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Bank of IrelandGroup plc Pillar 3 Disclosures2017

Pillar III Disclosures 2017.qxp_Layout 1 27/02/2018 09:45 Page i

Pillar III Disclosures 2017.qxp_Layout 1 27/02/2018 09:45 Page ii

Pillar 3 Disclosuresfor the year ended 31 December 2017

Pillar III Disclosures 2017.qxp_Layout 1 27/02/2018 09:45 Page 1

2 Pillar 3 Disclosures - year ended 31 December 2017

Forward-looking statement

This document contains forward-looking statements with respect to certain of the Bank of Ireland Group plc (the ‘Company’ or ‘BOIGplc’) and its subsidiaries’ (collectively the ‘Group’ or ‘BOIG plc Group’) plans and its current goals and expectations relating to its futurefinancial condition and performance, the markets in which it operates and its future capital requirements. These forward-lookingstatements often can be identified by the fact that they do not relate only to historical or current facts. Generally, but not always, wordssuch as ‘may,’ ‘could,’ ‘should,’ ‘will,’ ‘expect,’ ‘intend,’ ‘estimate,’ ‘anticipate,’ ‘assume,’ ‘believe,’ ‘plan,’ ‘seek,’ ‘continue,’ ‘target,’‘goal,’ ‘would,’ or their negative variations or similar expressions identify forward-looking statements, but their absence does not meanthat a statement is not forward-looking.

Examples of forward-looking statements include, among others: statements regarding the Group’s near term and longer term futurecapital requirements and ratios, level of ownership by the Irish Government, loan to deposit ratios, expected impairment charges, thelevel of the Group’s assets, the Group’s financial position, future income, business strategy, projected costs, margins, future paymentof dividends, the implementation of changes in respect of certain of the Group’s pension schemes, estimates of capital expenditures,discussions with Irish, United Kingdom, European and other regulators and plans and objectives for future operations. Such forward-looking statements are inherently subject to risks and uncertainties, and hence actual results may differ materially from thoseexpressed or implied by such forward-looking statements.

Such risks and uncertainties include, but are not limited to, those as set out in the Risk Management Report. Investors should read‘Principal Risks and Uncertainties’ in this document beginning on page 42 of the Group’s Annual Report.

Nothing in this document should be considered to be a forecast of future profitability or financial position of the Group and none of theinformation in this document is or is intended to be a profit forecast or profit estimate. Any forward-looking statement speaks only as atthe date it is made. The Group does not undertake to release publicly any revision to these forward-looking statements to reflectevents, circumstances or unanticipated events occurring after the date hereof.

For further information please contact:

Andrew Keating Alan Hartley Pat Farrell Group Chief Financial Officer Director of Group Investor Relations Head of Group CommunicationsTel: +353 76 623 5141 Tel: +353 76 623 4850 Tel: +353 76 623 4770


3Pillar 3 Disclosures - year ended 31 December 2017

Pillar 3 overview 4

Index of tables 4

Key highlights 7

Introduction 9

Areas covered 9

Supervision and regulation 10

CRD IV 10

Key capital ratios and key RWA movements 11

Preparation and basis of consolidation 13

Distinctions between Pillar 3 and IFRS disclosures 15

Capital 18

Capital overview 18

Capital requirements and buffers 20

Capital requirements / RWA 21

Breakdown of the Group’s regulatory

capital requirement 22

Capital resources 22

Capital instruments 32

Risk management 33

Risk management overview 33

Credit risk 35

- Exposure to credit risk 36

- Geographic analysis of exposures 38

- Industry analysis of exposures 40

- Maturity analysis of exposures 45

- IRB approach 46

- Analysis of credit quality - Foundation IRB 50

- Analysis of credit quality - Retail IRB 54

- Analysis of credit quality - Standardised approach 58

- Loan loss experience in the year ended

31 December 2017 60

- Past due and impaired exposures 60

- Specific credit risk adjustments (provisions) 62

- Comparison of expected versus actual loss 64

- Credit risk mitigation 64

Risk management (continued)

Counterparty credit risk 66

Securitisation 72

Market risk 76

- Overview 76

- Discretionary risk 76

- Customer risk 76

- Structural risk 76

Operational risk 77

- Overview 77

- Operational risk management objective 77

- Operational risk management framework 77

Liquidity risk 78

- Overview 78

- Encumbered and unencumbered assets

held by the Group 80

Leverage ratio 82

Appendices 85

Appendix I: CRD IV capital resources 85

Appendix II: Equity holdings not in the Trading Book 87

Appendix III: Remuneration 88

Appendix IV: Significant subsidiaries 93

- Bank of Ireland (UK) plc 93

- Bank of Ireland Mortgage Bank 95

- The Governor and Company of the Bank of Ireland 114

Appendix V: Difference in scope of consolidation 140

Appendix VI: CRR Roadmap 144

Glossary 154

Abbreviations 159

Contents

View this report onlineThis Report and other information relating to Bank of Ireland is available at:

www.bankofireland.com



Pillar 3 overview

Tables Page

Key highlights1.1 KM1: Key metrics - Regulatory basis 8

Introduction1.2 Transition period phase-in rates 101.3 Risk weighted assets (RWA) 111.4 Capital and capital ratios 111.5 Movement of RWA by key driver 121.6 Basis of consolidation 141.7 EU LI1Differences between accounting and regulatory scopes of consolidation 151.8 EU LI2 Reconciliation between regulatory exposure amounts and carrying value in financial statements 17

Capital2.1 Key capital ratios 182.2 EU OV1 - Overview of RWA 192.3 Capital requirements / RWA 212.4 Minimum capital requirements, risk weighted assets and net value by risk type 222.5 Reconciliation of accounting capital with regulatory capital 232.6 Capital flow statement 242.7 Regulatory & fully loaded own funds disclosure 262.8 Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer 302.9 Capital instruments 32

Risk Management3.1 Key risk figures and ratios 333.2 Number of directorships held by members of the Board 33

Credit risk4.1 EU CRB-B - Exposure to credit risk 364.2 EU CR1-A - Credit quality of exposures by exposure class and instrument 374.3 Geographical analysis of exposures - Location where exposure is booked 384.4 EU CRB-C - Geographical breakdown of exposures - Location of residence of counterparty 394.5 EU CR1-C - Credit quality of exposures by geographical breakdown - Location of residence of counterparty 404.6 EU CRB-D - Industry analysis of exposures 404.7 EU CR1-B - Credit quality of exposures by industry or counterparty types 444.8 EU CRB-E - Maturity of exposures 454.9 Relationship of PD grades with external ratings 474.10 EU CR9 - IRB approach - Backtesting of PD per exposure class 494.11 EU CR6 - IRB approach - Credit risk exposures by exposure class and PD scale (Foundation IRB) 504.12 EU CR6 - IRB approach - Credit risk exposures by exposure class and PD scale (Retail IRB) 544.13 EU CR5 - Standardised approach by exposure class 584.14 EU CR4 - Standardised approach - Credit risk exposure and CRM effects 604.15 Past due and impaired exposures by industry class 614.16 Past due and impaired exposure by geography 614.17 EU CR1-D - Ageing of past-due exposures 614.18 EU CR2-B - Changes in the stock of defaulted and impaired loans and debt securities 624.19 EU CR2-A - Changes in the stock of general and specific credit risk adjustments 624.20 EU CR1-E - Non-performing and forborne exposures 634.21 Expected versus actual loss 644.22 EU CR3 - CRM techniques - Overview 65

Counterparty credit risk5.1 EU CCR1 - Analysis of CCR exposure by approach 675.2 Current credit exposure by product 675.3 EU CCR2 - CVA capital charge 675.4 EU CCR5-A - Impact of netting and collateral held on exposure values 685.5 EU CCR3 - Standardised approach - CCR exposures by regulatory portfolio and risk weight 685.6 EU CCR4 - IRB approach - CCR exposures by exposure class and PD scale 695.7 EU CCR5-B - Composition of collateral for exposures to CCR 705.8 EU CCR6 - Credit derivative exposures 705.9 EU CCR8 - Exposures to CCPs 71

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Index of tables



Tables Page

Securitisation 6.1 Outstanding amount of exposures securitised 736.2 Specific provisions, past due and impaired securitised exposures 736.3 Retained and purchased securitisation positions by exposure type 746.4 Retained and purchased securitisation positions by risk weight 75

Market risk7.1 Market risk under the Standardised approach 76

Liquidity risk8.1 Liquidity ratios 788.2 LCR disclosures 798.3 Encumbered and unencumbered assets held by the Group 808.4 Collateral received 818.5 Encumbered assets / collateral received and associated liabilities 81

Leverage ratio9.1 EU LRSum: Summary reconciliation of accounting assets and leverage ratio exposures 829.2 EU LRCom: Leverage ratio common disclosure 839.3 EU RSpl: Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) 84

Appendix III: Remuneration1a Aggregate remuneration expenditure by business area 902a Senior managers remuneration table 912b All other risk roles remuneration table 912c All staff remuneration table 92

Appendix IV: Significant subsidiariesBank of Ireland (UK) plc1 Breakdown of Bank of Ireland (UK) plc’s regulatory capital requirement 932 Regulatory capital position and key capital and leverage ratios 94

Bank of Ireland Mortgage Bank1 Capital, RWA and capital ratios 952 Movement of risk weighted assets by key driver 963 EU OV1 - Overview of RWA 974 Capital requirements / RWA 985 Minimum capital requirements, risk weighted assets and net value by risk Type 986 Reconciliation of accounting capital with regulatory capital A 997 Regulatory & fully loaded own funds disclosure 1008 Capital instruments 1019 Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer 10210 EU CRB-B - Exposure to credit risk 10311 EU CR1-A - Credit quality of exposures by exposure class and instrument 10312 EU CRB-C - Geographical breakdown of exposures 10413 EU CR1-C - Credit quality of exposures by geography 10414 EU CRB-D - Industry analysis of exposure 10515 EU CR1-B - Credit quality of exposures by industry or counterparty types 10516 EU CRB-E - Maturity of exposures 10617 Past due and impaired by industry class 10618 Past due and impaired by geography 10719 EU CR1-D - Ageing of past-due exposures 10720 EU CR2-B - Changes in the stock of defaulted and impaired loans and debt securities 10721 EU CR2-A - Changes in the stock of general and specific credit risk adjustments 10822 EU CR1-E - Non-performing and forborne exposures 10923 Expected versus actual loss 11024 EU CR3 - CRM techniques - Overview 11125 EU LRSum: Summary reconciliation of accounting assets and leverage ratio exposures 11226 EU LRSum: Summary reconciliation of accounting assets and leverage ratio exposures 11227 EU LRSpl: Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) 113

Pillar 3 overview

Index of tables (continued)

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Tables Page

Appendix IV: Significant subsidiaries (continued)The Governor and Company of the Bank of Ireland1 Capital, RWA and capital ratios 1142 Movement of risk weighted assets by key driver 1153 EU OV1 - Overview of RWA 1164 Capital requirements / RWA 1175 Minimum Capital Requirements, Risk Weighted Assets and Net Value by Risk Type 1186 Reconciliation of accounting capital with regulatory capital 1197 Regulatory & fully loaded own funds disclosure 1208 Geographical distribution of credit exposures relevant for the calculation of the countercyclical capital buffer 1249 Capital instruments 12510 EU CRB-B - Exposure to credit risk 12611 EU CR1-A - Credit quality of exposures by exposure class and instrument 12712 EU CRB-C - Geographical breakdown of exposures 12813 EU CR1-C - Credit quality of exposures by geographical breakdown 12814 EU CRB-D - Industry analysis of exposures 12915 EU CR1-B - Credit quality of exposures by industry or counterparty types 13116 EU CRB-E - Maturity of exposures 13217 Past due and impaired exposures by industry class 13318 Past due and impaired exposure by geography 13319 EU CR1-D - Ageing of past-due exposures 13320 EU CR2-2 - Changes in the stock of defaulted and impaired loans and debt securities 13421 EU CR2-A - Changes in the stock of general and specific credit risk adjustments 13422 EU CR1-E - Non-performing and forborne exposures 13523 Expected versus actual loss 13624 EU CR3 - CRM techniques - Overview 13725 EU LRSum: Summary reconciliation of accounting assets and leverage ratio exposures 13826 EU LRCom: Leverage ratio common disclosure 13827 EU LRSpl: Split-up of on balance sheet exposures (excluding derivatives, SFTs and exempted exposures) 139

Appendix V: Differences in scope of consolidation1 EU LI3 - Differences in scope of consolidation (entity by entity) 140

Appendix VI: CRR Roadmap 144

Index of tables (continued)

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Key highlights

1 Organic capital generation consists of attributable profit, AFS reserve movements, the reduction in the DTA deduction (DTAs that rely on future profitability), movements in theExpected Loss deduction and RWA book size and quality movements. Transitional organic capital generation is 20 basis points higher due to the phasing impacts on AFSreserves and the DTA / Expected Loss deductions.

2 Core banking platform investment relates to a programme commenced by the Group to replace the Group’s core banking platform. 3 In December 2017, the Group executed a credit risk transfer (CRT) transaction.4 Relates primarily to other regulatory deductions.

Total capital ratio

20.2%Dec 2016: 18.5%

CET 1 ratio

15.8%Dec 2016: 14.2%

Leverage ratio

7.0%Dec 2016: 7.3%

Total RWA

€45.0bnDec 2016: €50.7bn

15.8%

Regulatory CET 1 ratio movement

Dec ‘16Regulatory CET 1

14.2%

Organic capitalgeneration1

Core BankingPlatform

Investment2

Dividend Credit risktransfer

transaction3

RWAmethodology

change

Dec ‘17Regulatory CET 1

Impact of CRD IV phasing in 2016

(0.40%)

Total capital ratio

17.9%Dec 2016: 16.4%

CET 1 ratio

13.8%Dec 2016: 12.3%

Leverage ratio

6.2%Dec 2016: 6.4%

Total RWA

€44.8bnDec 2016: €50.5bn

Fully loaded CET 1 ratio movement

Business & Other Services

Central and Local Government

Property & Construction

Other

Mortgages & Other Personal

Credit risk

Market risk

Operational risk

Counterpartycredit risk

Securitisations

86%

2%

1%10%

RWA€45.0bn

6%

14%8%

21%

51%

Net Value€113.2bn

€45.0bn

RWA movement

RWA as at

31 Dec2016

€50.7bn

Asset size & quality

Methodologyand policy

Credit risktransfer

transaction3

Foreignexchangemovements

Other4 RWA as at

31 Dec2017

(€1.8bn)(€1.2bn) (€1.6bn) (€0.1bn)(€1.0bn)1%

(0.25%)0.55%

0.30%1.60%

13.8%

Dec ‘16fully loaded

CET 1

12.3%

Organic capitalgeneration1

Core BankingPlatform

Investment2

Dividend Credit risktransfer

transaction3

RWAmethodology

change

Dec ‘17fully loaded

CET 1

(0.40%)(0.25%)

0.50% 0.30%1.40%



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Table 1.1 - KM1: Key metrics - Regulatory basis

December September June March December 20171 2017 20171 2017 20161,2

Available capital1. Common equity tier 1 (CET1) (€bn) 7.1 6.8 7.0 6.8 7.22. Tier 1 (€bn) 7.6 7.3 7.8 7.6 8.03. Total capital (€bn) 9.1 8.8 8.9 9.0 9.4

Risk weighted assets 4. Total RWA (€bn) 45.0 48.0 48.8 50.4 50.7

Risk-based capital ratios as a % of RWA 5. Common equity tier 1 ratio (%) 15.8% 14.2% 14.4% 13.5% 14.2%6. Tier 1 ratio3 (%) 17.0% 15.3% 15.9% 15.0% 15.7%7. Total capital ratio3 (%) 20.2% 18.4% 18.3% 17.8% 18.5%

Additional CET 1 buffer requirements as a % of RWA 8. Capital conservation buffer requirement (%) 1.25% 1.25% 1.25% 1.25% 0.625%9. Countercyclical buffer requirement (%) 0.0% 0.0% 0.0% 0.0% 0.0%10. Bank G-SIB and / or D-SIB additional requirements (%) - - - - -11. Total of Bank CET 1 specific buffer requirements (%) 1.25% 1.25% 1.25% 1.25% 0.625%12. CET 1 available after meeting the bank's minimum Pillar 1 capital requirements (4.5%) (%) 11.3% 9.7% 9.9% 9.0% 9.8%

Leverage ratio 13. Total leverage ratio exposure measure (€m) 108.3 108.0 108.0 111.3 109.814. Leverage ratio3 (%) 7.0% 6.8% 7.2% 6.8% 7.3%

Liquidity Coverage Ratio 15. Total HQLA (€bn) 18.8 17.7 16.5 17.7 16.216. Total net cash outflow (€bn) 13.9 13.4 13.8 13.4 14.317. LCR ratio (%) 136% 132% 120% 132% 113%

Key highlights (continued)

Pillar 3 overview

1 The Group availed of the regulatory profit verification process for profit in interim and year end regulatory disclosures.2 RWA in 2016 was restated from €50.8 billion to €50.7 billion due to a change in Market Risk RWA to reflect a minor restatement of the foreign exchange risk calculation.3 The calculation of the Group’s Tier 1, total capital and related ratios (including leverage ratio) at December 2017 are stated after a prudent application of the requirements of

Articles 85 and 87 of Capital Requirements Regulation (CRR). Further details are provided on page 19.




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Introduction

The purpose of this document is todisclose information in accordance withthe scope of application of the CapitalRequirements Directive IV (CRD IV)requirements for the Group, particularlycovering capital, risk management, creditrisk, market risk, operational risk, liquidityrisk, leverage ratio and remuneration.

The CRD IV and the Capital RequirementsRegulation (CRR) were published in theOfficial Journal of the EU on 27 June2013. The CRR had direct effect in EUmember states while the CRD IV wasrequired to be implemented throughnational legislation in EU member statesby 31 December 2013.

CRD IV in the context of this documentdescribes the package CRR, CRD andregulatory and technical standards.

CRD IV is commonly referred to ascontaining the following three Pillars:

Pillar 1 contains mechanisms andrequirements for the calculation byfinancial institutions of their minimumcapital requirements for credit risk, marketrisk and operational risk.

Pillar 2 is intended to ensure that eachfinancial institution has sound internalprocesses in place to assess theadequacy of its capital, based on athorough evaluation of its risks.Supervisors are tasked with evaluatinghow well financial institutions areassessing their capital adequacy needsrelative to their risks. Risks not consideredunder Pillar 1 are considered under thisPillar.

Pillar 3 is intended to complement Pillar 1and Pillar 2. It requires that financialinstitutions disclose information on thescope of application of CRD IVrequirements, particularly covering capitalrequirements / risk weighted assets (RWA)and resources, risk exposures and riskassessment processes.

The Group is required to comply with theCRD IV disclosure requirements at 31December 2017. For ease of reference,the requirements are referred to as ‘Pillar3’ in this document. Pillar 3 contains bothqualitative and quantitative disclosurerequirements.

In December 2016, the European BankingAuthority (EBA) published final guidelineson revised Pillar 3 disclosure requirementsaimed to improve and enhance theconsistency and comparability ofinstitutions disclosures. These guidelinesapply from 31 December 2017 and theGroup’s disclosures have been preparedin accordance with these guidelines.

The Group’s Pillar 3 document should beread in conjunction with the Group’sAnnual Report 31 December 2017, whichcontains some Pillar 3 qualitative andquantitative information. Together, bothdocuments comprehensively portray theGroup’s risk profile.

The qualitative disclosure requirements arelargely met in the Operating and FinancialReview and Risk Management Reportsections on page 12 of the Group’s AnnualReport 31 December 2017.

A mapping table has been included inAppendix VI which details how the Grouphas complied with the Pillar 3requirements under Part Eight of the CRR.

The Group’s Pillar 3 disclosures have beenprepared in accordance with CRD IV asimplemented into Irish law and inaccordance with the Group’s Pillar 3Disclosure Policy, the key elements ofwhich are set out below.

FrequencyCRD IV and EBA guidelines require theGroup to disclose information at aminimum on an annual basis. To ensurethe effective communication of theGroup’s business and risk profile, theGroup also pays particular attention to thepossible need to provide information morefrequently than annually.

VerificationInformation which is sourced from theGroup’s Annual Report 31 December 2017is subject to audit by the Group’s externalauditors and is subject to both internaland external review, along withappropriate governance. The Pillar 3document is subject to a robust internalcontrol and governance process in linewith Group’s Pillar 3 Disclosure Policyincluding final approval by the Group AuditCommittee (GAC).

MediaCopies of the Group’s Annual Report 31December 2017 along with the Group’sPillar 3 Disclosures can be obtained fromthe Group’s website atwww.bankofireland.com or from the GroupSecretary’s Office, Bank of Ireland, 40Mespil Road, Dublin 4, Ireland.

Areas covered

In accordance with Pillar 3 requirements,the areas covered by the Group’s Pillar 3disclosures include the Group’s CRD IVcapital requirements and resources, creditrisk, counterparty credit risk, informationon securitisation activity, market risk,operational risk, liquidity risk, encumbered/ unencumbered assets, leverage ratio andthe Group’s remuneration disclosures.

Some of the areas covered are also dealtwith in the Group’s Annual Report 31December 2017. Where applicable, therelevant sections are cross-referencedthroughout this document. In other areasmore detail is provided in these Pillar 3disclosures. For instance, the section oncapital requirements includes additionalinformation on the amount of capital held

against various risks and exposureclasses, and the section on capitalresources provides details on thecomposition of the Group’s own funds aswell as a reconciliation of accountingequity to regulatory capital. A full listing ofPillar 3 disclosures and their location isincluded in Appendix VI.

It should be noted that while somequantitative information in this documentis based on financial data contained in theGroup’s Annual Report 31 December2017, other quantitative data is sourcedfrom the Group regulatory platform and iscalculated according to regulatoryrequirements.

The difference between the accountingdata and information sourced from theGroup’s regulatory reporting platform ismost evident for credit risk disclosureswhere credit exposure under CRD IVunlike financial statement information,includes potential future drawings ofcommitted credit lines as well as othertechnical differences. Pillar 3 quantitativedata is thus not always directlycomparable with the quantitative datacontained in the Group’s Annual Report.

Some details of the key differencesbetween the Group’s accounting andregulatory exposures are set out in Table1.8.



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Supervision and regulation

The Single Supervisory Mechanism (SSM)is a system of financial supervisioncomposed of the European Central Bank(ECB) and national competent authorities(NCAs). As part of the SSM, the ECB isresponsible for the direct supervision ofsignificant credit institutions, while theNCAs are responsible for the directsupervision of less significant creditinstitutions. The Group is a significantsupervised entity in accordance with theSSM framework and as such is directlysupervised by the ECB.

As at 31 December 2017, the Group heldthree separate banking licences, theGovernor and Company of the Bank ofIreland (the ‘Bank’) and Bank of IrelandMortgage Bank, which are regulated underthe SSM, along with Bank of Ireland (UK)plc which is authorised by the UKPrudential Regulation Authority (PRA). Byoperating a branch in the United States,Bank of Ireland and its subsidiaries aresubject to certain regulation by the Boardof Governors of the Federal ReserveSystem under various laws, including theInternational Banking Act of 1978 and theBank Holding Company Act of 1956. Each

individual licence holder and regulatedentity is required to comply with its localregulatory requirements.

Following shareholder and High Courtapprovals and in line with our regulators’preferred resolution strategy, the Groupimplemented a corporate reorganisationresulting in Bank of Ireland Group plc(‘BOIG plc’) being introduced as the listedholding company of the Group in July2017. BOIG plc became the parentcompany of the Group. The structure ofthe Group is otherwise unchanged.

CRD IV

The CRD IV legislation commencedimplementation on a phased basis from 1January 2014. The CRD IV transition rulesresulted in a number of deductions fromCommon equity tier 1 (CET 1) capitalbeing introduced on a phased basistypically with a 20% impact in 2014, 40%in 2015 and so on until full implementationby 2018, with the exception of the

deferred tax assets (DTA) (dependent onfuture profitability) deduction which in thecase of the Group is phased to 2024. Theratios outlined in this section reflect theGroup’s interpretation of the CRD IV rulesas published on 27 June 2013 andsubsequent clarifications, including ECBregulation 2016/445 on the exercise ofoptions and discretions.

Table 1.2 summarises the phase-in ratesof CET 1 deductions over the transitionperiods.

Table 1.4 outlines the Group’s capitalratios at 31 December 2017 on both aregulatory and fully loaded basis.

Table 1.2 - Transition period phase-in rates 2014 2015 2016 2017 2018 Retirement benefit obligations / defined benefit pensions 20% 40% 60% 80% 100%Available for sale reserves- Unrealised losses (% to be included in CET 1 capital) 20% 40% 60% 80% 100%- Unrealised gains (% to be excluded from CET 1 capital) 100% 60% 40% 20% 0%Expected loss deduction1 20% 40% 60% 80% 100%10% / 15% Threshold deduction 20% 40% 60% 80% 100%Deferred tax assets2 0% 10% 20% 30% 40%3

Other adjustments4 20% 40% 60% 80% 100%

1 Under CRD IV rules, expected loss CET 1 deduction was phased in at 80% in 2017. The residual is deducted 50/50 from Tier 1 and Tier 2. 2 Deferred tax assets that rely on future profitability but which do not relate to timing differences. Transition period concludes 1 January 2024.3 Increasing by 10% per annum to 100% each year thereafter.4 Other adjustments primarily relate to the phase out of certain national filters.

The main items which have impactedCommon equity tier 1 (CET 1) capital sincethe inception of the CRD IV transition rulesare included below:• pensions deficit add back;• unrealised gains and losses on

available for sale securities;• significant investments in non-

consolidated financial sector entities;• expected loss net of provisions; and

• deferred tax assets that rely on futureprofitability (excluding those arisingfrom temporary differences).

CRD IV DevelopmentsCRD IV includes requirements forregulatory and technical standards to bepublished by the EBA. CRD IV continuesto evolve through amendments to currentregulations and the adoption of new

technical standards. On 23 November2016, the European Commission (EC)published a set of legislative proposals,including amendments of the existingCRD and the CRR, as well as the relatedEU Bank Recovery and ResolutionDirective (BRRD) and the SingleResolution Mechanism (SRM) Regulation.

Pillar 3 overview



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Pillar 3 overview

CRD IV (continued)

The proposed amendments are expectedto start entering into force in 2019 at theearliest.

In December 2017, the Basel Committeeannounced revisions of the BaselFramework. The revisions focus onStandardised and internal ratings based(IRB) approaches to measuring credit riskand the introduction of an aggregateoutput floor to ensure Banks’ RWAcalculated via internal models are no lowerthan 72.5% of RWA calculated under theStandardised approach. The revisedstandards are proposed to take effectfrom 1 January 2022 with a phase-in

period of five years for the aggregateoutput floor. The Group is currentlyassessing the impact of these revisionsalthough any impact will depend onimplementation at EU level.The Group actively monitors thesedevelopments and seeks to effectivelycomply with the new requirements whenfinalised.

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.20basis points.

The Group has elected to apply thetransitional arrangement which, on aregulatory CET 1 basis, will result inminimal impact from initial adoption andpartially mitigate future impacts in theperiod to 2022. This will involve a capitaladdback of a portion of the increase in theimpairment loss allowance on transition toIFRS 9 and also any subsequent increasein the stage 1 and 2 loss allowances atfuture reporting dates. The transitionperiod is for five years, with a 95% add-back allowed in 2018, decreasing to 85%,70%, 50% and 25% in subsequent years.

Key capital ratios and key risk weighted assets movements

The following tables outline thecomponents of the Group’s risk weightedassets, capital and capital ratios underCRD IV on a regulatory and fully loadedbasis.

Table 1.4 - Capital and capital ratios

2017 2017 2016 2016 Regulatory Fully loaded Regulatory Fully loaded

€bn % of RWA €bn % of RWA €bn % of RWA €bn % of RWA CET 1 7.1 15.8% 6.2 13.8% 7.2 14.2% 6.2 12.3%Tier 12 7.6 17.0% 6.7 14.9% 8.0 15.7% 7.0 13.7%Total capital2 9.1 20.2% 8.0 17.9% 9.4 18.5% 8.3 16.4%

Table 1.3 - Risk weighted assets (RWA) 2017 2016

Fully Fully Regulatory loaded Regulatory loaded €bn €bn €bn €bn Credit risk1 38.7 38.5 44.0 43.8Counterparty credit risk 0.7 0.7 1.4 1.4Securitisation 0.5 0.5 0.3 0.3Market risk 0.5 0.5 0.4 0.4Operational risk 4.6 4.6 4.6 4.6Total RWA 45.0 44.8 50.7 50.5

1 Includes RWA relating to non-credit obligation assets / other assets, settlement risk and RWA arising from the 10% / 15% threshold deductions. 2 The calculation of the Group’s Tier 1, total capital and related ratios (including leverage ratio) at December 2017 are stated after a prudent application of the requirements of

Articles 85 and 87 of Capital Requirements Regulation (CRR). Further details are provided on page 19.


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Pill

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Pillar 3 overviewK

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Ann

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a pi t a l

Ri s k M

a n a g e me n t

Ap

pe n d

i c e s

Key capital ratios and key risk weighted assets movements (continued)

Risk weighted assetsRisk weighted assets (RWA), on aregulatory basis, were €45.0 billion at 31December 2017 (2016: €50.7 billion). Thedecrease of €5.7 billion in Credit RWA isprimarily due to the impact of FXmovements (€1.0 billion), changes in booksize and quality (€1.8 billion), changes inmethodology and policy (€1.2 billion), theexecution of a credit risk transfer (CRT)transaction (€1.6 billion) and othermovements (€0.1 billion).

Regulatory ratioThe CET 1 ratio was 15.8% at 31December 2017 (2016: 14.2%). Theincrease of c.160 basis points is primarilydue to organic capital generation (c.+160basis points), the impact of the CRTtransaction (c.+55 basis points) and RWAmethodology changes (c.+30 basis points)partially offset by an increase in CRD IVphasing for 2017 (c.-20 basis points),investment in the Group’s Core BankingPlatforms (c.-40 basis points) and an

accrual for a potential dividend (c.-25basis points) in line with regulatoryguidance.

Fully loaded ratioThe Group’s fully loaded CET 1 ratio isestimated at 13.8% at 31 December 2017(2016: 12.3%). The increase of c.150 basispoints is primarily due to organic capitalgeneration (c.+140 basis points), theimpact of the CRT transaction (c.+50basis points) and RWA methodologychanges (c.+25 basis points) partiallyoffset by investment in the Group’s CoreBanking Platforms (c.-40 basis points),and an accrual for a potential dividend (c.-25 basis points) in line with regulatoryguidance.

Leverage ratioThe leverage ratio at 31 December 2017 is7.0% on a CRD IV regulatory basis (2016:7.3%), 6.2% on a pro-forma fully loadedbasis (2016: 6.4%).

The EC have proposed the introduction ofa binding leverage requirement of 3% aspart of the revised CRD IV developments.It is anticipated that the binding leveragerequirement will be applicable from 2019at the earliest pending final agreement ofthe proposals at EU level. The Groupexpects to remain well in excess of theproposed 3% requirement.

Individual ConsolidationThe regulatory CET 1 ratio of TheGovernor and Company of the Bank ofIreland (the ‘Bank’) calculated on anindividual consolidated basis as referredto in Article 9 of the CRR is 15.3% at 31December 2017 (2016: 16.2%). Furtherdetails relating to the Bank are containedin Appendix IV of this document.

Preparation and basis of consolidation

The Group’s Pillar 3 disclosures arepublished on a consolidated basis for theyear ended 31 December 2017.

Not all legal entities are within the scopeof Pillar 3. A summarised diagrammaticalrepresentation (as at 31 December 2017)of the regulatory consolidation group is

illustrated below. The disclosures withinthis document are based on the regulatoryconsolidated group. Table 1.6 highlightsthe main differences between the basis ofconsolidation for accounting purposesand the CRD IV regulatory treatment.

The Governor and Company of the Bank

of Ireland is availing of the discretionprovided for in Article 9 of the CRR toreport on an ‘individual consolidation’basis which allows for the treatment ofcertain subsidiaries as if they were, ineffect, branches of the parent in their ownright.

Bank of Ireland Group plc

Consolidated in Pillar 3 disclosures Not consolidated in Pillar 3 disclosures

Other Subsidiaries

Banking Entities

Securitisation Vehicles

The Governor and Companyof the Bank of Ireland

Bank of Ireland Mortgage Bank

Bank of Ireland (UK) plc

Joint Ventures /Associates

Insurance Undertakings

New Ireland AssuranceCompany plc (NIAC)

BOI Insurance Limited



Pill

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Pillar 3 overview

Table 1.6 - Basis of consolidation

StatutoryEntity type accounting treatment CRD IV regulatory treatment Insurance Fully consolidated Unconsolidated significant investments in financial sector entities are subject to the 10% / undertakings 15% threshold which determines the extent to which these investments are deducted from capital or included in RWA.

Joint Ventures / Equity method of accounting The Group’s non-qualifying holdings outside the financial sector in joint ventures and associates or Fair value through the P&L associates are included in RWA.

Securitisation Fully consolidated For traditional securitisations, a deduction is taken from CET 1 capital in respect of originated vehicles securitisations which have obtained Pillar 1 derecognition. The quantum of the deduction is set at the KIRB value of the securitised portfolios. Where Pillar 1 derecognition is not achieved RWA continues to be reported in respect of the underlying assets.

For the Group’s synthetic securitisations, the retained senior position is risk weighted using the Supervisory Formula Method (SFM) and the retained junior position is deducted fully from CET 1. The Group has recognised significant credit risk transfer for these securitisations.

Further information relating to differences in scope of consolidation on an entity by entity basis is contained in Appendix V of thisdocument.

Preparation and basis of consolidation (continued)




a pi t a l

Ri s k M

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Ap

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Dis

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bank of ireland group plc...bank of ireland group plc pillar 3 disclosures 2017 pillar iii...

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