group has estimated that thequantitative impact from initial adoption ofIFRS 9 on 1 January 2018 will reduce theGroup’s fully loaded CET1 ratio by c.30 bps.

The transitional adjustment arising fromthe adoption of IFRS 9 is to be spreadover 10 years for UK Corporation Tax.

Key points:

• At all times during the financial year the Group maintained appropriate levels of unencumbered liquid resources and anappropriate liquidity position, in line with regulatory and internally set requirements and limits.

• The Group held liquid assets of £3 billion at 31 December 2017 which was in excess of regulatory liquidity requirements andwithin the Group’s internal risk appetite. This represented a prudent liquidity position.

• The Group's loan to deposit ratio increased from 102% at 31 December 2016 to 105% at 31 December 2017, which reflectsthe net effect of the efficient management of liquidity excess, drawdown from the Bank of England Term Funding Scheme andmodest use of wholesale funding (including ILTR).

• The Group adhered to its policy of self-funding predominantly through retail deposits with no material funding dependency onthe Parent or wholesale funding market.

2.2 Liquidity and funding risk

Definition (audited)Liquidity risk is the risk that the Group willexperience difficulty in financing its assetsand / or meeting its contractual paymentobligations as they fall due, or will only beable to do so at substantially above theprevailing market cost of funds.

Liquidity risk arises from differences intiming between cash inflows and outflows.Cash inflows for the Group are driven by,among other things, the maturity structureof loans held by the Group, while cashoutflows are primarily driven by outflowsfrom customer deposits and lendingorigination.

Liquidity risk can increase due to theunexpected lengthening of maturities,non-repayment of assets or a suddenwithdrawal of deposits.

Funding risk is the risk that the Groupdoes not have sufficiently stable anddiverse sources of funding or has aninefficient funding structure.

Liquidity and funding risk management(audited)The liquidity and funding risk appetitestatement is set by the Board and isreviewed on an annual basis and sets out

the level of liquidity and funding risk thatthe Board has deemed acceptable and thekey liquidity and funding metrics that theGroup has determined best define itsliquidity and funding risk appetite.The Group has established a liquidity andfunding RMF, that is aligned to the Group’srisk appetite and risk targets, and which isaligned with its overall strategy to be apredominantly self-funded business, withno material funding dependency on theParent or wholesale funding market.

The Group’s liquidity and funding RMF isdesigned to ensure that the Groupmanages and monitors its liquidity and



2.2 Liquidity and funding risk (continued)

funding position in accordance with thedefined liquidity and funding risk appetitestatement. The operational oversight andadherence to risk appetite is delegated tothe ALCo, an executive subcommittee ofthe ERC.

The Group’s ILAAP sets out how theGroup assesses, quantifies and managesthe key liquidity and funding risks anddetails the Group’s approach todetermining the level of internal liquidityresources required to be maintained bythe Group, for both business-as-usual andstressed scenarios ranging in severity,nature and duration.

Liquidity and funding management in theGroup consists of two main activities:• Tactical liquidity management - which

focuses on monitoring current andexpected future daily cash flows, toensure that the Group’s liquidity needscan be met. This takes into accountthe Group’s access to unsecuredfunding; the liquidity characteristics ofits portfolio; available for sale assetsthat are highly marketable assets;cash balances; and contingent assetsthat can be realised quickly to coverany unforeseen cash outflows; and

• Structural liquidity management -which focuses on assessing theoptimal balance sheet structure onboth a short term and long term basistaking account of the behavioural andcontractual maturity profile of assetsand liabilities.

A number of measures are used by theGroup to monitor and manage liquidityand funding risk including ratios, depositoutflow triggers, liquidity triggers, stressscenarios and early warning signals.

Liquidity risk is measured using stresstesting and scenario analysis. The Groupruns a number of internal liquidity stressscenarios based on market-wide stressevents, Group specific stress events and acombination of market-wide andidiosyncratic stress events. These stressscenarios are also performed across anumber of outflow time bands. The dailycashflows resulting from the stressscenarios are compared against theholding of liquid assets. Under the Group’sliquidity risk appetite, the Group musthave unencumbered liquidity resourcesavailable which will be in excess of 100%of the stressed cashflows, from all stressscenarios performed.

Funding risk is measured by applying andmonitoring specific metrics that determinethe amount and type of ongoing new retaildeposit acquisitions / retentions that arerequired to fund the Group's asset baseacross various maturity categories.

Bank of England Term Funding Scheme(TFS)The Group’s funding structure alsoincludes the utilisation of the Bank ofEngland TFS. The TFS is designed toreinforce the transmission of bank ratecuts to the Group’s lending and depositinterest rates and provide a cost effective

source of funding to support additionallending to the real economy. This allowsthe Group to borrow central bank reservesin exchange for eligible collateral over afour year term.

The Group’s funding from the TFS was£1.2 billion at 31 December 2017.

Customer depositsThe Group's funding strategy is focused,in particular, on maintaining a stable retaildeposit base providing an appropriatebasis to fund customer lending.

£13.9 billion of deposits at 31 December2017 relates to Post Office brandeddeposits which decreased by £0.6 billion(4%) during the year. This is due to acombination of management actions toreduce the Group’s overall liquidity excessand the utilisation of the Bank of EnglandTerm Funding Scheme and otherwholesale funding.

The Group's loan to deposit ratio, asdefined on page 7, increased from 102%at 31 December 2016 to 105% at 31December 2017, as a result of the plannedmanagement actions.

2017 2016Customer accounts (unaudited) £m £m Bank of Ireland UK branded deposits 1,940 2,183Bank of Ireland UK branded current accounts 2,800 2,513Post Office branded deposits 13,924 14,567AA branded deposits 297 212Total 18,961 19,475

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


Liquid assetsThe Group maintains an unencumberedliquid asset portfolio, comprising cashplacements and securities that can beused to raise liquidity, either by sale orthrough secured funding transactions.

As at 31 December 2017 the portfoliocomprised cash balances with the Bank of

England, UK Government Gilts,Supranational and Agency bonds, UKcovered bonds and interbank placements.

The composition of the portfolio is set outbelow. Interbank placements comprisedboth placements with external banks andthe Parent.

At 31 December 2017, £2.8 billion of theliquid asset portfolio is eligible to beapplied in liquid asset stress testing (31December 2016: £2.3 billion). The £2.8billion eligible liquid assets do not includecash or general bank accounts that areutilised in the day to day operations of theGroup.

In addition, the Group has a range ofpotential contingency funding actions thatcan be taken in the event of anunexpected shortfall in liquidity.



eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


Average in year Year end

Composition of the liquid 2017 2016 2017 2016asset portfolio (unaudited) £m £m £m £m Balances with central banks 1,574 2,284 1,806 1,141Government bonds 501 564 428 585Other listed securities 559 591 580 555Interbank placements 202 163 220 210Total 2,836 3,602 3,034 2,491

2017 2016Encumbered and Encumbered1 Unencumbered Total Encumbered1 Unencumbered Totalunencumbered assets £m £m £m £m £m £m Cash and balances with central banks - 1,836 1,836 - 1,172 1,172Mandatory deposits with central banks 1,206 17 1,223 1,157 21 1,178Loans and advances to other banks 125 22 147 133 20 153Loans and advances to banks - related

party transactions 40 1,354 1,394 37 2,001 2,038Loans and advances to customers 3,077 16,920 19,997 1,749 18,072 19,821Available for sale financial assets - 1,008 1,008 - 1,140 1,140Other assets - 630 630 - 458 458Total assets 4,448 21,787 26,235 3,076 22,884 25,960

Encumbered cash and balances with central banks:

Note cover2 1,172 1,121Cash ratio and other mandatory deposits 34 36 1,206 1,157

1 Included in the encumbered assets at 31 December 2017 is £40 million (31 December 2016: £37 million) of collateral placed with the Parent in respect of derivative liabilities.2 Note cover relates to mandatory collateral with the Bank of England in respect of banknotes in circulation in Northern Ireland.

Balance sheet encumbrance (unaudited)The Group treats an asset as encumbered if it has been pledged or if it is subject to any form of arrangement to secure,collateralise or credit enhance any transaction from which it cannot be freely withdrawn. It is Group policy to maximise theamount of assets available for securitisation / pledging through the standardisation of loan structures and documentation.

At 31 December 2017 and 2016 the Group had the following encumbered assets.

Liquidity and funding risk monitoringThe Group’s daily, weekly and monthlyliquidity reporting (including acomprehensive suite of liquidity earlywarning signals) are produced for use bythe Group’s Treasury function, to assessand manage the Group’s current andfuture liquidity risk position. Daily liquidityreports, including daily liquidity stress testresults, are reported and reviewed by theTreasury, Finance and Risk functions andby the Group's senior management. Thesereports include a series of limits and

triggers which, if triggered, are reportedregularly to the ALCo. MI is reported to theALCo, the ERC, the BRC and the Board.

The Group's liquidity position is supportedby its unencumbered liquid asset portfolio,the contingent liquidity collateral availableand by the various management actionsdefined in its recovery plan.

Funding risk management is incorporatedinto the Group’s funding plan which is

monitored regularly and updated annually.

During 2017 the Group has continued withthe gradual replacement of gross flowcash hedging positions, as legacyplacements and borrowings with theParent expire. As a result the amounts duefrom and due to the Parent have changedfrom £2 billion and £1.9 billion,respectively at 31 December 2016, to £1.4billion and £2.0 billion, respectively, at 31December 2017.




Bank of Ireland UK ratings (unaudited) 2017 2016 Moody’s Baa2 stable outlook Ba1 positive outlookFitch BBB stable outlook BBB- stable outlook

2017 Repayable 0-3 3-12 1-5 Over 5Maturity analysis of financial assets on demand months months years years Totaland liabilities (discounted basis) (unaudited) £m £m £m £m £m £m Financial assetsCash and balances with central banks 1,836 - - - - 1,836Derivative financial instruments 2 5 5 14 1 27Loans and advances to banks 147 1,223 - - - 1,370Loans and advances to banks - related party transactions 434 - 275 668 17 1,394Available for sale financial assets - 121 111 763 13 1,008Loans and advances to customers (before impairment provisions) 576 1,352 1,474 6,269 10,481 20,152Total assets 2,995 2,701 1,865 7,714 10,512 25,787

Financial liabilities Deposits from banks 22 150 200 1,200 - 1,572Deposits from banks - related party transactions 293 - 1,023 630 43 1,989Customer accounts 14,085 1,951 2,396 529 - 18,961Derivative financial instruments - 5 5 43 12 65Subordinated liabilities - - - - 290 290Total liabilities 14,400 2,106 3,624 2,402 345 22,877

Net total assets and liabilities (11,405) 595 (1,759) 5,312 10,167 2,910Cumulative net assets and liabilities (11,405) (10,810) (12,569) (7,257) 2,910 2,910

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Contingent liquidityThe Group holds significant contingentliquidity collateral, comprised ofmortgage-backed securities issued byBowbell No 1 plc (refer to note 38), andraw loans pre-positioned in Bank ofEngland facilities. This contingent liquiditycollateral can be pledged againstborrowings from central banks and otherexternal market participants.

External ratingsThe Group is rated by both Moody’s andFitch. Given the Group’s funding strategyand in particular its focus on growing andretaining retail deposits as its primaryfunding mechanism, the direct impact onliquidity risk of movements in the Group’scredit rating is limited.

The key drivers of ratings upgrades in2017 were improving asset quality; longerrecord of stable profitability; strengthened capitalisation; and further reductions in theBank’s legacy commercial book.

Maturity analysis of financial assets andliabilitiesThe following tables summarise thecontractual maturity profile of the Group’sfinancial assets and liabilities, at 31December 2017 and 31 December 2016,based on the contractual discountedrepayment obligations. The Group doesnot manage liquidity risk on the basis of

contractual maturity, instead the Groupmanages liquidity risk by adjusting thecontractual cash inflows and outflows ofthe balance sheet to reflect them on abehavioural basis. This includes theincorporation of the inherent stabilityevident in the retail deposit book.

Customer accounts include a number ofterm ISA accounts that contain accessfeatures which allow customers to accessa portion of, or all of, their deposit,notwithstanding that this withdrawal couldresult in a financial penalty being paid bythe customer. For such accounts, thebalances have been classified as fullyaccessible in the following table.




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

2016 Repayable 0-3 3-12 1-5 Over 5Maturity analysis of financial assets on demand months months years years Totaland liabilities (discounted basis) (unaudited) £m £m £m £m £m £m Financial assetsCash and balances with central banks 1,172 - - - - 1,172Derivative financial instruments - 18 10 7 20 55Loans and advances to banks 174 1,157 - - - 1,331Loans and advances to banks - related party transactions 447 48 448 1,077 18 2,038Available for sale financial assets - 75 123 889 53 1,140Loans and advances to customers (before impairment provisions) 543 1,287 1,434 5,541 11,282 20,087Total assets 2,336 2,585 2,015 7,514 11,373 25,823

Financial liabilities Deposits from banks 24 155 - 600 - 779Deposits from banks - related party transactions 325 2 427 1,104 54 1,912Customer accounts 12,904 2,590 3,163 818 - 19,475Derivative financial instruments - 11 7 71 13 102Subordinated liabilities - - - - 335 335Total liabilities 13,253 2,758 3,597 2,593 402 22,603

Net total assets and liabilities (10,917) (173) (1,582) 4,921 10,971 3,220Cumulative net assets and liabilities (10,917) (11,090) (12,672) (7,751) 3,220 3,220


Key points:

• The Group does not engage in speculative trading for the purposes of making profits as a result of anticipation of movementsin financial markets. Therefore, no discretionary risk is taken by the Group.

• During 2017, the Group continued to manage interest rate and foreign exchange exposure at acceptable levels, by seekingnatural hedge solutions within the balance sheet and by hedging remaining exposures with the Parent as the hedgecounterparty.

2.3 Market risk

Definition (audited)Market risk is the risk of loss arising frommovements in interest rates, FX rates orother market prices. Market risk arisesfrom the structure of the balance sheetand the Group’s business mix anddiscretionary risk taking.

The Group recognises that the effectivemanagement of market risk is essential tothe maintenance of stable earnings, thepreservation of capital resources and theachievement of the Group’s strategicobjectives.

Market risk management (audited)The management of market risk in theGroup is governed by the Group’s RiskAppetite Statement and by the GroupPolicy on Market Risk. The Group has anestablished governance structure formarket risk that involves the Board, theBRC, the ERC, and the ALCo, which hasprimary responsibility for the oversight ofmarket risk in the Group within theconfines of the risk appetite set by theBoard.

The Group has no risk appetite for theholding of proprietary market riskpositions or the running of material openbanking book market risk exposures. TheGroup, therefore, does not consider itselfto have proprietary positions and hedgesopen banking book exposure todeminimus levels. However, the Groupdoes have customer derivative foreignexchange forward contracts, which areconsidered held for trading, as hedgeaccounting is not applied. Thesetransactions are hedged with the Parent.

The Group manages its interest rate riskposition by hedging with the Parent. Theoverall market risk hedging approach isprioritised as follows; (i) naturally hedge within the balance

sheet;(ii) execute derivative hedging contracts

with the Parent; or (iii) execute gross cash hedges.

Net derivative hedging was introduced bythe Group in December 2013 and over

time cash hedging deals with the Parentare being replaced by derivative contracts.Derivatives executed for hedgingpurposes are executed with the Parentonly and are subject to ISDA and CSAstandard documentation. Collateralrequirements are calculated daily andposted as required. The Group usesderivative contracts with the Parent forhedging purposes only and seeks to applyhedge accounting where possible. TheGroup continues to maintain a deminimislimit for interest rate risk to reflectoperational requirements only. This limit ismonitored by the ALCo and approved bythe Board. The Group’s lending anddeposits are almost wholly (>95%)denominated in sterling. Any foreigncurrency transactions are hedged toacceptable levels with the Parent.

It is the Group’s policy to managestructural interest rate risk, by investing itsnet non-interest bearing liabilities in aportfolio of fixed rate assets, with anaverage life of 3.5 years and a maximumlife of 7 years. This has the effect of



2.3 Market risk (continued)

mitigating the impact of the interest ratecycle on the net interest margin.

Market risk measurement andsensitivity (audited)The Group’s interest rate risk position ismeasured and reported daily. The dailyinterest rate risk position is calculated byestablishing the contractual andbehavioural repricing of assets, liabilitiesand off-balance sheet items on theGroup's balance sheet, before modellingthese cash flows and discounting them atcurrent yield curve rates.

In addition to this, the Group runs a seriesof stress tests, including parallel and non-parallel yield curve stress scenarios acrossall tenures, in order to further monitor andmanage yield curve and repricing risk inthe banking book.

The Group also applies market risk stressscenarios to manage and monitor theimpact of stress events in relation tointerest rate option risk, basis risk and netinterest income sensitivity.

A dual purpose of the Group’s market riskstress testing is to meet regulatoryrequirements and to ensure thatappropriate capital is held by the Group.

The impact on the Group’s economicvalue from an immediate and sustained 50

basis points shift, up or down, in thesterling yield curve applied to the bankingbook at 2017 and 2016, is shown below.

The sensitivity is indicative of themagnitude and direction of exposures butis based on an immediate and sustainedshift of the same magnitude across theyield curve (parallel shift).

2017 2016(audited) £m £m + 50 basis points (0.16) (0.28)- 50 basis points 0.16 0.28

Key points:

• During 2017, supervisory bodies focused industrywide on the following key areas: business model and profitability risk, creditrisk, impairment provisioning (IFRS 9), capital adequacy, business continuity management, recovery and resolution, andoperational risk. In addition, new EU legislation which came into effect included the Market Abuse Regulation, 4th MoneyLaundering Directive and the Access to Payments Accounts Directive. Relevant UK legislation included treatment of PPIcomplaints, Payment Practices Regulations and PRA requirements on Buy to Let lending.

• Programmes continued / were established in the Group during 2017 to continue preparations for the significant regulatorychange agenda to be implemented for 2018 and over the coming years, including:- Markets in Financial Instruments Directive / Markets in Financial Instruments Regulation: EU rules governing investment

firms, trading venues and market structure, introducing new conduct of business obligations, trade reporting obligationsand general obligations. Applicable from January 2018.

- Payment Services Directive: EU rules including changes to information and transparency requirements on payments, newsecurity requirements and faster handling of payments-related complaints. Applicable from January 2018.

- General Data Protection Regulation: EU rules representing a fundamental change to the way firms must obtain consent forcapture, process and storage of customer information. Applicable from May 2018.

- Operational Continuity in Resolution: PRA requires banks to evidence they have the ability to continue providing servicesthat support functions (core services) critical to the UK economy following a resolution event. Applicable from 1 January2019.

• The heavy regulatory and compliance agenda is expected to continue in 2018. The Group will maintain its focus on continuingcompliance with the existing and developing regulatory requirements of the EBA, FCA and PRA.

• Regulators conduct investigations and examinations on an industry wide basis from time to time.• Engagement with the Group’s regulators in 2017 included matters such as business model and profitability, cybersecurity, IT

and third party sourcing risk, and credit risk across portfolios.• The Competition & Markets Authority’s (CMA) Open Banking requirements set a new digital standard that aims to give banking

customers more control over their financial data by allowing them to share it with organisations other than their banks. OnDecember 2017 the CMA issues directions for a number of banks extending the 13 January implementation date. For theGroup, the implementation date was extended to 7 September 2018, and the Group is taking the appropriate steps to ensurecompliance with the Direction issued by the CMA.

2.4 Regulatory risk

DefinitionRegulatory risk is the risk of failure to meetnew or existing regulatory and / orlegislative requirements and deadlines orto embed requirements into processes.

The associated risk of regulatory changeis the risk that a change in laws andregulations that govern the Group will

materially impact the Group’s business,profitability, capital, liquidity, products ormarkets; that the Group fails to take timelyaction; and/or that the Group fails toeffectively manage the regulatory changeprocess.

Risk management and measurementThe Group manages regulatory risk underits Risk Management Framework. TheFramework identifies the Group’s formalgovernance process around risk, includingits framework for setting risk appetite andits approach to risk identification,assessment, measurement, managementand reporting.

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Key points:

• The Group seeks to operate an effective framework for the mitigation and control of operational risk. During 2017 the Groupcontinued to enhance its operational risk management processes, with more granular risk identification and assessmentprocesses and alignment and integration of control mitigation tools which support increased utilisation of its technologysolutions.

• A suite of improvement programmes to further develop the approach and application of risk management minimum standardsfor a number of material sub-classes of operational risk, were initiated in 2016, with delivery continued through 2017. This workwill complete in 2018.

• In line with regulatory expections, the Group has continued their focus on overseeing the embedding and continuousenhancement of operational risk standards and practices. The Group actively engaged with regulatory bodies and continues toensure it is in a position to meet its regulatory obligations.

2.5 Operational risk

DefinitionOperational risk is the risk of loss resultingfrom inadequate or failed internalprocesses, people and systems, or fromexternal events.

Risk managementThe Group faces operational risks in thenormal pursuit of its business objectives.The primary goals of operational riskmanagement and assurance are ensuringthe sustainability and integrity of theGroup’s operations and the protection ofits reputation by controlling, mitigating ortransferring the impact of operational risk.

Operational risk cannot be fully eliminatedand it is the objective of the Group tomanage operational risk within definedrisk appetite measures, taking intoaccount the cost of mitigation and thelevel of reduction in exposure which canbe achieved.

The Group has an Operational RiskManagement Framework (ORMF) whichdefines its approach to identifying,assessing, managing, monitoring and

reporting the operational risks which mayimpact the achievement of the Group’sbusiness objectives. This frameworkconsists of inter alia:• formulation and dissemination of

Group Operational Risk policies andpolicy standards specifying the riskmanagement obligations of staff withinthe Group;

• establishment of organisationalstructures for the oversight,monitoring and management ofoperational risk throughout the Group;and

• embedding of formal operational riskmanagement processes andstandards within business and supportunits throughout the Group.

Operational risk policyThe Group’s exposure to operational riskis governed by a suite of operational riskpolices and policy standards approved bythe R&ORC and managed in accordancewith the Board approved risk appetite.

Risk mitigation and transferIn addition to business unit risk mitigation

initiatives, the Group implements specificpolicies and risk mitigation measures forkey operational risks. Arrangementsentered into with the Parent and third-party outsourced providers are governedthrough service level agreements whichare monitored through formalisedgovernance arrangements, KPIs, KRIs,risks, events and issues management.Outsourced service arrangements aresubject to upfront and ongoing duediligence.

The Group calculates its Pillar Ioperational risk regulatory capital usingthe standard approach. The capitalassigned to operational risk aims toensure sufficient capital is held to coverthe potential financial impact of severe butplausible operational risk events.

Operational risk eventsAn operational risk event is anyoccurrence that has caused, or is likely tocause, a financial, customer, regulatory orlegal impact, or a business disruption.

All operational risk events (including

2.4 Regulatory risk (continued)

This is implemented by accountableexecutives and monitored by the R&ORC,the ERC, the BRC and Board in line withthe overall risk governance structureoutlined on pages 32 to 35. The effectivemanagement of regulatory risk is primarilythe responsibility of business managementand oversight is provided by Risk &Regulatory Affairs and Compliance &Conduct Risk functions. As detailed in theGroup’s RAS, the Bank has no appetite forfailure to comply with its regulatory orlegislative obligations. However, itacknowledges that instances may occuras a consequence of being in business.

The Bank has therefore established anapproach to ensure the identification,assessment, monitoring, management andreporting of these instances.

Risk mitigationRisk mitigants include the earlyidentification, appropriate assessment andmeasurement and reporting of risks. Theprimary risk mitigants for regulatory riskare the existence of appropriate controlsin place throughout the business and theeffective planning and execution ofregulatory change.

Risk reportingThe current status of regulatory risk isreported to senior executives and Boardmembers through the Monthly RiskReport. The Head of Risk and RegulatoryAffairs reports to the R&ORC on the statusof regulatory risk in the Group, includingthe status of the top regulatory risks, theprogress of risk mitigation plans, issuesand breaches, and significant regulatoryinteractions.



Key points:

• On an annual basis the Board reviews the Group’s strategic objectives to confirm that the strategic shape and focus of theGroup remains appropriate. Longer term viability is monitored through its ICAAP and 5-year planning processes.

• In 2017 the Group delivered a profit before tax of £151 million.• Indicators of economic activity and business sentiment have recovered from their lows following the outcome of the UK

referendum on EU membership but the macroeconomic environment remains challenging.

2.6 Business and strategic risk

DefinitionBusiness and Strategic Risk is defined asthe risk of volatility to the Group’sprojected outcomes, including incomestatement and Balance Sheet impactand/or damage to the franchise, includingthat of the Group’s joint ventures. Itincludes volatilities caused by changes inthe competitive environment, new marketentrants, new products or failure todevelop and execute a strategy oranticipate or mitigate a related risk.

The risk may arise from a change in thecompetitive environment, new marketentrants, new products, or a failure toanticipate or mitigate a related risk, and abreakdown / termination of a relationshipwith, or a significant underperformance of,a distribution partner.

Risk management, measurement andreporting Business units are responsible for deliveryof their business plans and managementof such factors as pricing, businessvolumes, operating expenses and otherfactors that can introduce earningsvolatility.

The Group reviews business and strategicrisk as part of the annual risk identificationprocess. The risk is measured quarterly,with a scorecard addressing movementsin key indicators around incomediversification, margin trends, customeradvocacy, direct and indirect costs andstaff turnover. Regular updates areprovided to the ERC, the BRC and theBoard.

Risk mitigationThe Group mitigates business risk throughbusiness planning methods, such as thediversification of revenue streams, costbase management and oversight ofbusiness plans which are informed byexpectations of the external environmentand the Group’s strategic priorities. At an operational level, the Group’s annualbudget process sets expectation at abusiness unit level for volumes andmargins. The regular tracking of actualand forecast volumes and margins againstbudgeted levels, is a key financialmanagement process in the mitigation ofbusiness risk.

Strategic risk is mitigated through itsICAAP and 5-year plan aswell as updatesto the Board on industry developments,regular updates on the keymacroeconomic environment impactingthe Group’s activities and a review of thecompetitive environment and strategies atboth Group and business unit level.

The Group's Annual Strategy and PlanningProcess includes a review of the Group'sbusiness model.

Fluctuations in the prices in the usedcar marketFollowing the acquisition of MarshallLeasing Limited in November 2017, theGroup’s financial performance may nowbe affected by fluctuations in prices in theused car market. Such price fluctuationscould also impact the Group’s business,as it could affect the residual profitabilityof the vehicles at the end of leasingagreements. Marshall Leasing Limitedoperates an independent analysis tool tomonitor this area and would seek tomanage any exposure should the trendanalysis predict it.

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

2.5 Operational risk (continued)

financial losses, near misses andinstances of non-compliance) arerecorded in the Group’s operational riskrepository, managed and reported on asappropriate.

A standard reporting threshold is usedacross the Group for inputs to CommonReporting (COREP) to the EBA and PRA.

Risk reporting Regular operational risk updatesincluding: the status of the top operationalrisks, the progress of associated riskmitigation initiatives; significant lossevents; and the nature, scale andfrequency of overall losses are reported tothe R&ORC, the ERC, the BRC and theBoard.

In addition to day-to-day control measuresimplemented by business units, theme-based monitoring of operational risks andcontrols is conducted throughout the yearby an independent internal monitoringteam within the Operational Risk &Financial Crime function. Such assuranceactivities provide a basis for assessmentand validation of the performance ofcontrols and the adequacy of mitigation.




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Key points:

• The Group’s reputation continues to be influenced and shaped by a range of factors including: macroeconomic and politicalenvironment, media, public and customer commentary and general sector developments. More specifically, the Group’sdecisions and actions in pursuit of its strategic and tactical business objectives and its interaction with the externalenvironment will also influence its reputation.

• Throughout 2017, the Group continued to actively manage, measure and report on its reputation risk and to take this intoaccount in its strategic decision making.

2.7 Reputation risk

DefinitionReputation risk is defined as the risk toearnings or franchise value arising fromadverse perception of the Group’s imageon the part of customers, partners,suppliers, counterparties, shareholders,investors, staff, legislators or regulators.This risk typically materialises through aloss of business in the areas affected.Reputation is not a standalone risk butoverlaps with other risk areas and mayoften arise as a consequence of externalevents or operational risk related issues.

Risk management, measurement andreportingReputation risk indicators are monitoredon an ongoing basis.

These indicators are:• media monitoring;• market trends and events; • stakeholder engagement and

monitoring; and • risk events which may have the

potential to impact the Group.

The Group reviews reputation risk as part

of the annual risk identification process.Regular updates are reported to the ERC,the BRC and the Board.

Risk mitigationA wide range of processes and structuresare used to identify, assess and mitigatethe potential risk to the Group’sreputation. Managing the Group in amanner that ensures that the potentialimpact on the Group’s reputation is takeninto account in decision-making isparamount in mitigating against reputationrisk.

Key points:

• The Group recognises the importance of good conduct and is committed to placing customers at the heart of its strategic andoperational decision-making.

• Throughout 2017, the FCA continued its focus on conduct risk standards and practices. The Group maintains constructiveengagement with its supervisors and continues to ensure it is in a position to meet its regulatory obligations.

• In 2018, the Group will continue to embed, develop and enhance its conduct risk management tools and processes.

2.8 Conduct risk

DefinitionConduct risk is the risk of failure to delivera product or service in a mannerreasonably expected by the Group'scustomers. Poor conduct or customerdetriment can result from a failure in theGroup's control framework, policies,processes, systems and controls, and / orits people. Such failure may also result in abreach of legislation, regulatory rules orprinciples including that of fairness.

Regulatory EnvironmentThe Financial Conduct Authority’s (FCA)priorities for 2018 will continue toinfluence the Group’s agenda in both theshort and medium term. The regulator’s2018 business plan includes work on anumber of topics, which the Group hasbeen working on. These matters include:

The FCA continues to focus on culturewithin regulated firms and requires seniormanagement to ensure that regulatedfirms and their staff have an appropriateculture. On this basis it continues to see

embedding of the Individual AccountabilityRegime (IAR) as a key tool to further itsaim. The Group has taken steps in thepast two years to embed the IAR and willcontinue to further refine its approach asthe regulator publishes best practice,develops new prescribed responsibilitiesand makes other related pronouncements.

The regulator remains interested in howfirms are making adequate arrangementsto cater for the needs of vulnerablecustomers including ensuring they aretreated fairly. The Group has a vulnerablecustomer programme in place which hastaken steps to implement newarrangements in this area and continues towork on ensuring the Group meets relatedbest practice, e.g. UK Finance bestpractice for bereaved customers.

A related matter identified through theregulator’s work on vulnerability is theability of customers to engage withfinancial services they need throughouttheir lifetime. The FCA considers that firms

should be considering how best to provideaccess to financial services for customerswho might otherwise be excluded from thefinancial services sector due to a diverserange of reasons, for example ageingpopulation, firms’ increased focus ondigital transformation programmes andcompliance reasons such as AML/CTF.The Group is continuing to consider whatadditional steps it can take to promote thisarea.

The regulator’s 2017 work on customerunderstanding will continue to be aninfluence on the Group’s work to ensurecustomers understand the products theybuy before, during and after the point ofsale. The Group is particularly cognisant ofthis work as it develops new products andis analysing customer feedback from newproducts launched in 2017 to further refineits approach in this area.

Risk managementThe Group has no appetite for customerdetriment and seeks to be fair, accessible



2.8 Conduct risk (continued)

and transparent in the provision ofproducts and services to its customers atall times.

To ensure the Group's exposure toconduct risk is clearly defined,understood, measured, managed asappropriate and regularly reported upon,the Group has established a ConductRMF which is underpinned by a set ofclear, comprehensive and transparentmeasures supporting the conduct riskappetite statement.

The Group has developed an internalCustomer Charter which provides a cleararticulation of the Group's customer andpartner commitments and is designed toplace customers at the heart of itsbusiness. It is central to the Group’sconduct risk culture which exists acrossthe business and provides a commonframework and lens for business decision-making, product design and customeroperations, ensuring consistency across

the Group. A Group conduct risk policyspecifying the risk managementobligations of management within theGroup is in place.

The Group has in place an approach tovulnerable customers, which sets outdesired outcomes and standardsexpected of business units and third partyoutsourced service providers in thetreatment of those consumers that may beconsidered as vulnerable due to theirpersonal circumstances and who areespecially susceptible to detriment in theevent that the Group does not act with theappropriate level of care.

This continues to be an important area offocus for the Group, with an emphasis oncontinually improving outcomes forvulnerable customers.

Conduct risk policyThe Group’s exposure to conduct risk isgoverned by a policy approved by the

BRC in accordance with the Boardapproved risk appetite and within theoverall Group risk governance structureoutlined on pages 32 to 35.

In addition to day-to-day control measuresimplemented by business units,monitoring of conduct risks and controls isconducted using a risk-based approachby an independent internal monitoringteam within the Compliance and Conductfunction.

Risk reportingEach business unit in the Group producesa conduct risk scorecard aligned to the conduct risk appetite statement. These scorecards are reviewed by management and combined into an overall Conduct Risk Scorecard, which is used as the basis of onward reporting to the R&ORC, theERC, the BRC and the Board.

Key points:

• At all times during the financial year the Group maintained appropriate capital resources in line with regulatory requirements.• CET 1 ratio is 14.7% at 31 December 2017 under both the CRD IV transitional and fully loaded basis.• The Group will be required from 1 January 2018 to hold CET1 capital requirements of 8.4% comprising:

- Pillar 1 4.5%, Pillar II (P2R) 2% and an additional 1.875% Capital Conservation Buffer. - This will increase to 8.9% in June and 9.4% in November with the phased implementation of 1% Countercyclical buffer by the FPC.- Pillar II Guidance (P2G) is not disclosed in accordance to regulatory preference.

• Sustained strong capital position enabled the payment of the equity dividend of £160 million to the Parent in October 2017 andrepayment of £45 million subordinated debt in December 2017.

• The leverage ratio is 6.6% at 31 December 2017 under both the CRD IV transitional and fully loaded basis.

3 Capital management

Capital adequacy riskCapital adequacy risk is the risk that theGroup holds insufficient capital to absorbextreme and unexpected losses, whichcould eventually result in the Group notbeing able to continue operating.

Capital management objectives andpoliciesThe Group manages its capital position toensure that it has sufficient capital tocover the risks of its business, support itsstrategy and to comply at all times withregulatory capital requirements.

Capital adequacy and its effectivemanagement is critical to the Group’sability to operate its businesses, grow

organically and pursue its strategy. TheGroup’s business and financial conditioncould be adversely affected if it is not ableto manage its capital effectively or if theamount or quality of capital held isinsufficient. This could arise in the case ofa materially worse than expected financialperformance (including, for example,reductions in profits and retained earningsas a result of impairment losses or writedowns, increases in RWA and delays inthe disposal of certain assets as a result ofmarket conditions).

Capital requirements and capitalresources The Group complied with all its regulatorycapital requirements throughout 2017.

The Group manages its capital resourcesto ensure that the overall amount andquality of resources exceeds the Group’scapital requirements. Capital requirementsare determined by the CRD IV, the CRRand firm specific requirements imposed bythe PRA. The CRR minimum requirementsare typically driven by credit risk, marketrisk and operational risk, and also requirestress-absorbing buffers.

Additional firm-specific buffers reflect thePRA’s view of the systemic importance ofa bank and also internal capital adequacywhich is determined by internal stresstesting as part of the ICAAP.

An additional firm-specific countercyclical

Risk Management

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

buffer is also required, reflecting thecountercyclical buffer rates applicable tothe exposures held by the Group.

Capital management reportingThe Group monitors and reports thecapital position daily, monthly andquarterly. Reporting includes a suite ofearly warning triggers and measurementagainst risk appetite and is reviewed bythe Prudential Risk team, the CapitalManagement Forum and the ALCo. Thecapital management information isreviewed by the ALCo, the ERC, the BRCand the Board.

Stress testing and capital planningThe Group uses stress testing as a keyrisk management tool to gain a betterunderstanding of its risk profile and itsresilience to internal and external shocks.In addition, stress testing provides a keyinput to the Group's capital assessmentsand related risk management andmeasurement assumptions.

The Group's stress testing is designed to:• confirm the Group has sufficient

capital resources;• inform the setting of capital risk

appetite measures;• ensure the alignment between the

Group's RMF and senior managementdecision making; and

• to provide sufficiently severe andforward looking scenarios.

The Group regularly assesses its existingand future capital adequacy under a range

of scenarios, using a combination ofquantitative and qualitative analysis in theICAAP, which is reviewed by the PRA andSSM on a periodic basis. The ICAAP,which acts as a link between the Group’sstrategy, capital and risk under stress, isapproved annually by the Board.

The Group also undertakes reverse stresstesting on an annual basis which informs,enhances and integrates with the stresstesting framework by considering extremeevents that could cause the Group to fail.This testing also improves riskidentification and risk management andthe results are also approved by theBoard, as part of the Group's ICAAP. The Group's capital planning processincludes a review of the Group’s expected

capital position which is reviewed andchallenged on a monthly basis by seniormanagement.

The Group's capital plan (which isapproved at least annually by the Board)also includes sensitivities to ensure thecontinued resilience of the underlyingassumptions under adverse conditionsand changes to the regulatory landscape.

Details of the Group's equity are set outon the consolidated balance sheet onpage 80.

Further detail of the Group's regulatorycapital position, including ratios, are setout in section 1.7.12 of the Strategicreport.

2017 2016Group capital resources (audited) £m £m Equity (including other equity reserves) 1,699 1,750Other equity instruments 300 300Dated subordinated loan capital 290 335Total capital resources 2,289 2,385

2017 2016Fully loaded - CRD IV £m £m Common equity tier 1 capital ratio 14.7% 15.5%Tier 1 capital ratio 17.7% 18.4%Total capital ratio 20.5% 21.8%Leverage ratio 6.6% 6.9%Risk weighted assets (£m) 10,231 10,034

3 Capital management (continued)



Chairman Mr. Robert Sharpe (N) (RE)

Non-executive Directors Mr. Donal Collins Ms. Susan Harris (A) (RI) Mr. John Maltby (A) (RI) (N) (RE)Ms. Mimi Kung (RI) (appointed 9 November 2017)

Executive Directors Mr. Desmond Crowley Mr. Neil Fuller Mr. Thomas McAreavey (A) Member of the Audit Committee(N) Member of the Nomination Committee(RI) Member of the Risk Committee(RE) Member of the Remuneration Committee

Company SecretaryHill Wilson Secretarial Limited

Registered OfficeBow Bells House,1 Bread Street,London,EC4M 9BE.

Registered Number07022885

Independent AuditorsPricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsHays Galleria,1 Hays Lane,London,SE1 2RD.

Governance

Directors and other information

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Governance

Chairman and Non-Executive DirectorAppointed Chairman on the 27 April 2016, bringing over 35 years of Senior Executive and Boardexperience to the role, primarily in Retail Banking. He is currently Chairman at Al Rayan Bank plc, Honeycomb Investment Trust plc and Hampshire Trust Bank plc.

Robert worked extensively in the Middle East, where he held several Non-Executive Directorships atbanks in the UAE, Oman and Turkey. Prior to this, he led the transformation and turnaround at WestBromwich Building Society as Chief Executive Officer, having formerly been Chief Executive at thePortman Building Society and Chief Executive of Bank of Ireland’s business in the UK. His previous Non-Executive Director roles include Barclays Bank Pension Board, Chairman of Vaultex (UK) Ltd, GeorgeWimpey plc, LSL Properties plc and the RIAS Group Ltd.

External Appointments:Chairman and Non-executive Director of Al Rayan Bank. Chairman and Non-executive Director of Honeycomb Investment Trust Ltd. Chairman and Non-executive Director of Hampshire Trust Bank.

Robert Sharpe

Term of Office: Appointed in April 2016

Independent: Yes

Chief Executive Officer, Retail UK DivisionAppointed Director of Bank of Ireland (UK) plc in September 2009. Appointed Chief Executive Officer ofBank of Ireland (UK) plc in March 2012. Joined BoI Group in 1988. In March 2000 became a member ofthe Bank of Ireland Group Executive Committee, on being appointed Chief Executive of Retail BankingIreland. Appointed Chief Executive of UK Financial Services, Director of Bristol & West plc and Bank ofIreland UK Holdings plc in January 2006. Appointed Director of the Parent in October 2006, until hisretirement from this position in June 2011. Appointed as Chief Executive Officer – Retail (Ireland & UK) inMay 2009 and Chief Executive- Retail UK Division in March 2012.

Previously Chairman of Post Office Financial Services. A Director of First Rate Exchange ServicesLimited, the foreign exchange joint venture with UK Post Office. He is also Director of New IrelandAssurance Company plc.

External Appointments:None

Desmond Crowley

Appointed: Appointed in September 2009

Independent: No

The Board of Directors

Chief Risk OfficerAppointed Director of Bank of Ireland (UK) plc and Chief Risk Officer in October 2015. Neil joined Bank ofIreland from GE Capital UK, where he held the role of Chief Risk Officer since 2011. He has over 30 yearsof financial services experience, having previously worked for Royal Bank of Scotland & NatWest, wherehe held the role of Chief Risk Officer, UK Retail Division, and having previously held a number of seniormanagement roles in UK Retail Banking across Credit Risk, Enterprise & Operational Risk andOperations. Neil is also a Director of First Rate Exchange Services Limited, the foreign exchange jointventure with the UK Post Office.

External AppointmentsNone

Neil Fuller

Term of Office: Appointed inOctober 2015

Independent: No



Directors and other information (continued)

Governance

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Chief Financial OfficerAppointed Director of Bank of Ireland (UK) plc and Chief Financial Officer in March 2017. He has over 15years’ experience in the Bank of Ireland Group, having held various senior management positions withinFinance, including leading a range of strategic projects for BoI. Prior to that he held a managementposition within Pricewaterhouse Coopers LLP. He is a Fellow Chartered Accountant.Thomas is also a Director of a number of BoI Group subsidiaries.


Thomas McAreavey

Term of Office: Appointed in March 2017

Independent: No

Head of Group Strategy & DevelopmentAppointed Director of Bank of Ireland (UK) plc in July 2015. Donal joined Bank of Ireland Group in 1999and became a member of the Group Executive Committee in 2014. He has held a number of seniormanagement positions including Director, Corporate Banking; Head of Group Projects and Head of GroupStrategy Development. Prior to joining Bank of Ireland, Donal worked for KBC Bank in a range ofinternational senior management roles in aerospace, infrastructure and asset financing and KPMG Irelandas Director, Taxation. Donal is a graduate of University College Dublin. He is a Fellow of CharteredAccountants of Ireland and an Associate of the Irish Institute of Taxation.


Donal Collins

Term of Office: Appointed in July 2015

Independent: No

Non-Executive DirectorAppointed Director of Bank of Ireland (UK) plc in July 2015, and member of the Audit and RiskCommittees. Sue was previously a non-executive director of St James’s Place, Chair of the Finance andAudit Committees at Mencap, and Chair of Trustees of KCP Youth. She has held a number of seniorexecutive positions in the financial services and retail sectors, including Group Audit Director, LloydsBanking Group (LBG), Financial Control Director, LBG, Finance Director of LBG’s Retail Bank; andFinance Director of Cheltenham & Gloucester. Sue has held a number of other senior finance executivepositions including Managing Director Finance at Standard Life, and Head of Corporate Development andGroup Treasurer of Marks & Spencer. Sue is Chair of the Audit and Assurance Council of the FinancialReporting Council and a member of the Codes and Standards Committee.

External AppointmentsNon-executive Director and chair of the Audit and Risk Committee of AbcamNon-executive Director at Schroder & Co. Non-executive Director at Barclays Pension Fund Trustees Limited

Susan Harris, BSc (Hons), ACMA

Term of Office: Appointed in July 2015

Independent: Yes



Governance Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Non-Executive DirectorAppointed to the Board of Bank of Ireland (UK) plc in November 2015, and appointed Chair of the RiskCommittee in August 2017. John is also interim Chair of the Audit Committee and a member of theNomination and Remuneration Committees. John is currently Chairman of Good Energy Group plc, and amember of its Audit and Remuneration Committees. Previous Board appointments include CEO andmember of Transitional Board of Williams & Glynn, Chairman of Board of Lloyds Commercial Finance,Member of the Board Cheltenham & Gloucester plc, Chairman of the Board of Start Mortgages Ireland,and Member of the Board of Lombard Bank. He has also previously been Group Chief Executive ofKensington Group PLC, a specialist mortgage business and Group Director, Commercial Banking forLloyds Banking Group. John has also held senior executive roles throughout the financial servicesindustry, including NatWest Group PLC, Barclays Bank PLC and Abbey National PLC.

External AppointmentsChairman and Non-executive Director of Good Energy Group plc Non-executive Director at NCS Trust CIC

John Maltby BSc (Hons)

Term of Office: Appointed inNovember 2015

Independent: Yes

Non-Executive DirectorAppointed as Director of Bank of Ireland (UK) plc in November 2017. Member of the Risk Committee.Mimi attended the Boston University School of Management (1998) and Oxford University (2003). Mimihas held various senior positions at American Express since 1995 including that of Chief Financial Officerof American Express Europe and, most recently, that of Senior Vice-President, Head of the “CardServices Central Europe & International Currency Cards” function, and country manager for Italy.

External AppointmentsNon-executive Director at Poste Italiane

Mimi Kung

Term of Office: Appointed inNovember 2017

Independent: Yes

Directors and other information (continued)



Report of the Directors

The Directors of Bank of Ireland (UK) plcpresent their consolidated audited reportand financial statements for the yearended 31 December 2017. The financialstatements are prepared in accordancewith International Financial ReportingStandards (IFRS), as adopted by the EU,in accordance with the provisions of theCompanies Act 2006. Directors are listedin the Governance section on pages 66 to69. The Group’s structure is set out in thestrategic report in section 1.3 and thefuture developments of the Group areincorporated in the strategic report insection 1.5.

Principal activitiesThe Bank is an ‘authorised institution’under the Financial Services and MarketsAct 2000 and is regulated by the FCA andthe PRA. The principal activities of theGroup are the provision of an extensiverange of banking and other financialservices in Great Britain and NorthernIreland.

Financial performanceThe Group’s profit for the year ended 31December 2017 was £130 million (yearended 31 December 2016: £164 millionprofit). There was no profit or lossattributable to non-controlling interests forthe year ended 31 December 2017 (yearended 31 December 2016: £nil). Ananalysis of performance is set out in thestrategic report on pages 5 to 29.

DividendsOn 18 October 2017 a dividend paymentof £160 million was paid to the Parent.

Board membershipThe following Directors were appointedduring the year and up to the date ofsigning:• Pat Butler, Non-executive, 10 January

2017; • Thomas McAreavey, Executive, 2

March 2017; and• Mimi Kung, Non-executive, 9

November 2017.The following Directors resigned during

the year and up to the date of signing:• Peter Shaw, Non-executive, 31 July

2017; • David Weymouth, Non-executive, 30

November 2017; • Pat Butler, Non-executive, 31

December 2017; and• Lewis Love, Non-executive, 23

February 2018.

Corporate governanceIt is the Group’s policy not to include thedisclosures in respect of the voluntarycorporate governance codes of practice,as it is a wholly owned subsidiary of theGovernor and Company of the Bank of

Ireland, a company incorporated bycharter in the Republic of Ireland. Theultimate parent is Bank of Ireland Groupplc. The Consolidated Annual Report ofBank of Ireland Group plc details theCorporate Governance frameworkapplicable to the Group and itssubsidiaries. Bank of Ireland Group plcfinancial statements are available onwww.bankofireland.com or at Bank ofIreland, Head Office, 40 Mespil Road,Dublin 4.

Corporate responsibilityThe Group strives to make a positivecontribution to the economy by supportingour customers and investing in thecommunities in which we operate. TheGroup participates in a number of Parentinitiatives including Give Together, acommunity giving initiative under whichemployees are supported in raising moneyand volunteering days for good causes.The Parent is also conscious of its impacton the environment and has taken stepsto reduce energy consumption at highusage locations that provide services tothe Group.

Further details on the Group’scommitment to corporate socialresponsibility can be found in section 1.6of the strategic report.

Risk managementThe Group’s principal risks anduncertainties are discussed in thestrategic report on pages 24 to 29.

Additional risk disclosures for the Groupcan be found in the Risk Managementsection.

EmployeesFor the year ended 31 December 2017,the Group had an average of 277 directemployees (for the year ended December2016: 177 direct employees) and 438employees (for the year ended 31December 2016: 328 employees) whowork under long-term secondmentarrangements from the Parent.

The Group is committed to employmentpractices and policies which recognise thediversity of the Group’s workforce and arebased on equal opportunities for allemployees. In recruitment andemployment practices, the Group doesnot discriminate against individuals on thebasis of any factor which is not relevant toperformance including an individuals’ sex,race, colour, disability, sexual orientation,marital status or religious beliefs.

The Group has a number of programmesto support colleagues who becomedisabled or acquire a long-term health

condition.

To support continued employment andtraining, career development andpromotion of all employees, the Groupprovides a suite of learning anddevelopment activities which arefacilitated in conjunction with the Parent.Through the Group’s ongoing employeeperformance monitoring and appraisalprocess, incorporating frequent linemanager and employee discussions,individual employees are encouraged andsupported to pursue their own personaldevelopment.

The Group also endeavours to ensure thatemployees are provided with informationon matters of concern to them andencourages active involvement ofemployees to ensure that their views aretaken into account in reaching decisions.To facilitate this, there is regularconsultation with employees or theirrepresentatives, through regular meetings,bulletins and the use of the Group’sintranet, which provides a flexiblecommunication channel for employees.

Political donationsNo political donations were made duringthe year ended 31 December 2017 or inthe year ended 31 December 2016.

Voting RightsVoting at any general meeting is by ashow of hands or by poll. The AnnualGeneral Meeting of the Group isscheduled to take place on 1 May 2018,and a copy of the Notice of the Meetingwill be available on the Group’s websitewhen it is issued. The Group is a whollyowned subsidiary of the Governor andCompany of the Bank of Ireland. Details ofthe Parent’s shareholding can be found inthe Notes to the Accounts in note 31.

Going concern The Directors have considered theappropriateness of the going concernbasis in preparing the financialstatements, for the year ended 31December 2017, on page 85 which formspart of the Report of the Directors.

Third party indemnity provisionA qualifying third party indemnity provision(as defined in Section 234 of theCompanies Act 2006) was, and remains, inforce for the benefit of all Directors of theGroup and former Directors who heldoffice during the year. The indemnity isgranted under article 137 of the Bank’sArticles of Association.

Post balance sheet eventsThese are described in note 39 to theconsolidated financial statements.

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

The Directors are responsible forpreparing the Annual Report and theconsolidated financial statements inaccordance with applicable law andregulations.

UK company law requires the Directors toprepare financial statements for eachfinancial year. In accordance with that law,the Directors have prepared the Group’sand the Bank’s financial statements, inaccordance with IFRS and IFRSInterpretations Committee (IFRS IC)interpretations as adopted by theEuropean Union (EU).

Under company law, the Directors mustnot approve the financial statementsunless they are satisfied that they give atrue and fair view of the state of affairs ofthe Group and the Bank and of the profitor loss of the Group and Bank for thatperiod.

In preparing these financial statements,the Directors are required to:• select suitable accounting policies and

then apply them consistently; • make judgements and estimates that

are reasonable and prudent;

• state whether applicable IFRS, asadopted by the EU, have beenfollowed, subject to any materialdepartures being disclosed andexplained in the financial statements;and

• prepare the financial statements onthe going concern basis, unless it isinappropriate to presume that theGroup will continue in business.

The Directors are responsible for keepingadequate accounting records that aresufficient to show and explain the Bank’stransactions and disclose with reasonableaccuracy, at any time, the financialposition of the Bank and Group andenable them to ensure that the financialstatements comply with the CompaniesAct 2006, and as regards the Groupfinancial statements, Article 4 of the IASRegulation.

They are also responsible for safeguardingthe assets of the Bank and the Group andhence for taking reasonable steps for theprevention and detection of fraud andother irregularities.

Audit confirmationIn accordance with Section 418 of theCompanies Act 2006, the Directors Reportshall include a statement in the case ofeach Director in office at the date theDirector’s report is approved, that:(a) So far as the Director is aware, there is

no relevant audit information of whichthe Group’s auditors are unaware; and

(b) He / she has taken all the steps thathe / she ought to have taken as aDirector in order to make himself /herself aware of any relevant auditinformation and to establish that theGroup’s auditors are aware of thatinformation.

Change of auditorsA competitive external audit tenderprocess, overseen by Bank of IrelandGroup plc Audit Committee wasconducted in 2017 and the appointmentof KPMG as Group External Auditors willbe recommended to shareholders forapproval at the Group’s 2018 AnnualGeneral Meeting, subject to which KPMGwill conduct the Group’s audit for the yearended 31 December 2018.

As approved by the Board and signed on its behalf by:

Thomas McAreaveyDirector6 March 2018


Financial StatementsStatement of Directors’ Responsibilities



Independent auditors’ report to the members of Bank of Ireland (UK) plc

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Report on the audit of the group financial statements

OpinionIn our opinion, Bank of Ireland (UK) plc’s group financial statements (the “financial statements”):• give a true and fair view of the state of the group’s affairs as at 31 December 2017 and of its profit and cash flows for the year then

ended;• have been properly prepared in accordance with IFRSs as adopted by the European Union; and• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report, which comprise: the consolidated balance sheet as at 31December 2017; the consolidated income statement and consolidated statement of other comprehensive income, the consolidatedcash flow statement, and the consolidated statement of changes in equity for the year then ended; and the notes to the financialstatements, which include a description of the significant accounting policies.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements.These are cross-referenced from the financial statements and are identified as audited.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Ourresponsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section ofour report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

IndependenceWe remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financialstatements in the UK, which includes the FRC’s Ethical Standard, as applicable to public interest entities, and we have fulfilled ourother ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were notprovided to the group.

Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the group in the periodfrom 1 January 2017 to 31 December 2017.

Our audit approach

Overview• Overall group materiality: £7,600,000, based on 5% of profit before tax. The group is profit orientated and profit before tax is one of

the key metrics used to assess its performance.• The scope of our audit and the nature, timing and extent of the audit procedures performed were determined by our risk assessment,

the financial significance of the group’s reporting components and other qualitative factors.• We performed full scope audit procedures over components considered to be financially significant. We also performed audit

procedures over specific account balances in other components that were significant to the group. • PwC Ireland were essential to this scope carrying out the majority of the audit procedures relating to a number of areas including IT

testing and IFRS 9 transition.• Audit coverage for individual line items within the consolidated income statement and consolidated balance sheet falls in the range

of 79% to 100%; most line items have coverage above 90%. • See page 76 for further details.• Impairment provision on loans and advances to customers including IFRS 9 transition.• Revenue recognition relating to effective interest rate (EIR) accounting for mortgages and unwind of fair value adjustments on acquired

mortgages.• IT risk.

The scope of our auditAs part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimatesthat involved making assumptions and considering future events that are inherently uncertain.

We gained an understanding of the legal and regulatory framework applicable to the group and the industry in which it operates, andconsidered the risk of acts by the group which were contrary to applicable laws and regulations, including fraud. We designed auditprocedures at group and significant component level to respond to the risk, recognising that the risk of not detecting a materialmisstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealmentby, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give riseto a material misstatement in the group and company financial statements, including, but not limited to, the Companies Act 2006, theFinancial Services and Markets Act 2000 and UK tax legislation. Our tests included, but were not limited to, review of the financialstatement disclosures to underlying supporting documentation, review of correspondence with the regulators, enquiries ofmanagement and review of significant component auditors' work. There are inherent limitations in the audit procedures describedabove and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financialstatements, the less likely we would become aware of it.



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk ofmanagement override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directorsthat represented a risk of material misstatement due to fraud.

Key audit mattersKey audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financialstatements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in theaudit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our proceduresthereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and wedo not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Our audit approach (continued)

Key audit matter How our audit addressed the key audit matter

Impairment provision on loans and advances to customers including IFRS 9 transitionRefer to pages 85 to 98 (Group Accounting Policies), page 97 (Criticalaccounting estimates and judgments), and pages 100 to 131 (Notes to theConsolidated Financial Statements).

We focused on the identification and determination of provisions in relation tothe mortgage and commercial loan portfolios as it requires management tomake complex and subjective judgments.

In the commercial loan portfolio, individual impairment assessments areperformed where there are observed impairment indicators. There issignificant judgement required for each loan to determine the level of anyprovision.

Our focus was on the principal assumptions applied by management inestimating the impairment allowance such as the value of collateral andforecast cash flows.

For the incurred but not reported (IBNR) and collective specific mortgageprovisions we focused on:• The appropriateness of the models used to estimated impairment

provisions;• The judgements around the propensities of default and subsequent

possession which are based on historic data and customer credit profiles;and

• Loss rates determined by expected recoveries focusing on management’sassumptions around house price changes and forced sale discounts.

IAS 8 requires the Group to disclose the impact of the adoption of IFRS 9(which is effective for accounting periods beginning on or after 1 January2018). We consider this to be a key audit matter because new models havebeen developed to calculate IFRS 9 impairment losses (see pages 53 to 55)and judgement is required in a number of significant areas in relation to thecalculation of Expected Credit Loss.

We understood and evaluated the design of key controls over the commercialand mortgage impairment processes and tested their effectiveness.

We noted no significant exceptions in these controls. Accordingly, we reliedon them for the purposes of our audit. In addition, we performed thesubstantive procedures described below.

Commercial impairmentFor a sample of individually impaired loans, we evaluated the specificcircumstances of the borrower, the basis on which the provision wasdetermined and whether key judgements were appropriate. We re-performedmanagement’s discounted cash flow forecast calculations, testing key inputssuch as expected future cash flows and discount rates. We tested thevaluation of collateral held and challenged management on subjectiveestimates and assumptions. We also compared gains and losses realisedwhen a loan is sold or exited to the existing provision.

Based on the procedures performed and the evidence obtained, we foundmanagement’s methodology, assumptions and judgments to be reasonable.

Mortgage impairmentWe assessed the appropriateness of key assumptions used in the modellingby comparing against recent group experience as well as our industryexperience.

We tested the completeness and accuracy of underlying data sources intothe impairment models.

We reviewed the coding used in the model for the calculation of theprovisions and the calculation of key model inputs. We performed sensitivityanalyses in order to identify higher risk assumptions and inputs whichincluded default and possession propensities and loss rates. In these areaswe performed additional targeted procedures and we concluded that theassumptions and inputs used were reasonable.

IFRS 9Due to the structure of the Bank of Ireland Group’s IFRS 9 programme, keyIFRS 9 transition processes and controls were operated in Dublin and assuch, the majority of the audit procedures relating to IFRS 9 transition wereperformed by PwC Ireland, in Dublin. We remained responsible for ensuringappropriate audit procedures were performed, as well as the reporting offindings and results to the Group.

In respect of the disclosure for the impact of IFRS 9, we obtained anunderstanding of and evaluated management’s process for the calculation ofthe transition adjustment including governance over the determination of keyjudgements. We read key technical papers prepared by management duringthe transitions project as part of our assessment of the effectiveness of theimplementation.

We tested the controls developed by management for the purpose ofgenerating the transition adjustment for both Impairment and Classification &Measurement.

With the assistance of PwC specialists we tested key IFRS 9 modelsdeveloped by management where these were relevant to the calculation ofthe transition adjustment. We challenged the reasonableness andappropriateness of key assumptions and judgements made by management.We also considered the output of the Classification & Measurement workstream for consistency with our understanding of the group’s businessmodels.

Finally, we considered management’s rationalisation of the overall calculatedimpact of IFRS9 on the Balance Sheet position at 1 January 2018.

We concluded that the group’s process for estimating the transitionadjustment including the selection of assumptions and evaluation of modeloutputs was reasonable. We consider that the disclosures reflect thecircumstances of the group and the requirements of IAS 8.

Governance



Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Revenue recognition relating to effective interest rate (EIR) accounting formortgages and unwind of fair value adjustments on acquired mortgagesRefer to pages 85 to 98 (Group Accounting Policies), page 98 (Criticalaccounting estimates and judgments), and pages 100 to 131 (Notes to theConsolidated Financial Statements).

The group’s total loans and advances to customers balance of £20 billionand net interest income of £471 million include certain manual adjustmentsthat involve management judgment.

The vast majority of the group’s income is system generated and requiresminimal judgment, therefore we focused our work in relation to the risk offraud in revenue recognition on adjustments relating to mortgage EIR and theunwind of fair value adjustments linked to the acquisition of mortgages.Changes in the assumptions used in the associated models could have amaterial impact on the revenue recognised in any one accounting period.

We focused on the most significant judgment for mortgage EIR which is theestimation of the expected life of the mortgage over which the associatedfees, costs and discounts are spread.

In relation to the unwind of fair value adjustments linked to acquiredmortgages, we focused on significant judgment management make inassessing rates of future customer redemptions, particularly relating to but-to-let mortgages.

Across both the mortgage EIR and fair value unwind models, we testedcontrols over the assumptions used and checked the accuracy of modelcalculations by reviewing formulas used and considering whether these werein line with our expectations.For mortgage EIR we:• substantively tested a sample of fees, costs and interest rates back to

underlying lending agreements and source documentation;• assessed the estimate of the expected mortgage life applied and forecast

cash flows during this life by comparing to recent group experience andexpectations of future patterns

For fair value unwind we:• tested the accuracy of data inputs into the model;• agreed redemption assumptions applied in the model to those that were

approved by management and considered the reasonableness of theassumptions.

We evaluated whether the disclosures made in the financial statements weresufficiently clear in describing the key assumptions and their sensitivity.

We concluded that whilst there is significant judgment inherent in themortgage EIR and fair value unwind adjustments, the assumptions appliedwere within a reasonable range based on past experience and futureassumptions. We concluded the disclosures provided appropriate detail ofthe estimation uncertainty and the impact of actual future customerexperience differing from the assumptions made.

Governance



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



IT risk

The Group has a complex IT environment and operates a number of ITapplications to support its business activities. A significant number of theseapplications (whether developed by management or purchased from thirdparty vendors) have been in place for many years. There is a mix ofautomated and manual interfaces between applications. The IT controlframework over financial reporting includes standardised IT general controlsmost of which relate to a number of applications, designed to prevent ordetect material misstatements in the recording, processing and reporting offinancial information.

The Group invests to maintain the operating effectiveness of the IT systemsas well as managing other factors including increased expectations fromregulators and customers. Bank of Ireland Group Internal Audit (“GIA”) hasreported on the related internal control and operational risk considerations.

Management has an ongoing risk management programme in place toidentify, rate, mitigate and report on risk including IT and Operational riskconsiderations.

We focused on this area because the Group’s business is highly ITdependent, the IT environment is complex and the design and operatingeffectiveness of IT controls and of IT risk mitigants supports the financialreporting process.

Due to the structure of the Bank of Ireland Group, the key IT processes arebased in Dublin and as such, the majority of the audit work was performedby PwC Ireland, in Dublin. We remained responsible for the overall scoping ofthe audit work, as well as the reporting of findings and results relevant to theGroup. Throughout the audit relevant findings identified by PwC Ireland werereported to us so we could determine the impact on our audit approach andopinion.

Using principally PwC Ireland IT audit specialists, we updated ourunderstanding of the Group’s IT environment and of changes made to itduring 2017. In particular, we considered the outputs from management’s ITrisk management process and the findings of reviews conducted by GIA. Weconsidered the impact of the assessed risks on our audit approach.

We considered those IT risks and significant GIA IT audit issues thatmanagement assessed as relevant to financial reporting and tested andchallenged management’s assessment of the mitigation of these risksrelevant to financial reporting.

We also considered management’s documentation and testing of the designand operating effectiveness of the IT controls within the Bank of IrelandGroup’s Internal Control Framework over financial reporting and tested thedesign and operating effectiveness of those controls upon which we wishedto rely. Where relevant, we considered whether compensating controls actedas effective mitigants of design or operating deficiencies identified bymanagement or us. In the absence of sufficient compensating controls, weexamined, tested and challenged management’s documented assessmentsof the risk which control deficiencies posed to the financial reportingprocess.

We concluded following completion of our audit procedures thatmanagement’s assessments of the impact of IT risk matters on the financialreporting process were reasonable and that we could place reliance on theoperation of in-scope IT systems and reports generated from them.

Governance



Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


Bank of Ireland (UK) financial statements

Overall Group materiality£7.6 million

How we determined it5% of profit before tax.

Rationale for benchmark appliedBased on the benchmarks used in the annual report, profit before tax is a key measure used by the shareholders in assessing the performance of thegroup, and is a generally accepted auditing benchmark.

How we tailored the audit scopeWe tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statementsas a whole, taking into account the structure of the group, the accounting processes and controls, and the industry in which itoperates.

The group comprises twenty components through which it reports its operating results and financial position of which four aresignificant to our audit. These are Mortgages, Business Banking, Post Office Financial Services and Divisional Centre. The componentsreport through an integrated consolidation system. We identified the components which, in our view, required a full scope audit eitherdue to their size or their risk characteristics in the context to the group's consolidated financial statements.

In order to achieve the desired level of audit evidence on each account balance in the financial statements, we identified nine furtherreporting units that we determined to be individually significant in respect of one or more account balances and performed specificaudit procedures over those account balances. Specific audit procedures were performed on credit cards, ATM income and expenseand pension assets and liabilities.

We used component PwC auditors operating under our instructions who are familiar with the relevant businesses to audit specificreporting units. Where the work was performed by component auditors, we determined the level of involvement we needed to have intheir work to be able to conclude whether sufficient audit evidence had been obtained.

Processes supporting the group's operations are also performed at a Bank of Ireland Group plc level in the Republic of Ireland,including the hosting and monitoring of the IT systems used by the group. As part of the planning and execution of the audit, wevisited the auditor of the parent, held regular physical and telephone meetings throughout the audit and reviewed extracts from PwCIreland’s audit file to corroborate that the procedures performed on our behalf were sufficient for our purposes.

Together with additional procedures performed at the Group level, this gave us the evidence we needed for our opinion on the financialstatements as a whole.

Audit coverage for individual line items within the consolidated income statement and consolidated balance sheet falls in the range of79% to 100%; most line items have coverage above 90%.

MaterialityThe scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our auditprocedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, bothindividually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Governance



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The rangeof materiality allocated across components was between £550,000 and £6,200,000. Certain components were audited to a localstatutory audit materiality that was also less than our overall group materiality.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £375,000 as wellas misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when: • the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt

about the group’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from thedate when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability tocontinue as a going concern.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ reportthereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the otherinformation and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, anyform of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, considerwhether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, orotherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we arerequired to perform procedures to conclude whether there is a material misstatement of the financial statements or a materialmisstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement ofthis other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the UKCompanies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to reportcertain opinions and matters as described below.

Strategic Report and Report of the DirectorsIn our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of theDirectors for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance withapplicable legal requirements.

In light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we did not identifyany material misstatements in the Strategic Report and Report of the Directors.

Governance



Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Responsibilities for the financial statements and the audit

Responsibilities of the Directors for the financial statementsAs explained more fully in the Statement of Directors’ Responsibilities set out on page 71, the directors are responsible for thepreparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true andfair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation offinancial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern,disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors eitherintend to liquidate the group or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from materialmisstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a highlevel of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financialstatements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

Use of this reportThis report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expresslyagreed by our prior consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:• we have not received all the information and explanations we require for our audit; or• certain disclosures of directors’ remuneration specified by law are not made.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the audit committee, we were appointed by the directors on 9 July 2010 to audit the financialstatements for the period ended 31 March 2010 and subsequent financial periods. The period of total uninterrupted engagement is 7.5years, covering the periods ended 31 March 2010 to 31 December 2017.

Other matter

We have reported separately on the company financial statements of Bank of Ireland (UK) plc for the year ended 31 December 2017.

Hamish Anderson (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLondon

6 March 2018

Governance



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Consolidated Financial Statements

Consolidated income statement (for the year ended 31 December 2017)

2017 2016 Note £m £m Interest income 2 651 762Interest expense 3 (180) (265)Net interest income 471 497Fee and commission income 4 114 118Fee and commission expense 4 (115) (121)Net trading expense 5 (1) (6)Other operating income 6 2 6Total operating income 471 494Operating expenses 7 (328) (313)Operating profit before impairment charges on financial assets 143 181Impairment charges on financial assets 9 (26) (23)Operating profit 117 158Share of profit after tax of joint venture 10 34 35Profit before taxation 151 193Taxation charge 11 (21) (29)Profit for the year 130 164

Consolidated statement of other comprehensive income (for the year ended 31 December 2017)

2017 2016 Note £m £m Profit for the year 130 164

Items that may be reclassified to profit or loss in subsequent periodsNet change in cash flow hedge reserve (net of tax)1 (9) 21Net change in available for sale reserve (net of tax)2 - 3Total items that may be reclassified to profit or loss in subsequent periods (9) 24 Items that will not be reclassified to profit or loss in subsequent periodsNet actuarial gain / (loss) on defined benefit schemes3 28 6 (3)Net change in revaluation reserve, net of tax 1 -Total items that will not be reclassified to profit or loss in subsequent periods 7 (3) Other comprehensive (expense) / income for the year, net of tax (2) 21Total comprehensive income for the year, net of tax 128 185

1 Net of tax credit £3 million (2016: charge £7 million).2 Net of tax £0.4 million (2016: £1 million).3 Net of tax £1 million (2016: £1 million).



Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Consolidated balance sheet (as at 31 December 2017)

2017 2016 Note £m £m Assets Cash and balances at central banks 12 1,836 1,172 Items in the course of collection from other banks 192 131Derivative financial instruments 13 27 55 Loans and advances to banks 14 2,764 3,369 Available for sale financial assets 15 1,008 1,140 Loans and advances to customers 16 19,997 19,821 Interest in joint venture 18 61 61 Intangible assets 19 61 25Property, plant and equipment 21 104 8Other assets 22 106 109 Deferred tax assets 23 71 69Retirement benefit asset 28 8 -Total assets 26,235 25,960 Equity and liabilities Deposits from banks 24 3,561 2,691Customer accounts 25 18,961 19,475Items in the course of transmission to other banks 108 85Derivative financial instruments 13 65 102Other liabilities 26 1,233 1,200Provisions 27 13 16Current tax liability 5 6Subordinated liabilities 29 290 335Total liabilities 24,236 23,910 Equity Share capital 31 851 851Retained earnings 254 296 Other reserves 594 603Other equity instruments 32 300 300Total equity attributable to owners of the Bank 1,999 2,050 Total equity and liabilities 26,235 25,960

The financial statements on pages 79 to 131 were approved by the Board on 6 March 2018 and were signed on its behalf by:






Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


Consolidated statement of changes in equity (for the year ended 31 December 2017)

2017 2016 Note £m £m Share capital Balance at 1 January 851 851Balance at 31 December 851 851 Retained earnings Balance at 1 January 296 374Profit for the year attributable to equity holders of the Bank 130 164Dividend on ordinary shares (160) (220)Distribution on other equity instruments - Additional tier 1 coupon, net of tax1 (18) (19)Remeasurement of the net defined benefit pension liability 6 (3) Balance at 31 December 254 296

Other equity instruments Balance at 1 January 300 300Balance at 31 December 300 300 Other reserves: Available for sale reserve Balance at 1 January 5 2Changes in fair value, net of hedge accounting adjustments (1) 9Transfer to income statement (pre tax) - (5)Deferred tax on reserve movements - (1)Balance at 31 December 4 5

Revaluation reserve - property Balance at 1 January - -Revaluation of property 1 -Balance at 31 December 1 -

Cash flow hedge reserveBalance at 1 January 32 11Changes in fair value 3 43Transfer to income statement (pre tax) (15) (15)Deferred tax on reserve movements 3 (7)Balance at 31 December 23 32

Capital contribution Balance at 1 January 266 266Balance at 31 December 266 266

Capital redemption reserve fund Balance at 1 January 300 300Balance at 31 December 300 300

Total other reserves 594 603Total equity 1,999 2,050

Included in the above:Total comprehensive income attributable to owners of the Bank 128 185Total comprehensive income for the year 128 185

1 The Additional tier 1 coupon paid to the Parent of £18 million (2016: £19 million) is presented net of the related tax credit of £6 million (2016: £5 million), comprising £5 million(2016: £3 million) relating to current tax and £1 million (2016: £2 million) relating to deferred tax.




Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Consolidated cash flow statement (for the year ended 31 December 2017)

2017 2016 Note £m £m Cash flows from operating activities Profit before taxation 151 193Interest expense on subordinated liabilities and other capital instruments 3 24 24Depreciation and amortisation 7,15, 21 11 10Impairment charges on loans and advances to customers 9 26 23Share of results of joint venture 10 (34) (35)Net change in prepayments and interest receivable 22 6 11Net change in accruals and interest payable 26 (24) (43)Charge for provisions 27 11 12Other non-cash items 20 13Cash flows from operating activities before changes in operatingassets and liabilities 191 208

Net change in items in the course of collection to / from banks (38) 27Net change in derivative financial instruments (4) 17Net change in loans and advances to banks 571 676Net change in loans and advances to customers (217) (576)Net change in deposits from banks 800 85Net change in customer accounts (514) (2,098)Net change in provisions (14) (9)Net change in retirement benefit obligation (2) (2)Net change in other assets and other liabilities 46 80Net cash flow from operating assets and liabilities 628 (1,800)

Net cash flow from operating activities before taxation 819 (1,592) Taxation paid (14) (10)Net cash flow from operating activities 805 (1,602)

Investing activities (section (a) - see next page) 89 (134)Financing activities (section (b) - see next page) (253) (268)Net change in cash and cash equivalents 641 (2,004)

Opening cash and cash equivalents 2,999 5,003Closing cash and cash equivalents 12 3,640 2,999



Consolidated Financial Statements Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Consolidated cash flow statement (for the year ended 31 December 2017) (continued)

2017 2016 Note £m £m (a) Investing activities Acquisition of a subsidiary, net of cash acquired 20 (41) -Additions to available for sale financial assets 15 (82) (301)Redemptions and disposals of available for sale financial assets 15 198 133Dividends received from joint venture 18 34 35Additions to intangible assets 19 (1) (1)Additions to property, plant and equipment 21 (19) -Cash flows from investing activities 89 (134) (b) Financing activities Dividend paid on ordinary shares 36 (160) (220)Additional tier 1 coupon paid 36 (24) (24)Interest paid on subordinated liabilities 3 (24) (24)Repurchase of subordinated liabilities 29 (135) -Issue of subordinated liabilities 29 90 -Cash flows from financing activities (253) (268)


Index Page

Accounting policies 85

Basis of preparation 85

Adoption of new accounting standards 85

Comparatives 85

Going concern 85

Group financial statements 86

Foreign currency translation 87

Interest income and expense 87

Fee and commission income and expense 88

Operating profit 88

Leases 88

Financial assets 88

Financial liabilities 89

Valuation of financial instruments 89

Sale and repurchase agreements 90

Derivative financial instruments and hedge accounting 90

Impairment of financial assets 91

Property, plant and equipment 92

Intangible assets 93

Provisions 93

Employee benefits 93

Income taxes 94

Cash and cash equivalents 94

Share capital and reserves 95

Offsetting financial instruments 95

Collateral 95

Financial guarantees 95

Operating segments 96

Impact of new accounting standards not yet adopted 96

Critical accounting estimates and judgements 97

Group Accounting Policies


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




Accounting policies

The following are the principal accounting policies for the Bank of Ireland (UK) plc Group and Bank. These policies have beenconsistently applied to all the years presented, unless otherwise stated.

Basis of preparation

These financial statements are theconsolidated financial statements of theBank of Ireland (UK) plc and itssubsidaries (collectively the ‘Group’), andthe separate financial statements of theBank.

The financial statements comprise theConsolidated and Bank incomestatements, the Consolidated and Bankstatements of other comprehensiveincome, the Consolidated and Bankbalance sheets, the Consolidated andBank statements of changes in equity, theConsolidated cash flow statement, theGroup and Bank accounting policies, thenotes to the Consolidated financialstatements and the notes to the Bankfinancial statements. The notes includethe information contained in those parts ofsections 2.1, 2.2, 2.3 and 3 of the RiskManagement Report, that are describedas being an integral part of the financialstatements. The Consolidated financialstatements comprise the Bank and itscontrolled entities, as per note 38.

The separate financial statements of theBank reflect the financial position of the

Bank only and do not consolidate theresults of any subsidairies.

The consolidated financial statements ofthe Group are prepared in accordancewith International Financial ReportingStandards (IFRS) as adopted by the EUand with those parts of the CompaniesAct 2006 applicable to companiesreporting under IFRS and with theEuropean Union (Credit Institutions:Financial Statements) Regulations, 2015.

The financial statements of the Bank areprepared under FRS 101 ‘Reduceddisclosure framework’ and in accordancewith the Companies Act 2006. Inpreparing these financial statements theBank applies the recognition,measurement and disclosure requirementsof IFRS as adopted by the EU. The Bankhas applied the exemptions availableunder FRS 101 in respect of the followingdisclosures:• statement of Cash Flows;• disclosures in respect of transactions

with wholly-owned subsidiaries;• certain requirements of IAS 1

‘Presentation of financial statements’;

and• the effects of new but not yet effective

IFRSs.

The financial statements have beenprepared on the going concern basis, inaccordance with IFRS and IFRS ICinterpretations, as adopted for use in theEU and as applied in accordance with theprovisions of the Companies Act 2006.

The financial statements have beenprepared under the historical costconvention, as modified to include the fairvaluation of certain financial instruments.The preparation of the financialstatements in conformity with IFRS or FRS101 requires the use of estimates andassumptions that affect the reportedamounts of assets and liabilities at thedate of the financial statements and thereported amounts of revenues andexpenses during the reporting year.Although these estimates are based onmanagement’s best knowledge of theamount, event or actions, actual resultsultimately may differ from those estimates.A description of the critical estimates andjudgements is set out on pages 97 and 98.

Adoption of new accounting standards

The following new amendments havebeen adopted and consistently applied bythe Group during the year ended 31December 2017:

• IAS 7 ‘Statement of cash flows’:Disclosure Initiative narrow-scopeamendments; and

• IAS 12 ‘Income taxes’: Recognition ofDeferred Tax Assets for UnrealisedLosses narrow-scope amendments.

These amendments have had nosignificant impact on the financial positionof the Group.

The Group has not early adopted anystandard, interpretation or amendmentthat has been issued but is not yeteffective.

Comparatives

Comparative information has been amended where necessary to ensure consistency with the current period.

Going concern

The time period that the Directors haveconsidered in evaluating theappropriateness of the going concernbasis in preparing the financial statementsfor the year ended 31 December 2017 is aperiod of twelve months from the date ofapproval of these financial statements

(‘the period of assessment’).In making this assessment, the Directorsconsidered the Group’s business,profitability projections, liquidity, fundingand capital plans, under both base andplausible stress scenarios, together with arange of other factors such as the outlook

for the UK economy. The Directors alsoconsidered the position of the Bank’sparent, the Governor and Company of theBank of Ireland as, in addition to being theBank’s sole shareholder, it is a provider ofsignificant services to the Bank underoutsourcing arrangements.

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Going concern (continued)

The matters of primary consideration bythe Directors are set out below:

CapitalThe Group has developed capital plans inboth base and stress scenarios and theDirectors believe that the Group hassufficient capital to meet its regulatorycapital requirements throughout the periodof assessment.

Funding and liquidityThe Directors have considered theGroup’s funding and liquidity position andare satisfied that the Group has sufficientfunding and liquidity throughout the periodof assessment, including sufficient

collateral for further funding if requiredfrom the Bank of England.

The Bank’s ParentThe Bank’s Parent is its sole shareholderand provider of capital and is also a majorprovider of services under outsourcingarrangements.

The Directors note that the Court of theBank’s Parent has concluded that thereare no material uncertainties that may castsignificant doubt about the Bank of IrelandGroup’s ability to continue as a goingconcern and that it is appropriate toprepare accounts on a going concernbasis. The audit report on the financial

statements of the Bank’s Parent is notqualified and does not contain anemphasis of matter paragraph in respectof going concern.

ConclusionOn the basis of the above, the Directorsconsider it appropriate to prepare thefinancial statements on a going concernbasis having concluded that there are nomaterial uncertainties related to events orconditions that may cast significant doubton the Group’s ability to continue as agoing concern over the period ofassessment.

Group financial statements

(1) SubsidiariesSubsidiary undertakings are investees(including structured entities)controlled by the Group. The Groupcontrols an investee when it haspower over the investee, is exposed,or has rights, to variable returns fromits involvement with the investee andhas the ability to affect those returnsthrough its power over the investee.The Group reassesses whether itcontrols an investee when facts andcircumstances indicate that there arechanges to one or more elements ofcontrol. The existence and effect ofpotential voting rights are consideredwhen assessing whether the Groupcontrols an investee only if the rightsare substantive.

A structured entity is an entitydesigned so that its activities are notgoverned by way of voting rights. TheGroup assesses whether it has controlover such entities by consideringfactors such as the purpose anddesign of the entity; the nature of itsrelationship with the entity; and thesize of its exposure to the variability ofreturns from the entity.

Assets, liabilities and results of allGroup undertakings have beenincluded in the Group financialstatements on the basis of financialstatements made up to the end of thefinancial period.

Business combinations Subsidiaries are consolidated from thedate on which control is transferred tothe Group and are no longerconsolidated from the date thatcontrol ceases. The Group uses theacquisition method of accounting to

account for business combinationsother than business combinationsinvolving entities or business undercommon control. Under theacquisition method of accounting, theconsideration transferred for theacquisition of a subsidiary is the fairvalue of the assets transferred, theliabilities incurred and the equityinterests issued by the Group. Theconsideration transferred includes thefair value of any asset or liabilityresulting from a contingentconsideration arrangement.Acquisition-related costs areexpensed as incurred. Identifiableassets acquired and liabilities andcontingent liabilities assumed in abusiness combination are measuredinitially at their fair values at theacquisition date. On an acquisition-by-acquisition basis, the Grouprecognises any non-controllinginterest in the acquiree either at fairvalue or at the non-controllinginterest’s proportionate share of theacquiree’s net assets. The excess ofthe consideration transferred, theamount of any non-controlling interestin the acquiree and the acquisitiondate fair value of any previous equityinterest in the acquiree, over the fairvalue of the Group’s share of theidentifiable net assets acquired, isrecorded as goodwill.

Intercompany transactions, balancesand unrealised gains on transactionsbetween Group companies areeliminated. Unrealised losses are alsoeliminated unless the transactionprovides evidence of impairment ofthe asset transferred. Foreignexchange gains and losses whicharise on the retranslation to functional

currency of intercompany monetaryassets and liabilities are noteliminated.

Accounting policies of subsidiarieshave been changed, where necessary,to ensure consistency with the policiesadopted by the Group.

(2) Associates and Joint VenturesAssociates are all entities over whichthe Group has significant influence butnot control, over the entity’s financialand operating decisions, generallyaccompanying a shareholding ofbetween 20% and 50% of the votingrights.

A joint arrangement is an arrangementof which two or more parties havejoint control.

A joint venture is a joint arrangementwhereby the parties that have jointcontrol of the arrangement have rightsto the net assets of the arrangement.Those parties are called jointventurers.

Investments in associates and jointventures are accounted for by theequity method of accounting and areinitially recognised at cost.

A joint operation is a joint arrangementwhereby the parties that have jointcontrol of the arrangement have rightsto the assets, and obligations for theliabilities, relating to the arrangement.Those parties are called jointoperators.

The Group accounts for the assets,liabilities, revenues and expensesrelating to its interest in joint


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Group financial statements (continued)

operations in accordance with theIFRSs applicable to the particularassets, liabilities, revenues andexpenses.

Accounting policies of associates andjoint ventures have been changed,where necessary, to ensureconsistency with the policies adoptedby the Group.

(3) Common control transactionsA business combination involvingentities or businesses under commoncontrol is excluded from the scope ofIFRS 3: ‘Business Combinations’. Theexemption is applicable where thecombining entities or businesses arecontrolled by the same party, bothbefore and after the combination.Where such transactions occur, theGroup, in accordance with IAS 8, usesits judgement in developing andapplying an accounting policy that isrelevant and reliable. In making thisjudgement, management considersthe requirements of IFRS dealing withsimilar and related issues and thedefinitions, recognition criteria andmeasurement concepts for assets,liabilities, income and expenses in theframework. Management alsoconsiders the most recentpronouncements of other standard

setting bodies that use a similarconceptual framework to developaccounting standards, to the extentthat these do not conflict with theIFRS Framework or any other IFRS orinterpretation. Accordingly, the Groupapplies the guidance set out in FRS 6:‘Acquisitions and Mergers’ as issuedby the Accounting Standards Board.

Where a transaction meets thedefinition of a group reconstruction orachieves a similar result, predecessoraccounting is applied. The assets andliabilities of the business transferredare measured in the acquiring entity,upon initial recognition, at theirexisting book value in theconsolidated financial statements ofthe Bank of Ireland Group, asmeasured under IFRS. The Groupincorporates the results of theacquired businesses only from thedate on which the businesscombination occurs.

Similarly, where the Group acquires aninvestment in an associate or jointventure from an entity under commoncontrol with the Group, the investmentis recognised initially at its existingbook value in the consolidatedfinancial statements of the Bank ofIreland Group.

(4) SecuritisationsCertain Group undertakings haveentered into securitisation transactionsin order to finance specific loans andadvances to customers.

All financial assets continue to be heldon the Group balance sheet, and aliability recognised for the proceeds ofthe funding transaction, unless:• the rights to the cash flows have

expired or been transferred;• substantially all the risks and

rewards associated with thefinancial instruments have beentransferred outside the Group, inwhich case the assets arederecognised in full; or

• a significant portion, but not all, ofthe risks and rewards have beentransferred outside the Group. Inthis case the asset isderecognised entirely if thetransferee has the ability to sell thefinancial asset. Otherwise theasset continues to be recognisedonly to the extent of the Group’scontinuing involvement.

Where the above conditions apply to afully proportionate share of all orspecifically identified cash flows, therelevant accounting treatment isapplied to that proportion of the asset.

Foreign currency translation

The consolidated financial statements ofthe Group and the financial statements ofthe Bank are presented in Sterling. Foreigncurrency transactions are translated intofunctional currency at the exchange ratesprevailing at the dates of the transactions.Foreign exchange gains and losses

resulting from the settlement of suchtransactions and from the transaction atyear end exchange rates of monetaryassets and liabilities denominated inforeign currencies are recognised in theincome statement. Translation differenceson non-monetary items, such as equities

held at fair value through profit or loss, arereported as part of the fair value gain orloss. Translation differences on non-monetary items such as equities,classified as available for sale, arerecognised in other comprehensiveincome.

Interest income and expense

Interest income and expense arerecognised in the income statement for allinstruments measured at amortised costusing the effective interest method.

The effective interest method is a methodof calculating the amortised cost of afinancial asset, or a financial liability, andof allocating the interest income or interestexpense over the relevant period. Theeffective interest rate is the rate thatexactly discounts estimated future cashpayments or receipts through theexpected life of the financial instrument or,

when appropriate, a shorter period to thenet carrying amount of the financial assetor liability. When calculating the effectiveinterest rate, the Group estimates cashflows, considering all contractual terms ofthe financial instrument (for example,prepayment options), but does notconsider future credit losses. Thecalculation includes all fees and points,paid or received, between parties to thecontract that are an integral part of theeffective interest rate, transaction costsand all other premiums or discountsincluding mortgage discounts. Historical

and forecast redemption data andmanagement judgement of futureperformance are used to estimate theexpected lives of mortgage and cardassets and deposit liabilities.

Once a financial asset, or group of similarfinancial assets, has been written down asa result of an impairment loss, interestincome is recognised using the rate ofinterest used to discount the future cashflows for the purposes of measuring theimpairment loss.

Group Accounting Policies Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Interest income and expense (continued)

Where the Group revises its estimates ofpayments or receipts on a financialinstrument measured at amortised cost,the carrying amount of the financialinstrument (or group of financial

instruments) is adjusted to reflect actualand revised estimated cash flows. TheGroup recalculates the carrying amount bycomputing the present value of estimatedfuture cash flows at the financial

instrument's original effective interest rate.The adjustment is recognised in profit orloss as income or expense.

Fee and commission income and expense

Fees and commissions which are not anintegral part of the effective interest rate ofa financial instrument are generallyrecognised as the related services areprovided. Service fee income arising fromother money transmission services,including ATM and credit cards, is accruedonce the transactions take place. Similarly,fees and commissions due to third parties

in relation to credit card, ATM, and otherbanking services, including salescommissions, are accrued over the periodthe service is provided.

Commissions and fees arising fromnegotiating, or participating in thenegotiation of, a transaction for a thirdparty, such as the acquisition of loans,

shares or other securities or the purchaseor sale of businesses, are recognised oncompletion of the underlying transaction.Loan commitment fees for loans that arelikely to be drawn down, are deferred(together with related direct costs) andrecognised as an adjustment to theeffective interest rate on the loan oncedrawn.

Operating profit

Operating profit includes the Group’searnings from ongoing activities after

impairment charges and before share ofprofit or loss on joint ventures (after tax)

and profit on disposal of businessactivities.

Leases

LessorWhen assets are held under a financelease, the present value of the leasepayments is recognised as a receivable.The difference between the grossreceivable and the present value of thereceivable is recognised as unearnedfinance income. Lease income is includedin net interest income and is recognisedover the term of the lease reflecting aconstant periodic rate of return on the netinvestment in the lease.

A lease that does not transfer substantiallyall the risks and rewards of ownership aretreated as operating leases. The annualrentals are credited to the income

statement on a straight-line basis over theterm of the lease. Costs incurred,including depreciation, are recognised inline with the normal depreciation policy forsimilar assets.

LesseeThe total payments made under operatingleases are charged to the incomestatement on a straight line basis over theperiod of the lease. When an operatinglease is terminated before the lease periodhas expired, any payment required to bemade to the lessor by way of penalty isrecognised as an expense in the period inwhich termination takes place.

Leases of property, plant and equipmentwhere the Group has substantially all therisks and rewards of ownership, areclassified as finance leases. Financeleases are capitalised at the lease’sinception at the lower of the fair value ofthe leased property and the present valueof the minimum lease payments. Thecorresponding rental obligations, net offinance charges, are included in long termpayables. The interest element of thefinance costs is charged to the incomestatement over the lease period so as toproduce a constant periodic rate ofinterest on the remaining balance of theliability for each period.

Financial assets

(1) Classification, recognition andmeasurementThe Group classifies its financialassets in the following categories:financial assets at fair value throughprofit or loss; loans and receivables;and available for sale financial assets.The Group determines theclassification of its financial assets atinitial recognition.

Regular way purchases and sales offinancial assets are recognised on thetrade date, which is the date the

Group commits to purchase or sell theasset.(a) Financial assets at fair value

through profit or loss Financial assets at fair valuethrough profit or loss can either beheld for trading, if acquiredprincipally for the purpose ofselling in the short term, ordesignated at fair value throughprofit or loss at inception.

(b) Loans and receivablesLoans and receivables are non-

derivative financial assets withfixed or determinable paymentsthat are not quoted in an activemarket. Loans are recorded at fairvalue plus transaction costs oninitial recognition. They aresubsequently accounted for atamortised cost, using the effectiveinterest method.

Where the Group acquires aportfolio of financial assets froman entity under common controlwith the Group, in a transaction


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Financial assets (continued)

which is not a businesscombination, the financial assetsare measured on initial recognitionat their fair value plus transactioncosts.

To establish fair value, the Groupuses a valuation technique, whichreasonably reflects how themarket could be expected to pricethe assets, and whose variablesinclude market data. Thisvaluation technique incorporatesboth expected credit losses andthe differential between thecontractual interest rates on theassets and current market interestrates for similar assets.

The difference between the initialcarrying value of the assets andtheir principal balances isconsidered to be a ‘fair valueadjustment’. The portion of thisfair value adjustment which relatesto interest rate differentials isamortised to the incomestatement, as part of the effectiveinterest rate of the assets, overtheir remaining lives.

The portion of the fair valueadjustment which relates toexpected credit losses issubsequently reduced by actualwrite offs of loans during eachperiod. Additionally, an annualreview is performed to ensure thatthe remaining amount of thisportion of the fair valueadjustment is adequate to coverfuture expected losses on theassets. This review identifies eitherthe amount of any impairmentprovision required to beimmediately recognised, if theremaining adjustment is less thanthe incurred losses on the assets,or any surplus amount of fair valueadjustment which must bereleased to the income statementif it is no longer required to coverfuture expected losses.

(c) Available for saleAvailable for sale financial assetsare those intended to be held foran indefinite period of time, whichmay be sold in response to needsfor liquidity or changes in interest

rates.

Purchases and sales of availablefor sale financial assets arerecognised on trade date. Theyare initially recognised at fair valueplus transaction costs. Fair valuemovements are recognised inother comprehensive income.Interest is calculated using theeffective interest method and isrecognised in the incomestatement.

If an available for sale financialasset is derecognised or impaired,the cumulative gain or losspreviously recognised in othercomprehensive income isreclassified to the incomestatement.

(2) DerecognitionFinancial assets are derecognisedwhen the rights to receive cash flowsfrom the financial assets have expiredor where the Group has transferredsubstantially all risks and rewards ofownership.

Financial liabilities

The Group has two categories of financialliabilities: those that are carried atamortised cost and those that are carriedat fair value through profit or loss.Financial liabilities are initially recognisedat fair value (normally the issue proceedsi.e. the fair value of considerationreceived) less, in the case of financialliabilities subsequently carried atamortised cost, transaction costs. For

liabilities carried at amortised cost, anydifference between the proceeds, net oftransaction costs, and the redemptionvalue is recognised in the incomestatement using the effective interestmethod.

The Group designates certain financialliabilities at fair value through profit orloss, as set out in note 34 to the

consolidated financial statements andnote x to the Bank financial statements.

Financial liabilities are derecognised whenthey are extinguished, that is, when theobligation is discharged, cancelled orexpires.

Valuation of financial instruments

The Group recognises assets andliabilities designated at fair value throughprofit or loss, derivatives and available-for-sale financial assets at fair value in thebalance sheet. Fair value is the price thatwould be received to sell an asset or paidto transfer a liability in an orderlytransaction between market participantsat the measurement date in the principal,or in its absence, the most advantageousmarket to which the Group has access atthat date.

The fair values of financial assets andliabilities traded in active markets are

based on unadjusted bid and offer pricesrespectively. If an active market does notexist, the Group establishes fair valueusing valuation techniques. These includethe use of recent arm’s lengthtransactions, DCF analysis, option pricingmodels and other valuation techniquescommonly used by market participants. Tothe extent possible, these valuationtechniques use observable market data.Where observable data does not exist, theGroup used estimates based on the bestinformation available.

The best evidence of the fair value of a

financial instrument at initial recognition isthe transaction price, in an arm’s lengthtransaction, unless the fair value of thatinstrument is evidenced by comparisonwith other observable current markettransactions in the same instrument (i.e.without modification or repackaging) orbased on a valuation technique whichuses only observable market inputs. Whensuch evidence exists, the initial valuationof the instrument may result in the Grouprecognising a profit on initial recognition.In the absence of such evidence, theinstrument is initially valued at thetransaction price. Any day one profit is


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Valuation of financial instruments (continued)

deferred and recognised in the incomestatement to the extent that it arises froma change in a factor that marketparticipants would consider in setting aprice. Straight line amortisation is usedwhere it approximates to the amount.Subsequent changes in fair value arerecognised immediately in the incomestatement without the reversal of deferred

day one profits or losses. Where atransaction price in an arm’s lengthtransaction is not available, the fair valueof the instrument at initial recognition ismeasured using a valuation technique.For liabilities designated at fair valuethrough profit or loss, the fair valuesreflect changes in the Group’s own creditspread.

Transfers between levels of the fairvalue hierarchyThe Group recognises transfers betweenlevels of the fair value hierarchy at the endof the reporting period during which thechange occurred. The Group providesthese disclosures in note 35.

Sale and repurchase agreements

Assets sold subject to repurchaseagreements (repos) are retained on thebalance sheet and reclassified as pledged

assets when the transferee has the rightby contract or custom to sell or re-pledgethe collateral; the counterparty liability is

included in deposits by banks or customeraccounts, as appropriate.

Derivative financial instruments and hedge accounting

Derivatives are initially recognised at fairvalue on the date on which the contract isentered into and are subsequentlyremeasured at their fair value at eachbalance sheet date. All derivatives arecarried as assets when their fair value ispositive and as liabilities when their fairvalue is negative.

Fair value gains or losses on derivativesare normally recognised in the incomestatement. However where they aredesignated as hedging instruments, thetreatment of the fair value gains andlosses depends on the nature of thehedging relationship.

The Group designates certain derivativesas either:(i) hedges of the exposure to changes in

the fair value of recognised assets orliabilities that is attributable to aparticular risk (fair value hedge); or

(ii) hedges of highly probable future cashflows attributable to a recognisedasset or liability, or a forecasttransaction (cash flow hedge).

Hedge accounting is applied to thesederivatives provided certain criteria aremet. The Group documents, at theinception of the transaction, therelationship between hedging instrumentsand hedged items, as well as its riskmanagement objective and strategy forundertaking various hedge transactions.The Group also documents itsassessment, both at hedge inception andon an ongoing basis, of whether thederivatives that are used in hedgingtransactions are highly effective inoffsetting changes in fair values or cashflows of hedged items.

(a) Fair value hedge (micro)Changes in the fair value of derivativesthat are designated and qualify as fairvalue hedges are recorded in theincome statement, together with anychanges in the fair value of thehedged asset or liability that areattributable to the hedged risk. Thehedged item in a micro fair valuehedge is a single specified item e.g. afixed commercial loan or an availablefor sale bond.

If the criteria for hedge accountingcease to be met, no furtheradjustments are made to the hedgeditem for fair value changes attributableto the hedged risk. The cumulativeadjustment to the carrying amount ofa hedged item is amortised to profit orloss over the period to maturity usingthe effective interest method.

(b) Fair value hedge (macro)The hedged item in a macro fair valuehedge is a pool of assets or liabilitieswith similar risk characteristics andprofiles, such as a pool of fixed ratemortgages. Unlike micro fair valuehedge accounting, macro fair valuehedge accounting is not discontinuedif an individual asset or liability withinthe pool of hedged items is sold, solong as the overall pool of hedgeditems retains its characteristics asdocumented at inception of thehedge. In addition, hedgeeffectiveness testing is performed on aportfolio basis rather than on anindividual hedge relationship by hedgerelationship basis.

If the criteria for hedge accountingcease to be met, no furtheradjustments are made to the hedgeditem for fair value changes attributableto the hedged risk. The cumulativeadjustment to the carrying amount ofa hedged item is amortised to profit orloss over the period to maturity usingthe effective interest method.

(c) Cash flow hedgeThe effective portion of changes in thefair value of derivatives that aredesignated and qualify as cash flowhedges is recognised in othercomprehensive income. The gain orloss relating to the ineffective portionis recognised immediately in theincome statement. Amountsaccumulated in other comprehensiveincome are reclassified to the incomestatement in the periods in which thehedged item affects profit or loss.

When a hedging instrument expires oris sold, or when a hedge no longermeets the criteria for hedgeaccounting, any cumulative gain orloss existing in other comprehensiveincome at that time remains in othercomprehensive income and isrecognised in the income statementwhen the forecast transaction occurs.When a forecast transaction is nolonger expected to occur, thecumulative gain or loss that wasreported in other comprehensiveincome is immediately reclassified tothe income statement.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Impairment of financial assets

Assets carried at amortised costThe Group assesses at each balancesheet date whether there is objectiveevidence that a financial asset, or group offinancial assets, is impaired. A financialasset, or a group of financial assets, isimpaired and impairment losses areincurred if, and only if, there is objectiveevidence of impairment as a result of oneor more events that occurred after theinitial recognition of the asset (a ‘lossevent’) and that loss event (or events) hasan impact on the estimated future cashflows of the financial asset or group offinancial assets that can be reliablyestimated.

Objective evidence that a financial asset,or group of assets, is impaired includesobservable data that comes to theattention of the Group about the followingloss events:(i) delinquency in contractual payments

of principal or interest;(ii) cash flow difficulties;(iii) breach of loan covenants or

conditions;(iv) deterioration of the borrower’s

competitive position;(v) deterioration in the value of collateral;(vi) external rating downgrade below an

acceptable level;(vii) initiation of bankruptcy proceedings;

and(viii)granting a concession to a loan

borrower for economic or legalreasons relating to the borrower’sfinancial difficulty that would not beconsidered.

The Group first assesses whetherobjective evidence of impairment existsindividually for financial assets that areindividually significant, and individually orcollectively for financial assets that are notindividually significant. If the Groupdetermines that no objective evidence ofimpairment exists for an individuallyassessed financial asset, whethersignificant or not, it includes the asset in agroup of financial assets with similar creditrisk characteristics and collectivelyassesses them for impairment. Assets thatare individually assessed for impairmentand for which an impairment loss, is orcontinues to be, recognised are notincluded in a collective assessment ofimpairment.

If there is objective evidence that animpairment loss on loans and advancescarried at amortised cost has beenincurred, the amount of the loss is

measured as the difference between theasset’s carrying amount and the presentvalue of estimated future cash flows(excluding future credit losses that havenot been incurred), discounted at thefinancial asset’s original effective interestrate. The carrying amount of the asset isreduced through the use of an allowanceaccount and the amount of the loss isrecognised in the income statement. If aloan has a variable interest rate, thediscount rate for measuring anyimpairment loss is the current effectiveinterest rate determined under thecontract. As a practical expedient, theGroup may measure impairment on thebasis of an instrument’s fair value using anobservable market price. The calculationof the present value of the estimatedfuture cash flows of a collateralisedfinancial asset reflects the cash flows thatmay result from foreclosure less costs forobtaining and selling the collateral,whether or not foreclosure is probable.

For the purposes of a collective evaluationof impairment, financial assets aregrouped on the basis of similar credit riskcharacteristics (i.e. on the basis of theGroup’s grading process that considersasset type, industry, geographicallocation, collateral type, past due statusand other relevant factors). Thosecharacteristics are relevant to theestimation of future cash flows for groupsof such assets by being indicative of thedebtors’ ability to pay all amounts dueaccording to the contractual terms of theassets being evaluated.

Future cash flows in a group of financialassets that are collectively evaluated forimpairment are estimated on the basis ofthe contractual cash flows of the assets inthe Group and historical loss experiencefor assets with credit risk characteristicssimilar to those in the Group. Historicalloss experience is adjusted on the basis ofcurrent observable data to reflect theeffects of current conditions that did notaffect the period on which the historicalloss experience is based and to removethe effects of conditions in the historicalperiod that do not exist currently. Themethodology and assumptions used forestimating future cash flows are reviewedregularly by the Group to reduce anydifferences between loss estimates andactual loss experience.

If, in a subsequent period, the amount ofthe impairment loss decreases and thedecrease can be related objectively to an

event occurring after the impairment wasrecognised (such as an improvement inthe debtor’s credit rating), the previouslyrecognised impairment loss is reversed byadjusting the allowance account. Theamount of the reversal is recognised in theincome statement.

When a loan is deemed uncollectible, it isderecognised and the provision forimpairment is utilised. Subsequentrecoveries decrease the amount of thecharge for loan impairment in the incomestatement.

ForbearanceForbearance occurs when a borrower isgranted a temporary or permanentconcession or an agreed change(‘forbearance measure’) to a loan forreasons relating to the actual or apparentfinancial stress or distress of thatborrower. Forbearance has not occurred ifthe concession or agreed change to a loangranted to a borrower is not related to theactual or apparent financial stress ordistress of that borrower.

Prior to any decision to grant forbearancethe Group performs an assessment of acustomer’s financial circumstances andability to repay. This assessment includesan individual assessment for impairmentof the loan. If the Group determines thatno objective evidence of impairment existsfor an individually assessed forborneasset, whether significant or not, itincludes the asset in a group of loans withsimilar credit risk characteristics andcollectively assesses them for impairment.

Where the forborne loan is considered tobe impaired the amount of the loss ismeasured as the difference between theasset’s carrying amount and the presentvalue of estimated future cash flows(excluding future credit losses that havenot been incurred) discounted at theasset’s original effective interest ratebefore the modification of terms. Thecarrying amount of the asset is reducedthrough the use of an allowance accountand the amount of the loss is recognisedin the income statement. If a forborneasset has a variable interest rate, thediscount rate for measuring anyimpairment loss is the current effectiveinterest rate determined under thecontract before the modification of terms.As a practical expedient, the Group maymeasure impairment on the basis of aninstrument’s fair value using an observablemarket price.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Impairment of financial assets (continued)

Assets to which forbearance has beenapplied continue to be reported asforborne until such time as they satisfyconditions to exit forbearance in line withEBA guidance on non-performing andforborne classifications.

Where the cash flows from a forborne loanare considered to have expired, theoriginal asset is derecognised and a newasset is recognised, initially measured atfair value. Any difference between thecarrying value of the original asset and thefair value of the new asset on initialrecognition are recognised in the incomestatement. Interest accrues on the newasset based on the current market rates inplace at the time of the renegotiation.

Non-forbearance renegotiation Where a concession or agreed change toa loan is not directly linked to apparentfinancial stress or distress, theseamendments are not consideredforbearance. Any changes in expected

cash flows are accounted for under IAS 39i.e. the carrying amount of the asset isadjusted to reflect any change toestimated cash flows discounted at theoriginal effective interest rate, before themodification of terms. If a renegotiatedasset has a variable interest rate, thediscount rate for measuring anyimpairment loss is the current effectiveinterest rate determined under thecontract. Any difference between theasset’s carrying amount and the presentvalue of estimated future cash flows isreflected in the income statement.However, where cash flows on the originalasset are considered to have expired, theoriginal asset is derecognised and a newasset is recognised at fair value. Anydifference arising between thederecognised asset and the new asset isrecognised in the income statement.

Available for sale financial assets The Group assesses, at each balancesheet date, whether there is objective

evidence that an available for salefinancial asset is impaired. In addition tothe factors set out above, a significant orprolonged decline in the fair value of aninvestment in an available for sale equityinstrument below its cost is considered indetermining whether an impairment losshas been incurred. If an impairment losshas been incurred, the cumulative lossthat had been recognised in othercomprehensive income is removed fromequity and recognised in the incomestatement. If, in a subsequent period, thefair value of a debt instrument classified asavailable for sale increases and theincrease can be objectively related to anevent occurring after the impairment losswas recognised, the impairment loss isreversed through the income statement.Impairment losses recognised in theincome statement on equity instrumentsare not reversed through the incomestatement.

Property, plant and equipment

Freehold and long leasehold land andbuildings are initially recognised at cost,and subsequently are revalued annually toopen market value by independentexternal valuers. Revaluations are madewith sufficient regularity to ensure that thecarrying amount does not differ materiallyfrom the open market value at the balancesheet date.

All other property, plant and equipment,including freehold and leaseholdadaptations, are stated at historical costless accumulated depreciation.

Increases in the carrying amount arisingon the revaluation of land and buildingsare recognised in other comprehensiveincome. Decreases that offset previousincreases on the same asset arerecognised in other comprehensiveincome: all other decreases are charged tothe income statement.

The Directors consider that residual valuesof freehold and long leasehold propertybased on prices prevailing at the time ofacquisition or subsequent valuation aresuch that depreciation is not material.

Depreciation is calculated on the straightline method to write down the carryingvalue of other items of property, plant andequipment to their residual values overtheir estimated useful lives as follows:• Adaptation works on freehold and

leasehold property - fifteen years, orthe remaining period of the lease; and

• Computer and other equipment -maximum of ten years.

• Motor vehicles held for leasing - overthe lease term.

The assets’ residual values and usefullives are reviewed, and adjusted ifappropriate, at each balance sheet date.Property, plant and equipment are

reviewed for impairment whenever eventsor changes in circumstances indicate thatthe carrying amount may not berecoverable. An asset’s carrying amount iswritten down immediately to itsrecoverable amount if its carrying amountis greater than its estimated recoverableamount. The estimated recoverableamount is the higher of the asset’s fairvalue less costs to sell or its value in use.

Gains and losses on the disposal ofproperty, plant and equipment aredetermined by reference to their carryingamount and are taken into account indetermining profit before tax. If the assetbeing disposed of had previously beenrevalued then any amount in othercomprehensive income relating to thatasset is reclassified directly to retainedearnings on disposal, rather than theincome statement.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Intangible assets

(a) Computer softwareAcquired computer software licencesare capitalised on the basis of thecosts incurred to acquire and bring touse the specific software. These costsare amortised on the basis of theexpected useful lives, which isnormally five years.

Costs associated with developing ormaintaining computer softwareprogrammes are recognised as anexpense as incurred. Costs that aredirectly associated with the productionof identifiable and unique softwareproducts controlled by the Group andwhich will probably generateeconomic benefits exceeding costsbeyond one year, are recognised asintangible assets. Direct costs includesoftware development, employeecosts and an appropriate portion ofrelevant overheads. Computersoftware development costsrecognised as assets are amortisedusing the straight line method over

their useful lives, which is normallybetween five and ten years.

(b) Other intangible assetsOther intangible assets are carried atcost less amortisation andimpairment, if any, and are amortisedon a straight line basis over theiruseful lives which range from fiveyears to twenty years and reviewed forimpairment whenever events orchanges in circumstances indicatethat the carrying amount may not berecoverable. An asset’s carryingamount is written down immediately toits recoverable amount if its carryingamount is greater than its estimatedrecoverable amount. The estimatedrecoverable amount is the higher ofthe asset’s fair value less costs to sellor its value in use.

(c) GoodwillGoodwill represents the excess of theconsideration transferred, the amountof any non-controlling interest in the

acquiree and the acquisition date fairvalue of any previous equity interest inthe acquiree over the fair value of theGroup’s share of the identifiable netassets acquired. Goodwill onacquisition of subsidiaries is includedin intangible assets.

Goodwill is tested annually forimpairment or more frequently if thereis any indication that it may beimpaired, and carried at cost lessaccumulated impairment losses.Goodwill is allocated to cashgenerating units (CGU) for the purposeof impairment testing. An impairmentloss arises if the carrying value of theCGU exceeds the recoverableamount. The recoverable amount of aCGU is the higher of its fair value lesscosts to sell and its value in use,where the value in use is the presentvalue of the future cash flowsexpected to be derived from the CGU.

Provisions

Provisions are recognised when the Grouphas a present legal or constructiveobligation as a result of past events, it isprobable that an outflow of resourcesembodying economic benefits will berequired to settle the obligation, and areliable estimate of the amount of theobligation can be made.

Provision is made for the anticipated costsof restructuring, including relatedredundancy costs, when an obligationexists. An obligation exists when theGroup has a detailed formal plan forrestructuring a business and has raisedvalid expectations in those employeesaffected by the restructuring by starting toimplement the plan or announcing its mainfeatures.

A levy payable to a Government isprovided for on the occurrence of theevent identified by the legislation thattriggers the obligation to pay the levy.

Contingent liabilities are not recognisedbut are disclosed unless the probability oftheir occurrence is remote.

Employee benefits

(a) Pension obligationsThe Group operates one definedbenefit scheme, the NIIB GroupLimited (1975) Pension Scheme. Inaddition, certain of the Group'semployees are members of otherBank of Ireland Group schemes, andthese are accounted for as definedcontribution schemes in the Group.The schemes are funded and theassets of the schemes are held inseparate trustee administered funds. Adefined benefit plan is a pension planthat defines an amount of pensionbenefit to be provided, usually as afunction of one or more factors suchas age, years of service orcompensation.

The asset or liability recognised in thebalance sheet in respect of definedbenefit pension plans is the presentvalue of the defined benefit obligationat the balance sheet date minus thefair value of plan assets. The definedbenefit obligation is calculatedannually by independent actuariesusing the projected unit credit method.The present value of the definedbenefit obligation is determined bydiscounting the estimated future cashoutflows using interest rates on highquality corporate bonds that aredenominated in the currency in whichthe benefits will be paid, and that haveterms to maturity approximating theterms of the related pension liability.

Service cost and net interest on thenet defined benefit liability / (asset) arerecognised in profit or loss inoperating expenses.

Remeasurements of the net definedbenefit liability / (asset), including:• actuarial gains and losses arising

from experience adjustments andchanges in actuarial assumptions;and

• the return on plan assets,excluding amounts included in netinterest on the net defined benefitliability / (asset); are recognised inother comprehensive income.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Employee benefits (continued)

A settlement is a transaction thateliminates all further legal andconstructive obligations for part or allof the benefits provided under adefined benefit plan, other than apayment of benefits to, or on behalfof, employees that is set out in theterms of the plan and included in theactuarial assumptions.

(b) Short term employee benefitsShort term employee benefits, such assalaries and other benefits, areaccounted for on an accruals basisover the period in which theemployees’ service is rendered.

(c) Termination paymentsTermination payments are recognisedas an expense at the earlier of:• when the Group can no longer

withdraw the offer of thosebenefits; and

• when the Group recognises costsfor a restructuring that is withinthe scope of IAS 37 and involvesthe payment of terminationbenefits.

For this purpose, in relation totermination benefits for voluntaryredundancies, the Group isconsidered to be no longer able to

withdraw the offer on the earlier of thefollowing dates:• when the employee accepts the

offer; and• when a restriction (e.g. a legal,

regulatory or contractualrequirement) on the Group’s abilityto withdraw the offer takes effect.

Income taxes

(a) Current income taxIncome tax payable on profits isrecognised as an expense in the yearin which profits arise. Tax provisionsare provided on a transaction bytransaction basis using a bestestimate approach. In arriving at suchestimates, management assesses therelative merits and risks of taxtreatments assumed, taking intoaccount statutory, judicial andregulatory guidance and, whereappropriate, external advice.

A current tax provision is recognisedwhen the Group has a presentobligation as a result of a past eventand it is probable that there will be afuture outflow of funds to a fiscalauthority to settle the obligation.

(b) Deferred income taxDeferred income tax is provided in full,using the liability method, ontemporary differences arising betweenthe tax bases of assets and liabilitiesand their carrying amounts in the

financial statements. Deferred incometax is determined using tax rates (andtax laws) that have been enacted, orsubstantively enacted, by the balancesheet date and are expected to applywhen the related deferred income taxasset is realised or the deferredincome tax liability is settled.

The rates enacted, or substantivelyenacted, at the balance sheet date,are used to determine deferredincome tax. However, the deferredincome tax is not accounted for if itarises from initial recognition of anasset or liability in a transaction, otherthan a business combination that atthe time of the transaction affectsneither accounting nor taxable profitor loss.

The tax effects of income tax lossesavailable for carry forward arerecognised as deferred tax assets tothe extent that it is probable thatfuture taxable profit will be availableagainst which the temporary

differences can be utilised and byreference to the expiry dates (if any) ofthe relevant unused tax losses or taxcredits. Deferred tax assets andliabilities are not discounted.

Deferred income tax is provided ontemporary differences arising frominvestments in subsidiaries,associates and joint ventures, exceptwhere the timing of the reversal of thetemporary difference is controlled bythe Group and it is probable that thedifference will not reverse in theforeseeable future.

Deferred tax on items recognised inother comprehensive income is alsorecognised in other comprehensiveincome and is subsequentlyreclassified to the income statement,together with the deferred gain or loss.Income tax on items recogniseddirectly in equity is recognised directlyin equity.

Cash and cash equivalents

For the purposes of the cash flowstatement, cash and cash equivalentscomprise cash in hand and balances with

central banks and other banks, which canbe withdrawn on demand. It alsocomprises balances with an original

maturity of less than three months.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Share capital and reserves

a) Equity transaction costsIncremental external costs directlyattributable to equity transactions,including the issue of new equitystock or options, are shown as adeduction from equity, net of tax.

(b) Dividends on ordinary sharesDividends on ordinary shares arerecognised in equity in the year inwhich they are approved by theBank’s shareholders or the Board ofDirectors, as appropriate.

(c) Available for sale reserveThe available for sale reserverepresents the cumulative change infair value of available for sale financial

assets (net of tax and hedgeaccounting adjustments).

(d) Cash flow hedge reserveThe cash flow hedge reserverepresents the cumulative changes infair value (net of tax) excluding anyineffectiveness of cash flow hedgingderivatives. These are transferred tothe income statement when thehedged transactions impact theGroup’s profit or loss.

(e) Capital contributionThe capital contribution is measuredas the initial amount of cash or otherassets received.

(f) Capital redemption reserve fundOn 1 May 2015, preference stock of£300 million was repurchased. On thesame date £300 million wastransferred from capital contribution tothe capital redemption reserve fund inorder to identify these reserves asnon-distributable.

(g) Other equity instrumentsOther equity instruments representsAdditional tier 1 securities issued bythe Group to the Parent. See note 32for details.

Offsetting financial instruments

Financial assets and liabilities are offsetand the net amount reported in thebalance sheet when there is currently a

legally enforceable right of set off andthere is an intention to settle on a netbasis, or realise the asset and settle the

liability simultaneously.

Collateral

The Group enters into master nettingagreements with counterparties, to ensurethat if an event of default occurs, allamounts outstanding with thosecounterparties will be settled on a netbasis.

The Group obtains collateral in respect ofcustomer liabilities where this isconsidered appropriate. The collateralnormally takes the form of a lien over thecustomer’s assets and gives the Group aclaim on these assets for both existing

and future liabilities. The collateral is, ingeneral, not recorded on the Group’sbalance sheet.

The Group also receives collateral in theform of cash or securities in respect ofother credit instruments, such as stockborrowing contracts and derivativecontracts, in order to reduce credit risk.Collateral received in the form of cash isrecorded on the balance sheet, with acorresponding liability recognised indeposits from banks or deposits from

customers. Any interest payable arising isrecorded as interest expense.

In certain circumstances, the Grouppledges collateral in respect of liabilities orborrowings. Collateral pledged, in the formof securities or loans and advances,continues to be recorded on the balancesheet. Collateral placed in the form ofcash is recorded in loans and advances tobanks or customers. Any interestreceivable arising is recorded as interestincome.

Financial guarantees

Financial guarantees are initiallyrecognised in the financial statements atfair value on the date that the guarantee isgiven. Subsequent to initial recognition,the Group’s liabilities under suchguarantees are measured at the higher ofthe initial measurement, less amortisation

calculated to recognise in the incomestatement the fee income earned over theyear, and the best estimate of theexpenditure required to settle any financialobligation arising as a result of theguarantees at the balance sheet date.

Any increase in the liability relating toguarantees is taken to the incomestatement and recognised on the balancesheet in provisions for undrawncontractually committed facilities andguarantees.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Operating segments

The Group’s reportable operatingsegments have been identified on thebasis that the chief operating decision-

maker uses information based on thesesegments to make decisions aboutassessing performance and allocating

resources. The analysis of results byoperating segment is based onmanagement accounts information.

Impact of new accounting standards not yet adopted

The following standards, interpretationsand amendments to standards will berelevant to the Group but were not

effective at 31 December 2017 and havenot been applied in preparing thesefinancial statements. The Group’s initial

view of the impact of these accountingchanges is outlined below.

PronouncementIFRS 9, ‘Financial instruments’

Nature of changeIFRS 9 ‘Financial instruments’ has been endorsed by the EU as a replacement for IAS 39. It sets out requirements relating to recognition andderecognition, classification, measurement and hedge accounting. IFRS 9 retains but simplifies the mixed measurement model. Financial assets within itsscope are required to be classified as being measured, subsequent to initial recognition, at amortised cost, fair value through other comprehensive incomeor fair value through profit or loss. The classification is dependent on both the overall objective of the business model within which the asset is held and thecontractual cash flow characteristics of the asset. Impairment under IFRS 9 is forward-looking and is based on expected rather than incurred losses. Forfinancial liabilities, there is no change to classification and measurement except for recognition of changes in own credit risk in other comprehensiveincome for certain liabilities designated at fair value through profit or loss. The Group is making the accounting policy choice allowed under IFRS 9 tocontinue to apply the hedge accounting requirements of IAS 39.

Effective dateFinancial periods beginning on or after 1 January 2018.

ImpactThe estimated quantitative impact on initial adoption of IFRS 9 is a reduction in stockholders’ equity of approximately £40 million after tax,substantially all of which relates to an increase in the impairment loss allowance on loans and advances to customers.

PronouncementIFRS 15, ‘Revenue from Contracts withCustomers’

Nature of changeIFRS 15 specifies how and when revenue will be recognised as wellas requiring entities to provide users of financial statements withmore informative, relevant disclosures. The standard provides asingle, principles based five-step model to be applied to all contractswith customers. The revised standard was endorsed by the EU on22 September 2016.

Effective dateFinancial periods beginning on or after 1 January 2018.

ImpactThe Group has assessed the nature and extent of the impact ofthe standard which is not expected to be significant to thefinancial statements of the Group.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

PronouncementIFRS 16 ‘Leases’

Nature of changeIFRS 16, ‘Leases’ addresses the definition of a lease, recognitionand measurement of leases and establishes principles for reportinguseful information to users of financial statements about the leasingactivities of both lessees and lessors. A key change arising fromIFRS 16 is that most operating leases will be accounted for onbalance sheet for lessees. The accounting for lessors will notmaterially change. The standard replaces IAS 17 ‘Leases’ andrelated interpretations. The revised standard was endorsed by theEU on 31 October 2017.

Effective dateFinancial periods beginning on or after 1 January 2019 and earlierapplication is permitted if IFRS 15 ‘Revenue from contracts withcustomers’ is applied at the same time.

ImpactThe Group is currently assessing the nature and extent of theimpact of the standard. The Group does not expect to early adoptthe standard.



Critical accounting estimates and judgements

In preparing the financial statements, theGroup makes estimates and judgementsthat affect the reported amounts of assets,liabilities, revenues, and expenses.Estimates and judgements are continuallyevaluated and are based on historicalexperience and other factors, includingexpectations of future events that arebelieved to be reasonable under thecircumstances. As managementjudgement involves an estimate of thelikelihood of future events, actual resultscould differ from those estimates, and thiscould affect the future reported amountsof assets and liabilities. The estimates andjudgements that have had the mostsignificant effect on the amountsrecognised in the Group’s financialstatements are set out below.

(a) Impairment charges on financialassetsThe Group reviews its loan portfoliosfor impairment on an ongoing basis.The Group first assesses whetherobjective evidence of impairmentexists. This assessment is performedindividually for financial assets that areindividually significant, and individuallyor collectively for financial assets thatare not individually significant.Impairment provisions are alsorecognised for losses not specificallyidentified but which, experience andobservable data indicate, are presentin the portfolio at the date ofassessment.

Management uses estimates, basedon historical loss experience forassets with credit risk characteristics,and objective evidence of impairment,similar to those in the portfolio, whenscheduling its future cash flows. Themethodology and assumptions usedfor estimating both the amount andtiming of future cash flows arereviewed regularly to reduce anydifferences between loss estimatesand actual loss experience. The use ofhistorical loss experience issupplemented with significantmanagement judgement to assesswhether current economic and creditconditions are such that the actuallevel of inherent losses is likely todiffer from that suggested by historicalexperience. In normal circumstances,historical experience providesobjective and relevant informationfrom which to assess inherent loss ineach portfolio. In other circumstances,historical loss experience provides

less relevant information about theincurred loss in a given portfolio at thebalance sheet date; for example,where there have been changes ineconomic conditions, such that themost recent trends in risk factors arenot fully reflected in the historicalinformation. In these circumstances,such risk factors are taken intoaccount when calculating theappropriate levels of impairmentallowances, by adjusting theimpairment loss derived solely fromhistorical loss experience.The detailedmethodologies, areas of estimation,and judgement, applied in thecalculation of the Group’s impairmentcharge on financial assets, are set outin the Risk Management section onpages 51 to 53. See note 17 for ananalysis of impairment provisions.

The estimation of impairment losses issubject to uncertainty and is sensitiveto factors such as the level ofeconomic activity, unemploymentrates, bankruptcy trends, propertyprice trends, and interest rates. Theassumptions underlying thisjudgement are subjective. Themethodology and the assumptionsused in calculating impairment lossesare reviewed regularly, in light ofdifferences between loss estimatesand actual loss experience.

(b) TaxationThe taxation charge accounts foramounts due to UK authorities, andincludes estimates based on ajudgement of the application of lawand practice, in certain cases, todetermine the quantification of anyliabilities arising. In arriving at suchestimates, management assesses therelative merits and risks of taxtreatments assumed, taking intoaccount statutory, judicial, andregulatory guidance and, whereappropriate, external advice.

At 31 December 2017, the Group hada net deferred tax asset of £71 million(31 December 2016: £69 million), ofwhich £74 million (31 December 2016:£76 million) related to trading losses.See note 23.

The amount recognised represents theGroup’s best estimate of the taxationbenefit of these trading losses. Thereis a possibility that the ultimateoutcome could be different from the

amounts that are currently recordedand any such differences wouldimpact the deferred tax assets in theperiod in which such outcome isdetermined.

A deferred tax asset is recognised tothe extent that it is probable thatfuture taxable profits will be available,against which deductible temporarydifferences and unutilised tax lossescan be utilised. The recognition of adeferred tax asset relies onmanagement’s judgementssurrounding the probability andsufficiency of future taxable profits,and the future reversals of existingtaxable temporary differences.

To the extent that the recognition of adeferred tax asset is dependent onsufficient future profitability, a degreeof estimation and the use ofassumptions are required. TheGroup’s judgement takes intoconsideration the impact of bothpositive and negative evidence,including historical financialperformance, projections of futuretaxable income, the impact of taxlegislation, and future reversals ofexisting taxable temporary differences.

UK legislation includes a restriction of25% on the amount of a bank’s annualtaxable profit that can be offset bypre-April 2015 carried forward losses.This restriction significantly lengthensthe period over which the Group coulduse its UK trading losses and hasbeen considered in the context of themeasurement and recognition of thedeferred tax asset at 31 December2017.

The most significant judgement relatesto the Group’s assessment of therecoverability of the portion of thedeferred tax asset relating to tradinglosses. Under current UK taxlegislation there is no time restrictionon the utilisation of these losses. It iscurrently projected that the deferredtax asset, in respect of tax losses willbe recovered in full by the end of2029.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Critical accounting estimates and judgements (continued)

(c) Unwind of fair value adjustments onacquired mortgagesBetween 2012 and 2014 the Groupacquired a number of tranches ofmortgages from the Parent at fairvalue. These assets were initiallyrecognised on the balance sheet atfair value plus transaction costs. Thedifferential between the initial carryingvalue of the assets and the principalbalances is considered to be a ‘fairvalue adjustment’. The portion of thisfair value adjustment which relates tointerest rate differentials is amortisedto the income statement, as part ofthe effective interest rate of the assets,over their remaining lives. The fairvalue adjustment also includes anelement relating to the present valueof expected losses, and the discounton this element also unwinds throughthe income statement over theirremaining lives. At 31 December 2017,the impact of the fair value adjustmentwas to reduce the carrying amount ofloans and advances to customers by£251 million. (2016: £279 million). In2017, there was a benefit of £28million (2016: £50 million) to theincome statement from the unwind of,and revisions to, the fair valueadjustment.

There are two key judgements relatingto the fair value adjustment. The first,and most significant, relates to thetiming of the unwind of the fair valueadjustment. This requires significantmanagement judgement in relation tocustomer repayment assumptionswhich determines the expected livesof the relevant loans, and thereforeimpacts on the amount of interestincome recognised in each financialyear. In arriving at the expected livesand hence the amount of the unwind,a sensitivity analysis is carried outwhich considers the impact of variousscenarios, as follows:• lengthening the expected life on

all mortgage portfolios by sixmonths would give rise to anadditional charge to the incomestatement of £21 million in 2017;

• shortening the expected life on allmortgage portfolios by six monthswould give rise to an additionalcredit to the income statement of£21 million in 2017; and

• retaining the attrition level on theBuy to Let portfolio at forecast

2017 levels for future years wouldgive rise to an additional charge of£29 million to the incomestatement in 2017.

The second area of judgement relatesto management's assessment of thelevel of future expected losses in theportfolio, with changes in expectedlosses being adjusted through netinterest income over the expected lifeunder the effective interest ratemethod.

(d) Impairment review of intangibleassetsImpairment testing of intangible assetsis an area involving significantmanagement judgement, as it requiresan assessment as to whether thecarrying amount of the assets isappropriate when compared to itsrecoverable amount. The recoverableamount is estimated using projectionsbased on the Group’s most recent fiveyear plans and applying a growth ratefor subsequent years. These cashflows are then discounted at anappropriate discount rate.

The most critical assumptionsunderlying the impairment review arethe cash flow projections in theGroup’s five year plan, as anyreduction in these would reduce therecoverable amount. A significantreduction in these projections couldlead to the relevant intangible assetbeing impaired.

At 31 December 2017 this exercise didnot give rise to any impairment ofintangible assets. As part of theimpairment review process varioussensitivity analyses are also carriedout, considering both macroeconomicfactors and Group specific variables,and the results of these supported theconclusion reached. Note 19 providesfurther information on the intangibleassets and the associatedassumptions.

(e) Effective interest rateIAS 39 requires interest to berecognised using the effective interestrate, being the rate that exactlydiscounts estimated future cash flowsover the expected life of the financialinstrument to the net carrying amountof the financial instrument.

Adjustments to the carrying value offinancial instruments may be requiredwhen actual cash flows vary from theinitial estimation of future cash flows,with the corresponding adjustmentbeing made to the income statement.

For secured mortgage lendingmanagement model future expectedcash flows for each tranche of lending.In determining the future cash flowsmanagement use judgement toestimate the average life of eachlending tranche. Managementestimate expected payments ofinterest and capital based onexpected interest rates andredemption profiles of customersbased on previous customerbehaviour, incorporating estimates ofthe proportion of borrowers expectedto incur early redemption charges.Management considers the estimatedlife to be the most significant estimate,the accuracy of which could beimpacted by customer behaviourbeing different to expectations. Theimpact of a one month decrease inexpected life would be to reduce thevalue of loans on the balance sheetand interest income by c. £7.5 millionin the year of change. During the yeara charge of £12 million wasrecognised through interest incomefollowing a reassessment of theexpected lives of loans and advancesto customers.

For unsecured lending managementmodel future expected cash flows foreach tranche of credit card lendingover the customer life which iscurrently estimated to be four yearsfrom origination. In determining thefuture cash flows management mustuse judgment to estimate customerbehaviour including the card balance,transaction activity, repayment profilesand post-promotional retention ratesbased on previous customerexperience and industry data.Management consider the mostsignificant assumption to be linked tothe level of future interest generatingcustomer balances. A 10% reductionto the level of assumed future interestgenerating balances would be toreduce the value of loans on thebalance sheet and interest income byc.£0.5 million in the year of change.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


Index Page

1. Operating segments 100

2. Interest income 101

3. Interest expense 101

4. Fee and commission income and expense 101

5. Net trading expense 102

6. Other operating income 102

7. Operating expenses 102

8. Auditors’ remuneration 103

9. Impairment charges on financial assets 103

10. Share of profit after tax of joint venture 103

11. Taxation charge 104

12. Cash and cash equivalents 104

13. Derivative financial instruments 105

14. Loans and advances to banks 107

15. Available for sale financial assets 107

16. Loans and advances to customers 108

17. Impairment provisions 108

18. Interest in joint venture and joint operations 109

19. Intangible assets 110

20. Acquisition of Marshall Leasing Limited 111

21. Property, plant and equipment 111

22. Other assets 112

23. Deferred tax 113

24. Deposits from banks 113

25. Customer accounts 114

26. Other liabilities 114

27. Provisions 114

28. Retirement benefit obligations 115

29. Subordinated liabilities 119

30. Contingent liabilities and commitments 119

31. Share capital 120

32. Other equity instruments 120

33. Liquidity risk 121

34. Measurement basis of financial assets and financial liabilities 122

35. Fair value of assets and liabilities 123

36. Related party transactions 126

37. Offsetting financial assets and liabilities 130

38. Interests in other entities 130

39. Post balance sheet events 131

40. Approval of financial statements 131

Notes to the Consolidated Financial Statements

Annual Report - year ended 31 December 2017

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation




1 Operating segments

The Group has four reportable operatingsegments which reflect the internalfinancial and management reportingstructure and are organised as follows:

Great Britain (GB) Consumer Banking The business offers a wide range of retailproducts under the Bank of Ireland UK,Post Office, AA, Northridge, MarshallLeasing Limited and legacy Bristol & Westbrands. The Post Office productproposition includes deposits, mortgages,personal loans, current accounts, creditcards and travel cards, and foreignexchange services through the Group'sjoint venture operation under FRESH. TheGroup’s investment in FRESH at 31December 2017 was £61 million (2016:£61 million). The AA financial servicesproposition includes credit cards, loans,savings and mortgages.

Northern Ireland (NI)The business includes the results of theNorthern Ireland Bank of Ireland UKbranch network and business centres,personal lending, together with the creditcard and mortgage portfolio and the noteissuing activity in Northern Ireland.

Great Britain (GB) Business BankingThe business includes commercial lendingand retail deposits. As a result of theParent’s EU restructuring requirementsand following agreement with the EUCommission during 2013, the strategy forthe business remains a manageddeleverage of the loan book over themedium term.

Group Centre This comprises the associated costs ofmanagement of the Group’s funding,liquidity and capital position, together withthe related costs of central risk andcontrol functions along with employeecosts and regulation costs including theFSCS levy.

Basis of preparation of segmentalinformationThe analysis of results by operatingsegment is based on the information usedby management to allocate resources andassess performance. Transactionsbetween the business segments are onnormal commercial terms and conditions.Internal charges and transfer pricingarrangements have been reflected in the

performance of each business. The chiefoperating decision maker relies primarilyon income reported on a net basis. As aresult of this, segmental interest income isreported in the financial statements net ofinterest expense. The Group’smanagement reporting and controllingsystems use accounting policies that arethe same as those referenced in 'GroupAccounting Policies' on pages 84 to 98.The Group measures the performance ofits operating segments through a measureof segmental profit or loss which isreferred to as ‘Underlying profit’ in itsinternal management reporting systems.

Geographical areasThe Group has no material operationsoutside the UK and therefore nosecondary geographical area informationis presented.

RevenueThere were no revenues deriving fromtransactions with a single externalcustomer that amounted to 10% or moreof the Group's revenues.

GB GB Consumer Business Group Banking NI Banking Centre Total2017 £m £m £m £m £m Net interest income 318 123 16 14 471Other income / (expense) (26) 24 3 (1) -Total operating income 292 147 19 13 471Amortisation of intangible assets (5) - - - (5)Other operating expenses (170) (84) (8) (61) (323)Operating profit / (loss) before impairment charges on financial assets 117 63 11 (48) 143Impairment (charges) / credit on financial assets (17) (10) 1 - (26)Share of profit after tax of joint venture 34 - - - 34Underlying profit / (loss) before taxation 134 53 12 (48) 151Profit on disposal of business activities - - - - -Profit / (loss) before tax 134 53 12 (48) 151

GB GB Consumer Business Group Banking NI Banking Centre Total2016 £m £m £m £m £m Net interest income 338 126 18 15 497Other income / (expense) (27) 27 3 (6) (3)Total operating income 311 153 21 9 494Amortisation of intangible assets (6) - - - (6)Other operating expenses (168) (83) (10) (46) (307)Operating profit / (loss) before impairment charges on financial assets 137 70 11 (37) 181Impairment (charges) / credit on financial assets (7) (20) 4 - (23)Share of profit after tax of joint venture 35 - - - 35Underlying profit / (loss) before taxation 165 50 15 (37) 193Profit on disposal of business activities - - - - -Profit / (loss) before tax 165 50 15 (37) 193

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




2 Interest income

Included in interest income for the yearended 31 December 2017 is £24 million inrespect of income earned by the Group onloans and advances to banks, relating toamounts placed with the Parent (yearended 31 December 2016: £38 million)offset by interest on hedging derivatives of£21 million which are also held with theParent (year ended 31 December 2016:£15 million).

Group share of joint operation interestincome for the year ended 31 December2017 is £16 million (year ended 31December 2016: £6 million). Refer to note18.

Also included in interest income for yearended 31 December 2017 is £9 million inrespect of interest arising on financialassets, on which an impairment provision

has been recognised (year ended 31December 2016: £13 million). Interestincome also includes £28 million relatingto the unwind of, and revisions to, fairvalue adjustments associated withmortgages acquired from the Parent inprior years (year ended 31 December2016: £50 million).

For the year ended 31 December 2017interest recognised on total forborne loansand advances to customers was £10million (year ended 31 December 2016:£18 million).

Finance lease and hire purchasesreceivables interest income arises from theNorthridge business.

2017 2016Interest income £m £m Loans and advances to customers 569 656Finance leases and hire purchase receivables 58 55Loans and advances to banks 24 38Interest on hedging derivatives (21) (15)Available for sale financial assets 15 16Cash and balances with central banks 6 12Interest income 651 762

3 Interest expense

Included in interest expense for the yearended 31 December 2017 is £36 million inrespect of interest paid to the Parent ondeposits and subordinated liabilities (yearended 31 December 2016: £49 million).

Group share of joint operation interestexpense for the year ended 31 December2017 is £7 million (year ended 31December 2016: £4 million). Refer to note18.

2017 2016Interest expense £m £m Customer accounts 137 216Deposits from banks 19 25Subordinated liabilities 24 24Interest expense 180 265

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

4 Fee and commission income and expense

2017 2016Fee and commission income £m £m ATM service fees 62 69Banking fees and other commissions 30 27Foreign exchange and credit card 20 20Other 2 2Fee and commission income 114 118

Amounts include: Group share of joint operation (note 18) 2 1

2017 2016Fee and commission expense £m £m Fee and commission expense - external 107 114Fees paid to the Parent 8 7Fee and commission expense 115 121



Financial assets designated at fair valuethrough profit or loss relate to certainloans with the Parent designated at fair

value, whose return is based on moves invarious external indices. These dealsrepresent transactions, booked to hedge

the risk on certain customer accounts,which are accounted for as financialliabilities designated at fair value throughprofit or loss.

Net trading expense from the Parentprimarily comprises fair value movementson derivatives with the Parent which are infair value hedge relationships.


5 Net trading expense

2017 2016Net trading expense £m £m Financial assets designated at fair value through profit or loss - (2)Financial liabilities designated at fair value through profit or loss - 2Other financial instruments held for trading 1 6Net trading expense 1 6

Amounts include: Net trading (income) / expense from the Parent (9) 18

6 Other operating income

2017 2016 £m £m Other operating income 2 6

(a) Staff costs Staff costs of £54 million (year ended31 December 2016: £39 million)include all gross salaries, relatedsocial security costs, and pensioncontributions attributable to thoseemployees directly employed by theGroup. Gross salaries also includethose costs associated with staffseconded to the Group from theParent under a secondmentagreement. The monthly average

number of staff (direct and secondedfull time equivalents) was 715 (yearended 31 December 2016: 505), ofwhich 594 related to the Bank (yearended 31 December 2016: 381). Referto note 36 for details of compensationpaid to key management personnel(KMP).

(b) Other administrative expensesincludes a net charge of £nil (yearended 31 December 2016: £4 million)

in respect of the FSCS levy (see note27).

(c) Other administrative expenses –related partiesOther administrative expenses are thecosts incurred by the Group in relationto services provided by the Parentunder a number of service levelagreements. These comprise ofservices across a number of differentactivities and areas including, but notrestricted to, product design,manufacture, distribution andmanagement, customer service, andIT. Included in this managementcharge is the cost of a number ofemployees who carry out services forthe Group on behalf of the Parent.These employees’ employmentcontracts are with the Parent and theirremuneration is included in theParent’s financial statements. Due tothe nature of the services provided it isneither possible to ascertainseparately the element of themanagement charge that reflects theemployee staff charge, nor discloseseparately employee numbers relevantto the Group’s activities.

7 Operating expenses

2017 2016Operating expenses £m £m Administrative expenses Staff costs1 (a) - Wages and salaries 39 29- Social security costs 5 4- Other pension costs2 10 6Total staff costs 54 39

- Other administrative expenses (b) 49 42- Other administrative expenses – related parties (c) 220 226Amortisation on intangible assets (note 19) 5 6Total operating expenses 328 313


1 Staff costs include amounts of £35 million (2016: £25 million) for wages and salaries, £5 million (2016: £4 million) for social security costs and £9 million (£5 million) for otherpension costs recorded in the Bank financial statements.

2 Other pension costs include £0.4 million (31 December 2016: £0.4 million) in relation to the NIIB scheme which is accounted for as a defined benefit scheme (see note 28) withthe balance relating to other schemes which are accounted for on a defined contribution basis.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



The Group’s Audit Committee hasreviewed the level of fees and is satisfiedthat it has not affected the independenceof the auditors. Audit related assuranceservices consist of fees in connection withaccounting matters and regulatorycompliance based work. It is the Group’spolicy to subject all major assignments toa competitive tender process.

8 Auditors’ remuneration

2017 2016 £000’s £000’s Fees payable for the audit of the Bank and Group financial statements 497 424Audit of the Bank’s subsidiaries pursuant to legislation 115 107Audit related assurance services 9 9Other assurance services 60 69Auditors’ remuneration 681 609

Notes to the Consolidated Financial Statements Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

This represents the Group’s 50% share ofprofit after tax of its joint venture in FRESHwith Post Office Limited. It is accountedfor using the equity method of accounting.See note 18 for further information.

9 Impairment charges on financial assets

2017 2016 £m £m Loans and advances to customers (note 17) 26 23Impairment charges on financial assets 26 23

10 Share of profit after tax of joint venture

2017 2016 £m £m First Rate Exchange Services Holdings Limited 34 35Share of profit after tax of joint venture 34 35



The effective tax rate for the year is acharge of 14% (year ended 31 December2016: charge of 15%). This rate is lowerthan the standard rate of 19.25% largelydue to the impact of the treatment of theacquired mortgage portfolio and theimpact of the results of the joint ventureFRESH partly offset by the impact of theUK banking surcharge.

The reconciliation of tax on the profitbefore taxation, at the standard UKcorporation tax rate, to the Group’s actualtax charge for the years ended 31December 2017 and 31 December 2016.

11 Taxation charge

2017 2016 £m £m Current tax Current year charge 19 19Total current taxation charge 19 19

Deferred tax Current year charge 3 5Impact of corporation tax rate change - 5Adjustment in respect of prior year (1) -Total deferred taxation charge 2 10

Taxation charge 21 29

2017 2016 £m £m Profit before taxation 151 193Multiplied by the standard rate of Corporation tax in UK of 19.25% (2016: 20%) 29 39Effects of:Non-allowable expenses 1 1Share of results of joint venture after tax in the income statement (7) (7)Impact of UK banking surcharge 4 3Impact of corporation tax rate charge - 5Non-taxable income on the unwind of fair value adjustments on acquired mortgages (see page 98) (5) (11)Other (1) (1)Taxation charge 21 29

12 Cash and cash equivalents

2017 2016Cash and cash equivalents £m £m Cash 30 31Balances at central banks 1,806 1,141Total cash balances included in cash and cash equivalents 1,836 1,172

Loans and advances to banks 2,764 3,369Less: amounts with a maturity of three months or more (960) (1,542)Total loans and advances to banks included in cash and cash equivalents 1,804 1,827

Total cash and cash equivalents 3,640 2,999

Due from the Parent 434 495


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



The Group’s utilisation of objectives andpolicies in relation to managing the risksthat arise in connection with derivatives,are included in the Risk Managementsection, on pages 59 to 60. The notionalamounts of certain types of financialinstruments do not necessarily indicatethe amounts of future cash flows involvedor the current fair value of the instrumentsand, therefore, do not indicate the Group’sexposure to credit risk. The derivativeinstruments become assets or liabilities asa result of fluctuations in market rates orprices relative to their terms.

During the year, the Group continued theprocess of moving from a gross flow cashhedging model to a derivatives hedgingmodel, principally for interest rate riskmanagement. As a result, £0.6 billion ofbalances owed to the Parent and £0.6billion of balances owed from the Parentwere repaid during 2017. In their place,the Group entered into new derivativetransactions with the Parent. The Grouphas applied hedge accounting to themajority of these derivatives, which areclassified as held for hedging in the tablebelow.

The Group also holds certain derivativesto which hedge accounting is not appliedand these are considered to be held fortrading in the table below. These primarilyinclude foreign exchange forwardcontracts with customers, with acorresponding foreign exchange contractto hedge foreign exchange risk with theParent.

As set out in the risk management policyon page 38, the Group uses nettingarrangements and collateral agreementsto reduce its exposure to credit losses. Ofthe derivative assets of £27 million at 31December 2017 (31 December 2016: £55million):• £20 million (31 December 2016: £50

million) are available for offset againstderivative liabilities under CSA andISDA standard documentation. Thesetransactions do not meet the criteriaunder IAS 32 to enable the assets tobe presented net of the liabilities. At 31 December 2017 cash collateralof £40 million (31 December 2016: £37million) was placed against theseliabilities and is reported in Loans andadvances to banks (note 14); and

• £7 million (31 December 2016: £5million) are not covered under CSAand ISDA standard documentation.

Hedge accountingIn applying hedge accounting, the Groupdesignates certain derivatives as hedginginstruments in either fair value or cashflow hedge relationships.

Fair value hedges Certain interest rate derivatives aredesignated as hedging instruments. Theseare primarily used to reduce the interestrate exposure on the Group's fixed ratefinancial assets and liabilities.

Cash flow hedges The Group designates certain interest ratederivatives in cash flow hedgerelationships in order to hedge theexposure to variability in future cash flowsarising from floating rate assets.

13 Derivative financial instruments

2017 2016

Contract Fair values Contract Fair values notional notional amounts Assets Liabilities amounts Assets Liabilities £m £m £m £m £m £m Derivatives held for tradingForeign exchange derivatives Currency forwards 156 3 1 176 3 8Currency forwards – with the Parent 156 1 3 176 8 3Currency swaps 207 4 1 166 2 5Currency swaps - with the Parent 207 1 4 167 5 2Total foreign exchange derivatives held for trading 726 9 9 685 18 18

Interest rate derivatives Interest rate swaps - with the Parent 2,064 3 2 1,677 5 2Cross currency interest rate swaps - with the Parent 104 - - 117 - -Total interest rate derivatives held for trading 2,168 3 2 1,794 5 2Total derivatives held for trading 2,894 12 11 2,479 23 20

Derivatives held as fair value hedges Interest rate swaps - with the Parent 4,061 9 41 5,023 6 75

Derivatives held as cash flow hedges Interest rate swaps - with the Parent 3,590 6 13 2,950 26 7Total derivative assets / liabilities held for hedging 7,651 15 54 7,973 32 82Total derivative assets / liabilities 10,545 27 65 10,452 55 102


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



13 Derivative financial instruments (continued)

The years in which the hedged cash flows are expected to occur are shown in the tables below:

Up to 1-2 2-5 Over 1 year years years 5 years Total2017 £m £m £m £m £m Forecast receivable cash flows 5 8 34 16 63Forecast payable cash flows (11) (14) (4) - (29)


The hedged cash flows are expected to impact on the income statement in the following years:



During the years ended 31 December 2017 and 31 December 2016, there were no forecast transactions to which the Group hadapplied hedge accounting which were no longer expected to occur.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Represented in placements with otherbanks is:• an amount of £1,394 million (31

December 2016: £2,038 million)arising from transactions with theParent, which primarily relates to themanagement of the Group's interestrate risk position. Amounts due to theParent of £1,989 million (31 December2016: £1,912 million) are alsodisclosed in note 24. From acounterparty credit risk perspective,while these two amounts are

disclosed on a gross basis, the Grouphas in place a contractual MasterNetting Agreement with the Parent,whereby, in the event of default ofeither party, all amounts due orpayable will be settled immediately ona net basis; and

• £1 million included in amounts duefrom the Parent, whose return isdependent on movements in variousexternal indices (31 December 2016:£63 million). These loans aredesignated at fair value through profit

or loss. Refer to note 35 for details onfair value.

During the year ended 31 December 2017£0.6 billion of balances were repaid by theParent. For further details see note 36.

Represented in mandatory deposits withcentral banks is:• an amount of £1,189 million relating to

collateral with the Bank of England inrespect of notes in circulation (31December 2016: £1,142 million). £683million of this relates to non-interestbearing collateral (31 December 2016:£644 million); and

• an amount of £34 million in relation tomandatory cash ratio deposits, whichare non-interest bearing depositsplaced with the Bank of England under the provisions of the Bank ofEngland Act 1998 (31 December 2016:£36 million).

14 Loans and advances to banks

2017 2016 £m £m Placements with other banks 1,541 2,191Mandatory deposits with central banks 1,223 1,178Loans and advances to banks 2,764 3,369

Amounts include: Due from the Parent 1,394 2,038

At 31 December 2017 and at 31December 2016, no available for salefinancial assets were pledged in sale andrepurchase agreements.

15 Available for sale financial assets

2017 2016 £m £m Government bonds 428 585Debt securities listed 580 555Available for sale financial assets 1,008 1,140

2017 2016Movements on available for sale financial assets £m £m At 1 January 1,140 956Revaluation adjustments (12) 20Additions 82 301Redemptions / disposals (198) (133)Amortisation (4) (4)At 31 December 1,008 1,140


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



The Group's material finance leasingarrangements include the provision ofinstalment credit and leasing finance forboth consumer and business customers.

At 31 December 2017 the accumulatedallowance for uncollectable minimum leasepayments receivable was £nil (31December 2016: £nil).

Refer to note 24 for further details.

SecuritisationsAt 31 December 2017 loans and advancesto customers include £2,886 million (31December 2016: £3,397 million) ofresidential mortgage balances that havebeen securitised but not derecognised.Refer to note 38. The assets, or interests in

the assets, were transferred to a structuredentity, namely Bowbell No.1 plc whichissued securities to the Group. These arecapable of being pledged to monetaryauthorities, or used as security to secureexternal funding.

16 Loans and advances to customers

2017 2016 £m £m Loans and advances to customers 18,741 18,860Finance leases and hire purchase receivables (see below) 1,411 1,227Gross loans and advances to customers 20,152 20,087Less: allowance for impairment charges on loans and

advances to customers (note 17) (155) (266)Loans and advances to customers 19,997 19,821

Amounts include: Group share of joint operation (note 18) 360 184Due from entities controlled by the Parent 6 6

2017 2016 £m £m Gross investment in finance leases:Not later than 1 year 491 449Later than 1 year and not later than 5 years 1,027 876Later than 5 years 5 4 1,523 1,329Unearned future finance income on finance leases (112) (102)Net investment in finance leases 1,411 1,227

Not later than 1 year 455 415Later than 1 year and not later than 5 years 951 808Later than 5 years 5 4 1,411 1,227

17 Impairment provisions

Non- property Commercial Total Residential SME and property and impairment mortgages corporate construction Consumer provisions2017 £m £m £m £m £m Provision at 1 January 2017 28 58 152 28 266Exchange adjustments - 1 1 - 2Provisions utilised (2) (31) (106) (16) (155)Recoveries (1) 2 5 5 11Other movements - 1 3 1 5Charge to the income statement 2 1 8 15 26Provision at 31 December 2017 27 32 63 33 155


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Finance leases and hire purchase receivablesLoans and advances to customers include finance leases and hire purchase receivables, which are analysed as follows.



17 Impairment provisions (continued)

Non- property Commercial Total Residential SME and property and impairment mortgages corporate construction Consumer provisions2016 £m £m £m £m £m Provision at 1 January 2016 30 92 295 37 454Transfer between provisions - - - - -Exchange adjustments - 3 8 - 11Provisions utilised (3) (40) (176) (19) (238)Recoveries - 1 3 6 10Other movements (1) 2 5 - 6Charge to the income statement 2 - 17 4 23Provision at 31 December 2016 28 58 152 28 266

18 Interest in joint venture and joint operations

Country of Joint arrangement Holding Classification operation Nature of activities First Rate Exchange Services Holdings Limited 50% Joint venture UK Sale of foreign exchange products through the UK Post Office network

AA Financial Services n/a Joint operation UK Sale of AA branded credit cards, unsecured personal loans, savings and mortgages

Joint ventureThe Group owns 50% of the shares inFRESH, a company incorporated in theUnited Kingdom which provides foreignexchange services.

The following table shows the movementin the Group’s interest in FRESH duringthe year ended 31 December 2017 and 31December 2016.

The investment in FRESH is unquoted andis measured using the equity method ofaccounting. There are no significantrestrictions on the ability of this entity totransfer funds to the Group in the form ofcash dividends, or to repay loans oradvances made by the Group, nor is thereany unrecognised share of losses eitherfor the year ended 31 December 2017 or

cumulatively in respect of this entity. TheGroup does not have any furthercommitments or contingent liabilities inrespect of this entity other than itsinvestment to date.

There are no significant risks associatedwith the joint venture that have beenidentified which require disclosure.

A joint arrangement is an arrangement ofwhich two or more parties have jointcontrol i.e. contractually agreed sharing ofcontrol of an arrangement where decisionsabout the relevant activities require theunanimous consent of the parties sharingcontrol. These arrangements are identified

by reference to the power sharingagreements, ensuring that unanimousconsent of all parties is a requirement.Where the arrangement has beenstructured through a separate vehicle, theGroup has accounted for it as a jointventure.

Where no separate vehicle exists, thearrangements are accounted for as a jointoperation.

2017 2016 £m £m At 1 January 61 60Share of profit after taxation (note 10) 34 35Dividends received (34) (35)Other - 1At 31 December 61 61


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



18 Interest in joint venture and joint operations (continued)

Joint operation – AA Financial ServicesIn July 2015, the Group entered into astrategic partnership with AA FinancialServices for the sale of AA branded creditcards, unsecured personal loans, savings

and mortgages.

The above joint arrangement has beenaccounted for as a joint operation, on thebasis that it is not a separate legal entity.

The Group combines its share of the jointoperation in individual income and expenses, assets and liabilities and cash flows on a line-by-line basis.

The following amounts represent the Group’s 50% share of the revenue, expenses, assets and liabilities of FRESH for the year ended31 December 2017 and the year ended 31 December 2016.

2017 2016 £m £m Revenue 70 68Expenses (28) (23)Profit before taxation 42 45Taxation charge (8) (10)Profit after taxation 34 35

Non-current assets 9 6Current assets 214 186Total assets 223 192

Current liabilities (162) (131)Total liabilities (162) (131)

Net assets 61 61

2017 2016

Other Other Computer externally Computer externally software purchased software purchased internally intangible internally intangible Goodwill generated assets Total Goodwill generated assets Total £m £m £m £m £m £m £m £m Cost At 1 January - 35 76 111 - 34 76 110Acquisitions (note 20) 35 - 5 40 - - - -Additions - - 1 1 - 1 - 1At 31 December 35 35 82 152 - 35 76 111

Accumulated amortisation At 1 January - (34) (52) (86) - (34) (46) (80)Charge to the income statement (note 7) - - (5) (5) - - (6) (6)At 31 December - (34) (57) (91) - (34) (52) (86) Net book value at 31 December 35 1 25 61 - 1 24 25

19 Intangible assets

Goodwill of £35 million and intangibleassets of £5 million arose on theacquisition of Marshall Leasing Limited on24 November 2017, as set out in note 20.Goodwill is not amortised as it is deemedto have an indefinite useful life. TheGroup’s investment in Marshall LeasingLimited has been reviewed for impairmentfor the purpose of December 2017reporting and no impairment wasidentified as a result of this review.

Other Intangible assets have also beenreviewed for any indication thatimpairment may have occurred. Noimpairment was identified in the yearended 31 December 2017 or 31December 2016. Some of theassumptions in the calculation of therecoverable amount are subject touncertainty and are sensitive to changes;for example in the discount rateassumptions or new business volumesand income.

In testing for impairment of theseintangible assets, management notes thata possible break even scenario would be ifthe following assumptions were used:• If the current forecast income was

reduced by 15%; and• If the current forecast costs increased

by 12%.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



20 Acquisition of Marshall Leasing Limited

On 24 November 2017 the Group acquired100% of the ordinary share capital ofMarshall Leasing Limited (MLL), a car andcommercial vehicle leasing and fleetmanagement company based inCambridge, UK. This acquisition will helpNorthridge Finance to continue to developand diversify its business.

The acquisition was settled in cash of £42million to purchase 100% of the ordinary

share capital of Marshall Leasing Limited.

Due to the proximity of the acquistion tothe balance sheet date, the differencebetween the book value of acquired netassets and consideration payable hasbeen provisionally recognised as goodwilland intangible assets. During 2018, theGroup will determine the fair value ofidentifiable net assets acquired andliabilities and contingent liabilities

assumed, with any correspondingadjustment necessary being made to thevalue of goodwill and intangible assetsrecognised.

Acquisition-related costs amounting to £1million have been recognised as anexpense in the consolidated incomestatement, as part of operating expenses.

Goodwill recognised on the acquisitiondate relates to the expected growth, costsynergies and the value of MLL'sworkforce which cannot be separatelyrecognised as an intangible asset. Thisgoodwill has been allocated to theGroup's GB Consumer Banking segmentand is not expected to be deductible fortax purposes.

The acquisition of MLL has had nomaterial impact on the Group's totaloperating income and operating profitrespectively, from the acquisition date to31 December 2017. For the full yearended 31 December 2017, MLL had totalrevenue of £21 million (net of depreciationon rental vehicles of £19 million) andoperating profit of £4 million.

2017 Provisional £m Fair value of consideration transferred 42Recognised amounts of identifiable net assets: Property, plant and equipment 79Intangible assets 5Other assets 5Deferred tax assets 2Deposits from banks (71)Other liabilities (12)Current tax (1)Net identifiable assets and liabilities 7 Goodwill 35

21 Property, plant and equipment

The historical cost of property, plant and equipment held at fair value at 31 December 2017 was £22 million (31 December 2016: £7million). No depreciation is charged on freehold land and buildings and long leaseholds, as these are revalued annually.

2017 2016

Freehold Freehold land and land and builldings Vehicles builldings Vehicles and long leased and long leased Computer leaseholds under Computer leaseholds under and other (held at operating and other (held at operating equipment fair value) leases Total equipment fair value) leases Total £m £m £m £m £m £m £m £m Cost or valuationAt 1 January 1 7 - 8 1 7 - 8Acquisition of subsidiary undertakings (note 20) - - 79 79 - - - -Revaluation adjustments - 1 - 1 - - - -Additions - 15 4 19 - - - -Disposals / write offs - - (1) (1) - - - -At 31 December 1 23 82 106 1 7 - 8

Accumulated depreciation At 1 January - - - - - - - -Charge for the year - - 2 2 - - - -At 31 December - - 2 2 - - - -Net book value at 31 December 1 23 80 104 1 7 - 8


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



21 Property, plant and equipment (continued)

Future capital expenditureThe table below shows future capital expenditure in relation to both property, plant and equipment and intangible assets.

The Group has commitments on future rentals under non-cancellable operating leases as follows:

2017 2016Future capital expenditure £m £m Authorised by the Directors but not contracted - 15

Payable Payable 2017 2016Operating leases £m £m Not later than 1 year 4 1Later than 1 year and not later than 5 years 14 4Later than 5 years 20 16 38 21

The Group has the following amounts of minimum lease receivables under non-cancellable operating leases as follows:

Receivable Receivable 2017 2016Operating lease receivables £m £m Not later than 1 year 21 -Later than 1 year and not later than 5 years 25 -Later than 5 years 1 - 47 -

22 Other assets

2017 2016Other assets £m £m Sundry and other receivables 54 51Accounts receivable and prepayments 34 37Interest receivable 18 21Other assets 106 109 Amounts include:Due from the Parent 1 3

Maturity profile of other assetsAmounts receivable within 1 year 89 88Amounts receivable after 1 year 17 21


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



23 Deferred tax

In accordance with IAS 12, in presentingthe deferred tax balances above theGroup offsets deferred tax assets andliabilities where:• an entity has a legally enforceable

right to set off current tax assetsagainst current tax liabilities; and

• the deferred tax assets and thedeferred tax liabilities relate to incometaxes levied by the same taxationauthority on the same taxable entity.

The UK corporation tax rate reduced to19% for the years beginning on or after 1April 2017 and will reduce to 17% foryears beginning on or after 1 April 2020.

2017 2016 £m £m The movement on the deferred tax account is as follows:At 1 January 69 86Income statement charge for the year (note 11) (2) (10)Available for sale securities - charge to other comprehensive income - (1)Cash flow hedges - credit / (charge) to other comprehensive income 3 (7)Additional tier 1 - credit to equity 1 2Other movements - (1)At 31 December 71 69

Deferred tax assets and liabilities are attributable to the following items:

Deferred tax assetsUnutilised tax losses 74 76Fixed / leased assets 8 6Other - 1Total deferred tax assets 82 83

Deferred tax liabilitiesCash flow hedges (8) (11)Available for sale securities (1) (2)Deferred tax on property held at fair value (1) (1)Other (1) -Total deferred tax liabilities (11) (14)

Represented on the balance sheet as follows:Deferred tax assets 71 69Total deferred tax 71 69

24 Deposits from banks

Deposits from banks includes £1,200million (31 December 2016: £600 million)of borrowings under the Bank of EnglandTerm Funding Scheme, which iscollateralised with mortgage loans, and£350 million (31 December 2016: £155million) borrowed under the Bank of

England Indexed Long - Term Reposcheme, which is collateralised with notesissued by Bowbell (see note 38). Drawingsunder the Term Funding Scheme will berepaid within four years from the date ofdrawdown. The interest to be charged isbased on the quantum of net lending by

the Bank and by the Parent’s UK branchto UK resident households, private non-financial corporations and certainnon-bank credit providers from June 2016to December 2017.

Amounts due to the Parent of £1,989million (31 December 2016: £1,912 million)relates to borrowings in place to fund andmanage interest rate risk on the Group’sassets. Refer to note 14 for details ofamounts due from the Parent, and note 36in respect of changes in these balancesduring 2017.

2017 2016 £m £m Deposits from banks 3,561 2,691

Amounts include: Due to the Parent 1,989 1,912


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



25 Customer accounts

Term deposits include deposits of £1million (31 December 2016: £63 million),whose return is dependent on movementsin various external indices, and thesedeposits are designated at fair valuethrough profit or loss. Refer to note 35 fordetails on fair value.

2017 2016 £m £m Term deposits 6,492 8,774Demand deposits 9,622 8,145Non-interest bearing current accounts 2,492 2,188Interest bearing current accounts 355 368Customer accounts 18,961 19,475

Amounts include:Group share of joint operation (note 18) 297 212Due to entities controlled by the Parent 8 7

26 Other liabilities

The Bank is authorised to issue banknotesin Northern Ireland under the Bank ofIreland (UK) plc Act 2012.

2017 2016 £m £m Notes in circulation 1,084 1,036Accrued interest payable 52 78Sundry payables 82 73Accruals and deferred income 15 13Other liabilities 1,233 1,200

Amounts include:Due to the Parent 2 8Group share of joint operation (note 18) 7 5

Maturity profile of other liabilitiesAmounts payable within 1 year 1,233 1,199Amounts payable after 1 year - 1

27 Provisions

Financial services compensationschemeThe FSCS is the UK’s independentstatutory compensation fund forcustomers of authorised financial servicesfirms and pays compensation if a firm isunable to pay claims against it. The FSCSis funded by levies on the financialindustry. Following the default of a numberof financial institutions, the FSCSborrowed funds from HM Treasury to

cover compensation in relation toprotected deposits. The FSCS recoversthe interest cost and capital repayments,together with ongoing managementexpenses, by way of annual levies onmember firms. If the assets of the failedinstitutions are insufficient to repay theGovernment loan, additional levies maybecome payable in future periods. Theprovision at 31 December 2017 representsthe Group’s estimate of the interest

element of the levy due for the FSCS levyyear from 1 April 2017 to 31 March 2018.This is calculated based on the Group’sshare of industry protected deposits at 31December 2016.

The charge to the income statement for2017 of £2 million has been offset by awrite back of opening provision of £2million.

OtherAs at 31 December 2017 a provision of £6million has been made for certaincommissions payable to the Post Office.In addition, as at 31 December 2017 theGroup has a provision of £5 million tocover potential payments to customers inrelation to various compliance matters.The provision is based uponmanagement’s current expectations offuture payments to be made to customers.

FSCS Other Total31 December 2017 £m £m £m At 1 January 5 11 16Net charge to the income statement - 11 11Utilised during the year (3) (11) (14)At 31 December 2 11 13

Expected utilisation period Used within 1 year 2 9 11Used after 1 year - 2 2


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



28 Retirement benefit obligations

The Group’s employees’ membership of aparticular pension scheme is dependenton their specific employment contract.Where an employee is seconded directlyto the Group, the Group only incurs thecost of the future service contribution tothose particular schemes. The Group doesnot have any liability for payment inrespect of increases to pensioncontributions arising from any historic orfuture shortfall in the pension assetsrelative to the pension liabilities of the BoIGroup operated schemes. Consequently,the schemes have been accounted for asdefined contribution schemes in thesefinancial statements and where applicablewill be included in the disclosures fordefined benefit schemes in the financialstatements of BoI Group.

NIIB Group Limited (1975) PensionScheme (the ‘NIIB scheme’)The NIIB defined benefit scheme is basedon final pensionable salary and operatesfor eligible employees of NIIB GroupLimited and its subsidiaries. Contributionsby NIIB and the employees are invested ina trustee-administered fund. As thescheme’s underlying assets and liabilitiesare identifiable as those of the Group thescheme has been accounted for as adefined benefit scheme (as set out in theaccounting policy for pension obligations)and the disclosures set out in theremainder of this note relate to thisscheme.

In determining the level of contributionsrequired to be made to the scheme andthe relevant charge to the incomestatement the Group has been advised byindependent actuaries, Willis TowersWatson.

The scheme has been closed to newmembers since late 2006.

Regulatory frameworkThe NIIB scheme operates under the UK

pension regulatory framework. Benefitsare paid to members from a trustee-administered fund. The trustees areresponsible for ensuring that the plan issufficiently funded to meet current andfuture benefit payments. If the planexperience is worse than expected, theGroup’s obligations are increased.

Under UK pensions legislation, thetrustees must agree a funding plan withthe Group such that any funding shortfallis expected to be met by additionalcontributions and investmentoutperformance. In order to assess thelevel of contributions required, triennialvaluations are carried out with thescheme’s obligations measured usingprudent assumptions (relative to thoseused to measure accounting liabilities) anddiscounted based on the return expectedfrom assets held in accordance with theactual scheme investment policy.

The trustees’ other duties includemanaging the investment of the planassets, administration of the plan benefits,ensuring contributions are received,compliance with relevant legislation andexercising of discretionary powers. TheGroup works closely with the trustees,who manage the plan.

Actuarial valuation of the NIIB schemeA formal valuation of the NIIB scheme wascarried out as at 1 May 2016. The fundingmethod used measures liabilities takingaccount of the projected future levels ofpensionable earnings at the time ofcommencement of benefits i.e. at normalretirement date. Discussions in relation tothe valuation were completed in 2017 anda schedule of contributions and recoveryplan, setting out how the shortfall in thescheme will be met, was agreed betweenthe trustees and the Group and submittedto, and signed off by, the PensionsRegulator.

Under the schedule of contributions theGroup agreed to make contributions of£1.31 million by 1 August 2017 plus£1.095 million by 1 April 2018, to meet theshortfall in the scheme of £3.0 million as atthe date of the triennial valuation, inaddition to the cost of future benefitaccrual. The next formal valuation of theNIIB scheme is due to be carried out as at1 May 2019.

Plan detailsThe following table sets out details of themembership of the NIIB scheme as at 1May 2016.

By % of By schemePlan details at last valuation date number liability Scheme members Active 70 30Deferred 122 28Pensioners / dependants 68 42


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



28 Retirement benefit obligations (continued)

Financial and demographicassumptionsThe assumptions used in calculating thecosts and obligations of the NIIB scheme,as detailed below, were set afterconsultation with Willis Towers Watson.

The discount rate used to determine thepresent value of the obligations is set byreference to market yields on corporatebonds. The methodology was updated at

the end of 2017, primarily to remove anumber of bonds that did not obviouslymeet the criteria of ‘corporate bonds’ fromthe universe considered. The methodology used to determine theassumption for retail price inflation wasupdated at the end of 2017. It now usesan inflation curve derived by Willis TowersWatson using market data which reflectsthe characteristics of the Bank’s liabilitieswith an appropriate adjustment to reflect

distortions due to supply and demand.The assumption for consumer priceinflation is set by reference to retail priceinflation, with an adjustment applied, asno consumer price inflation linked bondsexist.

The salary assumption takes into accountinflation, seniority, promotion and currentemployment market relevant to the Group.

Mortality assumptionsThe mortality assumptions adopted are outlined in the table below.

Amounts recognised in financial statementsThe table below outlines where the Group’s defined benefit plans are recognised in the financial statements.

2017 2016Financial assumptions % p.a. % p.a. Consumer price inflation 2.20 2.40Retail price inflation 3.20 3.40Discount rate 2.75 2.55Rate of general increase in salaries 3.70 3.90Rate of increase in pensions in payment 3.00 3.00Rate of increase in deferred pensions 2.20 2.40

2017 2016Post retirement mortality assumptions Years Years Longevity at age 70 for current pensioners Men 18.5 18.5Women 19.9 20.0

Longevity at age 60 for active members currently aged 60 years Men 27.7 28.0Women 29.4 29.8

Longevity at age 60 for active members currently aged 40 years Men 29.3 29.8Women 30.9 31.7

2017 2016 £m £m Total charge in operating expenses (1) -

Total gain in remeasurements1 7 (4)

Total asset in the balance sheet 8 -

1 Shown before deferred tax.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Financial assumptionsThe financial assumptions used in measuring the Group’s defined benefit liability under IAS 19 are set out in the table below.




The movement in the net defined benefit obligation is as follows:

2017 2016

Surplus Surplus Present value Fair value of / (deficit) Present value Fair value of / (deficit) of obligation plan assets of plan of obligation plan assets of plan £m £m £m £m £m £m At 1 January (40) 40 - (30) 32 2Current service cost (1) - (1) - - -Interest (expense) / income (1) 1 - (1) 1 -Total amount in recognised income statement (2) 1 (1) (1) 1 -

Return on plan assets not included in income statement - 3 3 - 6 6

Change in demographic assumptions 1 - 1 1 - 1Change in financial assumptions 3 - 3 (10) - (10)Experience losses - - - (1) - (1)Total remeasurements in other comprehensive income 4 3 7 (10) 6 (4)

Benefit payments 1 (1) - 1 (1) -Employer contributions - 2 2 - 2 2Other (1) 1Other movements - 2 2 1 1 2

At 31 December (38) 46 8 (40) 40 -

2017 2016Asset breakdown £m £m Equities (quoted) 28 24Index linked government bonds (quoted) 18 16Total fair value of assets 46 40

Sensitivity of defined benefit obligationto key assumptionsThe table sets out how the defined benefitobligation would have been affected bychanges in the significant actuarial

assumptions that were reasonablypossible at 31 December 2017.

Some of the changes in assumptions mayhave an impact on the value of the

scheme’s investment holdings. Forexample, the plan holds a proportion of itsassets in index-linked bonds. A fall in therate of inflation would be expected to leadto a reduction in the value of these assets,thus partly offsetting the reduction in thedefined benefit obligation. The extent towhich these sensitivities are managed isdiscussed further below. The methods andtypes of assumptions used in preparingthe sensitivity analysis are unchangedcompared to the prior year.

Increase in Decrease inImpact on defined Change in assumptions assumptionsbenefit obligation assumptions £m £m Discount rate 0.25% (2.0) 2.2Inflation1 0.1% 0.5 (0.5)Salary growth 0.1% 0.2 (0.2)Life expectancy 1 year 1.1 (1.1)

1 Including other inflation-linked assumptions (consumer price inflation, pension increases, salary growth).


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


Future cash flowsThe plan’s liabilities represent a long-termobligation and most of the payments dueunder the plan will occur several decadesinto the future. The duration, or averageterm to payment for the benefits due,weighted by liability, is c.23 years.

Expected employer contributions for theyear ended 31 December 2018 are £1.7million. Expected employee contributionsfor the year ended 31 December 2018 are£53,000.



Benefit payments from plan assetsYears £m 2018 - 2027 (11)2028 - 2037 (18)2038 - 2047 (25)2048 - 2057 (27)2058 - 2067 (21)2068 - 2077 (12)2078 - 2087 (4)2088 - 2097 (1) (119)

Risk Description

Asset volatility The funding liabilities are calculated using a discount rate set with reference to government bond yields, withallowance for additional return to be generated from the investment portfolio. The defined benefit obligationin the Group’s financial statements is calculated using a discount rate set with reference to high qualitycorporate bond yields.

The plan holds a significant proportion of its assets in equities and other return-seeking assets. The returnson such assets tend to be volatile and are not correlated to government bonds. This means that the fundinglevel is likely to be volatile in the short-term, potentially resulting in short-term cash requirements and anincrease in the net defined benefit liability recorded on the balance sheet.

Changes in bondyields

Interest rate and inflation risks, along with equity risk, are the scheme’s largest risks. From an accountingliability perspective, the scheme is also exposed to movements in corporate bond spreads. The schemeuses an investment in index-linked bonds to manage its interest rate and inflation risk. This portfolio is usedto broadly hedge against movements in long-term interest rates and inflation expectations.

The portfolio does not completely eliminate risk and addresses only a portion of the scheme’s interest rateand inflation risks. Furthermore, it does not hedge against changes in the credit spread available oncorporate bonds used to derive the accounting liabilities.

The investment in index-linked bonds offers a degree of matching, i.e. the movement in assets arising fromchanges in bond yields partially matches the movement in the funding or accounting liabilities. In this way,the exposure to movements in bond yields is reduced.

Inflation risk A significant proportion of the scheme’s benefit obligations are linked to inflation and higher inflation will leadto higher liabilities, although in most cases caps on the level of inflationary increases are in place to protectthe plan against inflation.

Life expectancy The majority of the plan’s obligations are to provide a pension for the life of the member, which means thatincreases in life expectancy will result in an increase in the plan’s liabilities.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

Risks and risk managementThe NIIB scheme has a number of areas of risk. The key areas of risk, and the ways in which the Group has sought to manage them, areset out in the table below.

The risks are considered from both a funding perspective, which drives the cash commitments of the Group, and from an accountingperspective, i.e. the extent to which such risks affect the amounts recorded in the Group’s financial statements.



These liabilities constitute unsecuredobligations of the Group to its Parent,subordinated in right of payments to theclaim of depositors, and otherunsubordinated creditors of the Group.The subordinated liabilities meet thedefinition of a financial liability as theGroup does not have an unconditionalright to avoid the repayment of theprincipal or interest. Therefore, theliabilities are recognised on the balancesheet at amortised cost, using theeffective interest method.

All of the current notes are redeemable inwhole but not in part, subject to the priorapproval of the PRA, on the fifthanniversary of their drawdown date. In theevent of a wind up of the Group, the loanswill become immediately due and payablewithout demand, together with all interestaccrued thereon.

29 Subordinated liabilities

2017 2016 £m £m £90 million subordinated floating rate loans 20221 - 90£45 million subordinated floating rate loans 20222 - 45£200 million subordinated floating rate notes 20253 200 200£90 million subordinated floating rate notes 20274 90 -Subordinated liabilities 290 335

1 Initial call date 18 July 2017. This was rolled forward at its initial call date and was redeemed on 19 December 2017.2 Redeemed on initial call date on 19 December 2017.3 Inital call date 26 November 2020. If not repaid at this point, they are due in full on their final maturity date of 26 November 2025. They bear interest at a floating rate of 4.225%

per annum above the sterling LIBOR three month rate.4 Initial call date 19 December 2022. If not repaid at this point, they are due in full on their maturity date of 19 December 2027. They bear interest at a floating rate of 2.72% per

annum above the sterling LIBOR three month rate.

2017 2016Movement on subordinated liabilities £m £m At 1 January 335 335Issued during the year 90 -Repurchased (135) -At 31 December 290 335

The table sets out the contractualamounts of contingent liabilities andcommitments. The maximum exposure tocredit loss under contingent liabilities andcommitments is the contractual amount ofthe instrument in the event of non-performance by the other party where all

counter claims, collateral, or securityprove worthless.

Guarantees and letters of credit are givenas security to support the performance ofa customer to third parties. As the Groupwill be required to meet these obligations

only in the event of the customer’s default,the cash requirements of theseinstruments are expected to beconsiderably below their nominalamounts.

Other contingent liabilities primarilyinclude performance bonds and aregenerally short term commitments to thirdparties which are not directly dependenton the customer’s credit worthiness. Othercontingent liabilities also includedocumentary credits which commit theGroup to make payments to third parties,on production of documents, which areusually reimbursed immediately bycustomers.

Commitments to lend are agreements tolend to a customer in the future, subject tocertain conditions.

30 Contingent liabilities and commitments

2017 2016 £m £m Contingent liabilities Guarantees and irrevocable letters of credit 9 9Other contingent liabilities 5 5Total contingent liabilities 14 14 Commitments Undrawn formal standby facilities, credit lines and other commitments

to lend - revocable or irrevocable with original maturity of 1 year or less 4,224 3,501- irrevocable with original maturity of over 1 year 47 173Total commitments 4,271 3,674


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Ordinary Shares1

2017 2016 £m £m At 1 January and 31 December 851 851

At 31 December 2017 and at 31 December 2016, all shares issued by the Group were held by the Parent and were fully paid.

31 Share capital

Other equity instruments consist ofAdditional tier 1 securities held by theParent:• £200 million issued on 1 May 2015;

and• £100 million issued on 26 November

2015

The principal terms of the Additional tier 1securities are as follows:• the securities constitute direct,

unsecured and subordinatedobligations of the Group, rank behindTier 2 instruments and in priority toordinary shareholders;

• the securities bear a fixed rate ofinterest (7.875% for the May 2015issuance; 8.4% for the November

2015 issuance) until the first call date(1 May 2020 and 26 November 2020respectively). After the initial call date,in the event that they are notredeemed, the Additional tier 1securities will bear interest at ratesfixed periodically in advance for five-year periods based on market rates atthat time;

• the Group may elect at its sole and fulldiscretion to cancel (in whole or inpart) the interest otherwise scheduledto be paid on any interest paymentdate;

• the securities have no fixedredemption date, and the securityholders will have no right to requirethe Group to redeem or

purchase the securities at any time;• the Group may, in its sole and full

discretion, but subject to thesatisfaction of certain conditions, electto redeem all (but not some only) ofthe securities on the initial call date oron any interest payment datethereafter. In addition, the Additionaltier 1 securities are repayable, at theoption of the Group, due to certainregulatory or tax reasons. Anyrepayments require the prior consentof the regulatory authorities; and

• the securities will convert into ordinaryshares if the Group’s CET 1 ratio (on aCRD IV full implementation basis) fallsbelow 7%.

32 Other equity instruments



Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

1 All shares issued are in denominations of £1, therefore the table above also represents unit values.



The tables below summarise the maturityprofile of the Group’s financial liabilities, at31 December 2017 and at 31 December2016, based on contractual undiscountedrepayment obligations. See also RiskManagement section 2.2 for details of thematurity of assets and liabilities on adiscounted basis.

The Group does not manage liquidity riskon the basis of contractual maturity.

Instead, the Group manages liquidity riskbased on expected cash flows. Thebalances shown below will not agreedirectly to the balance sheet because thetable incorporates all cash flows, on anundiscounted basis, related to bothprincipal and interest payments.

Customer accounts include a number ofterm accounts that contain easy accessfeatures. These allow the customer to

access a portion or all of their depositnotwithstanding that this repayment couldresult in a financial penalty being paid bythe customer. For such accounts theportion subject to the potential earlyaccess has been classified accordingly inthe table below as ‘demand’.

33 Liquidity risk

2017 0-3 3-12 1-5 Over 5 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 315 155 1,242 1,865 45 3,622Customer accounts 14,039 2,043 2,424 545 - 19,051Subordinated liabilities - 3 9 53 339 404Contingent liabilities 14 - - - - 14Commitments 3,218 20 987 46 - 4,271Total 17,586 2,221 4,662 2,509 384 27,362

2016 0-3 3-12 1-5 Over 5 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 349 162 439 1,737 58 2,745Customer accounts 12,938 2,613 3,210 846 2 19,609Subordinated liabilities - 7 16 98 391 512Contingent liabilities 14 - - - - 14Commitments 3,056 19 426 173 - 3,674Total 16,357 2,801 4,091 2,854 451 26,554

2017 0-3 3-12 1-5 Over 5 Demand months months years years TotalMaturity profile of derivative liabilities £m £m £m £m £m £m Gross settled derivative liabilities - outflows (11) (210) (197) (16) - (434)Gross settled derivative liabilities - inflows 11 205 193 16 - 425Gross settled derivative liabilities - net flows - (5) (4) - - (9)Net settled derivative liabilities - (7) (11) (31) (4) (53)Total derivatives cash flows - (12) (15) (31) (4) (62)



eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

The table below summarises the maturity profile of the Group’s derivative liabilities. The Group manages liquidity risk based on expectedcash flows, therefore the undiscounted cash flows payable on derivatives liabilities are classified according to their contractual maturity.



At fair value throughAt fair value Other Comprehensive

through profit or loss income (OCI)

Derivatives designated as fair value Designated Available Cash flow Held at hedging Held for upon initial for hedge amortised instruments trading recognition sale derivatives cost Total2017 £m £m £m £m £m £m £m Financial assets Cash and balances with central banks - - - - - 1,836 1,836Items in the course of collection from

other banks - - - - - 192 192Derivative financial instruments 9 12 - - 6 - 27Loans and advances to banks - - 1 - - 2,763 2,764Available for sale financial assets - - - 1,008 - - 1,008Loans and advances to customers - - - - - 19,997 19,997Total financial assets 9 12 1 1,008 6 24,788 25,824

Financial liabilitiesDeposits from banks - - - - - 3,561 3,561Customer accounts - - 1 - - 18,960 18,961Items in the course of transmission

to other banks - - - - - 108 108Derivative financial instruments 41 11 - - 13 - 65Subordinated liabilities - - - - - 290 290Total financial liabilities 41 11 1 - 13 22,919 22,985



Derivatives designated as fair value Designated Available Cash flow Held at hedging Held for upon initial for hedge amortised instruments trading recognition sale derivatives cost Total2016 £m £m £m £m £m £m £m Financial assets Cash and balances with central banks - - - - - 1,172 1,172Items in the course of collection from

other banks - - - - - 131 131Derivative financial instruments 6 23 - - 26 - 55Loans and advances to banks - - 63 - - 3,306 3,369Available for sale financial assets - - - 1,140 - - 1,140Loans and advances to customers - - - - - 19,821 19,821Total financial assets 6 23 63 1,140 26 24,430 25,688


to other banks - - - - - 85 85Derivative financial instruments 75 20 - - 7 - 102Subordinated liabilities - - - - - 335 335Short positions in trading securities - - - - - - -Total financial liabilities 75 20 63 - 7 22,523 22,688

34 Measurement basis of financial assets and financial liabilities

The table below analyses the carrying amounts of the financial assets and financial liabilities, by accounting treatment and by balancesheet heading.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



34 Measurement basis of financial assets and financial liabilities (continued)

The fair value and contractual amount due on maturity, of financial liabilities designated at fair value upon initial recognition, are shownin the table below.

2017 2016

Contractual amount Contractual amount Fair values due on maturity Fair values due on maturity £m £m £m £m Customer accounts 1 1 63 59

Fair value of assets and liabilitiesFair value is defined as the price thatwould be received to sell an asset, or paidto transfer a liability, in an orderlytransaction between market participantsat the measurement date.

Where possible, the Group calculates fairvalue using observable market prices.Where market prices are not available, fairvalues are determined using valuationtechniques which may include DCFmodels or comparisons to instrumentswith characteristics either identical orsimilar to those of the instruments held bythe Group or recent arm’s length markettransactions.

These fair values are classified within athree-level fair value hierarchy, based onthe inputs used to value the instrument.Where the inputs might be categorisedwithin different levels of the fair valuehierarchy, the fair value measurement in itsentirety is categorised in the same level ofthe hierarchy as the lowest level input thatis significant to the entire measurement.The levels are defined as:

Level 1 inputs are quoted prices(unadjusted) in active markets for identicalassets or liabilities that the entity canaccess at the measurement date.

Level 2 inputs are inputs other thanquoted prices included within Level 1 thatare observable for the asset or liability,either directly or indirectly.

Level 3 inputs are unobservable inputs forthe asset or liability. Transfers betweendifferent levels are assessed at the end ofall reporting periods.

(a) Financial assets and liabilitiesrecognised and subsequentlymeasured at fair valueAll financial instruments are initiallyrecognised at fair value. The Groupsubsequently measures derivatives,available for sale financial assets andcertain other financial assets andliabilities designated at fair valuethrough profit or loss at fair value inthe balance sheet. These instrumentsare shown as at fair value throughprofit or loss or at fair value throughother comprehensive income in note34 on the measurement basis offinancial assets and liabilities. Adescription of the methods andassumptions used to calculate fairvalues of these assets and liabilities isset out below.

Derivative financial instrumentsThe Group’s derivative financialinstruments are valued using valuationtechniques commonly used by marketparticipants. These consist of DCFand options pricing models, whichtypically incorporate observablemarket data, principally interest rates,basis spreads, foreign exchange rates,equity prices and counterparty credit(level 2 inputs).

Available for sale financial assetsAll of the Group’s available for salefinancial assets trade in an activemarket; fair value has beendetermined directly from observablemarket prices (level 1 inputs).

Loans and advances to banksLoans and advances to banksdesignated at fair value through profitor loss consist of loans, which contain

an embedded derivative (typically anequity option). These instruments arevalued using valuation techniques,which use observable market data(level 2 inputs).

Customer accountsCustomer accounts designated at fairvalue through profit or loss consist ofdeposits, which contain an embeddedderivative (typically an equity option).These instruments are typically valuedusing valuation techniques, which useobservable market data. The Groupincorporates the effect of changes inits own credit spread when valuingthese instruments. The Groupestimates this spread by reference torecent transactions in the sameinstrument or in similar instrumentsissued by the Parent (level 2 inputs).

(b) Financial assets and liabilities heldat amortised costFor financial assets and liabilitieswhich are not subsequently measuredat fair value on the balance sheet, theGroup discloses their fair value in away that permits them to becompared to their carrying amounts.The methods and assumptions usedto calculate the fair values of theseassets and liabilities are set out below.

Loans and advances to banksThe estimated fair value of floatingrate placements and overnightplacings is their carrying amount. Theestimated fair value of fixed interestbearing placements is based ondiscounted cash flows, usingprevailing money market interest ratesfor assets with similar credit risk andremaining maturity (level 2 inputs).

35 Fair value of assets and liabilities


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Loans and advances to customersLoans and advances to customers arecarried net of provisions forimpairment. The fair value of bothfixed and variable rate loans andadvances to customers is estimatedusing valuation techniques, whichinclude:• recent arm’s length transactions in

similar assets (level 2 inputs); and• the discounting of estimated

future cash flows at currentmarket rates, incorporating theimpact of current credit spreadsand margins. The fair valuereflects both loan impairments atthe balance sheet date andestimates of market participants’expectations of credit losses overthe life of the loans (level 3 inputs).

Deposits from banks and customeraccountsThe estimated fair value of depositswith no stated maturity, whichincludes non-interest bearingdeposits, is the amount repayable ondemand. The estimated fair value offixed interest bearing deposits andother borrowings without quotedmarket prices is based on discountedcash flows, using interest rates fornew deposits with similar remainingmaturity (level 2 inputs).

Subordinated liabilitiesAs quoted market prices are notavailable, the fair value is estimated bybenchmarking the yield against similarbonds issued by the Parent, whichhave similar maturity dates (level 2inputs).

(c) Fair value of non-financial assetsPropertyA revaluation of Group property wascarried out as at 31 December 2017.All freehold and long leaseholdcommercial properties were valued byLisney (or its partner, SandersonWeaterall) as external valuers. Lisneyvaluations were made on the basis ofobservable inputs such as comparablelettings and sales (level 2 inputs).Unobservable inputs such as profile,lot size, layout and presentation ofaccommodation are also used (level 3inputs). Using reasonably possiblealternative assumptions would nothave a material impact on the value ofthese assets. All properties are valuedbased on highest and best use.

35 Fair value of assets and liabilities


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



35 Fair value of assets and liabilities (continued)

2017 2016

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Fair value of financial assets held at amortised cost

Loans and advances to banks - 2,779 - 2,779 - 3,349 - 3,349Loans and advances to customers - - 20,031 20,031 - - 19,841 19,841Total - 2,779 20,031 22,810 - 3,349 19,841 23,190

Fair value of financial liabilities held at amortised cost

Deposits from banks - 3,576 - 3,576 - 2,714 - 2,714Customer accounts - 18,970 - 18,970 - 19,459 - 19,459Subordinated liabilities - 301 - 301 - 351 - 351Total - 22,847 - 22,847 - 22,524 - 22,524

2017 2016

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Financial assets held at fair value Derivative financial instruments - 27 - 27 - 55 - 55Loans and advances to banks - 1 - 1 - 63 - 63Available for sale financial assets 1,008 - - 1,008 1,140 - - 1,140

Non-financial assets held at fair value Property held at fair value - - 23 23 - - 7 7Total assets held at fair value 1,008 28 23 1,059 1,140 118 7 1,265

As a % of fair value assets 95% 3% 2% 100% 90% 9% 1% 100%

Financial liabilities held at fair value Customer accounts - 1 - 1 - 63 - 63Derivative financial instruments - 65 - 65 - 102 - 102Total financial liabilities held at fair value - 66 - 66 - 165 - 165

As a % of fair value liabilities - 100% - 100% - 100% - 100%

2017 2016Property held at fair value £m £m At 1 January 7 7Additions 15 -Revaluation of property 1 -At 31 December 23 7

The Group had non-financial assets held at fair value on the balance sheet in Level 3 at 31 December 2017 and 31 December 2016due to the purchase of freehold land and buildings and long leaseholds from the Parent.

Movements in level 3 assetsThere were no transfers between levels 1, 2 or 3 during the year ended 31 December 2017 or 31 December 2016.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


The carrying amount and the fair value ofthe Group’s financial assets and liabilitieswhich are carried at amortised cost are setout in the table. Items where the carryingamount is a reasonable approximation offair value are not included, as permitted byIFRS 7.


35 Fair value of assets and liabilities (continued)

Quantitative information about fair value measurements using significant unobservable inputs (Level 3)

Fair Value Range

Valuation Unobservable 2017 2016 2017 2016Level 3 assets technique input £m £m % % Market comparable Property valuation Third party Third partyProperty held at fair value property transactions assumptions 23 7 pricing pricing

2017 2016

Carrying Fair Carrying Fair amount values amount values £m £m £m £m Financial Assets Loans and advances to banks 2,764 2,780 3,369 3,412Loans and advances to customers 19,997 20,031 19,821 19,841

Financial Liabilities Deposits from banks 3,561 3,576 2,691 2,714Customer accounts 18,961 18,971 19,475 19,522Subordinated liabilities 290 301 335 351

Parties are considered to be related if oneparty has the ability to control the otherparty or exercise significant influence overthe other party in making financial oroperational decisions or one other partycontrols both. The definition includessubsidiaries, joint ventures and the Parent,as well as key management personnel.

(a) ParentThe immediate parent and owner ofthe entire share capital of the Group isThe Governor and Company of theBank of Ireland, a corporationestablished in Ireland in 1783 underRoyal Charter.

During 2017, it was advised by theSingle Resoluation Board and theBank of England that their preferredresolution strategy consisted of asingle point of entry bail-in. Thisrequired the establishment of aholding company structure at the topof the Bank of Ireland Group.Following shareholder approval, Bankof Ireland Group Plc was listed as theholding company and ultimate parentof the Bank of Ireland Group and Bankof Ireland (UK) Plc. Trading in the new

ordinary shares commenced on 10July 2017. The results of the Groupare consolidated in the Bank of IrelandGroup financial statements, which areavailable at Bank of Ireland, HeadOffice, 40 Mespil Road, Dublin 4,Ireland.

The Governor and Company of theBank of Ireland acts as guarantor forthe Bank in its transactions with theBank of England (including itssubsidiary, the Bank of England AssetPurchase Facility Fund Limited). If inany circumstances the Bank fails tomake payment of guaranteed amountsto the Bank of England or does notperform any of its other obligationsunder the relevant agreement, theGovernor and Company of the Bankof Ireland may be required to pay theamounts or perform its obligationsupon written demand from the Bank ofEngland.

The Group receives a range ofservices from its Parent and relatedparties, including loans and deposits,forward exchange, interest rate coverincluding derivatives and various

administrative services. In the courseof operating its business, the Grouputilises a number of key services fromits Parent, which are subject to anumber of Service Level Agreementsand costs, and these are disclosed innote 7 of the financial statements.

Other transactions with the Parent in2017 and 2016(i) On 18 October 2017 a dividend

payment of £160 million was paid tothe Parent. (2016: £220 million)

(ii) On 19 December 2017 the Grouprepaid £135 million of subordinateddebt to the Parent. On the same datethe Group issued £90 million of Tier 2subordinated floating rate notes to theParent (refer to note 29).

On 3 May 2017 a coupon payment of£16 million was paid to the Parent inrelation to the £200 million Additionaltier 1 instrument (refer to note 32). On28 November 2017 a coupon paymentof £8 million was paid to the Parent inrelation to the £100 million Additionaltier 1 instrument (refer to note 32).

36 Related party transactions


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


(b) Pension fundsThe Group provides a range of normal banking and financial services, which are not material to the Group, to various pensionfunds operated by the Bank of Ireland Group for the benefit of employees, which are conducted on similar terms to third partytransactions.


(iii) During 2017, the Group continued theprocess of moving from a gross flowcash hedging model to a derivativeshedging model. As a result, £0.6 billion

(2016: £0.6 billion) of balances owedto the Parent and £0.6 billion (2016:£0.5 billion) of balances owed from theParent were repaid during 2017.

(iv) In April 2017 the Group acquired a50% interest in a freehold propertyfrom the Parent for £15 million.

36 Related party transactions (continued)

2017 2016Summary - Parent1 £m £m Income statementInterest income (note 2) 3 23Interest expense (note 3) (36) (49)Fees and commissions expense (note 4) (8) (7)Net trading expense (note 5) 9 (18)Operating expenses paid for services provided2 (note 7) (220) (226)Total (252) (277) Assets Loans and advances to banks (note 14) 1,394 2,038Loans and advances to customers (note 16) 6 6Other assets (note 22) 1 3Derivatives (note 13) 20 50Total assets 1,421 2,097

LiabilitiesDeposits from banks (note 24) 1,989 1,912Customer accounts (note 25) 8 7Other liabilities (note 26) 2 8Derivatives (note 13) 63 89Subordinated liabilities (note 29) 290 335Total liabilities 2,352 2,351 Net exposure (931) (254)

1 This relates to amounts in respect of the Parent and entities controlled by the Parent.2 Included within this amount is a fee of £52,131 (year ended 31 December 2016: £48,090) to Archie Kane, Governor and Non-executive Director of the Parent who was appointed

as consultant advisor to the Group in June 2012.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation




(c) Transactions with key managementpersonnel

i. Loans to DirectorsThe following information ispresented in accordance withSection 413 of the Companies Act2006. For the purposes of theCompanies Act disclosures,‘Directors’ means the Board ofDirectors and any past Directorswho were Directors during therelevant year.

All loans to Directors are made in theordinary course of business onsubstantially the same terms, including

interest rates and collateral, as thoseprevailing at the time for similartransactions with other persons,unconnected with the Group and of similarfinancial standing. They do not involvemore than the normal risk of collectability.

ii. Key management personnel -loans and depositsFor the purposes of IAS 24Related Party Disclosures, ‘keymanagement personnel’ comprisethe Directors of the Board, theCOO, the Managing DirectorNorthern Ireland, the ManagingDirector of AA Business, theDirector of Consumer Banking UK,

the Interim HR Director, Head ofCapability Development and anypast KMP, who were a KMP duringthe relevant year.

KMP, including Directors, holdproducts with the Group in theordinary course of business. Allloans to Non-executive Directorsare made in the ordinary course ofbusiness on substantially thesame terms, including interestrates and collateral, as thoseprevailing at the time forcomparable transactions withother persons, and do not involvemore than the normal risk ofcollectability or present otherunfavourable features. Loans toKMP, other than Non-executiveDirectors, are made on termssimilar to those available to staffgenerally, and / or in the ordinarycourse of business on normalcommercial terms.

The aggregate amounts outstanding, inrespect of all loans, quasi-loans and credittransactions, between the Group, its KMP(as defined above) and KMP of the Parent,including members of their close familiesand entities influenced by them are shownin the table.

Aggregate maximum amount outstanding during Balance as at the year ended Balance as at 31 December 31 DecemberCompanies Act disclosures 1 January 20171 20172 20173

Loans to Directors 2017 £’000 £’000 £’000 Loans to Directors 2 3 8

Aggregate maximum amount outstanding during Balance as at the year ended Balance as at 31 December 31 DecemberCompanies Act disclosures 1 January 20164 20162 20163

Loans to Directors 2016 £’000 £’000 £’000 Loans to Directors 23 2 9

1 The opening balance includes balances and transactions with Directors who have retired during 2016 and are not related parties during the current year. Therefore, theseDirectors are not included in the maximum amounts outstanding.

2 Balance includes principal and interest.3 These figures include credit card exposures at the maximum statement balance. In all cases, Directors have not exceeded their approved limits. The maximum approved credit

limit on any credit card held by any Director is £14,000.4 Foreign currency amounts are converted to GBP, using exchange rates at 1 January 2016 and the average exchange rate for the year, as appropriate.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Aggregate maximum amounts outstanding during Balance as at the year ended Total number Total number Balance as at 31 December 31 December of KMP as of KMP as at2017 1 January 20175 20171 20172,3 at 1 January 31 DecemberKey management personnel £’000 £’000 £’000 2017 2017 Loans 3 65 84 3 7Deposits 195 109 871 13 11

Aggregate maximum amounts outstanding during Balance as at the year ended Total number Total number Balance as at 31 December 31 December of KMP as of KMP as at2016 1 January 20164,5 20161 20162,3 at 1 January 31 DecemberKey management personnel £’000 £’000 £’000 2016 2016 Loans 25 3 24 5 3Deposits 569 195 814 14 13

1 Balance includes principal and interest.2 These figures include credit card exposures at the maximum statement balance. In all cases, KMP have not exceeded their approved limits. The maximum approved credit limit

on any credit card held by KMP is £14,000.3 The maximum amount outstanding was calculated using the maximum balance on each account. The highest maximum outstanding liability, during the year ended 31 December

2017 for any member of KMP and their close family did not exceed £72,896 (31 December 2016: £9,235) . The closing balance includes interest accrued and interest paid; themaximum balance includes interest paid.

4 Foreign currency amounts are converted to GBP, using exchange rates at 1 January 2016 and the average exchange rate for the year, as appropriate.5 The opening balance includes balances and transactions with KMP who retired during the previous year and are not therefore related parties during the year. Therefore, these

KMP’s are not included in the maximum amounts outstanding.

CRD IV Pillar 3 disclosures for the Group also include information on remuneration. This can be found on the website of the Bank ofIreland (UK) plc at www.bankofirelanduk.com.

• Total compensation paid to KMP was£4.5 million for the year ended 31December 2017 and of this amount£1.6 million was paid to Directors. Thiscompared to £4.3 million and £1.5million respectively for thecomparative year ended 31 December2016;

• During the year ended 31 December2017 or the year ended 31 December2016, there was no remuneration paidto the Executive Directors of theParent in respect of their services as

Non-executive Directors of the Group,or for managing the Group or itssubsidiaries;

• The highest total amount paid to anyDirector for the year ended 31December 2017 was £411,764comprising salary and other benefits(year ended 31 December 2016:£394,239). The total accrued pensionand accrued lump sum of this Directorat the year ended 31 December 2017was £nil;

• One Executive Director accrued

retirement benefits under a definedbenefit and defined contribution Bankof Ireland Group Pension Scheme foryear ended 31 December 2017;

• Pension costs were paid by the Parentand the costs incurred recharged onan agreed basis through the servicelevel agreements; and

• There were no additional benefits,paid by the Group or any other party,in respect of compensation to theDirectors for their services formanaging the Group or itssubsidiaries, either for the year ended31 December 2017 or the year ended31 December 2016.

2017 2016(d) Compensation of key management personnel £m £m RemunerationSalaries and other short term benefits 4,007 3,813Pension benefits 458 451Total 4,465 4,264



eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



37 Offsetting financial assets and liabilities

38 Interests in other entities

2017 2016

Gross amounts Net amounts Gross amounts Net amounts of recognised of financial of recognised of financial financial assets financial assets Gross amounts liabilities7 presented Gross amounts liabilities1 presented of recognised set off in the in the of recognised set off in the in the financial assets balance sheet balance sheet financial assets balance sheet balance sheetAssets £m £m £m £m £m £m Loans and advances to customers 449 (449) - 648 (648) -

1 On 15 January 2016 the trade of Northridge Finance Limited was transferred to NIIB Group Limited, which continues to trade under the Northridge Finance brand.2 On 22 January 2016 the trade of Bank of Ireland Personal Finance Limited was transferred to the Bank.3 In February 2014 Bank of Ireland Trustee Company Limited ceased to be actively trading.4 On 3 September 2012 the trade of Midasgrange Limited was transferred to the Bank.5 This entity is a joint venture with the UK Post Office in which the Group holds 50% of the equity of the company. FRESH holds 100% of the equity in FRES.6 On 24 November 2017 the Group acquired 100% of Marshall Leasing Limited and its dormant subsidiary, Gates Contract Hire Limited. See note 20 for further details.7 Loans and advances to customers represent loan agreements entered into by the Group that are fully collateralised by the Parent. Ultimate recourse is to the Parent. These loans

are netted on the balance sheet against deposits received from the Parent

The following items have been offset in thebalance sheet, in accordance withparagraph 42 of IAS 32.

In addition, as set out in section 2.1.2 ofthe Risk management report, the Group’s

net exposure to the Parent is managedthrough a contractual master nettingagreement with the Parent. Theseamounts do not meet the criteria for offsetunder paragraph 42 of IAS 32 and arepresented gross within loans and

advances to banks, derivatives anddeposits by banks respectively. Furtherdetail on these amounts is set out in notes13, 14 and 24 of the financial statements.

Percentage of Percentage ordinary share of voting Country of Statutory capital held rights heldNames Principal activity incorporation year end % % NIIB Group Limited Personal finance and leasing Northern Ireland 31 December 100 100

Northridge Finance Limited1 Personal finance and leasing Northern Ireland 31 December 100 100

Bank of Ireland Personal Finance Limited2 Personal finance Northern Ireland 31 December 100 100

Bank of Ireland Trustee Company Limited3 Client Investment Services Northern Ireland 31 December 100 100

Midasgrange Limited4 Dormant England and Wales 30 September 100 100

First Rate Exchange Services Holdings Limited5 Foreign Exchange England and Wales 31 March 50 50

First Rate Exchange Services Limited Foreign Exchange England and Wales 31 December 50 50

Marshall Leasing Limited6 Commercial Vehicle Leasing England and Wales 31 December 100 100

Gates Contract Hire Limited6 Dormant England and Wales 31 December 100 100

Copies of the financial statements of theseundertakings can be obtained from therelevant addresses listed on page 160.

Management has assessed itsinvolvement in all entities in accordancewith the definitions and guidance in:• IFRS 10: Consolidated Financial

Statements;• IFRS 11: Joint Arrangements;

• IAS 28: Investments in Associates andJoint Ventures; and

• IFRS 12: Disclosure of interests inother entities.

The Group controls an entity when it haspower over the entity, is exposed to or hasrights to variable returns from itsinvolvement with the entity and has theability to affect those returns through itspower over the entity.

Generally, control or significant influence isidentified by the level of ownership ofordinary shares and the level ofmanagement involvement in the relevantactivities of the entity. However, in thecase of ‘structured entities’,management’s judgement is required indetermining how the investee should beaccounted for.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



38 Interests in other entities (continued)

Structured entitiesA structured entity is an entity that hasbeen designed so that voting or similarrights are not the dominant factor indeciding who controls the entity, such aswhen any voting rights relate toadministrative tasks only and the relevantactivities are directed by means ofcontractual arrangements. The Groupassesses whether it has power over therelevant activities in assessing control oversuch an entity by considering factors suchas who manages the assets of theseentities, if the Group has lending to themor has a residual interest in them.

In the case of structured entities, theGroup considers it has control over theinvestee where it is a securitisation vehiclewhose purpose is to finance specific loansand advances to customers. In each casethe Group considers that it has powerover the entity, is exposed to or has rightsto variable returns from its involvementwith the entity and has the ability to affectthose returns through its power over theentity.

The Group has a structured entity(Bowbell No 1 plc), whose purpose is toacquire mortgage loans and other financialassets and issue mortgage backedsecurities. This entity is consolidated in

the Group’s financial statements. All of theassets and liabilities are restricted. TheGroup does not foresee any significantevents or circumstances that couldexpose it to a loss as a result of its holdingin Bowbell No 1 plc.

Total assets amounted to £2.9 billion (31December 2016: £3.5 billion) and liabilitiesamounted to £1.2 billion (31 December2016:£1.6 billion). There are no contractualarrangements that require the Group toprovide financial support. In the yearsended 31 December 2017 or 31December 2016 the Group did not providefinancial or other support, nor does itexpect or intend to do so.

2017 2016

Loans and advances Loans and advances to customers Notes in issue to customers Notes in issueActivity Company £m £m £m £m Acquiring mortgage loans and Bowbell No 1 plc 2,886 1,155 3,397 1,560issuing mortgage backedsecurities

The assets of Bowbell No 1 plc (Bowbell)are consolidated in the Group’s financialstatements and are collateral for itsobligations. The creditors of Bowbell haveno recourse to the Group. The Groupholds all notes issued by Bowbell.

The ultimate holding company of Bowbell,owning 100% of its ordinary share capitaland voting rights, is Bowbell No 1 Holdings Limited. Bowbell No 1 plc wasincorporated in Great Britain.

There are no significant restrictions on theGroup’s ability to access or use the assetsand settle the liabilities of the Group.

39 Post balance sheet events

There are no post balance sheet events that require disclosure in the financial statements.

40 Approval of financial statements

The Board of Directors approved the financial statements on 6 March 2018.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


Index Page

Independent auditors’ report 133

Bank income statement 139

Bank statement of other comprehensive income 139

Bank balance sheet 140

Bank statement of changes in equity 141

Notes

a Basis of preparation and accounting policies 142

b Auditors’ remuneration 142

c Cash and cash equivalents 142

d Derivative financial instruments 143

e Loans and advances to banks 144

f Available for sale financial assets 145

g Loans and advances to customers 145

h Impairment provisions 146

i Investment in subsidiaries 146

j Intangible assets 147

k Property, plant and equipment 147

l Other assets 147

m Credit risk exposures 148

n Deposits from banks 150

o Customer accounts 151

p Other liabilities 151

q Provisions 151

r Deferred tax 152

s Subordinated liabilities 152

t Contingent liabilities and commitments 153

u Share capital 153

v Other equity instruments 153

w Liquidity risk 154

x Measurement basis of financial assets and financial liabilities 155

y Transferred financial assets 156

z Fair values of assets and liabilities 157

aa Related party transactions 158

ab Post balance sheet events 159

ac Approval of financial statements 159


Bank Financial Statements

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion




Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Report on the audit of the company financial statements

OpinionIn our opinion, Bank of Ireland (UK) plc’s company financial statements (the “financial statements”):• give a true and fair view of the state of the company’s affairs as at 31 December 2017 and of its profit for the year then ended;• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom

Accounting Standards, comprising FRS 101 “Reduced Disclosure Framework”, and applicable law); and• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report, which comprise: the bank balance sheet as at 31December 2017; the bank income statement, the bank statement of comprehensive income, the bank statement of changes in equityfor the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

Certain required disclosures have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements.These are cross-referenced from the financial statements and are identified as audited.

Our opinion is consistent with our reporting to the Audit Committee.

Basis for opinionWe conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Ourresponsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section ofour report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

IndependenceWe remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financialstatements in the UK, which includes the FRC’s Ethical Standard, as applicable to public interest entities, and we have fulfilled ourother ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were notprovided to the group or the company.

Other than those disclosed in note 8 to the financial statements, we have provided no non-audit services to the group and itssubsidiaries in the period from 1 January 2017 to 31 December 2017.

Our audit approach

Overview

Materiality• Overall materiality: £7,600,000, based on 5% of profit before tax.• The scope of our audit and the nature, timing and extent of the audit procedures performed were determined by our risk assessment,

the financial significance of the Bank’s reporting components and other qualitative factors.• We performed full scope audit procedures over components considered to be financially significant. We also performed audit

procedures over specific account balances in other components that were significant to the Bank. • PwC Ireland were essential to this scope carrying out the majority of the audit procedures relating to a number of areas including IT

testing.• Audit coverage for individual line items within the income statement and balance sheet falls in the range of 81% to 100%; most line

items have coverage above 90%. • See page 136 for further details.• Impairment provision on loans and advances to customers.• Revenue recognition relating to effective interest rate (EIR) accounting for mortgages and unwind of fair value adjustments on acquired

mortgages.• IT risk.

The scope of our auditAs part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimatesthat involved making assumptions and considering future events that are inherently uncertain.

We gained an understanding of the legal and regulatory framework applicable to the company and the industry in which it operates,and considered the risk of acts by the company which were contrary to applicable laws and regulations, including fraud. We designedaudit procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher thanthe risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentionalmisrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the




Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Impairment provision on loans and advances to customersRefer to page 142 (Bank Accounting Policies) and pages 142 to 149(Notes to the Financial Statements).

We focused on the identification and determination of provisions inrelation to the mortgage and commercial loan portfolios as it requiresmanagement to make complex and subjective judgments.

In the commercial loan portfolio, individual impairment assessments areperformed where there are observed impairment indicators. There issignificant judgement required for each loan to determine the level ofany provision.

Our focus was on the principal assumptions applied by management inestimating the impairment allowance such as the value of collateral andforecast cash flows.

For the incurred but not reported (IBNR) and collective specificmortgage provisions we focused on:• The appropriateness of the models used to estimated impairment

provisions;• The judgements around the propensities of default and subsequent

possession which are based on historic data and customer creditprofiles; and

• Loss rates determined by expected recoveries focusing onmanagement’s assumptions around house price changes and forcedsale discounts.

We understood and evaluated the design of key controls over thecommercial and mortgage impairment processes and tested theireffectiveness.

We noted no significant exceptions in these controls. Accordingly, werelied on them for the purposes of our audit. In addition, we performedthe substantive procedures described below.

Commercial impairmentFor a sample of individually impaired loans, we evaluated the specificcircumstances of the borrower, the basis on which the provision wasdetermined and whether key judgements were appropriate. We re-performed management’s discounted cash flow forecast calculations,testing key inputs such as expected future cash flows and discountrates. We tested the valuation of collateral held and challengedmanagement on subjective estimates and assumptions. We alsocompared gains and losses realised when a loan is sold or exited to theexisting provision.

Based on the procedures performed and the evidence obtained, wefound management’s methodology, assumptions and judgments to bereasonable.

Mortgage impairmentWe assessed the appropriateness of key assumptions used in themodelling by comparing against recent group experience as well as ourindustry experience.

We tested the completeness and accuracy of underlying data sourcesinto the impairment models.

We reviewed the coding used in the model for the calculation of theprovisions and the calculation of key model inputs. We performedsensitivity analyses in order to identify higher risk assumptions andinputs which included default and possession propensities and lossrates. In these areas we performed additional targeted procedures andwe concluded that the assumptions and inputs used were reasonable.

company’s financial statements, including, but not limited to, the Companies Act 2006, the Financial Services and Markets Act 2000and UK tax legislation. Our tests included, but were not limited to, review of the financial statement disclosures to underlyingsupporting documentation, review of correspondence with the regulators and enquiries of management. There are inherent limitationsin the audit procedures described above and the further removed non-compliance with laws and regulations is from the events andtransactions reflected in the financial statements, the less likely we would become aware of it.

We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk ofmanagement override of internal controls, including testing journals and evaluating whether there was evidence of bias by the directorsthat represented a risk of material misstatement due to fraud.

Key audit mattersKey audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financialstatements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in theaudit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our proceduresthereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and wedo not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Revenue recognition relating to effective interest rate (EIR)accounting for mortgages and unwind of fair value adjustments onacquired mortgagesRefer to page 142 (Bank Accounting Policies) and pages 142 to 159(Notes to the Financial Statements).

The Bank’s total loans and advances to customers balance of £20.3billion and net interest income of £433 million include certain manualadjustments that involve management judgment.

The vast majority of the Bank’s income is system generated andrequires minimal judgment, therefore we focused our work in relation tothe risk of fraud in revenue recognition on adjustments relating tomortgage EIR and the unwind of fair value adjustments linked to theacquisition of mortgages. Changes in the assumptions used in theassociated models could have a material impact on the revenuerecognised in any one accounting period.

We focused on the most significant judgment for mortgage EIR which isthe estimation of the expected life of the mortgage over which theassociated fees, costs and discounts are spread.

In relation to the unwind of fair value adjustments linked to acquiredmortgages, we focused on significant judgment management make inassessing rates of future customer redemptions, particularly relating tobut-to-let mortgages.

Across both the mortgage EIR and fair value unwind models, we testedcontrols over the assumptions used and checked the accuracy ofmodel calculations by reviewing formulas used and consideringwhether these were in line with our expectations.

For mortgage EIR we:• substantively tested a sample of fees, costs and interest rates back

to underlying lending agreements and source documentation;• assessed the estimate of the expected mortgage life applied and

forecast cash flows during this life by comparing to recent groupexperience and expectations of future patterns.

For fair value unwind we:• tested the accuracy of data inputs into the model;• agreed redemption assumptions applied in the model to those that

were approved by management and considered the reasonablenessof the assumptions.

We evaluated whether the disclosures made in the financial statementswere sufficiently clear in describing the key assumptions and theirsensitivity.

We concluded that whilst there is significant judgment inherent in themortgage EIR and fair value unwind adjustments, the assumptionsapplied were within a reasonable range based on past experience andfuture assumptions. We concluded the disclosures providedappropriate detail of the estimation uncertainty and the impact of actualfuture customer experience differing from the assumptions made.





Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

IT riskThe Bank has a complex IT environment and operates a number of ITapplications to support its business activities. A significant number ofthese applications (whether developed by management or purchasedfrom third party vendors) have been in place for many years. There is amix of automated and manual interfaces between applications. The ITcontrol framework over financial reporting includes standardised ITgeneral controls most of which relate to a number of applications,designed to prevent or detect material misstatements in the recording,processing and reporting of financial information.

The Bank invests to maintain the operating effectiveness of the ITsystems as well as managing other factors including increasedexpectations from regulators and customers. Bank of Ireland GroupInternal Audit (“GIA”) has reported on the related internal control andoperational risk considerations.

Management has an ongoing risk management programme in place toidentify, rate, mitigate and report on risk including IT and Operationalrisk considerations.

We focused on this area because the Bank’s business is highly ITdependent, the IT environment is complex and the design andoperating effectiveness of IT controls and of IT risk mitigants supportsthe financial reporting process.

Due to the structure of the Bank of Ireland Group, the key IT processesare based in Dublin and as such, the majority of the audit work wasperformed by PwC Ireland, in Dublin. We remained responsible for theoverall scoping of the audit work, as well as the reporting of findingsand results relevant to the Bank. Throughout the audit relevant findingsidentified by PwC Ireland were reported to us so we could determinethe impact on our audit approach and opinion.

Using principally PwC Ireland IT audit specialists, we updated ourunderstanding of the Bank’s IT environment and of changes made to itduring 2017. In particular, we considered the outputs frommanagement’s IT risk management process and the findings of reviewsconducted by GIA. We considered the impact of the assessed risks onour audit approach.

We considered those IT risks and significant GIA IT audit issues thatmanagement assessed as relevant to financial reporting and tested andchallenged management’s assessment of the mitigation of these risksrelevant to financial reporting.

We also considered management’s documentation and testing of thedesign and operating effectiveness of the IT controls within the Bank ofIreland Group’s Internal Control Framework over financial reporting andtested the design and operating effectiveness of those controls uponwhich we wished to rely. Where relevant, we considered whethercompensating controls acted as effective mitigants of design oroperating deficiencies identified by management or us. In the absenceof sufficient compensating controls, we examined, tested andchallenged management’s documented assessments of the risk whichcontrol deficiencies posed to the financial reporting process.

We concluded following completion of our audit procedures thatmanagement’s assessments of the impact of IT risk matters on thefinancial reporting process were reasonable and that we could placereliance on the operation of in-scope IT systems and reports generatedfrom them.

How we tailored the audit scopeWe tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statementsas a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which itoperates.

The Bank comprises fifteen components through which it reports its operating results and financial position of which four aresignificant to our audit. These are Mortgages, Business Banking, Post Office Financial Services and Divisional Centre. The componentsreport through an integrated consolidation system. We identified the components which, in our view, required a full scope audit eitherdue to their size or their risk characteristics in the context to the Bank's financial statements.

In order to achieve the desired level of audit evidence on each account balance in the financial statements, we identified six furtherreporting units that we determined to be individually significant in respect of one or more account balances and performed specificaudit procedures over those account balances. Specific audit procedures were performed on credit cards and ATM income andexpense.

Processes supporting the Bank's operations are also performed at a Bank of Ireland Group plc level in the Republic of Ireland,including the hosting and monitoring of the IT systems used by the Bank. As part of the planning and execution of the audit, we visitedthe auditor of the parent, held regular physical and telephone meetings throughout the audit and reviewed extracts from PwC Ireland’saudit file to corroborate that the procedures performed on our behalf were sufficient for our purposes.

Together with additional procedures performed at the Group level, this gave us the evidence we needed for our opinion on the financialstatements as a whole.

Audit coverage for individual line items within the income statement and balance sheet falls in the range of 81% to 100%; most lineitems have coverage above 90%.




Bank of Ireland (UK) financial statements

Overall materiality£7.6 million

How we determined it5% of profit before tax.

Rationale for benchmark appliedWe believe that profit before tax is the primary measure used by the shareholders in assessing the performance of the Bank, and is a generallyaccepted auditing benchmark.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £375,000 as well as misstatementsbelow that amount that, in our view, warranted reporting for qualitative reasons.

MaterialityThe scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our auditprocedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, bothindividually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or • the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt

about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months fromthe date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company’s ability tocontinue as a going concern.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ reportthereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the otherinformation and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, anyform of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, considerwhether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, orotherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we arerequired to perform procedures to conclude whether there is a material misstatement of the financial statements or a materialmisstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement ofthis other information, we are required to report that fact. We have nothing to report based on these responsibilities.

With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the UKCompanies Act 2006 have been included.

Based on the responsibilities described above and our work undertaken in the course of the audit, ISAs (UK) require us also to reportcertain opinions and matters as described below.

Strategic Report and Report of the DirectorsIn our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of theDirectors for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance withapplicable legal requirements.

In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did notidentify any material misstatements in the Strategic Report and Report of the Directors.



Responsibilities for the financial statements and the audit

Responsibilities of the Directors for the financial statementsAs explained more fully in the Statement of Directors’ Responsibilities set out on page 71, the directors are responsible for thepreparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true andfair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation offinancial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern,disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors eitherintend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statementsOur objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from materialmisstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a highlevel of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financialstatements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report..

Use of this reportThis report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibilityfor any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expresslyagreed by our prior consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:• we have not received all the information and explanations we require for our audit; or• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from

branches not visited by us; or• certain disclosures of directors’ remuneration specified by law are not made; or• the financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the audit committee, we were appointed by the directors on 9 July 2010 to audit the financialstatements for the period ended 31 March 2010 and subsequent financial periods. The period of total uninterrupted engagement is 7.5years, covering the periods ended 31 March 2010 to 31 December 2017.

Other matter

We have reported separately on the group financial statements of Bank of Ireland (UK) plc for the year ended 31 December 2017.

Hamish Anderson (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsLondon

6 March 2018

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Bank Financial Statements and Notes

Bank income statement (for the year ended 31 December 2017)

2017 2016 £m £m Interest income 614 729Interest expense (181) (267)Net interest income 433 462Fee and commission income 113 118Fee and commission expense (115) (121)Net trading expense (1) (5)Other operating income 56 61Total operating income 486 515Operating expenses (314) (301)Operating profit before impairment charges on financial assets 172 214Impairment charges on financial assets (24) (22)Operating profit 148 192Profit before taxation 148 192Taxation charge (17) (26)Profit for the year 131 166

Bank statement of other comprehensive income (for the year ended 31 December 2017)

2017 2016 £m £m Profit for the year 131 166

Items that may be reclassified to profit or loss in subsequent periodsNet change in cash flow hedge reserve (net of tax)1 (9) 21Net change in available for sale reserve (net of tax)2 - 3Total items that may be reclassified to profit or loss in subsequent periods (9) 24

Items that will not be reclassified to profit or loss in subsequent periodsNet change in revaluation reserve, net of tax 1 -Total items that will not be reclassified to profit or loss in subsequent periods 1 -

Other comprehensive income / (expense) for the year, net of tax (8) 24Total comprehensive income for the year, net of tax 123 190

1 Net of tax credit £3 million (2016: charge £7 million).2 Net of tax £0.4 million (2016: £1 million).



Bank balance sheet (as at 31 December 2017)

2017 2016 Note £m £m Assets Cash and balances at central banks c 1,836 1,172Items in the course of collection from other banks 192 131Derivative financial instruments d 27 55Loans and advances to banks e 2,625 3,221Available for sale financial assets f 1,008 1,140Loans and advances to customers g 20,289 20,043Investment in subsidiaries i 8 8Interest in joint venture 2 2Intangible assets j 19 24Property, plant and equipment k 23 7Other assets l 102 109Deferred tax assets r 65 63Total assets 26,196 25,975 Equity and liabilities Deposits from banks n 3,554 2,675Customer accounts o 19,045 19,604Items in the course of transmission to other banks 108 85Derivative financial instruments d 65 102Current tax liabilities 3 6Other liabilities p 1,217 1,195Provisions q 12 15Subordinated liabilities s 290 335Total liabilities 24,294 24,017 Equity Share capital u 851 851Retained earnings 157 204Other reserves 594 603Other equity instruments v 300 300Total equity 1,902 1,958Total equity and liabilities 26,196 25,975

The financial statements on pages 139 to 159 were approved by the Board on 6 March 2018 and were signed on its behalf by:



Bank Financial Statements and Notes

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



Bank statement of changes in equity (for the year ended 31 December 2017)

2017 2016 £m £m Share capital Balance at 1 January 851 851Balance at 31 December 851 851 Retained earnings Balance at 1 January 204 277 Profit for the year 131 166Dividend on ordinary shares (160) (220)Distribution on other equity instruments - Additional tier 1 coupon, net of tax1 (18) (19)Balance at 31 December 157 204 Other equity instruments Balance at 1 January 300 300Balance at 31 December 300 300

Other reserves: Available for sale reserve Balance at 1 January 5 2Changes in fair value, net of hedge accounting adjustments (1) 9Transfer to income statement (pre tax) - (5)Deferred tax on reserve movements - (1)Balance at 31 December 4 5

Revaluation reserve - property Balance at 1 January - -Revaluation of property 1 -Balance at 31 December 1 -

Cash flow hedge reserveBalance at 1 January 32 11Changes in fair value 3 43Transfer to income statement (pre tax) (15) (15)Deferred tax on reserve movements 3 (7)Balance at 31 December 23 32 Capital contribution Balance at 1 January 266 266Balance at 31 December 266 266

Capital redemption reserve fund Balance at 1 January 300 300Balance at 31 December 300 300 Total other reserves 594 603Total equity 1,902 1,958

Included in the above:Total comprehensive income for the year, net of tax 123 190

1 The Additional tier 1 coupon paid to the Parent of £18 million (2016: £19 million) is presented net of the related tax credit of £6 million (2016: £5 million), comprising £5 million(2016: £3 million) relating to current tax and £1 million (2016: £2 million) relating to deferred tax.

Bank Financial Statements and Notes Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Notes to the Bank financial statements

The Bank financial statements comprisethe income statement, the statement ofother comprehensive income, the balancesheet, the statement of changes in equityand the notes to the Bank financialstatements.

The Bank meets the definition of aqualifying entity under FRS 100 (FinancialReporting Standard 100) issued by theFinancial Reporting Council. Accordingly,in the year ended 31 December 2017 theBank has undergone transition fromreporting under IFRSs adopted by theEuropean Union to FRS 101 as issued bythe Financial Reporting Council. Thefinancial statements for the year ended 31December 2017 have therefore beenprepared in accordance with theCompanies Act 2006 as applicable tocompanies using FRS 101 ‘Reduceddisclosure framework’. This transition hadno measurement impact on the financialstatements.

These financial statements are financial

statements of the Bank only and do notconsolidate the results of any subsidiaries.

In preparing these financial statements theBank applies the recognition,measurement and disclosure requirementsof IFRS as adopted by the EU. The Bankhas applied the exemptions availableunder FRS 101 in respect of the followingdisclosures:• statement of cash flows; and• disclosures in respect of transactions

with wholly-owned subsidiaries.• certain requirements of IAS 1

‘Presentation of financial statements’;and

• the effects of new but not yet effectiveIFRSs.

The financial statements have beenprepared under the historical costconvention, as modified to include the fairvaluation of certain financial instrumentsand properties. The accounting policiesand critical accounting estimates andjudgements of the Bank are the same as

those of the Group which are set out in theGroup accounting policies section onpages 84 to 98, where applicable.

The preparation of financial statements inconformity with FRS 101 requires the useof estimates and assumptions that affectthe reported amounts of assets andliabilities at the date of the financialstatements and the reported amounts ofrevenues and expenses during thereporting period. Although these estimatesare based on management’s bestknowledge of the amount, event oractions, actual results ultimately may differfrom those estimates. A description of thecritical estimates and judgements is setout on pages 97 to 98 in the accountingpolicies section.

Information on risk management andcapital management is included in theRisk Management Report, with certainfinancial information specific to the Bankbeing included in notes m and wrespectively.

a Basis of preparation and accounting policies

Information on auditors’ remuneration is set out in note 8 to the Consolidated financial statements.

b Auditors’ remuneration

c Cash and cash equivalents

2017 2016Cash and cash equivalents £m £m Cash 30 31Balances with central banks 1,806 1,141Total cash balances included in cash and cash equivalents 1,836 1,172 Loans and advances to banks 2,625 3,221Less: amounts with a maturity of three months or more (960) (1,542)Total loans and advances to banks included in cash and cash equivalents 1,665 1,679

Total cash and cash equivalents 3,501 2,851 Due from the Parent 424 484

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



d Derivative financial instruments

2017 2016

Contract Fair values Contract Fair values notional notional amounts Assets Liabilities amounts Assets Liabilities £m £m £m £m £m £m Derivatives held for tradingForeign exchange derivatives Currency forwards 156 3 1 176 3 8Currency forwards – with the Parent 156 1 3 176 8 3Currency swaps 207 4 1 166 2 5Currency swaps - with the Parent 207 1 4 167 5 2Total foreign exchange derivatives held for trading 726 9 9 685 18 18

Interest rate derivatives Interest rate swaps - with the Parent 2,064 3 2 1,677 5 2Cross currency interest rate swaps - with the Parent 104 - - 117 - -Total interest rate derivatives held for trading 2,168 3 2 1,794 5 2Total derivatives held for trading 2,894 12 11 2,479 23 20

Derivatives held as fair value hedges Interest rate swaps - with the Parent 4,061 9 41 5,023 6 75

Derivatives held as cash flow hedges Interest rate swaps - with the Parent 3,590 6 13 2,950 26 7Total derivative assets / liabilities held for hedging 7,651 15 54 7,973 32 82Total derivative assets / liabilities 10,545 27 65 10,452 55 102

The years in which the hedged cash flows are expected to occur are shown in the tables below:



Notes to the Bank financial statements Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



The hedged cash flows are expected to impact on the income statement in the following years:



d Derivative financial instruments (continued)

During the years ended 31 December 2017 and 31 December 2016, there were no forecast transactions to which the Group hadapplied hedge accounting which were no longer expected to occur.

e Loans and advances to banks

Represented in placements with otherbanks are:• an amount of £1,383 million (31

December 2016: £2,027 million)arising from transactions with theParent, which primarily relates to themanagement of the Bank's interestrate risk position. Amounts due to theParent of £1,982 million (31 December2016: £1,896 million) are alsodisclosed in note n. From acounterparty credit risk perspective,while these two amounts aredisclosed on a gross basis, the Bank

has in place a contractual MasterNetting Agreement with the Parent,whereby, in the event of default ofeither party, all amounts due orpayable will be settled immediately ona net basis; and

• £1 million of loans included inamounts due from the Parent, whosereturn is dependent on movements invarious external indices (31 December2016: £63 million). These loans aredesignated at fair value through profitor loss. Refer to note x for details onfair value.

During the year ended 31 December 2017,£0.6 billion of balances were repaid by theParent. For further details, refer to note 36in the consolidated financial statements.

Represented in mandatory deposits withcentral banks are:• an amount of £1,189 million relating to

collateral with the Bank of England inrespect of notes in circulation (31December 2016: £1,142 million). £683million of this refers to non-interestbearing collateral (31 December 2016:£644 million); and

• an amount of £34 million in relation tomandatory cash ratio deposits, whichare non-interest bearing depositsplaced with the Bank of Englandunder the provisions of the Bank ofEngland Act 1998 (31 December 2016:£36 million).

2017 2016 £m £m Placements with other banks 1,402 2,043Mandatory deposits with central banks 1,223 1,178Loans and advances to banks 2,625 3,221

Amounts include: Due from the Parent 1,383 2,027


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



f Available for sale financial assets

At 31 December 2017 and at 31December 2016, no available for salefinancial assets were pledged in sale andrepurchase agreements.

2017 2016 £m £m Government bonds 428 585Debt securities listed 580 555Available for sale financial assets 1,008 1,140

2017 2016Movements on available for sale financial assets £m £m At 1 January 1,140 956Revaluation adjustments (12) 20Additions 82 301Redemptions / disposals (198) (133)Amortisation (4) (4)At 31 December 1,008 1,140

g Loans and advances to customers

Refer to note 16 in the consolidatedfinancial statements for further details.

2017 2016 £m £m Residential mortgages 16,043 15,964Non-property SME and corporate 2,786 2,624Commercial property and construction 652 961Consumer 952 750Gross loans and advances to customers 20,433 20,299Less: allowance for impairment charges on loans and

advances to customers (note h) (144) (256)Loans and advances to customers 20,289 20,043

Amounts include: Due from subsidiaries 1,760 1,512Due from entities controlled by the Parent 6 6


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



h Impairment provisions

Non- property Commercial Total Residential SME and property and impairment mortgages corporate construction Consumer provisions2017 £m £m £m £m £m Provision at 1 January 2017 28 57 152 19 256Transfer between provisions - - - - -Exchange adjustments - 1 1 - 2Provisions utilised (2) (31) (106) (14) (153)Recoveries (1) 2 5 4 10Other movements - 1 3 1 5Charge to the income statement 2 1 8 13 24Provision at 31 December 2017 27 31 63 23 144

Non- property Commercial Total Residential SME and property and impairment mortgages corporate construction Consumer provisions2016 £m £m £m £m £m Provision at 1 January 2016 30 91 295 27 443Transfer between provisions - - - - -Exchange adjustments - 3 8 - 11Provisions utilised (3) (40) (176) (17) (236)Recoveries - 1 3 5 9Other movements (1) 2 5 1 7Charge to the income statement 2 - 17 3 22Provision at 31 December 2016 28 57 152 19 256

Impairment reviewThe Bank’s investment in subsidiaries arereviewed if events or circumstancesindicate that impairment may have

occurred by comparing the carrying valueof each investment to its recoverableamount. An impairment charge arises ifthe carrying value exceeds the

recoverable amount. No impairment wasidentified in the year ended 31 December2017 or the year ended 31 December2016.

Repayment of capitalDuring 2016 the Bank received arepayment of capital of £1 million fromMidasgrange Limited.

The interests in all entities held by theGroup is disclosed in note 38.

2017 2016Investment in subsidiaries £m £m At 1 January 8 9Repayment of investment - (1)At 31 December 8 8

i Investment in subsidiaries


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



2017 2016

Other Other Computer externally Computer externally software purchased software purchased internally intangible internally intangible generated assets Total generated assets Total £m £m £m £m £m £m Cost At 1 January 34 76 110 34 76 110Additions - - - - - -At 31 December 34 76 110 34 76 110

Accumulated amortisation At 1 January (34) (52) (86) (34) (46) (80)Charge to the income statement - (5) (5) - (6) (6)At 31 December (34) (57) (91) (34) (52) (86) Net book value at 31 December - 19 19 - 24 24

j Intangible assets

Refer to note 19 in the consolidated financial statements for further details.

k Property, plant and equipment

Refer to note 21 in the consolidatedfinancial statements for further details.

2017 2016Property, plant and equipment £m £m At 1 January 7 7Additions 15 -Revaluation adjustments 1 -At 31 December 23 7

l Other assets

2017 2016Other assets £m £m Sundry and other receivables 51 51Accounts receivable and prepayments 32 36Interest receivable 19 22Other assets 102 109

Amount includeDue from the Parent 1 3

Maturity profile of other assetsAmounts receivable within 1 year 85 88Amounts receivable after 1 year 17 21


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



m Credit risk exposures

The following tables represent the credit risk exposures of the Bank for its loans and advances to customers and other financialinstruments. The Group exposures can be found in Risk Management section 2.1.

Asset quality - loans and advances to customers The table and analysis below summarise the Bank's loans and advances to customers by risk profile (before impairment provisions).

Non- Total Total property Commercial loans and loans and Residential SME and property and advances advances mortgages corporate construction Consumer to customers to customers2017 £m £m £m £m £m % High quality 15,583 136 116 925 16,760 82%Satisfactory quality 23 2,347 180 - 2,550 12%Acceptable quality 38 169 95 - 302 2%Lower quality but not past due nor impaired - 48 88 - 136 1%Neither past due nor impaired 15,644 2,700 479 925 19,748 97%Past due but not impaired 332 37 39 14 422 2%Impaired 67 49 134 13 263 1%Total 16,043 2,786 652 952 20,433 100%

Non- Total Total property Commercial loans and loans and Residential SME and property and advances advances mortgages1 corporate construction Consumer to customers to customers2016 £m £m £m £m £m % High quality 15,483 233 110 728 16,554 82%Satisfactory quality 20 2,096 221 - 2,337 12%Acceptable quality 42 99 137 - 278 1%Lower quality but not past due nor impaired - 84 175 - 259 1%Neither past due nor impaired 15,545 2,512 643 728 19,428 96%Past due but not impaired2 352 33 51 13 449 2%Impaired2 67 79 267 9 422 2%Total 15,964 2,624 961 750 20,299 100%

At 31 December 2017 included in the non-property SME and corporate book is £1,766 million (31 December 2016: £1,518 million) inrelation to intra-group funding balances with the Bank's subsidiaries with no banking license, the largest balance being £1,560 million(31 December 2016: £1,378 million) relating to balances with NIIB. All of these balances were classified as satisfactory quality.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

1 As described on pages 42 and 43, the Group has revised its asset quality reporting methodology to align with EBA guidance on non-performing and forborne classifications. As aresult, the Group has amended the risk profile of Residential mortgages which are neither ‘past due nor impaired’ to reflect this change in classification and comparative figureshave been restated resulting in an increase in the ‘high quality’ by £48 million from £15,435 million with offsetting decreases in ‘satisfactory quality’ by £5 million from £25 million,‘acceptable quality’ by £31 million from £73 million and ‘lower quality’ by £12 million from £12 million, with no change to the overall total of ‘neither past due nor impaired’ loans.

2 As described on pages 42 and 43, the Group has modified its definition of impaired loans with a corresponding impact on amounts classified as ‘past due greater than 90 daysbut not impaired’. As a result comparative figures have been restated as follows; impaired ‘Non-property SME and corporate’ have reduced by £20 million (from £99 million to£79 million) with a corresponding increase in amounts classified as ‘past due but not impaired’ (from £13 million to £33 million) and impaired ‘Commercial property andconstruction’ loans have reduced by £22 million (from £289 million to £267 million) with a corresponding increase in amounts classified as ‘past due but not impaired’ (from £29million to £51 million)



m Credit risk exposures (continued)

Financial assets - ‘past due but not impaired’: loans and advances to customers The tables below provide an aged analysis of loans and advances to customers 'past due but not impaired' by asset classification.

Non- property Commercial Residential SME and property and mortgages corporate construction Consumer Total2017 £m £m £m £m £m Past due up to 30 days 107 5 1 11 124Past due 31-60 days 145 7 21 2 175Past due 61-90 days 29 2 2 1 34Past due more than 90 days but not impaired 51 23 15 - 89Total 332 37 39 14 422

Non- property Commercial Residential SME and property and mortgages corporate construction Consumer Total2016 £m £m £m £m £m Past due up to 30 days 97 5 3 9 114Past due 31-60 days 159 3 17 2 181Past due 61-90 days 37 5 9 2 53Past due more than 90 days but not impaired1 59 20 22 - 101Total 352 33 51 13 449

Financial assets - ‘impaired’: loans and advances to customers The tables below provide an analysis of ‘impaired’ loans and advances to customers by asset classification.

Specific provisions Impaired as % of Impaired loans as % Specific impaired Advances loans of advances provisions loans2017 £m £m % £m % Residential mortgages 16,043 67 - 7 10%Non-property SME and corporate 2,786 49 2% 25 51%Commercial property and construction 652 134 21% 59 44%Consumer 952 13 1% 10 77%Total 20,433 263 1% 101 38%

Specific provisions Impaired as % of Impaired loans as % Specific impaired Advances loans1 of advances provisions loans2016 £m £m % £m % Residential mortgages 15,964 67 - 8 12%Non-property SME and corporate 2,623 79 3% 49 62%Commercial property and construction 962 267 28% 140 52%Consumer 750 9 1% 8 89%Total 20,299 422 2% 205 49%


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

1 Comparative figures have been restated as set out on pages 42 and 43.



Impairment provision The tables split out the impairmentprovisions and impairment charge bynature and composition.

2017 2016 £m £m Specific provisions 101 205Incurred but not reported (IBNR) 43 51Total impairment provision 144 256

m Credit risk exposures (continued)

2017 2016

Specific IBNR Total Specific IBNR Total £m £m £m £m £m £m Residential mortgages 1 1 2 3 (1) 2Non-property SME and corporate 4 (3) 1 7 (7) -Commercial property and construction 15 (7) 8 20 (3) 17Consumer 11 2 13 4 (1) 3Total loan impairment charge 31 (7) 24 34 (12) 22

Asset quality: other financialinstrumentsOther financial instruments includeavailable for sale assets, derivativefinancial instruments and loans andadvances to banks.

Refer to the Risk Management section forfurther details on Asset quality: otherfinancial instruments page 49.

2017 2016Other financial instruments with ratings equivalent to: £m £m Aaa to Aa3 2,233 2,328A1 to A3 22 12Baa1 to Baa3 1,405 2,076Total 3,660 4,416

Deposits from banks includes £1,200million (31 December 2016: £600 million)of borrowings under the Bank of EnglandTerm Funding Scheme, which iscollateralised with mortgage loans, and

£350 million (31 December 2016: £155million) borrowed under the Bank ofEngland Indexed Long - Term Reposcheme, which is collateralised with notesissued by Bowbell (see note 38). Refer to

note 24 of the consolidated accounts forfurther information.

Amounts due to the Parent of £1,982million (31 December 2016: £1,896 million)primarily relates to borrowing in place tofund and manage interest rate risk on theBank’s assets. Refer to note e for detailsof amounts due from the Parent, and note36 of the consolidated financialstatements in respect of changes in thesebalances during 2017.

2017 2016 £m £m Deposits from banks 3,554 2,675

Amounts include: Due to the Parent 1,982 1,896

n Deposits from banks


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion


Financial services compensationschemeThe FSCS is the UK’s independentstatutory compensation fund forcustomers of authorised financial servicesfirms and pays compensation if a firm isunable to pay claims against it. The FSCSis funded by levies on the industry.Following the default of a number offinancial institutions, the FSCS borrowed

funds from HM Treasury to covercompensation in relation to protecteddeposits. The FSCS recovers the interestcost and capital repayments, together withongoing management expenses, by wayof annual levies on member firms. If theassets of the failed institutions areinsufficient to repay the Government loan,additional levies may become payable infuture periods. The provision at 31

December 2017 represents the Bank’sestimate of the interest element of the levydue for the FSCS levy year from 1 April2017 to 31 March 2018. This is calculatedbased on the Bank’s share of industryprotected deposits at 31 December 2016.

The charge to the income statement for2017 of £2 million has been offset by awrite back of opening provision of £2million.

OtherAs at 31 December 2017 a provision of £6million has been made for certaincommissions payable to the Post Office.In addition, as at 31 December 2017 theBank has a provision of £4 million to coverpotential payments to customers inrelation to various compliance matters.The provision is based uponmanagement’s current expectations offuture payments to be made to customers.


Term deposits include deposits of £1million (31 December 2016: £63 million),whose return is dependent on movementsin various external indices; these depositsare designated at fair value through profitor loss.

The Bank is authorised to issue banknotesin Northern Ireland under the Bank ofIreland (UK) plc Act 2012.

2017 2016Customer accounts £m £m Term deposits 6,574 8,900Demand deposits 9,614 8,145Non-interest bearing current accounts1 2,502 2,191Interest bearing current accounts 355 368Customer accounts 19,045 19,604

Amounts include: Due to subsidiaries 84 129Due to entities controlled by the Parent 8 7

o Customer accounts

2017 2016Other liabilities £m £m Notes in circulation 1,084 1,036Accrued interest payable 52 78Sundry payables 66 68Accruals and deferred income 15 13Other liabilities 1,217 1,195

Amounts include: Due to the Parent 2 8

Maturity profile of other liabilities Amounts payable within 1 year 1,217 1,195

p Other liabilities

q Provisions

FSCS Other TotalProvisions £m £m £m At 1 January 5 10 15Net charge to the income statement - 11 11Utilised during the year (3) (11) (14)At 31 December 2 10 12

Expected utilisation period Used within 1 year 2 9 11Used after 1 year - 1 1


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

1 In the comparatives an amount of £126 million was reallocated from Non-interest bearing current accounts to Term deposits.



r Deferred tax

2017 2016 £m £m The movement on the deferred tax account is as follows: At 1 January 63 80Income statement charge for year (2) (11)Available for sale securities - charge to other comprehensive income - (1)Cash flow hedges - (charge) / credit to other comprehensive income 3 (7)Additional tier 1 - credit to equity 1 2Other - -At 31 December 65 63 Deferred tax assets and liabilities are attributable to the following items: Deferred tax assets Unutilised tax losses 74 76Fixed / leased assets 1 1Total deferred tax assets 75 77

Deferred tax liabilitiesCash flow hedges - transferred to reserves (8) (11)Available for sale securities (1) (2)Deferred tax on property held at fair value (1) (1)Total deferred tax liabilities (10) (14)

Represented on the balance sheet as follows: Deferred tax assets 65 63

s Subordinated liabilities

2017 2016 £m £m £90 million subordinated floating rate loans 2022 - 90£45 million subordinated floating rate loans 2022 - 45£200 million subordinated floating rate loans 2025 200 200£90 million subordinated floating rate loans 2027 90 -Subordinated liabilities 290 335

Refer to note 29 of the consolidatedfinancial statements for further details.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



The table sets out the contractualamounts of contingent liabilities andcommitments. The maximum exposure tocredit loss under contingent liabilities andcommitments is the contractual amount ofthe instrument in the event of non-performance by the other party where allcounter claims, collateral, or securityprove worthless.


t Contingent liabilities and commitments

2017 2016 £m £m Contingent liabilities Guarantees and irrevocable letters of credit 9 9Other contingent liabilities 5 5Total contingent liabilities 14 14

Commitments Undrawn formal standby facilities, credit lines and other

commitments to lend - revocable or irrevocable with original maturity of 1 year or less 4,205 3,480- irrevocable with original maturity of over 1 year 47 173Total commitments 4,252 3,653

Refer to note 31 of the consolidated financial statements for further details.

u Share capital

1 All shares issued are in denominations of £1, therefore the table above also represents unit values.

Other equity instruments consist ofAdditional tier 1 securities held by theParent:

• £200 million issued on 1 May 2015; • £100 million issued on 26 November

2015


v Other equity instruments


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation

Ordinary Shares1







The table below summarises the maturity profile of the Bank’s derivative liabilities. The undiscounted cash flows payable on derivativesliabilities are classified according to their contractual maturity.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion

w Liquidity risk

2017 0-3 3-12 1-5 Over 5 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 308 155 1,242 1,865 45 3,615Customer accounts 14,041 2,053 2,459 582 - 19,135Subordinated liabilities - 3 9 53 339 404Contingent liabilities 14 - - - - 14Commitments 3,218 - 987 47 - 4,252Total 17,581 2,211 4,697 2,547 384 27,420

2016 0-3 3-12 1-5 Over 5 Demand months months years years TotalMaturity profile of financial liabilities £m £m £m £m £m £m Deposits from banks 333 162 439 1,737 58 2,729Customer accounts 12,956 2,613 3,239 928 2 19,738Subordinated liabilities - 7 16 98 391 512Contingent liabilities 14 - - - - 14Commitments 3,054 - 426 173 - 3,653Total 16,357 2,782 4,120 2,936 451 26,646

The tables below summarise the maturityprofile of the Bank’s financial liabilities at31 December 2017 and at 31 December2016, based on contractual undiscountedrepayment obligations.

The Bank does not manage liquidity riskon the basis of contractual maturity.Instead, the Bank manages liquidity risk

based on expected cash flows. Thebalances shown below will not agreedirectly to the balance sheet because thetable incorporates all cash flows, on anundiscounted basis, related to bothprincipal and interest payments.

Customer accounts include a number ofterm accounts that contain easy access

features. These allow the customer toaccess a portion or all of their depositnotwithstanding that this repayment couldresult on a financial penalty being paid bythe customer. For such accounts theportion subject to the potential earlyaccess has been classified accordingly inthe table below as ‘demand’.



x Measurement basis of financial assets and financial liabilities



Derivatives designated as fair value Designated Available Cash flow Held at hedging Held for upon initial for hedge amortised instruments trading recognition sale derivatives cost Total2017 £m £m £m £m £m £m £m Financial assets Cash and balances with central banks - - - - - 1,836 1,836Items in the course of collection from other banks - - - - - 192 192

Derivative financial instruments 9 12 - - 6 - 27Loans and advances to banks - - 1 - - 2,624 2,625Available for sale financial assets - - - 1,008 - - 1,008Loans and advances to customers - - - - - 20,289 20,289Total financial assets 9 12 1 1,008 6 24,941 25,977





Derivatives designated as fair value Designated Available Cash flow Held at hedging Held for upon initial for hedge amortised instruments trading recognition sale derivatives cost Total2016 £m £m £m £m £m £m £m Financial assets Cash and balances with central banks - - - - - 1,172 1,172Items in the course of collection from other banks - - - - - 131 131

Derivative financial instruments 6 23 - - 26 - 55Loans and advances to banks - - 63 - - 3,158 3,221Available for sale financial assets - - - 1,140 - - 1,140Loans and advances to customers - - - - - 20,043 20,043Total financial assets 6 23 63 1,140 26 24,504 25,762




eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



x Measurement basis of financial assets and financial liabilities (continued)

The fair value and contractual amount due on maturity, of financial liabilities designated at fair value upon initial recognition, are shownin the table below.

2017 2016

Contractual amount Contractual amount Fair values due on maturity Fair values due on maturity £m £m £m £m Customer accounts 1 1 63 59

y Transferred financial assets

Fair value of associated Carrying liabilities Carrying amount of Fair value (Fair value amount associated of transferred of notes of assets liabilities assets in issue)Securitisation £m £m £m £m Residential mortgage book (Bowbell)1 3,000 3,000 2,886 2,886

1 For the purposes of this disclosure, associated liabilities include liabilities issued by Bowbell, held by the Bank.

Nature of risks and rewards to which the entity is exposedThe Bank is exposed substantially to all risks and rewards including credit and market risk associated with the transferred assets.

The Bowbell mortgage book is ring-fenced whereby the cash flows associated with assets can only be used to repay the Bowbellnotes holders plus associated issuance fees or costs.

Entity continuing to recognise assets to the extent of its continuing involvementThe Bank is not recognising any asset to the extent of its continuing involvement.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



2017 2016

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Fair value of financial assets held at amortised cost

Loans and advances to banks - 2,640 - 2,640 - 3,201 - 3,201Loans and advances to customers - - 20,325 20,325 - - 20,065 20,065Total - 2,640 20,325 22,965 - 3,201 20,065 23,266

Fair value of financial liabilities held at amortised cost

Deposits from banks - 3,569 - 3,569 - 2,698 - 2,698Customer accounts - 19,055 - 19,055 - 19,589 - 19,589Subordinated liabilities - 301 - 301 - 351 - 351Total - 22,925 - 22,925 - 22,638 - 22,638

2017 2016

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total £m £m £m £m £m £m £m £m Financial assets held at fair value Derivative financial instruments - 27 - 27 - 55 - 55Loans and advances to banks - 1 - 1 - 63 - 63Available for sale financial assets 1,008 - - 1,008 1,140 - - 1,140

Non-financial assets held at fair value Property held at fair value - - 23 23 - - 7 7Total assets held at fair value 1,008 28 23 1,059 1,140 118 7 1,265

As a % of fair value assets 95% 3% 2% 100% 90% 9% 1% 100%

Financial liabilities held at fair value Customer accounts - 1 - 1 - 63 - 63Derivative financial instruments - 65 - 65 - 102 - 102Total financial liabilities held at fair value - 66 - 66 - 165 - 165

As a % of fair value liabilities - 100% - 100% - 100% - 100%

z Fair value of assets and liabilities

2017 2016Property held at fair value £m £m At 1 January 7 7Additions 15 -Revaluation of property 1 -At 31 December 23 7

Movements in level 3 assets


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation Fair Value Range

Valuation Unobservable 2017 2016 2017 2016Level 3 assets technique input £m £m % % Market comparable Property valuation Third party Third partyProperty held at fair value property transactions assumptions 23 7 pricing pricing



The carrying amount and the fair value ofthe Group’s financial assets and liabilitieswhich are carried at amortised cost are setout in the table. Items where the carryingamount is a reasonable approximation offair value are not included, as permitted byIFRS 7.

Details of transactions with key management personnel are set out in note 36 of the consolidated financial statements.

2017 2016

Carrying Fair Carrying Fair amount values amount values £m £m £m £m Financial Assets Loans and advances to banks 2,625 2,641 3,221 3,264Loans and advances to customers 20,289 20,325 20,043 20,065

Financial Liabilities Deposits from banks 3,554 3,569 2,675 2,698Customer accounts 19,045 19,056 19,604 19,652Subordinated liabilities 290 301 335 351

z Fair value of assets and liabilities (continued)

aa Related party transactions

2017 2016 Joint Joint Parent1 venture Total Parent1 venture Total £m £m £m £m £m £m Income statement Interest income 3 - 3 23 - 23Interest expense (36) - (36) (49) - (49)Fees and commission expense (8) - (8) (7) - (7)Net trading expense 9 - 9 (18) - (18)Other operating income - 34 34 - 35 35Operating expenses paid for services provided2 (216) - (216) (222) - (222)Total income / (expense) (248) 34 (214) (273) 35 (238) Assets Loans and advances to banks 1,383 - 1,383 2,027 - 2,027Loans and advances to customers 6 - 6 6 - 6Other assets 1 - 1 3 - 3Derivatives 20 - 20 50 - 50Total assets 1,410 - 1,410 2,086 - 2,086 Liabilities Deposits from banks 1,982 - 1,982 1,896 - 1,896Customer accounts 8 - 8 7 - 7Other liabilities 2 - 2 8 - 8Derivatives 63 - 63 89 - 89Subordinated liabilities 290 - 290 335 - 335Total liabilities 2,345 - 2,345 2,335 - 2,335 Net exposure (935) - (935) (249) - (249)

1 This relates to amounts in respect of the Parent and entities controlled by the Parent.2 Included within this amount is a fee of £52,131 (year ended 31 December 2016: £48,090) to Archie Kane, Governor and Non-executive Director of the Parent who was appointed

as consultant advisor to the Group in June 2012.


Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



ab Post balance sheet events

There are no post balance sheet events that require disclosure in the financial statements.

ac Approval of financial statements

The Board of Directors approved the financial statements on 6 March 2018.


eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation



Other Information

Principal business units and addresses

Bank of Ireland (UK) plcBow Bells House, 1 Bread Street, London EC4M 9BETel: +44 207 236 2000Website: www.bankofirelanduk.com

Bank of Ireland Great Britain Consumer BankingMortgages, Credit Cards, Personal LoansPO Box 27, One Temple Quay, Bristol BS99 7AXTel: + 44 117 979 2222 and + 44 117 909 0900Fax: + 44 117 929 3787

Bank of Ireland Great Britain Business BankingBow Bells House, 1 Bread Street, London EC4M 9BETel: +44 207 236 2000

Bank of Ireland Northern Ireland Business Banking1 Donegall Square South, Belfast, BT1 5LRTel: +44 28 9043 3000, Fax: +44 28 9043 3010

First Rate Exchange Services LimitedFalcon House, 115-123 Staines Road, Hounslow, TW3 3LLTel: + 44 208 577 9393, Fax: + 44 208 814 6685Website: www.firstrate.co.ukManaging Director: Gordon Gourlay

NIIB Group Limited (trading as Northridge Finance)1 Donegall Square South, Belfast BT1 5LRTel: + 44 844 892 1848

Marshall Leasing LimitedBridge House, Orchard Lane, Huntingdon, Cambridgeshire, PE29 3QTTel: + 44 148 041 4541, Fax: +44 148 045 1786

Pillar 3 disclosures

The Group's Pillar 3 document for the year ended 31 December 2017 can be accessed on the Group's website:www.bankofirelanduk.com. The Group's obligations under Article 89 of the CRD IV have been met by consolidation of Group data inthe Parent’s country by country reporting which is published on the Bank of Ireland Group website www.bankofireland.com.

Bus

ines

s R

evie

wR

isk

Man

agem

ent

Gov

erna

nce

Con

solid

ated

Fin

anci

alS

tate

men

tsB

ank

Fina

ncia

lS

tate

men

tsO

ther

Info

rmat

ion



ALCo Asset and Liability Committee

AML Anti Money Laundering

ATM Automatic Teller Machine

BoI Bank of Ireland

bps Basis points

BRC Board Risk Committee

Brexit The outcome of the UK referendum to

leave the EU

BTL Buy To Let

CCO Chief Credit Officer

CEO Chief Executive Officer

CFO Chief Financial Officer

CGU Cash Generating Unit

CMA Competition and Markets Authority

COO Chief Operating Officer

CRD Capital Requirement Directive (EU)

CRO Chief Risk Officer

CRPC Credit Risk and Portfolio Committee

CRR Capital Requirements Regulation

CSA Credit Support Annex

DCF Discounted Cash Flow

EBA European Banking Authority

ECL Expected Credit Loss

EIR Effective Interest Rate

EOCF Executive Oversight Complaints Forum

ERC Executive Risk Committee

EU European Union

FCA Financial Conduct Authority

FDI Foreign Direct Investment

FLI Forward Looking Information

FPC Financial Policy Committee

FRES First Rate Exchange Services Limited

FRESH First Rate Exchange Services Holdings Limited

FSCS Financial Services Compensation Scheme

GBP ISO 4217 currency code for Pound Sterling

GCR Group Credit Review

GIA Group Internal Audit

GRPC Group Risk Policy Committee

IAR Individual Accountability Regime

IAS International Accounting Standards

IASB International Accounting Standards Board

IBNR Incurred but not Reported

ICAAP Internal Capital Adequacy Assessment Process

IFRS International Financial Reporting Standards

IFRS IC IFRS Interpretations Committee

ILAAP Individual Liquidity Adequacy Assessment Process

ILTR Indexed Long Term Repo

IRRBB Interest Rate Risk in the Banking Book

ISDA International Swaps and Derivatives Association

IT Information Technology

KMP Key Management Personnel

KPI Key Performance Indicator

L&D Land & Development

LCR Liquidity Coverage Ratio

LGD Loss Given Default

LIBOR London Interbank Offered Rate

LLP Limited Liability Partnership

LTD Limited

LTV Loan to Value

MLL Marshall Leasing Limited

MRR Monthly Risk Report

NSFR Net Stable Funding Ratio

OCI Other Comprehensive Income

ONS Office for National Statistics

ORMF Operational Risk Management Framework

PD Probability of Default

PRA Prudential Regulation Authority

PSAGC Product & Services Approvals & Governance Committee

PTM Personal Touch Mortgage

PwC PricewaterhouseCoopers LLP

RAG Red, Amber, Green

RAROC Risk Adjusted Return on Capital

RAS Risk Appetite Statement

RIR Risk Improvement Roadmap

RMF Risk Management Framework

ROE Return on Equity

R&ORC Regulatory and Operational Risk Committee

R UK&GMF Retail UK and Group Manufacturing Forum

RWA Risk Weighted Assets

SFT Securities Financing Transaction

SME Small / Medium Enterprises

SMMT Society of Motor Manufacturers and Traders

SSM Single Supervisory Mechanism

TFS Term Funding Scheme

£m Million

£bn Billion

£’000 Thousands

Abbreviations

Business R

eviewR

isk Managem

entG

overnanceC

onsolidated

FinancialS

tatements

Bank FinancialS

tatements

Other Inform

ation


THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK


bank of ireland (uk) plc annual report 2017 · we closed six of our branches in 2017, reflecting...

Documents